U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-KSB



[X] ANNUAL REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1996

[ ] TRANSITION  REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES  EXCHANGE ACT 
    OF 1934

                         Commission file number: 0-19644


                           Sierra-Rockies Corporation
                           --------------------------
                 (Name of small business issuer in its charter)



         CALIFORNIA                                     33-0300193
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)


Holly Sugar Building - Suite 330, 2 N. Cascade Avenue,Colorado Springs, CO 80903
(Address of Principal Executive Office)                               (Zip Code)

                    Issuer's telephone number: (719) 520-1800

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 past 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. [ ]

State issuer's revenues for its most recent fiscal year:      $95,000

The  aggregate  market  value  of  the  voting  stock  held  by   non-affiliates
(11,957,784  shares of Common  Stock) was $358,734 as of December 31, 1996.  The
stock price for computation  purposes was $.03,  based on the closing sale price
for the Registrant's Common Stock on NASDAQ Bulletin Board on December 31, 1996.
This value is not  intended to be a  representation  as to the value or worth of
the Registrant's  shares of Common Stock. The number of shares of non-affiliates
of the  Registrant  has been  calculated by  subtracting  shares held by persons
affiliated with the Registrant  from  outstanding  shares.  The number of shares
outstanding of the Registrant's  Common Stock as of June 30, 1997 was 17,393,048
shares.


<PAGE>
                           SIERRA-ROCKIES CORPORATION
<TABLE>
<CAPTION>

                             INDEX TO ANNUAL REPORT
                                 ON FORM 10-KSB

                                                                                             Page
                                                                                             ----

<S>                   <C>                                                                     <C>
PART I
         Item 1.      DESCRIPTION OF BUSINESS..........................................        3

         Item 2.      DESCRIPTION OF PROPERTIES........................................        8

         Item 3.      LEGAL PROCEEDINGS................................................        9

         Item 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDER...............        9

PART II

         Item 5.      MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
                      STOCKHOLDER MATTERS..............................................        10

         Item 6.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS..............................        11

         Item 7.      FINANCIAL STATEMENTS.............................................        13

         Item 8.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
                      ACCOUNTING AND FINANCIAL DISCLOSURE..............................        13

PART III

         Item 9.      DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
                      PERSONS - COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
                      ACT..............................................................        13

         Item 10.     EXECUTIVE COMPENSATION...........................................        15

         Item 11.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                      MANAGEMENT.......................................................        17

         Item 12.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................        19

         Item 13.     EXHIBITS AND REPORTS ON FORM 8-K.................................        21

</TABLE>

<PAGE>


                                     PART I

     The matters addressed in this report on Form 10-KSB,  with the exception of
the  historical  information  presented,   contain  forward-looking   statements
involving  risks and  uncertainties.  The Company's  actual results could differ
materially  from those  anticipated  in these  forward-looking  statements  as a
result of certain factors,  including those set forth under the heading "Certain
Factors That May Affect  Future  Results" in the Business  section  (Item 1) and
elsewhere in this report.

Item 1.  DESCRIPTION OF BUSINESS

         (a)  Prior  Business   Development.   Sierra-Rockies   Corporation,   a
California  corporation  (the "Company") was organized in 1988,  under the name,
"TJB  Enterprises,  Inc." as a blind  pool/blank  check  company  formed for the
purposes of seeking a merger with a private company.

     On September 24, 1991, TJB Enterprises,  Inc.  consummated an Agreement and
Plan of  Reorganization  whereby it acquired  100% of the  outstanding  stock of
Gallery Rodeo of Beverly Hills, Inc., a California corporation, Gallery Rodeo of
Lake Arrowhead, Inc., a California corporation, and Gallery Rodeo of Taos, Inc.,
a New Mexico corporation.  Concurrent with this transaction, the Company changed
its name to Gallery Rodeo International, Inc. The Company operated as a fine art
retailer and publisher  since 1991,  although it also acquired  hotel and gaming
properties.

     Effective  May 9, 1996 the Company  sold its art  subsidiaries  in order to
concentrate on hotel, gaming and related businesses. At the shareholders meeting
held   September   20,  1996  the   shareholders   approved  a  name  change  to
Sierra-Rockies Corporation.

         (b) Current Business of Issuer. The Company currently owns and operates
a hotel and gaming property in Cripple Creek, Colorado, and continues to develop
the property.  Additionally,  the Company operates a small construction  company
through a wholly-owned subsidiary, Sierra-Rockies Development Corporation, which
specializes in the  installation  of  manufactured  houses,  and is entering the
hotel  management  business  through  another  wholly-owned  subsidiary,  Sierra
Hospitality Services Corporation.

Sale of Retail Art Business

         The Company  entered into an asset purchase  agreement  dated March 31,
1996 with the Company's President, pursuant to which the Company sold its retail
art business and related  subsidiaries  to the President  effective May 9, 1996.
The Company sold and terminated  its  involvement in the Company's art operation
in exchange for a promissory note in the principal amount of $1,000,000, bearing
interest at the rate of 8% per annum,  payable  quarter  commencing  February 1,
1997,  with all  principal  and accrued  interest due and payable in May,  2001.
Payment of the note may be made in the form of cash,  securities of the Company,
other securities acceptable to the Company, or combinations thereof. The note is
secured by 4,000,000 shares of stock in the Company.

         Under  present  management,  the  Company  has focused on its hotel and
gaming business and entered the construction industry,  with particular emphasis
upon manufactured housing installation.

         The Company's name was changed to Sierra-Rockies  Corporation effective
the 15th day of November,  1996 and the Company's executive offices relocated to
2 N. Cascade Avenue,  Holly Sugar Building,  Suite 330,  Colorado  Springs,  CO,
80903.  The  telephone  number  is  719/520-1800  and  the  telecopy  number  is
719/520-1824.



<PAGE>


Real Property Development - The Bloomer Property

         On May 17, 1994, the Company  purchased a 90% ownership  interest in 13
contiguous lots located in Cripple Creek, Colorado (the "Bloomer Property"). The
Bloomer  Property  was  acquired by the Company  for a total  purchase  price of
$370,000 consisting of the following: (1) $75,000 cash paid to the seller; (2) a
promissory note in the principal amount of $120,000 in favor of seller,  payable
without  interest in 24 equal monthly  installments  of $5,000;  and (3) 350,000
shares of restricted Common Stock of the Company.

For purposes of determining the purchase price, the Company  determined the fair
market value of the  restricted  Common Stock of the Company was $.50 per share.
The Company financed the $75,000 cash payment pursuant to a promissory note made
by the Company and Mr. Thomas  Harris,  a former  director of the Company,  with
such promissory note being secured by a Deed of Trust on the property.  The lots
consist of two lots within the town's  legalized  gaming  district,  with the 11
remaining lots zoned for business buffer.  On June 20, 1995, the Company entered
into an agreement  for the sale of the Bloomer  property and  buildings  located
thereon.  Under the terms of the  agreement,  the buyer  purchased  the  Bloomer
Property  at a price of  $1,160,000  with  payment to the Company in the form of
$150,000 on close of escrow ($15,000 of which was paid on June 30, 1995 with the
remaining  $135,000  to be paid at  closing);  three  promissory  notes  with an
aggregate  principal amount of $624,000  (bearing  interest 8.5% and due May 27,
1998) and assumption by the buyer of existing indebtedness of $385,000. Interest
is paid monthly. The notes are secured by the property.  This transaction closed
in May, 1996.

Real Property Development - Wandering Star Project

         Products and Services

         In May,  1993,  the Company  purchased  10  contiguous  lots in Cripple
Creek,  Colorado,  to be the site of the Company's proposed Wandering Star Hotel
and Casino project (the "Wandering  Star"). The Wandering Star is located within
Cripple Creek's  approved gaming  district,  situated along Highway 67, the only
paved  road  carrying  traffic  into  Cripple  Creek.  The  Company  anticipates
Wandering Star, when completed,  will add 206 hotel rooms to a local market that
has currently approximately 340 hotel rooms, and which the Company estimates can
support  approximately  1500 rooms.  In addition,  the Company  expects that the
casino floor area of the Wandering  Star, at  approximately  24,000 square feet,
will be  approximately  three times larger than the average casino floor area in
the town of Cripple Creek.  The Company has designed the project to constitute a
full service  hotel with food service,  conference  facilities,  shops,  fitness
facilities,  and other amenities. The Company has not determined whether it will
operate the casino portion of the project  itself,  lease it to an operator,  or
approach potential joint venture partners.

         Development

         Preliminary  construction  estimates indicate the cost of completion of
the  Wandering  Star  to be  approximately  $25  million,  excluding  furniture,
fixtures,  and equipment.  In order to complete the Wandering  Star, the Company
will  need to seek  additional  third  party  financing  in the  form of  equity
investments and/or debt. There can be no assurance that the Company will be able
to obtain such financing on terms acceptable to the Company, or at all.

         Major Customers

         The  Wandering  Star  project  will not depend  upon any large or major
customers,  but rather upon numerous individuals  attracted to Cripple Creek and
Colorado for tourism and/or gaming.
<PAGE>
         Government Regulation

         The  planned  casino  will  be  regulated  by the  State  of  Colorado.
Additionally,  liquor  license  approvals  will be necessary from both state and
local authorities.  No assurance can be made that the necessary licenses will be
obtained.

         The  application  of the  Company for  approval of the  building of the
Wandering  Star  project  was granted in  November,  1996 by the City of Cripple
Creek,  subject to height  variance  authorization.  The  Company  is  currently
preparing,  through its architects, the height variance application. The Company
will not  commence  seeking  financing  sources as  discussed  above until final
governmental  approval of its application for the Certificate of Appropriateness
has been obtained.  Additionally,  the property currently contains 2 houses. The
Company  must obtain  approvals  to move houses from a portion of the  Company's
property prior to developing the hotel/casino on the property, which potentially
may be designated as historical  structures requiring compliance with additional
regulations.  No  assurance  can be made  that  these  final  approvals  will be
obtained.

         Competition

         There are  approximately 25 casinos located in Cripple Creek, one stand
alone hotel and one significant hotel/casino. Most of the casinos are relatively
small gaming  operations  only,  although the Holiday Inn Express consists of 62
rooms with  expansion  plans,  the older  Imperial  Hotel contains 27 rooms with
expansion  plans,  and a 50 room  expansion  is  proposed  for the 16 room  Best
Western Hotel and Casino.  The new Double Eagle Hotel and Casino consists of 130
rooms.  Competition in the gaming  industry also comes from gaming  districts in
Black Hawk and Central  City,  Colorado,  as well as  facilities  nationwide  in
Nevada, Mississippi, New Jersey, and other sources.

         Business Outlook

         The Company feels that the key to the construction and operation of the
Wandering  Star project is obtaining  financing,  and the Company also  believes
that the success of the project  will depend on the  continued  expansion of the
Cripple Creek gaming and tourism markets. Considering the foregoing, the Company
on a preliminary  basis has reviewed several joint venture or merger  prospects,
but has not entered into any agreements or letters of intent to acquire or merge
with any particular company.  There can be no assurance that the Company will be
successful in obtaining financing or have sufficient  resources to construct the
Wandering  Star  without  such  financing  or that the  company  will be able to
operate successfully and profitably the project once built.

Subsidiary - Sierra-Rockies Development Corporation

         Products and Services

         On  August 1,  1996,  the  Company's  wholly-owned  Nevada  subsidiary,
entered into a management agreement with Superior Homes Development Corporation,
a construction  company  specializing in the installation of manufactured homes.
Under the agreement,  the Company initially operated the construction company at
fee of 2% of gross  sales of the managed  business,  providing  full  management
services.  The contract also granted the Company an option to purchase assets of
the construction company, which option was exercised in September, 1996, and the
purchase  closed  on  November  1,  1996.  Consideration  for the  purchase  was
forgiveness  of accrued  management  fees of  $4,211.17,  150,000  shares of the
Company's  Common Stock,  and a $112,321.34  credit to Purchaser for obligations
assumed or paid pursuant to management  agreement.  The acquisition  permits the
Company to install  manufactured houses in the Colorado Springs,  Colorado area,
as well to utilize in-house  construction  personnel and resources in connection
with the Wandering Star project discussed above.
<PAGE>
         Product Development

         The Company has an on-going program of expanding its manufactured  home
installation  services to include site  preparation  and garage  construction in
order  to  improve  its  sales  and  to  increase  its  regional  share  of  the
manufactured home installation  market. The Company maintains contact with major
local  dealers  in  order  to  broaden  not  only  the  sources,  but  also  the
availability, of new and existing business. As the Company is dependent upon its
relationships with dealers and manufactured housing subdivisions, the importance
of  broadening  its  customer  base is  significant,  especially  in view of the
seasonality of the home business.  The Company also intends to incorporate  into
the activities of this subsidiary as much of the  construction  coordination and
management  of the  Wandering  Star  project as possible,  consistent  with good
construction management practice.

         Major Customers

         The  Company  is  presently   dependent  upon  one  manufactured   home
dealership in Colorado Springs for the majority of its  installation  work under
what essentially is a requirements  contract,  although it performs installation
and related constriction for individual customers and other dealers.

         Government Regulations

         The Company is subject to governmental  regulations  regarding employee
licensing,  building  codes and  employment  laws  standard in the  construction
industry.

         Competitive Conditions

         The  construction   industry  as  it  pertains  to  manufactured   home
installation is  characterized by intense  competition  involving many companies
which have  experience in various  aspects of the  installation  of manufactured
housing.  The Company  feels it is  competitive  in the local  Colorado  Springs
market,  in part due to the  combination of its  requirements  contract with its
major customer. which makes its overall pricing more competitive, and renders it
less  susceptible  to the seasonal  fluctuations  of the  construction  business
overall,  governmental  construction approvals and length of time to obtain such
approvals and customer financing.

         In marketing its services,  the Company faces competition from existing
companies  with services  which are similar,  and from smaller  firms  providing
portions of the services packaged by the Company. There is no assurance that the
Company will be able to retain its requirements  contract or expand its customer
base to other dealerships for manufactured homes.

         Business Outlook and Company Diversification Efforts

         The Company  intends to expand its customer base. The Company feels the
demand for manufactured housing is growing in the Colorado Springs area and also
upon a regional  basis.  Accordingly,  the Company  hopes to expand its business
through  dealers  in  manufactured  houses  throughout  the region  through  its
contacts  with  dealers  and  manufacturers  of  the  units.  The  Company  also
anticipates an involvement in the Wandering Star project for this  subsidiary as
that  project  evolves,  especially  with  respect to the  moving of  structures
located upon the project real estate and the management of the  construction  of
the project once final planning  commences,  and coordination  among architects,
contractors, suppliers and governmental authorities.

         Employees

         The Company  has 5 full-time  employees  and no  part-time  or contract
employees.
<PAGE>
Subsidiary - Sierra Hospitality Services Corporation

         Products and Services

         On November  25,  1996,  the Company  formed a new  subsidiary,  Sierra
Hospitality Corporation, a Colorado corporation, to become the Company's vehicle
for an entry  into the hotel and  hospitality  services  business.  The  Company
intends  to engage in this  field  through  the  acquisition  of hotel and motel
properties and the management of its own properties and those of third parties.

         Product Development

         The Company feels it is  positioned to take  advantage of the expertise
of its direct and contract  employees  experience and connections in this arena,
especially  in connection  with the  development  of the Wandering  Star project
discussed  above.  The  Company  feels it further  augmented  its entry into the
hospitality  service sector  through the hiring of an employee with  appropriate
business  experience to develop an initial strategy for  implementation  in 1997
which would enable the Company to  establish  management  contracts,  as well as
ownership or joint ventures of hotels and motels.  However,  no assurance can be
made  that the  Company  will be able to  enter  successfully  this  competitive
market.

         Major Customers

         Since the  Company's  entry  into the hotel  and  hospitality  services
business has just commenced and is in the planning  stages,  no major  customers
exist. However, it is anticipated that initially, the Company will depend upon a
very  limited  number  of  customers  until  the  base  of its  business  can be
broadened.

         Government Regulations

         Governmental regulations,  such as zoning, liquor licensing, health and
building may pertain to the  acquisition,  management,  and /or  construction of
hotel facilities in various local jurisdictions

         Competitive Conditions

         The Company is entering a highly  competitive  market in the  ownership
and  management  of hotels  and  motor inn  properties.  Despite  the  extensive
background  and experience in hotel  management and operation  background of its
personnel,  cannot be assured it will be able to compete  with more  experienced
and better financed competitors. Once the Company has identified its market area
of emphasis,  it will be in a better  position to evaluate  competition  and its
chances of competitive success.

         Business Outlook and Company Diversification Efforts

         As stated  above,  the  Company  is in the  process  of  analyzing  the
business it is entering with this subsidiary and the  identification  of a niche
within which the Company would fit given the  constraints  placed upon it by its
size and the  resources  which can be devoted to the hotel and  related  service
industry.  The Company plans, in general, to operate hotel properties in diverse
geographic  regions so as not to become  dependent upon the economic or seasonal
pressures which may be experienced in more narrowly defined areas of operation.

         Employees

         The Sierra  Hospitality  Services  Corporation  subsidiary has one full
time employee,  supported by contract  employees under the Company's  management
services contract with InnerCircle Group Incorporated.


<PAGE>
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

         Continued Operating Losses

         While  the  Company  recorded  a loss for 1996 of  $(1,497,686),  and a
profit of $144,815 for 1995,  the Company has had a history of losses.  In 1996,
management,  in  consultation  with its  accountants,  elected to incur  certain
charges  with  respect to its May 1996  transaction  with prior  management.  At
December 31, 1996,  the Company had negative  working  capital of $(751,317) (as
Total Current  Liabilities  exceeded  Total Current  Assets by that amount),  an
accumulated  deficit of  $(5,383,662),  and  shareholders'  equity of  $705,193.
Because of, among other things,  the lack of substantial  operating history with
respect to the  Company's  ventures  into the  gaming,  construction,  and hotel
industries on which to base its anticipated  expenses and revenues,  the Company
may continue to incur further  losses.  There is no assurance that the Company's
operations will be successful or profitable in the future.

         Uncertainties & Lack of Revenue from Gaming and Hotel Operations

         While  the  Company  has  expended   substantial   resources   for  the
development of gaming  properties and anticipates the same for hotel properties,
there can be no assurance  that the Company  will be  successful  in  generating
revenues  from  gaming  or hotel  operations  in the near  future,  despite  the
Company's  obligation to service substantial amounts of debt. Risk of failure to
obtain gaming approval from governmental authorities,  increased competition and
unanticipated  economic  (adverse)  conditions  may  affect  the  success of the
Company's Wandering Star project.

         Current Financial Structure & Need for Additional Financing

The Company's  financial  structure is partially dependent upon the use of short
term debt financing  which totaled  $849,105 as of December 31, 1996.  When this
amount is added to $711,839 in long term debt,  the  Company had  $1,560,944  in
liabilities as of December 31, 1996 compared to $705,193 in stockholders' equity
as of that date. While the Company's management has substantially  reduced short
term debt from that of  December  31,  1995,  and  believes  that its  financial
policies have been prudent based upon its current projections and plans and that
its cash, capital resources, and cash from its construction operations should be
sufficient to meet its liquidity and financing  requirements in 1997 (other than
third party  financing  necessary to complete the  Wandering  Star or fund hotel
acquisitions),  the Company's  reliance upon its current debt structure  imposes
significant  financial risks on the company.  Management  intends to address its
concerns  in  this  area  through  its  reduction  of  overhead,  including  its
management contract with InnerCircle Group  Incorporated,  reduction in employee
base, primarily in its construction  subsidiary,  and a further restructuring of
its  short-term  debt.  There  can be no  assurance  that  the  Company  will be
successful  in  continuing  to  meet  its  cash  requirements  or in  raising  a
sufficient  amount of additional  capital for the Wandering  Star or its planned
hotel  acquisitions,  or if it is  successful,  that the Company will be able to
achieve these objectives on reasonable  terms in light of the Company's  current
circumstances.


Item 2.  DESCRIPTION OF PROPERTY

         Executive Offices

         The Company's  executive offices are located in an approximately  4,787
square-foot  facility  at 2 North  Cascade,  Holly  Sugar  Building,  Suite 330,
Colorado  Springs,  Colorado  80903,  pursuant to its  management  contract with
InnerCircle Group Incorporated.


<PAGE>
         Wandering Star Project

         In May, 1993, the Company purchased fee title to the 10 contiguous lots
in Cripple  Creek,  Colorado in three  separate  transactions  for an  aggregate
purchase price of $2,150,000,  consisting of $150,000 cash,  1,750,000 shares of
Common  Stock of the  Company  valued  at  approximately  $0.82 per  share,  and
promissory  notes of the Company in the aggregate  principal  amount of $562,000
due and payable at dates  ranging from  January  1995 to June 1995,  and bearing
interest at rates ranging from 10% to 16% per annum.  Such promissory  notes are
collateralized by first and second deeds of trust on the property.  A portion of
the notes were  refinanced  or extended at various  times in 1995 and 1996.  The
outstanding principal balance on such notes on December 31, 1996 was $1,153,839.
There is no depreciation being taken on the property.

         Each lot referred to above is  approximately  25 feet by 110 feet.  The
Wandering Star is in compliance  with all existing  zoning  requirements.  Based
upon  current  budget  estimates  obtained by the  Company,  the  Company  feels
construction  of the  project  will cost  approximately  $25 million to complete
excluding  furniture,  fixtures,  and  equipment.  The Company will need to seek
additional  third party financing in the form of equity  investments  and/or the
incurrence of additional  debt.  There can be no assurance that the Company will
be able to obtain such financing.

Item 3.  LEGAL PROCEEDINGS

         The Company knows of no material pending legal proceedings to which the
Company or any of its  subsidiaries is a party or of which any of its properties
is a  subject,  and  no  such  proceedings  are  known  to  the  Company  to  be
contemplated by governmental authorities.

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

         The following  matters were submitted to a vote of the  shareholders of
the Company at the Company's annual meeting on September 20, 1996 and approved:

1.      Change of the name of the Company from Gallery Rodeo International, Inc.
        to Sierra-Rockies Corporation;

         (a)       For:                       8,816,836

         (b)       Against:                      36,700

         (c)       Abstaining:                   63,883

2.        Designation of 500,000 shares of stock as Preferred Stock;

         (a)       For:                       8,815,006

         (b)       Against:                      48,480

         (c)       Abstaining:                   53,933

3.       1-for-10 reverse stock split, to be implemented at management's 
         discretion.

         (a)       For:                       8,780,099

         (b)       Against:                     137,010

         (c)       Abstaining:                      310


<PAGE>
4.        Election of Directors.

         (a)       Kenneth M. Cahill

                  (i)       For:              8,541,977

                  (ii)      Withhold:           375,442

         (b)       Darel A. Tiegs

                  (i)       For:              8,542,027

                  (ii)      Withhold:           375,392

         (c)       J. Royce Renfrow

                  (i)       For:              8,541,927

                  (ii)      Withhold:           375,492

         (d)       James A. Humpal

                  (i)       For:              8,541,977

                  (ii)      Withhold:           375,442

         (e)       Stephen M. Thompson

                  (i)       For:              8,517,017

                  (ii)      Withhold:           400,402

         (f)       Ray L. Bouchard

                  (i)       For:              8,541,977
 
                  (ii)      Withhold:           375,442


                                     PART II

Item 5.  MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         (a) Principal  Market or Markets.  The Company's stock is traded on the
over-the-counter  market,  and is  presently  quoted on the NASDAQ OTC  Bulletin
Board.  The following table sets forth the high and low bid prices of the Common
Stock  during the two years ended  December  31, 1996 on the NASDAQ OTC Bulletin
Board.  The prices are  believed to be  representative  interdealer  quotations,
without 


<PAGE>
retail mark-up, mark-down or commissions,  and may not represent prices at which
actual transactions occurred.

                                                        Bid
                                                -----------------

                                           High                      Low

Quarter Ended March 31, 1996               $.12                     $.10
Quarter Ended June 30, 1996                $.125                    $.105
Quarter Ended September 30, 1996           $.09                     $.07
Quarter Ended December 31, 1996            $.05                     $.03

                                                        Bid
                                                 -----------------

                                           High                      Low

Quarter Ended March 31, 1995               $5/8                     $5/16
Quarter Ended June 30, 1995                $3/8                     $1/8
Quarter Ended September 30, 1995           $3/8                     $1/8
Quarter Ended December 31, 1995            $9/32                    $1/8

         (b)  Approximate  Number of  Holders  of Common  Stock.  The  number of
holders  of  record  of the  Company's  Common  Stock  at  June  30,  1997,  was
approximately 767.

         (c)  Dividends.  The Company has  followed  the policy of  re-investing
earnings in the business, and, consequently, has not paid any cash dividends. At
the present time, no change in this policy is under  consideration  by the Board
of Directors.  The payment of cash dividends in the future will be determined by
the Board of Directors  in light of  conditions  then  existing,  including  the
Company's  earnings,  financial  requirements and conditions,  opportunities for
re-investing earnings, business conditions and other factors.

Item 6.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
         RESULTS OF OPERATIONS

         The  following  summarizes  the  Company's  results of  operations  and
financial  conditions,  and  should be read in  conjunction  with the  financial
statements:

         (a)      Liquidity and Capital Resources

         There are several components which affect the Company's ability to meet
its financial  needs,  including  funds  generated  from  operations,  levels of
accounts receivable and inventories, capital expenditures,  short-term borrowing
capacity,  and the ability to obtain long-term  capital on reasonable  terms. At
the end of 1996, the Company's  working capital was  $(751,317),  an increase of
$724,578 from December 31, 1995. The increase is primarily  attributable  to the
sale of the art subsidiaries.

         The  following  is  long-term  debt.  There is no  current  portion  of
long-term debt due as of December 31, 1996.
<PAGE>
<TABLE>
<CAPTION>

                                       Description                                              Principle Amount
                                       -----------                                              ----------------

<S>                                                                                                  <C>     
1. Note in the amount of $200,000  payable  bearing  interest at 12.5% per annum,  payable           $200,000
in monthly  interest-only  payments of  $2,000.00,  with final  principal and interest due
February,  1998. Note  collateralized by a First Deed of Trust on the Company's  Wandering
Star property.


2. Note in the amount of $150,000  payable bearing  interest at 15% per annum,  payable in                   150,000
monthly  interest only payments of $1,875,  with final principal and interest due February
9, 1998.  Note  collateralized  by a First Deed of Trust on the Company's  Wandering  Star
property.

3. Note in the amount of $341,838.80  payable bearing  interest at 12% per annum,  payable                   341,839
in monthly  interest  only payments of  $3,418.39,  with final  principal and interest due
January  15,  1998.  Note  collateralized  by a  Third  Deed  of  Trust  on the  Company's
Wandering Star property.

4. 10% Debenture of $20,000 due November,  1999  convertible to the Company's Common Stock                    20,000
at an exercise price of $1.50 per share

Total                                                                                                       $711,839

Less:  Current Maturities                                                                                      - 0 -

Total Long-Term Debt as of December 31, 1996                                                                $711,839
</TABLE>


         In  order to meet its  obligations  at  maturity  with  respect  to the
outstanding  principal  and interest on such notes  payable,  the Company may be
required to  restructure  the terms of such notes  and/or  refinance  such notes
through  additional  third-party debt and/or equity  financing.  The Company can
make no assurance  that it will be able to  restructure  such notes or alter the
ultimate terms thereof. In addition,  there can be no assurance that the Company
will be successful in obtaining such third-party financing,  or that anticipated
cash from operations will render refinancing unnecessary.

         Although the Company currently has no available credit facilities,  the
Company  believes  that,  based on its current  projections,  its cash,  capital
resources and cash from  operations  should be sufficient to meets its liquidity
and financing  requirements in 1997, other than third-party  financing necessary
to complete the development of its Wandering Star project or hotel  acquisitions
by its hospitality subsidiary. The Company can make no assurance,  however, that
it will meet its current projections.

         The Company is currently  negotiating  potential  restructuring  of the
debt on the  Wandering  Star in order  to  obtain  more  favorable  terms  while
producing   additional   working  capital  for  use  in  its  anticipated  hotel
acquisition  program.  Although the Company anticipates the negotiations will be
finalized  in the near  future,  management  is  confident  the  holders  of the
existing debt on the Wandering Star will agree to appropriate  extensions  prior
to such debt's maturity in 1998.

         (b)      Results of Operations

         Total  revenues for the year ended  December 31, 1996 were  $95,000,  a
decrease of $4,422.213, compared with the year ended December 31, 1995. In 1996,
management,  in  consultation  with its  accountants,  elected to incur  certain
charges  with respect to its May 1996  transaction  with prior  management.  The
decrease  from 1995 to 1996 was  primarily  due to the sale of the Company's art
operation and the short period in 1996 in which the Company received income form
its construction subsidiary.

         Cost of sales as a percentage of total  revenue was 89.3  percent,  and
41.5  percent  in 1996 and  1995,  respectfully.  Increase  in the cost of sales
percentage from 1995 to 1996 was primarily the result of 


<PAGE>

1995 revenue  generated from the consolidated art gallery  subsidiaries and 1996
revenue generated from the consolidated construction business.

     Gross profits were $10,164,  or 10.7 percent of sales in 1996,  compared to
$5,139,034 or 80.4 percent of sales in 1995.

         Selling,  general and  administrative  expenses in 1996 were  $560,154.
Selling,  general and administrative  expenses as a percentage of total revenues
were 589.6 percent and 74.8 percent and 1996 and 1995, respectively. General and
administrative  expense costs include all corporate  overhead,  management fees,
all occupancy costs and interest.  Selling expenses include  advertising,  sales
commissions,  brochures  and  other  promotional  material  and  certain  salary
expenses.   While  general  and  administrative  expenses  are  primarily  fixed
expenses,  the Company achieved a reduction in these expenses,  primarily due to
savings from its management  contract with InnerCircle Group  Incorporated which
eliminated direct expenses.

         Interest expense (net of interest income) of 1996 was $273,301 compared
to interest  expense (net of interest  income) of $320,292 in 1995. The decrease
of interest expense of $46,991 during the year resulted primarily from reduction
of debt.

         As a result,  the Company  recorded a  $(1,497,686)  loss before income
taxes in 1996,  compared to $147,215 in earnings  before  income  taxes in 1995,
resulting  in net loss of  $(1,497,686)  in 1996,  compared  to net  earnings of
$144,815 in 1995 after  provision for income  taxes.  Earnings per share in 1996
were $(.08) per share, compared to less than $.01 per share in 1995.

Item 7.  FINANCIAL STATEMENTS

         The report of the  independent  auditors  on the  financial  statements
appears at Page 26,  and the  financial  statements  and  most  of the financial
statements   appear   at  Pages  F-1  through  F-16   hereof.   These  financial
statements and related financial  information required to be filed hereunder are
incorporated herein by reference.

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

             Not applicable.

                                    PART III

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

         (a)  Directors  and Executive  Officers.  The names and ages of the 
              Directors  and executive  officers of the Company are as follows:
<TABLE>
<CAPTION>
            Name                   Age                              Position                              Since
            ----                   ---                              --------                              -----

<S>                                 <C>                                                                    <C> 
Kenneth M. Cahill                   60       Chairman  of the  Board  of  Directors,  President  and       5/96
                                             Chief Executive Officer

J. Royce Renfrow                    54       Secretary and Director                                        5/96

Darel A. Tiegs                      53       Vice President and Director                                   5/96

James A. Humpal                     42       Treasurer and Director                                        5/96

Stephen M. Thompson                 48       Director                                                      9/91

Raymond Bouchard                    50       Director                                                      5/96
</TABLE>
<PAGE>
         The Directors serve until the next annual meeting of  shareholders,  or
until their successors are elected.

         The  following   sets  forth   information   concerning  the  principal
occupations and business experience of each of the officers and Directors of the
Company:

         Kenneth M. Cahill, Chairman of the Board, President and Chief Executive
Officer. Mr. Cahill joined the Company as Director,  Chief Executive Officer and
President in May of 1996.  From 1980 to May 1996,  Mr. Cahill served as Director
of Operations for Larken,  Inc., a hotel operator.  Mr. Cahill directed Larken's
day-to-day  marketing and training  initiatives for over 76 hotels. In 1984, Mr.
Cahill  formed  Arcadia,  Inc.,  where,  as  its  Chief  Executive  Officer,  he
concentrated Arcadia's efforts in the areas of gaming and hospitality. Since May
1996,  Mr.  Cahill has also  served as a Vice  President  of  InnerCircle  Group
Incorporated,  a management and consulting company.  Since June 1996, Mr. Cahill
has  also  served  as a  Director  and  as the  President  and  CEO  of  Eclipse
Corporation,   a  publicly-traded  company  involved  in  the  real  estate  and
manufactured housing industries.

         Darel A. Tiegs,  Director  and Vice  President.  Mr.  Tiegs  joined the
Company in May of 1996. From 1972 to 1975, Mr. Tiegs was an officer with Norwest
Bank, where he gained extensive experience in all facts of the banking industry.
After leaving the banking  industry,  Mr. Tiegs spent from 1975 to 1985 as owner
of his own real estate and development company,  developing residential projects
as well as commercial  projects,  with an emphasis on medical  facilities.  From
1984 to the present,  he has been President and part owner of Superior  Homes, a
company  specializing  in the  construction,  warranty work and  installation of
modular  homes.  Since June 1996, Mr. Tiegs has also served as a Director and as
Vice President of Eclipse Corporation, a publicly-traded company involved in the
real estate and manufactured housing industries.

         J. Royce Renfrow,  Director,  Corporate  Secretary and General Counsel.
Mr.  Renfrow  joined the Company as General  Counsel,  Corporate  Secretary  and
Director in May, 1996. Mr. Renfrow practiced law in a small firm specializing in
real  estate  and  corporate  law from 1969  until  May  1996.  From 1969 to the
present, Mr. Renfrow has served as President and as General Counsel for Speedway
Gas and Oil Co., Inc., a small firm which provides  management  services for oil
and gas  companies.  From 1989 to 1992, Mr. Renfrow served as Vice President and
General Counsel of a small,  privately-held  medical start-up company,  MedLogic
Global Corporation.  From May 1996 until the present,  Mr. Renfrow has served as
Corporate  Secretary and General Counsel to InnerCircle  Group  Incorporated,  a
management consulting company. Since June 1996, Mr. Renfrow has also served as a
Director,  General  Counsel and Corporate  Secretary of Eclipse  Corporation,  a
publicly-traded  company  involved in the real estate and  manufactured  housing
industries.

     James A. Humpal,  Director and Treasurer.  Mr. Humpal joined the Company in
May of 1996 as Treasurer  and Director  From 1989 to 1991,  Mr. Humpal served as
General Manager of the Holiday Inn-Columbus in Ohio. From 1991 to 1992, he began
work for  Larken,  Inc.,  as a General  Manager  of the  Holiday  Inn-Tucson  in
Arizona.  In 1992 and until May 1996,  Mr.  Humpal  served as Vice  President of
Operations  of  Larken,  Inc.  Since June 1996,  Mr.  Humpal has also  served as
Director  and  Treasurer  of  Eclipse  Corporation,  a  publicly-traded  company
involved in the real estate and manufactured housing industries.

         Stephen M. Thompson, Director. Mr. Thompson initially became a Director
of the Company in September,  1991, and served as former  Chairman of the Board,
Chief Executive Officer, and Chief Financial Officer of the Company,  until May,
1996. Prior to joining the Company,  he was an independent  business  consultant
for a number of companies from 1985 through 1988, including Wexco International,
a real  estate  development  company,  Bio  Care,  Inc.,  a  biological  product
distributor,  and First Fidelity 
<PAGE>
Exchange,  a precious metals marketing concern. Mr. Thompson is the President of
Clipper Industries, a shareholder of the Company, and operates the art galleries
purchased by him from the Company in 1996.

         Raymond Bouchard, Director. Mr. Bouchard initially became a Director in
May,  1996. In 1992,  Mr.  Bouchard was owner and NASD principal of Triad Global
Investment  Company,  where he  worked  to set up  Tampa  Bay's  first  minority
broker/dealer firm. From 1994 to 1995, he served as Vice President,  Mergers and
Acquisitions,  of Viking  Resources  International,  a company  specializing  in
acquisitions of businesses in the recycling industry.  From February, 1995 until
the present, Mr. Bouchard has served as President of Corporate Services Group, a
company specializing in consultation  involving investment banking and financial
services.

         (b) Section 16(a) Beneficial  Ownership Reporting  Compliance.  Clipper
Industries,  Inc.,  failed  to  timely  file  Forms 4 and 5 with the  Securities
Exchange  Commission,  as required by Section 16(a).  Form 4 for May of 1996 and
December of 1996 was not filed  until  March 7, 1997.  Both Form 4's reflect one
transaction, and Form 5 reflected two transactions.

               The Company is aware of no other delinquent filings.

Item 10.  EXECUTIVE COMPENSATION

         No current executive officer received any compensation during 1996. The
former Chief  Executive  Officer of the Company,  Stephen M. Thompson,  received
compensation  during 1995 until May 9, 1996 and during  1994.  Mr.  Thompson was
Chairman of the Board, Chief Executive  Officer,  and Chief Financial Officer of
the Company until May, 1996. The following table sets forth certain  information
concerning  all  compensation  paid by the  Company  as well  as  certain  other
compensation  paid or accrued  for the year to the CEO and the former CEO of the
Company during 1996, 1995 and 1994 fiscal years:

<TABLE>
<CAPTION>
                           Summary Compensation Table
                           --------------------------                                                     Long-Term
                                                                      Annual Compensation                    Comp.
                                                       -------------------------------------------           -----
   Name & Principal Position                                                                               Shares
   -------------------------         Fiscal                                                  Other       Underlying
                                      Year                  Salary                 Bonus  Compensation    Options (#)
                                      ----                  ------                 -----  ------------    -----------
<S>                                   <C>                        <C>                 <C>                     <C>    
Kenneth M. Cahill,                    1996                      -0-                 -0-        *             315,000
CEO & Chairman                        1995                      -0-                 -0-        *                 -0-
                                      1994                      -0-                 -0-        *                 -0-

Stephen M. Thompson(3)(4)             1996             $  25,000.00                 -0-        *
                                      1995             $  78,000.00                 -0-        *           1,000,000
                                      1994             $  78,000.00                 -0-        *

Richard Carthew                       1996                      -0-                 -0-                          -0-
Director (1) and V.P.                 1995              $143,489.00                 -0-        *                 -0-
                                      1994              $221,489.00                 -0-        *                 -0-

Kathy Grant (2)                       1996             $  13,187.47                 -0-        *                 -0-
Corporate Secretary                   1995             $  40,000.00                 -0-
<FN>
* The dollar  value of  perquisites  and other  personal  benefits was less than
reporting thresholds established by the Securities and Exchange Commission.

(1) Mr. Carthew's term as a director expired on December 21, 1994.

(2) Ms. Grant resigned as Corporate Secretary effective April 26, 1996.

(3) Mr. Thompson  resigned as Director,  Chairman of the Board,  Chief Executive
Officer and Chief Financial Officer effective April 26, 1996, and was reinstated
per Voting Trust Agreement (see Exhibit 9.1).

(4) Options terminated in 1995, unexercised.
</FN>
</TABLE>
<PAGE>
         No Directors fees were paid during 1996.

Stock Options

         The following table contains information  concerning the grant of stock
options made during fiscal 1996 to the named executive officers:
<TABLE>
<CAPTION>

                 Name                       Number of Shares        % of Total       Exercise or     Expiration Date
                                           Underlying Options         Options         Base Price
                                              Granted (#)           Granted in
                                                                   Employees in
                                                                    Fiscal Year

<S>                                             <C>                     <C>        <C>               <C>
Kenneth M. Cahill                               315,000                 51%        Average of         June 1, 1997
                                                                                   bid/ask price
                                                                                   as shown on
                                                                                   NASDAQ Bulletin
                                                                                   Board as of
                                                                                   June 26, 1966
Silver Fox Investment Company LLC(1)            200,000                 33%        Average of         July 1, 1997
                                                                                   bid/ask price
                                                                                   as shown on
                                                                                   NASDAQ Bulletin
                                                                                   Board as of
                                                                                   June 30, 1966
Maxpro Corporation(1)                           100,000                 16%        bid/ask price      July 1, 1997
                                                                                   as shown on
                                                                                   NASDAQ Bulletin
                                                                                   Board as of
                                                                                   June 30, 1966
<FN>
(1)  A company affiliated with Mr. Tiegs.
</FN>
</TABLE>

         The  following  tables set forth  information  with  respect to certain
former  executive  officers  and  Directors  concerning  the exercise of options
during the fiscal year ending December 31, 1996 and unexercised  options held as
of the end of that fiscal year:
<TABLE>
<CAPTION>
                     Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
                     ------------------------------------------------------------------------

                 Name                       Shares Acquired                           Number of         Value of
                                            on Exercise (#)       Value Realized        Shares         Unexercised
                                                                                      Underlying      In-the-Money
                                                                                     Unexercised       Options at
                                                                                      Options at      FY-End ($)(1)(2)
                                                                                    FY-End (#) (1)       

<S>                                               <C>                   <C>            <C>              <C>      
Kenneth M. Cahill                                 -0-                   -0-            315,000          ($23,625)

Silver Fox Investment Company LLC(4)              -0-                   -0-            200,000          ($15,000)

Maxpro Corporation(4)                             -0-                   -0-            100,000          ($7,500)
<FN>
(1)  All options are presently exercisable.
(2) Market value of underlying  securities  minus the exercise  price.  Based on
closing sale price of $.04 per share on the 31st day of December, 1996.
(3) Exercise price equal to $0.125 per share. (4) A company  affiliated with Mr.
Tiegs.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                Aggregated Option Grants in Previous Fiscal Year
                ------------------------------------------------

                 Name                       Number of Shares        % of Total       Exercise or     Expiration Date
                                         Underlying Options at        Options         Base Price
                                             FY-End (#) (1)           Granted         ($/share)
                                                                   Employees in
                                                                      FY 1995

<S>                                                      <C>            <C>             <C>               <C>  
Stephen M. Thompson                                      500,000        46%             $0.45             10/99

Stephen M. Thompson                                    1,000,000        46%             $0.25             10/99
</TABLE>



Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table  sets  forth  information   regarding  beneficial
ownership as of the 31st day of December,  1996 of the Company's common stock by
any person who is known by the Company to be the  beneficial  owner of more than
five (5%) percent of the Company's voting  securities,  and by each Director and
by officers and  Directors of the Company as a group.  Although  authorized  for
Preferred Shares, the Company has issued only Common Stock.
<TABLE>
<CAPTION>
                         Name and Address                              Number of Shares        Percentage of Class

<S>                                                                    <C>                         <C>  
Kenneth M. Cahill                                                            - 0 -                    0.00%
Holly Sugar Building - Suite 330
2 N. Cascade Avenue
Colorado Springs, CO  80903

Darel A. Tiegs                                                            839,070 (2)                 4.82%
Holly Sugar Building - Suite 330
2 N. Cascade Avenue
Colorado Springs, CO  80903

J. Royce Renfrow                                                          423,994 (1)                 2.44%
Holly Sugar Building - Suite 330
2 N. Cascade Avenue
Colorado Springs, CO  80903

James A. Humpal                                                              - 0 -                    0.00%
Holly Sugar Building - Suite 330
2 N. Cascade Avenue
Colorado Springs, CO  80903

Richard Carthew                                                            1,780,188                 10.24%
421 N. Rodeo Drive
Beverly Hills, CA 90210

Clipper Industries, Inc.                                                 4,000,000 (3)               23.00%
4223 Las Vegas Blvd. South
Las Vegas, Nevada 89119

Ray Bouchard                                                                 - 0 -                    0.00%
4014 Gunn Highway - Suite 275
Tampa, FL   33624

All Officers and Directors as a Group (5 persons)                    5,263,064 (1) (2) (3)           30.26%
<FN>
* Represents less than 1% of the Company's outstanding Common Stock

(1) Represents (i) 12,500 shares held by J. Royce Renfrow,  P.C., a professional
corporation  of which Mr.  Renfrow is the sole  shareholder;  (ii) 39,205 shares
held by R Lazy J  Trust,  of which  Mr.  Renfrow  is  Trustee  and of which  the
beneficiaries  are members of the Renfrow family,  excluding Mr. Renfrow;  (iii)
372,089 shares held by Mountainscape  Holding Corporation,  of which Mount Blanc
Development  Corporation  (of which Mr. Renfrow owns eighty percent (80%) of the
capital stock and of which he serves as President and as a Director)  owns 33.3%
of the  capital  stock and of which he serves as sole  Director,  President  and
Treasurer; and (iv) an aggregate of 200 shares held by Mr. Renfrow's wife.

(2) Represents 466,981 shares held by The Tiegs Family Trust with Darel A. Tiegs
as Trustee.  The  beneficiaries  under The Tiegs Family Trust are members of the
Tiegs  family,  excluding  Darel A.  Tiegs;  and  (ii)  372,089  shares  held by
Mountainscape  Holding Corporation,  of which 33.3% is owned by the Tiegs Family
Trust..

(3) Represents shares held by Clipper  Industries,  Inc., a corporation owned by
the Thompson Family Trust with Stephen M. Thompson as Trustee. The beneficiaries
under The Thompson  Family  Trust are January Lee Thompson and other  members of
the Thompson family,  excluding Stephen M. Thompson. Mr. Thompson serves as sole
Director,   President,  and  Treasurer  of  Clipper  Industries,  Inc.  Included
1,000,000  shares of Common  Stock  Purchasable  under  options  pursuant to Mr.
Thompson's previous employment agreement, and 3,900,000 shares subject to lockup
and escrow agreements with the Company dated May 9, 1996.
</FN>
</TABLE>
<PAGE>
Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Change in Management Control of Company

         Effective  May 9, 1996,  pursuant to an Agreement  between the Company,
Stephen M. Thompson, Clipper Industries,  Inc., and certain other parties, dated
effective as of March 29, 1996 (the  "Agreement"),  the sale of those assets and
operations of the Company  attributable and relating to its art gallery business
was effected in exchange for a  Promissory  Note payable by Mr.  Thompson to the
Company in the principal  amount of $1,000,000,  bearing interest at the rate of
eight  percent  (8%) per annum,  and due and  payable in full in May,  2001 (the
"Note").  Repayment on the Note may be made in the form of cash,  securities  of
the Company or such other securities as are acceptable to the Company.  The Note
is  secured  by  4,000,000  shares of the  Company's  Common  Stock  held by Mr.
Thompson  and  his  affiliates.  The  Board  has  determined  that it was in the
Company's best  interests to divest itself of the art gallery  business to focus
its direction  exclusively on its hotel and gaming  business in order to enhance
the possibility of obtaining financing to develop the hotel and gaming business.

         Also in connection with this transaction, the Company has agreed to pay
to Mr. Thompson the amount of  approximately  $350,000 in cash and has agreed to
issue  1,434,157  shares  of the  Company's  Common  Stock to Mr.  Thompson,  in
exchange  for Mr.  Thompson's  agreement  not to compete with the Company in the
gaming  business  for a period of one year from the closing of this  transaction
and for cancellation of any employment  agreement with Mr. Thompson or any other
agreement  between the Company and Mr. Thompson  relating to compensation in any
form to which Mr.  Thompson  may have been  entitled.  In  consideration  of the
cancellation  of a promissory  note issued by the Company to Mr. Thompson in the
principal amount of $75,000, the Company canceled promissory notes issued by Mr.
Thompson  to the  Company in the  aggregate  principal  amount of  approximately
$75,000.  The Company has also granted options to Mr. Thompson,  an affiliate of
Mr.  Thompson,  and Richard Carthew,  a shareholder of the Company,  to purchase
shares of the company's  Common Stock in the event the Company  issues shares of
common Stock to a third-party  vendor within the two-year  period  following the
closing of the transactions contemplated in the Agreement. The exercise price of
the options  shall be equal to the per share price  assigned in any  transaction
pursuant to which the Company  issues  shares of Common  Stock to a  third-party
vendor in exchange for assets of the  third-party  vendor.  The number of shares
subject to such options shall be a number  sufficient to enable the optionees to
retain the same  percentage  ownership  in the  Company as they own  immediately
following the transactions  contemplated by the Agreement. The options expire in
May, 1998.

         Mr.  Thompson and his  affiliate,  Clipper  Industries,  Inc.,  and the
Company's new management have entered into a Voting Trust Agreement, pursuant to
which Mr.  Thompson has deposited the 4,000,000  shares of the Company's  Common
Stock owned by him and his  affiliate  into a voting  trust (the  "Trust").  The
trustee of the Trust is directed to vote the shares in the Trust in favor of the
slate of Directors  proposed by the new  Directors,  Messrs.  Cahill,  Bouchard,
Tiegs and  Renfrow,  for a period of nine  months  following  the closing of the
transactions  contemplated in the Agreement. The Voting Trust Agreement provides
that the slate of Directors shall include Mr. Thompson.


<PAGE>
InnerCircle Group Management Agreement

     In May, 1996 the Company entered into an agreement with  InnerCircle  Group
Incorporated  ("InnerCircle")  with  respect to the  management  of the Company.
InnerCircle is a company that provides  general  managerial  services to various
businesses.  Kenneth M.  Cahill,  Darel A.  Tiegs,  James A. Humpal and J. Royce
Renfrow  each own a 25% equity  interest in  InnerCircle  and are  employees  of
InnerCircle.  As employees of InnerCircle,  they will be obligated to assume the
following  roles in the  Company:  (1)  Kenneth  M.  Cahill:  President/CEO  and
Director;  (2) Darel A. Tiegs: Vice President and Director; (3) James A. Humpal:
Treasurer and Director;  and (4) J. Royce Renfrow:  Corporate  Secretary/General
Counsel and Director.

         Under the agreement,  InnerCircle is to provide the following services:
(1) general and  administrative  business office services,  including the use of
Class  A  office  space,  as  necessary,   furniture,  equipment,  fixtures  and
secretarial  services;  (2) general legal and accounting  services necessary for
the day-to-day operation of the Company's offices and activities,  not including
outside legal and accounting services;  (3) planning,  structuring,  development
and  financing,  if  applicable,  of projects to be  considered on behalf of the
Company,  including the completion of project  approved;  and (4) the compliance
with appropriate  corporate and securities laws of the state of incorporation of
the Company and the United  States,  including  filing of  appropriate  reports,
forms and documents with the various regulatory  authorities.  The agreement was
amended to provide for a Company  payment to  InnerCircle  for such  services of
$40,000 per month,  effective  January 1, 1997. Fees due under said contract are
to be  adjusted  quarterly,  based on the  performance  of  InnerCircle  and the
additional duties assumed by InnerCircle. The agreement may be terminated by the
Company with 90 days' notice, or by InnerCircle with 30 days' notice.

Transactions with Microtech Medical Systems, Inc. (Eclipse Corporation)

         In August  1996,  the  Company  sold to Eclipse  Corporation  (formerly
Microtech Medical Systems,  Inc.) ("Eclipse"),  a corporation  controlled by the
Company's Board of Directors,  a promissory note dated July 14, 1995,  issued by
Elk Creek Partners Limited Partnership, in the principal amount of $500,000. The
Company  received  from Eclipse  $450,000 in cash for this note.  The note bears
interest  at a rate of ten  percent  (10%) per annum,  payable in equal  monthly
installments  of $4,166.67.  Principle and accrued but unpaid interest under the
note is due and payable in full on July 13, 2000. The note is secured by certain
real property  (including a casino  building and lot) located in Cripple  Creek,
Colorado.

         In August 1996,  the Company  sold to Eclipse a  promissory  note dated
June 30, 1995,  issued by Colorado  Escrow,  Inc.,  in the  principal  amount of
$208,133.34. The Company received $200,000 in cash for this note. The note bears
interest at a rate of seven and one-half  percent  (7.5%) per annum,  payable in
equal  monthly  installments  of  $1,300.87.  Principle  and  accrued but unpaid
interest under the note is due and payable in full on November 27, 1997. Kenneth
Cahill, the President and CEO and a Director of the Company,  owns,  directly or
indirectly, approximately 10% of Colorado Escrow, Inc.

         Kenneth  M.  Cahill  is the  Chairman  of the  Board,  Chief  Executive
Officer,  and President of Eclipse,  and owns  12,880,000  shares of MMSI common
stock representing  approximately 14.75% of its common stock. Darel A. Tiegs and
J. Royce Renfrow each own 6,708,750  shares of MMSI Common Stock  (approximately
7.68%,  respectively,  of the  outstanding  shares)  and are  each  officers  of
Eclipse. James A. Humpal is also an officer of Eclipse.

Transactions with Certain Former Officers

         In January, 1993, the Company issued 1,150,000 shares of its restricted
Common Stock to Gary D. Kucher, a then officer of the Company,  in consideration
of a  promissory  note dated  January  23,  1993 in favor of the  Company in the
amount of $143,750.  The balance of the promissory note remains  outstanding and
the Company is seeking return of the shares or payment of the note.


<PAGE>
         In March,  1996 the Company  entered into an agreement  with Stephen M.
Thompson,  Clipper  Industries  and certain other parties to be effective May 9,
1996 under which the sale of assets and  operations of the Company  attributable
and  relating  to its art  gallery  business  was  effected  in  exchange  for a
promissory note payable by Mr. Thompson and Clipper Industries to the Company in
the principal amount of $1,000,000, bearing interest at the rate of 8% per annum
and due and payable in full in May, 2001. The payment on said promissory note to
be  paid  by Mr.  Thompson  and/or  Clipper  Industries  in the  form  of  cash,
securities of the Company,  or such other  securities  as are  acceptable to the
Company.  The  promissory  note is secured by 4,000,000  shares of the Company's
stock held by Mr. Thompson and/or Clipper Industries, Inc.

         Additionally,  the  Company  agreed to pay Mr.  Thompson  the amount of
approximately  $350,000 and issued  1,434,157  shares of the Common Stock to Mr.
Thompson and/or Clipper Industries in exchange for Mr. Thompson's  agreement not
to compete with the Company in the gaming business for a period of one year from
the closing of the  referenced  agreement,  for  cancellation  of any employment
agreement  with Mr.  Thompson  and/or  Clipper  Industries,  Inc.,  or any other
agreement  relating to  compensation  in any form to which Mr.  Thompson  and/or
Clipper  Industries,  Inc., may have been  entitled.  In  consideration  for the
cancellation  of a  promissory  note  by  the  Company  to Mr.  Thompson  in the
principal amount of $75,000, the Company canceled promissory notes issued by Mr.
Thompson  to the  Company in the  aggregate  principal  amount of  approximately
$75,000.  As part of the same  transaction,  the Company  granted options to Mr.
Thompson,  Clipper  Industries,  Inc., and Richard Carthew, a shareholder of the
Company,  to  purchase  shares of the  Company's  Common  Stock in the event the
Company issues shares of Common Stock to a third-party  vendor within a two-year
period immediately following the closing of the transactions provided for in the
agreement.  The  exercise  price of the options  shall be equal to the price per
share assigned in any transaction pursuant to which the Company issues shares of
Common Stock to a third-party  vendor in exchange for assets of the  third-party
vendor.  The number of shares  subject  to such  options  shall be a  sufficient
number to enable  optionees  to retain the same  percentage  of ownership in the
Company as they owned immediately following the transactions contemplated by the
agreement. These options expire in May, 1998.

         Additionally, Mr. Thompson and his affiliate, Clipper Industries, Inc.,
and the  Company's  new  management  have entered into a Voting Trust  Agreement
pursuant  to which  Mr.  Thompson  has  deposited  the  4,000,000  shares of the
Company's  Common Stock owned by him and his affiliate into a voting trust.  The
trustee of the trust is directed to vote the shares in the trust in favor of the
slate of directors  proposed by the new directors,  which was done at the annual
meeting of the shareholders  held on September 20, 1996, and which extends for a
period of nine months following the closing of the transactions  contemplated by
the  referenced  agreement.  The Voting Trust  Agreement  also provides that the
proposed slate of directors include Mr. Thompson.

Item 13.  EXHIBITS AND REPORTS ON FORM 8-K (Footnotes on following page)

(a)      Exhibits

         The following exhibits will be filed by amendment:

                   Number                                          Description
                   ------                                          -----------

                                                          
                 (a)(1)      Financial  Statements.  Reference  is made the  
                             Index to  Financial  Statements  of the
                             Company  on  Page  _____  of this  report.  
                             [NEED  SEPARATE  INDEX  FOR  THE  FINANCIAL
                             STATEMENTS]
                 2           Agreement and Plan of Reorganization dated 
                             September 23, 1991.(1)
                 3.1         Articles of Incorporation of the Company.(3)
                 3.2         Amendment  to Articles of  Incorporation  
                             (Article  I) as approved by  shareholders  at
                             Annual Shareholders'  Meeting on September 20, 1996
                             changing   the   name   of   the   corporation   to
                             Sierra-Rockies Corporation.
                 3.3         By-Laws of the Company. (2)
                 9.1         Voting Trust Agreement dated March 29, 1996 between
                             the   Company,   Stephen   M.   Thompson,   Clipper
                             Industries,    Inc.,   Kenneth   Cahill,    Timothy
                             Morrissey,  Ray Bouchard,  Darel Tiegs and J. Royce
                             Renfrow, as amended.(4)
<PAGE>
                 10.1        Agreement  dated  April 16,  1991,  between  Donald
                             Tilson,  Elizabeth  Tilson and Steven  Thompson and
                             assignees.(3)
                 10.2        Sublease  dated June 15, 1988 between T. R. Rogers,
                             Inc., and Gallery Rodeo of Beverly Hills, Inc.(3)
                 10.3        Lease  Agreement  dated March 29, 1990 between  
                             Wade  Stockhouse and Gallery Rodeo ofTaos, Inc.(3)
                 10.4        Shopping  Center Lease Agreement dated November 11,
                             1987  between  lake  Arrowhead  Associates  Limited
                             Partnership and the Company.(3)
                 10.5        Agreement between the Company and Red Star 
                             Corporation.(6)
                 10.6        Purchase  Agreement and related  documents  between
                             the Company and MAXPRO  Corporation.(6)  
                 10.7        Agreement between the Company and Red Star  
                             Corporation.(6)  
                 10.8        Lease dated October 15, 1992 between the Company 
                             and Rodeo Collection, Ltd.(7) 
                 10.9        Assignment  of Lease dated October 30, 1992 between
                             the Company and Barney Goldberg, d/b/a Golden West
                             Galleries.(7)
                 10.10       Non-Qualified  Stock  Option  Agreement  dated  
                             January 1, 1993 between the Company and
                             Gary D. Kucher.(7)
                 10.11       Demand  Note dated  January  23,  1993 in the 
                             principal  amount of $143,750 by Gary D.
                             Kucher in favor of the Company.(7)
                 10.12       Shopping  Center  Lease  Agreement dated  March 31,
                             1993  between the Company and The Arrowhead Joint 
                             Venture.(7)
                 10.13       Option  Agreement  dated November 2, 1993 and First
                             Addendum  to Option  Agreement  dated  November  2,
                             1993,  among the  Company,  The D&L  Jordan  Trust,
                             Walter-Laughlin    Partnership   and   The   Walter
                             Company.(7)
                 10.14       Agreement dated November 2, 1993 and First Addendum
                             to Option  Agreement dated November 2, 1993,  among
                             the Company,  Walter-Laughlin  Partnership  and The
                             Walter Company.(7)
                 10.15       Promissory  Note of the Company dated  December 15,
                             1993 in the  principal  amount of $200,000 in favor
                             of Sterling Bank, and related loan documents.(7)
                 10.16       Purchase  Agreement  dated  June  30,  1995 by and
                             between  the  Company  and  Arcadia
                             International, Inc., as amended.
                 10.17       Agreement,  dated effective as of March 29, 1996 by
                             and  between  the  Company,  Stephen  M.  Thompson,
                             Clipper  Industries,   Inc.,  and  Kenneth  Cahill,
                             Timothy Morrissey, Ray Bouchard, Darel Tiegs and J.
                             Royce Renfrow a/or Nominees.(4)
                 10.18       Pledge Agreement dated April 26, 1996 between the
                             Company and Stephen M. Thompson.
                 10.19       Security and Escrow  Agreement  dated April 26, 
                             1996 between the Company and Stephen M. Thompson 
                             and Clipper Industries, inc., and J. Royce Renfrow.
                 10.20       Bill of Sale,  Personal Property,  dated April 26, 
                             1996 between the Company and Stephen M. Thompson.
                 10.21       Agreement  dated April 26, 1996 between the Company
                             and  Stephen  M.  Thompson,  Gallery  Rodeo of Lake
                             Arrowhead,  Inc.,  and  Gallery  Rodeo  of  Beverly
                             Hills, Inc.
                 10.22       Lease  Assignment dated  April 22, 1996 between the
                             Company and Stephen M.  Thompson,
                             Clipper Industries, Inc., and/or Assigns.
                 10.23       Management   Agreement   between  the  Company  and
                             InnerCircle Group, Incorporated,  dated the 9th day
                             of May, 1996, as amended.
                 10.24       Promissory  Note  dated May 9, 1996 in the  
                             principal  amount of  $60,000  executed  by
                             Colorado Escrow, Inc., in favor of the Company.
                 10.25       Amendment to Loan Documents dated May 9, 1996 
                             between the Company and Colorado  Escrow, Inc.
                 10.26       Amendment to Loan Documents dated May 9, 1996 
                             between the Company and Colorado  Escrow, Inc.
                 10.27       Amendment to Loan Documents dated May 9, 1996 
                             between the Company and Colorado  Escrow, Inc.
                 10.28       Second  Amendment  to  Purchase  Agreement  dated 
                             May 9, 1996  between  the Company and
                             Arcadia International and Colorado Escrow, Inc.
                 10.29       Stock Option Agreement dated June 26, 1996 between 
                             the Company and Kenneth M. Cahill.
                 10.30       Assumption and Assignment  Agreement dated June 28,
                             1996 between the Company,  Kenneth M. Cahill and 
     `                       InnerCircle Group Incorporated.
                 10.31       Stock  Option  Agreement  dated  June 30,  1996  
                             between  the  Company  and  Silver Fox Investment 
                             Company LLC.
                 10.32       Stock Option Agreement dated June 30, 1996 between 
                             the Company and MAXPRO Corporation.
                 10.33       Promissory Note Purchase  Agreement  between the 
                             Company and Microtech Medical Systems, Inc., 
                             dated the 1st day of July, 1996.
                 10.34       Promissory  Note of the Company dated July 15, 1996
                             in the principal  amount of $165,427.70 in favor of
                             Mid-Western Properties, Inc.(10)
                 10.35       Amendment  to Loan  Documents  dated July 15,  1996
                             between the Company and Stephen M. Thompson.(10) 
                 10.36       Management   Agreement  dated  August  1,  1996  
                             between   Sierra-Rockies   Development
                             Corporation and Superior Home Development, Inc.
<PAGE>
                 10.37       Promissory  Note  Purchase  Agreement  between  the
                             Company and Microtech Medical Systems,  Inc., dated
                             August 1, 1996.
                 10.38       Purchase   Agreement  dated  November  1,  1996  
                             between   Sierra-Rockies   Development
                             Corporation and Superior Home Development, Inc..
                 10.39       Promissory  Note  Extension  Agreement  dated  
                             December 1, 1996 between the Company and
                             InnerCircle Group Incorporated.
                 10.40       Promissory  Note  Extension  Agreement  dated  
                             December 9, 1996 between the Company and
                             Cahill's U.S. Casinos, Inc.
                 10.41       Amendment to Loan Documents dated December 15, 1996
                             between the Company and Stephen M. Thompson.
                 11          Statement re:  Computation of Per Share Earnings 
                 16.1        Letter dated September 3, 1996 from Grant Thornton
                             LLP.(8)  
                 16.2        Engagement  letter  dated  March 25,  1997 from 
                             Cordovano  and  Company, P.C.
                 19          Proxy Statement.(9)
                 21          Subsidiaries of the Registrant
                 23          Consent of Accountants
                 27          Financial Data Schedule

Reports on Form 8-K

    (b)      Reports on Form 8-K filed during the last quarter of 1996.

             Reference  is made to the  Company's  current  reports on Form 8-K:

                  Date                     Item Disclosed
                  ----                     --------------
                 5/9/96           Acquisition or Disposition of Assets

                 8/22/96          Changes in Registrant's Certifying Accountant


Footnotes to Exhibits:

(1) Previously  filed with the Securities and Exchange  Commission as an exhibit
to Current Report on Form 8-K of the Company, as filed September 23, 1991.

(2) Previously  filed with the Securities and Exchange  Commission as an exhibit
to Amendment No. 2 to the Registration  Statement on Form 10 of the Company,  as
filed April 6, 1992.

(3) Previously  filed with the Securities and Exchange  Commission as an exhibit
to the  Registration  Statement on Form 10 of the Company,  as filed November 8,
1991.

(4) Previously  filed with the Securities and Exchange  Commission as an exhibit
to Current Report on Form 8-K of the Company, as filed May 9, 1996.

(5) Previously  filed with the Securities and Exchange  Commission as an exhibit
to Current Report on Form 8-K of the Company, as filed May 28, 1993.

(6) Previously  filed with the Securities and Exchange  Commission as an exhibit
to Current Report on Form 8-K of the Company, as filed June 18, 1993.

(7) Previously  filed with the Securities and Exchange  Commission as an exhibit
to the 1993 Annual Report on Form 10-KSB, as filed August 2, 1994.

(8) Previously  filed with the Securities and Exchange  Commission as an exhibit
to Current Report on Form 8-K/A of the Company, as filed August 22, 1996.

(9) Previously filed with the Securities and Exchange Commission on September 6,
1996.

(10) Attached as an exhibit to Exhibit 10.60 hereto.

<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.

(Registrant):                               SIERRA-ROCKIES CORPORATION



By:      /s/ Kenneth M. Cahill                       Date:  8/22/97
         ---------------------                     
         Kenneth M. Cahill
         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
date indicated.

By:      /s/ Kenneth M. Cahill                       Date:  8/22/97
         ----------------------
         Kenneth M. Cahill
         President
         Director

By:      /s/ Darel A. Tiegs                          Date:  8/22/97
         ------------------              
         Darel A. Tiegs
         Vice President
         Director

By:      /s/ James A. Humpal                         Date:  8/22/97
         -------------------                     
         James A. Humpal
         Treasurer
         Director

By:      /s/ J. Royce Renfrow                        Date:  8/22/97
         --------------------                        
         J. Royce Renfrow
         Corporate Sect'y/Gen. Counsel
         Director


<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




Report of Independent Certified Public Accountants          F-1

Audited Consolidated Financial Statements:

   Consolidated Balance Sheet at December 31, 1996          F-2

   Consolidated Statement of Operations
             for the year ended December 31, 1996           F-4

    Consolidated Statement of Shareholders' Equity
             for the year ended December 31, 1996           F-5

     Consolidated Statement of Cash Flows
             for the year ended December 31, 1996           F-6

     Notes to Consolidated Financial Statements             F-8


<PAGE>

To the Board of Directors
Sierra Rockies Corporation and Subsidiaries

                          INDEPENDENT AUDITORS' REPORT

We have audited the  accompanying  consolidated  balance sheet of Sierra Rockies
Corporation  and   Subsidiaries  as  of  December  31,  1996,  and  the  related
consolidated statements of operations,  shareholders' equity, and cash flows for
the year ended December 31, 1996. These  consolidated  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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
misstatements.  An audit also  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 Sierra  Rockies
Corporation  and  Subsidiaries  as of December  31,  1996,  in  conformity  with
generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note J to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from operations and has a net working capital deficiency that raises substantial
doubt about its ability to continue as a going  concern.  Management's  plans in
regard to these matters are also described in Note J. The consolidated financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

Cordovano and Company, P.C.
Denver, Colorado
June 19, 1997

                                       F-1
<PAGE>

                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
<TABLE>
<CAPTION>
                           CONSOLIDATED BALANCE SHEET

                                December 31, 1996

                                     ASSETS


<S>                                                                   <C>     
CURRENT ASSETS
      Cash and cash equivalents ................................      $     --
      Accounts receivable - affiliate ..........................          91,178
      Accounts receivable - related party ......................           3,584
      Costs in excess of billings-uncompleted contracts ........           3,026
                                                                      ----------
                       Total current assets ....................          97,788

LAND HELD FOR DEVELOPMENT ......................................       2,150,000

PROPERTY & EQUIPMENT, net of
       accumulated depreciation of $267 ........................           5,733

CONSTRUCTION IN PROGRESS .......................................          12,616

NOTES RECEIVABLE
  Director and former officer ..................................       1,000,000
  Related party ................................................         476,266
  Allowance for doubtful notes .................................      (1,476,266)
                                                                      ---------- 

                       TOTAL ASSETS ............................      $2,266,137
                                                                      ==========

</TABLE>



   The accompanying notes are an integral part of these financial statements.
                                       F-2
<PAGE>
<TABLE>
<CAPTION>

                           CONSOLIDATED BALANCE SHEET

                                December 31, 1996

                      LIABILITIES AND STOCKHOLDERS' EQUITY


<S>                                                                 <C>        
CURRENT LIABILITIES Accounts payable:
              Trade .............................................   $   200,772
              Employee ..........................................         5,178
     Due to related party .......................................       174,596
     Accrued expenses ...........................................         6,559
     Notes payable - related party ..............................       462,000
                                                                    -----------

                       Total current liabilities ................       849,105

LONG TERM DEBT
      Notes - related party .....................................       691,839
      Convertible debentures ....................................        20,000

                        Total liabilities .......................     1,560,944
                                                                      ---------

STOCKHOLDERS' EQUITY
      Common stock, 100,000,000 shares authorized; $.001
      par value; 17,145,848 shares issued and outstanding .......        17,146

      Additional capital paid in excess of par ..................     5,404,010

      Deferred gain on  transaction  with parties under
      common  control,  net of $1,476,266 allowance for
      doubtful notes receivable .................................       784,232

     Cost in excess of net assets acquired from party under
      common control ............................................      (116,533)

     Retained deficit, inclusive of $1,468,444 retained deficit
      of consolidated subsidiaries disposed of during 1996 ......    (3,885,976)

     Current loss, inclusive of $73,106 current loss of
     consolidated subsidiaries disposed of during 1996 ..........    (1,497,686)
                                                                    -----------

        TOTAL STOCKHOLDERS' EQUITY ..............................       705,193
                                                                        -------

       TOTAL LIABILITIES AND STOCKHOLDERS'  EQUITY ..............   $ 2,266,137
                                                                    ===========
</TABLE>



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

<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENT OF OPERATIONS

                          Year ended December 31, 1996


<S>                                                                     <C>        
REVENUES & COST OF REVENUES
     Construction contract revenues earned ..........................   $    95,000
     Cost of construction revenues earned ...........................        84,836
                                                                        -----------
                                     Gross profit ...................        10,164

OPERATING EXPENSES
     Management fees - related party ................................       300,000
     General and administrative expenses ............................       260,154
                                                                            -------
                                     Income (loss) from operations ..      (549,990)

OTHER INCOME (EXPENSE)
      Interest income ...............................................        32,958
      Rental income .................................................         2,371
      Interest expense ..............................................      (306,259)
      Buy-out of former president's management contract .............      (350,000)
      Write-off of notes receivable from shareholders ...............      (215,500)
      Loss from investment in subsidiaries - disposed of
           during year, accounted for under equity method ...........       (73,106)
      Loss from sale of notes to affiliate at discount ............       (58,333)
      Other, net ....................................................        20,173
                                                                        -----------
                                    Total other income (expense) ....      (947,696)

                                    Income (loss) before income taxes    (1,497,686)
                                                                         ---------- 
INCOME TAXES
      Current benefit ...............................................       509,213
      Deferred charge ...............................................      (509,213)

                                    NET INCOME (LOSS) ...............   $(1,497,686)
                                                                        =========== 

                                    EARNINGS (LOSS) PER SHARE .......   $      (.08)
                                                                        =========== 
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       F-4
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
<TABLE>
<CAPTION>
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                                                   Year ended December 31, 1996

                                                Shares        Amount     Additional      Accumulated      Stkhlders'       Total
                                                                          paid-in         deficit        Transfers &
                                                                          capital                          Notes

<S>                <C>                        <C>           <C>         <C>             <C>             <C>            <C>       
Balance at January 1, 1996                    15,511,681    $15,511     $5,348,210      $(3,885,976)    $(165,500)     $1,312,245

Shares issued to officer for note                 50,000         50         49,950                        (50,000)              -

Write-off of shareholder notes                                                                             215,500        215,500

Acquisition of construction assets               150,000        150          5,850                       (116,533)      (110,533)

Transfer of art subsidiaries to
     former Chairman of Board, net of
     allowance for notes $1,000,000            1,434,167      1,435                                        470,498        471,933

Transfer of assets to entity
controlled
      by President, net of allowance
      for notes $476,266                                                                                   313,734        313,734

Net loss for the year                                                                    (1,497,686)                  (1,497,686)
                                         ---------------- ---------- -------------- ----------------- ------------- --------------

Balance at December 31, 1996                  17,145,848    $17,146     $5,404,010      $(5,383,662)      $667,699       $705,193
                                         ================ ========== ============== ================= ============= ==============
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       F-5
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
<TABLE>
<CAPTION>
                      CONSOLIDATED STATEMENT OF CASH FLOWS

                          Year ended December 31, 1996

<S>                                                                       <C>         
Cash flow from operating activities:
    Cash paid to related party for management fees ....................   $  (300,000)
    Cash paid to suppliers ............................................      (120,600)
    Cash paid to employees ............................................       (27,897)
    Cash paid to former president for buy-out of management contract ..      (200,000)
    Working capital advance from related party ........................       157,114
                                                                              -------
                                                                       
                 Cash used in operations ..............................      (491,383)
                                                                             -------- 

Cash flow from investing activities:
     Sale of notes receivable to affiliate ............................       650,000
     Acquisition of construction assets from related party ............      (112,321)
                                                                             -------- 
                Cash provided by investing activities .................       537,679
                                                                              -------

Cash flow from financing activities:
     Debt refinancing costs ...........................................       (46,600)
                                                                              ------- 
                 Cash used in financing activities ....................       (46,600)
                                                                              ------- 

Net increase (decrease) in cash .......................................          (304)

Cash beginning of year ................................................           304
                                                                                  ---

Cash end of year ......................................................   $    --
                                                                           ==========

Cash paid during the year for interest ................................   $   207,148

Cash paid during the year for income taxes ............................   $    --

Non-cash investing and financing activities:
      Purchase of construction assets, issued common stock ............   $     6,000
     Transfer of $471,933 net investment in art subsidiaries to former
      president for note ..............................................   $ 1,000,000
      Buyout of management contract and receipt of non-compete agreement
      from former president, issuance of common stock .................   $     1,435
      Buyout of management contract and receipt of non-compete agreement
      from former president, issuance of debt .........................   $   150,000
      Shares issued to stockholder in exchange for note receivable ....   $    50,000
      Receipt of notes receivable from president of company in exchange
      for property ....................................................   $   684,400
      Debt assumed by president of company in exchange for property ...   $   325,600


   The accompanying notes are an integral part of these financial statements.
                                       F-6

<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED

                          Year ended December 31, 1996


Reconciliation of net income to cash flows from operating activities:

Net income (loss) ...................................................     $(1,497,686)
Adjustments to reconcile net income
    to net cash provided by operating activities
         Depreciation and amortization ..............................          45,812
         Provision for bad debts ....................................         215,500
         Loss on sale of notes at discount ..........................          58,833
         Loss on equity in subsidiaries .............................          73,106
         Increase in other assets ...................................         (12,616)
         Increase in accounts receivable ............................         (97,788)
         Increase in accounts payable ...............................          80,301
         Increase in accrued expenses and other liabilities .........         643,155
                                                                          -----------

Cash flows used in operating activities .............................   $    (491,383)
                                                                          ===========
</TABLE>


   The accompanying notes are an integral part of these financial statements.
                                       F-7

<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                   Notes to Consolidated Financial Statements

NOTE A - BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business
--------

Sierra Rockies  Corporation  ("Company"),  formerly Gallery Rodeo  International
("GRI"),  was organized in 1988 in the state of California,  under the name, TJB
Enterprises,  Inc.  ("TJB") as a blind  pool/blank  check company formed for the
purposes of seeking a merger with a private company. TJB, in 1991, acquired 100%
of the  outstanding  stock of  three  art  galleries,  and  concurrent  with the
acquisition changed its name to GRI.

GRI, in 1993, with the intent to enter the hotel and gaming  business,  acquired
land in Cripple  Creek,  Colorado for the purpose of developing  and operating a
206 room hotel and gambling  casino.  Since 1993,  the Company has purchased and
sold other properties designated for the hotel and gaming business.

May 9, 1996,  concurrent  with the change in  management,  the Company  sold its
interest in two of the the art galleries.  In November 1996, the Company changed
its name to Sierra Rockies  Corporation.  The Company reorganized a wholly-owned
subsidiary,   Gallery  Rodeo  of  Scottsdale,  Inc.,  which  had  no  assets  or
operations,  as Sierra  Rockies  Development  Company  ("SRDC").  SRDC purchased
certain assets of a construction business,  specializing in manufactured housing
installation.

At December 31, 1996, and reflected in the financial  statements,  the Company's
primary  business  is  construction   related  to  manufactured   housing,   and
development of its hotel and gaming assets.

Principles of Consolidation
---------------------------

The  consolidated  financial  statements  include the accounts of Sierra Rockies
Corporation and its wholly-owned subsidiary, Sierra Rockies Development Company.
Prior to May 9, 1996, the Company  consolidated  the accounts of its art gallery
subsidiaries.  Upon  disposal  of the  art  gallery  subsidiaries,  the  Company
recorded its investment in the art gallery subsidiaries under the equity method.
All material intercompany transactions have been eliminated.

Revenue and Cost Recognition
----------------------------

Revenues are recognized on the  completed-contract  method.  That method is used
because the typical contract is completed in three months or less, and financial
position and results of  operations  do not vary  significantly  from those that
would result using the percentage-of-completion method. A contract is considered
complete when the work has been accepted by the customer.

Contract  costs include all direct  material and labor costs and those  indirect
costs related to contract performance,  such as indirect labor, supplies, tools,
repairs, and depreciation costs. General and administrative costs are charged to
expense as incurred.
                                       F-8
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                   Notes to Consolidated Financial Statements

Note A - Business and summary of significant accounting policies continued
--------------------------------------------------------------------------

Provisions for estimated losses on uncompleted  contracts are made in the period
in which such losses are determined.

Costs in excess of amounts  billed are  classified as current assets under costs
in excess of billings on uncompleted contracts.  Billings in excess of costs are
classified  under  current  liabilities  as  billings  in  excess  of  costs  on
uncompleted contracts. Contract retentions are included in contract receivables.

Income Taxes
------------

The Company  adopted the  Statement of Financial  Accounting  Standards  No. 109
(SFAS 109)  "Accounting  for Income Taxes" which requires an asset and liability
method of accounting for income taxes.  Under SFAS No. 109,  deferred tax assets
are  recognized  and measured  based on the  likelihood  of  realization  of the
related tax benefits in the future.

Use of Estimates
----------------

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

Cash and cash equivalents
-------------------------

The Company  considers all highly liquid  investments  with  maturities of three
months or less to be cash equivalents.


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

Property and equipment are stated at cost.  Depreciation is provided principally
on the straight-line method over the estimated useful lives of the assets, which
range from three to five years.

Impact of recently issued accounting standards
----------------------------------------------

In March 1995, the Financial  Accounting  Standards Board (FASB)  established an
accounting   standard  for  the   impairment  of  long-lived   assets,   certain
identifiable  intangibles,  and goodwill  related to those assets to be held and
used for long-lived assets and certain  identifiable  intangibles to be disposed
of. This  standard  requires  that  long-lived  assets and certain  identifiable
intangibles to be held and used by an entity be
                                       F-9
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                   Notes to Consolidated Financial Statements

Note A - Business and summary of significant accounting policies continued
--------------------------------------------------------------------------

reviewed for impairment  whenever  events or changes in  circumstances  indicate
that the carrying  amount of an asset may not be  recoverable.  This standard is
effective for financial statements beginning after December 15, 1995. Management
implemented  this  standard  during  1996.  The standard did not have a material
impact on its financial statements.

During  1995,  the FASB  established  Financial  Accounting  Standard  No.  123,
"Accounting for Stock-Based Compensation".  This Statement established financial
accounting and reporting standards for stock-based employee  compensation plans.
This  Statement  defines a fair value based method of accounting for an employee
stock option or similar  equity  instrument and encourages all entities to adopt
that method of accounting for all of their employee  stock  compensation  plans.
However,  it also allows an entity to continue to measure  compensation cost for
those plans using the intrinsic  value based method of accounting  prescribed by
APB  Opinion  No.  25,  "Accounting  for Stock  Issued to  Employees".  Entities
electing  to  remain  with the  accounting  in  Opinion  25 must  make  proforma
disclosures of net income, and if presented,  earnings per share, as if the fair
value based method of  accounting  defined in this  Statement  has been applied.
This standard is effective for financial statements beginning after December 15,
1995.  Management  implemented  this standard  during 1996. The standard did not
have a material impact on its financial statements.

NOTE B - RELATED PARTY TRANSACTIONS
-----------------------------------

During 1996, the company consummated  several  transactions with related parties
and/or affiliates. Those parties include:

InnerCircle Group, Inc. ("IGI"),  an affiliate that provides management services
to both the  Company,  SRDC,  and  Eclipse.  IGI's  shareholders,  officers  and
directors are officers and directors of the Company;

Eclipse Corporation ("Eclipse"), an affiliate whose officers and directors serve
also as officers and directors of the Company;

Colorado Escrow, Inc. ("CEI"), an affiliate owned and contolled by the President
and director of the Company;

Superior Home Construction ("Superior"), a company owned by an officer, director
and shareholder of the Company;

Clipper  Industries,  Inc.  ("Clipper"),  a company  owned and  controlled  by a
significant (approximately 25%) shareholder of the Company and former president;

and several  other  entities that are  partially  owned and/or  controlled by an
officer and shareholder of the Company.

(See note F -Notes Payable.)
                                      F-10
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                   Notes to Consolidated Financial Statements

Note B - Related party transactions continued
---------------------------------------------

Change in management control
----------------------------
May 9, 1996, the Company entered into an agreement with the former president and
significant  shareholder to terminate the president's  employment and consulting
agreements in exchange for 1,434,157  shares of the Company,  $350,000,  and the
former  president's  agreement  to not compete for a period of one year with the
Company in the gaming  business.  The Company has recorded a charge to income of
$350,000  as  consideration  to the former  president  for  cancellation  of his
employment contract.

Concurrent with the cancellation of the former president's  management contract,
the  Company  entered  into  a  management  services  agreement  with  IGI.  The
management  agreement  with IGI  provided  for the  Company to  receive  certain
management  services.  The fee for such  services  during  1996 was  $50,000 per
month,  of which  $80,000  was rebated by IGI at December  31,  1996.  The total
charge  for  management  services  paid to IGI by the  Company  during  1996 was
$300,000. Effective January 1, 1997, the fee for management services was amended
to $40,000 per month.  Certain advances for operating  expenses on behalf of the
Company and SRDC  totalling  $174,596 are due to IGI at December  31, 1996,  and
have been recorded as a current liability in the Company's balance sheet.

Sale of art business subsidiaries
---------------------------------
May 9, 1996,  the Company  sold all the  outstanding  stock of its  wholly-owned
subsidiaries,  Gallery Rodeo Beverly Hills, Inc. ("GRBH"),  and Gallery Rodeo of
Lake Arrowhead  ("GRAH") to the former  president.  Both  subsidiaries  had been
involved  in the fine art  business.  As of the date of closing,  the  Company's
investment in the subsidiaries included:
<TABLE>
<CAPTION>
<S>                                          <C>          
Initial capital investment                   $      30,000
Property & Equipment                                 3,201
Intercompany receivable due from GRBH            1,036,416
Retained deficit                               (1,468,444)
1996 Year-to-date loss from operations            (73,106)
                                                  --------
                    Total                    $   (471,933)
                                          =================
</TABLE>
Consideration for the sale, was a $1,000,000 note receivable due from the former
president.  GRBH and GRAH have not historically  generated sufficient cash flows
to service a $1,000,000 note receivable,  nor has the former president performed
on the note.  Therefore,  the Company has  recorded  an  allowance  for the full
amount  of the note  against  the gain on the  sale of the  business.  It is the
intent of management to pursue all legal  recourse in the collection of the note
receivable.

At December 31, 1996, the net gain of $471,933,  after  recording the $1,000,000
allowance  for the doubtful  note  receivable,  resulting  from this transfer of
assets between  parties under common control has been recorded as a component of
shareholders' equity.
                                      F-11
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                   Notes to Consolidated Financial Statements

Note B - Related party transactions continued
---------------------------------------------

Sale of gaming property
-----------------------
June 30, 1995 the Company  entered into an agreement,  which closed in May 1996,
to transfer its 90% ownership  interest in 13 contiguous lots located in Cripple
Creek,  Colorado to CEI.  The  property  consisted of two lots which are located
within the town's  legalized  gaming  district.  The Company had  acquired  this
property in 1994 for $370,000, and sold it to CEI for $1,160,000.

Consideration  totalling  $1,160,000  was comprised of $150,000  cash,  $325,600
assumption by buyer of a note payable  secured by the  property,  and four notes
receivable (three for $208,133 and one for $60,000)  totalling $684,400 due from
CEI. The Company remains a guarantor on the $325,000 note payable.  On August 1,
1996,  the  Company  sold one of the CEI  notes,  face value of  $208,133,  at a
discount to Eclipse for $200,000 cash. The remaining  notes  receivable due from
CEI are not  performing  and the Company has  recorded an  allowance of $476,266
against the gain on the transfer of the property.

At December 31, 1996,  the net gain of $313,734,  after  recording  the $476,266
allowance for the doubtful  notes  receivable,  resulting  from this transfer of
assets between  parties under common control has been recorded as a component of
shareholders'  equity.  The $8,333 loss on discount of note  receivable has been
charged to income.

Acquisition of construction assets
----------------------------------
August 1, 1996,  the Company's  wholly-owned  subsidiary,  SRDC,  entered into a
management  agreement with Superior,  a construction company specializing in the
installation  of  manufactured  homes,  to operate the  construction  company in
consideration of a fee equal to two percent of the construction  company's gross
sales  during the  contract  period.  The  contract  also granted the Company an
option to purchase certain assets of the construction company, which the Company
exercised in September 1996, and closed on November 1, 1996.

The sales price  included,  forgiveness  of accrued  management  fees  totalling
$4,211, 150,000 shares of the Company's common stock, and $112,321 of costs that
SRDC had paid on behalf of  Superior  during the  period  that the  Company  was
providing  management services to and operating Superior.  The net book value of
the assets acquired were valued at $6,000 which included, vehicles, construction
equipment,  tools and a three-year construction contract with Eclipse, a company
engaged in the  manufactured  home sales  business.  The excess of the  purchase
price  over the net book  value  of  assets  acquired,  has been  recorded  as a
reduction of shareholders' equity at December 31, 1996.

Accounts receivable and revenue
Total sales to Eclipse, as a result of the acquired  construction  contract from
Superior,  totalled $91,178, of which 100% is recorded in accounts receivable at
December 31,

                                      F-12
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                   Notes to Consolidated Financial Statements

Note B - Related party transactions continued
---------------------------------------------

1996.  Subsequent to December 31, 1996, the Company has received full payment of
the accounts receivable.

During 1996,  completed  construction  contracts with employees totalled $3,563,
all of which was collected by December 31, 1996.

Costs in excess of billings-uncompleted  contracts totalling $3,026 were related
to  construction  work on behalf  of an  officer  and  director.  Subsequent  to
December 31, 1996,  the amounts  were billed and  collected.  Overhead and other
indirect  costs  totalling  $2,962,  not allocated to this  contract,  have been
charged to income in 1996.

Certain expenses related to Superior, were paid on behalf of Superior subsequent
to November 1, 1996.  These expenses  totalling $3,584 were recorded in accounts
receivable at December 31, 1996 and have been subsequently collected in 1997.

Other transactions with shareholders
------------------------------------
In January 1993, the Company issued  1,150,000  shares of its restricted  Common
Stock to a then officer of the Company, in consideration of a promissory note in
the principal amount of $143,750.  This note has not performed,  and the Company
is seeking return of the shares or payment of the note. Accordingly, at December
31,  1996,  the Company has written off the note and recorded a charge to income
in the amount of $143,750.

 In  November  1994,  the  Company  accepted a  promissory  note for  $50,000 in
exchange for issuance of 50,000 shares of its  restricted  Common Stock pursuant
to the terms of a  consulting  agreement  the Company  had  entered  into with a
shareholder.  This note has not performed,  and the Company is seeking return of
the  shares or payment of the note.  Accordingly,  at  December  31,  1996,  the
Company has  written off the note and  recorded a charge to income in the amount
of $50,000.

During 1995, the Company's Board of Directors approved transactions in which two
shareholders had notes payable to the Company  totalling  $21,750,  payable over
five years at an  interest  rate of 2%. The Company  has  determined  that these
notes are not collectible and have recorded a charge to income in 1996 totalling
$21,750 for the write-off of the notes.

Other transactions with affiliates
----------------------------------
On May 5, 1994, the Company acquired real property known as the Elk Creek Gaming
Hall in the gaming  district of Cripple  Creek,  Colorado  for a total  purchase
price of $1,285,000. In June 1995, the Company entered into an agreement for the
sale of the property for $1,515,000,  to a  non-affiliate,  of which part of the
consideration  was a  promissory  note  payable  to the  Company  for  $500,000.
Subsequently,  on July1,  1996,  the Company  sold the  promissory  note and its
accompanying  deed of trust to Eclipse  at a discount  for  $450,000  cash.  The
$50,000 loss on discount of note receivable has been charged to income in 1996.

                                      F-13
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                   Notes to Consolidated Financial Statements

NOTE C - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment as of December 31, 1996 consist of the following:

<S>                                           <C>   
Construction equipment and tools              $3,000
Vehicles                                       3,000
                                               6,000
Less accumulated depreciation                    267
                                              $5,733
                                      =========================
</TABLE>
Depreciation expense for the year ended December 31, 1996, was $267.


NOTE D - LAND HELD FOR DEVELOPMENT
----------------------------------

In May 1993,  the  Company  acquired a total of ten  contiguous  lots in Cripple
Creek,  Colorado for a total purchase price of $2,150,000 on which it intends to
develop and  operate a 206 room hotel and  gambling  casino,  referred to as the
Wandering  Star Hotel  Casino.  Seven of the lots were  acquired  for  1,750,000
restricted  shares of the Company's  common stock valued at an average per share
price of $.82 and  options  to acquire an  additional  500,000  shares at $2 per
share which  expired in May 1995,  plus  approximately  $150,000 in cash and the
Company's assumption of $162,000 in debt. The remaining three lots were acquired
for a purchase  price of $400,000  which was paid using a combination  of seller
and private  financing (see Note F - Notes Payable).  The property is classified
as land held for future development at December 31, 1996.

                                      F-14

<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                   Notes to Consolidated Financial Statements

NOTE E - NOTES RECEIVABLE
-------------------------
<TABLE>
<S>                                                                                     <C>
Notes receivable at December 31, 1996 consisted of the following:

Note receivable from director,  shareholder and former president, interest at 8%
due  in  quarterly   installments   of  $20,000,   balance  due  April  26,2001,
collateralized  by 4,000,000 shares of the Company's Common Stock held in voting
trust.                                                                                   $ 1,000,000

Note receivable from an affiliate controlled by president, interest at 7.50% due in
monthly installments of $1,301, balance due November 27, 1997, collateralized by             208,133
real estate.

Note receivable from an affiliate controlled by president, interest at 7.50% due in          208,133
monthly installments of $1,301, balance due November 27, 1997, collateralized by
real estate.

Note receivable from an affiliate controlled by president, non-interest bearing,
monthly principal payments of $5,000 each, due by May 9,1997, collateralized by               60,000
                                                                                              ------
real estate.
                                                                                         $ 1,476,266
Less:  Allowance for doubtful notes                                                      $(1,476,266)
                                                                                         ----------- 
Balance at December 31, 1996                                                             $       -0-
                                                                                      ==============
</TABLE>

(See Note B - Related Party Transactions)
                                      F-15
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                   Notes to Consolidated Financial Statements

NOTE F - NOTES PAYABLE
----------------------
<TABLE>
<S>                                                                                  <C> 
Current notes payable consists of the following at December 31, 1996:

Note payable to  stockholder,  bearing  interest at 16%,  interest  only payable
monthly with final principal and interest due January 1997. Note  collateralized
by a first  deed of trust on the Wandering Star property.  Refinanced in
1997, see below ...................................................................   $162,000

Note payable to stockholder, bearing interest at 15%, interest only payable monthly
with final principal and interest due December 1996. Note collateralized by a 
second deed of trust on the Wandering Star property.  Refinanced  in 1997, see
below ............................................................................     100,000

Note payable to  stockholder,  bearing  interest at 15%,  interest  only payable
monthly with final principal and interest due December 1996. Note collateralized
by a 200,000 second deed of trust on the Wandering Star property.  Refinanced in
1997, see below ...................................................................

                                                                                      $462,000
                                                                                      ========

Long term debt consists of the following at December 31, 1996:

Note payable to  stockholder,  bearing  interest at 12%,  interest  only payable
monthly with final principal and interest due February 1998. Note collateralized
by a  first deed of trust on the Wandering Star property.  Refinanced in
1997, see below ...................................................................   $200,000

Note payable to stockholder, bearing interest at 15%, interest only payable monthly
with final principal and interest  due February 1998.  Note collateralized by a ...    150,000
first deed of trust on the Wandering Star property ................................

Note payable to director, stockholder and former president, bearing interest at
12%, interest only payable monthly with final principal and interest  due January .    341,839
1998.  Note collateralized by a subordinated deed of trust on the Wandering Star
property ..........................................................................

10% debenture due November 1999, convertible to the Company's common stock at an ..     20,000
                                                                                      --------
exercise price of $1.50 per share .................................................
                                                                                      $711,839
                                                                                      ========
</TABLE>


In order to meet its  obligation  at maturity  with  respect to the  outstanding
principal  and  interest on their notes  payable,  the  Company  entered  into a
long-term  promissory  note,  face value of $690,960  with an  unrelated  party,
bearing  interest at 15.5%,  with  interest  payments of  $8,924.90,  commencing
February 14, 1997, due monthly, and principal
                                      F-16
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------
                   Notes to Consolidated Financial Statements

Note F - Notes payable continued
--------------------------------

and any unpaid  interest due February  14, 1998.  This note  replaces all of the
current notes payable at December 31, 1996 totalling  $$462,000 and the $200,000
note due February  1998. The note is  collateralized  by second deed of trust on
the Wandering Star property.

NOTE G - INCOME TAXES
---------------------
<TABLE>
<CAPTION>
A reconciliation of the U.S.  statutory federal income tax rate to the effective
tax rate follows for the year ended December 31, 1996:

<S>                                                          <C>  
U.S. federal statutory rate                                  34.0%
State income taxes                                           10.0%
Net operating loss for which no tax benefit is
currently available                                         (44.0%)
                                                              - %
                                                       ===========
</TABLE>
As of  December  31,  1996,  the  Company  has  total  deferred  tax  assets  of
$2,877,213. The Company has recorded a valuation allowance for the entire amount
of the deferred tax asset.  Substantially all of the deferred tax asset consists
of net  operating  loss  carryforwards  which begin to expire  through  2009 for
federal  purposes and 2000 for state  purposes.  The net change in the valuation
allowance was an increase of $405,213.


NOTE H - COMMITMENTS AND CONTINGENCIES
--------------------------------------

The  Company  is  involved  in  various  litigation  which has arisen out of the
ordinary  course of business.  Management  believes that the  disposition of all
litigation  will  not  have a  material  effect  on the  Company's  consolidated
financial position and results of operations.

Unasserted claims
-----------------
As a  result  of the  change  in  management,  amounts  due to  certain  vendors
contracted  by the former  management  are  disputed by the current  management.
Management  believes  that  the  disposition  of  these  claims  will not have a
material effect on the Company's financial statements as presented herein.
                                      F-17
<PAGE>
                   Sierra Rockies Corporation and Subsidiaries
                   -------------------------------------------

NOTE I - FOURTH QUARTER ADJUSTMENTS
-----------------------------------
<TABLE>
<S>                                                                                <C>       
Recorded allowance for related party notes receivable ..........................   $1,476,667

Reclassifed deferred gain on transaction between parties under common control to
shareholders' equity
                                                                                   $  690,500

Note I - Fourth quarter adjustments continued ..................................

Reclassified recognized gain of transaction between parties under common control
from statement of operations to shareholders' equity
                                                                                   $   99,500

Reclassified  gain on disposition of  subsidiaries  between parties under common
control from statement of operations to shareholders' equity
                                                                                   $1,031,182

Reclassified  investment in art  subsidiaries  from  discontinued  operations to
disposal of  previously  consolidated  subsidiaries  accounted  for under equity
method .........................................................................
                                                                                  $  267,520
</TABLE>

NOTE J - GOING CONCERN
----------------------

As shown in the  accompanying  financial  statements,  the Company has  incurred
recurring  losses from  operations  and has a deficit in working  capital.  As a
result,  the Company has  experienced  severe  liquidity  problems  and has been
forced to  restructure  a portion of its  long-term  debt.  These  factors raise
substantial doubt about its ability to continue as a going concern.

Management  is working  with its  primary  lenders to monitor  the status of its
indebtedness  and further  restructuring  of its long-term debt is expected.  In
addition,  management has commenced operations in the hospitality segment and is
currently  evaluating  plans to reduce  staffing and other costs.  Management is
also  planning to commence  collection  efforts on certain  related  party notes
receivable.

There can be no assurance that  management  will be successful in its efforts to
restructure  debt, reduce costs,  operate  profitably or collect amounts due. If
the Company is  unsuccessful  in its  efforts,  it may be necessary to undertake
such other actions as may be appropriate to preserve asset value.  The financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


NOTE K - SUBSEQUENT EVENTS
--------------------------

On November 25, 1996, the Company formed a new  subsidiary,  Sierra  Hospitality
Corporation  ("SHS"),  a Colorado  corporation,  in order to  provide  hotel and
hospitality management services. SHS entered into its first management contracts
in June 1997.  No  significant  transactions  related to SHS are recorded in the
December 31, 1996 financial statements.
    
                                      F-18