FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

         X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
              For the Fiscal Year ended:    DECEMBER 31, 1996
                                       OR
         ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
          For the transition period from __________________ to _____________
                          Commission file number 1-355

                            DRAGON MINING CORPORATION
             (Exact name of registrant as specified in its charter)

                     UTAH                           87-0159350
         State or other jurisdiction of             (I.R.S. Employer
         incorporation or organization             Identification No.)

         107 WEST WADE, SUITE 7, P.O. BOX 9, PAYSON, ARIZONA 85547-0009
                    (Address of principal executive offices)

         Registrant's telephone number, including area code:   (520) 474-9151


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

                            Title of each class            Name of each exchange
on which registered
                   COMMON STOCK $.001 PAR VALUE
 NONE

           Securities registered pursuant to section 12(g) of the Act:
                                       N/A

                                (Title of class)

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

Aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
registrant as of March 22, 1997: N/A (SEE ITEM 5)

Number of shares  outstanding of registrant's  common stock, $.001 par value, as
of March 22, 1997: 23,143,826

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (S 229.405 of this chapter) is not contained herein,  and will
not be contained,  to the best of registrant's knowledge, in definitive proxy or
information statements  incorporated by reference in Part III of this Form 10-K.
[X] [Added in Release No.  34-28869  (84,709),  effective  May 1, 1991,  56 F.R.
7242.]

Exhibit index on consecutive page  ___                     Page 1 of       pages


<PAGE>



                                      INDEX

                                     PART I


                                                                     Page

Item 1.     Business                                                   3

Item 2.     Properties                                                 5

Item 3.     Legal Proceedings                                          5

Item 4.     Submission of Matters to a Vote of Security Holders        6

                                     PART II

Item 5.     Market for Registrant's Common Equity and                  
            Related Stockholder Matters                                6

Item 6.     Selected Financial Data                                    7

Item 7.     Management's Discussion and Analysis of Financial
            Condition and Results of Operations                        7

Item 8.     Financial Statements and Supplementary Data                8

Item 9.     Changes In and Disagreements with Accountants
            on Accounting and Financial Disclosure                     8

                                    PART III

Item 10.    Directors and Executive Officers of the Registrant         8

Item 11.    Executive Compensation                                     9

Item 12.    Security Ownership of Certain Beneficial Owners
            and Management                                             10

Item 13.    Certain Relationships and Related Transactions             10

                                     PART IV

Item 14.    Exhibits, Financial Statements Schedules and Reports
            on Form 8-K                                                11


                                        2

<PAGE>



                                     PART I

ITEM 1.                    BUSINESS

GENERAL AND HISTORICAL BACKGROUND

     The Company was incorporated in 1911 in Utah as Dragon  Consolidated Mining
Company and operated  profitably for many years in the Tintic Mining District of
Utah.  In  January  1985,  the  Company   changed  its  name  to  Dragon  Mining
Corporation. For a substantial period, the Company realized the major portion of
its income in the form of  royalties  from clay mining  operations  conducted by
lessees  within its "Dragon Pit" near Eureka,  Utah.  (See Item 2.  PROPERTIES.)
From July 1, 1977 to March 1983,  the Company did not conduct  operations.  From
May 1940 to October  1984,  the  Company  was  controlled  by North Lily  Mining
Company,  a subsidiary of the Anaconda  Company from June 1925 to March 1983. In
March  1983,  Claude K. Lee and  others  acquired  direct  control of North Lily
Mining Company and indirect control of the Company.

     Due to a  failure  to  file a 1992  Utah  annual  report  the  Company  was
mistakenly dissolved by the State of Utah. The Company has been reincorporated.

     During 1986,  North Lily Mining  Company  ("North  Lily")  consummated  the
acquisition  of 4,725,923  shares of the Company's  common stock in exchange for
shares of North Lily common stock,  thereby increasing North Lily's ownership of
the Company from 20.5% to 78.4%.

     During  May  1993  North  Lily  completed  the  sale of  6,055,836  shares,
representing 74.4% of the issued and outstanding shares, of the Company's common
stock to Van-Cap Equities Ltd.("Van-Cap").

     On June 24, 1994 Van-Cap sold  6,055,836 of the  Company's  common stock to
Marbella Capital Corporation ("Marbella").

     There are no current operations.

     The Company has no full-time employees.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

     No information is presented as to industry  segments.  The Company has been
primarily  engaged in a single line of business:  the acquisition,  exploration,
development of mineral properties and production therefrom.


                                        3

<PAGE>





GOVERNMENT REGULATIONS

     The Company's mining,  processing and exploration activities are subject to
various  laws  governing  the  protection  of  the   environment,   prospecting,
development,  production, exports, taxes, labor standards,  occupational health,
waste  disposal,  toxic  substances,  mine  safety  and  other  matters.  Mining
operations and exploration activities are also subject to substantial regulation
under these laws by governmental agencies.

      Failure  to comply  with  applicable  laws and  regulations  may result in
orders  being issued that may cause  operations  to cease or be curtailed or may
require  installation  of  additional  equipment.  Violators  may be required to
compensate  those  suffering  loss or damage by reason of violations  and may be
fined if convicted of an offense under such legislation.

     The  Company  believes  it is in  compliance  with  all  material  laws and
regulations applicable to it or its prior operations.

     Additional legislation or amendments may be proposed from time to time that
might affect the Company's business. The Company is unable to predict in advance
which  proposals may be enacted or their  effective  dates.  Such changes could,
however,  require increased capital or operating expenditures or both, and could
prevent or delay certain operations by the Company.

     Outlined  below are some of the more  significant  aspects of  governmental
controls and regulations which materially affect the Company.

     The Company is subject to federal, state and provincial income taxes, state
and local franchise  taxes,  personal  property taxes and state severance taxes.
State  severance  taxes vary between the states and within a single  state.  The
amount  of the tax,  based on a  percentage  of the value of the  mineral  being
extracted, may vary from mineral to mineral.  Operations are subject to taxation
by each  locality  in which  mineral  properties  are owned or business is done.
Because many state and local tax laws are not  uniform,  the Company runs a risk
of double taxation on portions of its income by various jurisdictions.  This may
adversely effect earnings, if any.

ENVIRONMENTAL REGULATIONS

     Legislation and implementing  regulations adopted or proposed by the United
States  Environmental  Protection  Agency, the Bureau of Land Management ("BLM")
and  comparable  agencies in various states  directly and indirectly  affect the
mining  industry  in the  United  States.  These  laws and  regulations  address
potential  contamination  of air,  soil and water  from  mining  operations.  In
particular,  legislation  such as the Federal Water  Pollution  Control Act, the
Comprehensive  Environmental  Response and the  Compensation  and  Liability Act
impose effluent

                                        4

<PAGE>



standards, new source performance standards, air quality and emission standards,
waste disposal  requirements and other requirements with respect to present, and
in some cases past, mining and mineral processing, including gold mining.

     U.S.  mine  operators  must comply with the Federal  Mine Safety and Health
Act, which is enforced by the Mine Safety and Health Administration ("MSHA"), an
agency within the Department of Labor. All mines,  both underground and surface,
are  subject  to  inspections  by  MSHA.  The  Occupational  Safety  and  Health
Administration  also has  jurisdiction  over  safety  and health  standards  not
covered by the  Federal  Mine Safety and Health  Act,  although  there are areas
where the authority of both administrative agencies overlap.

     Existing laws and  regulations  with respect to the  reclamation  of mining
operations  are in place and may  necessitate  substantial  planning and bonding
requirements.

     The Company  may be  required  to prepare  and  present to federal,  state,
provincial or local authorities data pertaining to the effect or impact that any
proposed  exploration  for,  or  production  of,  minerals  may  have  upon  the
environment.

     It may be anticipated that future legislation will significantly  emphasize
the protection of the environment,  and that as a consequence, the activities of
the Company may be more closely  regulated to further the cause of environmental
protection. Such legislation, as well as future interpretation of existing laws,
may require  substantial  increases  in  equipment  and  operating  costs to the
Company and delays, interruptions, or a termination of operations, the extent of
which cannot now be predicted.

EMPLOYEES AND FACILITIES

     As of March 22, 1997, the Company had no full-time  employees.  The Company
has the  following  officers:  Thomas J. Ian Wright,  Chairman;  Thomas L. Crom,
President; Nick DeMare, Secretary and Treasurer.

Dragon's office at 107 West Wade, Suite 7, Payson, Arizona is leased.

ITEM 2.                    PROPERTIES
DRAGON PIT
         The Company no longer owns the Dragon Pit or any other  property in the
state of Utah.  This  property  was was sold to North  Lily  Mining  Company  in
exchange for the cancellation of all debt to North Lily.

ITEM 3.                LEGAL PROCEEDINGS

                       None

                                        5

<PAGE>

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

                       None


                                     PART II

ITEM 5.                MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                       STOCKHOLDER MATTERS


     Dragon's  common  stock  has  traded  on the  over-the-counter  market  for
approximately  60 years.  The range of high and low bid prices  for each  fiscal
quarter  during the two most  recently  completed  fiscal  years and the current
fiscal year is as follows:


                       1996                    HIGH              LOW

                       First quarter           $0.10             $0.01
                       Second quarter          $0.10             $0.01
                       Third quarter           $0.10             $0.01
                       Fourth quarter          $0.10             $0.01


                       1995                    HIGH              LOW

                       First quarter           $0.10             $0.01
                       Second quarter          $0.10             $0.01
                       Third quarter           $0.10             $0.10
                       Fourth quarter          $0.10             $0.10


     On March 22,  1997,  the high bid price of the  common  stock was $0.10 per
share.

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

     As of December 31, 1997,  there were 313 record holders of Dragon's  common
stock.

     In the  past ten  (10)  years  Dragon  has not  paid or  declared  any cash
dividends and does not anticipate  paying dividends for the foreseeable  future.
It is  expected  that  any  net  income  will  be  retained  by  Dragon  for the
development of its business.



                                        6

<PAGE>



ITEM 6.                SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                DECEMBER 31,
                       1992                  1993               1994            1995             1996
                       ----                  ----               ----            ----             ----
<S>                    <C>               <C>              <C>               <C>              <C>  
Revenues               $ 3,486           $  0              $0               $ 177            $    221
Net (loss)             $3,285            $  (829)         $(1,246)          $(399)           $(8,689)
 per share             $ .01             $    (.01)        $(.01)           $  (.01)         $ (.01)
Total assets           $     499         $    379         $ 259             $ 14,825         $ 9,869
Shareholder's
  Equity               ($2,099,601)      $(2,100,430)     $(2,101,676)      $(2,087,075)     $(2,095,764)
Cash dividends
 declared              $     -0-         $    -0-         $  -0-            $   -0-          $   -0-

</TABLE>

ITEM 7.                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                  CONDITION AND RESULTS OF OPERATIONS

     Dragon  Mining  Corporation  (the  Company)  was  incorporated  in 1911 and
operated  as a mining  exploration  company  until  1977.  The  Company  has not
received  any  revenue  from  planned  principal  operations  since 1977 and has
primarily been engaged in the  development of plans and  acquisitions  of assets
for its proposed mining and explorations operations. Accordingly, the Company is
considered to be in the development stage.

LIQUIDITY AND CAPITAL RESOURCES

     At  December  31,  1996,  1995 and 1994 the  Company  had  working  capital
deficiencies of $2,095,764 , $2,087,075 and $2,101,676 respectively.

CORPORATE PLANS FOR 1997 AND BEYOND

     The  Company  is  attempting  to  acquire   additional  assets  by  issuing
additional  stock. It is also continuing  negotiations  with its major creditor,
who is also its shareholder, to restructure its debt.
There is no assurance that these efforts will be successful.

     During the year ended  December  31,  1995 the  Company  issued  15,000,000
shares for $15,000 to Marbella Capital Corp.  ("Marbella").  Marbella  increased
its ownership from 55.7% to 84.4% as result of this placement.

RESULTS OF OPERATIONS

1996 COMPARED TO 1995
      The Company  activities were limited to maintaining its status as a public
company which generated a net loss of $(8,689)  compared to a loss of $( 399) in
1995.



                                        7

<PAGE>



1995 COMPARED TO 1994

     The Company had very little activity  resulting in just $576 of general and
administrative  expenses in 1995  compared  to $1,246 in 1994.  As a result of a
private placement the Company's cash increased which resulted in interest income
of $177.

1994 COMPARED TO 1993

     The Company had very little  activity  resulting  in just $1,246 of general
and  administrative  expenses in 1994 compared to $829 in 1993.  The  marketable
securities had all been sold in 1992.

IMPACT OF INFLATION

     Dragon will be affected by inflation  because market value of its potential
products (gold and silver) tends to fluctuate with inflation.  Other major costs
should not increase at a rate in excess of inflation.


ITEM 8.                    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The consolidated  financial  statements are filed under this Item beginning
on page F-1 the financial statements schedules required under Regulation S-X are
filed pursuant to Item 14 of this report.


ITEM 9.                    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                           ACCOUNTING AND FINANCIAL DISCLOSURE

                           Not applicable.

                                    PART III

ITEM 10.                   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     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 be each person:

<TABLE>
<CAPTION>

           NAME                     AGE     SINCE             POSITION AND OFFICE
<S>                                 <C>     <C>               <C>
Thomas J.Ian Wright                 68      1994              Chairman of the Board of Directors
Anton R. Hendriksz                  50      1994              Director
Thomas L. Crom                      41      1986              President, Chief Executive Officer and
                                                              Director.
Nick DeMare                         42      1994              Secretary, Treasurer, Chief Financial Officer
                                                              and Director

</TABLE>

                                        8

<PAGE>



     No  family  relationships  exist  between  the  executive  officers  of the
registrant.  No  arrangements  or  understandings  exist  between any  executive
officer  and any other  person  appointed  by which the  executive  officer  was
elected or appointed.
     The  directors  of the Company  are  elected to hold office  until the next
annual meeting of shareholders  and until their  respective  successors are duly
elected and qualify.  Officers of the Company are elected  annually by the Board
of  Directors  and hold  office  until  their  successors  are duly  elected and
qualify.

     THOMAS J. IAN WRIGHT,  Chairman of the Board of Directors  since June 1994,
has director of European  operations for Barrington  Communications  Group since
1992. Mr. Wright is also a director of several other mining companies. From 1977
through  1992  he was a  mining  consultant  for  Laing  &  Cruickshank  a stock
brokerage firm based in the United Kingdom.

THOMAS L. CROM,  President  and a Director  since  February  1988.  Mr. Crom was
President of North Lily Mining Company, a publicly traded mining company,  until
October 1993. Mr Crom worked at North Lily in various  positions  from July 1988
until he  resigned in October  1993 to  establish a  management  company  called
Eureka Ventures, Inc. Mr. Crom is President of Eureka Ventures,Inc.  Eureka is a
management  consulting firm which provides services to the mining industry.  Mr.
Crom is a certified public  accountant and has a masters degree in business.  He
has been involved in the mining business for 14 years.

NICK DEMARE, a director since 1994 is president of a management  company,  Chase
Management,  which is based in  Vancouver  Canada.  In  addition  he  serves  as
director of various other public companies.  Mr DeMare is a Chartered Accountant
and has been involved in the mining business for 13 years.

ANTON R.  HENDRIKSZ,  a director  since 1994,  is Chairman of Eureka  Ventures a
management company which provides services to the mining industry. Mr. Hendriksz
was Chairman of North Lily Mining Company, a publicly traded company,  from 1991
until  August  1993.  Mr  Hendriksz  had been with North Lily  since  1987.  Mr.
Hendriksz is a chemical  engineer and has been  involved in the mining  business
for 25 years.

   ITEM 11.                EXECUTIVE COMPENSATION

     The  Company  has no  paid  employees  and  Directors  do not  receive  any
compensation for serving as directors.
     To provide  incentive  compensation  to officers  and key  employees of the
Company,  the shareholders of the Company adopted an Incentive Stock Option Plan
(the "Plan") on December 18, 1994.  The Plan provides for the  granting,  in the
discretion of the Company,  of options (the "Options") to purchase up to 300,000
shares of the Company's common stock. The Options are immediately exercisable at
a price which will not be less than the fair market value of the common stock on
the date of grant,  or 110% of such  fair  market  value if the  amount of stock
owned by an Option holder is more than 10% of the total combined voting power of
all  classes of the capital  stock of the  Company as of the date of grant.  the
Options are  exercisable for a period of up to ten years from the date of grant.
The Plan expired on October 31, 1994.
     Under  this plan,  there are  outstanding  Options  to  purchase a total of
150,000 shares of

                                        9

<PAGE>



common stock, all of which were granted during 1988 as follows:

<TABLE>
<CAPTION>
                           Number of shares                   Exercise price             Expiration
OPTIONEE                   COVERED BY OPTIONS                    PER SHARE                   DATE
<S>                        <C>                                    <C>                    <C>
Thomas L. Crom             150,000                                $0.02                  03/20/98

</TABLE>

     The Company is under no  obligation  to register or assist any  optionee in
registering  either the Options or the Option Stock under the federal securities
laws or any state securities laws. Both the Options and all Option Stock will be
"registered  securities"  as  defined  in  Rule  144 of the  General  Rules  and
Regulations of the  Securities  Act of 1933 (the "Act"),  and may not be offered
for sale,  sold,  or  otherwise  transferred  except  pursuant  to an  effective
registration  statement  under  the  Act  or  pursuant  to an  exemption  to the
satisfaction of the Company.  Accordingly,  all certificates  evidencing  shares
covered  by the  Options  and any  securities  issued and  replace or  exchanged
therefor, will bear a restrictive legend to this effect.

Item 12.                   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                           MANAGEMENT

     The  following  table sets forth  information,  as of March 22, 1997,  with
respect to the beneficial ownership of the Company's common stock by each person
known by the Company to be the beneficial owner of more than five percent of the
outstanding  common stock,  and by directors  and officers of the Company,  both
individually and as a group:

<TABLE>

                                  Shares owned
<CAPTION>
          BENEFICIAL OWNERS                           BENEFICIALLY              PERCENT OF CLASS
          -----------------                           ------------              ----------------
<S>                                                   <C>                               <C>
Thomas J. Ian Wright                                  1,513,959                          6.54%
128 Limmer Lane
Felpham,W. Bogner Regis
W. Sussex, England

Marbella Capital Corp.(1)<F1>                         19,541,877                         84.44%
1090 W. Georgia Street
Suite 1395
Vancouver, B.C. Canada

Thomas L. Crom                                        150,000(2)<F2>                     1.8%

<FN>
     Based on 23,143,826  shares  outstanding  where the persons  listed on this
table have the right to obtain  additional  shares within 60 days from March 23,
1997.  These  additional  shares are deemed to be outstanding for the purpose of
the computing  securities of the class owned by such persons, but are not deemed
to  outstanding  for the purpose of computing  the  percentage  of class for any
other persons.

<F1>
(1) Marbella Capital Corp.  is a privately owned Canadian corporation is owned 40% by Anton
R. Hendriksz, 30% by Nick DeMare and 30% by the 1993 Crom Living Trust.
<F2>
(2)  Includes 150,000 shares issuable upon exercise of an option. (See Item 11. EXECUTIVE
COMPENSATION).
</FN>
</TABLE>

                                       10

<PAGE>



ITEM 13.                   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     At December 31, 1995 the amounts owed to Marbella were $2,100,000.




                                     PART IV

ITEM 14.                   EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
                           ON FORM 8-K

          A)      The following documents are filed as part of this report:

                  1.       Financial Statements:

                           Report of Independent Accountants
                           Consolidated Balance Sheets
                           Consolidated Statements of Operations
                           Consolidated Statements of Shareholders' Equity
                           Consolidated Statements of Cash Flows
                           Notes to Consolidated Financial Statements

                  2.       Financial Statements Schedules:

                           Schedule  V  - Property, Plant, and Equipment
                           
                           Schedule  VI - Accumulated   Depreciation   and
                                          Amortization of Property, Plant and
                                          Equipment

     All other  schedules have been omitted  because they are not required,  are
inapplicable,  or  the  information  is  otherwise  included  in  the  financial
statements or notes thereto.

                  3.       Exhibits:

                                                                   Form 10-K
    Regulation                                                    consecutive
    S-K NUMBER       EXHIBITS                                     PAGE NUMBER






                                       11

<PAGE>






                                   SIGNATURES


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                            DRAGON MINING CORPORATION



March 22, 1997                              By:   /S/THOMAS L. CROM
                                               Thomas L. Crom
                                               President, Chief executive
                                               officer and Director


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

March 22, 1997                             /S/THOMAS J. IAN WRIGHT
                                           -----------------------
                                           Thomas J. Ian Wright, Chairman of the
                                           Board of Directors


March 22, 1997                             /S/THOMAS L. CROM
                                           Thomas L. Crom, President and
                                           Director
                                           (Principal Executive Officer)


March 22, 1997                             /S/NICK DEMARE
                                           Nick DeMare, Secretary, Treasurer
                                           (Principal Financial Officer)
                                           and Director

March 22, 1997                             /S/ANTON R. HENDRIKSZ
                                           Anton R. Hendriksz, Director












                                       12

<PAGE>

                            DRAGON MINING CORPORATION

                          (A DEVELOPMENT STAGE COMPANY)













                         UNAUDITED FINANCIAL STATEMENTS
                of an inactive Registrant per SEC 50456 Rule 3-11
              for the years ended December 31, 1996, 1995 and 1994 
             and period from January 1, 1978 through December 31, 1996











<PAGE>


<TABLE>
                            DRAGON MINING CORPORATION
                   BALANCE SHEETS, DECEMBER 31, 1996 AND 1995

<CAPTION>
                           ASSETS                                               1996                  1995
                                                                                ----                  ----
<S>                                                                             <C>              <C>
Current Asset:
         Cash and Cash equivalents                                              $    9,869       $      14,825
                                                                                ----------       -------------
                  Total current assets                                          $    9,869       $      14,825
Plant and equipment, net                                                                 0                   0
Mineral properties, net                                                                  0                   0
                                                                                ----------       -------------
                  Total asset                                                   $    9,869       $      14,825
                                                                                ==========       =============


                           LIABILITIES AND SHAREHOLDERS EQUITY

Current liabilities:
         Accounts payable                                                       $     5 ,633             1,900
         Due to Related Party                                                      2,100,000         2,100,000
                                                                                 -----------         ---------
                  Total current liabilities                                        2,105,633         2,101,900
                                                                                 -----------         ---------

                  Total liabilities                                                2,105,633         2,101,900
                                                                                 -----------         ---------

Shareholders' deficit:
         Common stock, $001 par value; authorized 25,000,000;  issued 23,143,826
           shares as of December 31, 1996
           and 1995 respectively                                                     23,144             23,144

         Additional paid-in Capital                                               3,103,889          3,103,889
         Accumulated Deficit                                                     (5,222,797)        (5,214,108)
                                                                                 -----------        -----------
                  Total shareholders' equity                                     (2,095,764)        (2,087,075)
                                                                                 -----------        -----------

                  Total liabilities and shareholder's equity                    $     9,869       $     14,825
                                                                                ============      ============


</TABLE>

    The accompanying notes are an integral part of the financial statements.
                                       F-2


<PAGE>

<TABLE>

                                             DRAGON MINING CORPORATION
                                              STATEMENTS OF OPERATION
                               FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<CAPTION>

                                                              1996              1995             1994
                                                              ----              ----             ----
<S>                                                           <C>               <C>              <C>
Revenue:
         Interest income                                      $   221           $   177          $       0
                                                              -------           -------          ---------
                  Total Revenue                                   221               177                  0

Operating expense:
         General and administrative expenses                    8,910              576                 1,246
                                                                -----          ---------         -----------
                  Total operating expenses                      8,910              576                 1,246


                           Net Income (Loss)                  $(8,689)          $(399)           $    (1,246)
                                                              ========          ======           ============



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


Weighted average shares outstanding                           23,143,826        13,768,826       8,143,826
                                                              ==========        ==========       =========

</TABLE>



    The accompanying notes are an integral part of the financial statements.
                                       F-3


<PAGE>

<TABLE>

                                             DRAGON MINING CORPORATION
                                        STATEMENTS OF SHAREHOLDERS' EQUITY
                               FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<CAPTION>


                                                                                Deficit
                                                                                Accumulated
                                                              Additional        during  the
                                            COMMON STOCK       Paid-in          Development
                                    SHARES           AMOUNT   CAPITAL           STAGE              TOTAL

<S>                                 <C>             <C>       <C>               <C>              <C>
Balance, December 31, 1978           1,875,000       $1,875   $ 868,232         $ (338,814)      $ 531,293

Dividends paid in 1982 
($.27 per share)                           -0-         -0-     (167,436)             -0-           (167,436)

Common stock issued:
    1982                               418,000         418      149,582              -0-            150,000
    1983                             4,620,000        4,620   1,640,088              -0-          1,644,708
    1984                             1,230,826        1,231     437,173              -0-            438,404

Capital contribution in 1986              -0-           -0-     176,250              -0-             176,250

Net loss ten years 
ended December 31, 1987                  -0-           -0-        -0-            (4,080,804)      (4,080,804)
                                      ----------    --------   ---------         -----------      -----------

Balance, December 31, 1987          8,143,826        8,144    3,103,889          (4,419,618)      (1,307,585)

Net (loss) year ended 
December 31, 1988                      -0-            -0-          -0-             (999,912)        (999,912)
Net (loss) year ended 
December 31, 1989                      -0-            -0-          -0-             (681,585)        (681,585)
Net (loss) year ended 
December 31, 1990                      -0-            -0-          -0-             (474,867)        (474,867)
Net income year ended 
December 31, 1991                      -0-            -0-          -0-            1,361,063        1,361,063
Net income year ended 
December 31, 1992                      -0-            -0-          -0-                3,285            3,285
Net (loss) year ended 
December 31, 1993                      -0-            -0-          -0-                 (829)            (829)
Net (loss) year ended 
December 31, 1994                      -0-            -0-          -0-               (1,246)          (1,246)
Net (loss) year ended 
December 31, 1995                      -0-            -0-          -0-                 (399)            (399)

Common stock issued in 1995         15,000,000       15,000        -0-                 -0 -           15,000

Net (loss) year ended 
December 31, 1996                      -0-            -0-          -0-               (8,689)          (8,689)
                                     -------         ------       -----              -------         -------

Balance, December 31, 1996          23,143,826       23,144   3,103,889          (5,222,797)      (2,095,764)
                                    ==========       ======   =========         ===========      ===========



</TABLE>



    The accompanying notes are an integral part of the financial statements.
                                       F-4


<PAGE>

<TABLE>
                                             DRAGON MINING CORPORATION
                                             STATEMENTS OF CASH FLOWS
                               FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<CAPTION>
                                                                                                 Cumulative
                                            1996              1995              1994             PERIOD
                                            ----              ----              ----             ------
<S>                                         <C>               <C>               <C>              <C>
Cash flows from operating activities:
  Net (loss)                                (8,689)           (399)             (1,246)          (4,883,983)

Adjustments   to  reconcile  net  (loss)  to  net  cash  provided  by  operating
activities:
   Depreciation                               -0-             -0-               -0-                 328,376
   Loss on sale of equipment                  -0-             -0-               -0-                 188,562
   Realized loss on sale of securities        -0-             -0-               -0-                  40,515
   Unrealized loss on securities              -0-             -0-               -0-                  32,620
    Deferred income tax benefit               -0-             -0-               -0-                 (75,000)
    Write-down and abandonment of 
    mineral properties                        -0-             -0-               -0-               1,834,127
    Write-down and abandonment of equipment   -0-             -0-               -0-               1,166,102
    (Increase) decrease of receivables        -0-             -0-               -0-                  12,746
    (Decrease) increase of liabilities       3,733            (35)              1,126             1,035,850
                                            ------            ----                                ---------
        Total adjustments                    3,733            (35)              1,126             4,563,898
                                            ------            ----              -----             ---------
          Net cash provided by operating 
          activities                        (4,956)           (434)             (120)              (320,085)
                                            -------           -----             -----            -----------

Cash flows from investing activities:
   Sale of marketable equity securities     -0-               -0-               -0-                  76,866
   Sale of certificates of deposits         -0-               -0-               -0-                 828,024
   Proceeds from sale of equipment          -0-               -0-               -0-                  77,500
   Acquisition of office equipment          -0-               -0-               -0-                 (20,335)
   Construction of mill and equipment       -0-               -0-               -0-              (2,099,058)
   Acquisition and exploration of mineral
   properties                               -0-               -0-               -0-              (1,909,127)
                                            ---               ---               ---              -----------

          Net cash used in investing 
          activities                        -0-               -0-               -0-              (3,046,130)
                                            ---               ---               ---              -----------

Cash flows from financing activities:
   Proceeds from issuance of common stock   -0-               15,000            -0-               2,248,112
   Payments of debt                         -0-               -0-               -0-              (1,081,259)
   Proceeds from issuance of debt           -0-               -0-               -0-               2,705,123
   Dividends paid                           -0-               -0-               -0-                (506,250)
         Net cash provided by
         financing activities               -0-               15,000            -0-               3,365,726
                                            ---               ------            ---              ----------

         Net increase (decrease) in cash    (4,956)           14,566            (120)                  (489)

Cash and cash equivalents at beginning
of year                                     14,825            259               379                  40,721
                                            -------           ---               ---                 -------

Cash and cash equivalents at end of year    9,869             14,825            259                  41,210
                                            =====             ======            ===                  ======


                        Supplemental schedule of noncash investing and financing activities

Cash paid during the year for:
    Interest                                -0-               -0-               -0-              -0-
                                            -0-               -0-               -0-              -0-
                                            ===               ===               ===              ===

</TABLE>

    The accompanying notes are an integral part of the financial statements.
                                       F-5
<PAGE>



                            DRAGON MINING CORPORATION
                          NOTES TO FINANCIAL STATEMENTS

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         OPERATIONS AND BASIS OF PRESENTATION:

         Dragon Mining  Corporation  (the Company) was  incorporated  in Utah in
         1911 and  operated as a mining and mineral  exploration  company  until
         1977.  The Company has not received any revenue from  operations  since
         1977 and has been  primarily  engaged in the  development  of plans and
         acquisition  of  assets  for  its  proposed   mining  and   exploration
         operations.  Accordingly,  the  Company  is  considered  to be  in  the
         development  stage, and cumulative  amounts required to be presented by
         development stage enterprises have been presented since January 1, 1978
         in the accompanying financial statements.

         Due to a failure  to file a 1992 Utah  annual  report the  Company  was
         mistakenly dissolved by the State of Utah. Subsequently the Company has
         been reincorporated in the State of Utah.

         The Company's  financial  statements  have been  presented on the basis
         that it is a going  concern,  which  contemplates  the  realization  of
         assets and the  satisfaction  of  liabilities  in the normal  course of
         business.  The Company has incurred  substantial losses during the last
         three years.  The Company's  current  liabilities  exceeded its current
         assets by  $2,095,764  at December 31, 1996.  The Company is continuing
         discussions  with its major creditor and shareholder to restructure the
         Company's  debt.  Continued  existence of the Company is dependent upon
         the Company's ability to perform the above is uncertain and, therefore,
         the Company may be unable to continue in existence.

         CASH EQUIVALENTS:

         The Company defines cash  equivalents as all short-term,  highly liquid
         investments with original maturity dates less than 90 days.

         MARKETABLE SECURITIES:

         Current  marketable equity securities are carried at the lower of their
         aggregate  cost or market  value.  Net  realized  gains  and  losses on
         security  transactions  are  determined on the specific  identification
         cost basis.  Unrealized  losses net of unrealized gains are included in
         the determination of net income.




                                    Continued
                                       F-6


<PAGE>



                            DRAGON MINING CORPORATION
                     NOTES TO FINANCIAL STATEMENT, CONTINUED

         PLANT AND EQUIPMENT:

         Plant and  equipment is carried is carried at cost.  Mill and equipment
         are  depreciated  using the  straight-line  method over their estimated
         useful lives of 5 to 15 years or the  units-of-production  method based
         on  estimated  tons of ore  reserves if the  equipment  is located at a
         producing  property with a shorter  economic life.  Mining equipment is
         being depreciated  using the straight-line  method over their estimated
         useful life of 3 to 15 years or the units-of-production method based on
         estimated  tones of ore  reserves  if the  equipment  is  located  at a
         producing  property with a shorter economic life.  Office equipment and
         fixtures  are being  depreciated  using the  straight-line  method over
         their estimate useful lives of 3 to 10 years. When such assets are sold
         or otherwise  disposed of, the costs and accumulated  depreciation  are
         removed  from the  accounts,  and any  resulting  gains or  losses  are
         charged to operations.

         MINERAL PROPERTIES:

         Direct costs related to the acquisition, exploration and development of
         mineral properties held or controlled by the Company are deferred on an
         individual  property  basis  until  the  viability  of  a  property  is
         determined.  General exploration costs are expensed as incurred. When a
         property is placed in commercial  production,  such deferred  costs are
         depleted  using  the  units-of-production  method.  Management  of  the
         Company  periodically  reviews the  recoverability  of the  capitalized
         mineral   properties  and  mining  equipment.   Management  takes  into
         consideration  various  information  including,  but  not  limited  to,
         historical  production  records taken from  previous  mine  operations,
         results of exploration  activities  conducted to date, estimated future
         metal  prices and reports  and  opinions  of outside  geologists,  mine
         engineers,  and  consultants.  When it is determined  that a project or
         property will be abandoned or its carrying value has been  impaired,  a
         provision is made for any expected loss on the project or property.

         RECLAMATION COSTS:

         Post-closure reclamation and site restoration costs are estimated based
         upon  environmental  and regulatory  requirements  and accrued over the
         life  of  the  mine  using  the  units-of-production   method.  Current
         expenditures relating to ongoing environmental and reclamation programs
         are expensed as incurred.





                                    Continued
                                       F-7


<PAGE>



                            DRAGON MINING CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONTINUED

         INCOME TAXES:

         Certain  expenses  charged  against  income  for  financial   reporting
         purposes  are  deductible  in other  periods  for income tax  purposes.
         Deferred  taxes  are  provided  for  such  timing  differences  and are
         calculated by the net-change method.

         LOSS PER COMMON SHARE:

         Loss per  common  share for each of the three  years  presented  do not
         include the effect of  outstanding  stock  options,  as their effect is
         antidilutive.

2.       PLANT AND EQUIPMENT:

         Plant and equipment  consists of the following at December 31, 1996 and
         1995:

<TABLE>         
                                                                          1996             1995
                                                                         --------         -------
                  <S>                                                    <C>             <C>
                  Mining equipment                                       $    -0-        $280,014
                  Office equipment and fixtures                               -0-          20,535
                                                                         --------         -------
                                                                              -0-         300,549
                  Less accumulated depreciation                               (0)        (300,549)
                                                                         --------        ---------
                           Mining equipment, net                         $   0           $   0
                                                                         ========        =========
</TABLE>

3.       MINERAL PROPERTIES:

         The Company owned the Dragon Pit which consists of a total of 380 acres
         in Juab County,  Utah. The original cost of this property of $1,769,972
         was fully amortized in prior years. This property was sold in 1996.

         The Company's  investment in mineral properties as of December 31, 1996
         and 1995 is as follows:
<TABLE>
                                                                                    1996            1995
                                                                                ------------     ----------
                  <S>                                                           <C>              <C>
                  Mineral properties                                            $        -0-     $1,769,972
                  Less accumulated amortization                                          -0-     (1,769,972)
                                                                                ------------     -----------
                           Mineral properties, net                               $      0        $    0
                                                                                 ============    ===========
</TABLE>





                                                     Continued
                                                        F-8


<PAGE>



                                             DRAGON MINING CORPORATION
                                     NOTES TO FINANCIAL STATEMENTS, CONTINUED

4.       NOTES PAYABLE TO RELATED PARTY:

         Notes  payable to related  party  $2,100,000  bear interest at 8% as of
         December 31, 1996 and 1995 and is due on demand (see also note 7).

<TABLE>

                                                                                    1996            1995
                                                                                ----------       ----------
                  <S>                                                           <C>              <C>
                  Demand note to related party                                  $2,100,000       $2,100,000
                                                                                ----------       ----------
                                                                                $2,100,000       $2,100,000

</TABLE>

5.       INCOME TAXES:

         For U.S. income tax reporting  purposes,  the Company has net operating
         loss carry-forwards of approximately  $5,092,336 expiring from the year
         2000  to the  year  2016,  as of the  year  ended  December  31,  1996.
         Utilization of these net operating  losses is restricted under Internal
         Revenue Code Section 382.

6.       STOCK OPTION AGREEMENTS:

         On December 18, 1984 the shareholders adopted and approved an incentive
         stock option plan.  The plan provides for officers and key employees of
         the  Company  to  purchase  up  to  300,000  shares  of  the  Company's
         unregistered  common  stock.  The  options  granted  under the plan are
         immediately  exercisable at the fair market value of free trading stock
         on the date of grant or 110% of such  value if the  optionee  owns more
         than 10% of the  combined  voting  power of all  classes  of the Common
         stock as of the grant date. The options are  exercisable  over a period
         not longer than ten years from the date of grant.

         Under this plan, the Company granted options to purchase 150,000 shares
         of unregistered common stock at an exercise price of $0.02 per share to
         a member of the Board of  Directors  in 1988.  As of December  31, 1995
         150,000 of the  options  were  outstanding  and  exercisable,  and they
         expire on March 20, 1998, ten years from the date of grant.



                                    Continued
                                       F-9



<PAGE>



                            DRAGON MINING CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, CONTINUED




7.        RELATED PARTY TRANSACTIONS:

         During the year ended December 31, 1996:

                  -The Company was provided  management,  consulting  and office
                  administration  by  its  majority  shareholder  at a  cost  of
                  $4,800.

                  -Interest expense of $168,000 on the note payable to related 
                   party was cancelled.

         During the year ended December 31, 1995:

                  -The Company was provided  management,  consulting  and office
                  administration at no cost by its majority shareholder.

                  -Interest expense of $168,000 on the note payable to related
                   party was cancelled.

         During the year ended December 31, 1994:

                  -The Company was provided  management,  consulting  and office
                  administration at no cost by its majority shareholder.

                  -Interest expense of $168,000 on the note payable to related 
                   party was cancelled.




                                    Continued
                                      F-10


<PAGE>


<TABLE>
                            DRAGON MINING CORPORATION
                                   SCHEDULE VI
                 ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND
                EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1996,
                                  1995 AND 1994

<CAPTION>
                                    Balance at
                                    Beginning                                   Other            Balance at
         CLASSIFICATION             OF YEAR     ADDITIONS         RETIREMENT        CHANGES          END OF YEAR
<S>                                 <C>            <C>            <C>                  <C>           <C>
Year ended December 31, 1996:
   Office Equipment                 $ 20,535        -0-             (20,535)             -0-         $     -0-
   Mining and Milling Equipment     $280,214        -0-            (280,214)             -0-         $     -0-
                                    --------       ----           -----------          ------        ---------
                  Total             $300,549        -0-            (300,549)             -0-         $     -0-
                                    ========       ====           ==========           ======        =========

Year ended December 31, 1995:
 Office Equipment                   $ 20,535        -0-              -0-                 -0-          $ 20,535
 Mining and Milling Equipment       $280,214        -0-              -0-                 -0-          $280,214
                                    --------      -----             -----              ------         --------
                  Total             $300,549        -0-              -0-                 -0-          $300,549
                                    ========      =====             =====              ======         ========


Year ended December 31, 1994:
  Office Equipment                  $ 20,535        -0-              -0-                 -0-         $  20,535
 Mining and Milling Equipment       $280,214        -0-              -0-                 -0-         $ 280,214
                                    --------      -----            -----               -----          --------
                  Total             $300,549        -0-              -0-                 -0-         $ 300,549
                                    ========      =====            =====               =====          ========



</TABLE>





                                    Continued
                                      F-11


<PAGE>

<TABLE>

                            DRAGON MINING CORPORATION
                                   SCHEDULE V
                          PROPERTY, PLANT AND EQUIPMENT
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<CAPTION>

                                    Balance at
                                    Beginning                                   Other        Balance at
         CLASSIFICATION             OF YEAR       ADDITIONS       RETIREMENT   CHANGES       END OF YEAR

<S>                                 <C>              <C>          <C>             <C>         <C>
Year ended December 31, 1996:
   Office Equipment                 $  20,535        -0-           (20,535)       -0-         $     -0-
   Mining and Milling Equipment     $ 280,214        -0-          (280,214)       -0-         $     -0-
                                    ---------        ---          ---------       ----        ---------
                  Total             $ 300,549        -0-          (300,549)       -0-         $     -0-
                                    =========        ===          =========       ===         =========


Year ended December 31, 1995:
 Office Equipment                   $ 20,535        -0-               -0-         -0-         $ 20,535
 Mining and Milling Equipment       $280,214        -0-               -0-         -0-         $280,214
                                    --------        ---               ---         ---         --------
                  Total             $300,549        -0-               -0-         -0-         $300,549
                                    ========        ===               ===         ===         ========


Year ended December 31, 1994:
  Office Equipment                  $ 20,55         -0-               -0-         -0-         $ 20,535
 Mining and Milling Equipment       $280,214        -0-               -0-         -0-         $280,214
                                    --------        ---               ---         ---         --------
                  Total             $300,549        -0-               -0-         -0-         $300,549
                                    ========        ===               ===         ===         ========


</TABLE>




                                    Continued
                                      F-12