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, 1996

|_| 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.)

            7860 E. BERRY PLACE, SUITE 215, ENGLEWOOD, COLORADO 80111
           (Address of principal executive offices including zip code)

         Issuer's telephone number, including area code: (303) 220-5030

       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 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.[ ]

            Issuer's revenues for its most recent fiscal year. $8,268

                 Aggregate market value of the voting stock held
                       by non-affiliates of the registrant
                  as of March 26, 1997: $ 136,784 (See Item 5)

Number of shares outstanding of registrant's Class A Common Stock, no par value,
                          as of March 24, 1997: 546,045

                    Documents incorporated by reference: NONE

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

Exhibit index on consecutive page 11                         Page 1 of  42 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

         Until July, 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.

         At December 31, 1996, 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.

EMPLOYEES

         As of  December  31,  1996,  the  Company  and its  subsidiaries  had 4
full-time employees.

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
Capital  Reserve,  any of its affiliates,  or any director or officer of Capital
Reserve.  Subsequent  to the sale,  the Company moved its offices from suite 120
and began leasing suite 215 in the East Berry  Property.  The Company has leased
this space through July, 1998, at an average rate of $1,375 per month.



                                        3

<PAGE>



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 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.
Plaintiffs sought damages against all defendants in an aggregate amount of up to
$2,400,000,  together with interest,  costs, and attorneys' fees.  Subsequent to
the December 31,  1996,  the Company  reached a agreement in principle to settle
the lawsuit  with the  plaintiffs,  for an initial cash payment in the amount of
$100,000,  with an additional $80,000 to be paid to the plaintiffs in 18 monthly
installments of $5,000.  No interest will be due on any outstanding  installment
payments;  however,  the Company is entering into a Consent to Entry of Judgment
in the then outstanding amount of installment  payments.  As of the date of this
report, the settlement  agreement had been signed by the plaintiffs,  and was in
the process of being signed by the defendants.

         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. Subsequent to December 31, 1996, 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 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.

                                        4

<PAGE>



                                     PART II

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

         The Company's  Common Stock has traded on the  over-the-counter  market
since July 25, 1988.  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 1996 and for the month of January  1995,
and the range of actual trading prices for the remainder of 1995, as reported by
the OTC Bulletin Board, is as follows:

<TABLE>
<CAPTION>
                                                                               BID OR TRADE PRICES
1996 FISCAL YEAR                                                       HIGH                           LOW
<S>                                                                 <C>                           <C>
Quarter Ending 03/31/96...................................          $ 0.015625                    $ 0.015625
Quarter Ending 06/30/96...................................          $ 0.015625                     $ 0.0156
Quarter Ending 09/30/96...................................          $ 0.015625                    $ 0.015625
Quarter Ending 12/31/96...................................          $ 0.015625                     $ 0.0010
1995 FISCAL YEAR

Quarter Ending 03/31/95...................................            $ 0.13                        $ 0.13
Quarter Ending 06/30/95...................................            $ 0.06                        $ 0.06
Quarter Ending 09/30/95...................................            $ 0.02                        $ 0.02
Quarter Ending 12/31/95...................................            $ 0.02                        $ 0.02

</TABLE>

         As of March 26, 1997,  there was only one market maker in the Company's
shares and, therefore,  the OTC Bulletin Board does not have an inside bid price
on the Company's  shares.  On March 26, 1997, the reported bid and ask price for
the  Company's  Common Stock,  by the sole market maker,  were $ 0.001 and $.50,
respectively, as reported by the OTC Bulletin Board. The last reported trade 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 24,  1997 there were 658  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.

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.  Discontinued  operations in the
statements  of  operations  and cash flows have been  reclassified  for the year
ended  December  31,  1995 in  order  to make  them  comparable  to the  current
financial  statements.  There is no effect  on the net  loss.  See Note A 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

                                        5

<PAGE>



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,  1996,  the Company  had  recorded a liability  of
$210,000   relating  to  the  Premier   Lawsuit  for  settlement   expenses  and
indemnification.  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.
Subsequent to December 31, 1996,  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 1996 and 1995 reflect net
cash used of $(363,240) and $(308,965),  respectively, while cash flows provided
by (used for)  investing  activities  for the same  periods were  $(33,733)  and
$35,959, respectively.

         At December  31,  1996,  and 1995 the  Company  had working  capital of
$99,254 and $245,017,  respectively. This decrease is primarily due to increases
in current liabilities relating to the Premier Lawsuit, and the decrease in cash
associated with the Stock Exchange Agreement  settlement payment. If the Company
should  generate an operating loss for 1997  comparable to the loss incurred for
1996,  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, 1996 the Company had total assets of $421,607, compared
to total assets of $930,351 on December 31, 1995.  This represents a decrease of
$508,744,  which is  attributable to the Company's loss for the fiscal year. The
Company sold the East Berry Property and used the proceeds to fund the Company's
operations and for the payment of settlement expenses.

RESULTS OF OPERATIONS

         The Company's net operating  loss for 1996  increased by  approximately
81%  due to  litigation  and  settlement  expenses  and the  extraordinary  gain
recorded in 1995.  This resulted in a $633,459 loss from  continuing  operations
before discontinued operations and extraordinary items in 1996, as compared to a
loss of $349,238 in 1995. In 1996,  the Company  recorded a $122,042 gain on the
sale of the East Berry Property,  while in 1995, the Company  recorded a $84,077
gain from the settlement of certain debt. Accordingly,  the overall net loss for
1996 increased significantly (101%) as compared to 1995. See "Liquidity" above.

         The Company's rental operations generated a loss of $9,818 for 1996, as
compared to a profit of $5,310 for 1995. The Company's other operating expenses,
were  comprised  primarily of salaries,  payroll  taxes,  and employee  benefits
($205,528);  legal expenses  ($143,590);  and accounting and actuarial  expenses
($18,522).  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.



                                        6

<PAGE>



         The Independent  Auditors'  Report and Note H 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.


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.                       69     Chairman of the Board of Directors, President, and Class B
                                                  Director
Linda M. Opfer                             47     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 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.



                                        7

<PAGE>



         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.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         No directors,  officers,  or beneficial owners of more than ten percent
of  securities  of  the  Company  engaged  in  any  transactions  involving  the
securities  during the fiscal year ended December 31, 1995.  Accordingly,  there
were no Forms 3, 4, or 5 filed by such  persons  during  the  fiscal  year ended
December 31, 1995.

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.           1996       $ 100,000         -0-           -0-           -0-           -0-           -0-            -0-
Newton, Jr.        1995        $ 96,000       $ 4,000         -0-           -0-           -0-           -0-            -0-
Chairman           1994        $ 94,500      $ 150,000        -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.

         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.


                                        8

<PAGE>



         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 25, 1997, 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>             <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
Henry W. Hall                       -0-             --            55,425          22.17%          47,580          6.38%
1265 South Park Drive
Monument, CO  80132
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.

</FN>
</TABLE>


                                        9

<PAGE>



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.
The Company was contesting these  liabilities as of December 31, 1995.  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 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.




                                       10

<PAGE>



ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K.

<TABLE>
         (a)      Exhibits:
<CAPTION>
    REGULATION                                                                                        CONSECUTIVE
    S-B NUMBER                                         EXHIBIT                                        PAGE NUMBER
       <S>          <C>                                                                                   <C>  
       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, 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>                                                         28
27                  Financial Data Schedule                                                                42
----------------------------
<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.
<F3>
(3)      Incorporated by reference to the Exhibits filed with the Company's Registration Statement on Form S-18,
         Registration No. 33-21118-D.


                                                        11

<PAGE>


<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)     This exhibit is the subject of request for confidential treatment,  and
         is being filed  separately with the Securities and Exchange  Commission
         pursuant  to Reg.  ss.  240.24b-2.  Therefore,  this  exhibit  has been
         omitted from this filing pending a determination on the confidentiality
         of such exhibit by the  Securities  and Exchange  Commission.  The page
         number on the electronically filed version of this document do not take
         into account the omission of this item.
</FN>
</TABLE>
         (b)      The following  reports  on Form 8-K were filed during the last
                  quarter of the period covered by this report: None



                                       12

<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, 1997                    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, 1997
Ralph W. Newton, Jr., Chairman of the Board of
Directors and President (Principal Executive,
Financial and Accounting Officer)



/s/Linda M. Opfer                                             March 27, 1997
Linda M. Opfer, Director


14:1996.10K



                                       13

<PAGE>
                        CONSOLIDATED FINANCIAL STATEMENTS

                                       AND

                          INDEPENDENT AUDITORS' REPORT

                           CAPITAL RESERVE CORPORATION


                                DECEMBER 31, 1996

                                       F-1
<PAGE>












                                 C O N T E N T S


                                                                    PAGE


INDEPENDENT AUDITORS' REPORTS                                         3

CONSOLIDATED FINANCIAL STATEMENTS

  BALANCE SHEET                                                      4-5

  STATEMENTS OF OPERATIONS                                            6

  STATEMENTS OF STOCKHOLDERS' EQUITY                                  7

  STATEMENTS OF CASH FLOWS                                           8-9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                          10-14


                                       F-2
<PAGE>







                 [LETTERHEAD OF JOHN M. HANSON & COMPANY, P.C.]




Board of Directors
Capital Reserve Corporation

                          INDEPENDENT AUDITORS' REPORT

     We have  audited the  accompanying  consolidated  balance  sheet of Capital
Reserve  Corporation  as of December  31,  1996,  and the  related  consolidated
statements of  operations,  stockholders'  equity,  and cash flows for the years
ended  December  31,  1996  and  1995.   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 audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management, as well as evaluating the overall financial statement 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, 1996,  and the results of its  operations  and its cash flows
for the years ended  December  31, 1996 and 1995 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 $633,459 for 1996
and it has incurred  substantial net losses for each of the past three years. As
of December 31, 1996,  the Company had no source of  operating  revenues.  These
factors and the others  discussed in Note H, 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/John M. Hanson & Company, P.C.


Denver, Colorado

February 25, 1997

                                        F-3



<PAGE>

<TABLE>
<CAPTION>

                                            CAPITAL RESERVE CORPORATION
                                     CONSOLIDATED BALANCE SHEET (PAGE 1 OF 2)
                                                 DECEMBER 31, 1996

-------------------------------------------------------------------------------------------------------------------
<S>                                                                                                    <C>

                                                      ASSETS

CURRENT ASSETS (NOTE G)
  Cash and cash equivalents (Note A)                                                                   $229,375
  Marketable securities (Note A)                                                                        106,491
  Other current assets                                                                                    9,278
-------------------------------------------------------------------------------------------------------------------


      Total current assets                                                                              345,144


EQUIPMENT - AT COST
  Furniture and fixtures                                                                                 26,792
  Automobiles                                                                                            60,242
-------------------------------------------------------------------------------------------------------------------


      Total equipment                                                                                    87,034

      Less accumulated depreciation (Note A)                                                            (34,678)
-------------------------------------------------------------------------------------------------------------------


      Net equipment                                                                                      52,356



OTHER ASSETS
  Investments                                                                                            24,107
-------------------------------------------------------------------------------------------------------------------

      Total assets                                                                                     $421,607
===================================================================================================================

<CAPTION>

          The accompanying notes are an integral part of this statement

                                       F-4



<PAGE>




                                            CAPITAL RESERVE CORPORATION
                                     CONSOLIDATED BALANCE SHEET (PAGE 2 OF 2)

-------------------------------------------------------------------------------------------------------------------
<S>                                                                                                  <C>

                                       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                                                                     $ 35,391
  Accrued liabilities
    Property taxes                                                                                          499
    Other (Note C)                                                                                      210,000
-------------------------------------------------------------------------------------------------------------------


      Total current liabilities                                                                         245,890


COMMITMENTS AND CONTINGENCIES (NOTE C)                                                                        -



STOCKHOLDERS' EQUITY (NOTES A AND D)
  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                                                                                (3,012,385)
-------------------------------------------------------------------------------------------------------------------


      Total stockholders' equity                                                                        175,717
-------------------------------------------------------------------------------------------------------------------


Total liabilities and stockholders' equity                                                           $  421,607

===================================================================================================================

</TABLE>



          The accompanying notes are an integral part of this statement

                                       F-5



<PAGE>


<TABLE>
<CAPTION>

                                            CAPITAL RESERVE CORPORATION
                                       CONSOLIDATED STATEMENTS OF OPERATIONS

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

<S>                                                                          <C>                    <C>
Year Ended December 31,                                                             1996                   1995
-------------------------------------------------------------------------------------------------------------------


Revenue
  Insurance residuals                                                          $  18,293              $  17,252
  Interest and dividends                                                           7,052                 39,378
  Investment (losses)                                                            (17,256)               (35,721)
  Other                                                                              179                  5,804
-------------------------------------------------------------------------------------------------------------------


      Total revenues                                                               8,268                 26,713

Expenses
  General and administrative                                                     449,265                375,951
  Other (Notes B and C)                                                          192,462                      -
-------------------------------------------------------------------------------------------------------------------


      Total expenses                                                             641,727                375,951
-------------------------------------------------------------------------------------------------------------------


      Net (loss) from continuing operations                                     (633,459)              (349,238)

(Loss) income from discontinued rental
  operations (Notes A and E)                                                      (9,818)                 5,310
Gain on sale of building (Note E)                                                122,042                      -
-------------------------------------------------------------------------------------------------------------------


      Net income from discontinued operations                                    112,224                  5,310

Extraordinary item - gain on extinguishment
  of debt (Note B)                                                                     -                 84,077
-------------------------------------------------------------------------------------------------------------------


Net (loss)                                                                     $(521,235)             $(259,851)


Net (loss) per common share (Note A)
  Continuing operations                                                       $    (1.13)           $      (.57)
  Discontinued operations                                                            .20                    .01
-------------------------------------------------------------------------------------------------------------------


                                                                                    (.93)                  (.56)

  Extraordinary item                                                                   -                    .14
-------------------------------------------------------------------------------------------------------------------


Net (loss) per common share                                                  $      (.93)           $      (.42)

===================================================================================================================
</TABLE>


         The accompanying notes are an integral part of these statements

                                       F-6


<PAGE>

<TABLE>


                                            CAPITAL RESERVE CORPORATION
                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                      YEARS ENDED DECEMBER 31, 1996 AND 1995

---------------------------------------------------------------------------------------------------------------------------
<CAPTION>

                                                      Class A                       Class B
                                                       Stock                         Stock
                                                      COMMON                       PREFERRED
                                                                                                              Accumulated
                                             Shares           Amount         Shares          Amount            Deficit
---------------------------------------------------------------------------------------------------------------------------

<S>                                          <C>            <C>              <C>              <C>             <C>
December 31, 1994                            646,044        $3,144,102       250,000          $50,000         $(2,231,299)
Redemption of common
  stock (Note A)                             (66,666)           (4,000)            -                -                   -
Net (loss)                                         -                 -             -                -            (259,851)
---------------------------------------------------------------------------------------------------------------------------


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


December 31, 1996                            546,045        $3,138,102       250,000          $50,000         $(3,012,385)

===========================================================================================================================
</TABLE>




         The accompanying notes are an integral part of these statements

                                       F-7



<PAGE>


<TABLE>


                                            CAPITAL RESERVE CORPORATION
                                CONSOLIDATED STATEMENTS OF CASH FLOWS (PAGE 1 OF 2)

-------------------------------------------------------------------------------------------------------------------
<CAPTION>

Year Ended December 31,                                                              1996                  1995
-------------------------------------------------------------------------------------------------------------------

<S>                                                                            <C>                   <C>
Operating activities:
  Net (loss) from continuing operations                                        $ (633,459)           $ (349,238)
  Reconciling adjustments:
    Depreciation and amortization                                                   7,678                 9,184
    Loss on equipment sales                                                             -                (4,753)
    Loss on investments                                                            17,256                35,721

    Changes in operating assets and liabilities:
      Current assets                                                               24,437                14,104
      Accounts payable and accrued liabilities                                    220,848               (13,983)
-------------------------------------------------------------------------------------------------------------------


       Total adjustments                                                          270,219                40,273
-------------------------------------------------------------------------------------------------------------------


      Net cash (used for) continuing operations                                  (363,240)             (308,965)

Discontinued operations:
  Net cash provided by discontinued operations
    and sale thereof                                                              465,582                19,599

Investing activities:
  Sale of certificates of deposit                                                       -               189,000
  Purchase of investments                                                        (209,216)             (315,268)
  Proceeds from sale of investments                                               174,550               192,003
  Proceeds from partnership investment                                             10,568                     -
  Purchase of property and equipment                                               (9,635)              (35,427)
  Proceeds from sale of equipment                                                       -                 5,645
-------------------------------------------------------------------------------------------------------------------


      Net cash (used for) provided by
        investing activities                                                      (33,733)               35,953

<CAPTION>





         The accompanying notes are an integral part of these statements

                                       F-8



<PAGE>




                                            CAPITAL RESERVE CORPORATION
                                CONSOLIDATED STATEMENTS OF CASH FLOWS (PAGE 2 OF 2)

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


Year Ended December 31,                                                              1996                  1995
-------------------------------------------------------------------------------------------------------------------

<S>                                                                            <C>                   <C>
Financing activities:
  Redemption of common stock (Note B)                                              (2,000)               (4,000)
  Payment on notes payable - related party
    (Note B)                                                                     (183,538)             (241,000)
-------------------------------------------------------------------------------------------------------------------


      Net cash (used for) financing activities                                   (185,538)             (245,000)
-------------------------------------------------------------------------------------------------------------------


Net change in cash and cash equivalents                                          (116,929)             (498,413)
Cash and cash equivalents at beginning of year                                    346,304               844,717
-------------------------------------------------------------------------------------------------------------------


Cash and cash equivalents at end of year                                       $  229,375            $  346,304


===================================================================================================================


</TABLE>












         The accompanying notes are an integral part of these statements

                                       F-9



<PAGE>




                           CAPITAL RESERVE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

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


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION
The  Company  (CRC) 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 E).

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
subsidiaries.  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,  1995 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.

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.

                                      F-10



<PAGE>




                           CAPITAL RESERVE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

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


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 the 558,522 and
616,273  weighted average number of common shares  outstanding  during the years
ended December 31, 1996 and 1995, respectively. Fully diluted earnings per share
are not presented because they are anti-dilutive.

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


NOTE B - NOTES PAYABLE - 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.




                                      F-11


<PAGE>




                           CAPITAL RESERVE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

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


NOTE C - COMMITMENTS AND CONTINGENCIES

The Company leases office space under a non-cancellable operating lease expiring
July, 1998. Rent expense for the year ended December 31, 1996 is $7,238.  Future
minimum rental payments are as follows:

         1997                         $ 16,443
         1998                            9,821
                                     ---------
                                      $ 26,264

The  Company  is 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 verbal 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.
--------------------------------------------------------------------------------


NOTE D - 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 majority of the  directors of
the  Company.  Each share of Class B preferred  stock may be  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 E - 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.

<TABLE>
Discontinued operations are summarized as follows:


<CAPTION>
                                                                                  1996                   1995
                                                                               ---------              -------
<S>                                                                            <C>                    <C>
Revenues                                                                        $ 48,946               $100,664
Expenses                                                                          58,764                 95,354
                                                                               ---------              ---------
Net loss (earnings)                                                            $  (9,818)             $    5310
                                                                               =========              =========

</TABLE>

                                      F-12


<PAGE>




                           CAPITAL RESERVE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

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

NOTE F - INCOME TAXES

There is no federal or state income tax expense related to continuing operations
of the Company  for the years ended  December  31, 1996 and 1995.  Capital  loss
carryforwards of $100,000 were used for 1996. The Company has loss carryforwards
as follows:
<TABLE>
<CAPTION>
                                                                                                        Net
                                                                               Capital               Operating
Expiration Years                                                               LOSSES                 LOSSES
         <S>                                                              <C>                     <C>
         1999                                                                 $1,200,000          $           -
         2000-2004                                                                     -                900,000
         2005-2009                                                                     -                200,000
         2010                                                                          -                200,000
         2011                                                                          -                400,000
                                                                          --------------            -----------
                                                                              $1,200,000             $1,700,000
                                                                              ==========             ==========
The net deferred tax assets due to loss carryforwards are as follows:

                                                                                1996                   1995
                                                                            ------------           --------

Deferred tax asset                                                            $1,009,000             $  858,000
Valuation allowance                                                           (1,009,000)              (858,000)
                                                                              ----------            -----------
                                                                           $           -          $           -
                                                                           =============          =============


</TABLE>


















                                      F-13



<PAGE>



                           CAPITAL RESERVE CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1996

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


NOTE G - FINANCIAL INSTRUMENTS

CASH AND CASH EQUIVALENTS
The Company has  $136,000 of cash and cash  equivalents  in one bank  account at
December 31, 1996.

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.

<TABLE>
<CAPTION>
                                                                                  1996                   1995
                                                                               ---------              -------

Investment (losses) gains are detailed as follows:
<S>                                                                            <C>                    <C>
Realized gains (losses) on common stock                                         $ 18,370              $   9,076
Increase in unrealized (losses) gains
  on common stock                                                                (35,626)               (44,797)
                                                                               ---------               --------
Investment (losses) gains                                                       $(17,256)              $(35,721)
                                                                                ========               ========

</TABLE>

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


NOTE H - 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, 1996. As stated in Note A "Organization",
management has started a financial  consulting and public relations firm, and is
also exploring other future business opportunities.













                                      F-14


<PAGE>