SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 Form 10-KSB

       [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                THE SECURITIES EXCHANGE ACT OF 1934
          For the fiscal year ended December 31, 1997, or

       [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934
          For the Transition Period from       to


                       Commission File Number 0-9739

                         Horn Silver Mines, Inc.
               (Name of small business issuer in its charter)

      UTAH                                        87-0299832
(State or other jurisdiction of               (I.R.S. Employer
incorporation or organization)          Identification Number)

4444 South 700 East, Suite 204                         84107
Salt Lake City, Utah                                (Zip Code)
(Address of principal executive offices)

      Registrant's telephone number,
      including area code:  (801) 281-5656

  Securities to be registered under Section 12(g) of the Act:

                                         Name of each exchange
Title of each Class                      on which registered
-------------------                      ---------------------
      None                                     None

   Securities registered pursuant to Section 12(g) of the Act:

          Common Stock, $.001 Par Value
                (Title of Class)

      Indicate by check mark  whether the  Registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
Registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [ ]

      Registrant's  revenues for its most recent fiscal year were  $42,629.  The
aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
Registrant as of March 31, 1998 was  approximately  $680,000  calculated using a
per  share  price of $.16.  As of March 31,  1997,  Registrant  had  outstanding
6,088,966 shares of Common Stock.

                    DOCUMENTS INCORPORATED BY REFERENCE

      List hereunder the following  documents if  incorporated  by reference and
the part of the Form  10-KSB  (e.g.,  Part I,  Part II,  etc.)  into  which  the
document is incorporated:

            None.

   Transitional Small Business Disclosure Format (check one):
                        Yes [ ]  No [X]


<PAGE>
                         HORN SILVER MINES, INC.
                            INDEX-FORM 10-KSB

                                     PART I
                                                             Page
                                                             ----
Item 1.     Description of Business . . . . . . . . . . . . . 1

Item 2.     Description of Properties . . . . . . . . . . . . 9

Item 3.     Legal Proceedings . . . . . . . . . . . . . . . .12

Item 4.     Submission of Matters to a Vote of
            Security Holders  . . . . . . . . . . . . . . . .12

                                  PART II

Item 5.     Market for the Common Equity and
            Related Stockholder Matters. . . . . . . . . . . .13

Item 6.     Management's Discussion and Analysis
            or Plan of Operations  . . . . . . . . . . . . . .13

Item 7.     Financial Statements and Supplementary Data  . . .15

Item 8.     Changes in and Disagreements with
            Accountants on Accounting and
            Financial Disclosure. . . . . . . . . . . . . . . 15

                                  PART III

Item 9.     Directors, Executive Officers,
            Promoters and Control Persons; Compliance
            with Section 16(a) of the Exchange Act . . . . . .15

Item 10.    Executive Compensation . . . . . . . . . . . . . .16

Item 11.    Security Ownership of Certain Beneficial
            Owners and Management . . . . . . . . . . . . . . 17

Item 12.    Certain Relationships and Related Transactions . .17

                                     PART IV

Item 13.    Exhibits and Reports on Form 8-K . . . . . . . . .18

Signatures

Index to Financial Statements and Schedules

                                   -i-
<PAGE>

                                   PART I

ITEM 1.  Description of Business

Organization and General Development

      Horn Silver Mines, Inc. (hereinafter referred to as the "Company") engages
principally in mining and in the  acquisition,  exploration,  and development of
interests  in  mineral  properties  located  primarily  in Utah and  Nevada.  In
addition, the Company has a royalty interest in developed oil and gas properties
located in Oklahoma. The Company was incorporated under the laws of the State of
Utah in 1971. The executive offices of the Company are located at 4444 South 700
East, Suite 204, Salt Lake City, Utah 84107.

      From the time of its incorporation in 1971 until mid 1974, the Company was
essentially inactive.  During that period of time, negotiations were carried out
to acquire mining  properties,  but none of the transactions  was concluded.  In
July,  1974, the Company  negotiated the acquisition of two mining  contracts to
mine and operate the old Horn Silver Mine properties  consisting of 244 patented
mining claims located near Frisco, Utah, in the San Francisco Mining District in
Beaver  County,  Utah (the "Horn Silver Mine  properties")  from Cameron  Mining
Company ("Cameron"),  an affiliated corporation.  Cameron agreed to transfer its
contract rights to operate these properties  consisting of  approximately  4,100
acres and the results of its exploration  efforts to the Company in exchange for
the  issuance  of 75,000  shares of the  Company's  common  stock  (the  "Common
Stock").

      The Horn Silver Mine  properties were formerly owned 60% by Tintic Mineral
Resources,  Inc.  ("Tintic"),  a Utah  corporation,  and 40% by  Wangenheim  and
Wanger,  a California  limited  partnership.  The Company  obtained an option to
purchase the  Wangenheim's  40% interest in the properties for $200,000 and used
the proceeds  from a public  offering of the  Company's  Common Stock in August,
1980, to exercise the option. The Company acquired the remaining 60% interest in
the  properties  from  Tintic  as a result  of a merger  with  Tintic  which was
completed in June, 1983.

      The Company  purchased  milling  equipment and a right to lease a patented
millsite  adjoining  the Horn Silver Mine  properties  from Tintic in 1974.  The
Company also acquired the right to use a mineshaft in an adjoining  mine owed by
Tintic to the 800 foot level  where a crosscut  provides  access to the old Horn
Silver Mine. In exchange for these rights,  the Company issued 200,000 shares of
Common Stock to Tintic.

      On August 12, 1980,  the Company  completed a Regulation A offering of its
Common  Stock.  The Company sold the entire  offering of  2,500,000  shares at a
price of $0.40 per share.  From this  offering,  the net cash  proceeds  to the
Company,  after  deducting  underwriting  commissions  and other expenses of the
offering,  was  $815,800.  The  Company  used  $200,000  of the net  proceeds to
exercise  the  option to  purchase a 40%  interest  in 244  mining  claims  from
Wangenheim & Wanger.

      On June 30,  1983,  the  stockholders  of the Company  approved a proposed
merger  between  the  Company  and  Tintic.  As a result of the  approval of the
merger,  Tintic was merged into the Company.  The Company  became the  surviving
corporation and, under the terms of the merger agreement,  the holders of Tintic
Common Stock became entitled to five shares of the Company Common Stock for each
of their shares of Tintic Common Stock.  The principal asset of Tintic was a 60%
interest in the Horn Silver Mine properties.

      On December 5, 1988, the Company entered into a mining lease and operating
agreement  with Arapahoe  Mining  Corporation  ("Arapahoe"),  a Canadian  mining
company,  which provides for the exploration and, if warranted,  the development
and mining on the patented  mining  claims  which  comprise the Horn Silver Mine
properties.  On February 1, 1991,  the Company  entered  into an amended  mining
lease and operating agreement with Arapahoe, the terms of which are identical in
most  respects to the initial  agreement.  The  Company  terminated  the amended
mining lease and operating  agreement as of September 1, 1992, due to Arapahoe's
failure to make the required  lease payments to the Company  thereunder.  During
the period from  December 5, 1988 to September 1, 1992,  Arapahoe  expended over
$1,200,000  for  exploration  and  development  work  on the  Horn  Silver  Mine
properties.  See "Item 1. Business - Mining Lease and Operating  Agreement  with
Arapahoe Mining Corporation,"  "Exploration and Development Activities in 1989,"
"Exploration   and  Development   Activities  in  1990,"  and  "Exploration  and
Development Activities in 1991."


<PAGE>
      In 1989, the Company acquired a one-half interest in the Imperial Mine and
adjacent  patented mining claims that adjoin the Horn Silver Mine properties and
located  approximately 200 new mining claims covering  approximately 4,000 acres
which are  contiguous  to the Horn Silver Mine  properties.  The  Imperial  Mine
consists of seven  patented  mining  claims  covering  105 acres.  In 1990,  the
Company  located an additional 25 new mining claims covering  approximately  500
acres,  which are also contiguous to the Horn Silver Mine properties.  See "Item
1. Business Exploration and Development Activities in 1989" and "Exploration and
Development Activities in 1990."

      With the addition of the mining claims that were located in 1989 and 1990,
there were approximately  8,600 acres comprising the Horn Silver Mine properties
and adjoining  properties.  However,  as of August 1993,  the Company  abandoned
approximately  230 of its unpatented  mining claims,  thereby reducing the total
acres of patented and unpatented  mining claims  comprising the Horn Silver Mine
properties  to  approximately  6,000  acres.  There are no  proven  or  probable
reserves on any of the Company's properties.

      On April 28,  1994,  the Company  entered  into a mining lease with Dotson
Exploration  Company  ("Dotson  Exploration"),  a  Utah  mining  company,  which
conveyed  to  Dotson  Exploration  the  right to  conduct  exploration  and,  if
warranted,  development and mining  activities on 13 patented lode mining claims
covering 219 acres located in Beaver Lake Mining District.  In the event any ore
is mined from the mining  properties,  Dotson  Exploration  agrees to pay to the
Company a 5% royalty on all ore mined from the  properties.  Dotson  Exploration
also agrees to pay the Company  $10,000 in advance  royalties  upon execution of
the lease,  with annual  payments  thereafter of $7,500 per year.  The lease was
subsequently  transferred by Dotson  Exploration to Centurion Mines  Corporation
("Centurion").  Centurion  has  conducted an extensive  drilling  program on the
mining  properties in 1994,  1995 and 1996.  See "Item I. Business - Exploration
and Development  Activities in 1994," "Exploration and Development Activities in
1995," and "Exploration and Development Activities in 1996."

      On October 8, 1996,  the Company  entered  into an option  agreement  (the
"Option  Agreement") with PAB Oil & Mining,  Inc.  ("PAB"),  a Utah-based mining
company.  Under the  terms of an Option  Agreement,  which was  approved  at the
Company's Annual Meeting of Shareholders held on March 28, 1997, PAB was granted
the right to purchase  shares of the Company's  Common Stock for $850,000,  such
that  after the  issuance  of the  shares  PAB would  hold 75% of the  Company's
outstanding  Common Stock.  The proceeds from the sale of the Company's stock to
PAB will be used to finance a major  exploration and development  program on the
Company's mining properties.

      The planned  exploration and development  program  includes  reopening and
repairing the main access shaft of the Horn Silver Mine located on the Company's
mining  properties  and reopening  the main 650-foot  haulage level of the mine.
Specific exploration and development activities planned include the installation
of a double drum hoist,  rehabilitation of the existing headframe,  installation
of piping for water and  compressed  air in the main  access  shaft and the main
650-foot  haulage level,  replacement of the underground  track,  replacement of
timber in the main 650-foot  haulage level,  and any additional work required to
place the access shaft and 650-foot haulage level in an operable condition.  See
"Item 1. Business - Option Agreement with PAB Oil & Mining, Inc."

      At the Company's  Annual Meeting of  Shareholders  held on March 28, 1997,
the shareholders approved a 1-for-20 reverse stock split of the Company's Common
Stock and amendments to the Company's  Articles of  Incorporation  to reduce the
authorized shares of Common Stock from 200,000,000  shares to 30,000,000 shares,
and to  exchange  the par value of Common  Stock  from no par value to $.001 par
value.  All  references in this Form 10-KSB to number of shares of Common Stock,
except as otherwise indicated,  have been adjusted to reflect the 1-for-20 stock
split. References in the Form 10-KSB also reflect the approval of the amendments
to the Company's Articles of Incorporation at the Annual Meeting.

      On September 1, 1997,  the Company  entered into a mining lease with World
Hydrocarbons,   Inc.  ("World  Hydrocarbons")  and  Minerals  Processing,   Inc.
("Minerals   Processing"),   which  granted  World   Hydrocarbons  and  Minerals
Processing the right to conduct exploration and, if warranted, mining activities
on the wollastonite  reserves located on five patented and one unpatented mining
claims covering  approximately 100 acres on the Horn Silver Mine properties.  If
wollastonite  or any other  minerals  is mined from the  wollastonite  reserves,
World  Hydrocarbons  and  Minerals  Processing  agree to pay to the Company a 6%
production royalty on net returns.  World  Hydrocarbons and Minerals  Processing

                                       -2-
<PAGE>
also agree to pay to the  Company  minimum  royalties  of $1,500 per month.  The
minimum royalties are to be credited toward any future production royalties. See
"Item 1.  Business  -Mining  Lease with World  Hydrocarbons,  Inc.  and Minerals
Processing, Inc.

      In addition to the Horn Silver Mine and adjoining
properties and the carried working interest in undeveloped
properties located in Nevada, the Company owns a royalty interest
in developed oil and gas properties in Oklahoma.  See "Item 2.
Properties - Osage Oil Field, Osage County, Oklahoma."

Ore Occurrences and Possible Metallurgical Treatment Methods

      The principal  property of the Company is a  wholly-owned  interest in the
Horn Silver Mine properties  located in Beaver County,  Utah, which includes the
Company and Cactus Mines,  as well as several smaller mines that were productive
in the past.  These mines have  produced  significant  amounts of silver,  lead,
copper,  zinc and gold.  These minerals,  which have been mined in the past from
the  properties,  exist in both the oxidized and sulfide  state.  Treatment of a
given mineral is dependent upon its physical and chemical character.

      Silver ores,  together with lead, zinc and copper ores, have been produced
in the past from  several  localities  on the Horn Silver Mine  properties.  The
sulfide lead-silver ores, such as those previously mined in the hypogene portion
of the  properties,  are ordinarily  ground in a mill,  after which the lead and
zinc are separated by selective flotation with the silver often accompanying the
lead. The oxidized lead-silver ores are sent directly to smelters.  Bonification
of  oxidized  lead-silver  ores  generally  result  in low  recovery  and  known
hydrometallurgical methods are complex and expensive.

      Crude  non-sulfide  zinc ores are not  directly  saleable,  except to lead
smelters having a fuming plant where crude ore is charged with hot slag. Various
hydrometallurgical  procedures  have been suggested by the U.S. Bureau of Mines;
however, such processes are thus far only employed in smelters located in Europe
and Japan.

      In the past, gold ores occurring in lead-silver  ores have been shipped to
lead  smelters for  processing,  whereas  siliceous  gold-silver  ores have been
shipped to copper smelters for processing.  Where the siliceous gold-silver ores
are free of  cyanicides,  they are treated by  cyanidation  in which most of the
silver contents in the ores are also recovered.

      Copper ores have been mined at the Cactus  locality in Copper  Gulch.  The
only copper  mineral  known to exist in the past in  commercial  quantities  and
grade is chalcopyrite  or copper iron sulfide,  which is recoverable by grinding
and flotation.  The flotation  concentrates  are then sold to a copper  smelter.
There  is  presently   considerable  demand  for  copper  concentrates  and  the
prevailing  price of copper,  primarily  due to foreign  imports,  renders  many
domestic operations non-economic.

Option Agreement with PAB Oil & Mining, Inc.

      On October 8, 1996, the Company entered into an Option  Agreement with PAB
Oil & Mining,  Inc. ("PAB").  Upon execution of the Option  Agreement,  PAB paid
$25,000  to the  Company to be used for  general  and  administrative  expenses,
including  expenses  related to a  shareholders  meeting  to approve  the Option
Agreement.  Under the terms of the Option Agreement, PAB is granted the right to
purchase shares of the Company's Common Stock, in consideration  for the payment
of an additional  $175,000,  so that after the issuance of the shares,  PAB will
own 25% of the Company's  outstanding  Common Stock. PAB is required to exercise
this initial option within 18 months from the date of the Option  Agreement,  or
on or before April 7, 1998.

      In the  event  that  PAB  exercises  the  initial  option  by  paying  the
additional $175,000 to the Company, the Company is required to use the funds, to
the extent of not more than $100,000,  to rehabilitate  the main access shaft of
the Horn Silver Mine  located on the  Company's  mining  properties  in Milford,
Utah,  and the main 600 foot haulage  level,  including the  installation  of an
approved   double-drum   hoist,   rehabilitation  of  the  existing   headframe,
installation  of piping for water and  compressed  air in the shaft and the main
650 foot haulage  level,  replacement  of the  underground  track where  needed,
replacing any timbering in the main 650 foot haulage level where  required,  and
whatever  additional  work is  required to place the shaft and the main 650 foot

                                       -3-
<PAGE>
haulage level in an operable  condition.  The required work to rehabilitate  the
main  access  shaft of the Horn  Silver  Mine  must be  performed  by  reputable
independent mining  contractors  selected by the Company's Board of Directors on
the basis of experience, ability and cost.

      The  Option  Agreement  also  grants to PAB a second  option  to  purchase
additional   shares  of  the  Company's  Common  Stock  from  the  Company,   in
consideration for the payment to the Company of an additional $650,000,  so that
after the issuance to PAB of the initial shares and these  additional  shares of
Common Stock, PAB will hold 75% of the Company's  issued and outstanding  Common
Stock.  This additional  option must be exercised within 66 months from the date
of the Option Agreement, or on or before April 7, 2002.

      The Option  Agreement  further provides that PAB may make partial payments
toward the second option and PAB shall be issued,  on a quarterly basis,  shares
of the  Company's  Common  Stock  commensurate  with the degree to which PAB has
provided the entirety of the option payment.  All shares of the Company's Common
stock  issued  to PAB  under the two  options  are  restricted  and  issued  for
investment  purposes only, with each  certificate  issued bearing an appropriate
legend to that effect.

      As PAB makes payments to the Company under the second option,  the Company
is required to use the funds to further explore and develop the Horn Silver Mine
properties.  Finally,  the terms of the Option Agreement allow PAB to appoint at
least two of the six members of the Company's  Board of  Directors,  one of whom
shall also be named as an  officer of the  Company.  This right  shall  continue
throughout  the option  periods  unless  PAB  decides  to  terminate  the Option
Agreement.

      The proceeds  from the sale of Common Stock to PAB will be used to finance
a major exploration development program on the Company's mining properties.  The
planned exploration and development program will include reopening and repairing
the main access  shaft of the Horn Silver Mine located on the  Company's  mining
properties in Milford, Utah and reopening the main 650-foot haulage level of the
mine.

      Specific  exploration and development  activities  planned for fiscal 1997
include the installation of a double drum hoist,  rehabilitation of the existing
headframe,  installation  of piping  for water  and  compressed  air in the main
access shaft and the main 650-foot haulage level, replacement of the underground
track,  replacement  of  timber  in the main  650-foot  haulage  level,  and any
additional work required to place the access shaft and 650-foot haulage level in
an operable condition.

Mining Lease with World Hydrocarbons, Inc. and Minerals
Processing, Inc.

      On September 1, 1997,  the Company  entered into a mining lease with World
Hydrocarbons,   Inc.  ("World  Hydrocarbons")  and  Minerals  Processing,   Inc.
("Minerals   Processing"),   which  provides  World  Hydrocarbons  and  Minerals
Processing with the right to explore and mine the wollastonite reserves found on
five patented and one unpatented mining claims covering  approximately 100 acres
on the Horn  Silver  Mine  properties.  The term of the lease is for five years,
with four additional five-year renewal periods.  World Hydrocarbons and Minerals
Processing can elect to extend the lease for additional  five-year periods after
the initial term by giving notice to the Company prior to the  expiration of the
initial term or any additional term as the case may be.

      The lease requires  minimum  royalty  payments in the amount of $1,500 per
month,  with the first  payment  to be made on the date the  lease is  executed.
World Hydrocarbons and Minerals Processing are also required to pay a production
royalty to the Company equal to 6% of net returns. Net returns is defined as the
gross  amount  received  from any product  derived  from  wollastonite  or other
minerals obtained from the wollastonite  reserves.  All minimum royalty payments
are to be  credited  toward any future  production  royalties.  The lease can be
terminated by World  Hydrocarbons and Minerals  Processing by giving the Company
60 days' advance notice of termination.

Exploration and Development Activities in 1989

      During  1989,  Arapahoe  Mining  Corporation  ("Arapahoe")  expended  over
$700,000 for exploration and development activities on the south end of the Horn

                                       -4-
<PAGE>
Silver Mine  properties.  This work included the  preparation of new topographic
and aerial maps,  the  construction  of several  miles of new roads,  drill site
preparations, the excavation of test trenches, drilling, geophysical exploration
and sampling.  New mining  properties  covering  approximately  4,000 acres were
located by the Company  contiguous  to the Horn Silver  Mine  properties.  These
mining  properties  consisted at the time of approximately 200 unpatented mining
claims  and two Utah  State  mineral  leases.  These  new  properties  have been
included  with the mining  claims which are subject to the Amended  Mining Lease
and Operating Agreement with Arapahoe.

      The drilling  that was  performed by Arapahoe in 1989 occurred on a series
of five geophysical anomalies.  The holes totalled over 1,500 feet in cumulative
length. More than 1,000 surface and underground samples were taken and analyzed.
The most promising  drilling results were obtained from the holes drilled in the
Washington-Double  Barrel Tunnel vicinity where mineralization of up to 365 feet
in thickness was found  containing  several  intercepts of commercial  lead zinc
silver ore up to 20 feet thick.  This  discovery  was made in the Frisco  Silver
area  about one mile west of the Horn  Silver  Mine.  The two holes  drilled  by
Arapahoe in the  limestone  footwall of the Horn Silver Mine failed to intersect
any significant  mineralization.  It is management's opinion that the holes were
bottomed at an  insufficient  depth to encounter the bedded ore expected.  These
holes have been left open for possible re-entry and deepening at a later time.

      One  additional  major  development  in 1989  was the  acquisition  by the
Company  for cash of a  one-half  interest  in the  Imperial  Mine and  adjacent
patented mining claims. This group of claims is enclosed by the Horn Silver Mine
properties  and  contains  large  reserves  of sulfide  copper  ore,  as well as
important  tunnel sites which  provide an  opportunity  to initiate  bulk mining
operations into the adjoining Horn Silver Mine properties. The new road that was
constructed  by Arapahoe  links the Horn Silver Mine with the Imperial  Mine and
adjacent  claims  affording  access  and drill  sites on  properties  previously
accessible only by horseback.

Exploration and Development Activities in 1990

      During  1990,   Arapahoe   expended  over  $350,000  for  exploration  and
development  activities  on the Horn Silver Mine  properties.  The work included
continued  preparation of topographic and aerial maps, drill site  preparations,
excavation of test trenches, drilling, geophysical exploration and sampling, and
the  construction  of a new road. The new road is from the Frisco town site over
the Frisco  summit south of Frisco Peak to the access road near the Cactus Mine.
The new road crosses an area where there is a significant  magnetic  low.  While
constructing the new road, Arapahoe discovered an extensive  mineralized area of
altered quartz monzonite with many of the surface  expressions which are typical
of sulfide porphyry.  Several drill holes are planned in 1991 for the purpose of
exploring this mineralized area.

      New mining  properties  covering  approximately  500 acres were located in
1990 by the Company  contiguous  to the Horn Silver Mine  properties.  These new
mining properties  consist of 25 unpatented mining claims.  These new properties
have been  included  with the mining  claims  which are  subject to the  Amended
Mining Lease and Operating Agreement.  As a result of the new mining properties,
the Company's claim-acreage has increased to approximately 8,600 acres.

      The drilling  that was  performed by Arapahoe  during 1990  consisted of a
series of shallow  inclined  holes in the  breccia  zone at the south end of the
Horn Silver Mine properties.  Five of the holes drilled  intersected  commercial
grade mineralization, three of which penetrated a gold bearing breccia pipe. The
next phase of the drilling  program  planned by Arapahoe in 1991 will consist of
additional  drilling at the south end of the Horn Silver Mine  properties and of
drilling  in the  Cactus  Mine  area  and  in the  mineralized  area  which  was
discovered when the new road was constructed.

      Other  exploration  activities  during 1990 included  drilling and surface
mapping of the Washington  claim,  which contains a large amount of wollastonite
(fibrous  calcium  silicate).  The claim was  delineated and found to contain in
excess of one million  tons of  wollastonite.  Wollastonite  is in  considerable
demand as a substitute for asbestos.

                                       -5-
<PAGE>
Exploration and Development Activities in 1991

      During  1991,   Arapahoe   expended  over  $150,000  for  exploration  and
development  activities  on the Horn Silver Mine  properties.  The work included
preparation  of geological  maps,  drill site  preparations,  excavation of test
trenches,  extensive  geochemical  sampling,  and construction of a new road. In
addition,  Page P.  Blakemore,  Sr.,  who was  then  President  of the  Company,
personally  spent an additional  $10,000 for the preparation of four drill sites
and for the drilling of three rotary holes in the altered intrusive area east of
the  Cactus  ore  body  (at  the  northwest  corner  of  the  Horn  Silver  Mine
properties).  This  work  was  performed  at  Mr.  Blakemore's  expense  without
reimbursement by the Company. All three of the holes that were drilled exhibited
large amounts of pyrite and were  anomalous in copper,  zinc,  gold,  silver and
other heavy metals, but contained no commercial grade mineralization.

      In constructing  the new road from Frisco Pass south to Indian Grave Peak,
numerous  structures  were cut  that  eventually  will be  explored.  These  new
structures  contain  copper and gold  mineralization  in quartz veins,  veins of
specularite,  bodies of  jasperoid  in  limestone  and  considerable  amounts of
contact  metamorphic  rocks  developed  between blocks of limestone and the late
intrusive quartz  monzonite.  None of these exposures had previously been mapped
because of the  vegetation  and scree.  The new road will give access to several
previously discovered but unexplored  mineralized breccia pipes that are planned
as drilling targets during 1992.

Exploration and Development Activities in 1992

      During 1992,  Great Basin  Exploration & Mining Co., Inc.  ("Great Basin")
drilled two deep  diamond core holes on  properties  located on the east side of
the San  Francisco  Range on the Horn Silver Mine  properties.  These holes were
drilled in order to establish the presence of a different and separate intrusive
on the  properties.  The core analysis  revealed that the properties  which were
drilled are anomalous in copper,  lead, zinc,  silver and gold, but the analysis
did not reach ore grade in any of the metals.  The Company's  management regards
the results of the drilling as very favorable but not conclusive. In addition to
drilling,  Great Basin completed  geochemical sampling and geological mapping on
the properties during this period.

      Exploration  work was also completed in 1992 by Crown  Resources  Corp. on
properties  located  on the west side of the San  Francisco  Range  known as the
Loeber  Gulch  area.  As a  result  of  these  exploration  activities  by Crown
Resources, an important gold and silver anomaly was discovered in the Washington
shaft area.  During the same period,  Great Basin also drilled and abandoned the
Shauntee Hills claims,  located southwest of the San Francisco Range on the Horn
Silver Mine properties,  and Gold Fields Consolidated  drilled and abandoned the
Hidden Treasure claims, located south of the Shauntee Hills claims.

Exploration and Development Activities in 1993

      During  1993,  the  Company  conducted  exploration  work  on  its  mining
properties  in the Beaver  Lake Mining  District  and the San  Francisco  Mining
District.  The  exploration  activities  conducted  in the  Beaver  Lake  Mining
District  included  construction of  approximately  three miles of access roads,
preparation of four drill sites,  stripping of various copper bearing  outcrops,
and drilling of a hole about 500 feet in depth. The hole was drilled in order to
establish the presence of copper on the properties.  The core analysis  revealed
copper  mineralization  from  the  surface  to  about  500  feet in  depth.  The
exploration  activities  conducted in the San Francisco Mining District included
the  rehabilitation  of the two main  trans-montane  roads  that  cross  the San
Francisco Mountain Range, which had been damaged by the winter weather.

      Also in 1993, Dotson Exploration Company ("Dotson Exploration"), which has
performed exploration and development work on the Horn Silver Mine properties in
the past for Arapahoe,  performed  exploration work on the mining  properties in
the Beaver Lake Mining  District.  Included among the exploration  activities by
Dotson Exploration during this period were the construction of about three miles
of access  roads to an  otherwise  inaccessible  group of mining  claims and the
drilling of three holes three miles  northwest of the OK Copper Mine.  All three
of the holes that were drilled exhibited copper mineralization.

                                       -6-
<PAGE>
      In addition to exploration  activities in the Beaver Lake Mining District,
the Company  conducted  excavation work during 1993 at the north end of the open
pit area on the Horn  Silver  Mine  properties,  which is located  near the King
David Mine shaft.  The excavation  work revealed a flat fault that displaced the
mineral zone to the north and east  suggesting  the  possible  existence of near
surface mineralization, which has been previously undiscovered.

      In addition to the above exploration activities, the Company also examined
more than 50 gold  prospects in the states of Arizona,  Nevada and California in
1993. The Company desires to acquire  additional  mining properties at favorable
terms which can, in turn, be leased or sold to major mining companies,  with the
Company   receiving   advanced   payments  and  retaining  a  royalty  interest.
Negotiations  are  currently  in process to obtain  leases  under such terms and
conditions on two mining  properties  the Company had examined in Mohave County,
Arizona.  Metallurgical  testing was conducted during 1993 on ores from the Horn
Silver  Mine  properties  and on the  ore  samples  gathered  from  the  various
properties examined in Arizona, Nevada and California.

Exploration and Development Activities in 1994

      During 1994, exploration work continued on the Company's mining properties
in the Beaver Lake Mining District. The Company entered into a mining lease with
Dotson  Exploration  covering  certain  patented lode mining claims owned by the
Company within this mining district.  Under this lease,  Dotson  Exploration was
granted  the right to perform  exploration  and  development  work on the mining
properties  covered by the lease. The lease was subsequently  assigned by Dotson
Exploration to Centurion Mines  Corporation  ("Centurion").  After conducting an
extensive  drilling  program on the mining  properties  covered by the lease, as
well as on properties  surrounding the Company's other mining  properties in the
Beaver Lake Mining District, Centurion announced a major discovery of ore in the
form of a copper porphyry  deposit.  The discovery is reported to be a large ore
body open in several  directions.  Centurion also  announced  plans to conduct a
leaching operation to extract the ore using a solvent  extraction-electrowinning
method to produce high grade copper from the mine.

      The Company conducted very limited exploratory and development  activities
during 1994 on the Horn Silver Mine  properties.  This  decrease in activity was
due to the  limited  funds  available  to the  Company.  The  Company  has  also
discovered what may be a near surface  faulted  segment of original,  high grade
lead  silver ore at the north end of the caved  surface  area of the Horn Silver
Mine  properties.   However,  no  additional  work  was  accomplished  on  these
properties during 1994 due to limited resources.

      In  addition to the above  activities,  the  Company  continued  examining
various  properties  for gold  prospects in the states of Arizona,  Nevada,  and
California  in 1994.  The  Company  also  negotiated  with  different  companies
interested  in the  zinc  deposits  on the  Horn  Silver  Mine  properties,  the
wollastonite  deposits in Loeber Gulch,  the marble quarry owned by the Company,
and the copper  porphyry  possibilities  southeast  and  northwest of the Cactus
Mine.  The  Company  actively  sought  joint  venture  opportunities  with other
companies interested in developing the mining properties owned by the Company.

Exploration and Development Activities in 1995.

      During 1995,  Centurion  continued  its drilling  program on the Company's
mining  properties in the Beaver Lake Mining  District,  including the OK Copper
Mine as well as on other properties surrounding the Company's Beaver Lake mining
properties.  The Company's  mining  properties on which Centurion  conducted its
drilling activities are covered by the lease originally entered into with Dotson
Exploration  that was later  assigned to Centurion.  As a result of the drilling
program,  Centurion has announced the discovery of a major  porphyry ore body on
its  properties  in the Beaver  Lake  Mining  District  containing  more than 50
million pounds of copper.  Also during 1995,  Centurion continued with its plans
to construct a treatment  plant on its Beaver Lake mining  properties to extract
copper from the ore using a solvent  extraction-electrowinning method to produce
high grade  copper.  Centurion  has filed  applications  with  federal and state
agencies to obtain the requisite permits to construct a treatment plant.

      The  Company  was  unable  to  conduct  any   exploratory  or  development
activities on its other  properties  during 1995 on account of the limited funds
the Company has available for any further exploration or development activities.
The Company  continued to examine  various  properties for gold prospects in the
states of Arizona,  Nevada and California in 1995. The Company also continued to

                                       -7-
<PAGE>
actively seek joint venture  opportunities  with other  companies  interested in
developing the mining properties owned by the Company.

Exploration and Development Activities in 1996.

      During 1996, the Company was unable to conduct any significant exploration
or development activities on its mining properties due to the lack of sufficient
funds. However,  Centurion continued its exploration activities on the Company's
mining  properties  during  the  year,  where it had  previously  announced  the
discovery of a major porphyry ore body.  Centurion has filed  applications  with
federal  and state  agencies to obtain the  requisite  permits to begin open pit
mining  operations and to construct a treatment  plant on its Beaver Lake mining
property    to    extract    copper    from    the   ore    using   a    solvent
extraction-electrowinning  method to produce high grade copper. About 80% of the
ore  Centurion  has  developed to date on its Beaver Lake  properties is located
within the Company's mining properties in the Beaver Lake Mining District.

      Also  during  1996,  the Company  entered  into an option  agreement  (the
"Option  Agreement")  with PAB Oil & Mining,  Inc.,  which was  approved  by the
Company's  shareholders at the Annual Meeting of Shareholders  held on March 28,
1997.  The  Option  Agreement  grants  PAB an option to  purchase  shares of the
Company's  Common Stock.  The proceeds from the sale of the Company's stock will
be used to finance a major exploration and development  program on the Company's
mining  properties.  See "Item 1.  Business  - Option  Agreement  with PAB Oil &
Mining."

Exploration and Development Activities in 1997

      During 1997, the Company performed  rehabilitation  work on the King David
shaft, the main access shaft of the Horn Silver Mine,  utilizing the payments it
received from PAB pursuant to the Option Agreement.  The rehabilitation work was
conducted by Dotson  Exploration  and included  the  completion  of surface work
around the head frame of the King David shaft.  In addition,  the Company  began
construction  of a  80,000  square  foot  leach  pad on  the  Horn  Silver  Mine
properties.

      The Company also arranged for Charles M. Ross, a consulting geologist,  to
conduct  soil  grid  samples  on the  western  part  of  the  Horn  Silver  Mine
properties.  About 540 samples were taken from the  properties  and analyzed for
gold  content.  The  exploration  work and the  progress  report  that Mr.  Ross
prepared  revealed the  occurrence of  substantial  low grade gold values in the
soil samples. The Company is planning follow up work on this sampling program in
1998.

      Finally,  the Company  commissioned  a study on the potential of the oxide
zinc  deposits on the Horn Silver Mine  properties.  The study was  completed by
Robert Shantz, a metallurgist,  and entitled, "Potential Treatment of Oxide Zinc
Ores from the Horn Silver Mine." The study  concluded that there was a promising
potential for marketing a zinc oxide precipitate from the oxide zinc deposits on
the Horn  Silver  Mine  properties  for use as  fertilizer  and an  animal  feed
additive.

      The most  profitable  approach  for  treating  the  Company's  oxide  zinc
deposits,  according to the report,  is an ammonia leach in which the oxide zinc
deposits  are  bleached and  purified,  then the loaded  solution is heated with
steam to precipitate a basic zinc  carbonate,  and finally the zinc carbonate is
calcined to produce zinc oxide. The Company is encouraged by the results of this
report and a review of the report will be made by the Company in 1998.

Competition

      There is considerable  competition  for mining  prospects on federal lands
due to recent major discoveries of gold deposits,  particularly in Nevada. Costs
of  mining,   milling,   transportation,   labor  and  other  costs  have  risen
dramatically. These costs would be a factor in determining whether the discovery
of minerals,  if any,  would be  commercial or not, and could render a discovery
unprofitable, even if made.

                                      -8-
<PAGE>
      Commencing in 1972,  various federal,  state and local  environmental laws
and  regulations  began to have a significant  impact on the mining  industry in
Utah,  where the Horn Silver Mine  properties are located,  and elsewhere in the
Western  States.  At the present time,  there is only one smelter in the Western
States,  which is operating at full capacity.  Several smelters,  which had been
buyers of custom  mineralization from independent mines located in Utah, are now
closed. Thus, there presently exists no nearby market for the types of ore which
the Company is seeking to develop.

      In addition to the  uncertainty  surrounding  the eventual  development of
commercial mineralization on the Company's properties, the success of any mining
operation  which might be conducted  is dependent  upon the price of minerals on
the domestic and world markets,  which is subject to  fluctuation,  in part as a
result of actions by central banks and government policies.

Government Regulation

      Any exploration,  rehabilitation, and development programs of the Company,
as well as any commercial  production which might be warranted,  will be subject
to extensive federal, state and local laws and regulations  controlling not only
the exploration  for viable minerals in the ground,  the condition of the shafts
and the  nature  of  milling  and  leaching  operations,  but also the  possible
environmental  effects of water and particle  contaminant  discharges  resulting
from the  Company's  activities.  No  environmental  impact  studies  have  been
performed by the Company, and there is no assurance that environmental or safety
standards more  stringent than those  presently in effect will not be imposed in
the  future.  At  present,  in the  opinion  of the  Company,  the  current  and
immediately  proposed  activities  of the  Company  are such that no  compliance
problems are anticipated.

Employees

      As of March 31, 1998, the Company had one part-time employee, a secretary,
who  performs  clerical  work  for  the  Company.  All  other  work,  legal  and
accounting,  is performed on a fee basis. The Company's activities in connection
with the  acquisition,  exploration  and development of mining and other mineral
properties and the  negotiation  with potential  joint venture  partners are now
conducted principally by John P. Bogdanich,  the newly elected President,  Chief
Executive Officer and Treasurer of the Company,  who also serves as President of
PAB Oil & Mining,  Inc. See "Item 10.  Directors and  Executive  Officers of the
Registrant." Murray C. Godbe, III, Vice President and a director of the Company,
will assist Mr.  Bogdanich  from time to time with the planned  exploration  and
development  program on the Company's mining  properties.  The Company presently
has no plans to expand its staff.

ITEM 2.  Description of Properties

General

      The Company currently owns 244 patented mining claims and approximately 20
unpatented  mining claims covering  approximately  6,000 acres located in Beaver
County, Utah. The claims comprise most of the San Francisco Mining District. The
two principal  mines on the  properties,  which were productive in the past, are
the Horn Silver and Cactus Mines.  The Horn Silver Mine, which represents a very
small part of the overall acreage,  shipped silver,  gold,  copper and lead from
one breccia  pipe and was one of the largest  producers  of silver in the United
States until about 1930. The Cactus Mine, with a production  history dating from
1910, shipped  significant  amounts of copper, gold and silver until about 1913.
The  Company  also  owns a  one-half  interest  in  the  Imperial  Mine,  a once
productive  mine,  and  adjacent  patented  mining  claims  located  in the  San
Francisco Mining District.  In addition to the foregoing mining properties,  the
Company has a carried working interest in undeveloped  mining properties located
in Nevada and a royalty interest in developed oil and gas properties  located in
Oklahoma. There are no proven reserves on any of the Company's properties.

                                      -9-
<PAGE>
Horn Silver Mine Properties, Milford County, Utah

      The Horn Silver Mine properties  consist of patented and unpatented mining
claims,  which are currently  wholly owned by the Company.  The  properties  are
located  in  the  San  Francisco   Mining  District  in  Beaver  County,   Utah,
approximately  15 miles west of the town of Milford.  The San  Francisco  Mining
District  was formed in the 1880's.  It  consists  of a mountain  range about 15
miles long and three to five  miles wide  trending  in a  north-south  direction
located some 230 miles south of Salt Lake City, Utah, and about 15 miles west of
Milford,  Utah.  The Company's  primary  property  interests are located in this
district and were originally mined for their silver, gold, lead, zinc and copper
content.  Production  lasted from the 1880's  until about the early  1920's when
economic circumstances stopped production.  Less significant production occurred
after that time on an  intermittent  basis and during  World War II when  metals
were produced under government subsidies. No significant production has occurred
since 1947.

The Horn Silver Mine

      The San Francisco  Mining  District was  organized in 1871,  but attracted
little  attention  until the discovery of the Horn Silver Mine by James Ryan and
Samuel Hawkes in 1875. Ryan and Hawkes  subsequently  sold the mine to Campbell,
Cullen, Ryan and Byram. They extracted 25,000 tons of high grade lead silver ore
and had developed the mine to a depth of about 280 feet. They then sold the mine
to Horn Silver Mining Company,  which was  incorporated  under Utah law in 1879.
Two smelters were  constructed  near Frisco,  a townsite near the mine. The mine
operated continuously until 1885, with the mineralization material being smelted
at the two plants.

      In  1885,  a  cave-in  from  the 700  foot  level  to the  surface  caused
considerable  damage,  requiring  that a new  shaft  be sunk to a depth of 1,600
feet,  unfortunately  again in the volcanic rocks east of the ore zone. The mine
was  operated  through  the new shaft  until  1919 when the mine was  closed for
economic reasons.


      In 1929,  the mine was  leased to Albert E.  Kipps who began a program  of
rehabilitation  of the  underground  workings to develop the lower levels.  This
program led to  discovery  of  substantial  tonnages of ore. In 1944,  Mr. Kipps
assigned his lease to Metal Producers,  Inc. The 1,600 foot production shaft had
to be abandoned due to subsidence of the hanging wall of the vein  structure.  A
connection  was then driven from the existing  King David mine shaft  located in
the stable limestone footwall about 900 feet in distance to connect with the 650
foot level of the mine.

Mine Development

      The mine is presently served by the 816 foot King David or Knight timbered
shaft  sunk in the  limestone  footwall  some  1,200  feet from the old  mineral
deposit  and an  interior  shaft  sunk to the 1,100 foot level from the 700 foot
level. All other shafts fitted for hoisting ore or waste were sunk in the highly
altered volcanic hanging wall and have caved in many years ago. A manway serving
as an escape route is open in the south end of the mineralized zone.

      The mine has been  explored  along the fault line to the 1,600 foot level,
but only very limited lateral work has been attempted below the 1,100 foot level
or into  the  limestone  footwall  for any  significant  distance.  Minable  ore
bottomed in the main fault zone and only  insignificant  amounts of  mineralized
material have been discovered below the 1,000 foot level.

The Cactus Mine

      The Cactus  Mine is  located on the  Company's  patented  claims  near the
northern  boundary of the  properties.  It was  discovered  in 1870.  During the
1880's,  a French company  constructed a charcoal fired smelter near the outcrop
which produced an unknown amount of blister  copper.  The ore was mainly primary
sulfides with refractory achieved at the relatively low temperatures, leading to
abandonment of the operation.

      In 1900, the mine was acquired by Samuel Newhouse,  who built an 1,000 ton
per day concentrator, and mined and treated nearly one million tons of ore mined

                                      -10-
<PAGE>
underground from the timbered  square-set  stopes. The mine was developed to the
900 foot level. Ore was mined from an elongate breccia pipe enclosed in the main
granodiorite  stock.  The  breccia  filling  consisted  of  quartz,  tourmaline,
siderite,  specularite  and  chalcopyrite,  the  latter  constituting  the  only
commercial  mineral  as an ore of copper  containing  minor  amounts of gold and
silver.

      The  Cactus  Mine has not  been  operated  since  1913.  Due to the  caved
condition of the timbered  stopes,  it is impossible to estimate the tonnage and
grade of any mineralized material left in the stopes in prior operations,  or to
examine  any blocks of  mineralized  material  left  unmined,  if any. No proven
reserves of commercial mineralized rock are known to exist in the Cactus Mine.

Geology

      The San Francisco  Mountains  form a small  north-south  mountain range in
West  Central  Utah.  The range is typical of Great Basin  mountain  ranges with
Paleozoic  carbonates and quartzite  intruded by a granitic stock. The limestone
is host for numerous mineral deposits of various types. Faults with considerable
displacement  particularly on the range's east side bring volcanic flow rocks in
contact  with both  intrusive  and  sedimentary  rocks of the range  proper.  In
addition,  the area is in part overlain by several ages of other flow rocks.  In
the process of mountain  building through the folding and faulting,  the various
layers or strata have been disrupted.  There are several fault systems  apparent
in the San Francisco Mountains.  Moreover, vulcanism in the area has resulted in
extensive flows of molten rocks and ash.

      The principal mineral deposits in the range are lead, silver, zinc, copper
and gold  deposits  occurring  as fault  fissure,  breccia  filing,  stratabound
limestone replacements deposits, pipe-like deposits emplaced at the intersection
of fissures and favorable  beds,  gold  mineralized  breccia pipes in limestone,
tungsten  deposits in sharn,  copper deposits in quartz,  and tourmaline  filled
breccia pipes in intrusive rocks.

      Mineralization   in  the  San   Francisco   Mountains   has  been  largely
contemporaneous  with the  cooling  of molten  rocks  which have  intruded  into
various  strata.  The minerals are  localized in close  relationship  with areas
where  faulting and  fracturing  have allowed  mineralized  solutions  access to
favorable host rocks.  All known  mineralization  of the area is associated with
fissures and favorable bed  intersections in the sedimentary rocks or in breccia
pipes. Fissure  intersections  particularly  influence  localization of minerals
whether in sediments, flow rocks or intrusive rocks.

      The Horn Silver Mine is located on the Horn Silver Fault.  The fault is on
the east side of the range and brings flow rocks in contact with the  limestone.
Limestone  replacement  formations of this type have frequently been found to be
favorable areas for  exploration  for lead and silver.  The fault is traced from
Squaw  Springs Pass  northerly  for nearly two miles where it is concealed  just
north of the Horn  Silver  Mine.  It is  apparent  that in  addition to the Horn
Silver  Fault at least  two  thrust  faults  exist in the area  which are as yet
unmapped  in detail and aerial  photographs  reveal  the  existence  of a second
north-south fault of considerable magnitude.

Osage Oil Field, Osage County, Oklahoma

      On  February  6, 1981,  the  Company  acquired a working  interest  in two
developed  oil and gas leases in Osage County,  Oklahoma.  On September 1, 1986,
the Company  entered into an  agreement  with Golden Oil Company to exchange its
working interest in the leases for a 1-1/2%  overriding  royalty interest in all
oil and gas  production  from the  leases.  The two  leases are named the Long-B
lease and the Reed lease. The Long-B lease covers  approximately 160 gross acres
(20 net acres) and contains  four  producing  walls.  The Reed lease also covers
approximately  160 gross acres (20 net acres) and contains five producing wells.
The Company paid $20,000 and issued  500,000  shares of its Common Stock for its
working interests in the leases.

      The leases are for a term of five years  commencing in 1972.  However,  if
production is  established,  the leases  continue so long as oil or gas or other
minerals  are  produced in  commercial  quantities.  The leases are subject to a
landowner's  royalty  interest  of  16-2/3%,  increasing  to 21%  in  the  event
producing wells average 100 or more barrels per well per day. The Company is not
aware of any current plans for drilling of any  additional  oil and gas wells on
the properties.

                                      -11-
<PAGE>
      The Company has not undertaken an evaluation of the oil and gas properties
in order to determine the  estimated  net proved  reserves of oil or gas and the
future net revenue attributable  thereto. In management's  opinion, the revenues
received  from the  Company's  interest  in the oil and gas  properties  and the
estimated total value of its interest are not substantial  enough to warrant the
expenditure  necessary to provide a disclosure  of proved oil and gas  reserves.
From  January  1, 1997 to  December  31,  1997,  the  Company  received  $800 in
production  payments  from its  royalty  interest  in the  leases.  The  Company
received $431 in production payments in fiscal 1996 from the leases.

Title to Mining Properties

      The  Company's  most  important  property  interest  at the  present  time
consists  of its  ownership  of the Horn Silver Mine  properties.  The  patented
claims  involved were originally  obtained by deed from the federal  government.
The Company's  ownership rights in the properties is dependent upon the validity
of title to the claims  which is vested in other  entities and upon the validity
of the Company's contracts with the entities holding such title. The Company has
not  received  any  warranties  of title,  title  opinions nor policies of title
insurance.  The Company now owns the patented claims through its purchase of the
Wangenheim's  40% interest in the claims in 1980 and its acquisition of Tintic's
60% interest in the claims as a result of a merger with Tintic in 1983.

      The  validity  of all  unpatented  mining  claims  is  dependent  upon the
inherent  uncertainties and conditions that may prevent a fee title in the usual
sense from existing or vesting.  Unpatented claims when properly located, staked
and posted  according to  regulation  give the claimant  possessory  right only.
Possessory title to an unpatented claim, when validly initiated,  endures unless
lost through  abandonment or through a forfeiture  which results from an adverse
location  made  while the prior  location  is in  default  with  respect  to the
performance of annual  assessment  work.  Because many of these factors  involve
findings of fact, title validity cannot be determined solely from an examination
of the record.

      The continuing  validity of the Company's  unpatented claims is subject to
many contingencies,  including the availability of land for location at the time
location is made, the making of valid mineral discoveries within the boundary of
each claim,  the compliance with all  regulations,  both state and federal,  for
locating  claims,  and the making of annual payments of $100 per claim.  Failing
satisfaction  of these  requirements,  the claims are subject to cancellation by
the  United  States  upon a finding of no valid  discovery  and,  perhaps,  upon
failure to perform  annual  assessment  work.  Failure  to perform  annual  work
subjects  the  claimant  to the  risk of  forfeiture  of  rights  through  valid
subsequent  locations by others or through cancellation by the government agency
involved.

ITEM 3.  Legal Proceedings

      The Company is not aware of any threatened or pending litigation.

ITEM 4.  Submission of Matters to a Vote of Security Holders

      At the Company's  Annual Meeting of  Shareholders  held on March 28, 1997,
the shareholders of the Company elected  directors and transacted  certain other
business  coming before the meeting.  Such matters  included the approval of the
following  proposals:  (i) the option  agreement with PAB Oil & Mining,  Inc. in
which PAB was granted an option to purchase shares of the Company's Common Stock
for the sum of $200,000, so that after the issuance of such shares PAB will then
own 25% of the outstanding  shares of the Company's  Common Stock,  and a second
option to purchase  additional  shares of the Company's Common Stock for the sum
of $650,000,  so that after the issuance of such shares PAB will then own 75% of
the outstanding  shares of the Company's  Common Stock;  (ii) a 1-for-20 reverse
stock split of the Company's  Common Stock;  (iii) an amendment to the Company's
Articles of Incorporation  to reduce the authorized  shares of Common Stock from
200,000,000  shares to  30,000,000  shares,  and to change  the par value of the
Common Stock from no par value to $.001 par value;  and (iv) the  appointment of
Tanner & Co., as the Company's  auditors for the fiscal year ending December 31,
1996.

                                      -12-
<PAGE>
  
     PART II

ITEM 5.  Market for Common Equity and Related Stockholder Matters

      The  Company's  Common Stock is currently  traded in the  over-the-counter
market under the trading  symbol  "HRNS." Prior to April 30, 1997, the Company's
trading symbol was "HORN." The following are the high and low closing bid prices
of the Common Stock on the OTC Bulletin Board and pink sheets as reported by the
National Quotation Bureau, LLC for the periods indicated.

<TABLE>
<CAPTION>
          Period                               Bid Price
      <S>                                  <C>               <C>
      Calendar Year                        High              Low


      1996<F1>
            First Quarter                  .01               .01
            Second Quarter                 .01               .01
            Third Quarter                  .005              .005
            Fourth Quarter                 .005              .005

      1997<F1><F2>
            First Quarter                  .005              .0025
            Second Quarter                 .39               .0025
            Third Quarter                  .51               .22
            Fourth Quarter                 .41               .25

      1998<F2>
            First Quarter                  .28               .13


----------------------
<FN>
<F1> The bid prices for  calendar  year 1996 and the first  quarter of  calendar
year 1997  reflect the trading of the Common  Stock prior to the approval of the
1-for-20 reverse stock split at the Annual Meeting of Shareholders held on March
28, 1997.

<F2> The bid prices for the second,  third and fourth  quarters of calendar year
1997 and the first  quarter of calendar  1998  reflect the trading of the Common
Stock following the approval of the 1-for-20 reverse stock split.

</FN>
</TABLE>
      The  bid  prices  represent  quotations  between  dealers  without  retail
markups,  markdowns  or  commissions  and do not  necessarily  represent  actual
transactions.

      At March 31, 1998, there were 6,853 record holders of the Company's Common
Stock.

      The Company has never paid any cash dividends on its Common Stock and does
not anticipate  paying any cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain future earnings, if any, to fund
the development and growth of the Company's proposed business and operations.

ITEM 6.  Management's Discussion and Analysis or Plan of
Operations

Liquidity and Capital Resources

      Cash  decreased by $22,315 during the 1997 fiscal year. The principal loss
of cash during 1997 was from the net loss from  operations of $33,984.  However,
the Company  received  $17,500 in payments  from PAB during 1997 pursuant to the
Option Agreement. The Company is currently unable to finance its operations from

                                     -13-
<PAGE>
its operating  revenues and cash flow.  Moreover,  the Company  currently has no
credit facility with a lending institution. There remains only $2,216 in cash as
of December 31, 1997 from the proceeds of the Company's 1980  Regulation A stock
offering.

      The  Company  does  not  anticipate  spending  any of its  remaining  cash
reserves during the 1998 fiscal year for exploration or development  activities.
However,  in the  event PAB  exercises  the  initial  option  under  the  Option
Agreement by paying additional funds to the Company,  the Company is required to
use  the  funds  for  exploration  and  development  activities  on  its  mining
properties.  See "Item 1.  Business  - Option  Agreement  with PAB Oil & Mining,
Inc." The  Company  plans to  continue  to  actively  seek  joint  ventures  for
exploration and development activities during 1998.

Results of Operations

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

      Revenues  increased  by  $28,537,  or 203%,  to $42,629 for the year ended
December 31, 1997,  from $14,092 for the year ended  December 31, 1996.  Mineral
royalties  increased by $28,581, or 218%, to $41,681 in fiscal 1995 from $17,200
in fiscal 1994.  The increase  was  primarily  due to an increase in the royalty
payments the Company received from Centurion,  Minerals Processing and Arapahoe.
The $41,680 in mineral  royalties  in 1997  included  $9,000 in advance  royalty
payments from the mining lease assigned to Centurion, $7,500 in royalty payments
from the mining  lease with  World  Hydrocarbons  and  Minerals  Processing  and
$25,139 from the sale of the Arapahoe stock that the Company  received through a
prior agreement with Arapahoe.

      Interest  income from  investment  of funds  decreased by $413, or 74%, to
$148 in fiscal  1997 from $561 in fiscal 1996 due to a decrease in the amount of
funds invested than in the preceding  year.  The Company  received $800 in other
income in fiscal 1997 representing royalty payments from its interest in two oil
and gas leases in Osage County, Oklahoma. These payments represented an increase
of $369,  or 86%, in the royalty  payments  the Company  received in fiscal 1997
over  fiscal 1996 due to an  increase  in  production  from the oil wells on the
leases.

      Expenses  increased  by  $21,337,  or 39%,  to $76,613 in fiscal 1997 from
$55,276 in fiscal 1996. Contributing to this reduction in expenses was a $22,627
increase in general and  administrative  expenses to $76,332 in fiscal 1997 from
$53,705 in fiscal  1996.  The  increase in general and  administrative  expenses
reflected the cost of the Company moving its executive  offices,  payment of the
remaining costs  associated with the transaction  with PAB,  including legal and
accounting  expenses,  the cost of an  independent  contractor  to  locate  lost
shareholders,  and the  increased  level of the Company's  mining  activities in
fiscal 1997.

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

      Revenues  decreased  by $3,057,  or 17.8%,  to $14,092  for the year ended
December 31, 1996,  from $17,149 for the year ended  December 31, 1995.  Mineral
royalties  decreased by $2,800, or 17.6%, to $13,100 in fiscal 1996 from $15,900
in fiscal 1995.  This  reduction  was primarily  due to the  termination  of the
mining lease with Frisco Rock, Inc. in 1996. The $13,100 in mineral royalties in
1996 included $9,900 in advance royalty  payments from the mining lease assigned
to Centurion  and $3,200 in royalty  payments  from the mining lease with Frisco
Rock, Inc.

      Interest  income from  investment  of funds  increased by $11, or 2.0%, to
$561 in fiscal 1996 from $550 in fiscal 1995 due to an increase in the amount of
funds  invested  over the  preceding  year.  The Company  received $431 in other
income in fiscal 1996 primarily  representing royalty payments from its interest
in two oil and gas leases in Osage County,  Oklahoma. The payments represented a
decrease of $268,  or 38.3% in the  royalty  payments  the  Company  received in
fiscal 1996 over fiscal 1995 due to a reduction in production from the oil wells
on the leases.

      Expenses  increased  by $3,609,  or 7.0%,  to $55,276 in fiscal  1996 from
$51,667 in fiscal 1995.  Contributing  to this increase in expenses was a $2,395
increase in general and  administrative  expenses to $53,705 in fiscal 1996 from
$51,310 in fiscal  1995.  The  increase in general and  administrative  expenses
reflected an increase in legal and accounting expenses in fiscal 1996 due to the
transaction  with PAB,  including  preparation of proxy materials filed with the

                                      -14-
<PAGE>
Securities  and  Exchange  Commission  to  obtain  shareholder  approval  of the
transaction  at the Annual Meeting of  Shareholders.  Carrying costs for mineral
leases increased by $1,216 in fiscal 1996 over fiscal 1995 due to the additional
costs of maintaining  the Company's  unpatented  mining claims under new federal
mining regulations.

ITEM 7.  Financial Statements and Supplementary Data

      The  financial  statements  of the  Company  and  supplementary  data  are
included beginning  immediately following the signature page to this report. See
Item 13 for a list of the financial statements and financial statement schedules
included.

ITEM 8.  Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

      None.


    PART III

ITEM 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act

      The Company's Board of Directors  currently consists of five persons.  The
following table sets forth certain information with respect to the directors and
executive officers of the Company:

<TABLE>
<CAPTION>
                              Director or        Position with
  Name                  Age   Officer Since      the Company
  ----                  ---   -------------      --------------
<S>                     <C>   <C>                <C>
John P. Bogdanich        44   September 1995     Chairman of the
                                                 Board, President,
                                                 Chief Executive
                                                 Officer and
                                                 Treasurer

Murray C. Godbe, III     72   July 1984          Vice President
                                                 and Director
Melvin E. Leslie         69   April 1997         Secretary and
                                                 Director
Randall A. Mackey        52   July 1998          Director
Jeff D. Gentry           39   April 1997         Director

</TABLE>

      The following  biographical  information is furnished with respect to each
of the directors and executive officers.

      John P. Bogdanich has served as Chairman of the Board,
President, Chief Executive Officer and Treasurer of the Company
since April 1997 and a director of the Company since September
1995.  He has been President since 1981 of PAB Oil & Mining,
Inc., which engages in the mining and oil and gas business.  See
"Item 12.  Certain Relationships and Related Transactions."

      Murray C. Godbe has served as the Vice President and a
director of the Company since July 1984.  He has been the
President since 1974 of M.C. Godbe Consultants, Inc. which has
performed geological consulting work for a number of mining
companies.  From 1969 to 1974, he was the President of East Utah
Mining Company, a Utah mining and oil and gas company.  Mr. Godbe
received a B.Sc. degree in geology from the University of Utah in
1948, where he also did graduate work in geology in 1949.

      Melvin E. Leslie has served as Secretary and a director of
the Company since April 1997.  He is an attorney who has
practiced law in Utah since 1955.  From 1968 to 1982, Mr. Leslie
was Legislative General Counsel to the Utah State Legislature.
Mr. Leslie received a B.S. degree from Northwestern University in
1951 and a Juris Doctor degree from Northwestern University in
1995.  He is also a director of PAB Oil & Mining, Inc., which
engages in the mining and oil and gas business.  See "Item 12.
Certain Relationships and Related Transactions."

                                      -15-
<PAGE>
      Randall A. Mackey has served as  director of the Company  since July 1981.
He has been a  shareholder  in the Salt  Lake  City law firm of  Mackey  Price &
Williams since May 1989.  From 1979 to 1989, he practiced law with the Salt Lake
City law firm of Fabian & Clendenin,  where he was a shareholder and director of
the firm from 1982 to 1989.  From 1977 to 1979, Mr. Mackey was  associated  with
the  Washington,  D.C. law firm of Hogan & Hartson.  Mr. Mackey  received a B.S.
degree in economics  from the  University of Utah in 1968, a M.B.A.  degree from
Harvard  University in 1970, a Juris Doctor  degree from Columbia  University in
1975,  and a B.C.L.  degree from Oxford  University in 1977. Mr. Mackey has also
served as a director of Paradigm  Medical  Industries,  Inc., which develops and
manufactures  ophthalmic surgical systems, since November 1995 and as a director
of Cimetrix Incorporated, a software development company, since January 1998.

      Jeff D. Gentry has been a director of the Company since April 1997. He has
been  President of Emerald Oil & Mining  Company since 1987,  which acquires and
manages  oil, gas and mineral  interests.  From 1985 to 1987,  Mr.  Gentry was a
director of G.T.B.,  Inc., an investment  banking firm specializing in financing
oil  and  gas  companies.   Mr.  Gentry  received  B.S.  degrees  in  geological
engineering and geology from the University of Utah.

      All directors of the Company hold office until the next annual  meeting of
the  shareholders  and until  their  successors  have been duly  elected and has
qualified. All of the officers serve at the pleasure of the Board of Directors.

      The  Board of  Directors  of the  Company  held one  meeting  in 1997.  No
director  attended  fewer than 75% of all  meetings of the Board of Directors in
1997.

ITEM 10.  Executive Compensation

Executive Officer Compensation

      The following  table sets forth,  for each of the last three fiscal years,
the compensation received by John P. Bogdanich,  the Company's President,  Chief
Executive Officer and Treasurer, and all other executive officers (collectively,
the "Named Executive  Officers") at December 31, 1997 whose salary and bonus for
all  services  in all  capacities  exceed  $100,000  for the  fiscal  year ended
December 31, 1997.


<TABLE>
<CAPTION>

            Summary Compensation Table

                               Annual Compensation
                  --------------------------------------------
<S>                  <C>   <C>        <C>          <C>
                                                                           Other
                                                                          Annual
   Name and                                        Compensa-
Principal Position   Year  Salary($)  Bonus($)       tion($)
------------------   ----  ---------  --------     ---------
John P. Bogdanich    1997     $ 0          0           0
Chairman of the      1996       0          0           0
Board, President,    1995       0          0           0
Chief Executive
Officer, Treasurer

<CAPTION>
                             Long-Term Compensation
                   ---------------------------------------------
     <S>          <C>         <C>            <C>        <C>
                  Restricted    Securities   Long-term  All Other
                     Stock      Underlying   Incentive  Compensa-
                   Awards($)  Options/SAR(#)  Payout($)  tion($)
                 -----------  --------------  ---------  -------
      1997              0           0            0           $0
      1996              0<F1>       0            0            0
      1995              0<F1>       0            0            0

--------------------
<FN>
<F1>  Does not include 25,000 shares of the Company's Common
Stock issued to Mr. Bogdanich in both fiscal 1995 and fiscal 1996
for serving as a director of the Company.  Mr. Bogdanich was
elected President, Chief Executive Officer and Treasurer of the
Company on April 4, 1997.  No shares of Common Stock were issued
to Mr. Bogdanich in fiscal 1997 for serving as an officer and a
director of the Company.
</FN>

</TABLE>

      The  following  table sets forth  information  concerning  the exercise of
options to acquire shares of the Company's  Common Stock by the Named  Executive
Officers  during  the  fiscal  year  ended  December  31,  1997,  as well as the
aggregate  number and value of unexercised  options held by the Named  Executive
Officers on December 31, 1997.

                                      -16-
<PAGE>
<TABLE>
<CAPTION>

        Aggregated Option/SAR Exercises in Last Fiscal Year and
                  Fiscal Year-End Option/SAR Values

                                           Number of Securities
                                           Underlying Unexercised
                                           Options/SARs at
                                           December 31, 1997(#)
                 Shares                   -----------------------
               Acquired on    Value
  Name       Exercise(#)   Realized($)  Exercisable Unexercisable
  ----       -----------   -----------  ----------- -------------
<S>          <C>           <C>          <C>         <C>

John P.
Bogdanich         -0-         -0-          -0-         -0-

Murray C.
Godbe, III        -0-         -0-          -0-         -0-

Melvin E.
Leslie            -0-         -0-          -0-         -0-


<CAPTION>
                                    Value of Unexercised
                              In-the-Money Options/SARs at
                                    December 31, 1997($)
                             -----------------------------
   Name                       Exercisable      Unexercisable
   ----                       -----------      -------------
<S>                           <C>              <C>

John P. Bogdanich             -0-                -0-
Murray C. Godbe, III          -0-                -0-
Melvin E. Leslie              -0-                -0-

</TABLE>

Director Compensation

      Directors  of the  Company  were not paid any  director's  fees for  their
services during fiscal 1997. However, the directors were who served on the Board
of Directors  during  fiscal 1995 and 1996 were each issued 25,000 shares of the
Company's Common Stock for each of the years they served as a director.

ITEM 11.  Security Ownership of Certain Beneficial Owners and
            Management

      The  following  table sets forth,  as of March 31,  1998,  the  beneficial
ownership of the  Company's  Common Stock by each person known by the Company to
be the beneficial owner of more than five percent of the Company's Common Stock,
by each director, and by all directors and executive officers as a group.

<TABLE>
<CAPTION>

Name and Address<F1>     Number of Shares    Percent of Ownership
-------------------     ----------------    --------------------
<S>                     <C>                 <C>

John P. Bogdanich             50,000                   *
Estate of Page P.
 Blakemore, Sr             1,373,574                22.6%
Murray C. Godbe, III         206,775                 3.4%
Melvin E. Leslie               --
Randall A. Mackey            186,500                 3.1%
Jeff D. Gentry                 --                      *
All directors and
executive officers
as a group (5 persons)     1,816,849                29.8%

----------------------
*     Less than 1% of outstanding shares

<FN>
<F1>   The address for Mr.  Bogdanich is 2667 East  Capricorn  Way, Salt Lake
City,  Utah  84124.  The address for Mr.  Godbe is 1530 West  Stansfield  Drive,
Kanab,  Utah 84741. The address for Mr. Leslie is 1947 East Orchard Drive,  Salt
Lake City, Utah 84106.  The address for Mr. Mackey is 1474 Harvard Avenue,  Salt
Lake City, Utah 84105. The address for Mr. Gentry is P.O. Box 920078,  Snowbird,
Utah 84092. </FN>
</TABLE>

ITEM 12.  Certain Relationships and Related Transactions

      In October 1996, the Company entered into an option agreement (the "Option
Agreement")  with PAB, which was approved at the Company's  Annual  Shareholders
Meeting held on March 28, 1997. Under the terms of the Option Agreement,  PAB is
granted options to purchase  shares of the Company's  Common Stock for $850,000,
such that after the  issuance  of the shares PAB will hold 75% of the  Company's
outstanding Common Stock. Mr. Bogdanich, Chairman of the Board, President, Chief
Executive  Officer and Treasurer of the Company,  also serves as President and a
director of PAB.  Mr.  Leslie,  Secretary  and a director of the  Company,  also
serves as a director of PAB. See "Item 1. Business - Option  Agreement  with PAB
Oil & Mining, Inc."

                                      -17-
<PAGE>
      Randall A. Mackey, a director of the Company,  is a shareholder of the law
firm of Mackey  Price &  Williams,  which has  rendered  legal  services  to the
Company.  Legal fees and expenses paid to the firm for the years ended  December
31, 1996 and 1997, totaled $9,222 and $9,507, respectively.

                                     PART IV

ITEM 13.  Exhibits and Reports on Form 8-K.

      (a)   Financial Statements Filed

            Report of Independent Accountants

            Balance Sheet - December 31, 1997

            Statement of Operations - Years Ended December 31,
                  1996, and 1997

            Statement of Stockholders Equity - January 1, 1996 to
                  December 31, 1997

            Notes to Financial Statements

      (b)   Exhibits

            3.          A.*   Articles   of   Incorporation   (Exhibit   3A   to
                        Registration  Statement on Form S-14, No 2-78284,  filed
                        March 29, 1983)

                  B.*   Bylaws  (Exhibit 3A to  Registration  Statement  on Form
                        S-14, No 2-78284, filed March 29, 1983)

                  C.*   Specimen Stock  Certificate  (Exhibit 3A to Registration
                        Statement  on Form S-14,  No  2-78284,  filed  March 29,
                        1983)

            10.   A.*   Mining Lease with Dotson Exploration
                        Company (Exhibit 10B to Annual Report on
                        Form 10-K, No. 0-9739, November 24, 1995)

                  B.*   Option Agreement with PAB Oil & Mining,
                        Inc. (Exhibit to Preliminary Proxy
                        Statement, No. 1-8757, February 7, 1997)

                  C.    Mining Lease with World Hydrocarbons,
                        Inc. and Minerals Processing, Inc.

                  *     Exhibits so marked have  heretofore  been filed with the
                        Securities and Exchange Commission as part of the filing
                        indicated and are incorporated herein by this reference.

      (c)   Reports on Form 8-K

                  The  Company  has not filed any  report on Form 8-K during the
                  quarter for which this report is filed.

                                      -18-       
<PAGE>
                  INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

                                                              Page
                                                              ----
      Independent Auditor's Report . . . . . . . . .          F-1

      Balance Sheet  . . . . . . . . . . . . . . . .          F-2

      Statement of Operations  . . . . . . . . . . .          F-3

      Statement of Stockholders' deficit . . . . . .          F-4

      Statement of Cash Flows  . . . . . . . . . . .          F-5

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

               




















                                      -19-  
<PAGE>
                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  in Salt Lake City,
Utah, on this 13th day of April, 1998.

                              HORN SILVER MINES, INC.

                              By: /s/ John P. Bogdanich
                                 --------------------------------  
                              John P. Bogdanich
                              Chairman of the Board, President,
                              Chief Executive Officer, and
                                    Treasurer

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following  persons in the  capacities and on
the dates indicated:

      SIGNATURE                   TITLE                           DATE


/s/ John P. Bogdanich      Chairman of the Board,               April 13, 1998
-------------------------  President, Chief Executive
John P. Bogdanich             Officer and Treasurer
                              (Principal Executive,
                            Financial and Accounting
                                    Officer)


/s/ Murray C. Godbe, III   Vice President and Director          April 13, 1998
-------------------------
Murray C. Godbe, III

/s/ Melvin E. Leslie       Secretary and Director               April 13, 1998
-------------------------
Melvin E. Leslie

/s/ Randall A. Mackey      Director                             April 13, 1998
-------------------------
Randall A. Mackey

/s/ Jeff D. Gentry         Director                             April 13, 1998
-------------------------
Jeff D. Gentry








                                      -20-       
<PAGE>


                                                         HORN SILVER MINES, INC.

                                                   Index to Financial Statements

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







                                                                        Page


Independent auditors' report                                             F-1


Balance sheet                                                            F-2


Statement of operations                                                  F-3


Statement of stockholders' deficit                                       F-4


Statement of cash flows                                                  F-5


Notes to financial statements                                            F-6





<PAGE>


                                                         HORN SILVER MINES, INC.


                                                    INDEPENDENT AUDITORS' REPORT





To the Board of Directors and Stockholders
of Horn Silver Mines, Inc.


We have audited the balance sheet of Horn Silver Mines, Inc., as of December 31,
1997 and 1996, and the related statements of operations,  stockholders'  deficit
and cash flows for the years then  ended.  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 Horn Silver Mines, Inc., as of
December 31, 1997 and 1996, and the results of operations and cash flows for the
years then ended, in conformity with generally accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  note 2 to the
consolidated financial statements,  there is substantial doubt about the ability
of the Company to continue as a going concern.  Management's  plans in regard to
that  matter  are also  described  in note 2. The  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.



                                        TANNER+Co.


Salt Lake City, Utah
March 16, 1998

                                                                             F-1

<PAGE>


<TABLE>
<S>                                                                    <C>               <C>              
                                                                                   HORN SILVER MINES, INC.
                                                                                             Balance Sheet

                                                                                              December 31,
----------------------------------------------------------------------------------------------------------



              Assets                                                         1997              1996
              ------                                                                               
                                                                       -----------------------------------

Current assets - cash                                                  $           2,216 $          24,531
                                                                       -----------------------------------

Property and equipment:
     Leasehold improvements                                                        5,634             5,634
     Structures and equipment                                                      8,441             8,441
                                                                       -----------------------------------

                                                                                  14,075            14,075

Less accumulated depreciation and amortization                                   (14,075)          (13,794)
                                                                       -----------------------------------

                  Net property and equipment                                           -               281
                                                                       -----------------------------------

Other assets                                                                       1,211             1,211
                                                                       -----------------------------------

                  Total assets                                         $           3,427 $          26,023
                                                                       ===================================

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

              Liabilities and Stockholders' Deficit

Current liabilities:
     Accounts payable                                                  $           8,625 $          19,212
     Related party payables                                                       31,043            31,043
     Accrued expenses                                                                 29               284
                                                                       -----------------------------------

                  Total current liabilities                                       39,697            50,539
                                                                       -----------------------------------

Commitments                                                                            -                 -

Stockholders' deficit:
     Common stock, par value $.001, 30,000,000 shares
       authorized and 6,088,966 shares issued
       and outstanding for 1997 and 1996, respectively                             6,089             6,089
     Additional paid-in capital                                                1,691,239         1,669,009
     Accumulated deficit                                                      (1,733,598)       (1,699,614)
                                                                       -----------------------------------

                  Total stockholders' deficit                                    (36,270)          (24,516)
                                                                       -----------------------------------

                  Total liabilities and stockholders' deficit          $           3,427 $          26,023
                                                                       ===================================



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


See accompanying notes to financial statements.
                                                                                                       F-2

</TABLE>
<PAGE>


<TABLE>
<S>                                                                    <C>               <C>              
                                                                                   HORN SILVER MINES, INC.
                                                                                   Statement of Operations

                                                                                  Years Ended December 31,
----------------------------------------------------------------------------------------------------------






                                                                             1997              1996
                                                                       -----------------------------------

Revenues:
     Mineral royalties                                                 $          41,681 $          13,100
     Interest                                                                        148               561
     Other income                                                                    800               431
                                                                       -----------------------------------

                  Total revenues                                                  42,629            14,092
                                                                       -----------------------------------

Expenses:
     General, administrative and exploration                                      76,332            53,705
     Carrying costs for mineral leases                                                 -             1,216
     Depreciation                                                                    281               355
                                                                       -----------------------------------

                  Total expenses                                                  76,613            55,276
                                                                       -----------------------------------

Loss before benefit for income taxes                                             (33,984)          (41,184)

Benefit for income taxes                                                               -                 -
                                                                       -----------------------------------

                  Net loss                                             $         (33,984) $        (41,184)
                                                                       ===================================

Loss per common share                                                  $            (.01) $           (.01)
                                                                       ===================================






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


See accompanying notes to financial statements.
                                                                                                       F-3

</TABLE>
<PAGE>


<TABLE>
<S>                                   <C>       <C>            <C>           <C>              <C>          
                                                                                   HORN SILVER MINES, INC.
                                                                        Statement of Stockholders' Deficit

                                                                    Years Ended December 31, 1997 and 1996
-------------------------------------------------------------------------------------------------------------------





                                                                Additional
                                         Common Stock            Paid-In       Accumulated
                                ------------------------------
                                    Shares         Amount        Capital         Deficit         Total
                                --------------------------------------------------------------------------

Balance,
January 1, 1996                       5,863,966 $        5,864 $   1,621,709 $     (1,658,430)$    (30,857)

Common stock issued for
officers' compensation and
directors' fee                          225,000            225        22,300                -       22,525

Contributed capital in
exchange for the option to
purchase company stock                        -              -        25,000                -       25,000

Net loss                                      -              -                        (41,184)     (41,184)
                                --------------------------------------------------------------------------

Balance,
December 31, 1996                     6,088,966          6,089     1,669,009       (1,699,614)     (24,516)

Contributed capital in
exchange for the option to
purchase company stock                        -              -        22,230                -       22,230

Net loss                                      -              -             -          (33,984)     (33,984)
                                --------------------------------------------------------------------------

Balance,
December 31, 1997                     6,088,966 $        6,089 $   1,691,239 $     (1,733,598)$    (36,270)
                                ==========================================================================





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


See accompanying notes to financial statements.
                                                                                                       F-4

</TABLE>
<PAGE>


<TABLE>
<S>                                                                    <C>               <C>               
                                                                                   HORN SILVER MINES, INC.
                                                                                   Statement of Cash Flows

                                                                                  Years Ended December 31,
-------------------------------------------------------------------------------------------------------------------





                                                                             1997              1996
                                                                       -----------------------------------

Cash flows from operating activities:
     Net loss                                                          $         (33,984)$         (41,184)
     Adjustments to reconcile net loss to net
       cash used in operating activities:
         Depreciation                                                                281               355
         Stock issued for services                                                     -            22,525
         Decrease in other assets                                                      -               360
         Decrease in:
              Accounts payable                                                   (10,842)             (772)
              Accrued liabilities                                                      -              (390)
                                                                       -----------------------------------

                  Net cash used in
                  Operating activities                                           (44,545)          (19,106)
                                                                       -----------------------------------

Cash flows from investing activities                                                   -                 -
                                                                       -----------------------------------

Cash flows from financing activities-
     proceeds from option agreement                                               22,230            25,000
                                                                       -----------------------------------


                  Net (decrease) increase in cash                                (22,315)            5,894

Cash, beginning of year                                                           24,531            18,637
                                                                       -----------------------------------

Cash, end of year                                                      $           2,216 $          24,531
                                                                       ===================================





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


See accompanying notes to financial statements.
                                                                                                       F-5

</TABLE>
<PAGE>


                                                         HORN SILVER MINES, INC.
                                                   Notes to Financial Statements

                                                      December 31, 1997 and 1996
--------------------------------------------------------------------------------


1.   Summary of Significant Accounting Policies
Organization
The Company was  incorporated  in 1971 under the laws of the State of Utah.  The
Company is a "junior"  natural  resource  Company whose activities are primarily
acquisition, exploration and development of natural resources.


Cash and Cash Equivalents
For financial statement  purposes,  the Company considers all instruments with a
maturity of less than three months to be cash equivalents.


Property, Equipment and Mining Costs
Expenditures for exploration of mineral properties are charged against income as
incurred.  Property  acquisition  costs and mine  development  costs incurred to
expand capacity of operating mines,  develop new ore bodies or develop new areas
substantially  in advance of current  production are  capitalized and charged to
operations on the  units-of-production  method.  Capitalized  costs of abandoned
projects  or  impaired  properties  are  charged  to  operations  in the year of
abandonment.


Corporate  property  and  equipment  are stated at cost.  Acquisitions  having a
useful life in excess of one year are  capitalized.  Maintenance and repairs are
expensed  in the  year  incurred.  Capitalized  assets  are  depreciated  by the
straight-line method over estimated useful lives of the related assets,  ranging
from three to ten years.


Income Taxes
Deferred  income  taxes are  provided  in amounts  sufficient  to give effect to
temporary  differences between financial and tax reporting,  principally related
to accounting for mining properties.


Stock Split
During the year 1997, the Company's  shareholders approved a reverse stock split
of 1 share for each 20 shares held. The financial  statements have been restated
to reflect the reverse stock split as if it had taken place at January 1, 1996.


Loss Per Common Share
Loss per common  share is  calculated  based on the weighted  average  number of
shares of common stock outstanding during the period. Per share amounts assuming
dilution  would be the same  due to the  antidilutive  effect  of  common  stock
equivalents.


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


                                                                             F-6

<PAGE>
                                                         HORN SILVER MINES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



1.   Summary of Significant Accounting Policies
Use of Estimates in the  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 periods.  Actual results could differ
from those estimates.


Reclassification
Certain  amounts in the 1996  financial  statements  have been  reclassified  to
conform with the 1997 presentation.


2.   Going Concern
The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  As of December 31, 1997, the
Company had a deficit in working  capital of $6,438,  an accumulated  deficit of
$1,733,598  and  incurred a net loss of $33,984 for the year ended  December 31,
1997. These conditions raise  substantial doubt about the ability of the Company
to continue as a going  concern.  The  financial  statements  do not include any
adjustments that might result from the outcome of this uncertainty.


The  Company's  ability  to  continue  as a  going  concern  is  subject  to the
attainment of profitable  operations or obtaining necessary funding from outside
sources.   Management  anticipates  that  equity  funding,  resulting  from  the
agreement  described in note 3 will provide positive cash flow.  However,  there
can be no assurance such funding will be received.


3.   Related Party Transactions
Related party payables consist of amounts due to officers and directors  related
to compensation, fees, and expense reimbursements.


In October 1996,  the Company  entered into an Option  Agreement  with PAB Oil &
Mining,  Inc. ("PAB") which grants to PAB the right to purchase up to 75% of the
outstanding  shares of the Company's  common stock for the sum of $850,000.  The
President,  Chief Executive Officer,  and Treasurer of the Company,  served as a
director  of PAB from  September  1993 to  September  1996.  A  director  of the
Company, currently serves as President and Chief Executive Officer of PAB.


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


                                                                             F-7

<PAGE>
                                                         HORN SILVER MINES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



3.   Related Party Transactions Continued
A director of the Company,  is President and a  shareholder  of a law firm which
has rendered legal services to the Company. Legal fees and related costs paid to
the firm for the year ended  December  31,  1997 and 1996  totaled  $14,007  and
$9,177, respectively.


4.   Income Taxes
The benefit for income taxes is different  than amounts  which would be provided
by applying the  statutory  federal  income tax rate to loss before  benefit for
income taxes for the following reasons:


                                                    Years Ended
                                                    December 31,
                                        -----------------------------------
                                               1997             1996
                                        -----------------------------------

Benefit for income taxes at
   statutory rate                       $          11,000 $         14,000
Change in valuation allowance                     (11,000)         (14,000)
                                        -----------------------------------

                                        $               - $              -
                                        ===================================



Deferred tax assets consist of the following:


                                                   December 31,
                                        -----------------------------------
                                               1997             1996
                                        -----------------------------------

Operating loss carryforwards            $         588,000 $        577,000
Valuation allowance                              (588,000)        (577,000)
                                        -----------------------------------

                                        $               - $              -
                                        ===================================



The Company has net operating loss  carryforwards of  approximately  $1,731,000,
which  begin to expire  in the year  2000.  The  amount  of net  operating  loss
carryforwards  that can be used in any one year will be limited  by  significant
changes in the ownership of the Company and by the applicable tax laws which are
in effect at the time such carryforward can utilized.



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


                                                                             F-8

<PAGE>
                                                         HORN SILVER MINES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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



5.   Supplemental Cash Flow Disclosure
There were no amounts  paid for  interest  and income  taxes for the years ended
December 31, 1997 and 1996.

During the year ended  December 31, 1997,  the Company  issued 225,000 shares of
common stock in exchange for reduction of related party payable of $31,043.


6.   Loss Per Share
In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting  Standards No. 128 (SFAS 128)  "Earnings Per Share," which
requires  companies  to  present  basic  earnings  per share  (EPS) and  diluted
earnings per share,  instead of the primary and fully  diluted EPS as previously
required. The new standard also requires additional  informational  disclosures,
and makes certain  modifications  to the previously  applicable EPS calculations
defined in Accounting  Principles  Board No. 15. The new standard is required to
be adopted by all public  companies for reporting  periods ending after December
15, 1997, and requires restatement of EPS for all prior periods reported. During
the year ended December 31, 1997, the Company adopted this standard.


Loss per share information in accordance with SFAS 128 is as follows:


                                          Year Ended December 31, 1997
                                 -----------------------------------------------
                                       Loss           Shares        Per-Share
                                   (Numerator)     (Denominator)      Amount
                                 -----------------------------------------------

Net loss                         $        (33,984)
Less preferred stock
  dividends                                     -
                                 ----------------
Basic EPS
Loss available to
  common stockholders                     (33,984)       6,295,000 $       (.01)
                                                                  ==============
Effect of Dilutive Securities
Stock options                                   -                -
                                 ---------------------------------
Diluted EPS
Loss available to common
  stockholders plus assumed
  conversions                    $        (33,984)       6,295,000 $       (.01)
                                 ===============================================




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


                                                                             F-9

<PAGE>
                                                         HORN SILVER MINES, INC.
                                                   Notes to Financial Statements
                                                                       Continued

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


6.   Loss Per Share Continued

                                         Year Ended December 31, 1996
                                 -----------------------------------------------
                                       Loss           Shares        Per-Share
                                   (Numerator)     (Denominator)      Amount
                                 -----------------------------------------------

Net loss                         $        (41,184)
Less preferred stock
  dividends                                     -
                                 ----------------
Basic EPS
Loss available to
  common stockholders                     (41,184)       5,976,000 $       (.01)
                                                                  ==============
Effect of Dilutive Securities
Stock options                                   -                -
                                 ---------------------------------
Diluted EPS
Loss available to common
  stockholders plus assumed
  conversions                    $        (41,184)       5,976,000 $       (.01)
                                 ===============================================



7.   Commitments
The  Company has  entered  into  various  cancelable  mining  leases and royalty
agreements as a lessee and lessor.  Future  minimum  lease and royalty  payments
received  and paid  under the  Company's  current  agreements  are  minimal.  In
addition to the lease  payments  required  above,  certain  leases also  require
minimum  payments  of  approximately  $100 per claim.  Certain  leases also have
provisions allowing the Company to purchase all rights to the properties thereby
reducing future  commitments for royalty payments.  The leases are cancelable at
the  Company's  option at any time  which  would  terminate  any  further  lease
payments or work  commitments.  The lease agreements also provide that the lease
will remain in effect as long as exploration  or development is being  conducted
with reasonable diligence or production continues in commercial quantities.



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


                                                                            F-10