SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               FORM 10-KSB AMENDED

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 [FEE REQUIRED]

      OR

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
     EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the fiscal year ended 12/31/96           Commission File No.  0-9416


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                 (name of small business issuer in its charter)


              Delaware                                   13-2878202
    (State or other jurisdiction of                   (I.R.S. Employer
    Incorporation or organization)                   Identification No.)


                   76 Beaver Street, New York, New York 10005
                    (Address of principal executive offices)


Issuers telephone number:  212-344-2828

Securities Registered under Section 12(b) of the Exchange Act: None

Securities Registered under Section 12(g) of the Exchange Act: Common

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act  during  the past 12 months  (or 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 [X] No [_]

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

State issuer's revenues for its most recent fiscal year. $2,351.00

State the  aggregate  market value of the voting  stock held by non-  affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock as of a  specified  date  within the past 60
days

                                  $10,997,878

State the  number  of shares  outstanding  of each of  issuers'  class of common
equity, as of the latest practical date.

                         91,583,020 as of March 29, 1997

             DOCUMENTS INCORPORATED BY REFERENCE IN PART III - SIX

Prospectus,  dated December 16, 1996, contained in the Registration Statement of
the Company on Form SB-2  declared  effective  by the  Securities  and  Exchange
Commission on December 18, 1996.  Transitional Small Business  Disclosure Format
(check one) Yes [ ] No [X]

<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)



                          INDEX TO FINANCIAL STATEMENTS
                                    (Item 7)


                                                                        PAGE
                                                                        ----

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                 F-2

BALANCE SHEETS
  DECEMBER 31, 1996 AND 1995                                             F-3

STATEMENTS OF OPERATIONS
  YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
  PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO
  DECEMBER 31, 1996                                                      F-4

STATEMENTS OF STOCKHOLDERS' EQUITY
  YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
  PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO
  DECEMBER 31, 1996                                                    F-5/11

STATEMENTS OF CASH FLOWS
  YEARS ENDED DECEMBER 31, 1996 AND 1995 AND
  PERIOD FROM DECEMBER 1, 1976 (INCEPTION) TO
  DECEMBER 31, 1996                                                   F-12/13

NOTES TO FINANCIAL STATEMENTS                                         F-14/34




                                      * * *

                                       F-1


<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders
Franklin Consolidated Mining, Co., Inc.

We have audited the accompanying balance sheets of FRANKLIN  CONSOLIDATED MINING
CO., INC. (A Development Stage Enterprise) as of December 31, 1996 and 1995, and
the related  statements of operations,  stockholders'  equity and cash flows for
the years then ended and for the period  from  December 1, 1976  (inception)  to
December 31, 1996.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Franklin  Consolidated  Mining
Co., Inc. as of December 31, 1996 and 1995,  and its results of  operations  and
cash flows for the years then ended and for the  period  from  December  1, 1976
(inception)  to  December  31,  1996,  in  conformity  with  generally  accepted
accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company will continue as a going concern.  As further discussed in Note 1 to the
financial  statements,  the  Company is a  development  stage  enterprise  whose
operations  have  generated  recurring  losses and cash flow  deficiencies  from
inception  and, as of December  31,  1996,  has a  substantial  working  capital
deficiency. As a result, it was in default with respect to payments on a secured
promissory note and on convertible debentures and substantially dependent on its
joint venture partner for financing.  Such matters raise substantial doubt about
the  Company's  ability  to  continue  as a going  concern.  Management's  plans
concerning these matters are also described in Note 1. The financial  statements
do not  include  any  adjustments  that might  result  from the outcome of these
uncertainties.

As  explained  in  Note  5,  the  accompanying   financial   statements  reflect
restatements of amounts reflected in the financial  statements  originally filed
by the Company with the  Securities  and  Exchange  Commission  attributable  to
changes in the prices  used by the  Company to value  shares of common  stock it
issued to settle obligations and pay for services.



                                                    J.H. COHN LLP
Roseland, New Jersey
April 3, 1997, except for
  Note 11 as to which the
  date is April 30, 1997

                                       F-2


<PAGE>



                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995


                      ASSETS                           1996            1995    
                                                   ------------    ------------
Current assets:
  Cash                                             $        127    $    118,176
    Prepaid expenses                                    107,979
    Advances to joint venture partner                   266,438
                                                   ------------    ------------
           Total current assets                         374,544         118,176

Mining, milling and other property and
    equipment, net of accumulated depreciation
    and depletion of $1,837,180
    and $1,715,194                                    6,311,128       3,848,114
Investment in equity investee                           150,000
Mining reclamation bonds                                126,875          45,000
                                                   ------------    ------------

           Totals                                  $  6,962,547    $  4,011,290
                                                   ============    ============


     LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    12.25% convertible debentures                  $    145,000    $    145,000
    9.5% convertible note payable to joint
      venture partner                                   600,000
    Other notes payable                                  80,000
    Accounts payable and accrued expenses               553,883         298,016
    Advances from joint venture partner                                 313,688
                                                   ------------    ------------
           Total current liabilities                  1,378,883         756,704

8% mortgage note payable to joint venture
    partner                                             586,419
15% convertible notes                                                   200,000
Excess of equity in net losses of joint 
    venture over investment                             133,220         120,270
                                                   ------------    ------------
          Total liabilities                           2,098,522       1,076,974
                                                   ------------    ------------

Commitments and contingencies

Stockholders' equity:
    Common stock, par value $.01 per share;
        100,000,000 shares authorized;
        90,583,020 and 69,135,920 shares issued
        and outstanding                                 905,830         691,359
    Additional paid-in capital                       16,218,444      13,189,102
    Deficit accumulated in the development
        stage                                       (12,260,249)    (10,946,145)
                                                   ------------    ------------
           Total stockholders' equity                 4,864,025       2,934,316
                                                   ------------    ------------

           Totals                                  $  6,962,547    $  4,011,290
                                                   ============    ============


See Notes to Financial Statements.

                                       F-3


<PAGE>



                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                            STATEMENTS OF OPERATIONS
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
                  AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
                              TO DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                        Cumulative
                                                                           from
                                           1996            1995          Inception  
                                       ------------    ------------    ------------
<S>                                    <C>             <C>             <C>          
Revenues:
    Sales                                                              $    876,082
    Interest income                    $      2,351    $      1,060         540,887
    Other income                                                             75,000
                                       ------------    ------------    ------------
           Totals                             2,351           1,060       1,491,969
                                       ------------    ------------    ------------

Expenses:
    Mine expenses                                                         3,360,793
    Write-down of inventories                                               223,049
    Depreciation and depletion              121,986         122,143       2,032,529
    General and administrative
        expenses                            939,701         227,287       5,237,432
    Interest expense                        241,818         342,034         985,018
    Amortization of debt issuance
        expense                                                             683,047
    Equity in net loss of joint
        venture                              12,950          15,540         133,220
    Loss on settlement of claims
        by joint venture partner                            936,000         936,000
    Loss on settlement of litigation                                        100,000
    Loss on investment in oil and
        gas wells                                                            61,130
                                       ------------    ------------    ------------
           Totals                         1,316,455       1,643,004      13,752,218
                                       ------------    ------------    ------------

Net loss                               $ (1,314,104)   $ (1,641,944)   $(12,260,249)
                                       ============    ============    ============


Weighted average shares outstanding      74,284,324      49,035,351
                                       ============    ============


Net loss per common share              $       (.02)   $       (.03)
                                       ============    ============
</TABLE>




See Notes to Financial Statements.

                                       F-4


<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
                  AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
                              TO DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                                                        Additional        in the
                                                      Common             Paid-in        Development     Treasury
                                   Shares              Stock             Capital           Stage          Stock           Total   
                                 -----------        -----------        -----------       -----------    ---------      -----------
<S>                                  <C>            <C>                <C>               <C>            <C>            <C>        
Issuance of common
    stock:
    Cash                             155,000        $     1,550        $    41,550                                     $    43,100
    Noncash:
    Related parties                  925,000              9,250                                                              9,250
        In exchange
          for shares
          of Gold
          Developers
          and Producers,
          Inc.                     1,095,000             10,950              6,484                                          17,434

Net loss                                                                                 $   (45,584)                      (45,584)
                                 -----------        -----------        -----------       -----------                   -----------

Balance, December
    31, 1977                       2,175,000             21,750             48,034           (45,584)                       24,200

Issuance of com-
    mon stock:
    Pursuant to
        public offering,
        net of
        underwriting
        expenses of
        $11,026                      588,200              5,882            278,113                                         283,995
    Cash                             225,000              2,250            240,627                                         242,877
    Noncash                            5,000                 50              4,950                                           5,000

Net loss                                                                                     (66,495)                      (66,495)
                                 -----------        -----------        -----------       -----------                   -----------

Balance, December
    31, 1978                       2,993,200             29,932            571,724          (112,079)                      489,577

Issuance of common
    stock:
    Cash                             231,850              2,318            438,932                                         441,250
    Noncash - related parties         40,000                400             59,600                                          60,000
    Noncash - other                    6,675                 67             13,283                                          13,350
                                                                                                                          
Net loss                                                                                    (128,242)                     (128,242)
                                 -----------        -----------        -----------       -----------                   -----------

Balance,
    December 31, 1979              3,271,725             32,717          1,083,539          (240,321)                      875,935

Issuance of common stock:
    Cash                             289,750              2,898            837,102                                         840,000
    Noncash                           59,500                595            118,405                                         119,000

Net loss                                                                                    (219,021)                     (219,021)
                                 -----------        -----------        -----------       -----------                   -----------

Balance,
    December 31, 1980              3,620,975             36,210          2,039,046          (459,342)                    1,615,914
</TABLE>


                                       F-5


<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
                  AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
                              TO DECEMBER 31, 1996


<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                                                        Additional        in the
                                                        Common           Paid-in        Development    Treasury
                                       Shares            Stock           Capital           Stage         Stock             Total   
                                     -----------      -----------      -----------      -----------    ---------        -----------
<S>                                  <C>              <C>              <C>              <C>             <C>             <C>        
Issuance of com-
    stock:
    Cash                                  65,625      $       656      $   261,844                                      $   262,500
                                     -----------      -----------      -----------      -----------                     -----------

Balance, pre-
    stock split                        3,686,600           36,866        2,300,890      $  (459,342)                      1,878,414

Issuance of common
    stock:
    Pursuant to a
        four-for-one
        stock split                   11,059,800          110,598         (110,598)
    Cash                                 578,000            5,780          552,220                                          558,000
    Noncash                              104,000            1,040          102,960                                          104,000

Commission on sale
    of common stock                                                        (57,300)                                         (57,300)

Net loss                                                                                   (288,105)                       (288,105)
                                     -----------      -----------      -----------      -----------                     -----------

Balance, December
    31, 1981                          15,428,400          154,284        2,788,172         (747,447)                      2,195,009

Issuance of common
    stock:
    Cash                                 861,006            8,610          755,516                                          764,126
    Noncash                              162,000            1,620          160,380                                          162,000

Commission on
    sale of common
    stock                                                                  (56,075)                                         (56,075)

Net loss                                                                                   (287,291)                       (287,291)
                                     -----------      -----------      -----------      -----------                     -----------

Balance, December
    31, 1982                          16,451,406          164,514        3,647,993       (1,034,738)                      2,777,769

Issuance of com-
    mon stock:
    Cash                               1,273,134           12,732        1,176,818                                        1,189,550
    Noncash                               70,834              708           70,126                                           70,834
    Exercise of
        stock op-
        tions by:
        Related par-
           ties                          267,500            2,675          264,825                                          267,500
        Others                             4,000               40            3,960                                            4,000

Commission on sale
    of common stock                                                       (124,830)                                        (124,830)

Net loss                                                                                   (749,166)                       (749,166)
                                     -----------      -----------      -----------      -----------                     -----------

Balance, December
    31, 1983                          18,066,874          180,669        5,038,892       (1,783,904)                      3,435,657
</TABLE>

                                       F-6


<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
                  AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
                              TO DECEMBER 31, 1996



<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                                                        Additional        in the
                                                        Common           Paid-in        Development    Treasury
                                       Shares            Stock           Capital           Stage         Stock             Total   
                                     -----------      -----------      -----------      -----------    ---------        -----------
<S>                                  <C>              <C>              <C>              <C>             <C>             <C>        
Issuance of common
    stock:
    Cash                               1,201,700     $     12,017     $  1,139,683                                     $  1,151,700
    Noncash                               27,500              275           27,225                                           27,500
    Exercise of                                                                      
        stock options                                                                
        by related                                                                   
        parties                          200,000            2,000          198,000                                          200,000
                                                                                     
Commission on sale                                                                   
    of common stock                                                        (90,950)                                         (90,950)
                                                                                     
Net loss                                                                               $   (301,894)                       (301,894)
                                    ------------     ------------     ------------     ------------                    ------------
                                                                                     
Balance, December                                                                    
    31, 1984                          19,496,074          194,961        6,312,850       (2,085,798)                      4,422,013
                                                                                     
Issuance of com-                                                                     
    mon stock:                                                                       
    Cash                                 421,308            4,213          295,866                                          300,079
    Noncash                               10,000              100            7,400                                            7,500
    Exercise of                                                                          
        stock op-                                                                    
        tions by:                                                                    
        Related par-                                                                 
           ties                          200,000            2,000          148,000                                          150,000
        Others                             1,000               10              740                                              750
                                                                                          
Commission on sale                                                                   
    of common stock                                                         (3,462)                                          (3,462)
                                                                                     
Net loss                                                                                   (133,929)                       (133,929)
                                    ------------     ------------     ------------     ------------                    ------------
                                                                                     
Balance, December                                                                    
    31, 1985                          20,128,382          201,284        6,761,394       (2,219,727)                      4,742,951
                                                                                     
Issuance of common                                                                   
    stock:                                                                           
    Cash                                 569,000            5,690          294,810                                          300,500
    Noncash - re-                                                                    
        lated parties                    160,000            1,600           78,400                                           80,000
    Noncash - others                     135,000            1,350           52,650                                           54,000
                                                                                        
Net loss                                                                                   (227,788)                       (227,788)
                                    ------------     ------------     ------------     ------------                    ------------
                                                                                     
Balance, December                                                                    
    31, 1986                          20,992,382          209,924        7,187,254       (2,447,515)                      4,949,663
</TABLE>


                                       F-7


<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
                  AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
                              TO DECEMBER 31, 1996


<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                                                        Additional        in the
                                                        Common           Paid-in        Development    Treasury
                                       Shares            Stock           Capital           Stage         Stock             Total   
                                     -----------      -----------      -----------      -----------    ---------        -----------
<S>                                   <C>            <C>              <C>              <C>              <C>            <C>        
Issuance of common
    stock:
    Cash                               2,604,368     $     26,044     $  1,261,257                                     $  1,287,301
    Noncash - re-                                                                   
        lated parties                    202,000            2,020           68,880                                           70,900
    Noncash - other                       37,500              375           36,875                                           37,250
                                                                                           
Commission on sale                                                                  
    of common stock                                                       (110,243)                                        (110,243)
                                                                                    
Net loss                                                                               $   (730,116)                       (730,116)
                                    ------------     ------------     ------------     ------------                    ------------
                                                                                    
Balance, December                                                                   
    31, 1987                          23,836,250          238,363        8,444,023       (3,177,631)                      5,504,755
                                                                                    
Issuance of common                                                                  
    stock - noncash                                                                 
    - related par-                                                                  
    ties                                 200,000            2,000           48,000                                           50,000
                                                                                    
Net loss                                                                                   (386,704)                       (386,704)
                                                                                    
Purchase of                                                                         
    50,000 shares of                                                                
    treasury stock -                                                                
    at cost                                                                                             $    (12,500)       (12,500)
                                    ------------     ------------     ------------     ------------     ------------   ------------
                                                                                    
Balance, December                                                                   
    31, 1988                          24,036,250          240,363        8,492,023       (3,564,335)         (12,500)     5,155,551
                                                                                    
Issuance of common                                                                  
    stock:                                                                          
    Cash                                 678,000            6,780          103,720                                          110,500
    Noncash - others                     283,666            2,836           31,030                                           33,866
    Noncash - re-                                                                                                       
        lated parties                    210,000            2,100           29,400                                           31,500
    Private place-                                                                                                      
        ment:                                                                                                           
        Cash                           2,275,000           22,750                                                            22,750
        Debt issuance                                                                                                   
           expense                                                         455,000                                          455,000
    Conversion of                                                                                                       
        debentures                     1,050,000           10,500           94,500                                          105,000
    Exercise of                                                                                                         
        stock options                    300,000            3,000           42,000                                           45,000
                                                                                        
Commission on sale                                                                  
    of common stock                                                         (1,500)                                          (1,500)
</TABLE>


                                       F-8


<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
                  AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
                              TO DECEMBER 31, 1996


<TABLE>
<CAPTION>
                                                                                         Deficit
                                                                                        Accumulated
                                                                        Additional        in the
                                                        Common           Paid-in        Development      Treasury
                                       Shares            Stock           Capital           Stage           Stock          Total   
                                    ------------     ------------     ------------     ------------     ------------   ------------
<S>                                   <C>            <C>              <C>              <C>              <C>            <C>        
Compensation re-                                                                     
    sulting from                                                                     
    stock options                                                                    
    granted                                                           $     39,000                                     $     39,000
                                                                                     
Net loss                                                                               $ (1,279,804)                     (1,279,804)
                                    ------------     ------------     ------------     ------------     ------------   ------------
                                                                                     
Balance, December                                                                    
    31, 1989                          28,832,916          288,329        9,285,173       (4,844,139)    $    (12,500)     4,716,863
                                                                                     
Sale of Under-                                                                       
    writer's stock                                                                   
    warrants                                                                   100                                              100
                                                                                     
Issuance of common                                                                   
    stock:                                                                           
    Cash                                 335,000            3,350           41,875                                           45,225
    Noncash - others                      39,855              399            5,579                                            5,978
    Conversion of                                                                    
        debentures                       160,000            1,600           30,400                                           32,000
                                                                                     
Net loss                                                                                 (1,171,962)                     (1,171,962)
                                    ------------     ------------     ------------     ------------     ------------   ------------
                                                                                     
Balance, December                                                                    
    31, 1990                          29,367,771          293,678        9,363,127       (6,016,101)         (12,500)     3,628,204
                                                                                     
Issuance of common                                                                   
    stock:                                                                           
    Cash - others                      1,799,576           17,996           78,935                                           96,931
    Cash - related                                                                                                      
        parties                        1,800,000           18,000           72,000                                           90,000
    Noncash -                                                                                                           
        others                         1,183,724           11,837           47,350                                           59,187
    Conversion of                                                                                                       
        debentures                     3,731,000           37,310          588,690                                          626,000
    Exercise of                                                                                                         
        stock options                    250,000            2,500           10,000                                           12,500
    Conversion of                                                                                                       
        notes payable                    250,000            2,500           12,500                                           15,000
                                                                                        
Net loss                                                                                   (764,926)                       (764,926)
                                    ------------     ------------     ------------     ------------     ------------   ------------
                                                                                     
Balance, December                                                                    
    31, 1991                          38,382,071          383,821       10,172,602       (6,781,027)         (12,500)     3,762,896
                                                                                     
Issuance of common                                                                   
    stock:                                                                           
    Cash - others                      2,021,923           20,219          149,389                                          169,608
    Cash - related                                                                                                     
        parties                          630,000            6,300           42,700                                           49,000
    Noncash -                                                                                                          
        others                         1,729,609           17,296          348,762                                          366,058
    Noncash - re-                                                                                                      
        lated parties                     12,120              121              485                                              606
</TABLE>

                                       F-9


<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
                  AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
                              TO DECEMBER 31, 1996



<TABLE>
<CAPTION>
                                                                                        Deficit
                                                                                      Accumulated
                                                                      Additional        in the
                                                        Common         Paid-in        Development        Treasury
                                      Shares            Stock          Capital           Stage             Stock           Total
                                   ------------     ------------     ------------     ------------     ------------    ------------
<S>                                  <C>            <C>              <C>              <C>              <C>             <C>        
    Noncash - exer-
        cise of op-
        tions by re-
        lated parties                 2,050,000     $     20,500     $     82,000                                      $    102,500
    Conversion of                                                                                                    
        debentures                      540,000            5,400          156,600                                           162,000
    Commission on                                                                   
        sale of com-
        mon stock -
        related par-
        ties                                                               (7,123)                                           (7,123)

Net loss                                                                              $ (1,343,959)                      (1,343,959)
                                   ------------     ------------     ------------     ------------     ------------    ------------

Balance, December
    31, 1992                         45,365,723          453,657       10,945,415       (8,124,986)    $    (12,500)      3,261,586

Issuance of common
    stock:
    Cash - others                       873,400            8,734          125,230                                           133,964
    Cash - related                                                                                                      
        parties                         777,000            7,770           69,930                                            77,700
    Noncash - others                    150,000            1,500           13,500                                            15,000
    Noncash - set-                                                                                                      
        tlement of                                                                                                      
        litigation                    1,000,000           10,000           90,000                                           100,000
    Noncash - exer-                                                                                                     
        cise of op-                                                                                                     
        tions by re-                                                                                                    
        lated parties                   200,000            2,000            8,000                                            10,000
    Conversion of                                                                                                       
        debentures                      140,000            1,400           33,600                                            35,000
    Conversion of                                                                                                       
        loan                            100,000            1,000            9,000                                            10,000
                                                                                       
Net loss                                                                                  (797,619)                        (797,619)
                                   ------------     ------------     ------------     ------------     ------------    ------------

Balance, December
    31, 1993                         48,606,123          486,061       11,294,675       (8,922,605)         (12,500)      2,845,631

Retirement of
    treasury stock                      (50,000)            (500)         (12,000)                           12,500

Net loss                                                                                  (381,596)                        (381,596)
                                   ------------     ------------     ------------     ------------     ------------    ------------

Balance, December
    31, 1994                         48,556,123          485,561       11,282,675       (9,304,201)            --         2,464,035
</TABLE>


                                      F-10


<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                       STATEMENTS OF STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
                  AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
                              TO DECEMBER 31, 1996



<TABLE>
<CAPTION>
                                                                                                Deficit
                                                                                              Accumulated
                                                                               Additional        in the
                                                               Common           Paid-in        Development   Treasury
                                               Shares          Stock            Capital           Stage        Stock       Total   
                                            -----------      -----------      -----------      -----------   ---------  -----------
<S>                                           <C>           <C>             <C>             <C>             <C>        <C>        
Issuance of common
    stock:
    Settlement of
        claims by
        joint venture
        partner                                6,000,000    $     60,000    $    876,000                               $    936,000
    Repayments of
        loan from
        joint venture
        partner                                3,200,000          32,000         467,200                                    499,200
    Repayments of
        long-term
        loans from
        related par-
        ties and
        accrued in-
        terest                                 8,679,797          86,798         590,227                                    677,025
    Exchange of
        shares for
        profit parti-
        cipation in-
        terests                                2,700,000          27,000         (27,000)
Net loss                                                                                    $ (1,641,944)                (1,641,944)
                                            ------------    ------------    ------------    ------------               ------------

Balance, Decem-
    ber 31, 1995                              69,135,920         691,359      13,189,102     (10,946,145)                 2,934,316

Issuance of common stock for:
    Cash                                       1,753,411          17,534         280,066                                    297,600
    Services and                                                                                                      
      interest                                 3,716,000          37,160         525,277                                    562,437
Conversion of con-                                                                                                    
    vertible notes                             4,294,770          42,948         515,372                                    558,320
Repayments of loan                                                                                                    
    from joint ven-                                                                                                   
    ture partner                               2,316,000          23,160         338,715                                    361,875
Repayments of long-                                                                                                   
    term loans from                                                                                                   
    related party                              9,366,919          93,669       1,369,912                                  1,463,581
Net loss                                                                                      (1,314,104)                (1,314,104)
                                            ------------    ------------    ------------    ------------    ---------  ------------

Balance, Decem-
    ber 31, 1996                              90,583,020    $    905,830    $ 16,218,444    $(12,260,249)   $    --    $  4,864,025
                                            ============    ============    ============    ============    =========  ============
</TABLE>


See Notes to Financial Statements.

                                      F-11

<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                            STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
                  AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
                              TO DECEMBER 31, 1996


<TABLE>
<CAPTION>
                                                                                                                         Cumulative
                                                                                                                           from
                                                                            1996                   1995                  Inception  
                                                                       ------------            ------------            ------------
<S>                                                                    <C>                     <C>                     <C>          
Operating activities:
    Net loss                                                           $ (1,314,104)           $ (1,641,944)           $(12,260,249)
    Adjustments to reconcile net
        loss to net cash used in
        operating activities:
        Depreciation and depletion                                          121,986                 122,143               2,032,529
        Amortization of debt
           issuance expense                                                                                                 683,047
        Value of common stock
           issued for:
           Services and interest                                            702,017                 249,600               1,921,894
           Settlement of litigation                                                                                         100,000
           Settlement of claims by
               joint venture partner                                                                936,000                 936,000
        Compensation resulting from
           stock options granted                                                                                            311,900
        Value of stock options
           granted for services                                                                                             112,500
        Equity in net loss of joint
           venture                                                           12,950                  15,540                 133,220
        Other                                                                                                                (7,123)
        Changes in operating assets
           and liabilities:
           Prepaid expenses                                                (107,979)                                       (107,979)
           Other current assets                                                                          71
           Interest accrued on mining
            reclamation bonds                                                (1,875)                                         (1,875)
           Accounts payable and
               accrued expenses                                             274,607                 138,305                 736,356
                                                                       ------------            ------------            ------------
                  Net cash used in op-
                    erating activities                                     (312,398)               (180,285)             (5,409,780)
                                                                       ------------            ------------            ------------

Investing activities:
    Purchases and additions to
        mining, milling and other
        property and equipment                                              (85,000)                                     (5,120,354)
    Purchases of mining recla-                                                                                      
        mation bonds, net                                                   (80,000)                                       (125,000)
    Deferred mine development                                                                
        costs and other expenses                                                                   (234,435)               (255,319)
                                                                       ------------            ------------            ------------
                  Net cash used in in-
                    vesting activities                                     (165,000)               (234,435)             (5,500,673)
                                                                       ------------            ------------            ------------
</TABLE>


                                      F-12


<PAGE>




                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                            STATEMENTS OF CASH FLOWS
                     YEARS ENDED DECEMBER 31, 1996 AND 1995
                  AND PERIOD FROM DECEMBER 1, 1976 (INCEPTION)
                              TO DECEMBER 31, 1996


<TABLE>
<CAPTION>
                                                                                                                         Cumulative
                                                                                                                           from
                                                                               1996                   1995               Inception  
                                                                           -----------            -----------           -----------
<S>                                                                        <C>                    <C>                   <C>
Financing activities:
    Issuances of common stock                                              $   297,600                                  $ 8,758,257
    Issuance of Underwriter's stock
        warrants                                                                                                                100
    Commissions on sales of common
        stock                                                                                                              (381,860)
    Purchases of treasury stock                                                                                             (12,500)
    Payments of deferred under-
        writing costs                                                                                                       (63,814)
    Proceeds from exercise of
        stock options                                                                                                       306,300
    Issuance of convertible de-
        bentures and notes                                                     200,000            $   200,000             1,505,000
    Proceeds of advances from joint
        venture partner                                                                               331,980               526,288
    Advances to joint venture
        partner                                                               (218,251)                                    (218,251)
    Payments of debt issuance
        expenses                                                                                                           (164,233)
    Proceeds of other notes and
        loans payable                                                           80,000                                      768,000
    Repayments of other notes and
        loans payable                                                                                                      (120,000)
    Proceeds of loans from affiliate                                                                                         55,954
    Repayments of loans from affili-
        ate                                                                                                                 (48,661)
                                                                           -----------            -----------           -----------
           Net cash provided by financ-
               ing activities                                                  359,349                531,980            10,910,580
                                                                           -----------            -----------           -----------

Increase (decrease) in cash                                                   (118,049)               117,260                   127

Cash, beginning of period                                                      118,176                    916                  --   
                                                                           -----------            -----------           -----------

Cash, end of period                                                        $       127            $   118,176           $       127
                                                                           ===========            ===========           ===========

Supplemental disclosure of cash flow data:
    Interest paid                                                          $      --              $     4,441           $   298,868
                                                                           ===========            ===========           ===========
</TABLE>


See Notes to Financial Statements.

                                      F-13


<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 1 - Organization and basis of presentation:

     Organization:

          Franklin  Consolidated  Mining Co.,  Inc. (the  "Company"),  which was
          originally  incorporated  on  December  1, 1976  under the laws of the
          State  of  Delaware,   is  principally  engaged  in  the  exploration,
          development  and mining of precious and nonferrous  metals,  including
          gold, silver,  lead, copper and zinc. The Company owns directly or has
          an indirect  interest in a number of precious  and  nonferrous  metals
          properties.

          The Company holds the exclusive  right to explore,  develop,  mine and
          extract all minerals  located in 28 patented mining claims  comprising
          approximately  322  acres,  in which  the  Company  holds  100%  lease
          interests  (the  "Hayden/Kennec  Leases") and 23  additional  owned or
          leased mining properties  (collectively,  the "Franklin Mine"), all of
          which are located near Idaho Springs in Clear Creek County,  Colorado.
          It also  constructed a crushing and flotation mill which is located on
          the site of the Franklin Mine (the "Franklin Mill").

          During 1996, as further  explained in Note 3, the Company acquired (i)
          the Gold Hill Mill,  a fully  permitted  milling  facility  located in
          Boulder  County,  Colorado and (ii) a 20% interest in  Newmineco,  LLC
          ("Newmineco"),  a Colorado limited liability company,  which holds the
          exclusive   mining  rights   related  to  the  Mogul  Tunnel  and  the
          surrounding  claims located in the Spencer Mountains of Colorado known
          as the "Mogul Mines."

          During  February  1993,  the  Company  entered  into a  Joint  Venture
          Agreement with Island Investment Corp.  ("Island"),  which at the time
          was an unaffiliated  company,  and formed Zeus No. 1 Investments  (the
          "Joint Venture"), a California general partnership, for the purpose of
          developing  the Franklin Mine and Mill.  Among other things,  the Zeus
          Joint Venture  Agreement (i) required Island to provide both technical
          and financial support to the Joint Venture,  (ii) required the Company
          to  contribute to the Joint Venture the rights to the exclusive use of
          its assets  (including  its lease  interests)  related to the Franklin
          Mine and Mill and (iii)  originally  provided that after the return of
          any  initial  capital  contributions  and certain  priority  payments,
          Island and the Company  would  receive 50% of any  partnership  income
          until each party had received  $15,000,000;  thereafter Island and the
          Company would receive 73% and 27%,  respectively,  of any  partnership
          income. In May 1993, Island assigned its interest in the Joint Venture
          to its 91%-owned subsidiary, Gems & Minerals Corp. ("Gems").


                                      F-14

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 1 -  Organization  and  basis of  presentation  (continued):

     Organization (concluded):

          Effective in August 1994,  the Company and Island  agreed to amend the
          Zeus Joint Venture  Agreement to provide for, among other things,  the
          waiver of priority  payments  and an  adjustment  to the  distribution
          arrangement  whereby 70% and 30% of the Joint Venture's income or loss
          (as defined) would be allocated to Gems and the Company, respectively.
          Effective in September  1995,  the Company,  Island and Gems agreed to
          further amend the Zeus Joint Venture  Agreement to provide for,  among
          other things, the allocation of 82.5% and 17.5% of the Joint Venture's
          income or loss (as defined) to Gems and the Company, respectively (see
          Note 5).

          During 1993,  operations at the mining properties  consisted primarily
          of the efforts by the Joint  Venture to develop  and  improve  mineral
          recovery  methodology,  which were financed primarily by Island's cash
          capital  contributions  of approximately  $430,000.  During 1994, such
          operations  consisted  primarily  of repair  and  remediation  work to
          comply  with  environmental  regulatory  requirements,   further  site
          preparation, metallurgical analysis and the planning of an exploratory
          drilling program to further prove the Company's reserves. During 1995,
          such operations  consisted  primarily of a comprehensive core drilling
          and  analysis  program (the  "Analysis  Program").  During 1996,  such
          operations  consisted  primarily of additional  repair and remediation
          work needed to comply with environmental regulatory requirements.

          Although  there are extensive  shafts,  tunnels and a mill in place on
          the Franklin Mine site, which management  believes would support a 150
          ton per day  operation,  the Joint  Venture  and the  Company  had not
          conducted any significant  commercial mining or milling  operations at
          that site through December 31, 1996. In addition,  the Company had not
          conducted any milling  operations at the Gold Hill Mill, and Newmineco
          had not conducted any significant  commercial mining operations at the
          Mogul Mine site,  through December 31, 1996.  Therefore,  the Company,
          the Joint Venture and  Newmineco  had not  generated  any  significant
          revenues through, and were still in the development stage, at December
          31, 1996.


                                      F-15

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 1 -  Organization  and  basis of  presentation  (continued):

     Basis of presentation:

          The accompanying financial statements have been prepared assuming that
          the Company will continue as a going  concern.  However,  as explained
          above, the Company is a development  stage enterprise whose operations
          have generated  recurring losses and cash flow  deficiencies  from its
          inception.  As of December 31, 1996, the Company had a cash balance of
          $127, an accumulated  deficit of  approximately  $12,260,000,  current
          liabilities  of  $1,379,000  and  a  working  capital   deficiency  of
          $1,004,000,  and,  as  explained  in Notes 6 and 7, the Company was in
          default with respect to the payment of the  principal  balance and the
          accrued interest on its outstanding secured promissory note and 12.25%
          convertible  debentures.  Certain accounts payable were also past due.
          In  addition to the  payment of its  current  liabilities,  management
          estimates  that the Company  will incur  general,  administrative  and
          other costs and expenditures,  exclusive of any costs and expenditures
          related  to  any  mining  and  milling  operations,  at  the  rate  of
          approximately  $25,000 per month during 1997.  Although the Company is
          entitled to distributions  of 17.5% of any net profits  generated from
          the operations of the Franklin  Mines by the Zeus Joint  Venture,  any
          net profits  generated by the Gold Hill Mill and the first $500,000 of
          any profits  generated  through the  operations  of the Mogul Mines by
          Newmineco plus 20% of any profits thereafter,  all such operations are
          in the development  stage and have been generating losses and negative
          cash flows and  management  cannot assure that those  operations  will
          generate any  positive  cash flows  during  1997.  Such matters  raise
          substantial  doubt about the Company's  ability to continue as a going
          concern.

          Gems, the Company's  Joint Venture  partner,  will be responsible  for
          providing the remaining  capital resources that will be needed for the
          commencement  of  operations at the Franklin Mine and the Mogul Mines,
          and the  Company  will be  responsible  for  obtaining  the  remaining
          capital  resources  that  will  be  needed  for  the  commencement  of
          operations at the Gold Hill Mill. In the absence of liquid  resources,
          cash  flows  from  operations  and any other  commitments  for debt or
          equity financing,  management believes that the ability of the Company
          to continue its  operations as a going concern will be dependent  upon
          the provision of financing by Gems,  which Gems is required to provide
          pursuant to the Joint Venture Agreement,  the continued forbearance of
          the holders of its secured promissory note and convertible  debentures
          and, ultimately,  the ability of the Joint Venture, the Gold Hill Mill
          and Newmineco to conduct profitable mining and milling operations on a
          sustained basis.


                                      F-16

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 1 -  Organization  and  basis of  presentation  (continued):

     Basis of presentation (concluded):

          Management  believes,  but cannot assure,  that such financing and the
          financing  needed to commence  operations at the Franklin Mine and the
          Mogul Mines will be provided by Gems during 1997, and that the Company
          will  remain  dependent  on its Joint  Venture  partner as its primary
          source of financing for its operations until such time, if any, as the
          Company begins to receive cash flows from its investments.  During the
          first four months of 1997,  Gems repaid  advances from the Company and
          made  advances to the Company  totaling  approximately  $300,000.  The
          management of the Company  believes that Gems will continue to fulfill
          its  commitment and make such advances until such time, if any, as the
          Company begins to receive cash flows from its investments.

          In addition to funds  committed  by Gems,  management  is  considering
          raising  capital by mortgaging the Gold Hill property.  The management
          of the Company believes that, based on the fair value of the Gold Hill
          property,  it can raise a minimum  of  $1,000,000  using  conventional
          mortgage financing, with guarantees from Gems and its principals. Such
          funds would be used to supply the working capital  initially needed to
          commence  operations at the Gold Hill Mill and as an alternative means
          of financing  operations  at the Franklin  Mine and Mill and the Mogul
          Mines.

          Management also believes that, at a minimum,  the Company will be able
          to obtain sufficient  financing from Gems and/or mortgage loans on the
          Gold Hill  property to enable the Company to meet its working  capital
          requirements through at least December 31, 1997.

     Restatement:

          At the time the Company initially issued its financial  statements for
          the years ended December 31, 1996 and 1995,  management  believed that
          the market values of certain  shares of common stock issued to pay for
          services and settle outstanding claims by and repay obligations to its
          joint venture partner were  substantially in excess of the fair values
          at the  respective  dates of issuance  because the shares  issued were
          restricted  and the  trading  volume  for  the  Company's  shares  was
          limited.  However, the Company did not have the resources to engage an
          investment  banker to appraise the per share value at the date of each
          issuance;  instead, management estimated the fair value by discounting
          the quoted market value by 50%.  After  discussions  with the staff of
          the Securities and Exchange  Commission (the "SEC") as to the basis of
          the valuation of certain shares issued, management has determined that
          it would still not be cost effective to obtain  appraisals of the fair
          value of the shares and that, instead, the quoted market price at the


                                      F-17

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS



Note 1 -  Organization  and  basis of  presentation  (continued):

     Restatement (continued):

          time of issuance would be the most reliable  measure of fair value for
          these transactions. As a result, the accompanying financial statements
          reflect  increases  in, among other  accounts,  the Company's net loss
          (and the related net loss per share),  additional  paid-in capital and
          accumulated  deficit from the  corresponding  amounts in the financial
          statements  the  Company  initially  issued and filed with the SEC for
          1996 and 1995.

          The following table  summarizes the increase in the Company's net loss
          and net loss per share for the years ended  December 31, 1996 and 1995
          arising  from the changes in the prices used to value the  issuance of
          common shares:

<TABLE>
<CAPTION>
                                            Number      Estimate    Market
                                              of         Value       Value
                                            Shares     Per Share   Per Share       Increase
                                            ------     ---------   ---------       --------
<S>                                       <C>           <C>           <C>          <C>
          1996:
             General and ad-
               ministrative
               expenses:
               Consulting fees            1,000,000     $  .05        $.25         $200,000
               Professional fees             56,000       .125         .25            7,000
                                                                                   --------
                    Total (Note 10)                                                 207,000
            Interest expense -
               shares issued
               upon conversion
               of debt at con-
               version price
               based on 75% of
               market value
               (Note 7)                   4,294,770      .0975         .13          139,580
                                                                                  ---------

            Net loss                                                               $346,580
                                                                                  ---------
            Net loss per com-
               mon share                                                               $.01
                                                                                  =========
</TABLE>


                                      F-18

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 1 -  Organization  and  basis of  presentation  (concluded):

     Restatement (concluded):

<TABLE>
<CAPTION>
                                           Number      Estimate    Market
                                             of         Value       Value
                                           Shares     Per Share   Per Share       Increase
                                           ------     ---------   ---------       --------
<S>                                      <C>           <C>          <C>           <C>
          1995:
             Interest expense -
               excess of market
               value over prin-
               cipal of shares
               issued upon con-
               version of loans
               from joint ven-
               ture partner              3,200,000     .078125      .15625        $249,600
             Loss on settlement
               of claims by
               joint venture
               partner                   6,000,000     .078125      .15625         468,000
                                                                                  --------

             Net loss (Note 5)                                                    $717,600
                                                                                  ========

             Net loss per com-
                 mon share                                                            $.01
                                                                                  ========
</TABLE>

          These  adjustments  also  increased the Company's  additional  paid-in
          capital and accumulated deficit by $1,064,180 at December 31, 1996 and
          $717,600 at December 31, 1995.


Note 2 -  Summary  of  significant  accounting  policies:  

     Use of estimates:

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

     Mining, milling and other property and equipment:

          Mining,  milling and other property and equipment is recorded at cost.
          Costs  incurred to improve and develop  mining and milling  properties
          are capitalized.  Mine development expenditures incurred substantially
          in advance of production are capitalized.


                                      F-19

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 2 - Summary of significant  accounting policies (continued):

     Mining, milling and other property and equipment (concluded):

          Depletion  of mining and  milling  improvements  and mine  development
          expenditures is computed using the units of production method based on
          probable  reserves  (there were no charges for  depletion  in 1996 and
          1995 since the  Company's  mining and milling  facilities  were not in
          operation).   Depreciation   of  equipment   is  computed   using  the
          straight-line  method over the  estimated  useful lives of the related
          assets.

     Impairment of long-lived assets:

          Effective as of January 1, 1996, the Company adopted the provisions of
          Statement of Financial  Accounting  Standards No. 121, "Accounting for
          the Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be
          Disposed  of"  ("SFAS  121").  Under  SFAS 121,  impairment  losses on
          long-lived   assets  are   recognized   when   events  or  changes  in
          circumstances  indicate that the undiscounted  cash flows estimated to
          be  generated by such assets are less than their  carrying  value and,
          accordingly,  all or a  portion  of  such  carrying  value  may not be
          recoverable. Impairment losses are then measured by comparing the fair
          value of assets to their  carrying  amounts.  The adoption of SFAS 121
          had no material effect on the Company's 1996 financial statements.

     Joint Venture:

          The Company  accounts for its investment in the Joint Venture pursuant
          to the equity method.  As a general partner in the Joint Venture,  the
          Company would be liable to creditors and certain other parties for any
          obligations  the Joint Venture might  ultimately be unable to satisfy.
          Accordingly,  the Company  records its equity in the net losses of the
          Joint Venture even though they exceed the Company's total investment.

     Revenue recognition:

          Revenues from sales of mineral  concentrates will be recognized by the
          Company and the Joint  Venture only upon  receipt of final  settlement
          funds from the smelter.

     Environmental remediation:

          Environmental  remediation  costs are accrued  based on  estimates  of
          known environmental  remediation exposures and, generally,  charged to
          expense as incurred.


                                      F-20

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 2 - Summary of significant  accounting policies (concluded):

     Income taxes:

          The  Company  accounts  for income  taxes  pursuant  to  Statement  of
          Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
          which utilizes an asset and liability approach to financial accounting
          and reporting for income taxes.  Under this approach,  deferred income
          tax  assets  and  liabilities  are  computed  annually  for  temporary
          differences  between the  financial  statement and tax bases of assets
          and liabilities  that will result in taxable or deductible  amounts in
          the  future  based on  enacted  tax laws and rates  applicable  to the
          periods  in which the  differences  are  expected  to  affect  taxable
          income.  Valuation allowances are established when necessary to reduce
          deferred tax assets to the amount expected to be realized.  The income
          tax  provision  or credit is the tax  payable  or  refundable  for the
          period  plus or minus the change  during the  period in  deferred  tax
          assets and liabilities.


Note 3 - Acquisitions of mining and milling properties:

          On July 3,  1996,  the  Company  acquired  the Gold  Hill  Mill from a
          wholly-owned  subsidiary of Gems, the Company's Joint Venture partner,
          in exchange for an 8% mortgage note with an initial  principal balance
          of  $2,500,000  (see  Notes 7 and 10).  The Gold  Hill Mill is a fully
          permitted  milling facility located in Boulder County,  Colorado.  The
          Company will be responsible  for the  development and operation of the
          Gold Hill Mill.

          On  September  26,  1996,  the Company  acquired  its 20%  interest in
          Newmineco  by  issuing a 9.5% note  payable  to Gems with a  principal
          balance of $600,000. Newmineco was a newly-formed, inactive company at
          the time the Company  acquired its 20% interest.  Newmineco  holds the
          exclusive  mining  rights  related to the Mogul  Mines  located in the
          Spencer  Mountains  of  Colorado.  Gems  will be  responsible  for the
          development  and operation of the Mogul Mines. As a result of problems
          concerning  permitting  and various other issues  related to the Mogul
          Mines,  the purchase  price for the Company's 20% interest was reduced
          to $150,000 on,  effectively,  December 31, 1996 (see Notes 7 and 10).
          Pursuant to the agreement with the other  investors in Newmineco,  the
          Company  will be  entitled  to the first  $500,000  of any profits (as
          defined) to be  distributed by Newmineco and 20% of any of its profits
          thereafter.


                                      F-21

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 4 -  Mining,  milling  and  other  property  and  equipment:

          Mining,  milling and other  property  and  equipment,  at the Franklin
          Mines and the  Franklin  Mill and the Gold Hill Mill  consisted of the
          following at December 31, 1996 and 1995:

                                                     1996                1995
                                                 ----------         ----------
          Land                                   $  345,000
          Machinery and equipment                 2,217,220         $1,219,220
          Mine and mill improvements              5,490,278          4,248,278
          Furniture and fixtures                     11,714             11,714
          Automotive equipment                       84,096             84,096
                                                 ----------         ----------
                                                  8,148,308          5,563,308
          Less accumulated depreciation
              and depletion                       1,837,180          1,715,194
                                                 ----------         ----------

                Total                            $6,311,128         $3,848,114
                                                 ==========         ==========


Note 5 - Status of the Zeus Joint Venture Agreement:

          The Zeus Joint  Venture  Agreement,  as amended  effective  August 31,
          1994,  required  (i) Gems to  provide  both  technical  and  financial
          support to the Joint  Venture;  (ii) the Company to  contribute to the
          Joint Venture the rights to the  exclusive use of its lease  interests
          and other  assets  related to the  mining  properties  in Clear  Creek
          County, Colorado; (iii) the potential transfer of the Company's assets
          to the Joint  Venture;  (iv) the issuance to Gems of 6,000,000  common
          shares  of  the  Company,   subject  to  the   authorization   by  the
          stockholders of the Company of a sufficient  number of shares for such
          issuance and certain other  conditions;  and (v) the allocation of 70%
          and 30% of the Joint Venture's income or loss (as defined) to Gems and
          the Company, respectively.

          During the latter part of 1994,  the  management  of Gems informed the
          Board of Directors of the Company that prior to allocating substantial
          additional  resources  to the mining  facilities  owned by the Company
          (which  the Joint  Venture  is  responsible  for  developing)  and the
          commencement of commercial  mining  operations,  it wished to (i) more
          clearly define the relationships between the parties to the Zeus Joint
          Venture  Agreement,  as amended  effective  August 31, 1994,  and (ii)
          conduct  the  Analysis  Program to  ascertain  the scope and extent of
          proven  and  probable  reserves  of mine ore  containing  economically
          recoverable minerals not previously identified or reported.


                                      F-22

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS

Note 5 - Status of the Zeus Joint Venture Agreement  (continued):

          Effective in December 1994, the Company,  Island and Gems entered into
          a Binding Exchange Letter Agreement. Pursuant to such Binding Exchange
          Letter  Agreement,  Gems agreed  that,  upon  consummation  of a final
          agreement,  it would transfer, in a tax free exchange,  certain of its
          assets for approximately 270,000,000 newly issued common shares of the
          Company,  together  with  certain  demand and  piggyback  registration
          rights and anti-dilution  rights. The assets that were to be exchanged
          by Gems included (i) Gems' 70% interest in the Joint Venture; (ii) the
          exclusive   rights  to  the  use  of  Gems'   proprietary   processes,
          technologies  and  techniques;  and (iii) property  rights acquired by
          Gems pursuant to a November 1994 agreement in principle related to the
          Hayden  lease  (see Note 8). 

          The Binding  Exchange  Letter  Agreement  further  provided  that if a
          definitive  Exchange Agreement was not consummated and approval of the
          Company's  stockholders was not obtained in a timely fashion, then the
          Company  would be obligated to issue  6,000,000  shares to Gems or, if
          that were not  possible,  pay Gems at least  $1,500,000  as a priority
          payment.  

          The Company was unable to obtain the approval of its stockholders in a
          timely fashion and Gems made certain claims for compensation under the
          Exchange  Agreement.  As a result,  in  September  1995,  the Company,
          Island and Gems entered into an agreement (the "Settlement Agreement")
          whereby the parties  acknowledged that the Exchange  Agreement was not
          timely  consummated  due to the  failure of the  Company to obtain the
          approval of its stockholders for an increase in its authorized capital
          stock in a timely manner. In settlement of the parties' claims against
          the Company for such failure to perform,  the Company  agreed to issue
          6,000,000  shares of its common stock to Gems or, in the  alternative,
          to pay $1,500,000 as upset compensation to Gems (the "Upset Fee"). The
          Company   further  agreed  to  use  its  best  efforts  to  cause  its
          stockholders  to approve an increase in its  authorized  capital stock
          from  50,000,000  to  100,000,000  shares of common stock at an annual
          meeting of  stockholders  in  November  1995 to enable the  Company to
          issue the shares to Gems.  In the event that the Company,  after using
          its best efforts,  was unable to obtain the requisite  approval of its
          stockholders,  Gems  agreed to reduce the Upset Fee to  $600,000.  The
          parties  further  agreed  to  convert  $249,600  of the  total  amount
          previously advanced to the Company by Gems to cover operating expenses
          into 3,200,000  additional shares of its common stock,  subject to the
          approval  of  the  Company's  stockholders  of  the  increase  in  its
          authorized  capital  stock  referred  to above.  Finally,  as  further
          consideration  for the  settlement of their claims,  Gems' interest in
          the Joint Venture was  increased to 82.5% and the  Company's  interest
          was reduced to 17.5%. Gems was also given certain demand and piggyback
          registration  rights  with  respect  to shares to be issued  under the
          Settlement Agreement.


                                      F-23

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS

Note 5 - Status of the Zeus Joint Venture Agreement  (concluded):

          On November 30, 1995,  the  stockholders  of the Company  approved the
          proposed increase in the authorized  capital stock of the Company and,
          as required by the Settlement Agreement, in December 1995, the Company
          issued  to  Gems  3,200,000  shares  of its  common  stock  to  reduce
          outstanding  advances by $249,600 and  6,000,000  shares of its common
          stock as  additional  consideration  for the  settlement  of claims by
          Gems.

          Based on the quoted  market  value of $.15625 per share at the time of
          issuance,  the 3,200,000  shares issued to Gems in connection with the
          conversion of the outstanding advances and the 6,000,000 shares issued
          to Gems in connection  with the  settlement of claims had an aggregate
          fair value of $499,200 and $936,000,  respectively.  Accordingly,  the
          accompanying  financial statements,  as restated (see Note 1), reflect
          charges to (i) interest  expense of  $249,000,  which  represents  the
          excess  of  market  value  of the  shares  over the  principal  amount
          converted,  and (ii) loss on  settlement  of  claims by joint  venture
          partner of $936,000.

          Based on  information  developed  through  the  Analysis  Program  and
          previously  available  geological data and reports,  the management of
          the Joint  Venture  believes  that the  application  of the  Company's
          proprietary  technologies  and processes should result in economically
          viable   commercial  mining  operations  at  the  Franklin  Mine.

          The Company's  investment in the Joint Venture as of December 31, 1996
          and 1995, and the Joint Venture's  results of operations for the years
          then ended,  in relation to those of the Company,  were not  material.

          From  time to time,  the  Company  receives  advances  from and  makes
          advances  to Gems.  Pursuant  to the Joint  Venture  agreement,  these
          advances are noninterest bearing and without a specific due date. As a
          result of such advances, the Company had a receivable of $266,438 from
          Gems at  December  31,  1996  and a  payable  of  $313,688  to Gems at
          December 31, 1995. 

          During 1996,  the Company issued  2,316,000  shares of common stock to
          Gems and reduced the balance of its advances payable by $361,875 based
          on the estimated fair value of the shares issued.


Note 6 - Other notes payable:

          Other notes payable was comprised as follows at December 31, 1996:

             12% unsecured demand note               $20,000
             Secured promissory note (a)              60,000
                                                     -------
               Total                                 $80,000
                                                     =======


                                      F-24

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS

Note 6 - Other notes payable (concluded):

          (a)  The outstanding  principal  balance of the note became payable on
               July 18, 1996 and is overdue (see Note 8). The note is guaranteed
               by the Company's  Joint Venture  partner and certain  individuals
               and  is  collateralized   through  a  security  interest  in  the
               Company's  mining  reclamation  bond.  Interest  on the  note  is
               payable  based on the rate of interest  applicable  to the mining
               reclamation bond.

Note 7 - Convertible and mortgage debt:

          The Company's convertible debt at December 31, 1996 and 1995 consisted
          of the following:

                                                        1996            1995
                                                      --------        --------
          12.25% convertible debentures (a)           $145,000        $145,000
          9.5% convertible secured promissory
            note payable to Joint Venture
            partner (b)                                600,000
          15% convertible notes (c)                                    200,000
                                                      --------        --------

                Totals                                $745,000        $345,000
                                                      ========        ========

          (a)  As of December 31, 1995,  the Company was in default with respect
               to  the  payment  of  the  $145,000   principal  balance  of  the
               debentures  and  accrued   interest   payable  for  the  quarters
               subsequent  to March 31,  1995.  The Company  sent notices to its
               debentureholders  in December  1995  asking for their  consent by
               February 15, 1996 to the further  extension of the maturity  date
               to December 31, 1996. It was also  contemplated  that  conversion
               rights  would also be extended at the  previous  rate of $.50 per
               share.  The Company  also agreed that it would make all  interest
               payments due to such holders  through  December 31, 1995,  prepay
               interest which will become due at the end of the first quarter of
               1996 and set up a fund  with the  Trustee  to secure  the  timely
               payment of the  principal  balance of the  debentures on December
               31,  1996.  Only one holder of a $1,000  debenture  rejected  the
               Company's request.

               While it was the  intention  of  management  and the  Company  to
               comply   with   the   terms   of   the   agreements    with   the
               debentureholders,  the  Company  has been  unable  to comply as a
               result of the liquidity and cash flow problems  described in Note
               1. As a result of its default and its continued failure to comply
               with the December 1995 agreements,  the Company may be subject to
               legal  proceedings  by  the  Transfer   Agent/Trustee  under  the
               Indenture  Agreement or from  debentureholders  seeking immediate
               repayment of principal  plus interest and  penalties.  Management
               cannot assure that there will be funds available for the required
               payments  or what the  effects  of any  actions  brought by or on
               behalf of the debentureholders will be.


                                      F-25

<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 7 - Convertible and mortgage debt (continued):

          (b)  In  September  1996,  the Company  acquired  its 20%  interest in
               Newmineco by issuing a 9.5% note payable to Gems with a principal
               balance  of  $600,000.   As  a  result  of  problems   concerning
               permitting  and various other issues  related to the Mogul Mines,
               the  purchase  price was  reduced to  $150,000  on,  effectively,
               December 31, 1996.  The $450,000  reduction in the purchase price
               was effectuated through an equivalent  reduction in the principal
               balance of the 8% mortgage  note that is also  payable to Gems by
               the Company.  The 9.5% note was  originally due on June 30, 1997.
               However,  on February 7, 1997,  Gems notified the Company that it
               had  assigned  its  interest  in the 9.5% note to  certain  third
               parties. On February 10, 1997, the Company notified the assignees
               that it had elected to convert the principal  balance of the 9.5%
               note  into  7,692,308   shares  of  common  stock  based  on  the
               conversion rate of $.078 per share.

          (c)  In December 1995, the Company  commenced an offering  exempt from
               registration  pursuant  to Rule  505 of  Regulation  D of the 15%
               secured  convertible  promissory notes in the aggregate principal
               amount of  $1,500,000.  The Company  terminated  the  offering on
               February 5, 1996 after selling convertible notes in the aggregate
               principal  amount of $400,000,  of which $200,000 was outstanding
               at December 31, 1995 as shown above.  Each  convertible  note was
               scheduled to mature 18 months from the date of its issuance.  The
               notes were  convertible into shares of the Company's common stock
               after  April 1, 1996 at a  conversion  price  based on 75% of the
               average  market price of the Company's  common stock (as defined)
               for a specified  period  prior to  conversion.  During the second
               quarter of 1996,  the Company issued  4,294,770  shares of common
               stock upon the  conversion of all of the notes based on the total
               balance of the  principal  and accrued  interest  outstanding  of
               $418,740  and the  conversion  price of  $.0975  per  share.  The
               accompanying  financial  statements,  as  restated  (see Note 1),
               reflect  a  charge  to  interest   expense  of  $139,580,   which
               represents  the excess of the market value of the shares over the
               principal and accrued interest converted.


                                      F-26

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 7 - Convertible and mortgage debt (concluded):

          The $586,419  principal balance of the 8% mortgage note payable to the
          Joint Venture partner at December 31, 1996 represents the remainder of
          the $2,500,000  principal balance of the note issued by the Company to
          a  subsidiary  of Gems on July 3,  1996 as the  consideration  for the
          acquisition of the Gold Hill Mill facility.  In July 1996, the Company
          commenced  an offering  for the  issuance of shares of common stock at
          the  equivalent  of $.15625 per share in exchange  for certain  notes,
          mortgages and other  obligations of Gems and its affiliates  (see Note
          10). Upon  completion of the offering,  the Company  issued  9,366,919
          shares  of  common  stock  to  purchase  obligations  of Gems  and its
          affiliates  with an aggregate  principal  balance of  $1,463,581,  and
          canceled the  obligations  in exchange for an equivalent  reduction in
          the principal balance of the 8% mortgage note.  Effective December 31,
          1996, the principal balance was reduced by $450,000 as a result of the
          adjustment  to the purchase  price of its 20% interest in Newmineco as
          explained above.

          Accounts  payable and accrued  expenses at December 31, 1996  includes
          accrued interest on the 8% mortgage,  a portion of which was due as of
          September 30, 1996. The entire remaining  principal  balance of the 8%
          mortgage note,  which is due no later than July 3, 1999, is secured by
          the property and equipment related to the Gold Hill Mill.


Note 8 - Commitments and contingencies:

     Lease commitments:

          The  Joint  Venture  was  primarily   formed  to  develop  the  mining
          properties  pursuant to the Company's  rights under the  Hayden/Kennec
          Leases,  and the future  success of its operations is dependent on its
          ability to utilize and extend those lease  rights  and/or to otherwise
          acquire the rights to the use of such properties and the extraction of
          the related resources.

          The Company entered into the Hayden/Kennec  Leases with the fee owners
          of 28 patented  mining  claims in Clear Creek  County on November  12,
          1976. Under the provisions of these leases, Franklin has the exclusive
          right to explore  for,  develop and mine and to extract  any  minerals
          found in the  mines,  lodes,  veins  and  dumps  located  thereon.  In
          addition, Franklin has certain water and mill operating rights.


                                      F-27

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS



Note 8 - Commitments and contingencies (continued):

     Lease commitments (continued):

          The  initial  terms of the  Hayden/Kennec  Leases were for 20 years at
          aggregate  monthly  rentals  equal to the  greater  of $2,000 or 5% of
          realized  proceeds  from the sale of minerals  derived from the leased
          property.  In  addition,  the  Company is  required to pay all related
          property  taxes and insurance  costs.  Rentals  amounted to $24,000 in
          1996 and 1995 and were paid by the Joint Venture.

          On November  19,  1996,  the Company  entered into an amendment to the
          Hayden/Kennec  Leases  with  respect to the  portion of the  leasehold
          attributable to Dorothy Kennec (the "Kennec  Amendment").  Pursuant to
          the terms of the Kennec  Amendment,  Kennec agreed to extend the terms
          of the  Hayden/Kennec  Leases as they  related  to her  portion of the
          leasehold  rights for one year.  The extension will expire on November
          12, 1997. In consideration  for such extension,  the Company agreed to
          increase the rental payment to Kennec under the original Hayden/Kennec
          Leases  from  $1,000 to $2,000 per  month.  Kennec  will also  receive
          104,000 shares of the common stock of the Company. All of the payments
          made under the Kennec  Amendment,  plus the value of the shares issued
          thereunder,  will be further  applied against the buy-out price of the
          property under the original Hayden/Kennec Leases.

          The  Hayden/Kennec  Leases grant the Company the right to purchase the
          mineral  rights to the leased  property upon the payment of $1,250,000
          less any previous rental payments.

          In the  event  that  the  Hayden/Kennec  Leases  are  terminated,  any
          leasehold or other improvements on the mining properties made by Gems,
          the Joint  Venture or the Company  become the  property of the lessors
          without  compensation  to Gems, the Joint Venture or the Company.  The
          Company has the right to assignment under the lease.

          To further secure the ability of the Joint Venture partners to exploit
          the  Clear  Creek  County  mining  properties,  Gems  entered  into an
          agreement  on December  21,  1995  (which was amended and  restated in
          September  1996) to purchase  all of the right  title and  interest of
          Audry Hayden in and to all mining claims and properties located on the
          property  which  is  subject  to the  Hayden/Kennec  Lease  as well as
          Hayden's interest under the Hayden Lease with the Company (the "Hayden
          Interests") for a purchase price of $75,000. In addition,  Gems agreed
          to pay Hayden $5,000 representing payment in full of back payments due
          and owing to Hayden by the  Company  on the Hayden  Lease and  further
          agreed to pay to Hayden $1,000 per month for a period of 12 months


                                      F-28

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 8 - Commitments and contingencies (continued):

     Lease commitments (concluded):

          commencing  on the date of the  Purchase  Agreement.  On the date upon
          which the final $1,000 installment is due to Hayden, Gems will pay the
          remaining  principal  balance of the purchase price which will consist
          of  $75,000  less the  initial  payment  of $5,000  advanced  for back
          payments on the Hayden Lease.  The management of Gems has informed the
          Company that it believes  that as a result of the  acquisition  of the
          Hayden  Interests,  the  interest  in the  surface  rights held by the
          Hayden  Lease and the  provisions  of the Kennec Lease that permit the
          exploration  and  development  of such  properties  by any  method  of
          mining,  the Joint Venture will have  adequate  access to the minerals
          during the term of the Kennec Lease and on a continuing  basis even if
          the Kennec Lease should expire and not be renewed by the Company.

     Environmental matters:

          During  November  1993,  the  Company  was  notified  by the  State of
          Colorado  Division of Minerals  and Geology (the "DMG") that the Joint
          Venture had failed to file a plan in the form of a Technical  Revision
          to address erosion,  sedimentation and run-off matters at the Franklin
          Mine in connection  with  continuation  of the Company's  state mining
          permit. As a result, the Company had to take certain remedial actions,
          increase its reclamation bond from $29,000 to $45,000 and pay a $5,000
          fine during 1994.

          In August 1994, the Company  received an informal  notice from the DMG
          of an  additional  violation  at the  Franklin  Mine  related to water
          run-off matters. The Company attempted to rectify the violations cited
          by the DMG but was  unable to do so in a timely  manner  because  such
          corrections required performance of work outside the boundaries of its
          then current permit. The Company agreed that it would refrain from any
          mining or milling  operations  at the Franklin  Mine until the DMG (i)
          amended  the  Company's  permit to enable it to perform  the  required
          technical and  remediation  work and (ii) determined that all required
          work was completed.

          In February 1996,  the DMG permitted the Company to commence  crushing
          activity at the Franklin Mine pursuant to another  prospecting permit.
          In March 1996,  the Company was notified  that it would be required to
          increase  its  land  reclamation  bond  by an  amount  that  would  be
          determined subsequently. In an effort to comply, the Company increased
          its  reclamation  bond from $45,000 to $93,000.  On or about March 28,
          1996,  the  Company  received  a  temporary  cease  and  desist  order
          prohibiting it from conducting mining and milling


                                      F-29

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 8 - Commitments and contingencies (continued):

     Environmental matters (concluded):

          operations  at  the  Franklin  Mine  until  such  time  as  all of the
          violations  cited by the DMG were  corrected.  In addition,  the Mined
          Land Reclamation  Bureau of Colorado (the "MLRB")  determined that the
          Company's   reclamation   bond   should  be   further   increased   to
          approximately $252,000.

          On April 24, 1996,  the Company was able to obtain the  $252,000  bond
          required by the MLRB from an independent  bonding  company in exchange
          for the deposit by the Company's  Joint Venture partner of $125,000 in
          a trust  account  maintained  for the benefit of the bonding  company,
          guarantees   from  the  Joint  Venture  partner  and  certain  of  its
          principals  and the posting of a performance  bond from an independent
          bonding company by one of the Joint Venture's contractors with respect
          to the  completion of the technical and  remediation  work required by
          the regulatory  authorities.  As a result,  the cease and desist order
          was  vacated  on June 7,  1996 and the  Company  received  refunds  of
          approximately  $93,000  during  the  second  quarter  of 1996 from the
          mining reclamation bonds it had posted.

          On January 31, 1997, the Company received approval from the DMG of its
          March  6,  1996  amended  application  to  its  permit.  As a  result,
          management   believes   that   substantially   all  of  the  necessary
          environmental  and  regulatory  approvals  have been obtained that are
          needed to enable the Company to commence mining and milling operations
          at the Franklin Mine and/or the Mogul Mines during 1997.

          The amended permit,  among other things,  increases the permitted area
          of the Franklin  Mine to 42.5 acres and allows for the  processing  of
          ore on an unlimited basis. The amended permit further contemplates the
          submission  of a final design for tailings  disposal  facilities,  the
          installation  of a Surface Water Control Plan  previously  approved by
          the DMG,  the  filing of an  Environmental  Protection  Plan,  and the
          completion of certain closure plans.

     Litigation:

          The Company is involved in various litigation as explained below:

          a)   The  Company,  the Joint  Venture,  Gems,  Island  and others are
               defendants  in an  action  related  to a  dispute  over  fees for
               engineering   consulting  services  supplied  in  the  amount  of
               approximately  $268,000.  The  Court  has  remanded  the  case to
               arbitration.  The  defendants  plan to  vigorously  defend  their
               position asserting that the work was never completed.


                                      F-30

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 8 - Commitments and contingencies (concluded):

     Litigation (concluded):

          b)   The  Company,  Island,  Newmineco  and others are  defendants  in
               litigation  involving  title to the  mining  claims  at the Mogul
               Mines.  This action was  instituted  by the former owners of such
               claims.  The Company intends to vigorously contest the action. In
               the opinion of legal counsel,  the defendants have valid defenses
               to all claims.

          c)   In April 1997,  the Company was notified by the Superior Court of
               New  Jersey  that it had  received a copy of a  complaint  by the
               holder of the $60,000 secured note,  which was due and payable in
               July 1996 (see  Note 6).  The  complaint  demanded,  among  other
               things,  payment of all  principal  and interest due. As of April
               14, 1997, the Company had not received service of such complaint.

          Management  believes  that,  to the extent  that any of the claims are
          finally  determined  to have  merit,  the  Company  has made  adequate
          provision for any amounts that may be due.  However,  management  also
          believes  that it is too early in the process to evaluate the possible
          outcome  of  these  claims  or  estimate  the  amount  or range of any
          additional  loss  or  the  likelihood  of  such  loss  occurring.   An
          unfavorable  resolution  of these  matters  could  result in  material
          liabilities  and/or  charges  which  have  not been  reflected  in the
          accompanying financial statements.


Note 9 - Income taxes:

          As  of  December  31,  1996,   the  Company  had  net  operating  loss
          carryforwards of approximately  $9,844,000  available to reduce future
          Federal  taxable  income  which,  if not used,  will expire at various
          dates  through  December 31, 2011.  Due to changes in the ownership of
          the  Company,  the  utilization  of these  loss  carryforwards  may be
          subject to substantial annual limitations.

          The  Company  has  offset  the  deferred   tax  asset  of   $3,347,000
          attributable  to the potential  benefits from such net operating  loss
          carryforwards  as of  December  31,  1996 by an  equivalent  valuation
          allowance due to the uncertainties related to the extent and timing of
          its future  taxable  income.  There were no other  material  temporary
          differences as of that date.


                                      F-31

<PAGE>

                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 9 - Income taxes (concluded):

          The  expected  Federal  income  tax  benefit,  computed  based  on the
          Company's  pre-tax  losses in 1996 and 1995 and the statutory  Federal
          income tax rate, is reconciled to the actual tax benefit  reflected in
          the accompanying financial statements as follows:

                                                      1996             1995
                                                    --------         --------
          Expected tax benefit at statutory
              rates                                 $447,000         $558,000

          Decrease resulting from valuation
              allowance for benefits from net
              operating loss carryforwards          (447,000)        (558,000)
                                                    --------         --------

                 Totals                             $   -            $   -   
                                                    ========         ========


Note 10- Stockholders' equity:

     Issuances of common stock:

          In May  1992,  the  Company  issued a series  of  promissory  notes to
          related  parties  and  others  in the  aggregate  principal  amount of
          $504,000  that bore  interest at 3% above a specified  prime rate.  In
          addition,  the  holders of notes in the  principal  amount of $450,000
          were  entitled,  under  certain  conditions,  to a 1%  interest in the
          profits (as  defined) of the  Company  for each  $50,000 of  principal
          amount  held  and,   accordingly,   held  total  profit  participation
          interests  of 9%.  In  July  1993,  Gems  was  assigned  notes  in the
          principal  amount of $200,000 and the related 4% profit  participation
          interests.

          During 1995, the Company entered into agreements for the conversion of
          all  of the  notes,  the  accrued  interest  thereon  and  the  profit
          participation  interests  whereby (i) the entire principal balance and
          the accrued  interest  payable at the  respective  dates of conversion
          which totaled $677,025 was converted at $.078 per share (the estimated
          fair  market  value  of  the  unregistered  shares)  into a  total  of
          8,679,797   shares  of  common  stock  and  (ii)  all  of  the  profit
          participation  interests  were converted at the rate of 300,000 shares
          for  each 1%  profit  participation  interest  held  into a  total  of
          2,700,000  shares of common  stock.  These  conversions  were  noncash
          transactions  and,   accordingly,   they  are  not  reflected  in  the
          accompanying 1995 statement of cash flows.


                                      F-32

<PAGE>



                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 10- Stockholders' equity (continued):

     Issuances of common stock (concluded):

          In February 1996, the Company  commenced an offering  pursuant to Rule
          505 of Regulation D of its common stock to accredited and unaccredited
          investors to raise funds for  operations.  Subscribers of the offering
          purchased  the common stock at 15% below the market price as quoted on
          NASDAQ at the  close of  business  on a  specified  date  prior to the
          termination of the offering. The Company raised approximately $202,600
          from the sale of 953,411 shares at $.2125 per share.

          During the second quarter of 1996, the Company issued 4,294,770 shares
          of  common  stock  upon  the  conversion  of all of  the  15%  secured
          convertible  promissory  notes  then  outstanding  based on the  total
          balance of the principal and accrued interest  outstanding of $418,740
          and the conversion price of $.0975 per share (see Notes 1 and 7).

          In July 1996,  the  Company  commenced  an  offering  to  unaffiliated
          parties  pursuant to Regulation D for the issuance of shares of common
          stock at the  equivalent  of $.15625 per share in exchange for certain
          notes,  mortgages and other  obligations  of Gems and its  affiliates.
          Upon completion of the offering,  the Company issued  9,366,919 shares
          of common  stock to purchase  obligations  of Gems and its  affiliates
          with an aggregate  principal  balance of $1,463,581,  and canceled the
          obligations  in exchange for an equivalent  reduction in the principal
          balance of the 8% mortgage note payable to Gems (see Note 7).

          In July 1996, the Company  commenced  another offering to unaffiliated
          parties  pursuant to  Regulation D of up to  10,000,000  shares of its
          common  stock at $.125 per share.  The  offering was on a best efforts
          basis.  The Company  sold  800,000  shares of common  stock and raised
          $95,000 before the offering was terminated on September 15, 1996.

          During 1996,  the Company issued  2,316,000  shares of common stock to
          Gems, with an estimated fair value of $361,875,  to reduce the balance
          of  advances  payable.  The  accompanying  financial  statements,   as
          restated (see Note 1), reflect  charges to general and  administrative
          expenses  of  $562,437,  which  represents  the  market  value  of the
          3,716,000  shares of common  stock  issued in exchange  for  financial
          consulting and other services.


                                      F-33

<PAGE>


                     FRANKLIN CONSOLIDATED MINING CO., INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS


Note 10- Stockholders' equity (concluded):

     Warrants issued for services:

          During 1995, the Company  issued  warrants for the purchase of 500,000
          shares of common stock at an exercise  price of $.01 per share as part
          of the  consideration  for services  provided to the  Company.  In the
          opinion of management, the fair value of the warrants was not material
          and  the  Company  did  not  recognize  any  expense  related  to such
          issuance. These warrants were returned to the Company in April 1997.

     Common stock reserved for issuance:

          At  December  31,  1996,  there were  290,000  shares of common  stock
          reserved  for  issuance  upon the  exercise of the 12.25%  convertible
          debentures  and  7,692,608  shares  reserved  for  issuance  upon  the
          exercise of the 9.5% note payable  that was  exercised on February 10,
          1997 (see Note 7).


Note 11- Subsequent events:

     Real estate taxes:

          As of  December  31,  1996,  the  Company  was  delinquent  in  paying
          approximately  $50,700 of the required taxes due (including  interest)
          on the  Franklin  Mine.  Clear  Creek  County had filed liens on those
          taxes in  arrears.  Certain of the liens  were sold  under  auction in
          October 1994.

          On April 30, 1997, the Company paid all of the delinquent  taxes which
          will cause the liens to be removed.

     Litigation:

          In April 1997,  the Company paid $45,000 in full  settlement of a case
          involving a fee dispute with a former legal counsel to the Company. As
          part of the settlement,  the plaintiff,  among other things,  returned
          warrants to purchase  500,000  shares of the  Company's  common  stock
          which had been issued to him in prior years.


                                      * * *



                                      F-34


<PAGE>

Item 6.  Management's Discussion and Analysis or Plan of Operation

     The Company is engaged in the business of investing  and  participating  in
the development of commercial mining and milling operations  primarily at leased
properties  in or  near  Idaho  Springs,  Colorado.  The  Company  holds a 17.5%
interest in the Zeus Joint Venture, which has been developing the Franklin Mines
and the Franklin  Mill.  The Company  acquired a 20% interest in Newmineco,  LLC
from its Joint Venture partner in September 1996, which is a newly formed entity
that has commenced the development of the Mogul Mines. In addition,  the Company
purchased  the Gold  Hill Mill in July  1996,  which is an  inactive,  permitted
milling  facility  that the Company  will  attempt to develop and operate in the
future.

     During 1996, remediation work was performed and substantially  completed at
the Franklin Mines and the Franklin Mill in preparation for the  commencement of
mining operations at both the Franklin Mines and the Mogul Mines.  Approximately
200 tons of ore were mined at the Mogul Mines and shipped to the  Franklin  site
where the ore was  crushed  and milled.  The  management  of the Company is very
satisfied with the mineral content of the assays taken.

     The Company and its  investees  are in the  development  stage and have not
generated significant revenues on a sustained basis since the inception of their
respective  relationships.  The Company will not recognize any revenues based on
sales made by the Zeus Joint Venture and  Newmineco;  instead,  the Company will
recognize income or losses based primarily on its proportionate  equity interest
in the net income or loss of each of the  investees.  Accordingly,  the  Company
will not recognize any income from such  investments  until such time, if any as
the Zeus Joint  Venture or  Newmineco  begins  production  and  generates  sales
revenues and net profits.

 Liquidity and Capital Resources

     Since its inception,  the Company has financed its  operations  principally
through equity and debt financing, including such financing provided through its
relationships with its Joint Venture partner.  The Company has derived no income
from its mining and milling  investments  which are comprised of the  following:
(1) the  investments  in the assets and rights related to the Franklin Mines and
Franklin  Mill,  which are being  developed  and will be operated  by Gems,  the
Company's principal Joint Venture partner in the Zeus Joint Venture in which the
Company holds at 17.5%  interest;  (2) the  investment in the assets of the Gold
Hill  Mill,   the   development   and  operation  of  which  are  currently  the
responsibility of the Company; and (3) the 20% interest in Newmineco, LLC, which
holds the  assets and rights  related  to the Mogul Mine whose  development  and
operations  will also be the  responsibility  of Gems. At December 31, 1996, the
Company's  only  liquid  asset was cash,  the  balance of which  decreased  from
$118,176 at December 31, 1995 to $127 at December 31, 1996.

     During  1996,  the  Company  used  common  stock as its  principal  capital
resource.  It issued a total of  21,447,100  shares of common  stock and certain
notes for cash, the  acquisition  of services and mining and milling  properties
and the liquidation of debt, as further described below.

     In December 1995, the Company commenced an offering pursuant to Rule 505 of
Regulation D of 15% Secured Notes (the "15% Notes") in the  aggregate  principal
amount of  $1,500,000  that were  convertible  into shares of Common  Stock at a
conversion price of $.0975 per 


WCM CAPITAL, INC.                                                              2
(Formally Franklin Consolidated Mining Co. Inc.)
Amended 10K 1996

<PAGE>


share to raise funds for  operations.  The Company  terminated  this offering on
February 5, 1996 after  selling 15% Notes in the aggregate  principal  amount of
$400,000.  During the second quarter of 1996,  the Company  issued  4,294,770 of
Common  Stock  upon the  conversion  of all of the 15% Notes  based on the total
balance of the principal and accrued  interest  outstanding  of $418,740 and the
conversion price of $.0975 per share.

     In February 1996, the Company commenced an offering pursuant to Rule 505 of
Regulation D of its Common Stock to  accredited  and  unaccredited  investors to
raise funds for  operations.  Subscribers  of the offering  purchased the Common
Stock at 15% below the market price as quoted on NASDAQ at the close of business
on a specified date prior to the termination of the offering. The Company raised
approximately $202,600 from the sale of 953,411 shares at $.2125 per share.

     On July 3, 1996,  the  Company  acquired  the Gold Hill Mill  facility  for
$2,500,000 through a noncash  transaction  whereby it issued an 8% mortgage note
(the "8% Mortgage  Note") to a subsidiary of Gems which  requires the payment of
the entire principal balance no later than July 3, 1999. The 8% Mortgage Note is
secured by the Gold Hill Mill.

     Additionally,   in  July  1996,  the  Company   commenced  an  offering  to
unaffiliated  parties  pursuant to  Regulation  D for the  issuance of shares of
Common  Stock at the  equivalent  of $.15625 per share in  exchange  for certain
notes,  mortgages  and  other  obligations  of  Gems  and its  affiliates.  Upon
completion of the offering,  the Company issued 9,366,919 shares of Common Stock
to purchase  obligations of Gems and its affiliates with an aggregate  principal
balance  of  $1,463,581,  and  canceled  the  obligations  in  exchange  for  an
equivalent reduction in the principal balance of the 8% Mortgage Note.

     In July 1996,  the Company  commenced  an  offering of its Common  Stock to
accredited  investors  only  pursuant  to  Rule  505 of  Regulation  D to  raise
additional  funds for  operating  purposes.  The  offering  was on a best effort
basis. Due to market  conditions at the time of the offering,  the Selling Agent
was only able to sell 800,000  shares of Common Stock and raised  $95,000 before
the offering was terminated on September 15, 1996.

     In September  1996,  the Company  acquired its 20% interest in Newmineco by
issuing a 9.5% note (the "9.5 Note) payable to Gems with a principal  balance of
$600,000. As a result of problems concerning permitting and various other issues
related to the Mogul Mines,  the purchase  price was  reduced,  effectively,  to
$150,000 on December 31, 1996. The $450,000  reduction in the purchase price was
effectuated  through an equivalent  reduction in the principal balance of the 8%
Mortgage Note. The 9.5% Note was  originally due on June 30, 1997.  However,  on
February 7, 1997, Gems notified the Company that it had assigned its interest in
the 9.5% Note to certain  third  parties.  On  February  10,  1997,  the Company
notified the assignees  that it had elected to convert the principal  balance of
the 9.5% Note into 7,692,308 shares of Common Stock based on the conversion rate
of $.078 per  share.  Pursuant  to the  agreement  with the other  investors  in
Newmineco,  the Company will be entitled to the first $500,000 of any profits to
be distributed by Newmineco and 20% of any of its profits thereafter.

WCM CAPITAL, INC.                                                              3
(Formally Franklin Consolidated Mining Co. Inc.)
Amended 10K 1996


<PAGE>



     During 1996,  the Company also issued  3,716,000  shares of Common Stock in
exchange  for  financial  consulting  and other  services and for the payment of
accrued interest.

     The Company had 100,000,000  shares of Common Stock authorized for issuance
as of December 31, 1996 of which 90,583,020 were outstanding. As a result of the
conversion of the 9.5% Note during  February 1997, the Company's  ability to use
its Common Stock as a capital  resource will be limited unless its  stockholders
authorize an increase in capital or approve a reverse stock split.

     The  Company  had total  current  liabilities  as of  December  31, 1996 of
$1,378,883,  including  convertible  debentures  with  a  principal  balance  of
$145,000 and other notes payable with a principal  balance of $80,000.  Although
Gems will be responsible for providing the remaining capital resources that will
be needed for the commencement of operations at the Franklin Mines and the Mogul
Mine,  the Company will be  responsible  for  obtaining  the  remaining  capital
resources  that will be needed for the  commencement  of  operations at the Gold
Hill Mill.  In addition to the  payment of its current  liabilities,  management
estimates  that the Company will incur general,  administrative  and other costs
and expenditures,  exclusive of any costs and expenditures related to any mining
and milling  operations,  at the rate of approximately  $25,000 per month during
1997.

     As explained  above,  the Company's only liquid resource was a cash balance
of $127 at December 31, 1996.  Although the Company is entitled to distributions
of 17.5% of any net profits  generated from the operations of the Franklin Mines
by the Zeus Joint Venture,  any net profits  generated by the Gold Hill Mill and
the first $500,000 of any profits  generated through the operations of the Mogul
Mine by Newmineco plus 20% of any profits thereafter, all such operations are in
the development  stage and have been  generating  losses and negative cash flows
and management  cannot assure that those  operations  will generate any positive
cash flows during 1997.

     In the  absence of liquid  resources,  cash flows from  operations  and any
other  commitments for debt or equity  financing,  management  believes that the
ability of the Company to continue its  operations  will be  dependent  upon the
provision of financing  by Gems,  which Gems is required to provide  pursuant to
the Joint Venture Agreement.  Management believes,  but cannot assure, that such
financing and the financing needed to commence  operations at the Franklin Mines
and the Mogul Mine will be provided by Gems  during  1997,  and that the Company
will remain  dependent  on its Joint  Venture  partner as its primary  source of
financing for its  operations  until such time, if any, as the Company begins to
receive cash flows from its investments.

     During the first four months of 1997, Gems repaid advances from the Company
and made advances to the Company totaling approximately $300,000. These advances
were used,  among other things,  to pay legal and accounting  fees in connection
with the  Company's  public  filings  to  satisfy  obligations  arising  under a
settlement  of certain  litigation  to pay  delinquent  real estate taxes and to
satisfy  obligations  for remedial work at the Franklin Mines and Franklin Mill.
The  management  of the Company  believes that Gems will continue to fulfill its
commitment and make such advances until such time, if any, as the Company begins
to receive cash flows from its investments.

WCM CAPITAL, INC.                                                              4
(Formally Franklin Consolidated Mining Co. Inc.)
Amended 10K 1996


<PAGE>



     Management  believes  that  all  necessary   environmental  and  regulatory
approvals  have  been  obtained  and it  anticipates  that  mining  and  milling
operations  will begin at the  Franklin  Mines and/or the Mogul Mines during the
third  quarter of 1997.  The  management of the Company has been informed by the
management  of Gems that Gems has or will  provide the funds  needed to complete
the  rehabilitation  and  upgrading of the existing  plant,  equipment  and mine
workings to facilitate the commencement of such operations.

     Although the ultimate goal is to have both the Franklin Mines and the Mogul
Mine in operation simultaneously, no definitive plans have been made as to which
mine will be operated first.  Based on limited operations at the Mogul Mines and
initial assay  reports,  management  believes that the Mogul Mines may produce a
higher grade of ore than that produced by the Franklin  Mines and,  accordingly,
management  anticipates  that  operations  will commence  initially at the Mogul
Mine. Any cash flow generated  would then be used to assist in the  commencement
of operations at the Franklin Mines.

     With the addition of the Gold Hill Mill,  the Company will own the only two
permitted  mills in its mining district once the Franklin Mill and the Gold Hill
Mill become operational.  To be able to commence milling operations, the Company
will have to obtain  sufficient  working  capital and hire  managerial and other
mill  personnel.  Other nearby  mines are not  operating  currently  due, in the
opinion of management, to the lack of available milling facilities.  The Company
intends to solicit  owners of those mines to use the Company's  mills to process
their ore in order to augment expected revenues from mining operations. However,
there can be no  assurance  that any  significant  cash flows will be  generated
through these operations.

     In addition to funds committed by Gems,  management is considering  raising
capital by mortgaging the Gold Hill Mill property. The management of the Company
believes that,  based on the fair value of the Gold Hill Mill  property,  it can
raise a minimum  of  $1,000,000  using  conventional  mortgage  financing,  with
guarantees from Gems and its principals.  Such funds would be used to supply the
working capital  initially  needed to commence  operations at the Gold Hill Mill
and as an  alternative  means of financing  operations  at the  Franklin  Mines,
Franklin Mill, and the Mogul Mine.

     Management  also believes  that, at a minimum,  the Company will be able to
obtain  sufficient  financing  from Gems and/or  mortgage loans on the Gold Hill
Mill property to enable it to meet its working capital  requirements  through at
least December 31, 1997.

Results of Operations

     The  Company  and the Zeus Joint  Venture  had no active  mining or milling
operations during 1996 and 1995.

     The Company  had a net loss of $967,524  for 1996 as compared to a net loss
of $924,344 during 1995. This increase of $43,180 was primarily  attributable to
an increase in general and administrative expenses in 1996 of $505,414 offset by
the  effects  of a  nonrecurring,  noncash  charge in 1995 of  $468,000  for the
issuance  of stock to Gems to settle  claims  arising  from the  failure  of the
Company to meet its obligations under the Joint Venture  Agreement.  General and
administrative  expenses were $732,710 for 1996 as compared with $227,287 during
1995 due  primarily to increases in  professional  fees and costs of  investment
banking  services.  Interest  expense  was


WCM CAPITAL, INC.                                                              5
(Formally Franklin Consolidated Mining Co. Inc.)
Amended 10K 1996

<PAGE>


$102,238  during  1996 as  compared  to  $92,434  during  1995 due to  increased
interest incurred in connection with the issuance of notes in the Gold Hill Mill
and Newmineco acquisitions.

     Operations of the Joint Venture at the Franklin Mines and the Franklin Mill
during 1996 were  restricted  by the cease and desist order issued in March 1996
by the DMG for permit  violations that were not vacated until June 7, 1996. As a
result,  the  Company's  equity in the net loss of the Zeus  Joint  Venture  was
$12,950 in 1996 compared to $15,540 in 1995.

                                   SIGNATURES

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


                                WCM CAPITAL, INC.
                (FORMALLY FRANKLIN CONSOLIDATED MINING CO., INC.

March 29, 1999                              By: /s/ Robert Waligunda 
                                               ----------------------------
                                                    President

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


/s/  Robert Waligunda           Director/Secretary           March 29, 1999 
--------------------------                                                  
     Robert Waligunda                                                       


/s/  Richard Brannon            Vice President-West Coast    March 29, 1999 
--------------------------      Operations                                  
     Richard Brannon                                                        


/s/  George Otten               Vice President               March 29, 1999 
--------------------------                                                  
     George Otten                                                           


/s/  William C. Martucci        Director                     March 29, 1999 
--------------------------                                                  
     William C. Martucci                                                    


/s/  Ronald Ginsberg            Director                     March 29, 1999 
--------------------------                                                  
     Ronald Ginsberg                                                        


/s/  Robert W. Singer           Director                     March 29, 1999 
--------------------------                                                  
     Robert W. Singer                                        

WCM CAPITAL, INC.                                                              6
(Formally Franklin Consolidated Mining Co. Inc.)
Amended 10K 1996