SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                 ---------------

                                    FORM 10-K
         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

For the fiscal year ended August 31, 1997        Commission file number
                                                                       --------
                                 UP SEDONA, INC.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

          Arizona                                                86-0849531
-------------------------------                              ----------------
(State or other jurisdiction of                              (I.R.S. employer
incorporation or organization)                               identification no.)

       5745 North Scottsdale Road, Suite B-101, Scottsdale, Arizona 85250
       ------------------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (602) 947-2255
              ---------------------------------------------------
              Registrant's telephone number, including area code:

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

                                      None
                              ---------------------
                              (Title of each Class)


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

                                      None
                              ---------------------
                              (Title of each class)

     This report is filed  pursuant to Section  15(d) with respect to the filing
of Registration Statement No. 333-22643 on Form S-11. Registration Statement No.
333-22643 became effective on August 15, 1997.

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

                       DOCUMENTS INCORPORATED BY REFERENCE

            None.


<PAGE>
                                TABLE OF CONTENTS

PART I...................................................................  2
    ITEM 1.   BUSINESS...................................................  2
    ITEM 2.   PROPERTIES................................................. 22
    ITEM 3.   LEGAL PROCEEDINGS.......................................... 25
    ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 25

PART II.................................................................. 26
    ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY
                AND RELATED STOCKHOLDER MATTERS.......................... 26
    ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA....................... 28
    ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                FINANCIAL CONDITION AND RESULTS OF OPERATIONS............ 28
    ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................ 28
    ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                ON ACCOUNTING AND FINANCIAL DISCLOSURE................... 28

PART III................................................................. 29
    ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......... 29
    ITEM 11.  EXECUTIVE COMPENSATION..................................... 30
    ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                OWNERS AND MANAGEMENT.................................... 30
    ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 30

PART IV.................................................................. 31
    ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
                AND REPORTS ON FORM 8-K.................................. 31

SIGNATURES............................................................... 32

FINANCIAL STATEMENTS..................................................... FS-1

<PAGE>
                                     PART I

ITEM 1.     BUSINESS

INTRODUCTION

            UP Sedona,  Inc.,  an Arizona  corporation  ("UP Sedona") was formed
solely  to  design,  develop,  finance,   construct  and  market  for  sale  225
condominiums  as resort hotel  investment  units (the "Units") in a hotel called
ShadowRock  Sedona Golf Resort and  Conference  Center.  Each owner will own his
unit,  which  includes an  undivided  interest in the common areas of the hotel.
Each unit is subject to a mandatory  Hotel  Operating and Rental Pool  Agreement
that appoints Delta Hotels International,  Inc. as the manager of the hotel. The
mandatory  rental pool  provides for the pooling of both  revenue,  adjusted for
personal usage, and expenses. Distributions are based on the assigned percentage
interest of a unit.

            The hotel is located in the Village of Oak Creek,  Arizona, near the
city of Sedona. Construction of the hotel began in April 1997 and is anticipated
to be completed by December 31, 1998.  The hotel will contain 225 suites  (hotel
rooms),  a conference  center,  lobby,  ballroom,  restaurant,  pool and parking
facilities. Owners of Units and guests of the hotel will also be able to use the
golf  course of  Sedona  Golf  Resort  and the  Ridge  Spa and  Racquet  Club at
discounted rates but will not participate in any revenue generated from the golf
or spa facilities.  UP Sedona will finance the construction of the hotel through
third-party construction financing,  internally generated equity funds and loans
from its parent  corporation.  The total  estimated  acquisition,  construction,
development  (including funding of the obligation for a break-even cash flow for
the  first  year),  marketing  costs,  financing  costs  (including  a return on
internally  generated funds),  and overhead costs in connection with the project
are  estimated  to be  $34,850,000.  Actual  costs may vary  depending  on final
design,  control of  construction  costs,  the length of time to  construct  and
market the project and unforeseen factors such as labor and material  shortages.
At no time will proceeds from the sale of Units be used to provide financing for
the construction of the hotel.

            UP  Sedona  is  an  indirect   wholly-owned   subsidiary  of  United
Properties,  Ltd., a British  Columbia,  Canada company  ("United  Properties").
United  Properties was incorporated in 1975 and operates in British Columbia and
the Northwest United States.  It has developed  approximately  4,500 residential
units  having an  aggregate  sales value in excess of $650  million  (Canadian).
Management  of UP  Sedona  includes  certain  members  of  management  of United
Properties and, together with certain other officers of United Properties,  will
provide expertise in project development, finance, marketing and administration.

MARKET OVERVIEW

            The  lodging   industry  is  very  cyclical  and   profitability  is
determined by the relative  availability  of hotel room supply to actual lodging
demand.  Demand is closely linked to the strength of the economy.  The growth of
hotel supply,  however, is closely linked to the availability of capital,  which
may lag  behind an  increase  in  demand  for hotel  room  supply.  Accordingly,
historical supply growth has not always matched demand successfully.

            According  to  published   industry  sources,   demand  for  lodging
accommodations rose significantly from 1991 to 1995, while only a limited amount
of new hotels were constructed resulting in improved operating  performance.  In
1995,  annual average  occupancy  levels in the United States reached 66.3%, the
highest  level in more than 12  years.  As  occupancy  levels  increased,  hotel
operators  were able to  raise rooms rates.  In addition to  increased occupancy

                                       2
<PAGE>

and room rates, the hotel industry has benefitted from  technological  advances.
Hotels  operating  in  today's  environment  are more  labor  efficient,  energy
efficient,  and generally more cost effective in virtually every department when
compared to those  operating as recently as 10 years ago.  Improvements in hotel
management  and lower  interest  rates  have  also  contributed  to the  lodging
industry's overall performance. The U.S. lodging industry generated $7.6 billion
in pretax hotel profits in 1995.  All of the above factors have  contributed  to
increased profitability, which in turn has increased the attractiveness of hotel
investment for both current and potential owners.

            The  performance  of  the  U.S.  industry  as a  whole  may  not  be
indicative  of  results  that can be  achieved  in a specific  geographic  area.
Factors  that  would not  necessarily  have a  material  effect on the  national
industry because it is geographically diverse may have a significant impact on a
smaller  market.  Individual  hotel markets may  underperform  or outperform the
industry as a whole.

RESORT MARKET

            Resort hotels showed  significant  improvement  in both their market
and financial  performance in 1995. As the economy  continues its steady pace of
growth and consumer  confidence  slowly  improves,  it appears that business and
leisure  travelers  alike are  seeking the  luxurious  facilities  and  services
offered at the nation's  resorts.  In 1995,  resort hotels  achieved the highest
average room rate of all  property  types  according to PKF  Consulting - Trends
1996.

            Seasonality is a major factor affecting the performance of hotels in
the resort  segment of the lodging  industry.  In their Trends 1996 report,  PKF
Consulting  indicates  that resorts  have  softened  the  depressing  effects of
off-season  demand by attracting  demand from the  corporate and  group/meetings
business.  Leisure travel  occupancy in resorts has declined from 62% in 1990 to
54% in 1995 while corporate and meetings  business has risen from 33% in 1990 to
44% in 1995.

THE SEDONA MARKET

SEDONA

            Sedona is located in the central  portion of the State of Arizona in
a  mountainous  area  known  for  its  majestic  red  rocks,  some  of the  most
spectacular  geological  formations in the United States,  and  recreational and
cultural  activities.  Sedona is approximately 120 miles north of Phoenix and 30
miles south of Flagstaff, Arizona. While Sedona has four distinct seasons, it is
known for its mild climate,  with an average daily maximum  temperature  of 74.7
degrees.  Approximately  3.5 million  visitors travel through Sedona annually to
view  the  rock   formations   and  to  take   advantage  of  the   recreational
opportunities. Sedona is well located as a base for day trip activities and as a
hub for visitors to northern  Arizona.  Sedona is convenient to many of northern
Arizona's  numerous scenic  attractions  including Oak Creek Canyon,  Slide Rock
State Park,  Grand  Canyon  National  Park,  Sunset  Crater,  Walnut  Canyon and
Montezuma's Castle. The Sedona market includes the Village of Oak Creek.

MARKET OVERVIEW

            According to the Sedona Chamber of Commerce, there are approximately
1,800  hotel/motel  rooms and 100 bed and breakfast  rooms in the greater Sedona
market and an estimated  3.5 million  visitors  annually.  Currently,  only five
properties  in the lodging  supply offer over 80 rooms.  Resort and full service

                                       3
<PAGE>

hotels account for  approximately  40% of the hotel rooms. The balance represent
limited  service  hotels  and  bed  and  breakfast  facilities.   There  was  no
significant  new hotel  development in the Sedona market from 1988 through 1994.
In response to this pent-up demand, certain existing hotels have begun expansion
projects and a number of new  properties  have recently  opened or are currently
under   construction.   According  to  information   from  the  Sedona  Planning
Department,  a total of 491 rooms have been added to the Sedona  lodging  market
since  1995.  An  additional  355 rooms  (excluding  the subject  property)  are
expected  to be  available  within  the next two to three  years.  The new hotel
construction  is  primarily  of the  "limited-service"  variety  except  for the
proposed  The  Cliffs  at Oak  Creek,  the  expansion  at Bell  Rock Inn and the
expansion  at Poco  Diablo  Resort,  which are all  "full-service"  hotels.  The
Holiday Inn  Express,  the Desert  Quail Inn and the  expansion at Bell Rock Inn
represent recent development in the Village of Oak Creek.

                        SEDONA HOTEL DEVELOPMENT ACTIVITY
================================================================================
     PROPERTY                      DEVELOPMENT STATUS           NO. OF ROOMS
================================================================================
COMPLETED NEW HOTELS
  Desert Quail Inn:                    Opened 1995                21 rooms
      Village of Oak Creek
  Comfort Inn: Sedona                  Opened 1995                53 rooms
  Southwest Inn:  West Sedona          Opened 1995                28 rooms
  Best Western Inn at Sedona:          Opened 1996               110 rooms
      West Sedona
  Holiday Inn Express:                 Opened 1996               102 rooms
      Village of Oak Creek
  Comfort Suites: West Sedona          Opened 1996                37 rooms
                                                                 ---------
Sub Total:                                                       351 rooms
                                                                 ---------
EXPANSION
  Bell Rock Inn:                      Expanded 1995               52 rooms*
      Village of Oak Creek    
  Quality Inn King's Ransom:          Expanded 1995               60 rooms
      Sedona
  Poco Diablo Resort: Sedona          Expanded 1996               28 rooms*
                                                                 ---------
Sub Total:                                                       140 rooms
                                                                 ---------

Total Completed New Rooms                                        491 ROOMS
                                                                 ---------

                                       4
<PAGE>
================================================================================
     PROPERTY                      DEVELOPMENT STATUS           NO. OF ROOMS
================================================================================

UNDER DEVELOPMENT
  Hampton Inn: Central            Under Construction              52 rooms
      Sedona
  Sedona Real: West Sedona        Under Construction              47 rooms
  Homewood Suites:             Approved for Construction          70 rooms
      Central Sedona
  Sleep Inn:  West Sedona      Preliminary Planning Process       60 rooms
  The Cliffs at Oak Creek:     Preliminary Planning Process       70 rooms*
      Central Sedona
  Unnamed Motel: West          Preliminary Planning Process       56 rooms
      Sedona                                                      --------

Total Rooms Under Development                                     355 ROOMS
                                                                  --------
TOTAL                                                             846 ROOMS
                                                                  --------
================================================================================
*Full-service hotels represent 18% of total new rooms.
Source:  Sedona Planning Department


COMPETITION

            UP Sedona  believes  that six  properties  in the Sedona  market are
directly competitive with the Hotel. These are the Enchantment Resort, L'Auberge
de Sedona,  Los Abrigados Resort,  Poco Diablo Resort,  Junipine Resort and Best
Western  Arroyo Roble.  The following  chart sets forth the  characteristics  of
these properties,  which constitute the competitive supply,  together with those
of the subject hotel:

                                       5
<PAGE>
================================================================================
                                YEAR      NO. OF
PROPERTY                       OPENED     ROOMS     FACILITIES / AMENITIES
================================================================================
ShadowRock Sedona Golf        Anticipated  225  Restaurant, lounge, pool, 
 Resort and Conference         Opening          whirlpool spa, 10,000 square
 Center (Subject               January          feet of conference space
 hotel/Village of Oak Creek)    1999            including  a 5,000  square  foot
                                                ballroom,    one-bedroom   fully
                                                furnished   suites   with   full
                                                kitchens  and  fully   furnished
                                                studio suites with  kitchenettes
                                                and access to golf, spa, fitness
                                                and tennis facilities

The Enchantment Resort           1987     165   Restaurant, lounge, 4 pools,
 West Sedona/Boynton Canyon                     whirlpool  spas, spa and fitness
                                                center, tennis center, pitch and
                                                putt golf course,  full kitchens
                                                in some units, rental facilities

L'Auberge de Sedona              1985      97   Two restaurants, lounge, pool,
 Central Sedona/creekside                       whirlpool spa; villa units
 location                                       located along Oak Creek

Los Abrigados                    1986     50(1) Multiple restaurants, lounge,
 Central Sedona/creekside                       spa and fitness center, pool,
  location                                      whirlpool spa, tennis courts,
                                                indoor/outdoor meetings/
                                                conference  and function  space;
                                                guest   rooms   have   a   suite
                                                orientation

Poco Diablo Resort               1978   137     Restaurant, lounge, pool,
 Southern Sedona/proximate                      whirlpool spas, par 3 golf 
 to Oak Creek                                   course, tennis and racquetball
                                                courts,  6,000  square  feet  of
                                                conference   space,   each  room
                                                equipped    with   wet-bar   and
                                                refrigerator; suites available

Junipine Resort                  1986    50     Restaurant, all units are one/
 Upper Oak Creek Canyon/                        two bedroom fully equipped
 creekside location                             condominiums

Best Western Arroyo Roble/       1983    60     Pool, whirlpool spa, tennis
 Central Sedona                                 courts, a 15,000 square foot
                                                clubhouse   with  a  variety  of
                                                recreational/fitness  amenities;
                                                fully equipped suites available
                                        ---
                                        784
                                        ===
                                 6
<PAGE>

----------
(1)   At year-end  1995,  Los  Abrigados had  approximately  50 of its total 172
      suites  available  for use by the resort as hotel rooms.  The property has
      been involved with a timeshare  conversion for the past several years.  It
      is estimated that the remaining inventory will be reduced by approximately
      25 units per year during the sell-out of timeshare units.

            The  factors  considered  in  determining  this  competitive  supply
included:  (i) the number of rooms and amount and quality of meeting space, (ii)
quality and value of overall facilities and amenities, (iii) character and style
of the hotel, (iv) rate structure and market position,  and (v) location factors
such as surrounding land uses.

            With the exception of Poco Diablo  Resort,  all of the properties in
the  competitive  resort supply were developed in the early to  mid-1980's.  The
upper  end of the  competitive  supply is  represented  by  Enchantment  Resort,
L'Auberge de Sedona,  Los Abrigados and the Junipine  Resort.  These  properties
generally offer higher quality  facilities and amenities and capture the highest
average rates in the Sedona marketplace.  Poco Diablo and Arroyo Roble represent
the lower end of the competitive continuum,  primarily due to rate structure and
overall facilities and amenities. The average rate at Poco Diablo will likely be
enhanced as a result of the recent opening of 28 suites and renovation efforts.

            Of the competitive supply, Los Abrigados and Enchantment offer suite
amenities.  A portion of the units at Enchantment  have full kitchens.  As noted
above,  Los  Abrigados is being  converted  to  timeshare  and the rooms will no
longer be available for use as hotel rooms.

            The Bell Rock Inn and the Best Western at Sedona are not included in
the  competitive  supply.  The Bell  Rock  Inn has a lower  rate  structure  and
virtually  no meeting  facilities.  The Best  Western Inn at Sedona has recently
opened and represents a limited service hotel with a lower rate structure.

RESORT MARKET SEASONALITY

            The Sedona  resort  market is  affected by  seasonality  with demand
fluctuating  at different  levels  throughout  the year.  The severity of demand
fluctuation  has  lessened  in  recent  years  as a  result  of  the  increasing
popularity of the area. Peak season in demand occurs in Spring, Summer and Fall.
Specifically, the peak season extends from April through August and includes the
month of October. During peak periods, occupancy in Sedona ranges from 80% - 90%
and there is less disparity between weekend and weekday demand. As a result, the
resort market  experiences  numerous fill nights (periods in which the market is
at capacity) during the peak season.

            The "shoulder"  season  includes  February and March,  September and
early November.  Occupancy  percentages  generally range from the 60s to the 70s
during this  period.  Group  meetings  and group tour demand  bolsters  mid-week
occupancies and individual  tour demand is mainly oriented to the weekends.  The
resort  market  experiences  numerous  fill  nights on the  weekends  during the
shoulder season.

            The low season is  represented by the later part of November and the
months of December and January.  The Red Rock  Fantasy,  as well as other events
held in the area during this  period  have  helped to increase  demand  activity
during this low season. Market occupancy ranges from 50-60% during this period.

                                       7
<PAGE>

            UP Sedona  believes  that  there  remains a  misconception  that the
weather in Sedona is similar to the extreme cold of other  northern areas of the
State such as Flagstaff. However, much of the area outdoor recreational activity
(golf,  hiking,  etc.) is  available on a  year-round  basis.  The two main golf
courses in Sedona each  recorded less then 10 "no play" days on average over the
past two years as a result of poor weather.

UNSATISFIED DEMAND

            As a result of significant tourist activity, Sedona experiences high
levels of  unsatisfied  demand  during  certain  times of the year.  Unsatisfied
demand is that demand which is not able to be  accommodated in the direct market
area due to facility size or capacity  constraints  and exists whenever a market
experiences periods of 100% occupancy.  As a result of seasonality,  unsatisfied
demand can exist even though the average annual occupancy for the market is less
than  100%.  The  level  of  unsatisfied  demand  is  extremely  important  when
considering  the  potential  support for new hotel  development  in a particular
area.

MARKET DEMAND

            The overall demand for resort lodging  accommodations  in the Sedona
area is generated primarily by three market segments:  individual leisure, group
meetings and group tours. Based on information  obtained through interviews with
Sedona hotel  operators,  it is estimated  that the  commercial  demand  segment
comprised only approximately 3% of the total number of rooms rented in Sedona in
1995  due to the  minimal  commercial  activity  in  Sedona  and  was  primarily
satisfied by properties  in the downtown  area of the City of Sedona.  UP Sedona
does not expect a substantial amount of business from commercial travelers.

            INDIVIDUAL LEISURE. The "individual leisure" market segment consists
of tours requiring  accommodations in the area for general sightseeing,  weekend
"get-aways",  cultural  activities  and a variety of  recreational  and  special
events  throughout  the year.  This demand  segment is  strongest in the Spring,
Summer  and  Fall.  Individual  leisure  demand  is  characterized  by  multiple
occupancy.  Based on information  obtained through  interviews with Sedona hotel
operators,  it is estimated that this market segment accounted for approximately
77% of the total rooms rented in the  competitive  supply in Sedona in 1995.  UP
Sedona   believes   that   individual   leisure   travelers   generally   select
accommodations based on the following factors:

                  + Aesthetic appeal of surrounding area
                  + Proximity to area attractions
                  + Overall quality of the facilities
                  + Quality and variety of recreational facilities
                  + Value offered
                  + Name identity/affiliation and/or reputation

            GROUP MARKET. Group meeting demand is typically comprised of smaller
regional/state associations,  state corporations and state government. Corporate
meeting  business  consists  primarily  of   executive/incentive   retreats  and
conferences.  Group  demand in Sedona  typically  peaks during  March-April  and
September-October.  Based on information obtained through interviews with Sedona


                                       8
<PAGE>

hotel  operators,  it is  estimated  that group  meeting  demand  accounted  for
approximately  20% of the total rooms  rented in Sedona in 1995 by the hotels in
the competitive supply.

            UP Sedona  believes  there has been support from the group market in
the  past in  Sedona  and  that,  with  the  loss of the  meeting  space  at Los
Abrigados,  there is a significant  opportunity  for new  group-oriented  resort
hotel  business in the Sedona  market.  Currently,  only a few of the properties
competitive with the hotel specifically  cater to the group demand segment.  The
design of the hotel has specifically  taken into  consideration the requirements
to meet this demand.  It believes that certain  factors that contribute to group
use of a particular facility include the following:

                  + Image and reputation
                  + Quality, flexibility, and size of meeting facilities
                  + Quality of support services  provided to group  meeting  
                    planners and their attendees   
                  + Distance/travel time to airport
                  + Convenience of access to shopping, restaurants services,
                    attractions and recreational facilities (especially golf)
                  + Quality,  variety,  and  size of food and  beverage outlets
                  + Quality and consistence of service in all areas of the hoteL
                  + Pricing

FUTURE DEMAND GROWTH

            UP Sedona  estimates  that demand will increase at  approximately  3
percent annually  starting in 1998, the point in which new supply is expected to
enter the  competitive  marketplace.  This growth is consistent  with the demand
growth experienced by the competitive supply between 1992 and 1994.

            UP Sedona also anticipates that the new additions to the competitive
supply,  specifically  the subject  hotel,  will induce  demand into the market.
Induced  demand is new  demand  that  enters a market as a direct  result of the
introduction  of a new hotel  product.  This demand is over and above the normal
demand growth  experienced by the marketplace.  As a result of their more unique
physical  attributes,  variety of amenities,  and ability to cater to all demand
segments,  resort oriented hotels, more than any other lodging type, possess the
ability to induce new demand into a marketplace.

PROSPECTIVE NEW RESORT SUPPLY

            UP Sedona  estimates that 440 new hotel units (including the subject
hotel)  will be  constructed  within  the next  three  years.  These new  rooms,
combined  with a 50 room  reduction  at a  competitive  hotel,  result  in a net
increase  of 390 rooms.  The recent  addition  of 28 rooms at Poco  Diablo,  the
proposed 70 room The Cliffs at Oak Creek (lodging and  timeshare),  the proposed
70 room Homewood  Suites,  and the 47 room Sedona Real are the only additions to
the competitive supply.  Other recent additions and proposed additions have been
primarily in the  limited-service  category and are not viewed as competitive to
the hotel.

            Further  potential  supply is restrained  both by  inadequate  sewer
capacity and the current  community  plan that does not anticipate the zoning of
new properties for hotel development.

                                       9
<PAGE>

ESTIMATED PERFORMANCE FOR THE HOTEL

MARKET PENETRATION

            UP Sedona's  estimates  of  operating  results are  predicated  on a
number of assumptions relating to the physical and locational characteristics of
the hotel.  These assumptions  include the overall facility program,  as well as
the fact that the hotel has a  preferential  tee time agreement with Sedona Golf
Resort.  UP Sedona  believes that the  resort-oriented  facilities and dedicated
golf agreement will provide a significant competitive advantage for the hotel in
the Sedona marketplace. Additionally, UP Sedona considered the following factors
in estimating the hotel's future performance:

                  + the estimated future performance of the overall competitive 
                    lodging market
                  + the advantages and disadvantages of the hotel relative to 
                    the existing and future competitive market (assuming its 
                    location, overall facilities program, and golf agreement)
                  + the estimated mix of different types of demand for the hotel
                  + the estimated rate structure for the hotel and 
                  + the impact of potential new hotel supply in the competitive 
                    market.

Market  penetration  serves  as a basis  for UP  Sedona's  estimates  of  future
occupancy  performance for the hotel. Market penetration is a measurement of the
level of demand  captured by a given hotel in relation to its fair market  share
based on the number of hotel rooms it has  relative to the number of hotel rooms
in the market.  Market  penetration  is expressed as a percentage,  with a hotel
capturing  its fair market share having a market  penetration  rate of 100%.  UP
Sedona's   analysis   considered   the  hotel's   competitive   advantages   and
disadvantages in order to determine  prospective future penetration of the group
and individual  tourist/leisure  segments.  UP Sedona's  analysis  breaks market
penetration down into individual and group demand  segments,  as is discussed in
the following paragraphs.

            INDIVIDUAL   TOURIST/LEISURE  DEMAND.  As  discussed  under  "Market
Demand,"  individual  leisure demand for the  competitive  supply  accounted for
approximately  77% of the total occupied rooms in 1995. UP Sedona estimates that
the leisure market will account for  approximately  55% of the occupied rooms in
the hotel during a stabilized  year of  operations,  which is more than 20% less
than that  experienced by the competitive  supply.  The remaining demand will be
filled by the group market.

            Factors that  contribute to the hotel's  ability to attract  leisure
travelers include the following:

                  + Unsatisfied demand within the competitive supply during the
                    peak season
                  + The hotel's suite orientation
                  + The fact that it is the only hotel located on an 18 hole 
                    golf course in Sedona/Oak Creek offering preferential tee 
                    times and discounted green fees
                  + A competitive rate structure just below the mid-range
                  + The guest privileges at the Ridge Spa
                  + The full service nature of the hotel

            GROUP  DEMAND.  Of  the  competitive   supply,   only  Poco  Diablo,
Enchantment and Arroyo Roble offer group-oriented facilities. Poco Diablo offers

                                       10
<PAGE>

the largest  meeting  space (6,000  square  feet).  UP Sedona  believes that the
removal from the market of the Los Abrigados  meeting space (10,000 square feet)
has created  significant  unsatisfied demand for meeting  facilities.  The group
market is estimated  to account for 45% of the occupied  rooms in the hotel upon
stabilization. Although this is significantly higher than the 20% experienced by
the  competitive  supply in 1995, UP Sedona believes that the hotel will be well
positioned  to capture this  proportion  of the group  demand for the  following
reasons:

                  + The hotel will provide modern meeting facilities that will 
                    be superior to those offered by any of the properties in the
                    competitive supply
                  + The hotel's suite orientation
                  + The hotel will provide a variety of resort oriented
                    facilities and recreational amenities, including on-site 
                    golf and spa privileges. This will provide the hotel with a
                    significant competitive advantage when considering groups 
                    that emphasize golf as an important component of their
                    itinerary
                  + The hotel's location provides a more remote and resort 
                    oriented atmosphere, yet is convenient to all the facilities
                    and attractions recognized throughout the city of Sedona and
                    the surrounding region

            Based on the above factors,  UP Sedona  believes that the hotel will
be unique in the market  and will be able to induce  new demand  into the market
along with  accommodating  unsatisfied  demand that currently  exists.  Further,
given the hotel's facilities and access to recreational amenities  (specifically
golf and spa), UP Sedona  believes the hotel will have a  competitive  advantage
over the existing and future competitive supply.

OCCUPANCY

            As indicated in the following  table,  UP Sedona  estimates that the
hotel's  occupancy  will  increase  from 59 percent in year one to 72 percent in
year three of operations.  Beyond year three,  the hotel is estimated to operate
at a more  stabilized  level of 74 to 75 percent.  UP Sedona  believes the hotel
will open with a market  penetration  rate slightly above its fair market share.
Upon  reaching a more  stabilized  level of operations in year three and beyond,
the market penetration rate is expected to remain relatively  constant and range
between 105% to 106%.  The market  penetration  rate is heavily  impacted by the
timing of new supply  entering  the market.  Because the hotel is competing in a
growing market,  occupancy can increase without  significantly  impacting market
penetration.

            The initial  year  disparity  in occupancy is typical of a new hotel
entering a market.  The period  between  when a hotel  opens and when it reaches
stabilization can vary dramatically based on the type of hotel, its physical and
locational characteristics, its market mix, and prevailing market conditions. It
generally  takes a longer  period  of time to  effectively  penetrate  the group
market given the exposure and  recognition  a hotel will need to establish  with
meeting  planners,  both locally and nationally,  as well as the fact that group
business is typically  booked well in advance.  As a result,  UP Sedona believes
the vast  majority of the  hotel's  estimated  demand  growth will be within the
group market  during years one through  three as the hotel  reaches the expected
level of occupancy by the group market.

            The  determination  of the  occupancy  upon  opening  and the period
necessary  to  reach  stabilization  is  subjective  and is  based on all of the

                                       11
<PAGE>

factors  discussed  herein  regarding  the hotel  facilities,  the impact of new
supply  (including  the impact of the subject  hotel),  the level of unsatisfied
demand and induced demand,  the mix between leisure and group demand and overall
market  conditions.  No one factor is determinative  and no particular weight is
assigned to any one factor.

            The following table sets forth the resulting occupancy estimates for
the hotel during its first five years of operation:

              ESTIMATED OCCUPIED ROOMS AND OCCUPANCY FOR THE HOTEL
================================================================================
                   ESTIMATED       ESTIMATED
                 OCCUPIED ROOM   OCCUPIED ROOM  TOTAL ESTIMATED     ESTIMATED
    YEAR        NIGHTS: LEISURE   NIGHTS:GROUP   OCCUPIED ROOM   OCCUPANCY RATE
                    SECTOR           SECTOR         NIGHTS        FOR THE HOTEL
================================================================================
Year 1 ending
Dec. 31, 1999       31,284          17,170           48,454           59%
--------------------------------------------------------------------------------
Year 2 ending
Dec. 31, 2000       32,426          22,598           55,024           67%
--------------------------------------------------------------------------------
Year 3 ending
Dec. 31, 2001       33,704          25,426           59,130           72%
--------------------------------------------------------------------------------
Year 4 ending
Dec. 31, 2002       34,033          26,740           60,773           74%
--------------------------------------------------------------------------------
Year 5 ending
Dec. 31, 2003(1)    34,329          27,265           61,594           75%
================================================================================

(1)  Forecasted first year of stabilized operating performance

AVERAGE DAILY RATE

            The ADR in the competitive supply has escalated at a consistent pace
since  1992.  Properties  in the upper tier  achieved an ADR in the $160 to $180
range and properties in the lower tier achieved an ADR in the $100 to $110 range
in 1995.  The  anticipated  quality,  proposed  facilities  and  amenities,  and
golf/spa  affiliation  should  allow the hotel to be  positioned  well above the
mid-range established by the upper and lower competitive properties. The average
ADR for all properties in the competitive  supply was $160 in 1996. UP Sedona is
targeting the ADR for the hotel at  approximately  $145 (in 1996 dollars) during
the  first  year of  operations.  This  rate is below  the ADR  currently  being
achieved by the competitive  supply in 1996. UP Sedona believes the targeted ADR
is appropriate based on the higher mix of group versus leisure and believes that
the rate will provide a competitive  advantage given the rate disparity  between
the high and low end in the competitive supply.  Based on a 3% inflation factor,
the ADR in 1999 is estimated to be $155. UP Sedona believes that, over time, the
hotel will be able to achieve an ADR above the midpoint range.

                                       12
<PAGE>

CONCLUSION

            UP Sedona  believes that the Sedona lodging  market will  experience
continued  growth  into the  foreseeable  future.  Factors  contributing  to the
strength of the market and its overall potential growth are:

                  + Projected growth of tourism throughout the northern Arizona
                    region;
                  + Increased desirability of locations within Arizona as 
                    destinations for group meeting planners;
                  + Local municipal commitment to aggressive tourism marketing;
                  + Positive economic trends within the State of Arizona;
                  + Enhanced interest in Arizona as a premiere resort and golf
                    destination;
                  + Proposed expansion projects at Sky Harbor International
                    Airport (Phoenix); and
                  + Continued growth in the slow season demand.

            UP Sedona believes that the hotel, with its larger one-bedroom Units
with full kitchens,  will provide an attractive alternative to the more standard
guest rooms  offered by the  majority  of the  competitive  hotels.  The hotel's
conference  facilities  will be the  largest of any of the  competitive  hotels.
Further,  the hotel will be the only property offering on-site championship golf
facilities.  UP Sedona believes that the hotel's anticipated  quality,  proposed
meeting  space,  recreational  amenities  and  golf  and spa  affiliations  will
position the hotel to attract  individual leisure and group travelers and create
additional  demand for lodgings in the Sedona  market.  The hotel will represent
the  newest  full  service  hotel  addition  to  the  competitive  supply  since
Enchantment  was built in 1987.  UP Sedona  anticipates  that the hotel  will be
positioned  below  both the  midpoint  rate  range and the  market  leaders  and
anticipates that it will achieve occupancy levels above the competitive supply.


                   MANAGEMENT OF THE HOTEL AND THE RENTAL POOL

THE HOTEL OPERATOR

            Delta Hotels International, Inc., a wholly-owned subsidiary of Delta
Hotels Limited, will serve as the hotel operator pursuant to the Hotel Operating
and Rental  Pool  Agreement.  The hotel  operator  will manage the hotel and the
rental  pool,  and  maintain  the hotel on behalf of the owners  pursuant to the
Hotel Operating and Rental Pool Agreement.  Delta Hotels Limited, as measured by
annual revenue, is Canada's largest privately owned hotel company.  Delta Hotels
Limited  and its  affiliates  are not  affiliated  in any way with UP  Sedona or
United  Properties  Ltd.  Delta Hotels Limited opened its first hotel in 1962 in
Vancouver, British Columbia. Based in Toronto, Ontario, Delta Hotels Limited has
grown to become a leader in the Canadian hospitality market, with representation
in every major city in Canada.  Significant  development  of the Delta chain and
brand  has  occurred  under  its  present   ownership  by  RH  Corporation   and
Transtrend-Canada  Ltd.,  affiliates  of  Realstar  Group of Toronto and Lai Sun
Group of Hong Kong.  Delta Hotels Limited has expanded from 14 hotel  properties
under  management in Canada in 1987 to a present  portfolio of 21 Canadian hotel
properties  under  management  totalling  6,886 guest rooms.  An additional five
Canadian  hotel  properties  are  presently  under  development,  which will add
another 1,400 guest rooms to the existing portfolio.

                                       13
<PAGE>

            From its strong Canadian base, Delta Hotels Limited has expanded its
international  presence in recent years to  destinations  frequented by Canadian
travellers.  Through its  affiliates,  Delta  Hotels  Limited  manages two Delta
branded hotel  properties  totalling 266 guest rooms in the  Caribbean,  one 800
room Delta  branded  property in Florida and one  additional  290 room  property
under development in the Caribbean.  Through Delta Asia Limited, an affiliate of
Delta Hotels  Limited,  the Delta brand has also been  expanded  into  Thailand,
Vietnam,  and  Malaysia,   with  three  Delta  branded  hotel  properties  under
management  totalling 665 rooms,  and an additional  property under  development
totalling 325 rooms.

            Delta  hotels are  positioned  in the first  class  category  of the
hospitality   sector  with  many  of  its  hotels  rated   "four-star"   by  the
Canadian/American  Automobile Association.  Delta hotels have a solid reputation
among business and leisure  travellers,  and enjoy very high guest  loyalty.  An
independent  research study of Canadian  frequent business  travellers  recently
conducted by the Angus Reid Group  reported that Delta hotels  achieved a higher
guest  satisfaction  rating  in 1996 than  their  competitors,  and their  guest
satisfaction rating increased  substantially over the 1995 rating.  Delta Hotels
Limited has been  innovative  in  introducing  new  products  and service to the
hospitality  industry.  Delta Hotels Limited's guest recognition program,  Delta
Privilege,  is the largest  program of its kind in Canada.  Delta Hotels Limited
was also the first chain in Canada to introduce an in-room office program.

            Delta Hotels Limited has  consistently  delivered  higher net income
per available room from its Canadian  portfolio than the hotel industry  average
in Canada.  Compared  with other  major  first  class  hotel  brands,  including
Doubletree,  Sheraton,  Hilton, Westin,  Radisson and Marriott,  Delta is a much
lower cost operator when  comparing  similar  brand costs,  including  franchise
fees, national advertising and marketing and reservation fees.

            Results that may be achieved at other  hotels in  different  markets
may not be indicative of results that can be achieved at the subject hotel.

MANAGEMENT OF THE RENTAL POOL

MANDATORY PARTICIPATION IN THE RENTAL POOL

            Participation  for all Unit owners in the rental pool in  accordance
with the Hotel  Operating and Rental Pool  Agreement is mandatory.  In addition,
any Units  that have not been  sold by UP  Sedona  will be placed in the  rental
pool. UP Sedona,  and any affiliates  that purchase  Units,  will be treated the
same as any other  owner and will  receive  their  share of revenue and bear its
share of expenses  for such Units.  A Unit will  automatically  be placed in the
rental  pool when the Unit is not  reserved  for use by the  owner.  Each  owner
appoints the hotel operator as his exclusive  agent for management of the rental
pool and the  bookings of the  owner's  Unit and agrees to honor and be bound by
the rental booking of his Unit made by the hotel operator in accordance with the
Hotel Operating and Rental Pool Agreement. Units may not be used for any purpose
other than as hotel suites in  accordance  with the Hotel  Operating  and Rental
Pool Agreement,  the Declaration and other condominium  documents  governing the
hotel. The hotel operator has complete discretion to establish Unit rental rates
including offering the use of Units at low promotional rental rates and offering
Units on a complimentary basis from time to time to guests of the hotel.

                                       14
<PAGE>

            The initial operating period of the rental pool will commence on the
date that the Hotel is opened by the hotel  operator  for business as a hotel in
the hotel operator's hotel system and will conclude on December 31 in that year.
Thereafter,  operating  periods for the rental pool will run 12 months  based on
the calendar year.

OWNERS' USE OF UNITS

            An owner is  guaranteed to be able to use his Unit for a total of 14
days per calendar year. In addition, an owner may be able to use his Unit for up
to an additional 14 days per calendar year  depending  upon certain  factors set
forth below.  The executive  Units will not be available for personal use. If an
owner  reserves the use of his Unit for a stay which  commences at or after 2:00
p.m.  on a Friday or a Saturday,  the owner must  reserve the Unit for a minimum
two night  stay.  An owner may use his Unit no more than four  times a year with
respect to two or three  night  stays that  commence  at or after 2:00 p.m. on a
Friday or a Saturday. If an owner reserves the use of his Unit by written notice
to the  hotel  operator  no less  than six  months  prior to the date the  owner
intends to use the Unit,  the owner is guaranteed to be able to use his Unit for
a total of up to 14 days.  Additionally,  an owner may be  permitted  to use his
Unit for a total of up to an additional 14 days if the owner reserves the use of
his Unit by written  notice to the hotel  operator no more than 15 days prior to
the date the owner intends to use his Unit and, at the time the owner gives such
notice to the hotel operator, (i) the Unit is not subject to a prior reservation
for any of the requested  time, and (ii) the hotel is less than 80% reserved for
any of the requested  time. If an owner does not use all of his allotted days in
a calendar  year,  the owner will not be entitled to accumulate  the unused days
for use in any subsequent year.

            Furthermore,  if an owner reserves the use of his Unit, but does not
actually use the Unit at the reserved time, the owner will nonetheless be deemed
to have used the Unit unless the owner has  canceled  the  reservation  with the
approval  of the  hotel  operator  no less  than 30 days  prior  to the  owner's
scheduled  use  or  five  days  if  the  use is  pursuant  to the 15 day  notice
requirement and the Unit is made available for rental to the public.  So long as
an owner is  deemed  to have  used his Unit  (regardless  of  whether  the owner
actually  uses the Unit and  regardless  of whether the Unit is later  rented to
hotel guests during that time),  the Unit will not be deemed to be in the rental
pool.  However,  any  revenues  generated  from the  rental of the Unit to hotel
guests  during the time that had been reserved by the Unit owner will be for the
benefit of other owners whose Units are in the rental pool at that time.

            An owner will be required to pay a mandatory room cleaning charge in
connection  with  the  owner's  use of  his  Unit.  Subject  to  adjustments  to
subsequent  operating budgets,  the current charge for a one-bedroom Unit is $30
and for a  studio  Unit is $20.  In  addition,  an owner  will pay the  standard
charges  established  by the hotel  operator for,  among other  amenities,  long
distance telephone calls, movie rentals,  room service and restaurant usage, and
the  purchase of other goods and  services at the hotel.  All of the  furniture,
fixtures and equipment located in and around the hotel (excluding any such items
located in a Unit) will be owned  collectively  by the  owners.  Any  furniture,
fixtures and equipment  located  within a Unit will be owned by the owner of the
Unit but cannot be removed or changed except as set forth in the Hotel Operating
and Rental Pool Agreement.

                                       15
<PAGE>

ALLOCATION OF REVENUE AND EXPENSES

            The Hotel  Operating and Rental Pool Agreement  describes the manner
in which income from Unit rentals is divided among the owners. For each day that
a Unit is in the rental  pool,  the owner of that Unit will be entitled to share
in the Gross Revenue from the operation of the hotel,  regardless of whether the
owner's Unit generated  rental income on that particular  date.  "Gross Revenue"
consists of all revenue of any kind  derived  directly  or  indirectly  from the
operation  of the hotel and  specifically  includes (i) revenue from the use and
enjoyment of the hotel by guests and owners such as, for example,  room revenue,
revenue generated by the restaurant,  the conference  center, and any use of the
recreational  facilities,  housekeeping  charges,  revenue  from movie  rentals,
minibar and telephone usage,  and (ii) parking  revenue,  proceeds from business
interruption  insurance,  revenue  from other hotel  amenities  (such as vending
machines) and fees from  concessionaires  operating at the hotel.  Gross Revenue
does not include most taxes,  capital  gains,  condemnation  awards,  rebates or
discounts,  proceeds from most types of insurance and  gratuities  paid to hotel
employees.  An owner's  allocable  share of the gross revenue will be determined
based on the percentage  interest of the Unit. The percentage interest of a Unit
will be  determined  according  to the  following  formula  as  provided  in the
Declaration:

                                Seller's initial value of a Unit as established 
                                by UP Sedona
      Percentage Interest   =   -----------------------------------------------
      of a Unit                 $43,827,100

An owner's  allocable share of gross revenue for a day in which the owner's Unit
is in the rental pool (not  reserved  for use by the owner)  will be  determined
according to the following formula:

      Gross revenues from       Percentage Interest of a Unit
      the operation of      X   -----------------------------------------------
      the hotel                 Sum of Percentage Interests of all Units in 
                                the rental pool on that day

An owner's allocable share of all hotel expenses and other costs attributable to
the  owners  under  the  Hotel  Operating  and  Rental  Pool  Agreement  will be
determined according to the following formula:

      Total hotel expenses 
      and other costs       X   Percentage Interest of a Unit

An owner will be responsible for his allocable  share of the costs  attributable
to the owners for each day that the hotel is  operating,  regardless  of whether
the owner's  Unit is in the rental pool on any  particular  day. The owners bear
all of the costs and expenses of operating, maintaining and repairing the hotel,
the hotel  grounds and the  contents  of the hotel.  These  costs  include,  for
example:  (i) repair and  maintenance of hotel  buildings,  grounds,  furniture,
fixtures  and  equipment  located at the hotel;  (ii)  purchasing  all  supplies
including  food,  beverages,  linens,  and cleaning  products  necessary for the
operation  of  the  hotel;  (iii)  costs  associated  with  hiring,  firing  and
compensating employees necessary to staff the hotel; (iv) fees paid to the hotel
operator;  (v)  utilities  and  insurance;  and  (vi)  marketing  and  promotion
expenses,  reservation  fees and travel agent  commissions.  These  expenses are

                                       16
<PAGE>
divided in accordance with industry  standards  between  departmental  expenses,
undistributed expenses, and fixed expenses.

DIRECT EXPENSES OF OWNERS

            Each owner will be  personally  responsible  for the  payment of all
taxes  applicable to the owner  arising out of the ownership of a Unit,  amounts
owed  under  any  financing  of  the  Unit,  and  all  assessments  made  by the
Association.  The  amount of  property  taxes to be paid by each  owner  will be
determined annually by the Yavapai County Assessor's Office. Property taxes will
be  assessed  against  each  owner as of the date the Unit is  purchased  by the
owner.  UP Sedona's  estimate of taxes is based on application of 1996 tax rates
to such  property.  The  amounts for the first year range from $1,672 to $2,095.
The actual tax may differ  from the  projected  amount when  actually  assessed.
Subsequent transfers of one or more Units may cause further reassessments of one
or more Units and tax increases. Property taxes may increase for all owners even
in years in which no reassessment from any sale or transfer occurs.

            The  assessments  payable  by an  owner to the  Association  and the
method of  billing  and  collecting  are more  fully  described  in the  section
entitled Summary of Declaration and Related Documents. The amount of each annual
assessment  initially  is  based  upon the  annual  projected  operating  budget
prepared by the hotel  operator.  If any estimated  budget  understate  net cash
flow, the Association  may amend the budget and increase the annual  assessments
against  all  Units,  based  upon each  Units  allocable  share.  The  estimated
Association  budget for the first  operational year for the hotel,  after taking
into account hotel revenue and expenses, is $50,000,  which is intended to cover
fees for  professional  services  and  administrative  expenses  incurred by the
Association.  Each Unit will be assessed its share of such budgeted amount based
on the percentage  interest for the Unit,  which amounts range from $189 to $227
per year. The  assessments  for future years will depend upon hotel revenues and
expenses for those years.

            If a Unit owner fails to pay property taxes, the taxing  authorities
may place a tax lien on the  delinquent  owner's Unit and foreclose the tax lien
if the  delinquent  tax is not paid prior to the tax sale. If a Unit owner fails
to pay any financing of the Unit,  the lender may elect to pursue  collection of
the debt against the delinquent  owner with or without  foreclosing any mortgage
lien against the delinquent  owner's unit given to secure such  financing.  If a
Unit owner fails to pay its assessments to the Association,  the Association may
elect  to  pursue  collection  of the  delinquent  assessment  with  or  without
foreclosing the assessment lien which the Association has against the delinquent
owner's Unit.

RENTAL POOL REPORTS

            For each calendar  month,  the hotel operator will prepare  detailed
statements of operations  that describe,  among other things,  the gross revenue
from the hotel, hotel operating expenses,  capital expenditures,  reserves,  and
the amount of cash flow,  if any,  distributable  to an owner for that month.  A
summary of these  statements of operations will be mailed to each owner no later
than the 20th day  following the end of each calendar  month.  In addition,  the
hotel operator will provide each owner with a monthly statement for the previous
month that  describes  how many days in that month the unit was occupied and how
many days the Unit was in the rental pool.  The hotel operator will also prepare
and  mail to each  owner  within  75 days  after  the end of an  operating  year
statements of operations for the entire operating year and individual statements
relative to each owner's Unit. The statements of operations  will be audited for
the first year of operations. Unless otherwise agreed in advance by the Board of
Directors,   the  statements  of  operations  will  be  audited  for  each  year
thereafter.  The individual  statements will serve as the basis for reporting to
the Internal Revenue Service and other appropriate taxing authorities.

                                       17
<PAGE>

DISTRIBUTIONS FROM RENTAL POOL

            The amount  distributable to an owner will be computed each month by
subtracting  the following  amounts from the owner's share of gross revenue from
hotel operations:  (i) the owner's share of hotel operating  expenses;  (ii) the
owner's  share of amounts  necessary to fund or replenish  operating and capital
expenditure  reserves,  make capital lease payments and pay the hotel operator's
Incentive Fee; (iii) the owner's share of capital expenditures exceeding amounts
paid out of the  appropriate  reserve;  (iv)  the  owner's  share  of  repayment
expenses  in  connection  with a  previous  operating  shortfall,  if any,  (see
"Shortfalls"  below) after depletion of reserves (see "Reserves" below); (v) any
assessment  payable by the owner  pursuant  to the  Declaration;  (vi)  expenses
associated with an owner's personal use of the hotel (for example,  the cleaning
charge);  (vii) bed taxes  and other  similar  taxes  imposed  or  collected  in
connection  with the use of the hotel by the hotel patrons;  (viii)  withholding
taxes,  if applicable;  and (ix) any other amounts payable by the owner to Delta
pursuant to the Hotel Operating and Rental Pool Agreement.

            The amount  distributable  to an owner,  if any, will be sent to the
owners with the monthly  financial  summary (see,  "Rental Pool Reports" above).
Alternatively,  the hotel  operator  may  prepare a  reasonable  estimate of the
amount  distributable  to the owners on an annual  basis and  distribute  to the
owners the estimated  amount,  less an amount (not to exceed 20%) established by
the hotel  operator  for  seasonal  working  capital  requirements,  in 12 equal
monthly  installments.  If the hotel operator  elects to distribute an estimated
amount,  at the end of the operating  year the hotel operator will calculate the
actual amount  distributable  to each owner and pay to each owner the balance of
the amount,  if any,  distributable  for that operating  year. This last payment
will be sent  75 days  after  the end of the  operating  year  with  the  annual
financial statements.

RESERVES

            An  operating  cash  reserve  in the  amount  of  $250,000  will  be
established  when  the  hotel  commences  operations.  Upon the  closing  of the
purchase  of a Unit,  the Unit  owner  will be  required  to  contribute  to the
operating  cash reserve an amount equal to the  percentage  interest of the Unit
being purchased multiplied by $250,000, which amounts range from $946 to $1,186.
This  reserve will be  available  to the hotel  operator for working  capital in
connection  with the  operation  of the hotel  commencing  in the second year of
operations. Reserves will be established for capital expenditures for repair and
replacement  of the hotel  premises  and repair and  replacement  of  furniture,
fixtures and equipment as follows:
                                                 Amount to be Reserved Each
                                                    Year Expressed as a
                                                Percentage of Gross Revenue
             Year                                      in that Year
          ----------                            ---------------------------
              1                                             0%
              2                                             2%
              3                                             3%
              4                                             4%
              5 and subsequent years                        5%


                                       18
<PAGE>
SHORTFALLS

            If at any time the funds  derived from the  operations  of the hotel
(including established reserves) are not sufficient to pay when due all expenses
incurred in connection with the operation of the hotel, capital expenditures and
other  amounts  for which the owners are liable  (such as may occur from time to
time as a result of, among other causes, seasonal fluctuations in the use of the
hotel by owners and other patrons), the hotel operator may require each owner to
remit to the hotel operator the owner's  allocable  share of the shortfall.  The
owner's  allocable share of the shortfall is determined by multiplying the total
amount of the shortfall by the  Percentage  Interest of a Unit.  The formula for
determining the Percentage  Interest of a Unit is described above in the section
entitled  "Allocation  of Revenues and  Expenses." The hotel operator may elect,
but is not  obligated,  to advance the  shortfall  and obtain  repayment  of the
shortfall,  plus interest  accruing at the designated prime rate plus 2%, out of
the cash flow from the operations of the hotel.  Payment of the shortfall by the
owner is obligatory and may be enforced by, among other methods,  enforcement by
the Association of an assessment lien against the Units.

HOTEL OPERATOR MAY RELY UPON ACTS OF BOARD OF DIRECTORS

            The Board of Directors of the Association elected in accordance with
the  provisions  of the  Declaration  will  represent the owners in all respects
concerning  the hotel  operator.  All of the owners will be bound by the acts of
the Board of  Directors on behalf of the owners and the hotel  operator  will be
entitled to rely upon the acts of the Board of Directors as the authorized  acts
of the owners.  The Board of Directors and the hotel operator will meet not less
frequently than quarterly.

MANAGEMENT AND MAINTENANCE OF THE HOTEL

            The hotel operator will perform,  on an exclusive  basis, all duties
and obligations within the scope of the management,  maintenance,  and marketing
of the hotel,  including the  restaurant and  conference  facilities.  The hotel
operator will,  among other things,  use all reasonable  efforts to maintain and
operate the hotel as a first-class resort hotel,  market and sell the rental use
of the Units and other facilities of the hotel, furnish  bookkeeping,  inventory
control,   reservations,   marketing  and  advertising   services,   direct,  in
consultation  with the Board of  Directors,  litigation in respect of the hotel,
supervise the use of the hotel by guests and owners, hire, train,  terminate and
perform other  managerial  functions with respect to the staff  necessary to the
operation  of the  hotel,  and  obtain for itself or on behalf of the owners all
insurance,  licenses and permits  necessary to the  operation of the hotel.  The
hotel operator may make, at the owners' expense, but subject to the then current
approved operating plan and budget and other limitations,  reasonable changes to
the hotel.

            The hotel  operator  will prepare,  on or before  December 1 of each
year, an annual  operating plan and budget for the operation of the hotel during
the  following  operating  year.  The annual  operating  plan and budget will be
subject to the reasonable  approval of the Board of Directors of the Association
and a summary of the operating plan and budget will be sent to all of the owners
after it has been approved by the Board of Directors.  Either the hotel operator
or the Board of Directors  may elect to have  disputes  regarding  the operating
plan and budget resolved by arbitration.

            The hotel operator will obtain and maintain, as an operating expense
of the  hotel,  public  liability,  fire and  casualty,  business  interruption,
workmen's compensation and other insurance reasonably necessary to the operation
of the hotel,  naming the owners,  the hotel  operator  and the  Association  as
insureds.
                                       19
<PAGE>

            Under the Hotel  Operating  and  Rental  Pool  Agreement,  the hotel
operator  may,  in its  discretion,  assign  all or a portion  of its rights and
obligations  under the Hotel Operating and Rental Pool Agreement to an affiliate
of the hotel operator or any successor in interest to the hotel operator.

FEES PAID TO HOTEL OPERATOR

            As  a  compensation  for  its  services  provided  under  the  Hotel
Operating  and Rental Pool  Agreement,  the hotel  operator will be paid various
fees.  The hotel  operator's  fees will be paid out of the gross  revenue of the
hotel and will be affected by reduced  revenue as a result of personal  usage by
owners to the  extent  that such  usage  denies the rental of a room to a paying
guest.  The hotel  operator will receive a Base Fee of $10,000 per month for the
12 month  period  following  the opening of the hotel and 3.0% of gross  revenue
thereafter.  The Base Fee will be payable in monthly installments.  In addition,
the hotel  operator will be paid an Incentive Fee based on a tiered scale if the
hotel  operator  achieves  certain  performance  standards  in  respect  of  the
operations  of the hotel  based on Net  Hotel  Return.  "Net  Hotel  Return"  is
computed as follows:
                                           -------
                                           |
                                           |  expenses of the operation of the
                                           |  hotel
                                           |           +
                                           |  amount contributed to reserve for
Net Hotel Return = Gross Revenue minus     |  replacement of furniture, fixtures
                                           |  and equipment and capital 
                                           |  improvements
                                           |
                                           |            +
                                           |  real property taxes
                                           -------

Depending upon the  performance  of the hotel,  the Incentive Fee payable to the
hotel  operator  may range from 0% of Net Hotel  Return (if net hotel  return is
less than $3.2  million) to 30% of the amount by which Net Hotel Return  exceeds
$4.2 million in the first full operating  year,  decreasing to 10% of the amount
by which Net Hotel  Return  exceeds  $4.2  million  in the sixth and  subsequent
operating years. Specifically, the Incentive Fee will be computed as follows:

                                  INCENTIVE FEE
--------------------------------------------------------------------------------
                           YEAR        YEAR        YEAR         YEAR
  NET HOTEL RETURN          1           2          3,4,5     6,7,8,9,10
--------------------------------------------------------------------------------

Less than $3.2 Million     0.0%        0.0%        0.0%         0.0%

Over $3.2 Million and     15.0%       15.0%       12.0%        10.0%
up to $4.2 Million       of the amount by which Net Hotel Return exceeds 
                         $3.2 Million

Over $4.2 Million         30.0%       25.0%      22.50%        20.0%
                         of the amount by which Net Hotel Return exceeds 
                         $4.2 Million

                                       20
<PAGE>

If the term of the Hotel Operating and Rental Pool Agreement is renewed (see the
discussion regarding the rental terms below in the section entitled "Termination
of Hotel  Operator") the Incentive Fee will be computed in the same manner as in
year 10.

            The hotel operator will also receive reimbursement for marketing and
reservations  system  costs  incurred in  connection  with the  operation of the
hotel. The hotel operator will also be paid a monthly  Administration Fee in the
amount of $5 per  month  per Unit.  In  addition,  the  hotel  operator  will be
entitled to be reimbursed for costs incurred by the hotel operator in connection
with special promotional  programs,  training  materials,  travel by head office
personnel and others on matters directly  involving the hotel, and other similar
expenses.  Subject to approval by the Board of Directors of the  Association  as
part of the annual hotel operating budget approval  process,  the hotel operator
may retain an  affiliate  or  division  as a  consultant  to  perform  technical
services in connection with any substantial remodeling, repairs, construction or
other capital improvements to the hotel and the hotel operator and its affiliate
will be entitled to be compensated by the owners for their services.

TERMINATION OF HOTEL OPERATOR

            The  appointment of the hotel operator under the Hotel Operating and
Rental  Pool  Agreement  will run  continuously  from the date that the hotel is
opened by the hotel  operator  for  business as a hotel in the hotel  operator's
hotel system until December 31, 2008, unless earlier terminated. The appointment
of the hotel operator will be automatically  renewed for two additional terms of
5 years each  provided the following  conditions  have been  satisfied:  (a) the
owners have not previously terminated the appointment of the hotel operator; (b)
the hotel  operator has not elected to terminate  its own  appointment  or given
notice to the board of directors of the  Association of its election not to seek
renewal of its  appointment;  and (c) the  appointment of the hotel operator has
been extended for all prior periods.  The  appointment of the hotel operator may
also be renewed by agreement of the owners and the hotel operator (regardless of
whether the conditions described above have been satisfied).  The hotel operator
may  terminate  its  appointment  under  the Hotel  Operating  and  Rental  Pool
Agreement  at any time upon 60 days' prior  notice to the Board of  Directors of
the  Association  if the owners fail to make or authorize the hotel  operator to
make  capital  expenditures  without  which the hotel  cannot be  operated  as a
first-class  hotel (in the discretion of the hotel operator) or if the number of
Units subject to the Hotel Operating and Rental Pool Agreement is less than 200.
The  appointment of the hotel operator under the Hotel Operating and Rental Pool
Agreement may be  terminated  by a vote of 75% of the Units  entitled to vote on
the matter if the hotel  operator is in default  under the Hotel  Operating  and
Rental Pool Agreement and the hotel operator fails to cure the breach within the
required time.

            The  appointment of the hotel operator under the Hotel Operating and
Rental  Pool  Agreement  may also be  terminated  by a vote of 75% of the  Units
entitled to vote thereon if,  commencing in the ninth  operating year, the hotel
operator  fails  to  achieve  minimum  performance   standards.   These  minimum
performance  standards will not be met if in two consecutive operating years the
REVPAR  for the hotel is not at least 90% of the  average  REVPAR of a sample of
competitors of the hotel,  or if in two  consecutive  operating  years the hotel
fails to produce a Net Hotel Return  greater than  $3,625,000  in years 2007 and
2008,  and  $3,750,000  in  year  2009  and  subsequent  years.  The  sample  of
competitors of the hotel for purposes of the REVPAR test  initially  consists of
five hotels/resorts designated in the Hotel Operating and Rental Pool Agreement.
These  hotels/resorts are currently  operating in the vicinity of Sedona and Oak
Creek Canyon,  Arizona,  offer  first-class  accommodations  and  recreation and

                                       21
<PAGE>

restaurant  facilities,  and serve  similar  market  segments to the hotel.  The
sample of  competitors may be  changed by  agreement of the owners and the hotel
operator where one of the existing  sample  competitors  ceases to operate or no
longer qualifies as a comparable  hotel/resort or where an additional comparable
hotel/resort  opens in the vicinity of the hotel and completes two full years of
operation.  In addition, the sample of competitors and the 90% benchmark will be
reevaluated and, if appropriate, changed by agreement of UP Sedona and the hotel
operator  approximately five months prior to the opening of the hotel.  However,
if the hotel operator fails to achieve such minimum performance  standards,  the
hotel operator has the option to contribute an amount  necessary to be deemed to
have achieved the minimum performance standards in lieu of being terminated.

            If the  appointment of the hotel  operator is terminated,  the hotel
operator will be paid the amount of its fees that have accrued or been earned up
to the  date of  termination.  Fees  that are  computed  on an  annual  or other
periodic basis will be amortized and prorated based on the date of termination.

            To the extent the hotel operator or its  affiliates own Units,  with
respect to any vote of the owners to  terminate  the hotel  operator,  the hotel
operator  for itself and on behalf of its  affiliates  irrevocably  appoints the
president of the Association as its proxy for the limited purpose of casting the
hotel  operator's  and its  affiliates  votes as  abstentions  on such  matters.
Furthermore,  for purpose of  determining  whether the required  number of Units
have voted to terminate the hotel operator,  votes recorded as abstentions shall
not be  counted  toward a quorum  or as  having  been  entitled  to vote on such
matters.

REMOVAL OF THE HOTEL OPERATOR'S BRAND

            Pursuant  to  the   Declaration,   which   constitutes   a  recorded
restriction on the hotel and each Unit, all of the Units must, at all times,  be
subject to the Hotel  Operating  and  Rental  Pool  Agreement.  Unless the Hotel
Operating and Rental Pool Agreement is amended to remove this  requirement,  any
existing Unit will automatically be subject to the Agreement. However, the hotel
operator reserves the right to cease to operate or identify the hotel as a hotel
in the Delta  Group if at any time for any  reason  (which  reasons  are not now
foreseeable)  five or more  Units are not  subject  to the Hotel  Operating  and
Rental Pool  Agreement  (except for  temporary  removal as a result of a fire or
other casualty).  If the hotel is no longer operated as part of the Delta group,
the hotel  operator may carry out its duties  through a subsidiary or assign its
rights under the Hotel  Operating and Rental Pool Agreement to a subsidiary.  In
addition,  the name of the hotel will be changed to remove references to "Delta"
and alternate  reservation and marketing  services will be provided by the hotel
operator  and its  subsidiary  at a cost to be  agreed  upon  with the  Board of
Directors.

ITEM 2.   PROPERTIES

THE HOTEL

GENERAL

            The hotel  will  consist of 225 suites and will be located on a 7.43
acre site within the Sedona Golf Resort  commercial/residential  master  planned
community.  The Sedona Golf  Resort is  situated in the Village of Oak Creek,  a
residential area located approximately five miles south of Sedona, Arizona. (See

                                       22
<PAGE>


"The Sedona  Golf  Resort"  below.)  The hotel will be three  stories and have a
grand lobby, conference center, ballroom, and recreational amenities,  including
a swimming  pool and  whirlpool  spa.  The hotel  will  offer food and  beverage
service from a lounge and a restaurant.  The restaurant  will offer all day full
service and room service targeted to the mid-price range.

            The hotel will be  located  within the  Sedona  Golf  Resort  master
planned  community,  which  includes  a  retail/commercial  center,  multi-  and
single-family  residential development,  timeshare properties,  the golf course,
the Ridge Spa and Racquet Club (see "Recreational  Amenities"  below"),  and the
proposed hotel. UP Sedona believes that the hotel will fill a void in the Sedona
market  for  first-class  full-service  hotel  facilities  and  that  the mix of
residential,  recreational  and commercial uses within the Sedona Golf Resort is
an ideal setting for the proposed development.

THE UNITS

            The hotel will comprise a mix of  one-bedroom,  executive and studio
Units.  All Units  include a patio or  balcony  and  offer  scenic  views of the
adjacent golf course and/or the red rocks of Sedona.  Six one-bedroom plans, two
studio plans and one executive plan have been designed;  the plan of a Unit will
depend upon its  location  within the hotel.  All of the Units will have similar
furnishings depending on size, except for the executive Units. One-bedroom Units
will include a separate living/sleeping area, full kitchen and fireplace and the
studio Units will have a  living/sleeping  area and a  kitchenette.  Each of the
studio Units will be adjacent to a one-bedroom Unit, allowing a one-bedroom Unit
and a studio Unit to be rented as a two-bedroom  suite. Each executive Unit will
be equipped for small  meetings  with a conference  table and will have a Murphy
bed.

            Currently  only one of the hotel  properties  in the  Sedona  market
offers  comparable  suites in both size and amenity  package.  In response to UP
Sedona's market studies,  UP Sedona has determined that a mix of 171 one-bedroom
Units,  six executive  Units and 48 studio Units will best serve the combination
of individual and group travel.

CONFERENCE FACILITIES

            UP Sedona  believes that there is a significant  need for additional
quality  conference  facilities in the Sedona market.  See "The Hotel Industry -
The Sedona  Market"  above.  Conference  facilities  planned  for the hotel will
comprise  10,000  square feet of meeting  space,  including a 5,000  square foot
ballroom,  several  "breakout"  conference  rooms  and  hospitality  suites  and
pre-function,  storage and kitchen  spaces.  UP Sedona believes that the hotel's
planned meeting space will be the largest,  most flexible facility  available in
northern Arizona.

OTHER FACILITIES

            The hotel will include a 125 seat full-service  restaurant,  a lobby
lounge,  and an outdoor  swimming pool and  whirlpool  spa. The hotel will offer
pool side food and beverages in the area surrounding the swimming pool.

                                       23
<PAGE>

RECREATIONAL AMENITIES

            UP Sedona  believes  that access to golf  activities is an important
factor for a successful resort hotel. It has therefore entered into an agreement
with the Sedona Golf Resort  (see below)  pursuant to which  guests of the hotel
will receive  preferential  tee times and a ten percent discount on greens fees.
Owners will not participate in any revenue from the golf course operations.  The
agreement  permits  the hotel to reserve  rounds for its guests up to 40% of the
total rounds played in the previous year. In 1996,  approximately  43,000 rounds
were played, which would have entitled the hotel to reserve approximately 17,200
rounds  in 1997  if it  were to have  been  operational.  The  golf  course  can
accommodate approximately 45,000 rounds of golf per year. In addition, the Ridge
Spa and Racquet Club, a full-service  private  health/fitness  facility  located
within a short walk from the hotel,  has agreed to allow  guests of the hotel to
use its  facilities  at a one-third  discount off the current daily guest fee of
$20. The services  offered by the spa include a fitness  center,  aerobic  room,
heated lap pool and outdoor  whirlpool  spa,  three  racquetball  courts,  three
lighted tennis courts,  social lounge with courtyard  seating,  full service pro
shop, juice and snack bar, and sauna and steam room facilities.

THE SEDONA GOLF RESORT

            The   following   discussion  is  intended  to  provide  an  overall
description  of the Sedona Golf Resort and the projects  that are being built as
part of the overall  master plan.  Owners of Units will not acquire any interest
in any of these projects.

THE GOLF COURSE

            The golf course at Sedona Golf Resort,  the only 18-hole public golf
course in the Sedona area,  is recognized as one of the premiere golf courses in
the United States and was recently rated as the second best course in Arizona by
The Arizona Republic. The course provides scenic views of Sedona's red rocks and
can be played year-round.  In November 1996, the owner and developer of the golf
course opened a new 18,000 square foot clubhouse  facility adjacent to the hotel
site that offers a full-service restaurant and lounge, a retail facility,  men's
and women's  locker  facilities  and a small meeting room.  The golf course also
includes a driving range and professional instruction.

MULTI/SINGLE FAMILY RESIDENTIAL DEVELOPMENT

            Residential  development  is a  significant  component of the Sedona
Golf Resort  master plan.  Currently  there are  approximately  50  multi-family
condominium units located west of the hotel site,  adjacent to the Ridge Spa and
Racquet Club. The current master plan provides for the development of 300 single
family homes  throughout the resort.  Golden Heritage Homes,  the exclusive home
builder in the development,  intends to sell lots ranging from 6,600 square feet
to 10,000  square feet,  with  finished  home prices  ranging  from  $250,000 to
$310,000.  Custom  homes  will be  available  on some of the larger  lots.  Home
construction began in November 1996.

COMMERCIAL/RETAIL DEVELOPMENT

            The master plan also includes  neighborhood/tourist  retail and food
and beverage  development,  to be located between the hotel site and State Route
179 in the northeastern portion of the master plan.

                                       24
<PAGE>

THE RIDGE TIMESHARE RESORT

            An  unaffiliated  developer  has begun  construction  of a  120-unit
timeshare  resort, to be situated on a 11.5 acre parcel located southwest of the
hotel. The first phase of construction  began in October 1996 and is expected to
include 12 units and an 11,000  square  foot  clubhouse  and sales  center.  The
developer  of this  timeshare  resort also owns and  operates  the Ridge Spa and
Racquet  Club.  All  timeshare  owners  will have  membership  access to the spa
facilities and have the right to reserve up to 10% of the total rounds played in
the previous year on the golf course at Sedona Golf Resort.


ITEM 3.   LEGAL PROCEEDINGS

            The Company is currently not a party to any legal proceedings.


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

            None.










                                       25
<PAGE>

                                     PART II

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

PLAN OF DISTRIBUTION

            The  Units  are  being  offered  on a best  efforts  basis by United
Property  Investments  Corp.,  a  broker-dealer  affiliated  with UP Sedona,  as
principal  distributor,  and by  broker-dealers  selected  by UP Sedona  who are
members of the National  Association  of  Securities  Dealers,  Inc. The minimum
subscription  is one Unit.  Broker-dealers  including the principal  distributor
will  receive a  commission  of up to 2?% of the sales  price of a Unit for each
Unit sold. The principal  distributor will also receive a fee of 2% of the total
purchase price of the Units for acting as principal distributor and for expenses
incurred  in  connection   with   coordinating   sales  efforts  and  performing
"wholesaling" activities.

            The  closing on the sale of Units will not occur  until the hotel is
completed  and ready for  operation.  No  minimum  number of Units  must be sold
before UP Sedona can close on the Units. Subsequent closings will occur upon the
sale of each Unit. The offering will terminate two years from August 15, 1997.

            Retirement plans and individual retirement accounts may not purchase
Units.  No sales will be made to  discretionary  accounts  without prior written
approval of the prospective investor.

            UP Sedona and each broker-dealer  participating in the offering have
agreed to indemnify each other against certain liabilities including liabilities
under the  Securities Act of 1933, as amended,  the  Securities  Exchange Act of
1934, as amended, and the Arizona Securities Act.

RESALE OF UNITS

            There can be no  assurance  that there will be an  organized  resale
market for the Units and owners may not be able to readily  resell  their Units.
Unit owners will be able to offer their Units for resale  personally  or through
their securities broker.

            There are certain  conditions  that must be satisfied in  connection
with the sale of a Unit by an owner. Prior to entering into an agreement for the
sale of a Unit,  the selling  owner must provide the proposed  purchaser  with a
copy of the Hotel  Operating  and  Rental  Pool  Agreement  and must  notify the
proposed purchaser of any proposed bookings of the Unit by the selling owner. In
addition,  the purchaser must, as a condition of the purchase,  ratify the Hotel
Operating and Rental Pool Agreement, appoint the hotel operator as its exclusive
agent for the  management  and rental of the hotel and the Unit,  and  expressly
assume the  obligations of an owner  pursuant to a form  acceptable to the hotel
operator.  The Hotel Operating and Rental Pool Agreement does not terminate upon
the death or the  attempted  withdrawal of an owner or upon the sale or transfer
of a Unit by an owner.

                                       26
<PAGE>

ITEM 6.   SELECTED CONSOLIDATED FINANCIAL DATA

                                 UP SEDONA, INC.

                                 BALANCE SHEET

                                AUGUST 31, 1997


                                     ASSETS

Real Estate Under Development                               $5,837,155
Other Assets                                                   412,566
                                                            ----------

                                                            $6,249,721
                                                            ==========

                      LIABILITIES AND SHAREHOLDER'S EQUITY

Liabilities:
     Accounts Payable and Accrued Expenses                  $  214,033
     Notes Payable                                           3,094,288
     Due to Related Parties                                  1,441,400
                                                            ----------
          Total Liabilities:                                $4,749,721
                                                            ----------

Shareholder's Equity:
     Preferred Stock                                        $1,000,000
     Common Stock                                                    1
     Additional Paid in Capital                                499,999
                                                            ----------
          Total Shareholder's Equity:                       $1,500,000
                                                            ----------

                                                            $6,249,721
                                                            ==========



                                       27
<PAGE>

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

            UP Sedona  was  formally  organized  as an  Arizona  corporation  in
December,  1996 to acquire and develop  real estate for future  sale.  UP Sedona
acquired a parcel of land in Sedona,  Arizona in  December,  1996 and intends to
develop  a resort  hotel  to be  known as  ShadowRock  Sedona  Golf  Resort  and
Conference  Center  which  will  be  subdivided  into  condominium   units.  The
condominium units will be offered for sale to individual purchasers, who will be
required as part of the sales transaction, to enter into the hotel operating and
rental pool agreement.  UP Sedona has incurred certain project development costs
and has only recently commenced construction and its marketing campaign.

            UP Sedona  is funding  construction  of  the  resort  hotel  with  a
construction development loan from an independent lender. The terms will include
interest at market rates,  the property will  collateralize  the debt obligation
and the parent company of UP Sedona's shareholder will guarantee the obligation.
It is  anticipated  that the loan will be repaid when UP Sedona's  receives  the
proceeds from the sale of the condominium units.

            As UP Sedona sells condominium  units, the funds will be placed into
an escrow account. Upon construction  completion,  the funds will be transferred
to UP Sedona  through a closing and the  condominium  unit  owners will  receive
title to their unit. At that time,  revenue will be recognized  from the sale of
the  condominium  units and the costs  associated  with revenue will be expensed
with a corresponding reduction to real estate under development.


ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

            Reference is made to the Financial Statements, the notes thereto and
Report of Independent Public  Accounts  thereon  commencing at Page FS-1 of this
Report, which Financial Statements,  Notes and Report are incorporated herein by
reference.


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

            None.

                                       28
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

MANAGEMENT

            UP Sedona, Inc., an Arizona corporation, is an indirect wholly-owned
subsidiary  of United  Properties  Ltd.,  a British  Columbia,  Canada,  company
("United Properties"). The management of UP Sedona is made up of the following:

             NAME                             POSITION
             ----                             --------
             Victor D. Setton                 Chairman and Director
             William S. Oliver                President
             Elias D. Setton                  Vice President
             Raymond J. Langrish              Secretary and Treasurer


            VICTOR D. SETTON, age 51, has been President and Director since 1975
of United  Properties,  which  specializes in the development,  construction and
marketing  of  multi-family  residential  projects  in  the  Lower  Mainland  of
Vancouver,  B.C. and in the Pacific  Northwest  United  States and Arizona,  and
Chairman and Director of UP Sedona since 1996.  He was elected  President of the
Urban Development Institute in 1986, was re-elected for a two year term in 1987,
and in 1988 received its Highest Honour Award for his  outstanding  contribution
to   professionalism,   leadership,   and  commitment  to  excellence  in  urban
environment.  Mr.  Setton has been a  participant  in the Urban Design  Advisory
Panel for the City of Vancouver.

            WILLIAM OLIVER,  age 63, joined the United  Properties group in July
1996 and has served as President of UP Sedona since its incorporation. From 1993
to June 1996 he was President of Rio Rico Properties,  a real estate development
company.  Prior  thereto  he was  President  of his own  development  company in
Arizona from 1973 to 1993. He has extensive experience in the building industry,
specifically  in  recreation/resort  development and  construction  and has also
developed  residential and commercial properties for major development companies
in the United States.

            ELIAS D.  SETTON,  age 39, has served as Manager,  Land  Development
since 1990 of United  Properties  and as Vice President of UP Sedona since 1996.
During the past two years his primary role has been  overseeing the  development
of hotels  within  Canada and the United  States.  Mr. Setton holds a Diploma in
Urban Land  Economics  in both  Appraisal  and Real Estate  Management  from the
University  of  British  Columbia.  He is  currently  a  Director  of the  Urban
Development Institute.

            RAYMOND J. LANGRISH,  age 52, has served as Vice President,  Finance
since joining United  Properties in 1987 and  Secretary,  Treasurer of UP Sedona
since 1996.  Prior to joining  United  Properties,  Mr.  Langrish  held  similar
positions  over the  previous  20 years with  various  real  estate  development
companies,  both public and  private.  He  qualified  as a Certified  Management
Accountant in 1972 and is a former member of the Accounting  Standards Committee
of the Canadian Institute of Public Real Estate Companies.

                                       29
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

            Mr.  Oliver  received no  compensation  from UP Sedona in 1997.  His
compensation will be paid in the form of a bonus based on the performance of the
project  under  development.  Mr.  Oliver  received  no  grants  or  options  in
connection  with his  service  as  President  of UP  Sedona.  None of the  other
executive  officers of UP Sedona  earned  more than  $100,000 in the last fiscal
year.



ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            UP  Sedona is 100%  owned by United  Properties,  Inc.,  an  Arizona
corporation.  United  Properties,  Inc. is 100% owned by Internorth  Development
Ltd., a Washington  corporation.  Internorth Development is 100% owned by United
Properties,  Ltd., a British Columbia Canada company. United Properties, Ltd. is
100% owned by Jenvic  Holdings,  Ltd. Victor Setton,  David Setton,  and Deborah
Setton own 75%, 12.5%, and 12/5% of Jenvic Holdings, Ltd., respectively.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          None.







                                       30
<PAGE>

                                     PART IV

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

(a)   3.1      Articles of Incorporation of the Registrant (1)
      3.2      Bylaws of the Registrant (1)
      10.1     Golf Facilities Agreement (1)
      10.1(a)  Amendment to Golf Facilities Agreement
      10.2     Reciprocal Easement Agreement with Covenants and Restrictions (1)
      10.3     Condominium Declaration
      10.4     Articles of Incorporation of Condominium Association (2)
      10.5     Bylaws of Condominium Association (2)
      10.6     Hotel Operating and Rental Pool Agreement (3)
      23       Consent of Toback CPA's, P.C.
      27       Financial Data Schedule
----------

(1)  Incorporated by reference to the Registrant's  Registration Statement filed
     on Form S-11 with the Commission on or about March 3, 1997.

(2)  Incorporated by reference to the Registrant's  Registration Statement filed
     on Form S-11 with the Commission on or about March 3, 1997 as Annexes D and
     E, respectively, to the Prospectus.

(3)  Incorporated  by  reference  to  the   Registrant's   Amendment  No.  4  to
     Registration  Statement No. 333-22643 filed with the Commission on or about
     August 11, 1997 as Annex B to the Prospectus.


                                       31
<PAGE>
                                   SIGNATURES


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

                                               UP SEDONA, INC.


Date: December 17, 1997                        By: /s/ William Oliver
     -------------------                          ------------------------------
                                                  William Oliver, President


            Pursuant to the  requirements  of the Securities  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.

       SIGNATURE                          TITLE                        DATE
       ---------                          -----                        ----


By /s/ William Oliver          Chief Executive Officer and     December 17, 1997
  ---------------------------  President (Principal Executive 
       William Oliver          Officer)
                                                                    

By /s/ Raymond J. Langrish     Secretary and Treasurer         December 17, 1997
  ---------------------------  (Principal Financial and
       Raymond J. Langrish     Accounting Officer)



By /s/ Victor D. Setton        Chairman of the Board and       December 17, 1997
  ---------------------------  Director
       Victor D. Setton





                                       32
<PAGE>






                                 UP SEDONA, INC.

                                  BALANCE SHEET

                                 AUGUST 31, 1997























                                      FS-1
<PAGE>


                                 UP SEDONA, INC.

                                  BALANCE SHEET

                                 AUGUST 31, 1997


                                    CONTENTS

                                                    Page
                                                    ----

Independent auditor's report                        FS-3


Balance sheet                                       FS-4


Notes to balance sheet                           FS-5 - FS-9









                                      FS-2
<PAGE>






Board of Directors
UP Sedona, Inc.
Phoenix, Arizona

                          INDEPENDENT AUDITOR'S REPORT


       We have audited the accompanying  balance sheet of UP Sedona,  Inc. as of
August 31, 1997. This financial statement is the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion  on this  financial
statement based on our audit.

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

       In our opinion,  the balance sheet referred to above presents fairly,  in
all material respects,  the financial  position of UP Sedona,  Inc. as of August
31, 1997, in conformity with generally accepted accounting principles.




                                       Toback CPAs, P.C.


December 12, 1997





                                      FS-3
<PAGE>

                                 UP SEDONA, INC.

                                  BALANCE SHEET

                                 August 31, 1997


                                     ASSETS
Cash                                                           $    3,770

Real estate under development (Note 2)                          5,837,155

Escrow account for currency exchange fluctuations (Note 3)        121,032

Deferred placement costs                                          286,070

Organization costs                                                  1,694
                                                               ----------
                                                               $6,249,721
                                                               ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
 Accounts payable, including retentions of $9,143              $  127,850
 Accrued Interest                                                  86,183
 Notes payable (Note 3)                                         3,094,288
 Due to related parties (Notes 4 and 5)                         1,441,400
                                                               ----------
 Total liabilities                                              4,749,721
                                                               ----------

Commitments (Note 5)

Shareholders' equity:
 Preferred stock, no par value, 1,000,000 shares
   authorized, limited voting rights, 18 shares
   issued and outstanding, dividend distributions
   at the rate of 18% of corporate profits,
   payable quarterly, cumulative                                1,000,000

 Common stock, no par value, stated value $.01 per
   share, 2,000,000 shares authorized, one vote per
   share, 82 shares issued and outstanding                              1

  Additional paid in capital                                      499,999
                                                               ----------
  Total shareholders' equity                                    1,500,000
                                                               ----------
                                                               $6,249,721
                                                               ==========

       The accompanying notes are an integral part of this balance sheet.


                                      FS-4
<PAGE>
                                 UP SEDONA, INC.

                             NOTES TO BALANCE SHEET


1.   Nature of business and summary of significant accounting policies:

     The  Company was formally organized as an Arizona corporation in December,
        1996 to acquire and develop  real  estate for future  sale.  The Company
        acquired  a parcel of land in  Sedona,  Arizona  in  December,  1996 and
        intends to develop a resort hotel to be known as ShadowRock  Sedona Golf
        Resort and Conference  Center which will be subdivided into  condominium
        units.  The  condominium  units will be offered  for sale to  individual
        purchasers,  who will be required, as part of the sales transaction,  to
        enter into the hotel  operating and rental pool agreement with the hotel
        operator. The Company has incurred certain project development costs and
        has commenced construction and its marketing campaign.

     The Company funds  construction of  the  resort hotel  with a  construction
        development loan from an independent  lender. The terms include interest
        at market rates, the property collateralizes the debt obligation and the
        parent company of a Company shareholder guarantees the obligation. It is
        anticipated  that the loan will be repaid when the Company  receives the
        proceeds from the sale of the condominium units.

     As the Company sells  condominium units, the funds  will be placed  into an
        escrow  account.  Upon  construction  completion,   the  funds  will  be
        transferred to the Company  through a closing and the  condominium  unit
        owners will receive title to their unit.  At that time,  revenue will be
        recognized  for  the  sale  of  the  condominium  units  and  the  costs
        associated with revenue will be expensed with a corresponding  reduction
        to real estate under development.

     Real estate under development:

     Real estate under  development is stated at cost  which is not in excess of
        net  realizable   value,   and  includes  direct  costs  of  land,  land
        development,   construction   and  all  other  costs   relative  to  the
        development and sale of the project.

     Deferred placement costs:

     Deferred  placement costs consist of legal and  other fees  incurred in the
        preparation  of a  securities  prospectus  for the  sale of  condominium
        units.  These costs have been deferred as of August 31, 1997 and will be
        charged against future sales of the condominium units.

     Organization costs:

     Organization  costs  consist of legal fees  which  will be  amortized  on a
        straight-line basis over five years.


                                      FS-5
<PAGE>

1.  Nature  of  business  and  summary  of  significant   accounting   policies,
    continued:

     Translation of foreign currencies:

     The Company has  debt due to  Canadian banks and  transactions with related
        parties based in Canada. Foreign currency transactions are translated to
        U.S.  dollars in accordance with SFAS 52. Under this statement,  balance
        sheet  accounts are translated at the current  exchange rate.  Resulting
        translation  adjustments,  if  any,  are  made  directly  to a  separate
        component  of  stockholders'  equity.  There was no material  adjustment
        required at August 31, 1997.

     Accounting estimates:

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

2.  Real estate under development:

       Real estate under development consists of the following:

       Land                                                           $2,665,000
       Capitalized closing costs                                          11,592

       Project development costs:

        Architectural costs                                              459,740
        Capitalized interest and financing fees                          438,818
        Construction costs                                               536,505
        Sewer system fees                                                578,130
        Other development costs (A)                                    1,147,370
                                                                      ----------
                                                                      $5,837,155
                                                                      ==========


                                      FS-6
<PAGE>

2.  Real estate under development, continued:

       (A) Other development costs consist of:

       Engineering                                                    $   61,900
       Insurance                                                          34,893
       Legal and accounting                                              198,554
       Management fees (Note 5)                                          274,128
       Marketing costs                                                   383,217
       Permits and other costs                                           123,946
       Property development and feasibility consulting                    70,732
                                                                      ----------
                                                                      $1,147,370
                                                                      ==========

3.  Notes payable:

     Construction loan:

     The Company has  entered into a land acquisition and construction financing
        agreement with a Canadian  lender to loan  approximately  $22,500,000 to
        construct the project.  The Company may draw on the loan as construction
        and related costs are incurred. Interest is charged at 11%. The interest
        rate reduces to 9% in December,  1997. The loan is secured by first deed
        of trust,  security  agreement,  assignment  of rents and  leases  and a
        fixture  filings  for the  benefit of the  lender.  The loan is due May,
        1999. At August 31, 1997,  the balance due on the loan is  approximately
        $2,918,000.

     In addition, the loan agreement requires the  Company to  deposit an amount
        equal to 4% of each  loan  advance  in an  account  to  ensure  that the
        Canadian  lender  receives  payment  of the  loan  and all  interest  in
        Canadian dollars  equivalent to the funds advanced by the lender in U.S.
        dollars.  The funds held shall bear  interest at market rate.  At August
        31, 1997, the Company had approximately  $121,000 in a currency exchange
        holdback account.




                                      FS-7
<PAGE>

3.  Notes payable, continued:

     Land loan:

     A note  payable is  due to  the  seller  of the  property in  five  annual
        installments of $50,000.  The payments commence on the first anniversary
        of receipt of the certificate of occupancy for the operation as a resort
        hotel,  and are  due  each  year  thereafter  until  paid.  The  Company
        anticipates  receiving a certificate  of occupancy in December 1998. The
        note is non-interest bearing,  unsecured and is guaranteed by the parent
        company of a  shareholder.  The note has been  adjusted for  unamortized
        discount of $74,000 based on an imputed  interest rate of 10%. At August
        31, 1997, the note balance is $176,000.

     At August 31, 1997, the approximate  aggregate  maturities of notes payable
        for the succeeding five years are estimated as follows:

        1998                                      --
        1999                               2,918,000
        2000                                  34,000
        2001                                  38,000
        2002                                  41,000

4.  Due to related parties:

     Amounts due to  related  parties are for real  estate  development advances
        including a construction  loan held by a related party,  related accrued
        interest  and accrued  management  fees (see Note 5). The  advances  are
        interest  bearing,  unsecured  and have no fixed  repayment  terms.  The
        advances will be repaid from future cash flows as they become available.

5.  Related party transactions:

     Shareholder's agreement:

     The Company's preferred  stock is owned by two  shareholders and the common
        stock is owned by United Properties,  Inc., an Arizona corporation.  The
        common shareholder is the managing shareholder.

        The shareholders of the Company have entered into an agreement regarding
        capital  contributions,  management,  distributions  and other  business
        matters affecting the Company.  As part of this agreement,  the managing
        shareholder  will be paid 5% of the costs of developing the project,  as
        defined in the  agreement.  The payment also includes  compensation  for
        certain  operating and  administrative  expenses,  among  other  items.





                                      FS-8
<PAGE>


5.  Related party transactions, continued:

     Shareholder's agreement, continued:

        Management  fees under this  agreement of  approximately  $274,000  were
        accrued  during the period ended  August 31, 1997.  These fees have been
        capitalized  into real estate under  development and are included in the
        amount due to related parties.

     Construction management agreement:

     A related company has entered into an agreement with a construction manager
        for the project.  The  construction  manager will be paid a contract fee
        payable  monthly in an amount equal to 2.9% of the costs of the project,
        subject to certain adjustments.  Contract fees of approximately  $31,000
        were paid  during the period  ended  August  31,  1997.  These fees were
        capitalized   into  real  estate  under   development  as  part  of  the
        construction costs.







                                      FS-9