SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549
                                   Form 10-KSB

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

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 for the transition period from to

                           Commission File No. 0-17874

                                  XPLORER, S.A.
           (Name of small business issuer as specified in its charter)

                                     Nevada
         (State or other jurisdiction of incorporation or organization)

                                   88-0199674
                      (I.R.S. Employer Identification No.)

                            2929 S. Maryland Parkway
                                Las Vegas, Nevada
                    (Address of principal executive offices)

                                      89109
                                   (Zip Code)

         Issuer's telephone number, including area code: (702) 699-5400

Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
     Common Stock, $.001 par value.

Check whether the issuer:  (1) filed all reports required to be filed by Section
13 or 15(d) of the  Securities  Exchange Act during the  preceding 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

                                                                YES [ ] NO [ X ]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [ ]

Revenues  for the fiscal year ended  December 31, 1997  totaled  $65,996.  As of
December  31,  1997,  the  aggregate  market  value of the voting  stock held by
non-affiliates  of the registrant (based upon the average of the closing bid and
asked prices on such date) was approximately $-0-. (Not Trading.)

As of August 31, 1999,  the  registrant  had  outstanding  20,086,266  shares of
Common Stock.

Transitional Small Business Disclosure Format:  [ X ] Yes  [   ] No

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                                TABLE OF CONTENTS



                                                                            Page

                                     PART I

Item 1.             Business ..............................................3

Item 2.             Properties ............................................11

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

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

                                     PART II

Item 5.             Market for Company's Common Equity and Related
                         Stockholder Matters ..............................12

Item 6.             Management's Discussion and Analysis of Financial
                         Condition and Results of Operations ..............14

Item 7.             Financial Statements ..................................14

Item 8.             Change in and Disagreements With Accountants ..........14

                                    PART III

Item 9.             Directors and Executive Officers ......................15

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

Item 11.            Security Ownership of Certain Beneficial Owners
                         and Management ...................................18

Item 12.            Certain Relationships and Related Transactions ........19

                                     PART IV

Item 13.            Exhibits and Reports on Form 8-K ......................20

                    Index to Consolidated Financial Statements and
                         Schedules ........................................F-1

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                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS

Introduction

The Registrant was incorporated  under the laws of the State of Nevada on May 2,
1984.  Effective  December 18, 1992, the  Registrant  changed its name from L.A.
Entertainment,  Inc.  to  Gerant  Industries,  Inc.  On  March 1,  1994,  Gerant
Industries,  Inc.  filed a petition for  reorganization  under Chapter 11 of the
United  States  Bankruptcy  Code in the United States  Bankruptcy  Court for the
Central    District   of   California.    The    Registrant    operated   as   a
debtor-in-possession  until the United States  Bankruptcy Court entered an order
confirming the Registrant's Third Amended Plan of Reorganization (the "Plan") on
July 24, 1996, and the Plan became  effective August 5, 1996. In accordance with
the Plan,  Restated  Articles of Incorporation  were filed with the Secretary of
State of Nevada in August,  1996,  changing  the  Registrant's  name from Gerant
Industries, Inc. to XPLORER, S.A. ("XPLORER" or the "Company").

Included  in the Plan was the  valuation  utilized  by  Atlantic  Pacific  Trust
("APT") for its gold ore reserves.  These values are based upon a  comprehensive
geological  reserve study  conducted by Christopher L. Pratt,  Geologist,  which
said report was updated December 31, 1996.

Pursuant to the Plan, certain holders of Units of Beneficial  Interest ("UBI's")
in the Atlantic  Pacific Trust,  LLC,  formerly  Atlantic  Pacific Trust ("APT")
exchanged  417,240 UBI's on August 5, 1996,  the effective date of the Plan, for
1,043,000  shares of Preferred Stock of XPLORER.  APT had provided the necessary
capital  and  arranged  loans for the  successful  completion  of the Plan.  The
Managers of APT are also officers and directors of the Company.  See  "Conflicts
of Interest."

Additionally,  APT holders of  approximately  $29,278,000  face value of XPLORER
Debtor Notes converted their XPLORER Debtor Notes into approximately  14,639,750
shares of XPLORER Common Stock. Furthermore, holders of securities in the Debtor
shared pro rata in a distribution  of 400,000 Units  consisting of one (1) share
of XPLORER's  Common Stock and one (1) Class A Warrant  entitling  the holder to
purchase  one (1) share of  XPLORER's  Common  Stock one year from the August 5,
1996 effective date of the Plan, at 70% of the market asking price. Such Warrant
must be exercised within 30 days of August 5, 1997.  Subsequently these Warrants
were  extended  until  February  1998,  at which time all  Warrants  were either
exercised or expired.  Pursuant to Section 1143 of the United States  Bankruptcy
Code,  interest  holders must  surrender  their  certificates  representing  the
securities  of the Debtor  within one (1) year of the  Confirmation  Date of the
Plan as a condition to receiving the  securities  pursuant to the Plan.  Certain
other  classes  of  creditors  were  given the right to elect  common  shares of
XPLORER in lieu of cash in satisfaction of their claims.

In November,  1996, the Company  acquired an additional  189,960 UBI's of APT in
exchange for 237,550  shares of its  Preferred  Stock.  In  September,1997,  the
Company  acquired an  additional  20,000  UBI's of APT in  exchange  for 250,000
shares of its Common Stock. Currently, XPLORER owns 59.6% of APT.

The Company's  principal  executive  offices are located at 2929 South  Maryland
Parkway, Las Vegas, Nevada, 89109, and its telephone number is (702)699-5400.

CAUTIONARY  "SAFE HARBOR"  STATEMENT UNDER THE UNITED STATES PRIVATE  SECURITIES
LITIGATION REFORM ACT OF 1995.

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With the exception of historical  matters,  the matters discussed in this report
are forward- looking  statements that involve risks and uncertainties that could
cause actual results to differ  materially  from targeted or projected  results.
Such  forward-looking  statements include statements  regarding targets for gold
production, cash operating costs and certain significant expenses, schedules for
completion  of detailed  feasibility  studies and initial  feasibility  studies,
potential  increases in reserves and production,  the timing and scope of future
drilling and other  exploration  activities,  expectations  regarding receipt of
permits and commencement of mining or production, anticipated recovery rates and
potential  acquisitions or increases in property  interests.  Factors that could
cause actual results to differ materially include, among others, changes in gold
and  other  mineral  prices,  unanticipated  grade,  geological,  metallurgical,
processing,  access,  transportation  of supplies or other problems,  results of
current  exploration  activities,  results  of pending  and  future  feasibility
studies,  changes  in  project  parameters  as  plans  continue  to be  refined,
political, economic and operational risks of foreign operations, availability of
materials and equipment,  the timing of receipt of governmental  permits,  force
majeure  events,  the failure of plant,  equipment  or  processes  to operate in
accordance with  specifications  or  expectations,  accidents,  labor relations,
delays  in  start-up  dates,  environmental  costs and  risks,  the  outcome  of
acquisition  negotiations  and general domestic and  international  economic and
political  conditions,  as well as  other  factors  described  herein  or in the
Company's  filings with the U.S.  Securities  and Exchange  Commission.  Many of
these  factors are beyond the Company's  ability to predict or control.  Readers
are cautioned not to put undue reliance on forward-looking statements. See "Risk
Factors" for items which could affect forward-looking statements.

General Business

Glossary

The following  terms are described to aid in  understanding  the Company's  Form
10-KSB.

CORE DRILLING (OR DRILL HOLE). Drilling with a hollow diamond-studded bit to cut
out a solid rock core. A column of rock is  extracted  from inside the drill rod
for geological examination and assay.

GRADE.  The metal content of ore. With  precious  metals,  grade is expressed as
troy ounces per ton of ore.

KILO (KILOGRAM).  A measure of weight equal to 32.15 troy ounces.

ORE  BODY.  A  mineral  deposit  that can be mined  at a profit  under  existing
economic conditions.

ORE RESERVES.  The tonnage and grade of an economically and legally  extractable
ore body.

OUNCE.  Throughout this report,  the term "ounce" is used as an abbreviation for
the troy ounce measure of weight.  The troy ounce has been used exclusively as a
previous metals measurement, probably since the 16th Century.

PROVEN ORE RESERVES.  "Proven ore" or "measured  ore" means that material  which
tonnage is  computed  from  dimensions  revealed  in  outcrops  or  trenches  or
underground workings or drill holes and for which the grade is computed from the
results of adequate sampling,  and for which sites for inspection,  sampling and
measurement are so spaced and the geological  character so well defined that the
size,  shape and mineral  content are  established,  and for which the  computed
tonnage and grade are judged to be accurate within limits which shall be stated.

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PROBABLE ORE RESERVES. "Probable ore" or "indicated ore" means that material for
which tonnage and grade are computed partly from specific measurements,  samples
or production  data,  and partly from  projection  for a reasonable  distance on
geological  evidence,   and  for  which  the  sites  available  for  inspection,
measurement and sampling are too widely or otherwise  inappropriately  spaced to
outline the material completely or to establish its grade throughout.

TON. The short ton is used in this report. It is a unit of weight equal to 2,000
pounds, or 907.2 kilograms.

The  Company  is  a  development  stage  company.   Through  its  majority-owned
subsidiary,  APT,  the Company is engaged in the  acquisition,  exploration  and
development,  which will lead to operation and production of mineral properties.
Except  where  otherwise  noted,  the  "Company"   includes  its  majority-owned
subsidiary, APT.

As a result of a series of  transactions,  between  1993 and 1995,  APT acquired
eight  unpatented  mineral  claims  located  on  Piute  Mountain,  Kern  County,
California. This group of claims is commonly known as the Evening Star Mine. APT
also leases  approximately  95.45 acres of adjacent  property  containing  three
patented mining claims and the Weldon Research Center.  See "Item 2. Description
of Property."

APT does,  and continues to,  finance its  exploration  and  development  of the
Evening  Star Mine through the sale and  issuance of its  securities  in private
transactions  and through the sale in Germany  and Austria of  Convertible  Gold
Bonds, 9% Investment  Certificates and gold certificates.  See "Item 1. Business
Financing."

To date, no gold or other precious metals have been mined  commercially from the
Evening Star Mine.  There has been extensive  development  work conducted in the
past,  including  underground and surface sampling.  The Evening Star Mine has a
nine-foot  wide and ten-foot  tall tunnel.  This tunnel cross cuts several small
veins and ore bodies.  The tunnel system is  approximately  1,650 feet in length
and is  approximately  380 feet below the surface.  The Evening Star Mine tunnel
provides  access to the area where the ore has been  blocked  out  ("Proven  Ore
Reserves").  Proven Ore Reserves are determined  from exposure in  outcroppings,
cuts, pits, shafts,  mine workings,  drill holes or otherwise where measurements
are so closely  spaced that the  computed  tonnage and grades of ore will have a
high degree of accuracy.  Underground tunnel samples were taken every five feet.
The results of the  sampling  indicated  that the mine  contained  approximately
435,000 ounces of gold. The Company has  downgraded the  classification  of this
ore from Proven to Probable Ore Reserves.

Upon the  completion  of the Pilot  Plant,  feasibility  studies and  additional
drilling and sampling,  the Company will then upgrade the reserves from Probable
to  Proven  Ore  Reserves.  The 1996 ore  reserves  have  been  estimated  by an
independent company, Precious Metals Exploration. The reserves were estimated by
an  independent  geological  engineering   consultant,   Christopher  L.  Pratt,
President of Precious Metals Exploration.

Proposed Operations

In July, 1995, APT entered into an Operating  Agreement (the  "Agreement")  with
EMTEC,  L.L.C.  ("Emtec")  principally  owned by officers  and  directors of the
Company and Managers of APT.  See "Item 12.  Certain  Relationships  and Related
Transactions."  In accordance  with the  Agreement,  Emtec was to provide a full
turn key mining and refining  operation for the Evening Star Mine.  APT will pay
Emtec all of its costs and expenses  plus 18% of same.  Costs are defined as all
costs  directly and  indirectly  related to Emtec  performing  its duties in the
exploration,  development, production and support facilities of the Evening Star
Mine. For the year 1997, APT had paid Emtec $200,000 for its developmental  work
in the Evening Star Mine.

In  December,  1997,  the  Company  and Emtec  mutually  agreed  to  cancel  the
agreement.

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The Registrant intends to develop its mining properties in two phases.

         Phase I.

         The Registrant will continue  drilling and sampling to block out Proven
and Probable Ore Reserves.  A core drilling rig will be used in order to produce
approximately  1,000  feet of drill hole  weekly.  Due to  seasonal  conditions,
drilling will only be conducted for approximately 36 weeks annually.

         The Registrant will also construct a pilot ore processing plant ("Pilot
Refinery")  capable of processing up to two tons of ore per hour.  Included with
the Pilot Refinery will be the construction of all support facilities, including
laboratory, repair shops and storage bins.

         All  engineering  and permits  necessary for the operation of the Pilot
Refinery and for its expansion  are planned to be completed  during Phase I. APT
estimates  that Phase I will cost  between  $2.8 to $3.4  million  and will take
between nine and 12 months to complete.  There is no assurance  that the Company
will be able to raise the required capital to complete Phase I.

         Phase II.

         After the Pilot Refinery is operational and gold and other minerals are
successfully and cost effectively being processed, a larger ore processing plant
("Main  Refinery")  will be built.  Current plans provide for a Main Refinery to
process  anywhere from 125 to 250 tons of ore per day. The size and cost of such
Main Refinery is dependent upon several factors,  including a) test results from
the Pilot Refinery,  b) present and future Proven and Probable Ore Reserves that
have been blocked-out, and c) completion of a feasibility report.

         Phase II  development  is estimated to cost between $6.8 to $10 million
and will take between 14 to 18 months after Phase I to complete.

         There is no  assurance  that the  Registrant  will be able to raise the
capital to complete  Phase I or, if Phase I is completed,  to proceed with Phase
II. To date, the  Registrant's  primary funds for operations  have come from the
sale of bonds and gold contracts in Germany and Austria. See "Item 1. Business -
Financing."  The  Registrant  intends to  continue  to sell bonds in Germany and
Austria.  There is no  assurance  that sales of bonds will  continue  in amounts
necessary  to  fund  any  of  the  Registrant's  planned  operations,  including
completion of Phase II.

Transportation

The  Evening  Star Mine is located in the Piute  Mountains  of Kern County at an
elevation  of 7,800 feet MSL.  Site  access is  provided  via paved,  all season
highways (State Route 178 and Kelso Valley Road) terminating in approximately 17
miles of graded dirt and gravel road. This dirt road is well maintained and snow
removal by the Company for 17 miles during the winter provides year-round access
to the project site.  The Piute  Mountains  experience  only  moderate  snowfall
during the winter,  and it is estimated that snow removal would be limited to an
average of six episodes per year  clearing  approximate  four to twelve miles of
roadway.

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Power

An existing Company-owned diesel power plant,  producing  approximately 400kW of
power, provides electricity necessary for the operation of the mine. Maintenance
of the access  roadways will provide for timely truck  delivery of fuels for the
power plant.  The existing  storage  facility will be expanded to  approximately
6,000  gallons,  or one week of fuel  supply.  Typical  operation  will  include
semi-weekly fuel deliveries.

Water Supply and Waste Disposal

Water for mining, dust control, and domestic use will be provided by water wells
proximate to the project  site.  Domestic and process  demand is estimated to be
15,000  gallons per day  (10.4gpm).  Storage  tanks will allow for constant well
pumping rates and fluctuating demands.

Domestic  wastewater  disposal will be via standard  septic tank and leach field
systems located adjacent to their respective sources. Process wastewater will be
recycled and reused in the process,  with the only process discharge  comprising
the moisture contained within the spent ore, estimated at 4,400 gallons per day.

Financing

Between February 1, 1996 and August 6, 1996, APT issued Industrial Revenue Bonds
("Bonds").  The Bonds were sold in  Germany  and  Austria by Senator  Securities
Corporation,  Dusseldorf, Germany ("Senator"). The Bonds are zero discount bonds
issued in  denominations  of $12,500  with  maturity  dates  between one to five
years. Upon maturity,  APT must pay $12,500 U.S., plus interest at 9% per annum,
or deliver One Kilo of Internationally Hallmarked 99.99 Fine Gold Bullion (32.15
Troy  Ounces).  At December 31, 1997,  APT owed $192,231 on these bonds of which
$77,438 is due before December 31, 1998.

Between June 1, 1996 and January 15, 1997,  APT issued  Investment  Certificates
("Certificates").  The Certificates  were sold in Germany and Austria by Senator
and  by  Atlantic  Pacific   Finanzprodukte,   GmbH  ("APF"),  the  Registrant's
wholly-owned  subsidiary.  The Certificates provide for interest at 9% per annum
payable with principal at maturity. The Certificates mature between one and five
years from date of purchase.  At December 31, 1997,  APT owed  $868,913 on these
bonds of which $567,669 is due before December 31, 1998.

Between  September,  1995 and  September,  1996,  APT issued Gold Ore  Contracts
("Contracts") in One Kilo Units. Each Unit was sold for $9,645.  There are 32.15
troy  ounces in one kilo.  All  contracts  were sold in Germany  and  Austria by
Senator.  All  Contracts  are due within one year of  purchase.  At December 31,
1997, APT owed $118,636 on these bonds of which $118,636 is due before  December
31, 1998.

On   November   1,   1996,   APT   began   selling,   through   APF,   9%   Bond
Certificate/Convertible  to Gold (the "9% Bond"). The total face amount offering
is 45,000,000  Deutsche  Marks. At an exchange rate of 1.5 DEM (one and one-half
Deutsche Marks) to 1 (one) U.S. Dollar, the total face amount in U.S. Dollars is
$30,000,000.  From this  offering,  the total net capital to APT,  assuming  the
entire  offering was sold out, and assuming a 1.5 to 1 exchange  rate,  would be
DEM 35,009,280, or U.S.$23,339,540.  The 9% Bond is non-interest bearing, but is
issued to an  interest-bearing  account,  in which the  difference  between  the
issuing  price and face value meets an effective  yield of 9% per annum.  The 9%
Bonds  are  issuable  only as fully  registered  bonds in  denominations  of 600
Deutsche Marks ("DM600") and may be increased by  denominations  of DEM 600. The
9% Bonds mature between one and five years from date of purchase.  The Bearer of
the 9% Bond  shall,  within 60 days prior to the  maturity  date of the 9% Bond,
notify  APT of the  Bearer's  election  of  either  (A)  payment  in cash in the
Principal  Amount of the 9% Bond paid in Deutsche  Marks, or (B) receive payment
in the form of one ounce of gold bullion issued to Bearer at the rate of one

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ounce  for every DEM 600 owed to  Bearer  by AT,  or (C)  Bearer  shall  receive
payment  in cash in the amount of the  market  value of the gold  bullion at the
maturity date, with the cash payment being in Deutsche  Marks.  The 9% Bonds are
being issued and are subject to a Trust  Resolution  dated October 1, 1996 and a
Prospectus  dated October 28, 1996. Both the Trust Resolution and the Prospectus
were prepared by attorneys for the German selling agents.  The 9% Bonds are only
being  offered for sale in Germany and Austria.  At December 31, 1997,  APT owed
$576,041 on these bonds of which $352,104 is due before December 31, 1998. .

Assignment of Assets

In  connection  with the sale by APT of Bonds,  Certificates,  Contracts  and 9%
Bonds (the  "Securities"),  APT has assigned its eight mineral claims,  known as
the Evening Star Mine, to Benjamin C. Rice, Esq. ("Trustee"),  a director of the
Company,  to be held in trust for a term of ten  years or until all  obligations
owed on the Securities are fully satisfied. The Trustee will allow APT to remove
and process  gold ore from the  Evening  Star Mine for  delivery  and payment of
Securities  as they  mature.  APT may also remove  additional  gold ore to cover
expenses  only but may not remove any gold ore for any other  purpose  until all
the  Securities  have been fully paid.  Upon default,  the Trustee may cause the
gold ore to be refined by a third party refiner or he may sell the claims to pay
all indebtedness evidenced by the Securities.

Regulation

The Company's operations are subject to comprehensive regulation with respect to
operational,  environmental,  safety and  similar  matters  by federal  agencies
including  the  U.S.  Department  of  the  Interior,   the  U.S.  Department  of
Agriculture  (U.S.  Forest Service),  the U.S.  Environmental  Protection Agency
("EPA"),  the U.S.  Mine Safety and Health  Administration  ("MSHA") and similar
state and local agencies.  Failure to comply with applicable  laws,  regulations
and permits can result in  injunctive  actions,  damages and civil and  criminal
penalties. If the Company expands or changes its existing operations or proposes
any new operations,  it may be required to obtain  additional or amended permits
or  authorizations.  The Company intends to spend  substantial  time, effort and
funds in planning,  constructing and operating its proposed facilities to ensure
compliance  with U.S.  environmental  and other  regulatory  requirements.  Such
efforts and  expenditures  are common  throughout the U.S.  mining  industry and
generally should not have a material adverse effect on the Company's competitive
position.

Legislation  to change the  general  mining laws  applicable  to  operations  on
federal lands has been  introduced  into the 105th  Congress,  which convened in
January 1997,  and  additional  introductions  are expected.  The result of such
proposals is speculative.

Risk Factors

         Mining and Processing

         The  Company's  business  operations  are  subject to risks and hazards
inherent in the mining  industry,  including  but not  limited to  unanticipated
variations in grade and other geological problems, water conditions,  surface or
underground conditions,  metallurgical and other processing problems, mechanical
equipment performance  problems,  the unavailability of materials and equipment,
accidents, labor force and force majeure factors,  unanticipated  transportation
costs and weather conditions,  any of which can materially and adversely affect,
among other things,  the  development of properties,  production  quantities and
rates, costs and expenditures and production commencement dates.

         In the case of development projects,  including new pits or underground
mines at currently operated properties or expansions of existing mines, although
the Company  utilizes  the  operating  history of its  existing  mines to derive
estimates of future operating costs and capital requirements, such estimates may

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differ materially from actual operating results. The economic feasibility of any
individual  project is based upon,  among other things,  the  interpretation  of
geological  data  obtained  from  drill  holes  and other  sampling  techniques,
feasibility  studies (which derive  estimates of cash operating costs based upon
anticipated  tonnage  and  grades  of  ore  to  be  mined  and  processed),  the
configuration of the ore body,  expected  recovery rates of metals from the ore,
comparable  facility  and  equipment  costs,  anticipated  climatic  conditions,
estimates of labor  productivity and other factors.  Such  development  projects
also are subject to the  successful  completion  of final  feasibility  studies,
issuance of necessary permits and receipt of adequate financing.

         As a result of the foregoing risks, among other things, expenditures on
any and all projects, actual production quantities and rates, and cash costs may
be materially and adversely  affected and may differ materially from anticipated
expenditures,  production  quantities  and rates,  and costs,  just as estimated
production  dates may be  delayed  materially,  in each case  especially  to the
extent  development  projects are involved.  Any such events can  materially and
adversely  affect  the  Company's  business,  financial  condition,  results  of
operations and cash flows.

         Uncertainty of Reserve and Other Mineralization Estimates

         There are  numerous  uncertainties  in  estimating  proven and probable
reserves and other mineralization,  including many factors beyond the control of
the  Registrant.  The estimation of reserves and other  mineralization  involves
subjective  judgments about many relevant factors,  and the accuracy of any such
estimate is a function of the quality of available data and of  engineering  and
geological  interpretation  and  judgment.  Results  of  drilling,  testing  and
production  subsequent  to the date of an estimate may justify  revision of such
estimate. Assumptions about prices are subject to great uncertainty and gold and
silver prices have fluctuated widely in recent years. See "Gold and Silver Price
Volatility."  No  assurance  can be given that the volume and grade of  reserves
mined and  processed  and  recovery  rates  will not be less  than  anticipated.
Declines in the market price of gold and related precious metals also may render
reserves  or  other  mineralization   containing   relatively  lower  grades  of
mineralization  uneconomic to exploit.  If the price  realized by the Registrant
for its gold or silver bullion were to decline  substantially below the price at
which  ore  reserves  were  calculated  for a  sustained  period  of  time,  the
Registrant  potentially  could  experience  reductions  in  reserves  and  asset
write-downs.  Under certain  circumstances,  the Registrant may  discontinue the
development  of a project or mining at one or more of its  properties.  Further,
changes in operating  and capital  costs and other  factors,  including  but not
limited  to  short-term  operating  factors  such  as the  need  for  sequential
development  of ore bodies and the processing of new or different ore grades and
ore types, may materially and adversely affect reserves.

         Gold and Silver Price Volatility

         The  profitability of the Registrant's  current  operations is directly
related and  sensitive to the market  price of gold and silver.  Gold and silver
prices  fluctuate  widely  and are  affected  by  numerous  factors  beyond  the
Registrant's  control,  including  expectations  with  respect  to the  rate  of
inflation,  the  exchange  rates of the  dollar and other  currencies,  interest
rates,  forward  selling by producers,  central bank sales and purchases of gold
and silver,  production and cost levels in major gold-producing  regions such as
South Africa and the former Soviet Union, global or regional political, economic
or financial situations and a number of other factors.

         The  current  demand  for,  and supply of,  gold and silver  affect the
prices of such  minerals,  but not  necessarily  in the same  manner as  current
demand and supply affect the prices of other  commodities.  The potential supply
of gold  consists of new mine  production  plus  existing  stocks of bullion and
fabricated  gold  held  by  governments,   financial  institutions,   industrial
organizations  and  individuals.  Since  mine  production  in  any  single  year
constitutes a very small portion of the total potential  supply of gold,  normal
variations in current production do not necessarily have a significant effect on

                                                        [XPLORER\10KSB:123197]-6

                                                         9

<PAGE>

the  supply of gold or on its price.  If gold or silver  prices  should  decline
below the  Registrant's  cash costs of production  and remain at such levels for
any sustained period, the Registrant could determine that it is not economically
feasible to continue commercial  production at any or all of its mines. Although
the Registrant has a hedging program in place to reduce the risk associated with
gold and silver  price  volatility,  there is no  assurance  that the  Company's
hedging strategies will be successful.

         Exploration and Development

         Exploration for gold and related precious metals is highly  speculative
in nature,  involves many risks and frequently is unsuccessful.  There can be no
assurance that the Registrant's exploration efforts will result in the discovery
of  significant  gold  or  silver  mineralization  or  that  any  mineralization
discovered  will result in an increase of the  Company's  Proven or Probable Ore
Reserves. If Proven or Probable Ore Reserves are developed, it may take a number
of years and substantial  expenditures from the initial phases of drilling until
production is possible, during which time the economic feasibility of production
may change. No assurance can be given that the Registrant's exploration programs
will result in new reserves or that the Registrant's development program will be
able to extend the life of the Registrant's existing mines.

         Insurance and Mining Risks

         The business of gold and silver mining is generally subject to a number
of risks and hazards, including environmental conditions,  industrial accidents,
labor disputes, encountering unusual or unexpected geological conditions, ground
or slope failures,  cave-ins,  changes in the regulatory environment and natural
phenomena  such  as  inclement  weather   conditions,   floods,   blizzards  and
earthquakes.  Such  occurrences  could result in damage to, or  destruction  of,
mineral  properties  or  production   facilities,   personal  injury  or  death,
environmental  damage to  properties  or the  properties  of  others,  delays in
mining,  monetary losses and possible legal  liability.  The  Registrant's  mine
operator,  Emtec,  maintains insurance against certain risks that are typical in
the gold  mining  industry  and in amounts  that the  Registrant  believes to be
reasonable,  but which may not provide adequate  coverage in certain  unforeseen
circumstances.  However,  insurance  against  certain risks  (including  certain
liabilities  for  environmental  pollution  or  other  hazards  as a  result  of
exploration and  production) is not generally  available to the Registrant or to
other companies within the industry on acceptable terms.

         Competition

         The Company  operates in an industry that is  characterized  by intense
competition  for  resources,  equipment  and  personnel.  Some of the  Company's
principal  competitors are  substantially  larger,  have  substantially  greater
resources,  and expend  considerably larger sums of capital than the Company for
exploration, rehabilitation and development.

         Subsequent Event

         In June,  1999,  the Company  entered into an advisory  agreement  with
NuVen  Advisors,  Inc.  ("NuVen")  whereby  NuVen  will  assist  the  Company by
developing a restructuring  plan and then assist the Company in implementing the
restructuring  plan. Such  restructuring  includes a Plan of Reorganiztion  with
Interactive   Business   Channel("IBC")  and  expansion  into  internet  related
businesses.  A  change  of  corporate  name to  NetHoldings.com,  Inc.  was also
authorized.

                                                        [XPLORER\10KSB:123197]-6

                                                        10

<PAGE>

ITEM 2.           DESCRIPTION OF PROPERTY

The  Registrant's  executive  offices are located in a rented executive suite at
2929 S.  Maryland,  Las Vegas,  Nevada  89109.  The facility is provided free of
charge to the Company.  The  Registrant  considers the  facilities  adequate for
current needs.

Evening Star Mine Group

Atlantic  Pacific Trust,  owns eight  unpatented  mining claims located on Piute
Mountain,  Kern  County,  California.  Unpatented  mining  claims  only give the
Registrant  possessory  title.  Because  title to  unpatented  mining  claims is
subject to inherent  uncertainties,  it is difficult  to determine  conclusively
ownership  of  such  claims.   Since  a  substantial   portion  of  all  mineral
exploration,  development  and  mining  in  the  United  States  now  occurs  on
unpatented  mining claims,  this uncertainty is inherent in the mining industry.
In addition,  in order to retain title to an unpatented  mining  claim,  a claim
holder must have met annual  assessment work  requirements  through September 1,
1992 and must  have  complied  with  stringent  state  and  federal  regulations
pertaining  to  the  filing  of  assessment  work  affidavits.  Moreover,  after
September  1,  1992,  the right to  locate  or  maintain  a claim  generally  is
conditional  upon payment to the United States of a maintenance  fee of $100 per
claim per year for each assessment year. State law may, in some instances, still
require performance of assessment work.

The present  status of the  Company's  properties  as  unpatented  mining claims
located on public lands of the U.S.  allows the claimant the exclusive  right to
mine  and  remove  valuable  minerals,  such as  precious  and base  metals  and
industrial  minerals,  found  therein,  and also to use the  surface of the land
solely for purposes related to mining and processing the  mineral-bearing  ores.
However, legal ownership of the land remains with the U.S. Accordingly,  with an
unpatented  claim,  the U.S. retains many of the incidents of ownership of land,
the U.S. regulates use of the surface,  and the Company remains at risk that the
claims may be forfeited either to the U.S. or to rival private  claimants due to
failure to comply with statutory  requirements as to location and maintenance of
the claims.  If there exists a valuable deposit of locatable  minerals (which is
the  requirement for the unpatented  claim to be valid in the first place),  and
provided  certain  levels of work and  improvements  have been  performed  on an
unpatented  mining claim,  the Mining Law of 1872  authorizes  claimants to then
seek to  purchase  the full title to the  claim,  thereby  causing  the claim to
become the private  property of the claimant.  Such full  ownership  expands the
claimant's  permissible  uses of the property (to any use authorized for private
property)  and  eliminates  the need to comply with  maintenance  and  reporting
requirements necessary to protect rights in an unpatented claim.

For  the  last  several  Congressional  sessions,  bills  have  been  repeatedly
introduced  in the U.S.  Congress  which would  supplant or radically  alter the
provisions  of the Mining Law of 1872. As of August 31, 1999, no such bills have
passed,  although a number of differing and sometimes  conflicting bills are now
pending. If enacted,  such legislation could substantially  increase the cost of
holding  unpatented  mining  claims and could impair the ability of companies to
develop  mineral  resources  on  unpatented  mining  claims.  Under the terms of
certain  proposed  legislation,  the ability of  companies to obtain a patent on
unpatented mining claims would be nullified or substantially impaired. Moreover,
certain forms of such proposed legislation contain provisions for the payment of
royalties to the federal  government  in respect of production  from  unpatented
mining claims,  which could  adversely  affect the potential for  development of
such claims and the economics of operating  existing mines on federal unpatented
mining claims. The Company's  financial  performance could therefore be affected
adversely by passage of such  legislation.  It is  impossible to predict at this
point what any  legislated  royalties  might be, but a  potential  three to four
percent gross  royalty,  assuming a gold price of $400 per ounce,  would have an
approximated  $12 to $16 per ounce impact on the  Company's  costs of production
from unpatented mining claims.

                                                       [XPLORER\10KSB:123197]-6

                                                        11

<PAGE>

ITEM 3.           LEGAL PROCEEDINGS

None.

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

There were no matters submitted to shareholders during the fourth quarter of the
fiscal year ended December 31, 1997.


                                     PART II

ITEM 5.            MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's  Common Stock was inactive for from June 23, 1984 until  September
22, 1997, when it began trading on the Bulletin Board  Over-the-Counter  Market.
The  trading  market  is  limited  and  sporadic  and  should  not be  deemed to
constitute an "established trading market".

The  following  table  sets forth the range of Bid and Ask prices for the Common
Stock during the periods indicated, and represents inter-dealer prices, which do
not  include  retail  mark-ups  and   mark-downs,   or  any  commission  to  the
broker-dealer, and may not necessarily represent actual transactions.


                       1997                   Bid      Asked
          --------------------------------   -----     -----
          Quarter ending December 31, 1997   $0.50     $1.75

(a)      Holders:

         The  approximate  number of holders of record of Common  Shares,  as of
         August 31, 1999, was 343.

(b)      Dividends:

         The Company has not paid cash  dividends  on its common stock since its
         inception.  At the present  time,  the  Company's  anticipated  working
         capital  requirements  are such that it  intends  to follow a policy of
         retaining  any  earnings  in order to finance  the  development  of its
         business.


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

The following discussion and analysis should be read together with the financial
statements and notes thereto included elsewhere herein.

I.       Gerant emerged from its Chapter 11 proceeding in August 1996.  Prior to
         that  date,  the  reorganization  with  Xplorer,  S.A.,  Gerant  had no
         significant operations,  cash flows, or changes in financial condition,
         and was inactive since January 1, 1994.  Legal fees incurred during the
         bankruptcy period are presently being paid by the Company.

                                                        [XPLORER\10KSB:123197]-6

                                                        12

<PAGE>

II.      Plan of Operation

         The Registrant has been preparing for the construction of a Pilot Plant
         to process  both new and  existing  ore of the  Evening  Star Mine (the
         "Mine")  location.  Upon the  receipt of capital,  construction  of the
         Pilot  Plant  will  be  commenced.  The  Pilot  Plant  is  expected  to
         demonstrate  the  feasibility  of  extraction  of the  precious  metals
         contained  within  the ore.  The Pilot  Plant  should  be in  operation
         continually  until  the  full  operating  plant  is  completed  and  in
         operation.

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

         The  Registrant  is a  development  stage  enterprise  and, as such, is
         incurring  expenses  related  to the  development  of the  Mine and the
         preparation  for the  beginning  of the  Pilot  Plant.  Funds for these
         purposes have been raised  through the sale of Forward Gold  Contracts,
         sale of  Industrial  Bonds in Europe,  and the  strategic  placement of
         equity securities. These activities are necessary to assure the funding
         of anticipated operating costs and the satisfaction of the $2.1 million
         negative working capital.

         At the present time,  management is uncertain when the Pilot Plant will
         be completed and operations commenced. As a result, it is essential for
         management  to continue its fund raising  activities  until this income
         source commences and continuing  afterwards until the full operation is
         in progress.

         Registrant   continues  its  efforts  towards  achieving  a  profitable
         operation and, although management is confident of achieving that goal,
         Registrant cannot assure its shareholders that it will be successful in
         operating a profitable business.

Results of Operations

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

There  were  no  revenue  generating   operations  during  1997  and  1996  and,
consequently, no operating revenues or cost of revenues were recorded.

General and  administrative  expenses were $765,169 in 1997 compared to $449,100
in 1996 as a result  of  costs  associated  with the  Gerant  merger  and  their
evolving  from  Chapter  11,  as  well  as  costs  associated  with  the  mutual
termination  of the  Operating  agreement  with  Emtec,LLC,  and the leases with
Sequoia  Trust.  As a result of these  termination  agreements  the  Company has
temporarily suspended preparations for the construction of a Pilot Plant.

Total  expenses  were  $5,119,690  in 1997 compared to $1,177,700 in 1996 due to
impairment losses  recognized by the Company based on new information  regarding
its mining  properties  and certain  investments  of  $3,303,500  and  $500,000,
respectively.

Liquidity and Capital Resources

As of December 31, 1997 the Registrant had a working capital  deficiency of $2.1
million, an increase of $900,000 from 1996. The increase was attributable to the
continued  preparations  for  construction  of the Pilot  Plant.  A  significant
portion of these  expenses was  satisfied  during 1997 by the issuance of common
shares on the Company in  settlement of amounts due.  Registrant  had $71,124 in
cash at December 31, 1997 a decrease of $94,876 from 1996.  The decrease was due
to continued development operations.

                                                        [XPLORER\10KSB:123197]-6

                                                        13

<PAGE>

The Registrant's plan is to keep searching for additional sources of capital and
new  operating  opportunities.  In the interim,  the  Registrant's  existence is
dependent on continuing financial support from investors,  which with the scaled
operations  is estimated to be  approximately  $150,000 for the next fiscal year
based upon current operations.  Furthermore,  the Registrant may have to utilize
its  common  stock for future  financial  support  to  finance  its needs.  Such
conditions raise substantial doubt about the Registrant's ability to continue as
a going concern. As such, the Registrant's independent accountants have included
an explanatory paragraph with respect to the uncertainty.

The Registrant has no commitments for capital  expenditures or additional equity
or debt financing and no assurances  can be made that its working  capital needs
can be met.

Additionally,  as of December  31,  1997,  the  Registrant  had three  employees
including officers and directors.


ITEM 7.           FINANCIAL STATEMENTS

The following financial  statements are included as a separate section following
the signature page to this Form 10-KSB and are incorporated herein by reference:

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                            Page

         Report of Independent Auditor ...............................F-1, F-2

         Consolidated Balance Sheet...................................F-3

         Consolidated Statement of Operations for the year ended
          December 31, 1997 ..........................................F-4

         Consolidated Statement of Shareholders' Equity for the year
          ended December 31, 1997 ....................................F-5

         Consolidated Statement of Cash Flows for the year ended
          December 31, 1997 ..........................................F-7

         Notes to Financial Statements................................F-8-18

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

As previously reported, on January 15, 1998, Jay J. Shapiro, C.P.A. was replaced
as the Registrant's  independent  accountant.  Jay J. Shapiro, C.P.A. previously
issued an unqualified report dated December 30, 1997,  assuming the Company will
continue  as going  concern,  which  did not  contain  any  adverse  opinion  or
disclaimer of opinion,  or any  qualification as to uncertainty,  audit scope of
accounting  principles.  Such  report  has  not  been  modified.  There  were no
disagreements with Jay J. Shapiro, C.P.A. on any matter of accounting principles
or practices,  financial  statement  disclosure  or auditing  scope or procedure
during  the two year  period  prior  covered by their  report  and  subsequently
through January 22, 1998.

On January 22, 1998, the auditing practice of Brown, Armstrong,  Randall & Reyes
was engaged to perform the audit of the Company for the year ended  December 31,
1997.

The decision to replace Jay J.  Shapiro,  C.P.A.  with the auditing  practice of
Brown,  Armstrong,  Randall & Reyes was made by the Board of  Directors.  At the
present time the Board of Directors does not have an audit committee.

                                                        [XPLORER\10KSB:123197]-6

                                                        14

<PAGE>

                                    PART III

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

Name                     Age  Position
-----------------------  ---  -----------------------------------------------
Steven B. Mortensen      37   Chairman of the Board and Secretary
Thomas C. Roddy, PE.(1)  45   Director, President and Chief Executive Officer
Jon W. Bice(1)           53   Director, Treasurer and Chief Financial Officer
Joyce J. Pellet (1)      61   Director
Benjamin C. Rice(1)      59   Director

         (1) As part of a  restructuring  of Registrant in June 1999, Mr. Roddy,
Mr.  Bice,  Ms.  Pellet and Mr. Rice  resigned  their  positions as Officers and
Directors of Xplorer, S.A.

Steven B.  Mortensen has been  Chairman of the Board and  Secretary  since July,
1996.  Mr.  Mortensen  majored in  computer  science  and math at Brigham  Young
University.  Mr.  Mortensen is also  responsible for investor  relations for the
Company and its subsidiaries,  including overseeing its European operations. Mr.
Mortensen served as Trustee of Atlantic Pacific Trust and as Manager of Atlantic
Pacific  Trust,  LLC.  Mr.  Mortensen's  experience  is in real  estate,  mining
development,  and public  relations.  He is also  co-trustee  of Rocky  Mountain
Trust. In that capacity,  he is solely  responsible for asset management and all
investments. Previously, in 1991, Mr. Mortensen was senior vice president of the
"B" paper  division of Trump  Mortgage  Group Inc.  Mr.  Mortensen's  other past
positions include: President of North Star Industries, a mining, residential and
commercial contractor;  President and owner of Hillcrest Development and Land, a
land and mine  development  company;  Sales and Marketing  Director of Mortensen
Construction and Lifestyle Homes, Inc.

Thomas C. Roddy has been President, Chief Executive Officer and a director since
July, 1996. Mr. Roddy is a registered civil engineer in the State of California.
He received a B.S. in civil engineering from California State University, Fresno
in 1978.  From 1978  through  1985,  Mr.  Roddy was a senior  engineer for Boyle
Engineering Corporation, Bakersfield, California. Since 1985, Mr. Roddy has been
a consulting engineer in Bakersfield,  California. His engineering background is
extensive and includes experience as project manager/engineer for various mining
projects in California and Nevada,  engineering  superintendent for construction
of the Almond Power Plant near  Modesto,  California,  extensive  experience  in
road, sewer water, and drainage system design, and engineering  services related
to Santa Fe Energy Company and Shell Western  Exploration and Production Co. for
the construction of enhanced recovery  facilities.  Mr. Roddy is a former member
of the Kern County Air Pollution Control District Hearing Board.

Jon W. Bice has operated his own  accounting  and tax  business  since 1971.  He
prepares  over  600  individual  tax  returns,  40  corporate  returns,  and  15
partnership  returns per year.  His tax practice is national  with clients in 29
states, ranging from small, individual businesses to $100 million multi-national
corporations.  Mr.  Bice is licensed to  practice  before the  Internal  Revenue
Service  and the  United  States  Tax  Court on tax  matters,  and  performs  an
estimated annual average of 100 to 125 tax and examination  audits. Mr. Bice has
been the CFO for other  corporations  in the past whose  sales  ranged  from $36
million per year to $100 million in international sales.

                                                        [XPLORER\10KSB:123197]-6

                                                        15

<PAGE>

Joyce J. Pellet  presently  serves as trustee of Bedrock  Trust,  which owns and
manages  several  rental  properties.  She also  actively  serves as trustee for
Sequoia Trust and was co-trustee of Atlantic Pacific Trust. Ms. Pellet presently
serves as one of the  Managers of EMTEC,  LLC,  which is the mine  operator  for
Atlantic Pacific Trust's mining properties.

Benjamin C. Rice is an attorney  licensed to practice in the State of Idaho.  He
received a B.S. in  psychology  and economics  from Brigham Young  University in
1964 and a Juris  Doctorate  degree from Golden Gate  university in 1971. He has
been  engaged  in the  private  practice  of law  since  1988,  specializing  in
constitutional  law, trust,  tax law, asset protection and mining law. He serves
as corporate  counsel for several  corporations and trusts,  including  Atlantic
Pacific  Trust and Emtec,  Inc.  Mr. Rice has been a law  professor  at National
University and has served as general  counsel for an operating  mining  company,
Toone- Mitchell Mining Company.

Compliance with Section 16(a) of the Securities Exchange Act of 1934.

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange  Commission  ("SEC")  initial  reports of ownership  and reports of
changes  in  ownership  of  Common  Stock  and other  equity  securities  of the
Registrant.  Officers,  directors and greater than ten percent  stockholders are
required by SEC regulation to furnish the Registrant and Exchange with copies of
all Section 26(a) forms they file.

Based  solely on its  review  of the  copies of such  forms  received  by it, or
written  representations  from  certain  reporting  persons  that  no Form 5 was
required for such persons,  the Company  believes that,  other than as disclosed
below,  during the fiscal year ended December 31, 1997, all filing  requirements
applicable  to its officers,  directors and greater than ten percent  beneficial
owners were complied with.

All of the officers,  directors and ten percent shareholders , including Messrs.
Moreland,  Roddy,  Mortensen,  Bice and Rice, Ms. Pellet,  and Atlantic  Pacific
Trust,  LLC, failed to report timely on Form 3's when they had become directors,
officers and ten percent  shareholders of the Registrant at the  confirmation by
the  Bankruptcy  Court of the Third Amended Plan in August 1996.  Procedures and
controls have been instituted to assure future  compliance with Section 16(a) of
the Exchange Act.

ITEM 10.          EXECUTIVE COMPENSATION

No  executive  officer of the  Company  earned in excess of  $60,000  during the
fiscal year ended  December  31, 1997,  less any stock  incentives  issued.  All
executive  officers as a group (three  persons)  received cash  compensation  of
approximately $180,000 during the fiscal year ended December 31, 1997. Beginning
January 1, 1997, the Company has agreed to pay to Messrs. Mortensen,  Roddy, and
Bice an annual  salary of $60,000 for each person.  Bonuses,  based on sales and
revenues,  may be paid to such  employees  at the  discretion  of the  Board  of
Directors.  There are no written employment  agreements with any employee of the
Company.

                                                        [XPLORER\10KSB:123197]-6

                                                        16

<PAGE>

1997 Stock Incentive Plan

On January 24, 1997,  the  Company's  Board of  Directors  approved a 1997 Stock
Incentive Plan (the "1997 Plan").  The purpose of the 1997 Plan is to enable the
Company to recruit and retain selected officers and other employees by providing
equity  participation in the Company to such  individuals.  Under the 1997 Plan,
regular salaried employees, including directors who are full time employees, and
non-employee directors, may be granted options exercisable at not less than 100%
of the fair value of the share at the date of grant.  The exercise  price of any
option  granted to an optionee  who owns stock  possessing  more than 10% of the
voting  power of all  classes of stock of the  Company  must be 110% of the fair
market  value of the Common  Stock on the date of grant and the duration may not
exceed ten years.  Since there is no public market for the Company's shares, the
fair  market  value  has  been  determined  from  time to time by the  Board  of
Directors.  The duration of options may not exceed ten years.  Options under the
Plan are  nonassignable,  except in the case of death and may be exercised  only
while the optionee is employed by the Company,  said employment  shall include a
leave of absence,  with the consent of the  Company,  but shall not exceed three
months,  or death. The purchase price and number of shares that may be purchased
upon exercise of options are subject to adjustment in certain  cases,  including
stock splits, recapitalizations and reorganizations.

The  amount of  options  granted  and to whom,  are  determined  by the Board of
Directors  at their  discretion.  There are no  specific  criteria,  performance
formulas or measures.

Under the 1997 Plan, of the 1,500,000 shares  available for grant,  680,000 were
granted in January 1997 to officers, directors, consultants, and employees.

The following table sets forth certain information with respect to all qualified
stock  options  held as of March 31, 1998 by the  Company's  executive  officers
under the 1997 Plan. All options are exercisable at a price equal to fair market
value on date of grant and terminate 10 years from date of grant.  None of these
options has been exercised.

                                   Number of      Exercise       Expiration
Name                               Options        Price/Share    Date
---------------------------------  ---------      -----------    ----------
Steven B. Mortensen                150,000        $.50           *
Thomas C. Roddy                     75,000         .50           *
Jon W. Bice                         75,000         .50           *
All executive officers as a group  300,000         .50           *
(3 persons)

*        All options expire on January 30, 2007.

Non-Qualified Stock Options

On January 31,  1997,  80,000  non-qualified  stock  options were granted to two
persons in  consideration  for services  rendered to the  Company.  The exercise
price  for all  options  is $.50  per  share.  None of  these  options  has been
exercised. All of these options expire on January 30, 2007.

                                                        [XPLORER\10KSB:123197]-6

                                                        17

<PAGE>

ITEM 11.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                  MANAGEMENT

The following table sets forth certain  information,  as of March 31, 1998, with
respect to the beneficial  ownership of the Registrant's Common Stock, par value
$.001 per share, by holders of more than five percent of the Registrant's Common
Stock,  by each director and  executive  officer of the  Registrant,  and by all
directors and officers of the Registrant as a group.


Name and Address of                     Number of Shares             Percent
Beneficial Owner                        Beneficially Owned(1)(9)     of Class(2)
----------------------------------      ------------------------     -----------
Steven B. Mortensen                       615,000(3)                  2.4
Thomas C. Roddy                           100,000(4)                  *
Jon W. Bice                               120,000(5)                  *
Joyce J. Pellet                            55,000(6)                  *
Benjamin C. Rice                              -0-(7)                  *
Compania Comercial Atlantis, S.A.       1,000,000(8)                  5.1

*        Less than one percent (1%).

(1)      Unless otherwise  indicated,  all shares are beneficially owned and the
         sole  voting and  investment  power is held by the person  named in the
         table above and the address  for each  beneficial  holder is in care of
         the Company.

(2)      Based upon 19,779,705 shares of Common Stock outstanding.

(3)      Does not include 125,000 shares in the Hughes Irrevocable Trust for the
         benefit of Mr. Mortensen's wife. Mr. Mortensen disclaims any beneficial
         interest in these shares.  Does not include options to purchase 150,000
         shares of the Company's common stock.

(4)      Does not include  options to purchase  75,000  shares of the  Company's
         common stock.

(5)      Does not include  options to purchase  75,000  shares of the  Company's
         common stock.

(6)      Does not include 750,000 shares held by the Sequoia  Irrevocable  Trust
         of which Mrs.  Pellet's  adult  children  are the  beneficiaries.  Mrs.
         Pellet is a trustee of the trust and disclaims any beneficial  interest
         in these shares.  Furthermore,  does not include options granted to Mr.
         Moreland to purchase  150,000 shares of the Company's  common stock nor
         options  granted  to Mrs.  Pellet  to  purchase  50,000  shares  of the
         Company's common stock.

(7)      Does not include  options to purchase  50,000  shares of the  Company's
         common stock.

(8)      The address for this beneficial holder is P.O. Box 5747-1000, San Jose,
         Costa Rica, C.A. Does not include  12,805,500 shares of common stock to
         be issued in charge for 1,280,550 shares of Preferred Stock pursuant to
         a formal  request from Compania  Comercial  Atlants S.A. to convert the
         Preferred Stock dated July 28, 1999.

                                                        [XPLORER\10KSB:123197]-6

                                                        18

<PAGE>

(9)      Does not include  1,500,000  shares issued to NuVen  Advisors,  Inc. in
         June 1999,  in connection  with the execution of an advisory  agreement
         and the restructuring of the Company.

ITEM 12.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

On July 15,  1995,  the  Company's  majority-owned  subsidiary  entered into the
following agreements:

a)       A lease from Sequoia  Trust of  approximately  57 acres of land in Kern
         County,  California,  containing  three  patented  mining  claims.  The
         Company  intended to explore,  develop and operate  mines and  extract,
         sell and ship any precious metals discovered on the property. The lease
         terminates  on July 15, 2000,  unless  renewed for like terms by mutual
         consent.  The Company pays $3,000 per month and is obligated to pay 12%
         of the  gross  value of  metals  and other  substances  recovered  from
         refining of ore from the  property.  This lease was  canceled by mutual
         agreement in December, 1997.

b)       A lease from  Sequoia  Trust of the  Weldon  Research  Center,  Weldon,
         California,  consisting of several  buildings,  including a laboratory,
         offices,  repair shops and storage facilities.  The lease terminates on
         July 15, 2000,  unless  renewed for like terms by mutual  consent.  The
         Company  pays lease  payments of $3,000 per month.  The Trustees of the
         Sequoia Trust are William M.  Moreland,  an officer and director of the
         Company,   and  Joyce  J.  Pellet,  a  director  of  the  Company.  The
         beneficiaries  of the Trust are the  children of Mr.  Moreland  and the
         children of Mrs. Pellet.  The children are all over 21 years old and do
         not live with either Mr.  Moreland or Mrs. Pellet and both Mr. Moreland
         and Mrs. Pellet disclaim any beneficial  interest in the Sequoia Trust.
         This lease was canceled by mutual agreement in December, 1997.

c)       The  Company  entered  into an  Operating  Agreement  with  Emtec,  LLC
         ("EMTEC")  wherein Emtec will perform all exploration,  development and
         production  services  for the  Evening  Star  Mine.  Emtec  will be the
         operator  for all mine  operations.  The  Company  has agreed to pay to
         EMTEC, on a monthly basis,  reimbursement  of all expenses and costs of
         EMTEC related to the Evening Star mining operations plus 18%. From July
         15, 1995 through March 31, 1997,  the Company had paid Emtec  $462,143.
         For the year  1997  the  company  paid  EMTEC  $200,000.This  Operating
         Agreement was canceled by mutual agreement in December, 1997.


Mr. Moreland,  a former officer and director of the Company,  and Mrs. Pellet, a
director of the Company,  were the Co-Managers of Emtec,  LLC. Both Mr. Moreland
and Mrs. Pellet disclaim any beneficial ownership in Emtec, LLC.

In each of the transactions  described in the preceding  paragraphs in which the
Company purchased goods or services from an affiliate, the Company believes that
the terms of the transaction  were no less favorable to it than those that could
have been  obtained in a comparable  transaction  with an unrelated  party.  Any
future  transactions  between  the  Company  and  its  officers,  directors  and
affiliated parties will be subject to approval by a majority of the directors of
the Company, including a majority of the disinterested directors.

Pursuant to the Company's  Third Amended Plan of  Reorganization  filed with the
Bankruptcy Court in July, 1996 (the "Plan"),  Compania Comercial Atlantis,  S.A.
("Compania")  exchanged 417,200 APT Units owned by Compania for 1,043,000 shares
of the Company's Series A Convertible  Preferred Stock (the "Preferred  Stock").
In December,  1996,  the Company  exchanged an additional  237,550 shares of its
Preferred  Stock for  189,960 APT Units.  The  Preferred  Stock is  convertible,
commencing  October 1, 2002,  into ten shares of the Company's  Common Stock for
each share of Preferred Stock. Dividends are payable quarterly at a monthly

                                                        [XPLORER\10KSB:123197]-6

                                                        19

<PAGE>

rate of one percent of the  Preferred  Stock held.  The dividends are payable in
Common  Stock of the Company on the basis of ten shares of Common Stock for each
share of Preferred Stock. In addition,  the holder of the Preferred Stock could,
upon written  notice,  have any dividends  due payable in  additional  Preferred
Stock instead of Common Stock.

On December 11, 1996, the Company agreed to issue 1,000,000 shares of its Common
Stock to Compania and Compania waived its right to receive any dividends,  past,
present or future, associated with the Preferred Stock. As of December 11, 1996,
no dividends had been paid to Compania.

ITEM 13.          EXHIBITS AND REPORTS ON FORM 8-K

The following documents are filed as part of this report:

a.       Listing of Exhibits

         2.1(1)   Disclosure  Statement  For  Debtor's  Third  Amended  Plan  of
                  Reorganization.

         2.2(1)   Order    Confirming    Debtor's    Third   Amended   Plan   of
                  Reorganization.

         2.3(2)   Agreement and Plan of Reorganization  between Atlantic Pacific
                  Trust and its Beneficiaries and Atlantic Pacific Trust,  LLC.,
                  dated December 26, 1996.

         3.1(a)(2)Articles   of   Incorporation   and   Amendments   thereto  of
                  Registrant.

         3.1(b)(2)Articles of  Organization of Atlantic  Pacific Trust,  LLC and
                  Amendment thereto.

         3.2(2)   By-Laws of Registrant.

         4.1(2)   Certificate of  Designation of Series A Convertible  Preferred
                  Stock of Registrant.

         4.1(a)(2)Waiver  of  Preferred   Stockholder   between  Registrant  and
                  Compania Comercial Atlantis, S.A. dated December 11, 1996.

         4.2(2)   $450,000 10%  Subordinated  Convertible  Note dated  September
                  25,1996  between  Registrant  and  Gardner  Investments,  Inc.
                  (lender).

         4.3(2)   Warrant Certificate for Common Stock issued to shareholders of
                  the   Registrant   pursuant   to   Third   Amended   Plan   of
                  Reorganization  approved by the United States Bankruptcy Court
                  on August 5, 1996.

         4.4(2)   "B" Warrant Agreement between  Registrant and Atlantic Pacific
                  Trust dated August 5, 1996.

         4.5(2)   "C" Warrant Agreement between  Registrant and Atlantic Pacific
                  Trust dated August 5, 1996.

         10.1(2)  Lease  Agreement  between  Sequoia Trust and Atlantic  Pacific
                  Trust dated July 15, 1995.

         10.2(2)  Lease  Agreement  between  Sequoia Trust and Atlantic  Pacific
                  Trust dated July 15, 1995.

                                                        [XPLORER\10KSB:123197]-6

                                       20

<PAGE>

         10.3(2)  Operating  Agreement between Atlantic Pacific Trust and Emtec,
                  LLC dated July 25, 1995.

         10.4(2)  Assignment of Assets by Atlantic  Pacific Trust to Benjamin C.
                  Rice, Trustee dated October 25, 1995.

         10.5(2)  Bill of Sale between Sequoia Trust and Atlantic  Pacific Trust
                  dated July 15, 1995.

         10.6(2)  Regulation  "S" Stock  Purchase  Agreement  between  Stonehill
                  Investments, Ltd. and Registrant.

         10.7(2)  Security   Agreement   between   Plaza   Realty  One   Limited
                  Partnership and Registrant dated August 19, 1994, and $400,000
                  Promissory  Note between Plaza Realty One Limited  Partnership
                  and Registrant dated August 19, 1994.

         10.8     1997 Stock Incentive Plan.

(1)      Filed as  exhibits  to  Registrant's  Form 8K which was filed  with the
         Commission  on September  12,  1996,  and  incorporated  herein by this
         reference.

(2)      Filed as exhibits to  Registrant's  Form 10-KSB which was filed on June
         3, 1997 and incorporated herein by this reference.

b.       Reports on Form 8-K

         1)       On February 4, 1998, the Registrant filed a Form 8-K reporting
                  a change in  independent  accountant  from Jay J.  Shapiro  to
                  Brown, Armstrong, Randall & Reyes. See Part II, Item 8.

         2)       On May 13, 1998, the registrant filed a Form 8-K reporting: a)
                  change in corporate domicile to Nevada, b) a change of address
                  for the  corporation  and c) engagement of new Chief Ecexutive
                  officer and member of board of directors.

         3)       On June 24, 1998, the Registrant  filed a Form 8-K reporting a
                  change in members of management and the board of directors.

                                                        [XPLORER\10KSB:123197]-6

                                                        21

<PAGE>

                                   SIGNATURES

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

                                        XPLORER, S.A.

Date:    August 22, 1999                By:  /s/  Steven B. Mortensen
                                             -----------------------------------
                                                  Steven B. Mortensen, 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.

     Signature                Title                    Date
------------------------      ---------------------    ------------------

/s/  Steven B. Mortensen      President and
------------------------      Chairman of the Board    September 22, 1999
     Steven B. Mortensen

/s/  Jon L. Lawver            Secretary and Director   September 22, 1999
------------------------
     Jon L. Lawver

/s/  Leonard J. Roman         Treasurer/Financial      September 22, 1999
------------------------      Officer and Director
     Leonard J. Roman

                                                        [XPLORER\10KSB:123197]-6

                                                        22

<PAGE>

                                  XPLORER, S.A.
                                DECEMBER 31, 1997

                                TABLE OF CONTENTS

                                                                            Page

         Independent Auditors' Reports ...............................F-1, F-2

         Consolidated Balance Sheet...................................F-3

         Consolidated Statement of Operations.........................F-4

         Consolidated Statement of Stockholder's Equity (Deficit).....F-5

         Consolidated Statement of Cash Flows.........................F-7

         Notes to Consolidated Financial Statements...................F-8-18

                                                        [XPLORER\10KSB:123197]-6

                                                        F-i

<PAGE>

                          INDEPENDENT AUDITOR'S REPORT



The Board of Directors of
Xplorer, S.A.
Weldon, California

We have audited the  accompanying  consolidated  balance sheet of Xplorer,  S.A.
(the Company), a development stage enterprise,  as of December 31, 1997, and the
related consolidated statement of operations, shareholders' equity (deficit) and
cash flows for the year ended December 31, 1997. These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of the Company as of
December 31, 1997,  and the results of its operations and its cash flows for the
year ended December 31, 1997, in conformity with generally  accepted  accounting
principles.

As of December 31, 1997, the Company has  significant  negative  working capital
and exposure to financial uncertainties (see Notes 1 and 2).

As discussed in Note 10 to the financial statements, the Company has been unable
to repay $929,522 in debt obligations  which matured  subsequent to December 31,
1997.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, there
are  conditions  which raise  substantial  doubt about the Company's  ability to
continue as a going concern, including the Company's ability to raise additional
capital to fund its  operations  and  development  programs and to establish ore
reserves. Management's plans in regard to these matters are described in Note 1.
The consolidated financial statements do not include any adjustments relating to
the   recoverability   and   classification   of  reported   asset  amounts  and
classification  of  liabilities  that  might  result  from the  outcome of these
uncertainties.

                                        BROWN ARMSTRONG RANDALL
                                        REYES PAULDEN & McCOWN
                                        ACCOUNTANCY CORPORATION

Bakersfield, California
August 5, 1999

                                                        [XPLORER\10KSB:123197]-6

                                               F-1

<PAGE>

                             JAY J. SHAPIRO, C.P.A.
                           A Professional Corporation

                             16501 Ventura Boulevard
                                    Suite 650
                            Encino, California 91436
                     Tel. (818) 990-4878 Fax (818) 990-4944

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors of XPLORER, S.A.:

         We have audited the accompanying consolidated balance sheet of XPLORER,
S.A. (the "Company"),  a development stage  enterprise,  as of December 31, 1996
and 1995, and the related consolidated  statements of operations,  shareholders'
equity and cash flows for each of the two years ended  December 31, 1996.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

         We conducted our audit in accordance with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects,  the financial position of the Company
as of December 31, 1996,  and the results of its  operations  and its cash flows
for each of the two years ended December 31, 1996, in conformity  with generally
accepted accounting principles.

         The financial statements reflect a reverse acquisition  transaction and
the acquirer had insignificant operation prior to July 1, 1996.

         As of December 31, 1996, the Company has significant  negative  working
capital and exposure to financial uncertainties (See Notes 1 and 2).

December 30, 1997

                                        JAY J. SHAPIRO, C.P.A.
                                        a professional corporation

                                                        [XPLORER\10KSB:123197]-6

                                                   F-2

<PAGE>

<TABLE>
<CAPTION>

                                  XPLORER, S.A.
                        (A Development Stage Enterprise)
                           CONSOLIDATED BALANCE SHEETS
                                DECEMBER 31, 1997

ASSETS
<S>                                                                             <C>

  Current Assets
    Cash and cash equivalents                                                    $           71,124
    Receivables                                                                              39,166
                                                                                -------------------
      Total Current Assets                                                                  110,290

Property and equipment                                                                       98,720

Other investments                                                                           156,683
                                                                                -------------------
TOTAL ASSETS                                                                      $         365,693
                                                                                ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
  Current Liabilities
    Accrued expensed                                                              $         333,867
    Related party payable                                                                   364,675
    Note payable                                                                            450,000
    Current portion of long-term debt                                                     1,065,847
                                                                                -------------------
      Total Current Liabilities                                                           2,214,389

Long-term debt                                                                              689,974

      Total Liabilities                                                                   2,904,363

Minority Interest                                                                               -
Shareholders' Equity (Deficit)
  Preferred stock, par value $.001;  authorized  15,000,000 shares;  convertible
    beginning in 2001; 1,280,550 shares
    issued and outstanding                                                                    1,281
  Common stock, par value $.001; authorized 60,000,000
    shares; 19,779,705 issued and outstanding                                                19,780
  Additional paid in capital                                                              2,545,964
 Accumulated deficit during development stage                                           (5,105,695)
      Total Shareholders' Equity (Deficit)                                              (2,538,670)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                        $         365,693
(DEFICIT)                                                                       ===================

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                                  [XPLORER\10-KSB:123197FIN-CLN]

                                                        F-3

<PAGE>

<TABLE>
<CAPTION>

                                  XPLORER, S.A.
                        (A Development Stage Enterprise)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                AND THE PERIOD FROM AUGUST 15, 1996 (Inception of
                Development Stage Enterprise Activities) THROUGH
                                DECEMBER 31, 1997

                                                                                                  For the
                                                                                                Period from
                                                                                                August 15,
                                                                                                   1996
                                                        For the              For the            (Inception)
                                                      Year Ended           Year Ended             Through
                                                     December 31,         December 31,         December 31,
                                                         1997                 1996                 1997
                                                 --------------------- -------------------  -------------------
<S>                                              <C>                   <C>                  <C>

Revenues
 Other income                                    $             25,976  $            37,000  $           62,976
 Interest income                                               40,020               48,400              88,420
                                                 --------------------- -------------------  -------------------
    Total revenues                                             65,996               85,400             151,396
                                                 --------------------- -------------------- -------------------
Expenses
 Commission expense                                            292,185             450,900             743,085
 General and administrative                                    765,804             449,100           1,214,904
 Loss on impairment of mining assets                         3,303,500                   -           3,303,500
 Loss on impairment of other assets                            500,000                   -             500,000
 Net loss on investments and settlement
  of gold contracts                                            122,317             106,000             228,317
 Interest expense                                              135,884             171,700             307,584
                                                 --------------------- -------------------  -------------------
    Total expenses                                           5,119,690           1,177,700           6,297,390
                                                 --------------------- -------------------  ------------------
Net loss before minority interest                          (5,053,694)         (1,092,300)         (6,145,994)

Minority interest                                            1,817,000             340,300           2,157,300
                                                 --------------------- -------------------  ------------------

Net loss                                          $        (3,236,694) $         (752,000)  $      (3,988,694)
                                                  ===================  ==================   =================
Net loss per common share                        $                .18) $             (.12)
                                                 ====================  ==================

Weighted average common shares
outstanding                                                19,028,346          6,113,040
                                                 ====================  ==================

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                                  [XPLORER\10-KSB:123197FIN-CLN]

                                                    F-4

<PAGE>

<TABLE>
<CAPTION>

                                  XPLORER, S.A.
                        (A Development Stage Enterprise)
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(DEFICIT)
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                          Common Stock              Preferred Stock                      Accumulated
                                          ($.001 par)                 ($.001 par)                        Deficit
                                       -------------------       ---------------------    Additional     During
                                                                                          Paid-in        Development
                                       Shares      Amount        Shares         Amount    Capital        Stage          Total
                                       ----------  -------       ---------      ------    ----------     ----------     ----------
<S>                                    <C>         <C>           <C>            <C>       <C>            <C>            <C>

Balance, January 1, 1996                  336,218  $   336               -      $    -    $1,793,800     $(104,001)     $1,690,135
 August 15, 1996 merger
  with Gerant pursuant to the
  Plan (August 1996)                   14,639,000   14,639       1,043,000       1,043       252,764        52,000         320,446
 Stock issued to special
  creditors pursuant to the
  Plan (September 1996)                 1,002,229    1,002               -           -        98,600             -          99,602
 Preferred stock issuance
  to Atlantic beneficiary for
  189,960 LLC's (December
  1996)                                         -        -         237,550         238       207,300             -         207,538
 Dividend waiver on
  preferred stock (December
 1996)                                  1,000,000    1,000               -           -        99,000      (100,000)              -
 Stock issued to employees
  and consultants for
  professional services
  (December 1996)                       1,805,000    1,805               -           -        94,500             -          96,305
 Net loss for period                            -        -               -           -             -      (752,000)       (752,000)
                                       ----------  -------       ---------      ------    ----------     ----------     ----------

</TABLE>

                                                                     (Continued)

   The accompanying notes are an integral part of these financial statements.

                                                  [XPLORER\10-KSB:123197FIN-CLN]

                                                     F-5

<PAGE>

<TABLE>
<CAPTION>

                                  XPLORER, S.A.
                        (A Development Stage Enterprise)
            CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

                                          Common Stock              Preferred Stock                      Accumulated
                                          ($.001 par)                 ($.001 par)                        Deficit
                                       -------------------       ---------------------    Additional     During
                                                                                          Paid-in        Development
                                       Shares      Amount        Shares         Amount    Capital        Stage          Total
                                       ----------  -------       ---------      ------    ----------     ----------     ----------
<S>                                    <C>         <C>           <C>            <C>       <C>            <C>            <C>

Balance, December 31, 1996             18,782,447  18,782        1,280,550      1,281     2,545,964      (904,001)      1,662,026
 Shares issued for purchase
  of 20,000 units in Atlantic
  Pacific Trust (September
  1997)                                   250,000     250                -          -             -             -             250
 Stock issued to employees
  and consultants for
  professional services
  (September 1997)                        830,000     830                -          -             -             -             830
 Shares retired
  (September 1997)                        (82,742)    (82)               -          -             -             -             (82)
 Net loss for period                            -       -                -          -             -    (3,236,694)     (3,236,694)
 Minority interest losses in
  excess of minority interest
  equity                                        -       -                -          -             -      (965,000)       (965,000)
                                       ----------  -------       ---------      ------    ----------     ----------     ----------

Balance, December 31, 1997             19,779,705  $19,780       1,280,550      $1,281    $2,545,964  $(5,105,695)    $(2,538,670)
                                       ==========  =======       =========      ======    ==========  =============   ============

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                                  [XPLORER\10-KSB:123197FIN-CLN]

                                                     F-6

<PAGE>

<TABLE>
<CAPTION>

                          XPLORER, S.A. AND SUBSIDIARY
                        (A Development Stage Enterprise)
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                AND THE PERIOD FROM AUGUST 15, 1996 (Inception of
                Development Stage Enterprise Activities) THROUGH
                                DECEMBER 31, 1997

                                                                                                          For the
                                                                                                        Period from
                                                                                                         August 15,
                                                                                                            1996
                                                               For the               For the            (Inception)
                                                              Year Ended           Year Ended             Through
                                                             December 31,         December 31,          December 31,
                                                                 1997                 1996                  1997
                                                             ----------------     ----------------      ----------------
<S>                                                          <C>                  <C>                   <C>

Cash Flows from Operating Activities
  Net loss                                                   $    (3,236,694)     $      (752,000)      $    (3,988,694)
  Adjustments to reconcile net loss to net cash
    used by operating activities:
      Minority interest in net loss of company                    (1,817,000)            (340,300)           (2,157,300)
      Loss due to impairment of mining assets                       3,303,500                    -             3,303,500
      Loss due to impairment of other assets                          500,000                    -               500,000
      Loss on settlement of note receivable                           256,487                    -               256,487
      Depreciation and amortization                                         -              181,900               181,900
      Accretion of interest                                                 -              160,400               160,400
      (Gain) loss on marketable securities                            226,400             (37,000)               189,400
      Accrued expenses and other liabilities                          145,667               40,200               185,867
      Related party payables                                          215,675              149,000               364,675
      Accrued Gerant obligations                                            -            (140,000)             (140,000)
      Prepaid commissions                                             210,000            (210,000)                     -
      Accounts receivable                                            (22,042)             (71,500)              (93,542)
                                                            -----------------     -----------------     -----------------
Net Cash Used by Operating Activities                               (218,007)          (1,019,300)           (1,237,307)
                                                            -----------------     -----------------     -----------------
Cash Flows from Financing Activities
  Sale of Atlantic units for cash                                           -              458,300               458,300
   Proceeds from sale of investment contracts                         695,288            1,375,000             2,070,288
  Payments on investment contracts                                  (380,534)                    -             (380,534)
  Repayment of gold contracts                                       (154,364)            (325,000)             (479,364)
  Repayment of U.S. Bonds                                           (145,269)                    -             (145,269)
  Proceeds from notes payable                                               -              450,000               450,000
                                                           ------------------     -----------------     ------------------
Net Cash Provided by Financing Activities                              15,121            1,958,300             1,973,421
                                                           ------------------     -----------------     ------------------
                                                                                                             (Continued)

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                                  [XPLORER\10-KSB:123197FIN-CLN]

                                                        F-7

<PAGE>

<TABLE>
<CAPTION>

                                           XPLORER, S.A. AND SUBSIDIARY
                                         (A Development Stage Enterprise)
                                       CONSOLIDATED STATEMENT OF CASH FLOWS
                                  FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                 AND THE PERIOD FROM AUGUST 15, 1996 (Inception of
                                 Development Stage Enterprise Activities) THROUGH
                                                 DECEMBER 31, 1997

                                                                                                          For the
                                                                                                        Period from
                                                                                                         August 15,
                                                                                                            1996
                                                               For the               For the            (Inception)
                                                              Year Ended           Year Ended             Through
                                                             December 31,         December 31,          December 31,
                                                                 1997                 1996                  1997
                                                             ----------------     ----------------      ----------------
<S>                                                          <C>                  <C>                   <C>

Cash Flows from Investing Activities
  Computer equipment purchases                                              -              (8,000)               (8,000)
  Mining property expenditures                                              -            (527,000)             (527,000)
  Sale of property and equipment                                        2,180                    -                 2,180
  Acquisition of marketable securities                              (143,513)          (1,130,000)           (1,273,513)
  Proceeds from marketable securities                                       -              911,000               911,000
  Gerant creditor expenditures                                                -          (355,000)             (355,000)
  Proceeds of other investments                                       249,343                   -                249,343
                                                           ------------------     -----------------     ----------------
Net Cash Provided (Used) by Investing Activities                      108,010          (1,109,000)           (1,000,990)
                                                           ------------------     ----------------      ----------------

Net Increase (Decrease) in Cash                                      (94,876)            (170,000)             (264,876)

Cash Balance, Beginning of Year                                       166,000              336,000               336,000
                                                            -----------------     ----------------      ----------------

Cash Balance, End of Year                                   $          71,124     $        166,000      $         71,124
                                                            =================     ================      ================

Interest Paid                                               $         100,000     $         11,300      $        111,300
                                                            =================     ================      ================

Income Taxes Paid                                           $             800     $            800      $          1,600
                                                            =================     ================      ================

Non-Cash:
 Minority losses in excess of minority equity               $         965,000     $              -      $        965,000
                                                            =================     ================      ================

</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                                  [XPLORER\10-KSB:123197FIN-CLN]

                                                        F-8

<PAGE>

                          XPLORER, S.A. AND SUBSIDIARY
                        (A Development Stage Enterprise)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND PRESENTATION

Organization

Xplorer,  S.A.  (the  Company),  (successor  to  Gerant  Industries,  Inc.)  was
organized by adoption of amended and restated  Articles of  Incorporation  dated
July 5, 1996,  which were  filed  with the office of the  Secretary  of State of
Nevada on August 15, 1996.

Gerant  Industries,  Inc.  (Gerant)  filed a petition for  reorganization  under
Chapter 11 of the United  States  Bankruptcy  Court (the  Court) for the Central
District of California on March 1, 1994. On July 24, 1996,  the Court  confirmed
Gerant's Third Amended Plan of Reorganization  (the Plan). The Plan approved the
amendment of the  Articles of  Incorporation  and  By-laws,  change of corporate
name,  authorization of common and preferred shares of stock,  payment of claims
and issuance of stock by the successors to this  debtor-in-possession,  Xplorer,
S.A.

The Company is a development  stage enterprise and has not achieved its intended
operations or related revenue as of August 5, 1999.

The Company owns 59% of Atlanta  Pacific Trust,  LLC (APT) and its  wholly-owned
subsidiary Atlantic-Pacific Finanzprodukte, GmbH (APT Germany). APT is the owner
of the  Evening  Star  Mine and  through  its  subsidiary  APT  Germany  secures
financing for its exploration and development activities.

The Company's consolidated financial statements have been presented on the basis
that it is a going concern,  which  contemplates  the realization of the mineral
properties  and other assets and the  satisfaction  of liabilities in the normal
course of  business.  The  Company  has  incurred  losses of  $6,145,994  before
minority  interest,  from  inception to December  31, 1997.  The Company has not
realized economic  production from its mineral  properties as of August 5, 1999.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.  Management  continues to actively seek  additional  sources of
capital to fund current and future  operations.  There is no assurance  that the
Company  will  be  successful  in  continuing  to  raise   additional   capital,
establishing  probable or proven ore  reserves,  or  determining  if the mineral
properties can be mined economically. These consolidated financial statements do
not  include  any  adjustments  that  might  result  from the  outcome  of these
uncertainties.

                                                    F-9

<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its 59% owned  subsidiary,  Atlantic  Pacific Trust, LLC (APT), and APT's wholly
owned subsidiary,  Atlantic-Pacific Finanzprodukte, GmbH. In consolidations, all
significant intercompany balances and transactions are eliminated.

Use of Estimates

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

Mineral Properties and Mining Equipment

Mineral  properties and mining  equipment are carried at cost.  Depreciation  on
equipment is provided on a straight-line  basis over its estimated  useful lives
ranging from three years to five years.  Mining  equipment not in service is not
depreciated.

In the past,  the Company  deferred  direct  costs  related to the  acquisition,
exploration and development of mineral properties pending determination of their
economic viability which normally entails performing an in-depth  geological and
geophysical study. If no minable ore body was discovered, previously capitalized
costs were expensed in the period the property was abandoned.

Although the Company has performed drilling samples, and an independent engineer
has deemed the gold properties contain profitable reserves in excess of property
and equipment costs incurred through December 31, 1997, management has chosen to
follow the more  conservative  method of accounting by expending the  previously
capitalized  gold mineral  costs of  $2,665,500  as of December  31,  1996,  and
expensing any development costs incurred in 1997.

Office Furniture and Equipment

Office furniture and equipment are recorded at cost. Depreciation is computed by
the straight-line method based upon the estimated useful lives of the respective
assets, generally three to five years.

Income (Loss) per Common Stock

Income  (loss)  per  share of common  stock is  computed  based on the  weighted
average  number  of  shares  outstanding.   Warrants,  options  and  convertible
debentures  have not been included in the  calculation  as their effect would be
anti-dilutive.

                                                       F-10

<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

The Company  accounts for income taxes using the liability method which requires
recognition of deferred tax  liabilities  and assets for the expected future tax
consequences  of events that have been included in the  financial  statements or
tax returns.  Deferred tax assets and  liabilities  are determined  based on the
difference  between  the  financial  statements  and tax  basis  of  assets  and
liabilities  using  enacted  tax  rates in  effect  for the  year in  which  the
differences are expected to reverse.

Stock Based Compensation

In October 1995, the Financial  Accounting  Standards Board issued  Statement of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation,"  (SFAS  123),  which is  effective  for periods  beginning  after
December  15,  1995.   SFAS  123  requires  that  companies   either   recognize
compensation  expense  for  grants of stock,  stock  options,  and other  equity
instruments based on fair value or provide proforma  disclosure of the effect on
net income and earnings per share in the Notes to the Financial Statements.  The
Company intends to continue to account for its stock- based  compensation  under
Accounting  Principles  Board No. 25;  however,  the  Company  has  adopted  the
disclosure provisions of SFAS 123 for the fiscal year ended December 31, 1997.

Cash and Cash Equivalents

For purposes of reporting cash flows,  cash and cash equivalents  include highly
liquid debt instruments purchased with a maturity of three months or less.

Asset Impairment

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," (SFAS 121),  management of the Company reviews the net carrying
value of the Evening Star mine and development  property on a regular  quarterly
basis.  Estimated  future  net cash flows  from each mine are  calculated  using
estimated  future  prices,  operating  capital,  and  reclamation  costs  on  an
undescended basis. Reductions in the carrying value of each mine are recorded to
the extent the net book value of the  investment  exceeds the estimate of future
discounted net cash flows.

The  recoverability  of the carrying value of development  projects is evaluated
based upon persuasive  engineering  evidence of estimated  future net cash flows
from each property,  determined as described above, using estimates of contained
mineralization expected to be classified as proven and/or probable reserves upon
completion of a  feasibility  study.  Reductions  in the carrying  value of each
property are recorded to the extent that the  Company's  carrying  value in each
property exceeds management's estimate of future discounted net cash flows. When
mining equipment is idle,  management decides if it will be used productively in
the  future.  For idle  equipment  that is unique to an  abandoned  or  impaired
property,  the Company  reduces its  carrying  value  following  the  impairment
accounting principle.

                                                       F-11

<PAGE>

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Management's estimates of gold prices, recoverable proven and probable reserves,
operating  capital,  and  reclamation  costs are  subject to  certain  risks and
uncertainties which may affect the recoverability of the Company's investment in
property,  plant, and equipment.  Although management has made its best estimate
of these factors  based on current  conditions,  it is reasonably  possible that
changes could occur in the near term which could adversely  affect  management's
estimate of the net cash flow expected to be generated from its operations.

Earnings Per Share

In February  1997,  the  Financial  Accounting  Standards  Board  (FASB)  issued
Statement of Financial  Accounting  Standards No. 128 (SFAS 128),  "Earnings Per
Share",  which was adopted by the Company for the year ended  December 31, 1997.
SFAS 128  replaces  the  presentation  of  primary  earnings  per  share  with a
presentation of basic earnings per share based upon the weighted  average number
of common shares for the period.

New Accounting Pronouncements

In June 1997, the FASB issued  Statement of Financial  Accounting  Standards No.
130 (SFAS 130), Reporting Comprehensive Income. This statement requires that all
items  that  are  required  to  be  recognized  under  accounting  standards  as
components of comprehensive  income be reported in a financial statement that is
displayed with the same prominence as other financial statements.  SFAS 130 will
be adopted by the Company for the year ended  December  31,  1998.  Prior period
financial statements provided for comparative purposes will be reclassified,  as
required. Upon adoption, the Company does not expect SFAS 130 to have a material
effect upon the Company's financial condition or results of operations.

In June 1997, the FASB issued Statements of Financial  Accounting  Standards No.
131  (SFAS  131),  Disclosures  about  Segments  of an  Enterprise  and  Related
Information. The statement requires the Company to report income/loss,  revenue,
expense and assets by  business  segment  including  information  regarding  the
revenues derived from specific  products and services and about the countries in
which the Company is  operating.  The  Statement  also requires that the Company
report  descriptive  information  about  the way that  operating  segments  were
determined,  the  products  and  services  provided by the  operating  segments,
differences  between the measurements used in reporting segment  information and
those used in the Company's general-purpose financial statements, and changes in
the  measurement  of segment  amounts  from period to period.  SFAS 131 has been
adopted by the Company for the year ended December 31, 1998.  This statement has
no effect on financial  statements  traditionally  presented by the Company, but
increases required disclosures.

                                                      F-12

<PAGE>

NOTE 3 - AFFILIATES AND RELATED PARTIES

Significant relationships with (1) companies affiliated through common ownership
and/or management, and (2) other related parties are as follows:

    In 1995,  Atlantic  entered into  agreements  with Sequoia  Trust, a related
    party,  to lease  surface  and  mineral  rights  related to 57 acres of land
    adjacent to Evening Star Mine and certain  improved real  property  known as
    the Weldon  Research  Center for total cost of $6,000 per month.  This lease
    was canceled by mutual agreement in December 1997.

    These  properties  provide the Company with the opportunity to develop three
    patented mining claims with probable  commercial  grade ore (12% royalty due
    to Sequoia Trust),  construct a primary ore processing refinery, and utilize
    13,000  square  feet at the Weldon  Research  Center for its  mineralization
    analysis and other testing procedures.

    Atlantic also has a cancelable  contract with EMTEC,  Inc., a related party,
    for development of all eleven mining claims and the future  operation of the
    mine and refinery. The contract requires the Company to pay EMTEC bi-monthly
    at  invoiced  cost plus 18%  overhead.  This  lease was  canceled  by mutual
    agreement in December 1997.

    At  December   31,   1997,   APT   owed   the   above   related    entities
    development costs and accrued interest in the amount of $364,675.

    In the ordinary  course of  business,  the Company had advanced and received
    advances from APT. Such advances to the Company  amounted to $197,000.  This
    amount was subsequently forgiven by APT at December 31, 1997.

NOTE 4 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31, 1997:

Computer equipment                                $  8,705
Mining equipment                                   909,415
                                                  --------

Less accumulated depreciation and allowance        918,120
                                                   819,400
                                                  --------
                                                  $ 98,720

During the year  ended  December  31,  1997,  the  Company  expensed  previously
capitalized  development  costs  of its  Evening  Star  mine  in the  amount  of
$2,665,500.

During the year ended  December  31,  1997,  the Company  considered  its mining
equipment to be impaired  and has provided an allowance  for 90% of its original
cost.  Impairment  on the  mining  equipment  recognized  during  the year ended
December 31, 1997 amounted to $638,000.

                                                       F-13

<PAGE>

NOTE 5 - NOTE PAYABLE

Note payable in the amount of $450,000,  with  interest at 10% per annum payable
monthly,  with all outstanding principal and interest due on demand. The note is
convertible at any time for 150,000 shares of the common stock of the Company at
the option of the holder.

NOTE 6 - INVESTMENT CONTRACTS PAYABLE
Atlantic  has  issued   investment   contracts  under  German  securities  laws.
Investment contracts payable consist of the following at December 31, 1997:

<TABLE>
<CAPTION>

          <S>                                                                                <C>

          Contract of $9,645 per kilo  received in U.S.
          dollars for purchase of undelivered kilos
          32.15 troy ounces) of gold bullion.
          All contracts have a one year maturity.                                            $        118,636

          Zero-coupon contract of $12,500 payable
          in U.S. dollars and bearing interest at
          9.00% per annum. Such contracts are
          payable with related interest in one to five years.                                         192,231

          Zero-coupon contract payable in 5,000 German
          Deutsche Marks (DM) units and bearing
          interest at 9.00% per annum. Such contracts
          are payable with related interest in DM in
          one to five years.                                                                          868,913

          Zero-coupon contract payable in DM or
          gold at the rate of 600 DM principal per unit
          and bearing interest at 9.00% per annum.
          Contracts are payable with related
          interest in DM in one to five years.                                                        576,041
                                                                                              ---------------
                                                                                                    1,755,821
          Less current portion of long-term debt                                                    1,065,847
                                                                                             ----------------
                                                                                             $        689,974

</TABLE>

As of August 5, 1999, the Company was unable to repay $929,522 in contracts that
matured  subsequent to December 31, 1997. In connection  with the sale by APT of
Bonds,  Certificates,  Contracts and 9% Bonds ("Contracts") APT has assigned its
eight mineral claims,  known as the Evening Star Mine, to Benjamin C. Rice, Esq.
("Trustee"),  a director of the  Company,  to be held in trust for a term of ten
years or until all obligations  owed on the Contracts are fully  satisfied.  The
Trustee will allow APT to remove and process gold ore from the Evening Star Mine
for  delivery  and  payment of  Contracts  as they  mature.  APT may also remove
additional  gold ore to cover  expenses only but may not remove any gold ore for
any other purpose until all the Contracts have been fully repaid.  Upon default,
the Trustee may cause the gold ore to be refined by a third party  refiner or he
may sell the claims to pay all indebtedness evidenced by the contracts.

                                                       F-14

<PAGE>

NOTE 6 - INVESTMENT CONTRACTS PAYABLE (Continued)

Accrued  interest on the above  contracts  amounted to $218,705 at December  31,
1997.

Investment contracts are due as follows:

<TABLE>
<CAPTION>

                         For Years Ended                                                        Amount
                            December 31,
                         ---------------                                                     -------------
<S>                      <C>                                                                 <C>

                                 1998                                                          $ 1,065,847
                                 1999                                                              282,674
                                 2000                                                              134,462
                                 2001                                                              208,454
                                 2002                                                               64,384
                                                                                             -------------
                                                                                               $ 1,755,821
</TABLE>

The amount due for 1998 included $453,281 of 1997 maturities.

NOTE 7 - INVESTMENT (GAINS) LOSSES

During the year ended December 31, 1997, the Company and its subsidiary incurred
the following losses on investments and other assets:
<TABLE>
<CAPTION>

<S>         <C>                                                                                    <C>


            Net loss on investments:
             Loss on settlement of notes receivable                                                $           256,487
             Gain on sale of Xplorer shares owned by APT                                                     (134,170)
                                                                                                  --------------------
                                                                                                   $           122,317
                                                                                                   ===================
            Impairment losses on investments:
             Impairment of value of commercial
              property owned by APT                                                                $           500,000
                                                                                                   ===================
            Impairment losses on mining assets:
             Mining equipment                                                                      $           638,000
             Development costs                                                                               2,665,500
                                                                                                   -------------------
                                                                                                   $         3,303,500
</TABLE>

                                                      F-15

<PAGE>

NOTE 8 - SHAREHOLDERS' EQUITY

During fiscal 1997, the following major equity transactions occurred:

    o  The Company issued 830,000 shares of Common Stock with a value of $830 in
       exchange for certain legal, engineering and employment services.

    o  The  Company  issued  250,000  shares  of  Common  Stock  with a value of
       $250  in  connection  with  its  acquisition  of 20,000 units in Atlantic
       Pacific Trust.

During fiscal 1996, the following major equity transactions occurred:

    o  Pursuant to the Plan of  Reorganization,  336,218  shares of Common Stock
       were issued.

    o  Pursuant to the Plan of Reorganization, 14,639,000 shares of Common Stock
       and 1,043,000 shares of Preferred Stock were issued.

    o  Pursuant  to the Plan of  Reorganization,  the Company  issued  1,002,229
       shares of Common Stock to special creditors.

    o The Company issued 237,550 shares of Preferred  Stock to Atlantic  Pacific
      Trust beneficiary.

    o  The Company  issued  1,805,000  shares of Common  Stock in  exchange  for
       certain legal and employment  services  rendered to the Company  totaling
       $96,305.

    o  The  Company  declared a dividend  waiver on  Preferred  Stock and issued
       1,000,000 shares of the Company's Common Stock.

NOTE 9 - STOCK OPTIONS

The Company has an incentive stock option plan under which ten-year  options may
be granted to key employees to purchase shares of the Company's  common stock at
$.50 per share on the date of grant. At December 31, 1997, options to purchase a
total of 680,000 shares at $.50 were  outstanding  and  exercisable.  A total of
680,000 shares of the Company's unissued common stock has been reserved for this
plan.

The Company applies APB Opinion 25 and related interpretations in accounting for
its stock option plan.  The Company also applies  principles  from the consensus
reached  in EITF 87-33 on stock  option  re-pricing  transactions.  Accordingly,
compensation  cost has been  recognized  for the  difference  between the market
value of the stock at the date of  issuance  and the  exercise  price of the new
stock options  granted.  Had  compensation  cost for the  Company's  stock-based
compensation plan been determined based on the fair value at the grant dates for
awards under the plan  consistent  with the provision of SFAS 123, the Company's
net income and earnings per share would not have been materially  reduced as the
theoretical value of the options were $.001.

                                                      F-16

<PAGE>

NOTE 10 - SUBSEQUENT EVENT

The Company issued an additional  $98,162 zero coupon contracts payable in 5,000
German  Deutsche Marks (DM) units,  bearing  interest at 9% per annum during the
year ended December 31, 1998.

The Company has been unable to repay $929,522 in debt obligations, which matured
subsequent to December 31, 1997, as of August 5, 1999.

The Company,  in a meeting of the Board of  Directors on July 30, 1999,  entered
into the following agreement:

    o  Advisory   agreement  with  a  third  party  to  assist  the  Company  in
       restructuring the Company and/or obtain financing for its operations;

    o  Authorized  the  issuance of 150,000 shares of Xplorer, S.A. common stock
       to  Gardner  Investment,  Inc. to convert the note payable of $450,000 to
       common stock.

    o  Approved the conversion of 1,280,550 Xplorer, S.A. preferred shares owned
       by a single shareholder to 12,805,050 Xplorer, S.A. common stock;

    o  Issuance of 1,500,000  common stock with  options for  additional  common
       stock to third party  advisors  in return for past and future  consulting
       services; and

    o  Xplorer,  S.A.  to  enter  into  a  stock  purchase  plan  and  plans  of
       reorganization  whereby  Xplorer, S.A. will exchange shares of its common
       stock  for  no  less  than  50%  of  the  outstanding  common stock of an
       unrelated corporation.

NOTE 11 - INCOME TAXES

At December 31, 1997, the Company and its subsidiary had available net operating
loss  carryforwards  for financial  statement and federal income tax purposes of
approximately $4,000,000. These loss carryforwards expire between 2016 and 2017.

The Company has reported  income tax losses in prior years.  In general,  income
tax losses are carried forward to future years to reduce future income taxes.

A valuation  allowance of  approximately  $1,300,000 has been provided to offset
the benefit of  approximately  $1,300,000  from the  remaining  $4,000,000  loss
carryforwards.  This  valuation  allowance is necessary  because at December 31,
1997, the available  benefits are more likely than not to expire before they can
be used.

                                                      F-17

<PAGE>

NOTE 12 -         MINORITY INTEREST LOSSES IN EXCESS OF MINORITY INTEREST
                  EQUITY

During the year ended December 31, 1997, the majority interest absorbed minority
interest  losses in excess of minority  equity in the amount of  $965,000.  This
excess loss was charged directly to the majority interest accumulated deficit in
1997.  Subsequently,  when the loss  reverses,  the  majority  interest  will be
credited with the amount of minority interest losses previously  absorbed before
credit is made to the minority interest.

                                                       F-18