SECURITIES EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB
                            Annual Report Pursuant to
                       the Securities Exchange Act of 1934


                       For the fiscal year ended 12-31-96
                          Commission file number 012139

                          LEESBURG LAND & MINING, INC.
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Colorado                                      82-0379959
  ------------------------                           ------------------
  (State of incorporation)                            (I.R.S. Employer
                                                     Identification No.)

               c/o 10200 W. 44th Ave., #400, Wheat Ridge, CO 80033
               ----------------------------------------------------
               (Address of principal executive offices) (Zip Code)


            Registrant's telephone number, including area code: None
                                                                ----

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

                            Title of each class: None
                                                 ----

                 Name of each exchange on which registered: N/A
                                                            ----

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

                    Title of each class: Common No Par Value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2)  has  been  subject  to the  filing
requirements for at least the past 90 days.

                      Yes   X      No
                           ---        ---

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

State issuer's revenues for its most recent fiscal year. $0



                                        1

<PAGE>



Transitional Small Business Disclosure Format:

                           Yes           X    No
                       ---              ---

Aggregate  market  value  of the  voting  stock  held by  non-affiliates  of the
registrant as of December 31, 1996: $0

Number of outstanding  shares of the  registrant's no par value common stock, as
of December 31, 1996: 52,476,317.




                                        2

<PAGE>

                                     PART 1

Item 1. Business

     Leesburg Land & Mining, Inc. (the Company), was organized under the laws of
     the State of Colorado on June 21, 1983.  The Company is in the  development
     stage as defined in Financial Standards Board Statement No. 7.

     In 1983, the Company sold 30,000,000 shares of no par value common stock in
     an S-18 public  offering.  The offering  price for each share was $.10. The
     Company received $2,550,000, net of offering costs, from the sale of common
     stock in the public offering.  In 1985 the shareholders  authorized and the
     board implemented a one for forty share reverse split of the common shares.

     From June 21,  1983  (Inception)  to  December  31,  1984,  the Company was
     engaged in the  exploitation  of a gold placer  claim  located near Salmon,
     Idaho.  As of December  31,  1984,  the  Company's  only  mining  claim was
     abandoned.  Pursuant  to a change in control of the  company in April 1985,
     the Company  purchased an interest in a coal company.  The Company sold its
     interest  in the coal  company in November  1985.  In  December  1985,  the
     Company entered into a contract with a non-affiliated  partnership to drill
     and  complete a  geothermal  well,  construct  a power  plant and assist in
     obtaining needed financing on a fixed-price  basis. The geothermal well was
     plugged and  abandoned  in 1986 when the  underground  resource  was deemed
     inadequate.  The  Partnership  failed to make payments to the Company under
     the contract.  The Company has never derived significant  revenues from any
     of its attempted operations.

     In 1987,  the Company filed for a Chapter 11  bankruptcy,  but  voluntarily
     withdrew the filing in 1988.  Since 1988,  the Company has been selling its
     claims,   property  and  equipment.  In  addition,  the  Company  has  been
     eliminating  its debt and seeking a private company with which to merge. No
     such company has been identified or found.

     No  significant  business  activity was conducted by the Company during the
     fiscal year. As a result, no income was realized by the Company in its last
     fiscal year.

     The Company was inactive and presently does not participate in any industry
     segment.  The Company had no material  revenues,  or  operating  profits or
     identifiable assets attributable to its industry segment.



                                        3

<PAGE>



Item 2. Property
        --------

     The  Company  does not have any  formal  offices at year end.  Records  are
     maintained and mail received at 10200 W. 44th Ave.,  #400,  Wheat Ridge, CO
     80033. The company owns no real property.

Item 3. Legal Proceedings
        -----------------

     The Company is a party to no pending legal proceedings, nor is its property
     subject to such proceedings, at year end 1996.

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

     No matters were submitted  during the fiscal year covered by this report to
     a vote of security  holders of the  Company,  through the  solicitation  of
     proxies or otherwise.


                                    PART II
                                    -------

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

     As of the date of this report,  management knows of no trading or quotation
     of the Company's common stock. The range of high and low bid quotations for
     each fiscal  quarter  since the last  report,  as reported by the  National
     Quotation Bureau Incorporated, was as follows:

             1996                       High               Low
       ---------------                  ----               ---
       First quarter                      *                 *
       Second quarter                     *                 *
       Third quarter                      *                 *
       Fourth quarter                     *                 *

             1995                       High               Low
       ---------------                  ----               ---
       First quarter                      *                 *
       Second quarter                     *                 *
       Third quarter                      *                 *
       Fourth quarter                     *                 *

             1994                       High               Low
       ---------------                  ----               ---
       First quarter                      *                 *
       Second quarter                     *                 *
       Third quarter                      *                 *
       Fourth quarter                     *                 *

* No quotations reported

                                        4

<PAGE>


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

     As of December  31, 1996 there were 1,059 record  holders of the  Company's
     common Stock.

     The Company has not declared or paid any cash dividends on its common stock
     and does not anticipate paying dividends for the foreseeable future.

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

        Financial Condition and Changes in Financial Condition
        -------------------------------------------------------

1996 Compared to 1995

     No operations  were  conducted and no revenues were generated in the fiscal
year.  The Company had $38,626 in  extraordinary  income in 1995  (reduction  in
payables).  The Company at year end had no capital, no cash, and a few pieces of
miscellaneous mining equipment. The Company at year end was totally illiquid and
would have needed cash infusions from shareholders to provide capital,  or loans
from any sources.

1995 Compared to 1994

     No operations  were  conducted and no revenues were generated in the fiscal
year.  The Company  received  extraordinary  income of $38,626 from reduction of
payables but no other income as compared with $2,883 in miscellaneous  income in
1994.  The  Company  at year end had no  capital,  no cash,  and a few pieces of
miscellaneous mining equipment. The Company at year end was totally illiquid and
needed  cash  infusions  from  shareholders,  or loans  from  others to  provide
capital.

     Results of Operations
     ---------------------

1996 Compared to 1995

     During the fiscal  year ended  December  31,  1996,  the  Company  incurred
$16,781 general and administrative expenses, and $5,000 for services contributed
by officers.  In 1995 the Company incurred $5,415 in General and  Administrative
expenses, and $18,200 for services rendered by officers. At present, the Company
has no  business  income or  operations.  Accordingly,  the  reported  financial
information  herein may not be indicative of future operating  results.  Loss on
operations  in 1996  was  ($22,481)  compared  to the  1995  loss on  operations
($24,715) in extraordinary items of gain on settlement of debt.


                                        5

<PAGE>



1995 Compared to 1994

     During the fiscal year ended December 31, 1995, the Company incurred $5,415
in general and administrative expenses,  $1,100 in interest expense, and $18,200
for services contributed by officers. This compares to 1994 in which the Company
incurred  $28,072 in general and  administrative  expenses,  $14,680 in interest
expenses,  and $10,000 for  services  contributed  by  officers.  At present the
Company  has  no  business  income  or  operations.  Accordingly,  the  reported
financial  information herein may not be indicative of future operating results.
Total costs and  expenses  for 1995 were $24,715 as compared to $52,752 in 1994.
The net loss for 1995 was ($24,715) and for 1994 the net loss was ($49,869).  In
1995 the Company  recognized an  extraordinary  item in reduction of payables of
$38,626 which adjusted its net income to $13,911.


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

     Please refer to pages F-1 through F-14.

Item 8. Changes in and Disagreements on Accounting and Financial Disclosure
        -------------------------------------------------------------------

     In  connection  with audits of two most recent fiscal years and any interim
period preceding resignation,  no disagreements exist with any former accountant
on any  matter  of  accounting  principles  or  practices,  financial  statement
disclosure, or auditing scope of procedure,  which disagreements if not resolved
to the  satisfaction  of the former  accountant  would  have  caused him to make
reference  in  connection   with  his  report  to  the  subject  matter  of  the
disagreement(s).

     The principal  accountant's  report on the financial  statements for any of
the past two years  contained no adverse  opinion or a disclaimer of opinion nor
was qualified as to uncertainty,  audit scope, or accounting  principles  except
for the "going concern" qualification.

                                    PART III

Item 9. Directors and Executive Officers of the
        Registrant and Compliance with Section 16(a)
        --------------------------------------------

     The  directors  and  executive  officers of the Company as of December  31,
1996, are as follows:**

     Name                     Age                  Position
     ----                     ---                  --------

Robert Beaton                  49                President, Director
James Poulos                   70                Vice President, Director
Michael Schranz                54                Secretary, Treasurer, Director

                                        6

<PAGE>




     The term of office  of each  director  and  executive  officer  ends at, or
immediately  after,  the next annual  meeting of  shareholders  of the  Company.
Except as otherwise indicated,  no organization by which any director or officer
has been  previously  employed  is an  affiliate,  parent or  subsidiary  of the
Company.

     Robert Beaton,  age 49,  received his BA in Business from the University of
Alabama in 1970.  Mr.  Beaton has acted as President  and a director of Leesburg
since  1985.  He  has  acted  as  an  independent  consultant  for  mergers  and
acquisitions by public companies, for his own account since 1988.

     James Poulos,  age 70, acted as a mining  Engineer for his career with only
informal on the job  training.  He has acted as an officer  and  director of the
Company since 1985. He is otherwise retired.

     Michael Schranz, age 54, obtained his B.S. in Civil Engineering from Purdue
University in 1965 and received his MBA at the  University of Denver in 1975. He
is a Certified Public  Accountant in Colorado.  He has been a Vice President and
Director of Registrant  since 1988.  Mr.  Schranz has been a Vice  President and
Director of One Capital  Corp.  from 1982-96 and Vice  President and Director of
Overthrust  Resources,  Ltd.  from  1980-96.  He has been  Managing  Director of
Polaris Coal Co., from 1988-96.

     Section  16(a) of the  Securities  Exchange  Act of 1934,  as amended  (the
"Exchange Act"), requires the Company's officers and directors,  and persons who
own more than 10% of a registered class of the Company's equity  securities,  to
file reports of ownership  and changes in ownership of equity  securities of the
Company  with the  Securities  and  Exchange  Commission  and NASDAQ.  Officers,
directors and  greater-than  10% shareholders are required by the Securities and
Exchange Commission regulation to furnish the Company with copies of all Section
16(a) filings.

     1. The following people did not file any reports under Section 16(a) during
the most recent fiscal year or prior years:

         a.       Robert Beaton               President and Director
         b.       James Poulos                Secretary and Director
         c.       Michael Schranz             Vice President and Director

     2. For each person, listed by subparagraph letter above:

                              Number of
                              transactions not
Number of late                reported on a                  Known failures
reports                       timely basis                   to file forms
-------                       ------------                   -------------

a.       1996                 1 (1996)                       i) Annual Form
                                                             5 (1996)

                                        7

<PAGE>

                              Number of
                              transactions not
Number of late                reported on a                  Known failures
reports                       timely basis                   to file forms
-------                       ------------                   -------------

b.       1996                 1 (1996)                       i) Annual Form
                                                             5 (1996)

c.       1996                 2 (1996)                       i) Annual Form
                                                             5 (1996)

Item 10. Executive Compensation
         ----------------------

     No one  executive  officer  received,  or has accrued for his  benefit,  in
excess of $60,000 for the year.  No cash  bonuses were or are to be paid to such
persons.

     The Company does not have any employee incentive stock option plans.

     There are no plans pursuant to which cash or non-cash compensation was paid
or  distributed  during  the last  fiscal  year,  or is  proposed  to be paid or
distributed in the future, to the executive  officers of the Company except that
certain  accruals for officer's  services were settled with stock issued as more
particularly  set forth in "Certain  Transactions".  No other  compensation  not
described  above was paid or  distributed  during  the last  fiscal  year to the
executive  officers  of  the  Company.   There  are  no  compensatory  plans  or
arrangements,  with respect to any executive office of the Company, which result
or will result from the resignation, retirement or any other termination of such
individual's  employment  with the  Company  or from a change in  control of the
Company or a change in the individual's  responsibilities  following a change in
control.



                                        8

<PAGE>
<TABLE>
<CAPTION>

                                     SUMMARY COMPENSATION TABLE OF EXECUTIVES

                                            Annual Compensation                                Awards

===================================================================================================================================
Name and           Year           Salary             Bonus          Other Annual           Restricted              Securities
Principal                         ($)                ($)            Compensation           Stock                   Underlying
Position                                                            ($)                    Award(s) ($)            Options/SARs (#)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                <C>            <C>                <C>            <C>                    <C>                     <C>
Robert             1994           9,200              0              0                      0                       0
Beaton,                           **
President
                 ------------------------------------------------------------------------------------------------------------------
                   1995           1,800              0              0                      0                       0
                                  **
                 ------------------------------------------------------------------------------------------------------------------
                   1996           0                  0              0                      0                       0

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

                 ------------------------------------------------------------------------------------------------------------------
James              1994           0                  0              0                      0                       0
Poulos,
Secretary
                 ------------------------------------------------------------------------------------------------------------------
                   1995           3,000              0              0                      0                       0
                                  **
                 ------------------------------------------------------------------------------------------------------------------
                   1996           0                  0              0                      0                       0
-----------------------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------------------------------------------
Michael            1994           0                  0              0                      0                       0
Schranz,
Vice
President
                 ------------------------------------------------------------------------------------------------------------------
                   1995           100**              0              0                      0                       0
                 ------------------------------------------------------------------------------------------------------------------
                 ------------------------------------------------------------------------------------------------------------------
                   1996           0                  0              0                      0                       0
===================================================================================================================================
</TABLE>


**  Restricted  common stock  shares  totalling  47,600,000  were issued for the
unpaid accruals for services and forgiveness of debt. (See "certain Relationship
and Related  Transactions")  The shares had no market  value and a negative  net
tangible  book  value at the time of the  award.  In 1995  2,500,000  restricted
common shares were issued for services  rendered by Michael Schranz in 1995. The
shares had no market value and a negative net tangible book value at the time of
the issuance.

     Option/SAR Grants Table (None)

     Aggregated  Option/SAR  Exercises in Last Fiscal Year an FY-End  Option/SAR
value (None)

     Long Term Incentive Plans - Awards in Last Fiscal Year (None)


                                        9

<PAGE>
<TABLE>
<CAPTION>



                                    DIRECTOR COMPENSATION FOR LAST FISCAL YEAR

(Except for  compensation of Officers who are also Directors which  Compensation
is listed in Summary Compensation Table of Executives)

                                    Cash Compensation                                   Security Grants
===================================================================================================================================
Name                               Annual               Meeting           Consulting               Number           Number of
                                   Retainer             Fees              Fees/Other               of               Securities
                                   Fees ($)             ($)               Fees ($)                 Shares           Underlying
                                                                                                   (#)              Options/SARs(#)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                <C>                  <C>               <C>                      <C>              <C>
A. Director                        0                    0                 0                        0                0
Robert Beaton
-----------------------------------------------------------------------------------------------------------------------------------
B. Director                        0                    0                 0                        0                0
James Poulos
-----------------------------------------------------------------------------------------------------------------------------------
C. Director                        0                    0                 0                        0                0
Michael Schranz
===================================================================================================================================
</TABLE>

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

     The following table sets forth  information,  as of December 31, 1996, with
respect to the  beneficial  ownership of the Company's no par value common stock
by each person known by the Company to be the beneficial owner of more than five
percent of the outstanding common stock.
<TABLE>
<CAPTION>


    Stock                  Names and Address                           Beneficial               Percent
Title of Class             of Beneficial Owner                         Ownership                of Class
--------------             -------------------                         ---------                --------

<S>                        <C>                                          <C>                      <C>
Common                     American International                       1,185,700                2.2%*
                           Systems, Inc.                               (see note 1)
                           12002 W. 14th Avenue                        (see note 2)
                           Golden, CO  80401
                           (Note 1:         Robert Beaton owns 44% of the shares of
                                            American International Systems, Inc. which if
                                            combined with his personal holdings would
                                            result in 55.32% ownership)

Common                     Robert Beaton                               28,510,000                54.3%
                           12002 W. 14th Avenue
                           Golden, CO  80401

Common                     James Poulos                                19,031,434                36.3%
                           4065 Easley Rd.
                           Golden, CO  80403
                           (Note 2:         James Poulos owns 15.95% of American
                                            International Systems, Inc. which if combined
                                            with his personal holding, would result in
                                            36.6% ownership)


                                                            10


<PAGE>




Common                     Michael Schranz, V.P. & Dir.                         244,254                   .4%
                           Polaris Resources
                           410 17th Street, Ste. 1940
                           Denver, CO  80202

Common                     One Capital Corp. of which                           2,500,000                 4.8%
                           Mr. Schranz is an officer,
                           director and shareholder

</TABLE>

     Security Ownership of Certain Beneficial Owners and Management (Continued)
     --------------------------------------------------------------------------

     The following table sets forth  information,  as of December 31, 1996, with
respect to the  beneficial  ownership of the Company's no par value common stock
by the directors and officers of the Company, both individually and as a group.
<TABLE>
<CAPTION>

      Stock                Names and Address                                   Beneficial               Percent
Title of Class             of Beneficial Owner                                 Ownership                of Class
--------------             -------------------                                 ---------                --------

<S>                        <C>                                                  <C>                      <C>
Common                     American International                               1,185,700                 2.2%*
                           Systems, Inc.
                           12002 W. 14th Avenue
                           Golden, CO  80401
                           (Note 1:         Robert Beaton owns 44% of the shares of
                                            American International Systems, Inc. which if
                                            combined with his personal holdings would
                                            result in 55.32% ownership)

Common                     Robert Beaton, Pres & Dir.                           28,510,000                54.3%
                           12002 W. 14th Avenue
                           Golden, CO  80401

Common                     James Poulos, Secy. & Dir.                           19,031,434                36.3%
                           4065 Easley Rd.
                           Golden, CO  80403
                           (Note 2:         James Poulos owns 15.95% of American
                                            International Systems, Inc. which if combined
                                            with his personal holding, would result in
                                            36.6% ownership)

Common                     Michael Schranz, V.P. & Dir.                         244,254                   .4%
                           Polaris Resources
                           410 17th Street, Ste. 1940
                           Denver, CO  80202

Common                     One Capital Corp. of which                           2,500,000                 4.8%
                           Mr. Schranz is an officer,
                           director and shareholder

                           Officers and Directors as a group                                              95.8%
</TABLE>

                                                            11

<PAGE>




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

     The Company  agreed to issue and  authorized  issuance of shares to certain
shareholders as compensation  and for forgiveness of certain claims for services
rendered to Robert M. Beaton & James F.  Poulos for wages  accrued  from 1987 to
1994; The company issued to Robert M. Beaton: 28.5 million shares for $750 value
and waiver of all other  amounts;  and the  company  agreed to issue to James F.
Poulos:  19 million  shares for $500 value and waiver of all other  amounts.  In
1995 the Company  issued  2,500,000  restricted  common shares to the nominee of
Michael Schranz,  Capital One, Inc. for services  rendered by Mr. Schranz valued
at $100.  The shares had no market value and negative net tangible book value at
date of issue.

                                     PART IV
                                     -------

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

     The following documents are filed as part of this report:

     1. Reports on Form 8-K: None

     2. Exhibits:


                                      INDEX
                                      -----
                                                     Form 10-K
Regulation                                           Consecutive
S-K Number               Exhibit                     Page Number
----------               -------                     -----------

3.1               Articles of Incorporation          *Incorporated by reference
                                                     to Registration Statement
                                                     #2-87742-D

3.2               Bylaws                             *Incorporated by reference
                                                     to Registration Statement
                                                     #2-87742-D

27.1              Financial Data Schedule            F-15- F-18





                                       12

<PAGE>


                                   SIGNATURES

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

                                            LEESBURG LAND & MINING, INC.
                                            (Registrant)

Date: April 22, 1997

                                            /S/  ROBERT M. BEATON
                                            -----------------------------------
                                            Robert M. Beaton, President,
                                            Chief Executive Officer


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

                                            LEESBURG LAND & MINING, INC.
                                            (Registrant

Date: April 22, 1997

                                            /S/  ROBERT M. BEATON
                                           -------------------------------------
                                           Robert M. Beaton, Director


                                            /S/  MICHAEL SCHRANZ
                                           -------------------------------------
                                           Michael Schranz, Director


                                            /S/  JAMES F. POULOS
                                           -------------------------------------
                                           James F. Poulos, Director






                                       13

<PAGE>
                             LEESBURG LAND & MINING

                              FINANCIAL STATEMENTS

                           DECEMBER 31, 1996 AND 1995


<PAGE>




                                    CONTENTS
                                    --------


                                                                      Page
                                                                      ----

   Independent auditors' report                                          1

   Financial statements:

     Balance sheets                                                      2

     Statements of operations                                            3

     Statements of stockholders' equity (deficit)                        4

     Statements of cash flows                                        5 - 6

   Notes to financial statements                                    7 - 12


<PAGE>



HOLBEN, BOAK, COOPER & CO.
--------------------------------------------------------------------------------
Certified Public Accountants                  1720 S. Bellaire Street, Suite 500
Professional Corporation                                 Denver, Colorado  80222
                                               (303) 759-2727 Fax (303) 759-2728



                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------


Board of Directors
Leesburg Land & Mining, Inc.
Golden, Colorado

We have audited the accompanying  balance sheets of Leesburg Land & Mining, Inc.
(a development  stage company) as of December 31, 1996 and 1995, and the related
statements of operations,  stockholders' equity (deficit) and cash flows for the
years then ended.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Leesburg Land & Mining, Inc. (a
development  stage company) as of December 31, 1996 and 1995, and the results of
its  operations  and cash flows for the years then  ended,  in  conformity  with
generally accepted accounting principles.

As described in Note 1 to the financial statements,  the accompanying  financial
statements have been prepared assuming that the Company will continue as a going
concern.  As  shown  in the  financial  statements,  the  Company  has  incurred
cumulative  net losses of  $4,153,262  since  inception.  At December  31, 1996,
liabilities  exceeded  assets by  $12,855  and the  Company  had no cash.  These
factors raise  substantial  doubt about the  Company's  ability to continue as a
going  concern.  The financial  statements do not include any  adjustments  that
might result from the outcome of the above uncertainty.




                                                   HOLBEN, BOAK, COOPER & CO.

April 18, 1997
Denver, Colorado
<PAGE>


                       LEESBURG LAND AND MINING CO., INC.
                          (A Development Stage Company)
                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>


                                                               1996           1995
                                                           -----------    -----------
ASSETS

PROPERTY AND EQUIPMENT
<S>                                                        <C>            <C>
    Vehicle                                                $    20,818    $    20,818
    Less:  accumulated depreciation                            (20,818)       (20,818)
                                                           -----------    -----------

    TOTAL PROPERTY AND EQUIPMENT                                     -              -
                                                           -----------    -----------


TOTAL ASSETS                                               $         -    $         -
                                                           ===========    ===========



LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
    Accounts payable (Note 2)                              $    12,855    $    26,176
                                                           -----------    -----------
    TOTAL CURRENT LIABILITIES                                   12,855         26,176

STOCKHOLDERS' EQUITY (DEFICIT):
    Preferred stock, no par value, 1,000,000
      shares authorized, none issued
    Common stock, no par value;
       authorized, 100,000,000 shares;
       issued and outstanding, 52,476,317
       shares in 1996 and 1995                               4,140,407      4,104,605

    Accumulated (deficit) during the development stage      (4,153,262)    (4,130,781)
                                                           -----------    -----------

    TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                       (12,855)       (26,176)
                                                           -----------    -----------

TOTAL LIABILITIES AND STOCKHOLDERS'
    EQUITY (DEFICIT)
                                                            $        -    $         -
                                                           ===========    ===========


See notes to financial statements                                              Page 2

</TABLE>
<PAGE>



                       LEESBURG LAND AND MINING CO., INC.
                          (A Development Stage Company)
                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
       AND FROM JUNE 21, 1983 (INCEPTION) TO DECEMBER 31, 1996 (Unaudited)
<TABLE>
<CAPTION>

                                        Cumulative
                                          During
                                     Development Stage
                                        (Unaudited)        1996           1995
                                     -----------------  ----------     -----------
REVENUE:
<S>                                    <C>             <C>             <C>
    Interest income                    $     92,753    $       --      $       --
    Geo contract                             90,000            --              --
    Equipment rental income                  13,500            --              --
    Miscellaneous income                     14,014            --              --
                                       ------------    ------------    ------------
       TOTAL REVENUES                       210,267            --              --

EXPENSES:
    Exploration costs                       867,048            --              --
    General & administrative              1,225,671          16,781           5,415
    Interest expense                        426,467             700           1,100
    Depreciation expense                    790,967            --              --
    Abandonment of claims and leases        626,637            --              --
    Loss - sale of mining equipment         287,173            --              --
    Loss - sale of Polaris Coal Co.         228,000            --              --
    Write down of mining equipment          127,664            --              --
    Bad debts                               196,985            --              --
    Services contributed by officers         83,200           5,000          18,200
                                       ------------    ------------    ------------

       TOTAL COSTS & EXPENSES             4,859,812          22,481          24,715
                                       ------------    ------------    ------------
       NET (LOSS) BEFORE
              EXTRAORDINARY ITEMS        (4,649,545)        (22,481)        (24,715)

EXTRAORDINARY ITEM,
    Reduction of payables ( Note 2)         496,283            --            38,626
                                       ------------    ------------    ------------

       NET INCOME (LOSS)               $ (4,153,262)   $    (22,481)   $     13,911
                                       ============    ============    ============

NET INCOME (LOSS) PER SHARE:
    (Loss) before extraordinary item   $       (.52)   $       --      $       --
    Extraordinary item                         0.06            --              --
                                       ------------    ------------    ------------

       NET INCOME (LOSS)               $       (.46)   $       --      $       --
                                       ============    ============    ============

WEIGHTED AVERAGE NUMBER
     OF SHARES OUTSTANDING                8,910,402      52,476,317      49,983,166
                                       ============    ============    ============


See notes to financial statements                                            Page 3

</TABLE>



<PAGE>

                                LEESBURG LAND AND MINING CO., INC.
                                   (A Development Stage Company)
                      STATEMENTS OF CHANGES IN STOCKHOLDER' EQUITY (DEFICIT)
                          FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
                                           (See Note 4)
<TABLE>
<CAPTION>


                                                                         (Deficit)
                                                                         Accumulated
                                                   Common Stock          During the
                                              ------------------------   Development
                                                Shares       Amount         Stage             Total
                                                ------       ------         -----             -----

<S>                                           <C>          <C>           <C>             <C>
Balances, December 31, 1994                   49,976,317   $ 4,080,541   $(4,144,692)    $  (64,151)

    Management services
      contributed by officers/shareholders          --          18,200          --           18,200

    Operating expenses paid
      by officer/shareholder                        --           5,764          --            5,764

    Stock issued to shareholder in
      exchange for services at
      $ .00004 per share                       2,500,000           100          --              100

    Net Income                                      --            --          13,911         13,911
                                             -----------   -----------   -----------    -----------

Balances, December 31, 1995                   52,476,317     4,104,605    (4,130,781)       (26,176)

    Management services
      contributed by officers/shareholders          --           5,000          --            5,000

    Operating expenses paid
      by officer/shareholder                        --          30,802          --           30,802

    Net (loss)                                      --            --         (22,481)       (22,481)
                                             -----------   -----------   -----------    -----------
Balances, December 31, 1996                   52,476,317   $ 4,140,407   $(4,153,262)   $   (12,855)
                                             ===========   ===========   ===========    ===========

See notes to financial statements                                                            Page 4

</TABLE>

<PAGE>


                       LEESBURG LAND AND MINING CO., INC.
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
       AND FROM JUNE 21, 1983 (INCEPTION) TO DECEMBER 31, 1996 (Unaudited)
<TABLE>
<CAPTION>


                                                       Cumulative
                                                         Since
                                                       Inception
                                                      (Unaudited)       1996            1995
                                                      -----------    -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                   <C>            <C>            <C>
   Net income (loss)                                  $(4,153,262)   $   (22,481)   $    13,911
   Items not requiring cash:
    Depreciation                                          790,967           --             --
    Contributed services                                   83,200          5,000         18,200
    (Gain) loss on disposal of mining claims
       and equipment                                    1,040,147           --             --
    Operating expenses paid by shareholders                36,566         30,802          5,764
    Other                                                 (11,206)          --              100
    Contingency  recorded as note payable                  62,386           --             --
    Loss on investment in Polaris Coal Company            228,000           --             --
    Additional payables transferred to equity             187,777           --             --
    Increase (decrease) in accounts payable                12,854        (13,321)       (37,975)
                                                      -----------    -----------    -----------
       Cash (used) by operating activities             (1,722,571)          --             --
                                                      -----------    -----------    -----------


CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of mining claims                               (72,301)          --             --
  Purchase of vehicles                                   (103,614)          --             --
  Purchase of mining equipment                         (1,319,676)          --             --
  Purchase of other equipment
                                                           (9,996)          --             --
  Purchase of Polaris Coal Company
                                                           (6,500)          --             --
  Proceeds - sale of mining equipment
                                                          247,910           --             --
                                                      -----------    -----------    -----------
       Cash provided (used) by investing activities    (1,264,177)          --             --
                                                      -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Note payable payments                                  (110,130)          --             --
  Proceeds from  sale of common stock and
    warrants, net of registration costs                 3,111,194           --             --
  Purchase of treasury stock                              (14,316)          --             --
                                                      -----------    -----------    -----------

       Cash provided by financing activities            2,986,748           --             --
                                                      -----------    -----------    -----------

Increase (decrease) in cash & cash equivalents               --             --             --

Cash & cash equivalents - beginning of year                  --             --             --
                                                      -----------    -----------    -----------

Cash & cash equivalents - end of year                 $      --      $      --      $      --
                                                      ===========    ===========    ===========


See notes to financial statements                                                        Page 5
</TABLE>

<PAGE>




                       LEESBURG LAND AND MINING CO., INC.
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
                                   (Continued)


Non-Cash Activities
-------------------

Capital transactions
--------------------

     During 1995, the Company issued 2,500,000 shares of common stock as payment
     for services of $100 to a shareholder (see Note 4).

     During 1994, officers contributed to the Company $108,151 which constituted
     amounts due to them for past services and $1,250 of which was exchanged for
     47,500,000   shares  of  common  stock.   Also  during  1994,  the  Company
     unilaterally  eliminated  principal  and  interest  payable of $142,012 and
     transferred the amount to equity (see Note 4).

Mining claims
-------------

     In 1983, the Company  acquired  claims valued at  approximately  $2,000,000
     from certain  stockholders  in exchange for debt and common stock. In 1984,
     the claims were returned and the debt  terminated.  The common stock issued
     (525,000 shares) was retained by the stockholders.

Polaris Resources, Inc.
-----------------------

     In 1985,  the  Company  acquired  all of the  outstanding  common  stock of
     Polaris Coal  Company  ("Polaris")  in exchange  for 750,000  shares of its
     common stock (valued at $293,500), assumption of $1,200,000 of Polaris debt
     and $6,500 in cash.  Later in 1985,  the Company  sold the stock of Polaris
     back to the seller in exchange for  cancellation of the $1,200,000 debt and
     forgiveness of $53,000 in interest. The Company's common stock was retained
     by the original  seller and the Company  realized a loss of $228,000 on the
     sale.



See notes to financial statements                                         Page 6

<PAGE>
                                     
                       LEESBURG LAND AND MINING CO., INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                                        

Note 1  -  Operations and Summary of Significant Accounting Principles

     Leesburg Land & Mining, Inc. (the "Company" or "Leesburg") was incorporated
     on June 21, 1983. From June 21, 1983  (Inception) to December 31, 1984, the
     Company was engaged in the  development of a gold placer claim located near
     Salmon, Idaho. As of December 31, 1984, the Company's only mining claim was
     abandoned.  Pursuant  to a change in control of the  Company in April 1985,
     the Company  purchased an interest in a coal company.  The Company sold its
     interest  in the coal  company in November  1985.  In  December  1985,  the
     Company  entered  into a  contract  with a  non-affiliated  partnership  to
     complete a geothermal well, construct a power plant and assist in obtaining
     needed  financing on a fixed-price  basis.  The geothermal well was plugged
     and abandoned in 1986 when the underground  resource was deemed inadequate.
     The Partnership  failed to make payments to the Company under the contract.
     The  Company  has  never  derived  significant  revenues  from  any  of its
     attempted operations.

     In 1987,  the Company filed for a Chapter 11  bankruptcy,  but  voluntarily
     withdrew the filing in 1988.  Since 1988,  the Company has been selling its
     claims,   property  and  equipment.  In  addition,  the  Company  has  been
     eliminating  its debt  (Notes 2 and 3) and seeking a private  company  with
     which to merge. No such company has been identified or found.

     The accompanying  financial statements have been prepared assuming that the
     Company will continue as a going concern. However, the Company has incurred
     cumulative net losses of $4,153,262 since inception.  At December 31, 1996,
     liabilities  exceeded  assets by  $12,855.  In  addition,  the  Company has
     recently  eliminated  amounts due to creditors  based on the tolling of the
     statute  of  limitations.  As  described  in Notes 2 and 3, the  statue  of
     limitations  does not  preclude  creditors  from  threatening  or  bringing
     litigation,  which  would be costly for the  Company to defend.  In view of
     these  matters,  the future of the Company is dependent  upon  management's
     ability to find a company with which to merge and a favorable final outcome
     regarding the elimination of debts.

     Property and equipment
     ----------------------

     Property and  equipment  are stated at cost and  depreciated  on a straight
     line  basis  over the  estimated  useful  lives of the  asset (10 years for
     mining  equipment,  4-7 years for vehicles and 5-10 years for furniture and
     fixtures).  Maintenance  and repairs are expensed as incurred.  When assets
     are sold or  retired,  the cost and  related  accumulated  depreciation  is
     removed  from the accounts  and the  resulting  gain or loss is included as
     income.  As of December 31, 1993 all of the mining  equipment had been sold
     and the costs and accumulated depreciation had been written off against the
     sales price.  The remaining asset on the balance sheet at December 31, 1996
     and 1995 has been fully depreciated.

                                                                          Page 7


<PAGE>
                       LEESBURG LAND AND MINING CO., INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                                  (CONTINUED)
                                                      
Note 1 - Operations and Summary of Significant Accounting Principles (Continued)

     Statement of cash flows
     -----------------------

     For  statement of cash flows  purposes,  the Company  considers  short-term
     investments  with  original  maturities  of three months or less to be cash
     equivalents.

     Net income (loss) per common share
     -------------------------

     Net  income or (loss)  per common  share is based on the  weighted  average
     number of shares of common stock outstanding  during the periods presented.
     The cumulative weighted average number of shares outstanding do not include
     shares issued to a Belgian company and then later rescinded and canceled by
     the Company (Note 4).

     Use of estimates
     ----------------

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions   that  affect  certain   reported   amounts  and  disclosures.
     Accordingly, actual results could differ from those estimates.  Significant
     estimates have been made with regards to estimates of contributed services.

Note 2 -     Accounts Payable

     In 1985, the Company  contracted to drill a geothermal well and construct a
     power plant in central Nevada. In 1986, the Company's  consulting  engineer
     determined  that  the  well  was  unsuccessful  and,  as a  result  of  the
     Partnership's  failure to pay the Company, the Company did not have cash to
     pay its own  creditors,  most of whom had  supplied  services  and supplies
     connected with the well. The payables  amounted to approximately  $277,000.
     In 1987, the Company filed to reorganize under Chapter 11 of the Bankruptcy
     Code, listing approximately $330,000 as payable to creditors.  In 1988, the
     Company  voluntarily  withdrew the  bankruptcy  filing,  without having yet
     repaid the creditors.  The only creditor to reduce its receivable to a note
     and judgment was Halliburton Energy Services  ("Halliburton").  The Company
     made  several  payments  on this debt,  but  interest  continued  to accrue
     through 1993 after which an agreement on settlement was reached.

     At  December  31,  1993,  on the  advice  of  legal  counsel,  the  Company
     eliminated a substantial  amount of accounts payable and reported  $457,657
     as an  extraordinary  gain.  The Company,  based on the advice of its legal
     counsel,  determined  that the claims of these  creditors  were outside the
     time  limitations  of the statutes of the States of Colorado and Nevada for
     causes of action  most  likely to be pled by such  creditors.  The  statute
     expired for these claims in December 1993. As a result,  management and its
     attorney  believe  that the Company  would most likely have a defense  that
     would be  reasonably  based upon fact and law and that the  probability  of
     these creditors  successfully  overcoming  such a defense is  substantially
     remote.  It is not  impossible  that a creditor  could seek a  jurisdiction
     other  that  Colorado  or Nevada in which to  commence  collection  and the
     Company  would  then be forced to defend or  compromise  such claim at some
     expense.

                                                                          Page 8

<PAGE>

                       LEESBURG LAND AND MINING CO., INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                                  (CONTINUED)

Note 2 -  Accounts Payable (continued)

     Legal counsel to the Company has opined that the chance of such  successful
     litigation by a creditor is substantially remote,  although such an outcome
     cannot be absolutely determined with certainty at this time.

     In late  1994,  the  Company  reopened  negotiations  with  Halliburton,  a
     creditor.   The  Company  and   Halliburton   agreed  to  a  settlement  of
     approximately  $14,000  in early  1995.  In 1995,  the  Company  recognized
     $38,626, the amount of debt forgiven,  as extraordinary  income. In January
     1996, the Company settled its debt to Halliburton by paying $14,000.

Note 3  - Notes Payable

     In 1986,  the Company sold 128,000  shares of its common stock to Rio Delta
     Land Company ("Rio Delta").  The Company  planned to work in a venture with
     Rio Delta to develop a mining property.  However,  in 1987, after expending
     approximately  $70,000 on the project,  the Company  terminated the venture
     with Rio Delta  and  agreed to pay Rio  Delta  approximately  $60,000  plus
     interest in exchange  for return of the common  stock  issued to Rio Delta.
     The  Company  never  received  its stock  from Rio  Delta  but  nonetheless
     maintained the debt on its books despite the fact that legally there may be
     no valid claim against the Company. The Company has unsuccessfully tried to
     contact Rio Delta and its  controlling  shareholder  to resolve the matter.
     Interest was accrued at 12% per annum from 1987  through  December 31, 1994
     and amounted to approximately approximately $80,000.

     As of December  31,  1994,  the  Company,  based on the advice of its legal
     counsel, determined that any claim by Rio Delta, if valid, lies outside the
     time  limitations of the statutes of the limitation of Colorado and Nevada.
     The Company believes that it would most likely have a defense that would be
     reasonably  based  upon  fact  and law and  that  the  probability  of this
     creditor  successfully  overcoming such a defense is substantially  remote.
     The statute of limitations  is six years on the debt due to Rio Delta,  and
     that  limitation  expired  in  December,  1994.  As a result  of the  above
     determination,  on December 31, 1994,  the Company wrote off the principal,
     plus accrued interest and estimated legal expenses,  totaling $142,012,  to
     additional paid-in capital.  The 128,000 shares of common stock sold to Rio
     Delta currently remain issued and outstanding.

     It is not impossible  that this creditor  could seek a  jurisdiction  other
     than  Colorado  or Nevada in which to commence  collection  and the Company
     would then be forced to defend or  compromise  such claim at some  expense.
     Legal  Counsel to the Company  has opined  that  chance of such  successful
     litigation  by this  creditor is  substantially  remote,  although  such an
     outcome cannot be absolutely determined with certainty at this time.

                                                                          Page 9

<PAGE>

                       LEESBURG LAND AND MINING CO., INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                                  (CONTINUED)

Note 4 - Stockholders' Equity

     The Company amended its Articles of Incorporation to authorize the issuance
     of 1,000,000  shares of preferred  stock with no par value.  The  preferred
     stock may be  issued  from  time to time  with  such  designation,  rights,
     preferences  and  limitations  as the Board of Directors  may  determine by
     resolution. As of December 31, 1996, no shares of preferred stock have been
     issued.

     The Company has been in the  development  stage since its inception in 1983
     and the stockholders' equity (deficit)  transactions from inception through
     December 31, 1994 are summarized in the schedule  below.  The  transactions
     from  inception  through  December  31,  1985  have been  audited  by other
     auditors.  The transactions  from January 1, 1986 to December 31, 1992 have
     not been audited.

<TABLE>
<CAPTION>

                                               Common Stock
                                       ---------------------------------          Cumulative
                                       Shares                 Amount               (Deficit)
                                       ------                 ------              -----------

<S>                                   <C>                   <C>                  <C>   
Initial stockholder private
  placements for cash                  329,167              $    492,500          $         --
Issuance of common stock
  for mining claims                    525,000                   380,000                    --
Public offering, net of offering
  costs                                750,000                 2,490,594                    --
Issuance of common stock warrants          --                        100                    --
Retirement of treasury stock            (6,250)                  (14,316)                   --
Issuance of common stock for
  Polaris Coal Company                 750,000                   293,500                    --
Net (losses) Inception to
  December 31, 1985                        --                        --              (2,945,073)            
                                    ----------               -----------           ------------
Balances,
  December 31, 1985 (Audited by
    predecessor auditors)            2,348,317                 3,642,378             (2,945,073)

Issuance of common stock
  for cash                             128,000                   128,000                    --
Services contributed by
  shareholders                             --                     20,000                    --
Net (losses), January 1, 1986
  to December 31, 1992                     --                        --              (1,511,274)
                                   -----------               -----------            -----------
Balances,
  December 31, 1992 (Unaudited)      2,476,317                 3,790,378             (4,456,347)
                                   -----------               -----------            ----------- 
                              

                                             (Schedule continues)

                                                                                        Page 10

</TABLE>
<PAGE>
                       LEESBURG LAND AND MINING CO., INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                                  (CONTINUED)

Note 4 - Stockholders' Equity (Continued)

<TABLE>
<CAPTION>
                                               Common Stock
                                       ---------------------------------          Cumulative
                                       Shares                 Amount               (Deficit)
                                       ------                 ------              -----------

<S>                                   <C>                   <C>                  <C>   
Services contributed by
  shareholders                            --                  40,000                     --
Involuntary conversion of
  shareholders' debt                      --                 142,012                     --
Debt forgiven by shareholders             --                 106,901                     --
Stock issued shareholders
  in exchange for debt at
  $.00003 per share                    47,500,000              1,250                     --
Net income, January 1, 1993
  to December 31, 1994                    --                     --                   311,655
                                      -----------          ---------                ---------
Balances,
  December 31, 1994 (Audited           49,976,317         $4,080,541              $(4,144,692) 
                                       ==========         ==========              ===========  

</TABLE>
             

     In 1989, the Company sold 2,500,000 shares of the Company's common stock to
     a  Belgian  company,  N.V.  Handels-Kreditkantoor/Comtoir  de  Credit  s.a.
     ("HKCC") in  exchange  for  7,500,000  fine art prints.  In  addition,  the
     Company issued 650,000 shares to Asher  Investments  Limited ("Asher") as a
     finder's  fee.  As part of the  sales  agreement,  HKCC  agreed to loan the
     Company   $300,000.   The  Company  valued  the  combined   transaction  at
     $2,520,000. However, HKCC never delivered the prints or made the loan. As a
     result,  in  1990,  the  Company  negotiated  the  recission  of the  stock
     issuance.  Since the transaction was never fully executed,  it has not been
     included in the schedule above or in calculation of weighted average shares
     outstanding for determining  earnings (loss) per share.  The stock transfer
     agent canceled the outstanding shares in 1994.

     The Company's officers contributed management services valued at $5,000 and
     $18,200  during  1996 and 1995,  respectively.  During  1995,  the Board of
     Directors  approved issuing 2,500,000 shares of common for $100 of services
     to One Capital  Corporation  ("One  Capital").  During 1994,  The President
     waived  $62,618  owed to him for past  services  rendered in  exchange  for
     28,500,000 shares of common stock for which $750 was deemed  consideration.
     During  1994,  the  Vice  President  waived  $45,532  owed to him for  past
     services  rendered in exchange  for  19,000,000  shares of common stock for
     which $500 was deemed consideration.  These transactions were authorized by
     the Board of  Directors  and the amounts  were  credited  to  stockholders'
     equity (deficit).

     Also during 1994, the Company unilaterally transferred the debt and accrued
     interest owed to Rio Delta,  a major  shareholder,  to equity (see Note 3).
     The principal and interest totaled  $142,012 and was transferred  after the
     time period for the statute of limitations expired.

     During  1996  and  1995,  the  Company's  President  and  Shareholder  paid
     operating  expenses  and  creditors  $30,803 and $5,764,  respectively  and
     contributed those amounts to the Company.

                                                                         Page 11

<PAGE>

                      LEESBURG LAND AND MINING CO., INC.
                          (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995
                                  (CONTINUED)


Note 5  - Income Taxes

     At  December  31,  1996,  the  Company  has  a  net  operating  loss  (NOL)
     carry-forward for tax purposes of approximately $3,635,000 (expiring in the
     years  1998  to  2011).   In  addition,   the  Company  has  a  tax  credit
     carry-forward  of  approximately  $20,000  (expiring  in the years  1999 to
     2000).

     Deferred  tax assets  (liabilities)  at  December  31, 1996 and 1995 are as
     follows:

                                                        1996           1995
                                                        ----           ----
         Deferred tax assets due to:
           Payables                                  $    5,000      $   10,182
           Net operating loss carry-forward           1,414,372       1,407,844
                                                      ---------       ---------
                                                      1,419,372       1,418,026
         Valuation allowance for deferred
           tax assets                                (1,419,372)     (1,418,026)
                                                     ----------      ---------- 

            Net deferred tax asset                   $       --      $       --
                                                     ==========      ==========

     Deferred  income  taxes are  recorded  to reflect the tax  consequences  on
     future years of differences between the tax basis of assets and liabilities
     and their financial reporting amounts at each year end. Deferred income tax
     assets are  recorded to reflect  the tax  consequences  on future  years of
     income tax carry-forward benefits,  reduced by benefit amounts not expected
     to be realized by the Company.

     There were no income tax expenses or benefits for the years ended  December
     31, 1996 and 1995.

Note 6 - Related Party Transactions

     The Company  utilizes  office  space  provided  free by the  President  and
     shareholder. The Company provides an automobile for the President's use. In
     prior years,  the Company paid for the vehicle's  maintenance and operating
     costs.  The President  currently pays for all of the vehicle's  maintenance
     and operating costs. In addition,  the officers have contributed management
     services  to the  Company  without  compensation  (Note  4).  In 1994,  the
     Company's officers  contributed past amounts owed to them in exchange for a
     substantial number of shares of the Company's common stock (Note 4).


                                                                         Page 12