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

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                         Commission file number: 0-17232

                           CAPITAL RESERVE CORPORATION
                 (Name of small business issuer in its charter)

             COLORADO                                     84-0888594
(State or other jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                      Identification No.)

          6732 WEST COAL MINE AVENUE, #504, LITTLETON, COLORADO 80128
          (Address of principal executive offices including zip code)

         Issuer's telephone number, including area code: (303) 794-3155

       Securities registered under Section 12(b) of the Exchange Act: NONE

         Securities registered under Section 12(g) of the Exchange Act:
               Title of class: CLASS A COMMON STOCK, NO PAR VALUE
                         COMMON STOCK PURCHASE WARRANTS

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to the filing requirements for the past 90 days. Yes No X

Check if disclosure  of delinquent  filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure  will be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB.[X]

           Issuer's revenues for its most recent fiscal year. $53,770

    Aggregate market value of the voting stock held by non-affiliates of the
               registrant as of March 26, 1998: $0.00 (See Item 5)

Number of shares outstanding of registrant's Class A Common Stock, no par value,
                          as of March 20, 1998: 546,045

                    Documents incorporated by reference: NONE

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

Exhibit index on consecutive page 12                          Page 1 of 29 Pages



<PAGE>



                                     PART I

ITEM 1.               DESCRIPTION OF BUSINESS.

GENERAL

            Capital Reserve  Corporation (the "Company") was incorporated  under
the laws of the  State of  Colorado  on  August  3,  1982,  for the  purpose  of
operating as a financial services holding company.

            Effective  June  29,  1988,   the  Company   acquired  100%  of  the
outstanding  stock of First West Financial  Services,  Inc. and its  subsidiary,
First West Life Insurance  Company ("First West Life"),  in exchange for 100,000
shares of the  Company's  Common  Stock with an  estimated  fair market value of
$10.00 per share,  $931,304 cash, and a liability to the former  shareholders of
First West Life of $459,000 (the  "Exchange").  In addition,  in connection with
the  acquisition  of First  West  Life,  the  Company  agreed to pay the  former
shareholders of First West Life an additional  $150,000  ($50,000 to each of the
three  shareholders) if a certain price ($20.00 per share) and  marketability of
the stock  issued in the Exchange was not attained at the end of two years after
the date of the Exchange (June 29, 1990).  See Item 3. Legal  Proceedings,  Item
12.  Certain  Relationships  and  Related  Transactions,  and Item 7.  Financial
Statements  herein and the Notes  included  therein.  The Company also  incurred
acquisition  costs of $26,585 for legal and actuarial fees. This transaction was
accounted for using the purchase  method of accounting.  See "Sale of First West
Life" below.

            During the quarter ended  September 30, 1988,  the Company  invested
$30,000 in 300,000 shares (100%) of the Class B common stock of Premier  Capital
Investment Corporation,  a Colorado corporation ("Premier").  The holders of the
shares of Class B common stock had the right to elect a majority of the Board of
Directors of Premier.  On August 31, 1990,  Premier completed a private offering
of its common  stock and common  stock  purchase  warrants,  resulting  in gross
proceeds of $1,272,500  and net proceeds of  $1,235,738.  It was proposed to use
such  capital to acquire  business  opportunities,  primarily  in the  financial
services  industry.  On June 10,  1992,  the  Company  sold 2,500  shares of its
ownership of Premier Class B common stock and  converted  the remaining  297,500
shares of Class B common stock into 2,677,500  shares of Class A common stock of
Premier  (approximately  34% of the total outstanding Class A common stock). See
Item 3. Legal  Proceedings and Item 6.  Management's  Discussion and Analysis or
Plan of Operation.

            Effective December 31, 1988, First West Financial Services, Inc. was
merged into the Company, and First West Agency, Inc., a subsidiary of First West
Life, was merged into Capital Reserve Marketing Corp., an existing  wholly-owned
subsidiary of the Company.  On August 1, 1996,  Capital Reserve  Marketing Corp.
changed its name to Wall Street Investment Corp.

            During  the  quarter  ended  September  30,  1990,  First  West Life
Insurance  Company  of New Mexico  ("FWLNM")  was formed by First West Life as a
wholly-owned subsidiary. FWLNM applied for a certificate of authority to solicit
life and accident and health  insurance on August 14, 1990.  Final  approval was
received on March 8, 1991.  FWLNM  offered the same kinds of  insurance as First
West Life.

            Effective  October  1,  1990,  the  Company  implemented  a 1-for-10
reverse  stock split of the  Company's  Class A Common Stock and changed the par
value of both the Class A Common Stock and Class B Preferred Stock from $.01 par
value to no par value.  The share  amounts  stated  herein have been adjusted to
reflect this reverse stock split.

            On December 31, 1992,  the Company sold 50.2% of its  investment  in
the common stock of First Guaranty Income Corporation  ("FGI") (formerly Capital
Reserve  Investment  Corporation)  to Premier  for  $1,760 of debt  forgiveness.
Accordingly,  the Company changed its method of accounting for its investment in
Premier and FGI to the equity method from that of consolidating  the accounts of
Premier  and FGI with the  accounts  of the  Company.  See Item 6.  Management's
Discussion and Analysis or Plan of Operation.



                                        2

<PAGE>



SALE OF FIRST WEST LIFE

            On October 14,  1994,  the Company  sold the issued and  outstanding
capital stock of First West Life to Old Reliance Insurance  Company,  an Arizona
domiciled  insurance  company  ("Old  Reliance")  for  $1,227,301  in cash.  The
purchase  price was the result of arm's length  negotiation  between the Company
and Old Reliance.  Old Reliance is not affiliated with Capital  Reserve,  any of
its affiliates, or any director or officer of Capital Reserve. The sale of First
West Life included the sale of FWLNM. As a condition to closing,  approvals were
obtained  from the  Department  of  Insurance  for the States of  Colorado,  New
Mexico, and Arizona.

            The  Company  determined  that it could  not  maintain  capital  and
surplus  requirements for First West Life and therefore sold First West Life for
the best price possible. An administrative  proceeding was initiated in May 1993
before the Division of Insurance  for the State of Colorado  against  First West
Life to  determine  whether its license  should be revoked or  suspended.  Among
other  things,  it was  alleged  that First West Life failed to meet the minimum
capital  and  surplus  requirements  required  by  statute  for  life  insurance
companies as of March 31, 1993. On October 6, 1993, First West Life entered into
a Confidential  Stipulation for Final Agency Order which allowed First West Life
to increase  its capital  and  surplus  over an extended  period of time to meet
statutory requirements.  Management of First West Life deemed this resolution to
be favorable to the Company.

CURRENT OPERATIONS

            During 1995 through June,  1996, the Company's  primary business was
the  rental  of real  property.  On July 3,  1996,  the  Company  sold  its only
property,  located  at 7860  East  Berry  Place,  Englewood,  Colorado,  for net
proceeds of $501,276. See Item 2. Description of Property.

            Presently,  the Company has no principal  business.  As of March 20,
1998, the Company was seeking a merger or acquisition  opportunity.  See Item 1.
Description of Business.

            At December 31, 1997, the Company had one  wholly-owned  subsidiary,
Wall Street Investment Corp. ("WSIC"). WSIC (as Capital Reserve Marketing Corp.)
formerly  offered a cancer policy.  The Company,  through WSIC, is attempting to
start a financial  consulting  services  company.  Whether WSIC will prove to be
viable and a source of revenue is unknown. For the year ended December 31, 1997,
Wall Street contributed $21,935 in gross revenue to the Company, but the Company
incurred an operating loss of $6,615 from Wall Street operations.

            On October 22,  1997,  Wall Street  entered  into a  sub-contracting
agreement  with Columbia  Financial  Group  ("Columbia")  pursuant to which Wall
Street  has agreed to provide  public  relations  services  in  connection  with
Columbia's  contract  with  Winner's  Internet  Network,  Inc.  ("Winners").  In
consideration  for Wall Street's  services,  Columbia agreed to transfer to Wall
Street stock  purchase  warrants  for 50,000  shares of Winner's  stock,  with a
purchase price of $2.50 per share,  exercisable  for 12 months.  As of March 25,
1998,  the Company had not received the stock  purchase  warrants from Columbia.
Columbia transferred 10,000 shares of free trading Winner's common stock to Wall
Street, but failed to make any subsequent  transfers.  As of March 25, 1998, the
Company  had  sold  all  of the  Winner's  shares  it  received  from  Columbia.
Management does not anticipate receiving any additional shares from Columbia.

EMPLOYEES

            As of December 31,  1997,  the Company and its  subsidiaries  had no
full-time employees. As of March 20, 1998, Ralph Newton, the Company's president
was serving without compensation.



                                        3

<PAGE>



ITEM 2.               DESCRIPTION OF PROPERTY.

            On November 7, 1991, First West Life purchased the building and land
at 7860 East Berry Place, Englewood,  Colorado (the "East Berry Property"),  for
$361,285.  The land was comprised of .934 acres,  more or less, and the building
contained  approximately 13,479 square feet of rentable office space. First West
Life  transferred  the  property  to the  Company  on  October  14,  1994  as an
extraordinary dividend to the Company by special warranty deed. On July 3, 1996,
the Company sold the East Berry  Property,  in an  arms-length  transaction,  to
Westminster Associates, Ltd. ("Westminster"). Westminster is not affiliated with
the Company, any of the Company's affiliates,  or any director or officer of the
Company.  Subsequent  to the sale,  the Company moved its offices from suite 120
and began leasing suite 215 in the East Berry  Property.  The Company had leased
this space  through July,  1998, at an average rate of $1,375 per month.  During
December 1997, the Company  terminated its lease with  Westminster.  As of March
20,  1998,  the Company was using the  residence of Mr.  Newton,  a director and
President of the Company, as its principal offices.

ITEM 3.               LEGAL PROCEEDINGS.

            On March  10,  1995,  Joseph T.  Flynn  initiated  a lawsuit  in the
District Court in the City and County of Denver, State of Colorado,  against the
Company  and Ralph W.  Newton,  Jr.  The suit  pertained  to the Stock  Exchange
Agreement,  pursuant to which the Company  acquired First West Life in 1988. See
Item 13. Certain Relationships and Related Transactions.  Mr. Flynn alleged that
the Company  breached its contract with him by failing to pay him $150,000,  and
further alleged that there were shares owed to him pursuant to the contract. Mr.
Flynn  further  alleged  against the Company a claim for  specific  performance,
deceit  based on fraud,  breach of duty of good faith and fair  dealing,  unjust
enrichment,  and conversion.  Mr. Flynn sought appointment of a receiver for the
Company, compensatory and consequential damages, punitive damages, interest, and
an award of his costs and  attorney's  fees.  The Company filed an answer to the
complaint,  as well as a  counterclaim  against Mr. Flynn.  The Company  alleged
misrepresentation  by Mr.  Flynn in the  negotiation  for the sale of First West
Life, fraudulent concealment of certain liabilities, breach of fiduciary duty, a
constructive  trust of certain  funds,  negligent  misrepresentation  during the
course of Mr. Flynn's  employment as an actuary for the Company,  and negligence
in the  performance  of his  duties as an  actuary  for the  Company.  Trial was
scheduled  for June 24,  1996;  however,  in May 1996,  the Company  settled the
dispute with Mr.  Flynn for $73,000 in cash and the issuance of a $123,000  note
payable. The Company had previously recorded a payable balance of $183,538,  and
recorded  an  additional  $12,462  expense  as a result of the  settlement.  The
$123,000  note was paid  from the  proceeds  received  upon the sale of the East
Berry Property.

            On  September  29,  1995,  various  individuals  filed a suit in the
United  States  District  Court for the  District  of Nebraska  against  Premier
Capital Investment  Corporation,  Capital Reserve Corporation,  Ralph W. Newton,
Jr., Henry W. Hall,  Philip A. Bates,  Donald Yee, Linda M. Opfer, and Dennis G.
Haley (the  "Premier  Lawsuit").  The  lawsuit  related to the offer and sale of
securities of Premier,  which was formerly a subsidiary  of the Company,  during
the period of approximately  1988 through 1992. The complaint  generally alleged
fraud in  connection  with the sale of the  securities  of Premier and  asserted
liability  under the  Racketeering  Influenced  and  Corrupt  Organizations  Act
("RICO"),  as well as  several  common  law  theories.  The  Company  vigorously
defended the suit and a settlement  was reached  with all of the  plaintiffs  in
February  1997.  The  Company  made an  initial  cash  payment  in the amount of
$100,000,  and has made monthly payments to the plaintiffs  totaling $45,000. As
of December 31, 1997, the Company owed an additional  $35,000 to the plaintiffs,
which is to be paid in seven monthly installments of $5,000. No interest will be
due on any outstanding  installment  payments;  however, the Company has entered
into  a  Consent  to  Entry  of  Judgment  in the  then  outstanding  amount  of
installment payments.

            In  connection  with the  Premier  Lawsuit,  the  Company  agreed to
indemnify  various  defendants  for  their  legal  fees and  expenses.  Prior to
December 31, 1996, the Company agreed to settle any  indemnification  claims Mr.
Bates had against the Company,  in return for the Company's  payment of one-half
of Mr. Bates  expenses,  up to a maximum of $20,000.  During  1997,  the Company
agreed to indemnify  Mr. Newton and Ms. Opfer for the full amount of their legal
fees and expenses  incurred in connection with the Premier Lawsuit.  The Company
also  agreed to  indemnify  Mr. Hall for  one-half  of his legal  fees,  up to a
maximum of $20,000 in settlement of any claims of indemnification he had against
the Company.  The Company's  financial  statements  for the for the fiscal years
ending December 31, 1997, and

                                        4

<PAGE>



December 31, 1996,  reflect a liability of $35,000 and  $210,000,  respectively,
relating to the settlements and with Messrs. Bates and Hall, the indemnification
of Mr. Newton and Ms. Opfer, and the settlement in the Premier Lawsuit. See Item
6.  Management's  Discussion  and  Analysis  or Plan of  Operation  and  Item 7.
Financial Statements, including the Notes thereto.

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

            None.


                                     PART II

ITEM 5.               MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

            The  Company's  Common Stock traded on the  over-the-counter  market
from July 25, 1988 until April 4, 1997.  From May 30, 1989 to July 13, 1992, the
Company's Common Stock was traded on NASDAQ, under the symbol "CRCOA". The range
of high and low bid  prices  for each  fiscal  quarter  for  1997 and  1996,  as
reported by the OTC Bulletin Board, is as follows:

<TABLE>
<CAPTION>
                                                                                              BID OR TRADE PRICES
1997 FISCAL YEAR                                                                      HIGH                             LOW

<S>                                                                                <C>                             <C>
Quarter Ending 03/31/97.......................................................       $0.001                            $0.001
Quarter Ending 06/30/97.......................................................       $0.001                            $0.001
Quarter Ending 09/30/97.......................................................        N/A                               N/A
Quarter Ending 12/31/97.......................................................        N/A                               N/A

1996 FISCAL YEAR                                                                      HIGH                             LOW

Quarter Ending 03/31/96.......................................................     $ 0.015625                      $ 0.015625
Quarter Ending 06/30/96.......................................................     $ 0.015625                      $ 0.015600
Quarter Ending 09/30/96.......................................................     $ 0.015625                      $ 0.015625
Quarter Ending 12/31/96.......................................................     $ 0.015625                      $ 0.001000

</TABLE>

            As of March 25, 1998,  there were no market  makers in the Company's
shares.  The last reported trade by the OTC Bulletin Board was on November,  19,
1996 at $ $0.015625 per share.

            The above quotations  reflect  inter-dealer  prices,  without retail
mark-up,  mark-down,  or commission  and may not  necessarily  represent  actual
transactions.

            As of March 18, 1998, there were 655 record holders of the Company's
Common Stock, including shares held by the Company as treasury shares.

            During  the last two  fiscal  years,  no cash  dividends  have  been
declared on the Company's Common Stock.


                                        5

<PAGE>



ITEM 6.               MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

GENERAL

            Due to the sale of the East Berry Property,  the Company's financial
statements  for the fiscal year ending  December 31, 1996 reflect the  Company's
rental  operations  as  discontinued  operations.  See  Note 5 of the  Notes  to
Financial Statements included with this report.

LIQUIDITY

            The  Company  was  sued  in  connection   with  the  Stock  Exchange
Agreement, pursuant to which the Company acquired First West Life in 1988. Prior
to adjustment,  the balance of the  liabilities  incurred in connection with the
acquisition  was $559,000 plus $196,137 in accrued  interest.  During 1995,  the
Company  paid two of the  claimants,  with a  recorded  liability  of  $325,077,
$245,000 in full  satisfaction  of all obligations and to acquire their stock in
the  Company.  The cost of this  treasury  stock was  recorded  as $4,000 and an
extraordinary  gain of $84,077 was recorded  related to this settlement in 1995.
At December 31, 1995,  the Company had a recorded  liability of $183,538 owed to
the last remaining claimant.  In May 1996, the Company reached a settlement with
the third  claimant in the amount of $198,000,  and his 33,333 shares of Class A
common stock were returned to the Company.  See Item 1. Description of Business,
Item 3. Legal Proceedings, and Item 7. Financial Statements, including the Notes
thereto. Item 12. Certain Relationships and Related Transactions.

            As of December  31,  1997,  the Company had  recorded a liability of
$35,000   relating  to  the  Premier   Lawsuit  for   settlement   expenses  and
indemnification  as compared to $210,000 at December 31, 1996. Prior to December
31, 1996, the Company agreed to settle any indemnification  claims Mr. Bates had
against  the  Company,  in return for the  Company's  payment of one-half of Mr.
Bates expenses,  up to a maximum of $20,000.  During 1997, the Company agreed to
indemnify  Mr.  Newton and Ms. Opfer for the full amount of their legal fees and
expenses  incurred.  Also, the Company agreed to indemnify Mr. Hall for one-half
of his legal fees,  up to a maximum of $20,000,  in  settlement of any claims of
indemnification  which he had  against  the  Company.  The  Company's  financial
statements  for the year  ending  December  31,  1996,  reflect a  liability  of
$30,000, relating to the settlements with Messrs. Bates and Hall. See Item 3.
Legal Proceedings and Item 7. Financial Statements, including the Notes thereto.

            Cash flows from continuing  operations  during 1997 and 1996 reflect
net cash used of  $(278,176)  and  $(363,240),  respectively,  while  cash flows
provided by (used for)  investing  activities  for the same periods were $57,499
and $(33,733), respectively.

            At December  31, 1997,  and 1996 the Company had working  capital of
$(9,996)  and  $99,254,   respectively.   This  decrease  is  primarily  due  to
insufficient  revenue and  payments  relating to the  settlement  of the Premier
Lawsuit. If the Company should generate an operating loss for 1998 comparable to
the loss incurred for 1997,  virtually all of the Company's  remaining  cash and
working  capital  will be  depleted.  See " Results of  Operations"  below.  The
Company presently has no external sources of cash.

ASSETS

            At  December  31,  1997 the  Company  had total  assets of  $70,812,
compared to total  assets of $421,607 at December 31,  1996.  This  represents a
decrease of $350,795, which is attributable to the Company's loss for the fiscal
year.


                                        6

<PAGE>



RESULTS OF OPERATIONS

            The Company's net operating loss for 1997 decreased by approximately
71% due to decreases in litigation and settlement  expenses and employee related
expenses.  This resulted in a $153,917 loss from  continuing  operations  before
discontinued  operations and extraordinary  items in 1997, as compared to a loss
of $633,459 in 1996. In 1996,  the Company  recorded a $122,042 gain on the sale
of the  East  Berry  Property  and a loss  from  rental  operations  of  $9,818.
Accordingly,  the overall net loss for 1997 decreased  significantly as compared
to 1996. See "Liquidity" above.

            The  Company's   operating  expenses  were  comprised  primarily  of
salaries,  payroll  taxes,  and  employee  benefits  ($76,744);  legal  expenses
($64,055); and accounting and actuarial expenses ($7,355). While the Company has
continued to received income (and losses) from insurance residuals, interest and
dividends,  and investments,  these items are not a significant source of income
compared to the Company's operating expenses. Since the Company currently has no
significant source of revenue, the Company's working capital will continue to be
depleted by operating expenses.

            During  1997,  the Company  took  significant  measures to lower its
operating  expenses.  The Company terminated its lease and relocated its offices
to reduce its administrative expenses. In addition, as of June, 1997, Mr. Newton
no longer received  compensation  for his services.  See Item 1.  Description of
Business and Item 2. Description of Property.

            The  Independent  Auditors'  Report  and  Note  8 of  the  Notes  to
Financial  Statements  accompanying this report state that substantial doubt has
been raised  about the  Company's  ability to continue as a going  concern.  The
Company's  present business  operations do not generate  sufficient  revenues to
cover its operating  expenses.  The Company would have to obtain other  business
operations or severely reduce its operating expenses to remain viable, and there
can be no  assurance  that the  Company  will be able to do so.  As of March 20,
1998, the Company was seeking a merger or acquisition  opportunity.  See Item 1.
Description of Business.

ITEM 7.               FINANCIAL STATEMENTS.

            Please refer to pages beginning with F-1.

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

            Not Applicable.

                                    PART III

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

            The  following  table sets forth the names and ages of all directors
and executive officers of the Company as of the date of this report,  indicating
all positions and offices with the Company held by each such person:


<TABLE>

<CAPTION>
           NAME           AGE                             POSITION
<S>                        <C>      <C>
Ralph W. Newton, Jr.       70       Chairman of the Board of Directors, President, and Class B
                                    Director
Linda M. Opfer             48       Class B Director

</TABLE>

            Linda M. Opfer is the daughter of Ralph W. Newton, Jr.

            Class A directors are elected by the holders of the Company's  Class
A Common  Stock.  As a class,  the holders of the Common Stock have the right to
elect one less than a majority of the  directors.  Class B directors are elected
by

                                        7

<PAGE>



the holders of the Company's Class B Preferred Stock. As a class, the holders of
Preferred Stock have the right to elect a majority of the directors.  Cumulative
voting for  directors is not  permitted in either  Class.  The term of office of
both Class A  directors  and Class B directors  of the Company  ends at the next
annual meeting of the Company's  shareholders or when the successors are elected
and qualify.  The annual meeting of  shareholders  is specified in the Company's
bylaws to be held on the  fourth  Friday  in  August of every  year and the last
annual  meeting was held on August 27, 1993.  The term of office of each officer
of the  Company  ends at the  next  annual  meeting  of the  Company's  Board of
Directors,  expected to take place  immediately after the next annual meeting of
shareholders,  or when  his  successor  is  elected  and  qualifies.  Except  as
otherwise  indicated  below,  no  organization  by which any officer or director
previously  has been  employed is an  affiliate,  parent,  or  subsidiary of the
Company.

            RALPH W. NEWTON, JR. has been the Chairman of the Board of Directors
of the Company since August 1982 and the President  since  November 1992. He was
the  Chairman  of the Board of  Directors  of First  West Life until its sale in
October  1994.  Since he founded it in 1969,  he has been  president of Mountain
Pacific  Investment  Company,  a  former  investment  banking  firm  which is in
existence,  but which  became  inactive in April  1985.  Mr.  Newton  received a
B.S.B.A. degree in accounting from Geneva College in 1965 and an M.Ed. degree in
education  from  Westminster  College  in 1968.  Mr.  Newton was a member of the
National Association of Securities Dealers, Inc. between 1969 and 1985.

            LINDA M. OPFER has been a director of the Company  since April 1986,
was the Executive  Vice President of the Company from April 1986 to August 1990,
and was the Assistant  Secretary  from August 1987 to August 1990.  She also has
been vice  president of Mountain  Pacific  Investment  Company  since 1979 which
company became inactive in 1985. She has been a homemaker for several years. Ms.
Opfer was a principal member of the National  Association of Securities Dealers,
Inc. from 1977 to 1985. She is the daughter of Ralph W. Newton, Jr.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

            No  directors,  officers,  or  beneficial  owners  of more  than ten
percent of  securities of the Company  reported to the Company any  transactions
involving  the  securities  during the  fiscal  year ended  December  31,  1997.
Accordingly,  there is no disclosure of any such transactions  contained in this
report.

ITEM 10.                EXECUTIVE COMPENSATION.

            The following  table sets forth  information for the Chief Executive
Officer  ("CEO") of the Company,  Ralph W.  Newton,  Jr. No  disclosure  need be
provided  for any  executive  officer,  other than the CEO,  whose total  annual
salary and bonus for the last  completed  fiscal  year did not exceed  $100,000.
Accordingly,  no other  executive  officers of the  Company are  included in the
table.

<TABLE>
<CAPTION>
                                                                              LONG TERM COMPENSATION
                                    ANNUAL COMPENSATION                     AWARDS                      PAYOUTS
                                                 OTHER          RESTRICTED
NAME AND                                         ANNUAL           STOCK           OP-           LTIP              ALL OTHER
PRINCIPAL                                        COMPEN-         AWARD(S)     TIONS/SARS      PAYOUTS ($)          COMPEN-
POSITION       YEAR        SALARY      BONUS     SATION ($)         ($)           ($)                              SATION ($)
<S>            <C>         <C>         <C>           <C>            <C>           <C>            <C>                 <C>
Ralph W.       1997        $26,000      -0-          -0-            -0-           -0-            -0-                 -0-
Newton, Jr.    1996       $100,000      -0-          -0-            -0-           -0-            -0-                 -0-
Chairman       1995        $96,000     $4,000        -0-            -0-           -0-            -0-                 -0-
and Presi-
dent

</TABLE>
            There are no outstanding stock options.

            There  are no  employment  agreements  with  any  of  the  Company's
executive officers.


                                        8

<PAGE>



            The Company does not pay non-officer directors for their services as
such nor does it pay any director's  fees for attendance at meetings.  Directors
are reimbursed for any expenses  incurred by them in their  performance as direc
tors.

STOCK OPTION PLANS

            The Company has adopted an Incentive  Stock Option Plan ("ISOP") and
Non-Qualified  Stock Option Plan  ("Non-Qualified  Plan"). Both the ISOP and the
Non-Qualified  Plans  permit the Board of  Directors or a committee of directors
(the  "Committee")  to grant stock  options to key  management  employees of the
Company.  Such individuals will be selected from employees  (excluding directors
who are not full-time employees of the Company) who have technical,  managerial,
supervisory, or professional responsibilities.

            It is intended that all options  granted under the ISOP will qualify
as incentive  stock options  under Section 422A of the Internal  Revenue Code of
1986, as amended.  Options for up to 18,000 shares of Common Stock may be issued
under the ISOP. If any such options are issued, they may be exercised at a price
that is not less than 110% of the fair market  value of the stock on the day the
option is granted.

            Options  granted  under the  Non-Qualified  Plan which are presently
exercisable,  are not intended to qualify as incentive  stock option plans under
the Internal Revenue Code of 1986, as amended. The aggregate number of shares of
Common  Stock which may be subject to options  under the  Non-Qualified  Plan is
18,000.  If any such options are issued,  they are to be exercised at a price of
$5.00 per share.

            As of the date of this Annual  Report,  no options have been granted
under either plan.

            Under both Plans,  the Board of  Directors  grants  options  only to
individuals  who,  in the  judgment  of the  Committee,  have  made  significant
contributions to the Company.  There is no formula for determining the number of
options to be granted under the Plans.  Options are anticipated to be granted on
the basis of annual performance  reviews. Any grants of options will reflect the
Committee's  judgment  (in its sole  discretion)  of the  relative  value of the
contribution of the grantee in respect to such matters as revenue production and
expense control.

ITEM 11.              SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                      MANAGEMENT.

            The following  table sets forth  information,  as of March 20, 1998,
with  respect to the  beneficial  ownership  of the  Company's  Common Stock and
Preferred  Stock by each person known by the Company to be the beneficial  owner
of more than five percent of the outstanding  Common Stock and Preferred  Stock,
by each  of the  Company's  officers  and  directors,  and by the  officers  and
directors  of the Company as a group.  Information  is also  provided  regarding
beneficial  ownership  of Common  Stock if the  Preferred  Stock is converted to
Common  Stock  (at a ratio of .8 shares  of  Common  Stock  for  every  share of
Preferred Stock):

<TABLE>
<CAPTION>

                                                                                                   IF ALL SHARES OF PREFERRED
                                                                                                  STOCK ARE CONVERTED TO COM-
                                      COMMON STOCK                       PREFERRED STOCK                  MON STOCK (1)<F1>
                                NUMBER OF     PERCENT OF          NUMBER OF        PERCENT OF       NUMBER OF      PERCENT OF
BENEFICIAL OWNER                 SHARES        CLASS (2)<F2>       SHARES           CLASS (3)<F3>     SHARES        CLASS (4)<F4>
<S>                               <C>            <C>              <C>                <C>
Ralph W. Newton, Jr.              -0-            --               70,000 (5)<F5>     28.00%           56,000          7.51%
One Cleek Way
Littleton, CO  80123

Patricia L. Newton                -0-            --               70,000 (5)<F5>      28.00%          56,000          7.51%
One Cleek Way
Littleton, CO  80123


                                                                             9

<PAGE>


<CAPTION>
                                                                                                   IF ALL SHARES OF PREFERRED
                                                                                                  STOCK ARE CONVERTED TO COM-
                                      COMMON STOCK                       PREFERRED STOCK                  MON STOCK (1)<F1>
                                NUMBER OF     PERCENT OF          NUMBER OF        PERCENT OF       NUMBER OF      PERCENT OF
BENEFICIAL OWNER                 SHARES        CLASS (2)<F2>       SHARES           CLASS (3)<F3>     SHARES        CLASS (4)<F4>
<S>                               <C>            <C>               <C>               <C>
Harding, Shultz & Downs(6)<F6>    -0-            --                74,125            29.65%           59,300          7.95%
800 Lincoln Square
121 South 13th Street
Lincoln, Nebraska 68501

Linda M. Opfer                    -0-            --                  -0-               --               -0-            --

Officers and Directors as a       -0-            --                70,000            28.00%           56,000          7.51%
  group (2 persons)
---------------

<FN>

<F1>
(1) As of the date of this Annual Report, no shares of Preferred Stock have been
    converted.
<F2>
(2) Based on 546,045 shares of Common Stock outstanding.

<F3>
(3) Based on 250,000 shares of Preferred Stock outstanding.

<F4>
(4) Based on 746,045 shares of Common Stock outstanding, assuming the conversion
    of all shares of Preferred Stock at a ratio of .8 shares of Common Stock for
    every share of Preferred Stock.

<F5>
(5) Patricia L. Newton is the wife of Ralph W. Newton,  Jr. Ms.  Newton has sole
    voting and dispositive  power with respect to her 70,000 shares of Preferred
    Stock and Mr. Newton has sole voting and  dispositive  power with respect to
    his 70,000  shares of Preferred  Stock.  For this reason,  the shares of Mr.
    Newton and Ms. Newton are not attributed to the other.


<F6>
(6) Shares  transferred  from Mr. Hall and Mr. Bates  pursuant to the Settlement
    Agreement. See Item 3. Legal Proceedings.

</FN>
</TABLE>

ITEM 12.              CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

TRANSACTIONS WITH FIRST WEST LIFE INSURANCE COMPANY

            After  negotiations  which  began on April  21,  1988,  the  Company
acquired 100% of the outstanding  stock of First West Financial  Services,  Inc.
("FWFS") and its subsidiary,  First West Life, on June 10, 1988, in exchange for
100,000 shares of the Company's Common Stock with an estimated fair market value
of $10.00 per share,  $931,304 cash, and a liability to the former  shareholders
of First  West Life of  $459,000.  The due date of the  liability  to the former
shareholders  of FWFS is  contingent  upon  the  Company  selling  those  shares
purchased  from  First West Life under the Stock  Exchange  Agreement  back into
treasury of First West Life at the time of effecting  further  surplus relief in
the amount of  $300,000,  or more,  through the  existing  modified  coinsurance
contract with  Beneficial  Life Insurance  Company upon terms  acceptable to the
Commissioner of Insurance, or the sale of the life insurance business book at no
less than $1.8 million, or effectuation of not less than $1.4 million of surplus
relief  through a replacement  insurance or  coinsurance  contract with Security
Life Insurance Company,  or another reinsurer.  In connection with the Exchange,
the  Company  agreed  to pay the  former  shareholders  of  First  West  Life an
additional $150,000 ($50,000 to each of the three shareholders) if certain price
($20.00 per share) and marketability of the stock issued in the Exchange was not
attained by June 29, 1990. At December 31, 1989,  the Company  reduced the value
of the Common Stock  issued for the  acquisition  and  recorded  the  additional
$150,000  due the former  shareholders  of First West Life as a  liability  (the
"Additional Liability").

            Prior to  adjustment,  the  balance of the  liabilities  incurred in
connection with the acquisition was $559,000 plus $196,137 in accrued  interest.
Interest  expense of $114,445,  that was  previously  recorded,  was reversed as
other income in 1994. Payments made in 1991 through 1994 totaling $41,385, which
were  previously  recorded as reductions to accrued  interest,  were adjusted to
reduce the notes payable.  After adjustment,  the balance of the liabilities was
$508,615 and no accrued  interest.  In 1995, the Company settled with two of the
three original shareholders of First West Life by

                                       10

<PAGE>



paying a total of  $245,000  cash.  At  December  31,  1995,  the  Company had a
recorded liability of $183,538 owed to the last remaining claimant. In May 1996,
the  Company  reached a  settlement  with the third  claimant  in the  amount of
$198,000,  and his 33,333  shares of Class A common  stock were  returned to the
Company.  See Item 1. Description of Business,  Item 3. Legal  Proceedings,  and
Item 7. Financial Statements, including the Notes thereto.


                                       11

<PAGE>


<TABLE>
ITEM 13.                EXHIBITS AND REPORTS ON FORM 8-K.


            (a)         Exhibits:
<CAPTION>

       REGULATION                                                                                                CONSECUTIVE
       S-B NUMBER                                                           EXHIBIT                              PAGE NUMBER
          <S>              <C>                                                                                       <S>
           2.1             Stock Purchase Agreement dated July 29, 1994 (1)<F1>                                      N/A

           3.1             Articles of Incorporation, as amended (2)<F2>                                             N/A

           3.2             Amended Bylaws (9)<F9>                                                                    N/A

           4.1             Form of Warrant Agreement (3)<F3>                                                         N/A

          10.1             Stock Exchange Agreement dated April 29, 1988, between the Company                        N/A
                           and the selling shareholders of First West Financial Services, Inc. and First
                           West Life Insurance Company (4)<F4>

          10.2             Supplemental Agreement dated June 17, 1988, between the Company and                       N/A
                           the selling shareholders of First West Financial Services, Inc. (4)<F4>

          10.3             Order of John Kezer, Insurance Commissioner of the State of Colorado                      N/A
                           dated June 29, 1988 (4)<F4>

          10.4             Supplemental  Agreement  (A)  dated  June  21,  1988,                                     N/A
                           between the Company N/A and the selling  shareholders
                           of First West Financial (4)<F4>

          10.5             Promissory Note payable to Joseph T. Flynn, Dennis G. Haley, and Donald                   N/A
                           Yee (5)<F5>

          10.6             Promissory Note payable to the Company from Joseph T. Flynn and                           N/A
                           Jacqueline M. Flynn (5)<F5>

          10.7             Real estate conveyance documents for purchase of 7860 E. Berry Place (6)<F6>              N/A

          10.8             Stock Purchase Agreement with Philip A. Bates dated December 1, 1993                      N/A
                           (7)<F7>

          10.9             Settlement Agreement and Mutual General Release by and between Joseph                     N/A
                           T. Flynn, Jacqueline M. Flynn, Capital Reserve Corporation,  and Ralph
                           Newton (8)<F8>

         10.10             Contract to Buy and Sell Real Estate for sale of 7860 East Berry Place. (10)<F10>         N/A

         10.11             Office Lease (10)<F10>                                                                    N/A

         10.12             Settlement Agreement (11)<F11>                                                            N/A

         10.13             Sub-Contracting Agreement with Columbia Financial Group (12)<F12>                         N/A

           27              Financial Data Schedule                                                                   28

----------------------------
<FN>
<F1>
(1)         Incorporated  by reference to the Exhibits  filed with the Company's
            Form 8-K dated October 14, 1994.

<F2>
(2)         Incorporated by reference to the Exhibits  previously filed with the
            Company's  Annual  Report on Form  10-K for the  fiscal  year  ended
            December 31, 1990.


                                       12

<PAGE>



<F3>
(3)         Incorporated  by reference to the Exhibits  filed with the Company's
            Registration Statement on Form S-18, Registration No. 33-21118-D.

<F4>
(4)         Incorporated  by reference to the Exhibits  filed with the Company's
            Form 8-K dated June 30, 1988.

<F5>
(5)         Incorporated by reference to the Exhibits  previously filed with the
            Company's  Annual  Report on Form  10-K for the  fiscal  year  ended
            December 31, 1988,  as amended by Form 8 Amendment  No. 1, dated May
            15, 1989.

<F6>
(6)         Incorporated by reference to the Exhibits  previously filed with the
            Company's  Annual  Report on Form  10-K for the  fiscal  year  ended
            December 31, 1991.

<F7>
(7)         Incorporated by reference to the Exhibits  previously filed with the
            Company's  Annual  Report on Form  10-KSB for the fiscal  year ended
            December 31, 1993.

<F8>
(8)         Incorporated by reference to the Exhibits  previously filed with the
            Company's  Quarterly  Report on Form 10- QSB for the  quarter  ended
            June 30, 1996.

<F9>
(9)         Incorporated by reference to the Exhibits  previously filed with the
            Company's  Annual  Report on Form  10-KSB for the fiscal  year ended
            December 31, 1994.

<F10>
(10)        Incorporated by reference to the Exhibits  previously filed with the
            Company's  Quarterly  Report on Form 10- QSB for the  quarter  ended
            September 30, 1996.

<F11>
(11)        Incorporated by reference to the Exhibits  previously filed with the
            Company's  Annual  Report on Form 10- KSB/A  Amendment No. 1 for the
            fiscal year ended December 31, 1996.

<F12>
(12)        Incorporated by reference to the Exhibits  previously filed with the
            Company's  Quarterly  Report on Form 10- QSB for the  quarter  ended
            September 30, 1997.

</FN>
</TABLE>

            (b)         The  following  reports on Form 8-K were  filed  during
                        the last quarter of the period covered by this report:
                        None



                                       13

<PAGE>



                                   SIGNATURES

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

                                CAPITAL RESERVE CORPORATION



Dated: March 27, 1998           By:/s/Ralph W. Newton, Jr.
                                        Ralph W. Newton, Jr., President

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



/s/ Ralph W. Newton, Jr.        March 27, 1998
Ralph W. Newton, Jr., Chairman of the Board of
Directors and President (Principal Executive,
Financial and Accounting Officer)



/s/Linda M. Opfer               March 27, 1998
Linda M. Opfer, Director


14:1997.10K



<PAGE>

                             FINANCIAL STATEMENTS

                                     AND

                         INDEPENDENT AUDITORS' REPORT

                         CAPITAL RESERVE CORPORATION

                              December 31, 1997



                                    F-1

<PAGE>









                               C O N T E N T S



                                                                         PAGE

INDEPENDENT AUDITORS' REPORT                                             F-3

CONSOLIDATED FINANCIAL STATEMENTS

      BALANCE SHEET                                                      F-4

      STATEMENTS OF OPERATIONS                                           F-5

      STATEMENTS OF STOCKHOLDERS' EQUITY                                 F-6

      STATEMENTS OF CASH FLOWS                                           F-7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           F-8 TO F-13




                                    F-2

<PAGE>









                         INDEPENDENT AUDITORS' REPORT


Board of Directors
Capital Reserve Corporation


      We have audited the  accompanying  consolidated  balance  sheet of Capital
Reserve  Corporation  as of December  31,  1997,  and the  related  consolidated
statements  of  operations,  stockholders'  equity,  and cash flows for the year
ended December 31, 1997. These financial  statements are the  responsibility  of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit. The consolidated  statements of Capital
Reserve  Corporation  as of December  31, 1996,  were audited by other  auditors
whose report dated February 25, 1997,  expressed an unqualified opinion on those
statements.

      We conducted  our audit 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 presentations.
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 Capital Reserve Corporation
as of December 31, 1997,  and the results of its  operations  and its cash flows
for the year ended  December 31, 1997, 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 shown in the financial  statements,
the Company incurred a net loss from continuing  operations of $153,917 for 1997
and it has incurred  substantial net losses for each of the past three years. As
of December 31, 1997,  the Company had no source of  operating  revenues.  These
factors and the others  discussed in Note 8, raise  substantial  doubt about the
Company's  ability to continue as a going concern.  The financial  statements do
not include any adjustments relating to the recoverability and classification of
recorded assets, or the amounts and  classification of liabilities that might be
necessary in the event the Company cannot continue in existence.

                       /S/BRADEEN, CAMPBELL & CLARR CPA'S, P.C.
Denver, Colorado
February 25, 1998



                                    F-3

<PAGE>


<TABLE>

                         CAPITAL RESERVE CORPORATION
                          CONSOLIDATED BALANCE SHEET
                              DECEMBER 31, 1997

<CAPTION>
                                     ASSETS


<S>                                                                   <C>
CURRENT ASSETS (NOTE 7)
  CASH AND CASH EQUIVALENTS (NOTE 1)                                     $  8,748
  MARKETABLE SECURITIES (NOTE 1)                                           29,917
  OTHER CURRENT ASSETS                                                        351
                                                                      -----------

      TOTAL CURRENT ASSETS                                                 39,016
                                                                      -----------


EQUIPMENT - AT COST
  FURNITURE AND FIXTURES                                                   34,901
      LESS ACCUMULATED DEPRECIATION (NOTE 1)                             (14,280)
      NET EQUIPMENT                                                        20,621
                                                                      -----------


OTHER ASSETS
  INVESTMENTS                                                              11,175
                                                                      -----------

      TOTAL ASSETS                                                       $ 70,812
                                                                      ===========

<CAPTION>
                      LIABILITIES AND STOCKHOLDERS' EQUITY

<S>                                                                   <C>
CURRENT LIABILITIES
  ACCOUNTS PAYABLE                                                       $ 13,293
  ACCRUED LIABILITIES                                                         719
  OTHER (NOTE 3)                                                           35,000
                                                                      -----------

      TOTAL CURRENT LIABILITIES                                            49,012
                                                                      -----------


COMMITMENTS AND CONTINGENCIES (NOTE 3)


STOCKHOLDERS' EQUITY (NOTES 1 AND 4)
  CLASS A COMMON STOCK - AUTHORIZED 20,000,000 SHARES
   OF NO PAR VALUE; ISSUED AND OUTSTANDING
   546,045 SHARES                                                       3,138,102
  CLASS B PREFERRED STOCK - AUTHORIZED 250,000 SHARES
   OF NO PAR VALUE; ISSUED AND OUTSTANDING
   250,000 SHARES                                                          50,000
  ACCUMULATED DEFICIT                                                 (3,166,302)
                                                                      -----------

      TOTAL STOCKHOLDERS' EQUITY                                           21,800
                                                                      -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                               $ 70,812

                                                                      ===========

</TABLE>


       The accompanying notes are an integral part of these statements.

                                       F-4

<PAGE>



                         CAPITAL RESERVE CORPORATION
                    CONSOLIDATED STATEMENTS OF OPERATIONS


                                                 YEAR ENDED DECEMBER 31,
                                                 ------------------------

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

REVENUE
  INSURANCE RESIDUALS                               $ 17,938       $ 18,293
  INTEREST AND DIVIDENDS                               1,776          7,052
  INVESTMENT GAIN (LOSSES)                            27,565       (17,256)
  LOSS ON SALE OF FIXED ASSETS                      (13,397)              -
  OTHER                                               19,888            179
                                                 -----------    -----------

      TOTAL REVENUES                                  53,770          8,268
                                                 -----------    -----------

EXPENSES
  GENERAL AND ADMINISTRATIVE                         207,687        449,265
  OTHER (NOTES 2 AND 3)                                    -        192,462
                                                 -----------    -----------

      TOTAL EXPENSES                                 207,687        641,727
                                                 -----------    -----------

      NET (LOSS) FROM CONTINUING OPERATIONS        (153,917)      (633,459)
                                                 -----------    -----------

(LOSS) FROM DISCONTINUED RENTAL
  OPERATIONS (NOTES 1 AND 5)                               -        (9,818)
GAIN ON SALE OF BUILDING (NOTE 5)                          -        122,042
                                                 -----------    -----------

      NET INCOME FROM DISCONTINUED OPERATIONS              -        112,224
                                                 -----------    -----------

NET (LOSS)                                       $ (153,917)    $ (521,235)
                                                 ===========    ===========

NET (LOSS) PER COMMON SHARE (NOTE 1)
  CONTINUING OPERATIONS                                (.28)         (1.13)
  DISCONTINUED OPERATIONS                                  -            .20
                                                 -----------    -----------

NET (LOSS) PER COMMON SHARE                      $     (.28)    $     (.93)
                                                 ===========    ===========



       The accompanying notes are an integral part of these statements.

                                    F-5

<PAGE>

<TABLE>

                         CAPITAL RESERVE CORPORATION
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                   YEARS ENDED DECEMBER 31, 1997, AND 1996

<CAPTION>

                                 Class A                     CLASS B
                                  Stock                       STOCK
                                 Common                     PREFERRED
                        -------------------------    ------------------------

                                                                                    ACCUMULATED
                          Shares         AMOUNT          SHARES        AMOUNT         DEFICIT

<S>                     <C>           <C>              <C>           <C>           <C>
December 31, 1995           579,378     $ 3,140,102       250,000      $ 50,000    $ (2,491,150)
Redemption of common
  stock (Note 1)           (33,333)         (2,000)             -             -                -
Net (loss)                        -               -             -             -        (521,235)
                        -----------   -------------    ----------    ----------    -------------

December 31, 1996           546,045       3,138,102       250,000        50,000      (3,012,385)
Net (loss)                        -               -             -             -        (153,917)
                        -----------   -------------    ----------    ----------    -------------

December 31, 1997           546,045     $ 3,138,102       250,000      $ 50,000    $ (3,166,302)
                        ===========   =============    ==========    ==========    =============
</TABLE>

       The accompanying notes are an integral part of these statements.

                                    F-6

<PAGE>

<TABLE>

                         CAPITAL RESERVE CORPORATION
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>


                                                       YEAR ENDED DECEMBER 31,
                                                      -------------------------

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

<S>                                                   <C>             <C>
OPERATING ACTIVITIES:
  NET (LOSS) FROM CONTINUING OPERATIONS                $ (153,917)    $ (633,459)
                                                      ------------    -----------
  RECONCILING ADJUSTMENTS
   DEPRECIATION AND AMORTIZATION                             9,947          7,678
   LOSS ON EQUIPMENT SALES                                  13,397              -
   (GAIN) LOSS ON INVESTMENTS                             (27,565)         17,256

   CHANGES IN OPERATING ASSETS AND LIABILITIES
     CURRENT ASSETS                                         76,840         24,437
     ACCOUNTS PAYABLE AND ACCRUED LIABILITIES            (196,878)        220,848
                                                      ------------    -----------

      TOTAL ADJUSTMENTS                                  (124,259)        270,219
                                                      ------------    -----------

      NET CASH (USED FOR) CONTINUING OPERATIONS          (278,176)      (363,240)
                                                      ------------    -----------

DISCONTINUED OPERATIONS:
  NET CASH PROVIDED BY DISCONTINUED OPERATIONS
   AND SALE THEREOF                                              -        465,582
                                                      ------------    -----------

INVESTING ACTIVITIES:
  PURCHASE OF INVESTMENTS                                 (47,545)      (209,216)
  PROCEEDS FROM SALE OF INVESTMENTS                         96,653        185,118
  PURCHASE OF PROPERTY AND EQUIPMENT                       (8,109)        (9,635)
  PROCEEDS FROM SALE OF EQUIPMENT                           16,500              -
                                                      ------------    -----------

   NET CASH (USED FOR) PROVIDED BY
     INVESTING ACTIVITIES                                   57,499       (33,733)
                                                      ------------    -----------


FINANCING ACTIVITIES:
  REDEMPTION OF COMMON STOCK (NOTE 2)                            -        (2,000)
  PAYMENT ON NOTES PAYABLE - RELATED PARTY
   (NOTE 2)                                                      -      (183,538)
                                                      ------------    -----------

      NET CASH (USED FOR) FINANCING ACTIVITIES                   -      (185,538)
                                                      ------------    -----------

NET CHANGE IN CASH AND CASH EQUIVALENTS                  (220,677)      (116,929)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR             229,375        346,304
                                                      ------------    -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR              $      8,748      $ 229,375
                                                      ============    ===========
</TABLE>

       The accompanying notes are an integral part of these statements.

                                    F-7

<PAGE>



                         CAPITAL RESERVE CORPORATION
                  Notes to Consolidated Financial Statements
                              December 31, 1997

Note 1 - Summary of Significant Accounting Policies

This summary of significant  accounting  policies of Capital Reserve Corporation
(CRC)  is  presented  to  assist  in  understanding   the  Company's   financial
statements.  The financial statements and notes are representations of Company's
management  who is  responsible  for  their  integrity  and  objectivity.  These
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.

ORGANIZATION

The Company was  incorporated  in Colorado in 1982,  and  operated an  insurance
agency and a life insurance  company.  The insurance  business was sold in 1994.
The life insurance agency was retained,  but is currently inactive.  The Company
owned rental property until July 3, 1996 (see Note 5).

The Company  has no source of  operating  revenues  after the sale of its rental
property.  Management has started a financial  consulting  and public  relations
firm under the name Wall Street Investment Corp. The new venture has no revenues
as of December 31, 1996. The Company entered into its first consulting agreement
in January 1997.  Management  is also  exploring  various other future  business
opportunities.

USE OF ESTIMATES

The  preparation  of the  Company's  financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts  reported in these financial  statements
and accompanying notes. Actual results could differ from those estimates.

BASIS OF CONSOLIDATION

The  consolidated  financial  statements  include  CRC,  and  its  wholly  owned
subsidiary,  Wall Street Investment  Corporation (Wall Street).  All significant
intercompany accounts and transactions have been eliminated.

COMPARABILITY OF FINANCIAL STATEMENTS

Discontinued operations in the statements of operations and cash flows have been
reclassified  for the year  ended  December  31,  1997,  in  order to make  them
comparable to the current  financial  statements.  There is no effect on the net
loss.

DEPRECIATION

Depreciation  has been  provided  in amounts  sufficient  to relate the costs of
depreciable  assets to operations over their estimated useful lives  principally
on  the  straight-line  method.  Real  estate  is  depreciated  over  thirty  to
thirty-nine years, and other property is depreciated over three to seven years.


                                       F-8

<PAGE>



                         CAPITAL RESERVE CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                              DECEMBER 31, 1997

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows,  the Company  considers all highly
liquid debt instruments with an original  maturity of three months or less to be
cash equivalents.

MARKETABLE SECURITIES

The Company's  securities  investments  that are bought and held principally for
the  purpose  of  selling  them in the  near  term  are  classified  as  trading
securities.  Trading  securities  are  recorded on the balance  sheet in current
assets at their  fair  value as quoted by the  broker.  The change in fair value
during the year is included in earnings.

TREASURY STOCK

Treasury  stock  has been  treated  as  common  stock  redeemed  and  cancelled,
consistent with the Colorado Revised Statutes.

EARNINGS (LOSS) PER SHARE

Earnings  (loss) per share of common  stock is  computed  based on  546,045  and
558,522  weighted average number of common shares  outstanding  during the years
ended December 31, 1997, and 1996 respectively. Fully diluted earnings per share
are not presented because they are anti-dilutive.

NOTE 2 - TRANSACTIONS - RELATED PARTY

Effective June 29, 1988, the Company  acquired 100% of the outstanding  stock of
First West  Financial  Services and its  subsidiary,  First West Life  Insurance
Company,  in exchange for 100,000  shares of the Company's  Class A common stock
with an estimated fair market value of $1,000,000.  The Company paid $931,304 in
cash and recorded a liability to the three  stockholders  of the life  insurance
company of $508,615 as adjusted as of December 31, 1994.

The  Company  paid  two of  these  stockholders  with a  recorded  liability  of
$325,077, $245,000 during the year ended December 31, 1995, in full satisfaction
of all  obligations  and to acquire  their stock in the Company.  Four  thousand
dollars was recorded as the cost of this stock redemption. An extraordinary gain
of $84,077 was recorded related to this settlement in 1995.

The Company paid the third stockholder with a recorded liability at December 31,
1995,  of $183,538,  $198,000  during the year ended  December 31, 1996, in full
satisfaction  of all  obligations  and to acquire his stock in the Company.  Two
thousand  dollars was recorded as the cost of this stock  redemption,  and other
expense of $12,462 was recorded in 1996 related to this settlement.

During  1997,  the Company sold an  automobile  to an officer of the Company and
recognized a loss on this transaction.



                                       F-9

<PAGE>



                         CAPITAL RESERVE CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                              DECEMBER 31, 1997

NOTE 3 - COMMITMENTS AND CONTINGENCIES

The Company leased office space under a  non-cancellable  operating  lease which
was to expire July 1998. In December 1997,  the Company and the landlord  agreed
to terminate  the lease on February  28,  1998.  Rent expense for the year ended
December 31, 1997, is $15,757.

The Company  was a  defendant  in a lawsuit  filed by  stockholders  of a former
subsidiary  corporation  for alleged  securities  violations.  The suit asks for
damages totaling $2.4 million. A settlement agreement of the litigation has been
reached with all of the  plaintiffs.  As of December  31, 1996,  the Company has
accrued other expenses of $180,000 to be paid to the plaintiffs,  and $30,000 of
legal expense for indemnification claims. At December 31, 1997, the total amount
due to the plaintiffs was $35,000.

NOTE 4 - STOCKHOLDERS' EQUITY

The holders of the shares of Class A common  stock and Class B  preferred  stock
are  entitled  to one vote per  share,  and each  class  shares  equally  in any
dividends  declared.  Neither class of stock has preemptive rights. In the event
of dissolution  or liquidation of the Company,  the holders of shares of Class A
common  stock  shall be paid a  liquidation  price of $.10 per share  before any
assets are distributed to the holders of shares of Class B preferred  stock. Any
remaining  amount shall be distributed pro rata to the holders of shares of both
Class A common stock and Class B preferred stock. The holders of shares of Class
B preferred  stock  shall have the right to elect a  converted  into .8 share of
Class A common stock (with  appropriate  adjustment of the conversion  ratio for
any stock splits,  stock dividends,  or  recapitalization)  at the option of the
holders of the majority of the Class B preferred stock.

NOTE 5 - DISCONTINUED OPERATIONS

On July 3, 1996,  the Company sold the office  building  from which it conducted
its business and rented out space. The net proceeds received by the Company were
$501,276.

Discontinued operations are summarized as follows:


                                         1996
                                      ----------

Revenues                                $ 48,946
Expenses                                (58,764)
                                      ----------

Net loss (earnings)                    $ (9,818)
                                      ==========





                                      F-10

<PAGE>



                         CAPITAL RESERVE CORPORATION
            Notes to Consolidated Financial Statements, Continued
                              December 31, 1997

Note 6 - Income Taxes

There is no federal or state income tax expense related to continuing operations
of the Company for the years ended  December  31, 1997,  and 1996.  Capital loss
carryforwards  of  $20,000  were used for 1997 and 1996.  The  Company  has loss
carryforwards as follows:


                                                           Net
                                        Capital         Operating
                                         Losses           Losses
                                      ------------     ------------

Expiration Years

      1999                             $ 1,100,000     $          -
      2000-2004                                  -          900,000
      2005-2009                                  -          200,000
      2010                                       -          200,000
      2011                                       -          400,000
      2012                                       -          150,000
                                      ------------     ------------

                                       $ 1,100,000      $ 1,850,000
                                      ============      ===========



The net deferred tax assets due to loss carryforwards are as follows:


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

Deferred tax asset                     $ 1,055,000      $ 1,009,000
Valuation allowance                    (1,055,000)      (1,009,000)
                                      ------------     ------------

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







                                      F-11

<PAGE>



                         CAPITAL RESERVE CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                              DECEMBER 31, 1997

NOTE 7 - FINANCIAL INSTRUMENTS

MARKETABLE SECURITIES

The carrying amount of marketable  trading  securities in common stocks is equal
to its fair  value.  Cost,  for  purposes  of  calculating  gains or losses,  is
determined by specific identification.


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

Investment (losses) gains are detailed as follows:

Realized gains (losses) on common stock                $ 24,384     $  18,370
Increase in unrealized gains (losses)
  on common stock                                         4,181      (35,626)
                                                     ----------    ----------

Investment gains (losses)                              $ 27,565    $ (17,256)
                                                     ==========    ==========

OTHER INVESTMENTS

The carrying amount of other investments approximates fair value as estimated by
management.

NOTE 8 - GOING CONCERN

The  accompanying  financial  statements  have been prepared in conformity  with
generally accepted accounting principles, which contemplates continuation of the
Company as a going  concern.  However,  the  Company has  sustained  substantial
operating  losses in recent  years.  In addition,  the Company has no sources of
operating  revenues as of December 31, 1997. As stated in Note 1 "Organization,"
management has started a financial  consulting and public relations firm, and is
also exploring other future business opportunities. (See Note 9.)

NOTE 9 - SUBCONTRACTING AGREEMENT

On October 22, 1997, Wall Street entered into a  sub-contracting  agreement with
Columbia Financial Group (Columbia)  pursuant to which Wall Street has agreed to
provide public  relations  services in connection with Columbia's  contract with
Winner's Internet Network,  Inc.  (Winners).  In consideration for Wall Street's
services, Columbia has agreed to transfer to Wall Street stock purchase warrants
for 50,000 shares of Winner's  stock,  with a purchase price of $2.50 per share,
exercisable  for 12 months.  The Company  has not  received  the stock  purchase
warrants from Columbia.  Columbia has transferred  10,000 shares of free trading
Winner's common stock to Wall Street.  Columbia must also transfer an additional
6,000 shares of Winner's common stock to Wall Street,  at a rate of 1,000 shares
every thirty days, beginning December 6, 1997.





                                      F-12

<PAGE>


                         CAPITAL RESERVE CORPORATION
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
                              DECEMBER 31, 1997

NOTE 9 - SUBCONTRACTING AGREEMENT, CONTINUED

As of the date of this report,  Wall Street has received  only 10,000  shares of
Winner's Common Stock.








                                      F-13

<PAGE>




                                   Exhibit 27

                             Financial Data Schedule


<PAGE>