<PAGE>

                   U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, DC 20549

                                  FORM 10-KSB

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

     For the fiscal year ended December 31, 1998

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

     For the transition period from __________ to __________.

     Commission file number: 1-4799

                               EMPIRE GOLD INC.
                (Name of small business issuer in its charter)

                Indiana                             35-0540454
     (State or other jurisdiction of     (IRS Employer Identification No.)
     incorporation or organization)

     400 - 455 Granville Street.
     Vancouver, British Columbia, Canada               V6C 1T1
     (Address of principal executive offices)         (Zip Code)

     Issuer's telephone number: 604-267-2555

     Securities registered under Section 12(b) of the Exchange Act:  NONE

     Securities registered under Section 12(g) of the Exchange Act:  NONE

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

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

     State issuer's revenue for its most recent fiscal year: $162.

     As of May 31, 1999 (using the average of the bid and asked prices on such
day) the aggregate market value of the voting stock held by non-affiliates was
$743,000.

     State whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [   ]  No [ X ]

As of May 31, 1999, 75,472,331 shares of Common Stock, no par value, of the
Issuer were outstanding.

     Documents Incorporated by Reference into this Report

                                      None

Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]

                                       2
<PAGE>

                               Table of Contents

<TABLE>
<CAPTION>
                                                                                Page
                                                                                ----
<S>                                                                             <C>
PART I

     Item 1.   Description of Business                                            5
     Item 2.   Description of Property                                           13
     Item 3.   Legal Proceedings                                                 21
     Item 4.   Submission of Matters to a Vote of Security Holders               22


PART II

     Item 5.   Market for Common Equity and Related Stockholder Matters          22
     Item 6.   Management's Discussion and Analysis or Plan of Operation         22
     Item 7.   Financial Statements                                              24
     Item 8.   Changes In and Disagreements With Accountants
               on Accounting and Financing Disclosure                            31


PART III

     Item 9.   Directors, Executive Officers, Promoters and Control
               Persons: Compliance with Section 16(a) of the Exchange Act        32
     Item 10.  Executive Compensation                                            33
     Item 11.  Security Ownership of Certain Beneficial Owners and Management    34
     Item 12.  Certain Relationships and Related Transactions                    34
     Item 13.  Exhibits and Reports on Form 8-K                                  37
</TABLE>

                                       3
<PAGE>

     In this Annual Report on Form 10-KSB, all references to "dollars" and "$"
are to United States dollars, except as otherwise noted. Reference to "C$" is to
Canadian dollars and "ATS" is to Austrian Schillings. Conversion of Austrian
Schillings to United States dollars herein assumes a conversion rate of 1
ATS=$0.0796 and 1 C$=$0.6863, the rate published in the Wall Street Journal on
May 31, 1999.

     When used in this Annual Report on Form 10-KSB, in future filings by the
Company with the Securities and Exchange Commission, in the Company's news
releases and in any oral statements made by the Company, the words or phrases
"will likely result," "expects," "intends," "will continue," "is anticipated,"
"estimates," "projects," "plans," and similar expressions are intended to
identify "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. A "forward looking" statement is not
historical fact and whether the statement comes true is subject to risks and
uncertainties. The actual results or activities of the Company will likely
differ from the projected results or activities of the Company. Forward looking
statements include the proposed business plan of the Company, the planned
development of the Company's mining properties in Austria, the commencement
dates and the costs of diamond core drilling and exploration activities, the
future acquisition of mining properties, the procurement of future financing to
fund the Company's operations, and the compliance with environmental and other
mining laws in Austria. Factors that could cause actual results to differ
materially from projected results include, among others, risks and uncertainties
relating to general domestic and international economic and political
conditions, risks associated with mining operations in Austria, the selling
price of metals, unanticipated ground and water conditions, unanticipated grade
and geological problems, metallurgical and other processing problems,
availability of materials and equipment, the timing of receipt of necessary
governmental permits, the occurrence of unusual weather or operating conditions,
force majeure events, lower than expected ore grades and higher than expected
stripping ratios, the failure of equipment or processes to operate in accordance
with specifications and expectations, labor relations, accidents, delays in
anticipated start-up dates, environmental costs and risks, the ability of the
Company to raise financing on a favorable basis to the Company or at all, and
general financial and stock market conditions. Readers are cautioned not to put
undue reliance on forward-looking statements. In light of the significant
uncertainties inherent in forward-looking statements, the inclusion of any such
statement should not be regarded as a representation by the Company or any other
person that the objectives or plans of the Company will be achieved or that the
Company will ever obtain significant revenue or profitability. The Company
disclaims any intent or obligation to update publicly the forward-looking
statements contained in this report, whether as a result of new information,
future events or otherwise, except as required by applicable laws.

                                       4
<PAGE>

                                    PART I

     Item 1.  DESCRIPTION OF BUSINESS

     Introduction
     ------------

Empire Gold Inc. (together with its wholly owned subsidiary, Argosy Mining
Gmb.H., hereafter referred to as the "Company") is a corporation formed under
the laws of the State of Indiana in 1940.

The Company emerged from Chapter 11 bankruptcy proceedings under a Plan of
Reorganization, which was confirmed by the United States Bankruptcy Court for
the Eastern District of Virginia (Case No. 90-33935-S) on April 10, 1992. Since
emerging from bankruptcy proceedings, the Company has never been profitable and
has not generated sufficient working capital to sustain its operations.
Subsequent to emerging from bankruptcy and throughout 1996 the Company continued
its efforts to reorganize its business affairs through the sale of its remaining
inventory of resort development lots, adoption of a new strategic business
direction, and the search for a new controlling shareholder. The Company
achieved this objective late in 1996.

On December 17, 1996, as part of a series of transactions that resulted in a
change in control of the Company, the Company acquired all the issued and
outstanding stock in Argosy Mining Gmb.H., an Austrian company ("Argosy"), from
Argosy Mining Corp., a Canadian company ("Argosy Mining"). As a result of the
purchase of the shares of Argosy, the Company acquired 100% of the ownership
interests in nine gold exploration properties located in Austria and the
business of the Company changed from the sale of resort home sites and panelized
public housing to gold mining and exploration, in particular the evaluation,
exploration and development of gold mining prospects located in Austria.

     Until the change in control in the Company and the acquisition by the
Company of the stock of Argosy in December, 1996, the business activities of the
Company during 1996 were limited by lack of capital, no operational business
plan and the lack of paid employees. The Company had nominal revenue from
operations in 1996. During 1996, the Company had become an inactive corporation
and was actively marketed by its directors as a company available for
acquisition by another corporation seeking to merge its business into a
reporting entity.

     The Change In Control and Acquisition of Argosy
     -----------------------------------------------

     Starting in September, 1996, a series of transactions were initiated by the
Company, Argosy Mining and Mercury Immobililen Und Verwatungs A.G., a company
incorporated under the laws of Switzerland ("Mercury"), that resulted in the
sale of the Company's remaining inventory of development resort lots, adoption
of a new strategic business direction, through the sale of its wholly owned
subsidiaries, the purchase of all the shares of Argosy and the change in control
of the Company. These transactions are summarized below.

     (a) By agreement, dated September 3, 1996, the Company sold 200,000 shares
of common stock at $0.25 per share to Florian Riedl-Riedenstein and 200,000
shares of common stock at $0.25 to a private investor. The subscriptions were
accepted and the shares issued by the Company in January 1997. The $100,000
raised was used by the Company in partial payment of the costs and expenses
incurred in the preparation and closing by the Company of the divestiture of
certain assets of the Company, the purchase of all the shares of Argosy and the
change in control of the Company. Mr. Riedl-Riedenstein has since become the
Chairman, President and Chief Executive Officer of the Company.

                                       5
<PAGE>

     (b) By agreement, dated November 27, 1996, which closed on December 17,
1996, Mercury purchased 54,367,551 shares of common stock of the Company from
Arendscor (Canada) Inc. representing 77.2% of the outstanding common shares of
the Company, and became the controlling shareholder of the Company. The
consideration for the purchase was $10,000. The completion of the stock purchase
was conditioned, among other things, on the simultaneous closing of the purchase
of Argosy by the Company.

     (c) On November 28, 1996, the Company transferred to Danca Investments
Inc., an affiliate of Arendscor (Canada) Inc., the then controlling shareholder
of the Company, all of the interest of the Company in its three wholly owned
subsidiaries, NRC Inc., Arendswood Homes Inc. and National Building Systems Inc.
This transaction resulted in the divestiture by the Company of three of its
wholly-owned subsidiaries and certain of its remaining development resort lots.
The consideration for the transfer was the assumption by Danca Investments Inc.
of $142,874 in obligations owed by the Company to Arendscor (Canada) Inc. No
independent valuation of the assets transferred by the Company to Danca
Investments Inc. was received. However, the transaction was approved by the
shareholders of the Company at the 1995 Annual Meeting of the Shareholders.

     (d) By agreement, dated November 30, 1996, which closed on December 17,
1996, the Company acquired all the issued and outstanding stock of Argosy from
Argosy Mining, an unaffiliated entity. Argosy holds interests in nine gold
mining prospects in Austria. The consideration for the purchase was C$250,000 in
cash paid by the Company and 1,000,000 shares of common stock of the Company
transferred to Argosy Mining by Mercury. The agreement provides that an
additional 1,000,000 shares of common stock would be transferred to Argosy
Mining by Mercury if the Company did not register the original 1,000,000 shares
of common stock with the Securities and Exchange Commission for resale within
three months following the closing date. Mercury deposited 1,000,000 shares of
common stock of the Company in escrow for this purpose. Such condition was not
satisfied and, therefore, the shares were transferred to Argosy Mining Corp.
pursuant to the terms of the escrow.

     (e) By agreement, dated December 6, 1996, Erzbergbau Radhausberg Gmb.H.,
("Erzbergbau"), the seller of the mining properties to Argosy Mining, agreed to
the sale and transfer of the properties from Argosy Mining to the Company and
the Company agreed to assume the obligations relating to the properties in the
agreement between Erzbergbau and Argosy Mining. By agreement, dated December 6,
1996, Erzbergbau agreed to the full settlement of the amount due from Argosy for
the properties of $1,000,000 by the transfer of 300,000 shares of common stock
of the Company to Erzbergbau from Mercury and Erzbergbau released the Company
from any further obligations set forth in the agreement between Erzbergbau and
Argosy Mining and in the agreement referred to above.

     (f) On December 12, 1996, Mercury entered into Put/Escrow Agreements with a
number of shareholders of the Company. The agreements provide that certain
shareholders may require Mercury to purchase additional shares of common stock
from them at $0.10 per share during a period from September 12, 1997 to
September 27, 1997. The put option expires if the shares covered have been
registered by the Company with the Securities and Exchange Commission for resale
in the United States and have been freely tradable at a price above $0.10 for
more than ten consecutive days after registration and prior to receipt by the
Company of a notice of exercise. As part of the agreement, the Company deposited
cash of $100,000 in escrow equal to one-half the option price, and Mercury
deposited 1,000,000 shares of the common stock of the Company held by Mercury to
secure the Put/Escrow Agreement. The Put/Escrow Agreements cover a total of
2,000,000 shares of the Company, including 1,223,200 shares held by Arendscor
(Canada) Inc., 88,000 shares held by Edward Jan Smith (a director of the
Company), 100,000 shares held by Matthew Gaasenbeek, III (a director of the
Company), 8,800 shares held by Lisa Hoekwater, 240,000 shares held by John B.
Overzet (a former director of the

                                       6
<PAGE>

Company), 100,000 shares held by Arthur Walker (a former director of the
Company), and 240,000 shares held by Jack Wrobel (a former director of the
Company). On September 24, 1997, the Put/Escrow Agreements were terminated and
the $100,000 deposit plus interest of $3,608 was returned to the Company.

     As a result of these transactions, the Company achieved its objective of
reorganizing its business affairs through the sale of its subsidiaries, which
held remaining inventory of development resort lots and the adoption of a new
strategic business direction. The Company is now engaged in the evaluation,
exploration and development of gold mining prospects, in particular the
location, evaluation, acquisition, exploration and development of precious metal
mining prospects and to that end to own, acquire, improve, develop, sell, lease,
and convey lands or mineral claims or any right, title or interest therein, and
to search, explore, prospect or drill for and exploit ores and minerals therein
or thereupon.

     Exploration Properties
     ----------------------

     The Company, by and through Argosy, holds 100% of the ownership interests
in nine gold prospecting properties in Austria, as listed below:

<TABLE>
<CAPTION>
Property                      Location              Square Kilometers
--------                      --------              -----------------
<S>                           <C>                   <C>
Schellgaden North and         South Salzburg        39.4 sq. kms.
Schellgaden South             North Carinthia       37.4 sq. kms.

Goldeck West - Siflitz and    South Carinthia       27.6 sq. kms.
Goldeck East - Siflitz        South Carinthia       31.6 sq. kms.

Kreuzeck West
Rabant-Gurskerkammer -
Fundkofel and                 South West Carinthia  23.9 sq. kms.
Kreuzeck East - Lengholz      South Carinthia       20.5 sq. kms.

Kliening and                  East Carinthia        27.4 sq. kms.
Kliening West - Buchbauer     East Carinthia        27.4 sq. kms.

Strassegg-Gasen               North Styria          12.3 sq. kms.
</TABLE>

     All these properties have been centers of gold mining activities dating
back at least 1,000 years with intermittently flourishing gold production
continuing into the late 19th century. Repeated attempts to explore and revive
the areas' gold potential during the first half of the 20th century was
curtailed by political instability and the two World Wars. Extensive underground
workings from the old mining periods are still accessible at the Schellgaden,
Goldeck Siflitz and Kreuzeck gold properties.

     In 1995, Argosy conducted underground channel sampling programs in old
mines on the Schellgaden and Goldeck Siflitz properties to test for the gold
potential of the in situ ore. Subsequently, four diamond core drill holes were
made at the Schellgaden North property and three at the Goldeck Siflitz
property. With analysis of previous exploration data and the new information
generated by the channel sampling and core drilling, a new understanding of the
Schellgaden North gold property's geology and structural model reveals what
management of the Company believes to be excellent potential for this ancient
mining area.

                                       7
<PAGE>

     In order to further examine the potential of these sites, the Company
commenced a diamond core drilling program to be conducted over an area of 500 by
1500 meters on the Schellgaden North property, which includes old workings. The
first (Stb-1) of eight diamond core holes was drilled in 1997 to a depth of
about 300 meters. The remaining seven core holes were expected to be drilled to
a depth of approximately 300 meters in the Schellgaden North property in the
summer and fall of 1998. The cost of this project is estimated at approximately
$600,000, which the Company will seek to fund through equity or debt financing.
There can be no assurance that the Company will be successful in such funding
efforts. After the completion of the first (Stb-1) of the eight planned initial
diamond core exploration drill holes and the geochemical (gold and other trace
elements) and geological analysis of 372 core samples no further work was
conducted at the property during 1998 due to the unavailability of exploration
funding. Based on the results of the core samples of Stb-1 the Company has
decided to drill up to seven additional diamond core holes to confirm or support
its findings, and to develop a program to develop and prove the reserve in the
area, or abandon the site.

     It is expected that should a gold reserve be found, confirmed and proven,
that the Company will seek either to enter into a joint venture agreement with
an operator to extract the gold from the area or will sell the property outright
to realize its value. There can be no assurance that a gold reserve will ever be
found, confirmed and proven or that the Company will ever be able to realize the
value of the find through a joint venture arrangement or sale of the property.

     Although the Schellgaden North property is the first priority for further
exploration, an evaluation of the future exploration potential of the other
eight properties is ongoing under the direction of Dr. Hans R. Klob, Vice
President, Exploration of the Company. The Company may engage in prospecting and
development of core drilling programs with respect to the other properties.

     In addition to the present sites held by the Company, it is evaluating
other potential acquisitions as well, including sites in Ghana, Africa and
British Columbia, Canada. There can be no assurance that the sites under
evaluation will be acquired by the Company. While the evaluation continues in
Ghana, management has been focusing its efforts in British Columbia Canada. The
Company has identified a number of sites in the Tulameen area of British
Columbia Canada. See "ITEM 12" CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".

     The Tulameen project area is located about 175 km. east of Vancouver,
British Columbia, Canada and is easily accessible by road, west of the mining
town of Princeton. The Tulameen project area is an important part of the
Similkameen Mining District, known for over a century for precious and base
metals mining, and for extensive platinum and vanadium bearing iron deposits. It
has produced about 40,000 oz. of platinum (nuggets of Pt and Pt-Fe-alloys) and
at least four times that amount in Gold over the past 100 years from placer
deposits in streams draining the area of what is known as the Tulameen
Ultramafic Complex.

     The Tulameen Ultramafic Complex is described as the southern most Alaskan-
type zoned periodotitic intrusion about 40 km. north of the U.S.-Canadian State
Border. Geologically, it is situated in a position at the southern end of the
Canadian Intermontane Belt or at the northern end of the Eastern Cascades in
Washington, the older of the two U.S. West Coast Island Arc Terranes.

     An initial investigation by the Company discovered a circular structure
around the Tulameen Ultramafic Complex averaging 28 km. in diameter: the SW to
the W, NW, N and NE trace of this structure is carved out by the Tulameen River,
the southern and southeastern contour is followed by Whipsaw Creek. This
structure is interpreted as a deep-seated volcanic (crypto-volcanic) expression
that could have originated along an island arc (north end of Eastern Cascades
Island Arc).

                                       8
<PAGE>

     Internally, smaller circular (volcanic) structures are indicated, one with
a diameter of about 2 km. is bounded to the east by the middle part of Granite
Creek. At a closer look into the geological-structural setting of the Tulameen-
Blakeburn Tertiary basin this zone appears as a young collapsed caldera from
which a series of Tertiary acidic to basaltic volcanic rocks and volcanoclastics
was produced, intermixed with sedimentary and organic (coal) basin sediments.
The Princeton Basin on the eastern margin of the circular structure appears of a
similar nature. Possibly due to volcanism-originated heat the coal deposits of
both basins have reached a high maturity (Type A and B Bituminous Coal).
Platinum and gold-contents in undisturbed coal from Blakeburn have been assayed
from 2 to 170 ppb and 2 to 38 ppb, respectively. However, along deformational
deep seated faults coal has yielded values higher than 10,000 parts per billion
("ppb") platinum, 6,100 ppb palladium and 22 ppb Iridium.

     In addition to the potential for platinum group elements and gold, which
will be the Company's main goal for exploration and development, the larger
                                                                     ------
project area also hosts one of North America's larger magnetite iron-vanadium
deposits, explored by drilling from the 1960's to the early 1990's. Apart from
the area's iron and vanadium potential, magnetite is also used extensively in
the coal washing process. Furthermore, huge deposits of industrial grade olivine
have been identified within the dunitic core of the Tulameen Ultramafic
Intrusion. Olivine as an industrial mineral has a growing importance as an
environmentally accepted mineral product in the industry for abrasives and
related materials.

     Along the northern (Tulameen River) and southern (Whipsaw Creek) trace of
the main circular structure, as well as internally a number of small mineralized
pipes of ultramafic (Britton Creek PGE-Diamond-bearing Breccia Pipe) to
porphyritic character (with gold, silver, molybdenum, base metals) have been
observed.

     The development of the Company's new business plan is intended to be
financed by future debt or equity financing. There can be no assurance that the
business plan of the Company will be successful and results in significant
revenue or profit to the Company. The gold mining properties acquired by the
Company are non-producing prospects where management of the Company believes
that precious metal, in particular gold, may be present in commercially viable
quantities. The development of the business plan of the Company is dependent, in
part, on the ability of the Company to raise additional financing to fund the
proposed development activities and to pay operating expenses. There can be no
assurance that the Company will be able to procure such additional financing on
terms acceptable to it or at all. Any equity financing by the Company will
likely result in dilution of the interests of present shareholders. The search
for precious metal deposits that can be profitably produced is extremely high
risk and development of any deposits identified require large capital outlays
and operational expertise.

     Austrian Mining Laws and Regulations
     ------------------------------------

     The properties presently held by the Company are located in and subject to
the laws of the Republic of Austria. In Austria, public duties and
responsibilities are divided between the Republic of Austria and its nine
provinces (Vienna, Lower Austria, Burgenland, Styria, Upper Austria, Carinthia,
Salzburg, Tyrol, Vorarlberg). According to the 1975 Mining Law, mining in
Austria is controlled by the special federal authorities ("Mining Authorities").

     Mining Authorities of first stage are the Regional Mining Authorities,
special and professional federal authorities, and the Federal Minister for
Economic Affairs (second and appealing stage). Mining Authorities report
directly to the Federal Minister. There are six regional mining authorities in
Austria, located in Vienna (Vienna, Lower Austria, Burgenland); Graz (East- and
West-Styria), Leoben (Upper-Styria); Klagenfurt (Carinthia); Innsbruck (Tyrol,
Vorarlberg): Salzburg (Salzburg, Upper Austria). The

                                       9
<PAGE>

Federal Ministry for Economic Affairs (Vienna) is divided into several
departments. Mining is subject to Department VII ("Supreme Mining Authority").

     The Mining Authorities are charged with significant duties and
responsibilities, including issuance of mining licenses, prevention of dangers,
legislation, optimal use of deposits and education of miners and foremen.

     The legal framework for the Austrian mining industry is the 1975 Mining
Law, as amended. This law applies to the prospecting, exploration, exploitation,
storage and processing of mineral raw materials "free for mining," "state owned
mineral raw materials" and "land owner's mineral raw materials." The law also
applies to mining carried out in the course of exploration and exploitation,
processing of other mineral commodities and exploration and investigation of
geological structures suitable for storing liquid and gaseous hydrocarbons, and
storing hydrocarbons etc. These provisions also apply to mining aspects of
exploration and supervision of activities in respect of geothermal energy and
the utilization of geothermal heat, where tunnels, shafts and wells of more than
100 meters are used, the exploration of the earth crust for its suitability for
storing any substances and the utilization of workings in closed down mine sites
and other purposes than the production of mineral commodities.

     Exploration is considered to be divided into two phases: the initial
search, followed by investigation. The permits required vary slightly depending
upon the classification of minerals:

     Mineral raw materials free for mining:

     1.   All mineral raw materials from which iron, manganese, chromium,
          molybdenum, tungsten, vanadium, titanium, zirconium, cobalt, nickel,
          copper, silver, gold, platinum and PG-elements, zinc, mercury, lead,
          tin, bismuth, antimony, arsenic, sulfur, aluminum, beryllium, lithium,
          rare earths or compounds of these elements can be produced, in as far
          as they are not listed below or represent state owned, land owner's or
          other mineral raw materials.

     2.   Gypsum, anhydrite, barite, fluorite, graphite, talc, china clay
          (kaolin) and leucophyllite.

     3.   All types of coal and oil shale.

     Prospecting for "free for mining" mineral raw materials requires a
prospecting permit, entitling the holder to search for such minerals within the
jurisdiction of the Regional Mining Authority. It does not confer an exclusive
right. Conversely, an exploration license confers an exclusive right for "free
for mining" mineral raw materials within a specified area located in the area of
jurisdiction of the respective Regional Mining Authority. Mining of those
mineral raw materials requires a mining-permit.

     "State owned mineral raw materials" belong to the federal state and
comprise the following types of minerals:

     1.   Rock salt and all salt occurring together with rock salt.

     2.   Hydrocarbons.

     3.   Minerals containing uranium and thorium.

                                       10
<PAGE>

     The rights for exploration of these minerals can be granted to persons
meeting certain criteria through a civil right contract by the Federal Minister
of Economic Affairs in consent with the Federal Minister of Finance on behalf of
the state. The right to explore for salt has been ceded by law to an Austrian
public company in the salt business.

     "Land owner's mineral raw materials" are comprised of the following
minerals:

     Magnetite, mica, illite clay and other expandable clays, quartz, quartz
rock, and quartzitic sand, in as far as suitable for the manufacturing of glass
or fireproof products or as starting material for the manufacture of cement;
clays, in as far as suitable for the manufacture of fireproof or acid-proof
products, cements, brick work and other ceramic products; dolomite, in as far as
suitable for the manufacture of fireproof products; limestone, in as far as
suitable for the manufacture of quick lime or as starting material for the
manufacture of cement or as aggregate for metallurgical processes; marl, in as
far as suitable for the manufacture of cements; basaltic rock, in as far as
suitable for the manufacture of fireproof products or of rock wool; bentonite,
kieselgur, asbestos, feldspar, trass, andalusite, sillimanite and disthene.

     A prospecting permit to search followed by an exploration permit to
investigate is needed for the above mentioned minerals. Both permits are issued
by the Regional Mining Authority.

     All minerals not listed above are subject to the category of "other mineral
raw materials."

     Prospecting on the surface for "other mineral raw materials" and their
production requires a license according to the 1994 Trade Law. In case of
underground activities, commencing of mining has to be reported to the Regional
Mining Authority.

     The holder of mining rights enjoys certain rights. Under certain conditions
he may - in the course of exploration and production utilize other minerals not
listed in his mining right title as well. The Mining Law furthermore allows use
of mine waters. Mine waters may be utilized when ever required for mining
operations as long it does not merge with permanent surface waters.

     The holder of the mining rights may also engage himself in processing
minerals and their benefication (pelletizing, bricketing, drying, roasting,
carbonizing, coking, gasifying, liquefying and solution) of minerals or making a
suspension during processing in accordance with operational and local conditions
and further processing to a saleable product. He is also entitled to use mines
for purposes other than exploitation of minerals to bring in or to store goods
in geological structures in as far as these operations do not interfere with the
production and the storage of minerals.

     The holder of the mining rights is faced with special obligations as well.
Opening and closing of mines have to be announced in right time in advance.
During mining operations the holder of the mining rights has to take care of the
life and health of persons, objects in the property of others and not
transferred to him for his use, to protect the environment, deposit and surface,
to provide reclamation of surface after ending mining activities. Concerning the
protection of the environment he is obliged to do everything to prevent any
permanent damage to soil, vegetation and livestock.

     If a person not belonging to the mining company dies or suffers from injury
to his body or health or an object is damaged by a mining operation this is
referred to as a "mining damage".

     Mining activities must be carried out in such a way to avoid emissions
according to the latest technology. It's the duty of the holder of the mining
rights to follow up mine maps under the supervision of a mine surveyor. If any
accident occurres in other mining operations the holder of the mining rights is

                                       11
<PAGE>

obliged to send rescue men and equipment upon request in so far as this does not
disturb his own operation.

     Mineral production and the storage of any hydrocarbons in geological
structures has to be done in accordance with a written plan, which needs to be
approved by the Regional Mining Authority in respect of the operations envisaged
and the measures planned. This is not applicable to small enterprises. Small
enterprises are mining enterprises, or independent operational units of a mining
enterprise, employing less than 40 persons on a regular basis. Land owners'
minerals production may be commenced or recommenced after an interruption of
more than five years on the basis of exploration and production plans approved
by the Regional Mining Authority.

     Where a mining enterprise consists of several independent units, the holder
of mining rights has to appoint a manager, a deputy manager and technical
supervisors for each unit. In small enterprises, where operational hazards can
be expected to remain at a low level, multiple appointments of responsible
persons are allowed. The holder of the mining rights also has to appoint a
responsible mine-surveyor for each mine. Multiple appointments by several
holders of mining rights are allowed as well. Any appointment is subject to
approval by the Mining Authority.

     Holders of mining rights, jointly owning a mining right title or jointly
entrusted with the use of a mining right title, and also single holders of
mining rights, residing abroad permanently or legal persons or commercial law
companies, are obliged to appoint a person living in Austria, authorized to
receive legally valid orders and written communications by the Mining
Authorities.

     Mining areas must be clearly entered in the land use plan. Buildings and
other installations not serving the purpose of mining operations may be
constructed in mining areas upon obtaining a special permit by the mining
authority only.

     General Considerations
     ----------------------

     The value of the Company's properties and exploration results may be
affected by the prices of precious metals, especially gold, and by the cost of
extracting the precious metals. During 1998, gold prices fluctuated from a low
of $ 273.40 to a high of $ 313.15 per ounce with an average of less than $300
per ounce. During the last ten years, gold prices have averaged less than $ 400
per ounce. Modern heap leach technologies have allowed lower grades of ore
bodies to be mined. For several years, a more positive trend created resurgence
in the United States and internationally in the traditional gold producing
areas, of exploration activity for gold in the minerals industry. With the
beginning trend of a decline of the average gold price during 1998 the ability
of the market to raise funds for exploration and development in general and
specifically for the Company has declined.

     The availability of mining prospects is dependent upon the Company's
ability to negotiate leases or concessions with property owners or to locate
claims pursuant to laws of the particular jurisdiction.

     Other than its mining agreements, the Company has no patents, trademarks,
licenses or franchises material to its operations. The properties in which the
Company has an interest in Austria are accessible throughout the year. If
mineralized deposits are discovered under claims or leases in which the Company
owns an interest, the economic viability of the deposit may depend upon numerous
factors not within the Company's control, including the selling price of
minerals, the extent of other domestic production, proximity and capacity of
water and mills, and the effect of state, federal or foreign government
regulations.

                                       12
<PAGE>

     Competition in the Company's industry occurs almost exclusively in the
acquisition of mining properties because the market price for gold is determined
by market factors and conditions that are beyond the Company's control. The
exploration for, development of and acquisition of gold and other precious metal
properties are subject to intense competition. The principal methods of
competition include: (i) bonus payments at the time of lease acquisition, (ii)
delay rentals and advance royalty payments, (iii) the use of differential
royalty rates, (iv) the amount of annual rental payments, (v) exploration and
production commitments by the lessee and (vi) staking claims. Companies with
greater financial resources, larger staffs and labor forces, and more equipment
for exploration and development may be in a more advantageous position than the
Company to compete for such mineral properties. Management believes that
competition for acquiring mineral prospects will continue to be intense.

     The mining industry, including the business of Company, must follow strict
local, state and federal regulations imposed in each country where it operates
to maintain environmental quality. As a result, the Company is subject to the
environmental regulations in Austria with regard to mining properties. To the
best knowledge of management, the Company's Austrian project complies with all
present environmental regulations and laws. Continued compliance is not
anticipated to result in any additional material capital and/or operating costs.
However, it can not be known at this time what additional future laws and
regulations might be adopted in Austria or elsewhere, nor their effect, if any,
on the Company.

     As of May 31, 1998, the Company did not have any employees. Its directors
and officers, with the exception of the Chairman, Florian Riedl-Riedenstein, are
not engaged full time in the prosecution of the Company's business. The Company
has retained the services of several consultants on a part time basis. One of
these consultants, a geologist, Dr. Hans Klob has been engaged, to assist it in
its operations, on a part time basis and has been appointed Vice President,
Exploration of the Company. Dr. Klob served in a similar capacity for Argosy
Mining. Another consultant, Eunice Ludlow has been engaged to act in the
capacity of Chief Financial Officer after the resignation of C.W. Leigh Cassidy.
It is not anticipated that any full time employees will be hired throughout this
fiscal year, unless the activities of the Company expand and its new business
plan develops. However, the Company intends to hire consultants to assist it in
its operations.

     Item 2.  DESCRIPTION OF PROPERTY

     Summary
     -------

     The Company, by and through its wholly owned subsidiary Argosy, owns 100%
of the ownership interests in nine mining properties located in Austria. All
nine properties have been centers of gold mining activities dating back at least
1,000 years with intermittently flourishing gold production continuing into the
late 19th century. Repeated attempts to explore and revive the areas' gold
potential during the first half of the 20th century was curtailed by political
upheaval and the two World Wars. Access to the nine properties of the Company in
Austria is favorable as the area has a well developed infrastructure and none of
the properties lie in remote mountain areas.

     The following is a description of the Company's mineral properties.

     Schellgaden North and Schellgaden South
     ---------------------------------------

     The Schellgaden North property is an unimproved exploration property
without known reserves that extends from South Salzburg into North Carinthia
Province, Austria. The property consists of 39.4 square kilometers. The property
consists of 82 leases, 36 leases in Salzburg and 46 leases in Carinthia.

                                       13
<PAGE>

The current lease term is for a two year period, January 1, 1998 to December 31,
2000. It is in this property that the initial exploration and evaluation
activities of the Company are scheduled to take place. The Company has spent
approximately $20,000.00 on maintenance of exploration rights and evaluation of
the property during the year ended December 31, 1998.

     The Schellgaden North site is part of a historically significant gold
mining district. A series of ancient gold mines lies along the outcrop of a
gneiss-micaschist-amphibolite series, called the Storz and Kareck Formations on
the eastern rim of the Tauern Window. The gold ore is a fine grained stratabound
quartz-sulfide layer, that occurs in three different mineralized horizons.

     The Schellgaden South Property is an unimproved exploration property
without known reserves that is located in Northern Carinthia, Austria. The
expenditures to date on the property have been limited and comprised of
evaluation costs and lease maintenance costs. The property consists of 37.4
square kilometers and is located to the south of the Schellgaden North property.
This area is less significant than Schellgaden North from a historical viewpoint
in terms of number of mines once operating and the extent of ore recovered. The
property consists of 75 leases in Carinthia. The current lease term is for a
two-year period, January 1, 1998 to December 31, 2000.

     Access to the Schellgaden North and South properties is by Tauemautobahn A-
10, the major freeway link between Munich-Salzburg-Klagenfurt-Italy. A federal
highway, B-99, runs parallel. Small access roads frequently lead into the
concession area over the whole North-South extension of about 29 kilometers
between the town of St. Michael in Salzburg and Gmund in Northern Carinthia.

     Management determined to commence operations on this property as the
reported gold grades were sufficiently high and underground workings from
earlier periods of mining operations are still accessible at the site. It was on
the Schellgaden North site that the prior owner, Argosy Mining, conducted
limited exploration activities. During the first phase of this program conducted
by Argosy Mining, the old underground mines were channel sampled and assayed by
Bondar-Clegg in Vancouver, Canada after sample preparation by The University of
Salzburg Geoscience Lab. The samples showed evidence of gold with grades ranging
at an average of 5-15 g Au/t. During the second phase four diamond core drill
holes were drilled to a maximum depth of 100 meters in the south of the Stublbau
Mine to learn about the tectonic structure and to test the southern continuation
of the ore horizon of the mine. Drilling started in September 1995 and ended in
October 1995. Based on the results of the study of the consultant geologist for
Argosy Mining, Dr. Hans R. Klob, who now has been appointed Vice President,
Exploration of the Company, demonstrated the possibility that an area once
viewed as medieval gold mining following along a single stratabound quartz-
sulfide-gold layer may be a horizon of at least four different ore bearing
levels of 2 to 10 meters thickness with one to several single quartz-ore beds of
centimeter- to meter thickness.

     The core drilling samples showed two systems of en echelon type block
faulting, one striking North-South with varying down-thrust to the east, the
other striking West-East with down thrust to the North, usually with small
vertical throw amounts. The formation usually dips gently to the east.

     In the fall of 1997 drilling of the first of eight planned 300 meters deep
diamond core drill holes was completed. The eight projected drill holes are to
be placed in a pattern over a 500 meters north/south to 1,500 meters west/east
exploration block - the Stublbau Block. The purpose of the initial drill-hole of
the Schellgaden North Gold Project was to acquire maximum knowledge of the
lithology, the mineralogy and the tectonic structure of the rock sequence of the
Kareck Formation and at the same time to test the new model described above.

                                       14
<PAGE>

     Detailed geological logging of the 295 meter long drill core showed an epi-
metamorphic sequence of andesitic to rhyolitic volcanics and their respective
volcanoclastics intermixed with marin sediments. At a present drill depth of 295
meters, drilling had to be stopped for the winter in the lower Kareck Formation
at the boundary to the lower Storz Formation. Several Schellgaden-type gold-
sulfide-quartz layers were recognized at the following depths:

     1.   22.85 - 23.35 meters
     2.   31.10 - 31.25 meters
     3.   84.70 - 85.00 meters
     4.   218.10 - 220.10 meters
     5.   239.18 - 242.10 meters including old workings

     Preliminary results of geochemical analyses of 372 core samples for gold
and 36 trace elements show characteristic behavior of various groups of elements
with reference to the respective lithologies. The distribution of anomalously
higher gold values ranging from 15 to 12,920 parts per billion ("ppb") (1,000
ppb = 1.0 grams per ton) over the length of the drill hole supports the model of
a multilayer system composed of several ore layer-bearing horizons at the
following depths:

     6.   6.00 to 33.00 meters, 10 individual gold layers with values ranging
          from 28 to 731 ppb, corresponding to Schulterbau Horizon;

     7.   43.72 to 56.00 meters, 3 individual gold layers with values ranging
          from 16 to 34 ppb;

     8.   76.00 to 111.00 meters, 8 individual gold layers with values ranging
          from 16 to128 ppb;

     9.   136.00 to 174.00 meters, 3 individual gold layers with values of 15
          ppb, the central of the three layers contained a tungsten anomaly,
          corresponding to the Stublbau Horizon;

     10.  209.20 to 225.50 meters, 4 individual gold layers, with values ranging
          from 15 to 12,920 ppb;

     11.  239.18 to 242.10, 1 individual gold layer, old workings, no core
          sample available;

     12.  261.00 to 275.00, 3 individual gold layers, with values ranging from
          15 to 137 ppb; and

     13.  284.00 to 291.00, 1 individual gold layer, with values of 15 ppb,
          corresponding to the Pritzkar Horizon.

     As a result of the preliminary analysis of the drill data the revised model
of multiple gold-ore-layers located in several ore bearing horizons within the
Kareck-Formation provides support of the Company's exploration strategy and the
Schellgaden depositional model. Even though the Kareck-Storz-Formation boundary
was not yet reached at a drill depth of 295 meters (projection in model between
280 and 300 meters) this original projection will not be exceeded much. The
formation boundary is expected within the next 10 to 30 meters.

     Detailed correlation analysis between groups of elements and lithologies is
ongoing with results pending, but showing distinct geochemically defined rock
units along the drill profile. Also correlations between the geochemistry of
underground channel samples, the 1995 drill core samples and the current core
are still outstanding. This pending work should demonstrate the continuity of
the ore horizons described above from one location to the other, even if -
probably due to the unevenness of the

                                       15
<PAGE>

depositional environment, the basin floor-individual ore layers (volcanic
exhalites) seem to be highly variable in their thickness and lateral extension
as well as their gold content.

     No additional drilling of the planned seven diamond core drill-holes took
place in 1998, but the Company intends during the summer and fall of 1999 to
continue its core-drilling program of an initial total of eight diamond drill
core holes over an area of 500 by 1500 meters on the property overlying the main
old workings. Work is planned to continue on the remaining seven of eight
diamond core holes, that are expected to be drilled to a depth of approximately
300 meters. The projected cost of this project is approximately $600,000. After
the core is drilled the samples will be analyzed, for geologic attributes and
the presence of gold, by Bondar-Clegg, Canada or another acceptable assay
laboratory. Based on the result of the core samples, the Company will decide
whether to abandon the site, drill additional core samples to confirm or support
its findings, or develop a program to develop and prove the reserve in the area.
The program of the Company is intended to confirm the results of the prior study
conducted by Argosy Mining and to determine the potential gold reserve in the
area.

     The Company has procured all necessary permits for the planned Schellgaden
North diamond- drilling program scheduled for the summer and fall of 1998. No
planned drilling work could be done during 1998 because of the Companies
inability to finance the programme due to the decline in the gold price. At
year's end 1998, the Company has submitted a report to the Austrian Mine
Department Office. This is for the purpose of continuation and/or renewal of its
respective claims. Management has been assured that its work programme to this
date is sufficient for all nine Austrian properties held by the Company to be
renewed at year-end for an additional two-year period, but there can be no
assurance of this result.

     Goldeck West - Siflitz and Goldeck East - Siflitz
     -------------------------------------------------

     The Goldeck West-Siflitz Property are unimproved exploration properties
without known reserves which are located in South Carinthia, Austria. The
expenditures to date on the properties have been limited and comprised of
evaluation costs and lease maintenance costs. The property area is of 27.6
square kilometers and consists of 57 leases. The current lease term is for a
two-year period, January 1, 1998 to December 31, 1999. This property was
acquired by Argosy directly from the Austrian Government in 1995. The property
is located within the Kreuzeck-Goldeck Gold district in the southern part of the
Austrian Province of Carinthia. This district has been the site of numerous
mines for gold and antimony from the early middle - ages on and the last of the
mines closed down in the early 1950's. The Goldeck East-Siflitz Property is
located in South Carinthia, Austria. The property consists of 31.6 square
kilometers and consists of 64 different leases. The current lease term is for a
two- year period, January 1, 1998 to December 31, 1999. The property is also
part of the Kreuzeck-Goldeck Gold district and lies to the east of the Goldeck
West-Siflitz property. Argosy obtained the exploration rights to this area
directly from the Austrian Government in 1995 when studies and drilling at
Goldeck Siflitz area indicated a continuation of gold bearing structures further
to the east.

     Access to the Goldeck West - Siflitz and Goldeck East - Siflitz is by a
federal highway, B-100, which runs East/West along the Drau River. A dense
network of secondary roads accesses the two properties, which have been historic
centers of gold mining.

     The Kreuzeck-Goldeck Mountains cover an area of over 600 square kilometers
with predominantly retrograde mica schist, garnet-mica schist intercalated by
quartzites. Bands of marble, rare in the Kreuzeck Mountains in the west, reach
greater abundance and thickness in the Goldeck Range in the east. Metavolcanic
intercalations are frequent throughout the whole area, with basalts and
rhyolites as well as andesitic to rhyolitic meta-tuffs and tuffites. While
amphibolite (meta-basalt) bands in the west are

                                       16
<PAGE>

maximally 30 meters thick, in the eastern Kreuzeck up to 500 meters have been
observed. Numerous small granodiorite intrusions of Alpidic age (26-40 million
years) have intruded the metamorphic series. At the Goldeck Range, a direct
continuation of the Kreuzeck Mountains in the west across the Drau Valley, a
sometimes incomplete threefold repetition of mixed pelitic-psammitic-volcanic
lithologies and carbonates is typical.

     A large number of ore occurrences of different types have been known and
mined in the Kreuzeck-Goldeck Range, many believed stratabound, a number bound
to massive tectonic shear zones, especially in the Goldeck-Siflitz area, with
gold-arsenopyrite-stibnite associations. During the height of mining, between
1460 and 1560, despite primitive mining methods and poor recovery rates, it is
reported that annual production over the whole area may have reached a maximum
of 4,000 kilograms of gold.

     The Company's exploration activities are currently focused on the
Schellgaden North property. Exploration programs will be developed for Goldeck
West - Siflitz and Goldeck East - Siflitz based on the availability of capital
and developments on the Schellgaden North property.

     Kreuzeck West - Rabant
     ----------------------

     The Kreuzeck West - Rabant Property are unimproved exploration properties
without known reserves that are located in Western Carinthia Province and
extends into East-Tyrol Province, Austria. The expenditures to date on the
properties have been limited and comprised of evaluation costs and lease
maintenance costs. The property consists of 23.9 square kilometers and is made
up of 44 leases in Carinthia and 5 leases in East Tyrol. The current lease term
is for a two- year period, January 1, 1998 to December 31, 1999. This property
is the western most property in the Kreuzeck-Goldeck Gold district and has been
an area of active mining from the Middle Ages until the 1950s when the Rabant
and Gurskerkammer Mines were closed down by the Bleiberger Bergwerks Union
("BBU"). "BBU" mined the area for lead, zinc and antimony. The "BBU" still owns
the mining rights around the Gurskerkammer Mine, but Argosy was granted
exploration rights covering the whole area, and the mining rights are being
reviewed by the Carinthian Department of Mines. The Company expects that the
rights granted to the "BBU" will be annulled although there can be no assurance
of this. Until, and if, the rights are lifted, the Company cannot conduct
exploration operations in the area.

     Access to the Kreuzeck West property is by a federal highway, B-100 that
runs East/West along the Drau River. A dense network of secondary roads accesses
the property, which has been a historic center of gold mining.

     From the west of the lease block to the east, former mining activities seem
to reveal a certain trend or zoning from predominantly stibnite ore bodies
(Rabant) to stibnite and arsenopyrite-gold at the center (Gurskerkammer Mine) to
gold (silver) in the east (Fundkofel Mine). While the Rabant-area stibnite ore
bodies with a lenticular to layer-like shape, similar to the Gurskerkammer Mine
stibnite ore and arsenopyrite-gold mineralizations, are said to be stratiform,
the Fundkofel Mine gold was found in vein-type, discordant structures.

     At the Knappenstube mine, north of Fundkofel, only a massive sulfide ore
body is distinctly stratabound. Gold values vary strongly, are generally very
low and of no commercial interest. Thickness of the massive sulfide ore varies
from 0.1 to 2.2 meters, with additional impregnations up to three meters in the
host rock. Ore minerals are pyrite, pyrrhotite, sphalerite, chalcopyrite, galena
and arsenopyrite. High gold grades seem to coincide with galena-quartz veining
penetrating massive sulfide ore.

                                       17
<PAGE>

     The Gurskerkammer Mine is easily accessible and the drill target would be
arsenopyrite-gold impregnated light green meta-tuffite in the hanging wall of
stibnite ore, dipping 45(degrees) NNE with grades ranging over 10 g Au/t.
Stibnite was mined from lenticular stibnite-quartz ore bodies along a major
shear zone with graphitic and argillaceous material.

     The Rabant Mine is no longer accessible, as most entrances have collapsed.
The lenticular stibnite ore bodies were reported to contain fine intergrowth of
pyrite and arsenopyrite with gold contents ranging from 1 to 35 g Au/t.

     The Fundkofel Mine offers very limited access. Gold was mined in this
location in the late Middle- Ages. In the 1920s, a major mine development effort
took place with tunneling along three different levels, entrances to which have
collapsed. The mine is characterized by a series of chlorite-amphibolite schist,
meta-tuffites and mica schists trending West-East and dipping 34-40(degrees)
north. They are intersected by steeper, dipping to vertica, gold-bearing veins.
These veins normally pinch out within the mica schist, but open up in the
metavolcanics.

     More exploration, core samples and review needs to be done in this area
prior to ascertaining the potential for gold extraction. However, the work
cannot be done until the rights of the "BBU" are resolved.

     The Company's exploration activities are currently focused on the
Schellgaden North. Exploration programs will be developed for Kreuzeck West-
Rabant based on the availability of capital and developments on the Schellgaden
North property.

     Kreuzeck East - Lengholz
     ------------------------

     The Kreuzeck East - Lengholz property are unimproved exploration properties
without known reserves which are located in South-Western Carinthia, Austria.
The expenditures to date on the properties have been limited and comprised of
evaluation costs and lease maintenance costs. The property consists of 20.5 sq.
kms. and is made up of 42 leases. The current lease term is for a two year
period, January 1, 1998 to December 31, 1999. The Kreuzeck East property covers
the southern slope of the Eastern Kreuzeck Mountains between Steinfeld in the
west and Lessnig in the east. The property includes two famous old mining
districts, the rich gold mines north of Lengholz and the stibnite deposits of
Lessnig-Radlberg. The mines in this area have been shut down and inaccessible
for many years. At both old mine centers, mica schists with minor greenschists
are host rock to the mineralization, with a general East-West strike and 35-
60(degrees) dip to the north. The Lengholz mine was opened in 1544 when gold was
discovered and closed down in the 17th century.

     Access to the Kreuzeck East property is by a federal highway, B-100 that
runs East/West along the Drau River. A dense network of secondary roads accesses
the property, which has been a historic center of gold mining.

     The Company's exploration activities are currently focused on the
Schellgaden North. Exploration programs will be developed for Kreuzeck East -
Lengholz based on the availability of capital and developments on the
Schellgaden North property.

     Kliening and Kliening West - Buchbauer
     --------------------------------------

     The Kliening and Kliening West properties are unimproved exploration
properties without known reserves that are located in Eastern Carinthia,
Austria. The expenditures to date on the properties have

                                       18
<PAGE>

been limited and comprised of evaluation costs and lease maintenance costs. Each
property consists of 27.4 square kilometers and is made up of 54 different
leases. The current lease term is for a two year period, January 1, 1998 to
December 31, 1999 and January 1, 1996 to December 31, 1998 respectively. The
Kliening Gold Mining District lies west of Bad St. Leonhard in the Upper Lavant
Valley, the NNW of the village of Kliening in eastern Carinthia. At Kliening, at
least nine different steeply Northeast dipping veins have been reported.
Mineralized structures have been traced over 1000 meters along strike, average
spacing between the veins at about 50 meters.

     Access to the Kliening properties from Vienna or Klagenfurt is over the
Austrian Sudautobahn, the federal highway A-2. The properties are located
between the town of Bad St. Leonard/Lavanttal and the Klippitztorl mountain
pass, about 10 kilometers to the west, with a secondary road link via the old
gold mining town of Kliening.

     The polymetallic sulfide association is dominated by arsenopyrite with
pyrite, galena, ag-tetrahedrite, and bismuth. Gold also occurs in milimeter-
grains as free gold within quartz and chlorite. Host rocks are metamorphic
schists. A program of core samples in the 1980's was inconclusive due to high
losses of core material.

     At Kliening West, the property contains a geologic zone with banded
gneisses, marble and schists intruded by pegmatitic bodies. Main faulting is NW
trending, minor faulting NE. The gold mineralization is bound to NW striking
quartz-arsenopyrite veins along sheer zones.

     In 1990, samples taken from Kliening West were analyzed and yielded 0.2 g
Au/t to 0.40 ounces Au/t.

     The Company's exploration activities are currently focused on the
Schellgaden North. The Company previously had planned to develop exploration
programs for Kliening and Kliening West - Buchbauer based on the availability of
capital and developments on the Schellgaden North property. To reduce its
carrying costs at the present weak Gold Market the Company plans to drop the 54
claims at Kliening and the 54 claims at Kliening West - Buchbauer with year-end
1998, when they expire.

     Strassegg-Gasen
     ---------------

     The Strassegg-Gasen Property is an unimproved exploration property without
known reserves that is located in Northern Styria, Austria. The expenditures to
date on the property have been limited, comprised of evaluation costs and lease
maintenance costs. The property consists of 12.3 square kilometers and is made
up of 25 leases. The current lease term is for a two year period from January 1,
1997 to December 31, 1998. The Strassegg-Gasen Property is located about 15
kilometers east of the district center Bruck/Mur, province of Styria. Extensive,
but shallow, underground mining of gold and arsenopyrite dates back to the
Middle- Ages. A great number of collapsed mine entrances, pits and mine dumps
have been mapped by an exploration project conducted in the 1980s.

     The Strassegg-Gasen property lies in Northern Styria, south of the town of
Murzzuschlag in the Mur Valley and east of the industrial center of Bruck/Mar-
Kapfenberg. Access is by the main Vienna-Klagenfurt road link A-2/S-6/S-35. The
property is bounded by a provincial road, which connects to main highways. A
dense network of small roads and trails provides easy access to the property,
which has been a center of historic mining activities.

     At the Strassegg-Gasen Property ancient mining activities followed along a
NNW-SSE striking trend within a band of greenschists for about 2.5 kilometers.
Traces of mining there have been found also

                                       19
<PAGE>

over a vertical extent of 200 meters. The mining district was important for both
gold as well as arsenopyrite production. The polymetallic mineral association
contains arsenopyrite, galena, sphalerite, minor chalcopyrite and traces of rare
complex Ag-sulfides.

     Two types of mineralizations are described, a series of parallel quartz-
sulfide veins, more or less parallel along strike to the schistosity of the
greenschist host rock, but more steeply dipping, with a maximal thickness of 1.5
meters, with locally massive sulfides, and a horizon with massive sulfide
nodules in greenschists with thickness to 2.5 meters and mainly arsenopyrite.

     An airborne geo-MAG survey of the area discovered a strong magnetic anomaly
down-dip from the outcropping greenschist series, seat of the historic gold mine
workings. The anomaly shows a certain NNW-SSE elongation with a maximum magnetic
susceptibility of 300 n Tesla. Computer calculations to model the anomaly are
presently being undertaken at the Institute for Geophysics at the University of
Vienna in an attempt to define the parameters of the anomaly more closely. The
Company's geologist believes that the anomaly is caused by a massive sulfidic
ore body located at an estimated depth of about 300 meters. Such a massive
sulfide ore body is believed to be the source for the numerous gold-sulfide
veins mined during historic times close to the surface.

     Subject to favorable results of the present computer modeling attempts on
the anomaly, an initially limited exploratory core drill program is planned in
the future.

     The Company's exploration activities are currently focused on the
Schellgaden North. Exploration programs will be developed for Strassegg-Gasen
based on the availability of capital and developments on the Schellgaden North
property.

     The mining rights to all nine Austrian properties were held valid by
current and maintained leases, which expire, in part on December 31, 1998 and in
part on December 31, 1999. To reduce its carrying costs at the presently
continuing weak Gold Market the Company plans to drop the 54 claims at Kliening
and the 54 claims at Kliening West - Buchbauer with year-end 1998, when they
expire.

     Under Austrian federal law, the annual fee requirement for all exploration
claims and concessions is ATS 120.00 (approximately $9.55) for each claim, or
ATS 60,240.00 (approximately $4,795.10) for all 502 claims on the nine mining
properties. The bill is received by the concession holder for the properties
annually from the Highest Mining Authority seated at the Federal Ministry of
Economic Affairs in Vienna, Austria. An additional annual fee may be charged by
the provincial Mine Department Offices, which administers and grants exploration
and mining permits and approves exploration work programs. The provincial Mine
Department Offices can charge an annual renewal administrative fee of ATS 20.00
(approximately $1.59) per claim to cover administrative costs of concession
maintenance, registry and renewal. This fee amounts to ATS 720.00 (approximately
$57.31) in Salzburg, ATS 100.00 (approximately $7.96) in Innsbruck (East Tyrol),
and ATS 6,350.00 (approximately $505.46) in Klagenfurt (Carinthia). The
Departments of Graz and Leoben have not charged any fees in the past two years.
There are no fee requirements to local administrations or to local land-owners
on or under whose properties the explorations work is conducted. The only
payments to land owners that may take place are negotiated payments of
compensation for actual/possible losses from the exploration and mining
activities and the granting of access to and over the property. These fees tend
to be between ATS 3,000.00 (approximately $238.80) to ATS 10,000.00
(approximately $796.00).

     To maintain exploration rights and concessions beyond the current term
under applicable Austrian law, the Company has to submit a work program with
detailed descriptions of the type, extent and purpose of the planned exploration
activities and schedule of work. Also, the Company must provide an estimate

                                       20
<PAGE>

of the cost of the program combined with evidence of the financial means to
complete the program. In addition, the Company must provide a description of
equipment required, transportation needed and the safety measures taken to
protect workers. Once a program is completed, or at the end of each year, the
Company must submit a work program report indicating the results of the program.

     The exploration and mining rights held by the Company can be forfeited or
canceled by the Mining Authorities in the case of repeated breach of the
provisions and regulations of the mining law or repeated neglect of the
requirements stated by the Mining Authorities by the lease holder or their
authorized representative. The exploration and mining rights may also be
canceled by non-payment of the yearly claim fees. Under Austrian law, land
rights and mineral rights are equal and coexist for the benefit of each other. A
land - owner may object to a work plan but cannot stop the plan as long as the
program is economically, legally and environmentally sound. The law encourages
negotiation and cooperation between land- owners and holders of mineral rights.

     Item 3.  LEGAL PROCEEDINGS

     The Company is party to one legal action related to the prior business of
the Company. On September 16, 1997, a lawsuit (case number 799-1997) was filed
in the State of New York, Supreme Court, County of Livingston. The third party
plaintiff alleges that it purchased certain building systems, including building
design and building parts from the Company and that among other things, the
subject building was constructed in a defective and negligent manner and that
said defects and negligent construction caused a fire to spread unreasonably
fast and within concealed joint spaces of the subject building so that the fire
could not be confined or extinguished without substantial destruction to the
buildings. The lawsuit seeks unspecified damages.

     The insurance carrier is providing legal defense for the Company.
Management is in the process of determining the extent of any insurance coverage
for a loss or judgment. Should it be determined that any loss or judgment is not
covered by insurance such loss or judgment would be borne by the Company. While
the amounts claimed above or in respect of future claims relating to the
Company's former operations may be substantial, any liability cannot now be
determined because of the considerable uncertainties which exist. Therefore, it
is possible that the results of operations or liquidity in a particular period
could be materially affected by these contingencies. However, based on facts
currently available, management believes that the disposition of matters that
are pending or asserted will not have a materially adverse effect on the
financial position, results of operations and cash flow of the Company.

     The Company was a party to a legal action related to the prior business of
the Company. On March 2, 1995, a lawsuit was filed in the 98th District Court in
Travis County, State of Texas, alleging liability for the deaths of two people
and the destruction of a mobile home allegedly manufactured by the Company in a
fire. This lawsuit was settled in March 1998 at no cost to the Company.

                                       21
<PAGE>

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

     No matters were submitted during the fourth quarter of 1997 to a vote of
security holders.

                                    PART II

     Item 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Prior to December 7, 1994, the Company's common stock had been listed on
the New York Stock Exchange, the Chicago Stock Exchange and the Pacific Stock
Exchange. On December 4, 1994, these stock exchanges suspended trading in the
Company's common stock. The suspension was a result of the failure of the
Company to continue to meet the listing requirements with the New York Stock
Exchange. On May 24, 1995, the Company was delisted from the New York and
Chicago Stock Exchanges and, on April 11, 1996, the Company was delisted from
the Pacific Stock Exchange. The Company's common stock now trades over-the-
counter on the National Association of Securities Dealers Inc. OTC Bulletin
Board under the symbol "EGIT".

     The following is the range of high and low bid information for the shares
of the common stock of the Company for each quarter in 1996 and 1997. This
information was obtained from the Trading and Market Services division of The
Nasdaq Stock Market, Inc. The information provided is over-the-counter market
quotations. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.

<TABLE>
<CAPTION>
          Quarter Ending        High Bid  Low Bid
          ---------------------------------------
          <S>                   <C>       <C>
          March 31, 1996            0.07  0.03125
          June 30, 1996           0.0313    0.001
          September 30, 1996        0.04    0.001
          December 31, 1996         0.08     0.02
          March 31, 1997            0.25     0.05
          June 30, 1997          0.15625     0.06
          September 30, 1997        0.20   0.0625
          December 31, 1997         0.15     0.04
</TABLE>

     As of May 31, 1998, the Company had approximately 6,000 shareholders of
record.

     The Company has not paid any cash dividends on its common stock since 1973
and does not intend to pay any cash dividends in the foreseeable future.

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

General
-------

In 1998, the Company continued to hold 9 gold exploration properties in Austria,
where prior drilling of the Schellgaden North concession, confirmed gold
mineralization in a multi-layered

                                       22
<PAGE>

structure, and completed the acquisition of the Tulameen project, in British
Columbia, Canada, an important part of the Similkameen Mining district, known
for precious and base metals, as well as PGE- and vanadium bearing iron
(magnetite) deposits.

The Company, has used the year to further evaluate existing data on the projects
and carried out extensive rock and soil sampling in order to validate drill
targets for testing the PGE potential at depth.

The prevailing conditions for the mining industry generally, in 1998, and in
particular the gold mining industry, were such that the Company was not able to
raise sufficient funds to carry out the ambitious plans it had for the past
year. The Company, has, however, maintained in good standing, the majority of
the exploration properties in both Austria and Canada.

Dr. Hans Klob, the Company's exploration and development manager, spent most of
his time in further evaluating the potential for both projects. It was
unanimously decided by Management to hold on to these projects in order to
further explore the exciting potential for both gold and platinum, as soon as
the present state of the pm-mining markets allows for new equity funding.

During the latter part of the year, as certain irregularities in regard to Mr.
William B. Warke's fiduciary duties became apparent, the Company elected, in an
extraordinary board meeting, to call for his resignation from the board of
directors, effective December 31,1998. The Company may also elect to investigate
the possibility of bringing certain charges to bear against Mr. W.B. Warke in
the coming year.

While the management of the Company is certainly not satisfied with the results
of the past twelve month period, it does look forward to a more rewarding year,
as the long term malaise of the resource cycle may finally find a bottom.

Sincerely

FRR

Pres. & CEO.

                                       23
<PAGE>

Peet Nienaber Inc.                           1 - 1500 Marine Drive
CHARTERED ACCOUNTANTS                        North Vancouver, BC. V7P 1T7
                                             Telephone (604) 990-1129
                                             Fax (604) 980-4622
--------------------------------------------------------------------------------

                               AUDITOR'S REPORT


To the Shareholders of
Empire Gold Inc.

I have audited the consolidated balance sheet of Empire Gold Inc. as at December
31, 1998 and the consolidated statements of operations and deficit and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the company's management. My responsibility is to express an
opinion on these consolidated financial statements based on my audit.

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

The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 1 to the
financial statements at December 31, 1998, the company has an accumulated
deficit of $48,114,090 and a working capital deficiency of $244,359. I addition,
additional capital will be required to proceed with the Company's development of
the mining properties. These matters raise substantial doubts about its ability
to continue as a going concern. The financial statements do not include
adjustments that might result from the outcome of this uncertainty.

In my opinion, except for the uncertainty described in the preceding paragraph,
these financial statements present fairly, in all material respects, the
financial position of the company as at December 31, 1998 and the results of its
operations and the changes in its financial position for the year then ended in
accordance with generally accepted accounting principles.

The financial statements as at December 31, 1997 and for the year then ended
were audited by other auditors who expressed an opinion with a going concern
reservation on those statements in their report dated June 12, 1998.



North Vancouver, British Columbia                     /s/ PEET NIENABER
January 28, 2001                                      Chartered Accountant

                                       24
<PAGE>

                               EMPIRE GOLD INC.
                          CONSOLIDATED BALANCE SHEET
                              As at December 31,

<TABLE>
<CAPTION>
                                                 Note     1998         1997
                                                 ----     ----         ----
                                                           $            $
<S>                                              <C>  <C>           <C>
          ASSETS

Current assets
   Cash                                                     8,064        12,796
   Accounts receivable                                     78,455        18,032
                                                      -----------   -----------

                                                           86,519        30,828

Mineral property and deferred development costs           489,536       439,507
                                                      -----------   -----------

                                                          576,055       470,335
                                                      ===========   ===========


     LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable                                        152,612        67,428
  Accrued liabilities                                     114,663       104,338
  Due to related party                             4            -         5,207
  Shareholder advance                              4       63,603        15,890
                                                      -----------   -----------

                                                          330,878       192,863
                                                      -----------   -----------

Shareholders' equity

 Common stock                                      3   48,405,267    48,228,778
 Common stock transferred by affiliate                    (46,000)      (46,000)
 Accumulated deficit                                  (48,114,090)  (47,905,306)

Total shareholders' equity                                245,177       277,472
                                                      -----------   -----------

                                                          576,055       470,335
                                                      ===========   ===========
</TABLE>

/s/ Florian Riedl-Riedenstein                          /s/ Hans R Klob
---------------------------------                      -------------------------
          Director                                               Director

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

                                       25
<PAGE>

                               EMPIRE GOLD INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                        For the year ended December 31,

<TABLE>
<CAPTION>
                                               Note     1998        1997
                                               ----     ----        ----
                                                         $           $
<S>                                            <C>  <C>         <C>
Revenues
   Interest income                                         845       4,103
                                                    ----------  ----------

Expenses
   General and administrative                           79,355      78,362
   Legal fees                                           12,358      91,652
   Audit fees                                           26,702      24,042
   Management fees                                4     38,163      71,822
   Exploration expenses                                 53,052     306,907
                                                    ----------  ----------

                                                       209,630     572,785
                                                    ----------  ----------

Net Loss                                              (208,785)   (568,682)

Net loss per share                                           *       (0.01)
                                                    ==========  ==========

Weighted average number of shares
of common stock outstanding                         74,800,664  73,073,153
                                                    ==========  ==========
</TABLE>

  * Less than $0.01 per share

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

                                       26
<PAGE>

                               EMPIRE GOLD INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOW
                        For the years ended December 31

<TABLE>
<CAPTION>
                                                          Note             1998        1997
                                                   -------------------  ----------  ----------
                                                                            $           $
<S>                                                <C>                  <C>         <C>
Cash provided by (used in) operating activities
 Net loss for the period                                                 (208,785)   (568,682)
Change in non-cash working capital
 Accounts receivable                                                      (60,423)      6,968
 Security deposit                                                               -     100,000
 Accounts payable                                                          85,184      34,932
 Accrued liabilities                                                       10,325      36,968
 Due to related party                                                 4    (5,207)          -
 Shareholder's advance                                                4    47,713      15,890
                                                                        ---------   ---------
Net cash used by operating activities                                    (131,193)   (373,924)
                                                                        ---------   ---------

Cash used in investing activities
 Deferred exploration costs - Austria                                     (50,029)   (239,315)
                                                                        ---------   ---------
Net cash used in investing activities                                     (50,029)   (239,315)
                                                                        ---------   ---------


Cash provided by financing activities
 Proceeds from sale of common stock                                  3    176,490     455,985
 Cancellation of shares                                                         -        (100)
                                                                        ---------   ---------
Net cash provided by financing activities                                 176,490     455,885
                                                                        ---------   ---------

Increase (Decrease) in cash                                                (4,732)   (157,354)

Cash, beginning of year                                                    12,796     170,150
                                                                        ---------   ---------

Cash end of year                                                            8,064      12,796
                                                                        =========   =========
</TABLE>

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

                                       27
<PAGE>

                               EMPIRE GOLD INC.
          CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                       Common
                               Common Stock             Common          Stock
                                                         Stock      Transferred    Accumulated
                           Number        Amount     Subscriptions   by Affiliate     Deficit         Total
                         ----------   -----------   -------------   ------------   ------------   -----------
                                           $                              $              $             $
<S>                      <C>          <C>           <C>             <C>            <C>            <C>
January 1, 1996          69,034,997    47,183,763               0              0    (47,480,426)     (296,663)
Common stock issued               0             0         514,000              0              0       514,000
Exercise stock option       971,000        29,130               0              0              0        29,130
Transfer                          0        46,000               0        (46,000)             0             0
Net income 1996                   0             0               0              0        143,802       143,802
                         ------------------------------------------------------------------------------------
December 31, 1996        70,005,997    47,258,890         514,000        (46,000)   (47,336,621)      390,269
Common stock issued       4,125,000       959,985        (514,000)             0              0       455,985
Cancelled stock              (2,000)         (100)              0              0              0          (100)
Net loss 1997                     0             0               0              0       (568,682)     (568,682)
                         ------------------------------------------------------------------------------------
December 31, 1997        74,128,997    48,228,777               0        (46,000)   (47,905,305)      277,472
Sale of common stock      1,176,667       176,490               0              0              0       176,490
Net loss 1998                     0             0               0              0       (208,785)     (208,785)
                         ------------------------------------------------------------------------------------
December 31, 1998        75,305,664    48,405,267               0        (46,000)   (48,114,090)      245,177
                         ====================================================================================
</TABLE>

                                       28
<PAGE>

                               EMPIRE GOLD INC.
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                     FOR THE YEAR ENDED DECEMBER 31, 1998

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

(a)  Basis of Presentation

          These financial statements have been prepared on the going concern
          basis, which assumes realization of assets and the payment of
          liabilities in the normal course of business. There is substantial
          doubt about the Company's ability to realize the carrying value of its
          mining properties and its ability to pay liabilities as they become
          due. At December 31, 1998, the Company has an accumulated deficit of
          $48,114,090 (1997: $47,905,306) and a working capital deficiency of $
          244,359 (1997: $162,035). The Company incurred a loss from continuing
          operations of $208,705 (1997: $568,682). Furthermore, additional funds
          will be required to proceed with the Company's exploration program.
          The Company is considering various capital raising options, including
          but not limited to equity financing. There can be no assurance that
          the Company will be successful in its efforts to raise capital
          sufficient to enable it to pursue its business plan. The financial
          statements do not include any adjustments that might result from the
          outcome of this uncertainty.

(b)  Significant accounting policies

     (a)  Principles of consolidation

          These consolidated financial statements include the accounts of the
          Company and its subsidiaries. All significant inter-company accounts
          and transactions have been eliminated on consolidation.

     (b)  Mineral properties and deferred costs

          Exploration costs are charged against earnings as incurred.
          Development expenditures incurred to expose the ore, increase
          production or extend the life of a mine are capitalized.

          Costs relating to the acquisition of mining properties held by the
          Company, or through its participation in jointly owned companies, are
          capitalized until such time as either economically recoverable
          reserves are established, or the properties are sold or abandoned.
          Proceeds from sale of properties and earn-in arrangements in which the
          Company has retained an economic interest are credited against
          property costs and no gain is recognized until all costs have been
          fully recovered.

          Amounts recorded for mineral properties and deferred costs represent
          costs incurred to date and are not intended to reflect present or
          future values.

                                       29
<PAGE>

          The recoverability of amounts shown for mineral properties and related
          deferred costs is dependent upon the discovery of economically
          recoverable reserves, confirmation of the Company's interest in the
          underlying mineral claims, the ability of the Company to obtain
          necessary financing to complete the development, and future profitable
          production or proceeds from the disposition thereof.

          If brought into production cumulative costs of the properties will be
          charged to operations using the unit-of-production method based on
          estimated recoverable reserves on commencement of production.

     (c)  Translation of foreign currencies

          The Company's assets and liabilities of foreign operations are
          translated to U.S. dollars at exchange rates in effect at the balance
          sheet date for monetary items and at exchange rates in effect at
          transaction dates for non-monetary items. Income and expenses are
          translated at average exchange rates in effect during the period,
          except for depreciation, which is translated at historical exchange
          rates. Exchange gains or losses are included in income.

     (d)  Use of Estimates

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

3. Common Stock

     (a)  The authorized capital of the Company consists of 1,000,000,000 common
          shares without par value.

     (b)  Issued

          The Company accepted subscriptions for 1,176,667 common shares at
          $0.15 per share for aggregate proceeds of $176,490.

          The Company issued warrants which may be exercised for $0.25 at any
          time prior to March 31, 1998 and for $0.30 per share at any time
          thereafter, bur prior to September 30, 1998. No warrants were
          exercised during that period. No warrants are outstanding at December
          31, 1998. (1997: 1,925,000 warrants were outstanding)

     (c)  Stock Option Plan

     The Company has a non-qualified stock option plan under which it sets aside
     and grants options to directors, officers and key employees. The Board of
     Directors is authorized to grant options to purchase up to 7,500,000 of
     common

                                       30
<PAGE>

          stock have been reserved for issuance pursuant to the exercise of
          options to be granted under this plan. No options have been granted
          under this plan.

4. Related party transactions

     (a)  Commencing January 1, 1997 the Company entered into an agreement with
          a company of which two directors of the Company are senior officers,
          to provide certain management and administrative services. Under the
          terms of the agreement the fee amounted to $22,500 in 1998 (1997:
          $71,822). The agreement was terminated in June 1998 and no fees are
          due at December 31, 1998 (1997: $5,207).

     (b)  In September 1997 and September 1998, shareholders who are also
          directors of the Company, advanced $15,890 and $47,713 respectively,
          to the Company, that remains outstanding at year-end. These advances
          do not bear interest and have no fixed terms of repayment.

5. Income Taxes

          At December 31, 1998 the Company has net operating loss carry forwards
          for income tax purposes of approximately $786,271 (1997: $577,486)
          that begin to expire in 2004.

          The potential future tax assets have not been recognized in the
          accounts of the Company because it does not believe that the benefit
          will be realized in the future.

6. Financial Instruments

          The carrying value of the Company's financial instruments, including
          cash, accounts receivable and accounts payable approximates their fair
          values due to their short-term natures.

7. Uncertainty due to Year 2000 Issue

          The Year 2000 Issue arises because many computerized systems use two
          digits rather than four to identify a year. Date-sensitive systems may
          recognize the year 2000 as some other date, resulting in errors when
          information using year 2000 dates is processed. In addition, similar
          problems may arise in some systems, which use certain dates in 1999 to
          represent something other than that date. The effects of the Year 2000
          Issue may be experienced before, on, or after January 1, 2000, and, if
          not addressed, the impact on operations and financial reporting may
          range from minor errors to significant systems failure, which could
          affect an entity's ability to conduct normal business operations. It
          is not possible to be certain that all aspects of the Year 2000 Issue
          affecting the entity, including those related to the efforts of
          customers, suppliers, or other third parties, will be fully resolved.

8. Changes in and Disagreements with Accountants on Accounting and Financial
   Disclosure.

          At a Board of Directors' Meeting held on November 15, 2000, the
          Company appointed Peet Nienaber Inc. - Chartered Accountants of
          Vancouver BC as auditors of the Company, effective January 1, 1998.
          KPMG - Chartered Accountants of Toronto, Canada, were dismissed by the
          directors, at the same meeting.

          There has been no disagreement during the two most recent fiscal
          years, or any subsequent interim period preceding the dismissal, with
          the former accountants on any matter of accounting principles or
          practices, financial statement disclosure or auditing scope procedure,
          which disagreement, if not resolved to the satisfaction of the former
          accountant, would have caused them to make a reference to the subject
          matter of the disagreement in connection with their report.

          The former accountant's report, dated June 12, 1998, for the year
          ended December 31, 1998, contained a qualification as to the
          uncertainty that the Company will continue as a 'going concern'.  The
          uncertainty arose because at December 31, 1997, the Company had an
          accumulated deficit of $47,905,306 and a working capital deficit of
          $162,035.  The Company also required additional capital to proceed
          with the Company's exploration program.  These matters raised
          substantial doubt about the Company's ability to continue as a 'going
          concern'.

                                       31
<PAGE>

                                   PART III

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

Directors and Executive Officers of the Company
-----------------------------------------------

Listed below are the names, ages (as of December 31, 1998) of each of the
directors and executive officers of the Company:

<TABLE>
<CAPTION>
                                Positions Held               Directorship or Office
Name                       Age  With the Company             Held Since
----                       ---  ----------------             ----------
<S>                        <C>  <C>                          <C>
Florian Riedl-Riedenstein  56   Director, Chairman,          1996
                                President and Chief
                                Executive Officer

Mathew Gaasenbeek, III     68   Director                     1993

Robert Needham             69   Director                     1997

Hans Klob                  50   Vice President, Exploration  1997

Eunice Ludlow              56   Chief Financial Officer      1998
</TABLE>

     No arrangement or understanding exists between any director or executive
officer and any other person under which any director or executive officer was
elected. All of the above officers and directors have been elected for a term of
one year or until a successor is elected. Directors are subject to election
annually by the shareholders. Directors are elected by a simple plurality of the
vote of the shareholders. There are no family relationships by blood, marriage
or adoption among any of the officers or significant employees of the Company.

     Florian Riedl-Riedenstein
     -------------------------

     Mr. Riedl-Riedenstein has been a director and Chairman of the Company since
December, 1996 and has been President and Chief Executive Officer of the Company
since July, 1997. Mr. Riedl-Riedenstein is Vice Chairman and a Director of Tri
Star Gold Corp. (1996), a Director of Coral Gold Corp. (1994), a Director of
Bralorne Pioneer Gold Corp. (1994) and a Director of Levon Resources Ltd.
(1996). He is formerly Chairman and Chief Executive Officer of Strand Resources
(1993-1996) and Managing Director of Investment Department of Schoeller & Co.,
Bank AG (1969-1990).

     Executive Officer of the investment banking firm of Deacon, Barclays, de
Zoete Wedd from 1986 to 1994.

                                       32
<PAGE>

     Matthew Gaasenbeek III
     ----------------------

     Mr. Gaasenbeek has been a director of the Company since 1993. Since 1983 he
has been a Managing Partner of Northern Crown Capital Inc. and is a past
director of Royal Oak Mines. Previously, Mr. Gaasenbeek was President of Camreco
Inc. (1983-1991). Mr. Gaasenbeek is also currently a director of several non-
profit environmental organizations and Chairman of the Ontario Development
Corporation.

     Robert Needham
     --------------

     Mr. Needham is the founding Chairman and Chief Executive Office of Tri-Star
Gold Corp. and Tri-Star Gold (Ghana) Ltd. A Chartered Engineer and Member of the
Order of Australia, Mr. Needham, has over 30 years international exploration and
mining experience. Prior to founding the Tri-Star companies Mr. Needham was
Managing Director & CEO of the state owned Mineral Resource Development Company,
Papa New Guinea, 1991-1994. Other senior positions in the international mining
industry fulfilled by Mr. Needham include: Chairman & CEO, Giant Yellowknife
Mines Inc., Pamour Inc. and Pamorex Inc., 1987-1990; founding Managing Director
& CEO, Kidston Gold Mines Ltd., 1982-1987; Founding Managing Director & CEO,
Placer Pacific Limited, 1980-1987; founding Chairman, Porgera Joint Venture
Committee, 1979-1987; and Managing Director & CEO & Founder, Fox Mexicana SA,
1970-1980.

     Dr. Hans R. Klob
     ----------------

     Dr. Klob has been Vice President, Exploration of the Company since 1997. He
is a professional geologist and economist with over 26 years experience in
exploration, mining, project management and planning. Dr. Klob has acted as a
consulting geologist on many projects. From 1978 to 1984 he held various
management positions with Austrian OMV and SOHIO Petroleum. Since 1984, he has
conducted consulting services for clients through HRK International of San
Francisco. During his career, he has served many small and large organizations
in the mining industry, such as Bechtel Engineering, Fluor Daniel, Placer Dome
US, St. Joe Gold-Dallhold Resources, Doyon Limited, Amoco Production. He also
has served as a consultant to foreign governments such as Turkey, Rwanda and
Nicaragua.

     Since 1995, Dr. Klob was General Manager of Argosy Mining's Austrian
subsidiary, which was purchased by the Company in December 1996. Dr. Klob,
through HRK International, is currently a consultant to the Company. Based on
his advice, the Schellgaden North property will be the main target of the
Company's 1998 diamond core drill program in Austria to further define the
indicated resource.

     Item 10. EXECUTIVE COMPENSATION.

     For the years 1995, 1996 1997 and 1998, no compensation was awarded to,
earned by, or paid to the Chief Executive Officer of the Company and no
executive officer of the Company received a total annual salary and bonus in
excess of $100,000.

     The Company has entered into a management and administrative services
agreement with United Tri-Star Resources Ltd., see Item 12 Certain Relationships
and Related Transactions.

     Directors receive no cash compensation for their services. The Company
reimburses Directors for out-of-pocket expenses incurred to attend Directors
meetings.

                                       33
<PAGE>

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

     Security ownership of all beneficial owners of more than 5% of the
outstanding common stock of the Company as of May 31, 1998 and management.

<TABLE>
<CAPTION>
Name and Address of                Amount and Nature of       Percent of
Beneficial Owner                   Beneficial Ownership (1)   Class
---------------------------        -------------------------  -----------
<S>                                <C>                        <C>

Florian Riedl-Riedenstein          14,060,500                 18.97%
A-3034 Maria-Anzbach
Tannhof - 1 Austria

Matthew Gaasenbeek, III               855,000 (2)              1.15%
810-8 King St. E.
Toronto, Ontario M5C 1B5


Robert Needham                      6,750,000                  9.11%
House No. 2
F57/8 Abafum Cresent
Labone North, Accra, Ghana

Hans R. Klob                        1,000,000                  1.35%
Freyung 6/7
A-1010, Vienna, Austria


Directors and
Executive Officers as a Group      26,275,500                 35.45%
(six persons)
</TABLE>

(1)  Calculated pursuant to Rule 13d-3(d) of the securities Exchange Act of
     1934. Unless otherwise stated below, each such person has sole voting and
     investment power with respect to all such shares. Under rule 13d-3(d),
     shares not outstanding which are subject to options, warrants, rights or
     conversion privileges exercisable within 60 days are deemed outstanding for
     the purpose of calculating the number and percentage owned by such person,
     but are note deemed outstanding for the purpose of calculating the
     percentage owned by each other person listed.

(2)  Includes 480,000 shares owned by Hilda Gassenbeek the spouse of Matthew
     Gaasenbeek, III.

     Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The Company entered into a verbal agreement with William B. Warke a
director of the Company in the second quarter of 1997 to organize and effect for
the benefit of the Company the staking and the acquisition of mineral claims in
the Tulameen project area. At the same time the evaluation of the Tulameen
project continued under the direction of Dr. Hans R. Klob. See "ITEM 1.
DESCRIPTION OF BUSINESS - NEW BUSINESS PLAN". Mr. Warke also owned several claim
blocks within the outlined Tulameen project area which were intended to be
transferred into the Company.

                                       34
<PAGE>

     It was the Company's intent to acquire all such properties directly through
its Canadian subsidiary, Lodestone Mountain Mining Inc. ("Lodestone"). At the
start of staking and acquisition by Mr. Warke in July 1997 "Lodestone" was not
yet formed, nor was the Company in the possession of a Free Miners Certificate.
Such a Certificate is needed by law to acquire and hold claims for mining
properties under Mineral Tenure Act RSBC, c292. For these reasons, the Company
entered in the verbal agreement with Mr. Warke.

     The Company completed the formation of Lodestone in March 1998 and is now
in the process of obtaining for it the Free Miners Certificate. As of December
31, 1997, the Company had advanced $262,207 to Mr. Warke for the purpose of
staking and purchasing additional mining claims other than the ones held by him
personally, and for expenditures incurred by Mr. Warke in connection therewith
for the benefit of the Company. The Company has advanced an additional $27,503
to Mr. Warke to May 31, 1998 for the same purposes. These advances to Mr. Warke
have been accounted for as operating expenses in the period they were made.

     The Company anticipates that the total acquisition cost for the block of
mineral claims in the Tulameen project area at the time of transfer to Lodestone
by Mr. Warke will be approximately $500,000 in cash, which includes the $289,710
previously advanced to Mr. Warke, and the issuance of approximately 20,000,000
shares of the Company's Common Stock. The anticipated purchase price is based
upon individual purchase agreements with the former owners of mineral claims,
and discussions between the Company and Mr. Warke. The Company has itself
extensively evaluated the mineral potential of the land outlined for acquisition
in the Tulameen project area, a hundred-year old well known mining district for
gold, platinum and copper, and does not expect to obtain an independent
valuation of the property acquired from Mr. Warke.

     The Company intends to finalize the formal transfer of ownership of the
whole block of the acquired, staked or other properties held by Mr. Warke
personally in the Tulameen project area. This transfer will take place after
receipt of the Free Miners Certificate and final approval of the purchase by the
Board of Directors of the Company.

     Commencing January 1, 1997, the Company entered into an agreement with
United Tri-Star Resources Ltd., a company of which two former directors D.
Campbell Deacon and C. W. Leigh Cassidy were senior officers, to provide certain
management and administrative services. Under the terms of the agreement the
Company is required to pay United Tri-Star Resources Ltd. a fee of Cdn. $5,000
per month for January through April 1997 and Cdn. $10,000 per month thereafter.
This agreement has been terminated by one party giving a least three months
written notice. The total fee through December 31, 1998 was $22,500 (Cdn.
$33,750).

     In 1996, the Company transferred the ownership of three of its wholly owned
subsidiaries, NRC, Inc., Arendswood Homes, Inc., and National Building Systems,
Inc., to Danca Investments, Inc., an affiliate of Arendscor (Canada), Inc., as
payment in full of all debts outstanding to Arendscor (Canada), Inc., and its
affiliates.

     On December 12, 1996, Mercury entered into Put/Escrow Agreements with a
number of shareholders of the Company. The agreements provide that certain
shareholders may require Mercury to purchase additional shares of common stock
from them at $0.10 per share during a period from September 12, 1997 to
September 27, 1997. The put option expires if the shares covered have been
registered by the Company with the Securities and Exchange commission for resale
in the United States and have been freely tradable at a price above $0.10 for
more than ten consecutive days after registration and prior to receipt by the
Company of a notice of exercise. As part of the agreement, the Company

                                       35
<PAGE>

deposited cash of $100,000 in escrow equal to one-half the option price, and
Mercury deposited 1,000,000 shares of the common stock of the Company held by
Mercury to secure the Put/Escrow Agreement. The Put/Escrow Agreements covered a
total of 2,000,000 shares of the Company, including 1,223,200 shares held by
Arendscor (Canada) Inc., 88,000 shares held by Edward Jan Smith (a director of
the Company), 100,000 shares held by Matthew Gaasenbeek, III (a director of the
Company), 8,800 shares held by Lisa Hoekwater, 240,000 shares held by John B.
Overzet (a former director of the Company), 100,000 shares held by Arthur Walker
(a former director of the Company), and 240,000 shares held by Jack Wrobel (a
former director of the Company).

     By agreement, dated December 6, 1996, Erzbergbau Radhausberg G.m.b.H.,
("Erzbergbau"), the seller of the mining properties to Argosy Mining, agreed to
the sale and transfer of the properties from Argosy Mining to the Company and
the Company agreed to assume the obligations relating to the properties in the
agreement between Erzbergbau and Argosy Mining. By agreement, dated December 6,
1996, Erzbergbau agreed to the full settlement of the amount due from Argosy for
the properties of $1,000,000 by the transfer of 300,000 shares of common stock
of the Company to Erzbergbau from Mercury and Erzbergbau released the Company
from any further obligations set forth in the agreement between Erzbergbau and
Argosy Mining and in the agreement referred to above.

     By agreement, dated November 30, 1996, which closed on December 17, 1996,
the Company acquired all the issued and outstanding stock of Argosy from Argosy
Mining, an unaffiliated entity. Argosy holds interests in nine gold mining
prospects in Austria. The consideration for the purchase was C$ 250,000 paid by
the Company and 1,000,000 shares of common stock of the Company held by Mercury.
The agreement provided that an additional 1,000,000 shares of common stock will
be transferred to Argosy Mining by Mercury if the Company does not register the
original 1,000,000 shares of common stock with the Securities and Exchange
Commission for resale within three months following the closing date. Mercury
deposited 1,000,000 shares of common stock of the Company in escrow for this
purpose and the shares were transferred to Argosy Mining Corp. pursuant to the
terms of the escrow.

     On November 28, 1996, the Company transferred to Danca Investments Inc., an
affiliate of Arendscor (Canada) Inc., the then controlling shareholder of the
Company, all of the interest of the Company in its three wholly owned
subsidiaries, NRC Inc., Arendswood Homes Inc. and National Building Systems Inc.
This transaction divested the Company of its three wholly-owned subsidiaries and
certain of its remaining development resort lots. The consideration for the
transfer was the assumption by Danca Investments Inc. of $142,874 in obligations
owed by the Company to Arendscor (Canada) Inc. No independent valuation of the
assets transferred by the Company to Danca Investments Inc. was received.
However, the transaction was approved by the shareholders of the Company at the
1995 Annual Meeting of the Shareholders.

     By agreement, dated November 27, 1996, which closed on December 17, 1996,
Mercury purchased 54,367,551 shares of common stock of the Company from
Arendscor (Canada) Inc. representing 77.2% of the outstanding common shares of
the Company, and became the controlling shareholder of the Company. The
consideration for the purchase was $10,000. The completion of the stock purchase
was conditioned, among other things, on the simultaneous closing of the purchase
of Argosy by the Company.

     By agreement, dated September 3, 1996, the Company sold 200,000 shares of
common stock at $0.25 per share to Florian Riedl-Riedenstein and 200,000 shares
of common stock at $0.25 to a private investor. The subscriptions were accepted
and the shares issued by the Company in January, 1997. The $100,000 raised was
used by the Company in partial payment of the costs and expenses incurred in the
preparation and closing by the Company of the divestiture of the assets of the
Company, purchase of all

                                       36
<PAGE>

the shares of Argosy and the change in control of the Company. Mr. Riedl-
Riedenstein has since become the Chairman, President and Chief Executive Officer
of the Company.

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

(a) Exhibits

       The following is a list of exhibits filed as part of this Form 10-KSB.
Where so indicated by footnote, exhibits which were previously filed are
incorporated by reference. For exhibits incorporated by reference, the location
of the exhibits in the previously filed is indicated in parenthesis.

Item 601
Category       Exhibit
--------       -------

3.1            Amended and Restated Articles of Empire Gold Inc. adopted
               September 2, 1997. (2) (Exhibit 1)

3.2            Amended and Restated Bylaws of Empire Gold Inc. adopted August 6,
               1997. (2) (Exhibit 2)

3.3            Articles of Amendment of Articles of Incorporation of Registrant
               (1) (Exhibit 3.1)

3.4            Amended By-Laws of National Enterprises, Inc., adopted February
               11, 1972 as amended to March 15, 1993. (3) (Exhibit 1)

10.1           Share Purchase Agreement, dated November 28, 1996, among National
               Enterprises Inc. and Danca Investments Inc., pertaining to the
               sale of all of the issued and outstanding shares of NRC, Inc.
               Filed as Exhibit 1.I to Form 8-K filed March 27, 1997 and
               incorporated herein by reference. (3) (Exhibit 2)

10.2           Share Purchase Agreement, dated November 28, 1996, among National
               Enterprises Inc. and Danca Investments Inc., pertaining to the
               sale of all of the issued and outstanding shares of National
               Building Systems, Inc. Filed as Exhibit 1.II to Form 8-K filed
               March 27, 1997 and incorporated herein by reference. (3) (Exhibit
               3)

10.3           Share Purchase Agreement, dated November 28, 1996, among National
               Enterprises Inc. and Danca Investments Inc. pertaining, to the
               sale of all of the issued and outstanding shares of Arendswood
               Homes, Inc. Filed as Exhibit 1.III to Form 8-K filed March 27,
               1997 and incorporated herein by reference. (3) (Exhibit 4)

10.4           Agreement, dated November 30, 1997, among National Enterprises,
               Inc., Argosy Mining Corp. and Mercury Immobilien und Verwaltungs
               AG, pertaining to the acquisition of Argosy Mining G.m.b.H. Filed
               as Exhibit 2.IV to Form 8-K filed March 27, 1997 and incorporated
               herein by reference. (3) (Exhibit 5)

10.5           National Enterprises, Inc. 1994 Stock Option Plan. (3) (Exhibit
               6)

10.6           Management Agreement between National Enterprises Inc. and United
               Tri-Star Resources Limited, dated September 30, 1997. (2)
               (Exhibit 3)

                                       37
<PAGE>

21*            List of subsidiaries of Empire Gold Inc.

27*            Financial Data Schedule.

*Filed herewith.

(1)  File as an Exhibit to Form 10-KSB of National Enterprises Inc. filed March
     20, 1997 for the year ended December 31, 1995.
(2)  Filed as an Exhibit to Form 10-QSB of National Enterprises Inc. filed
     November 13, 1997, for the quarter ended September 30, 1997.
(3)  Filed as an Exhibit to Form 10-KSB of National Enterprises Inc. filed July
     21, 1997, for the year ended December 31, 1996.

(b)  Reports on Form 8-K

     During the last quarter of the year ended December 31, 1998, the Company
filed one Current Report of Form 8-K reporting a change of Accountants and
Auditors. Peet Nienaber Inc. Chartered Accountants of Vancouver, B.C. Canada
were appointed by the Board of Directors at a meeting held on November 15, 2000
and KPMG, Chartered Accountants of Toronto, Ontario, Canada, were dismissed by
the directors at the same meeting.

                                       38
<PAGE>

                                  SIGNATURES

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

     EMPIRE GOLD INC.

By:  /s/  Florian Riedl-Riedenstein                    Date: December 31 1998
     ---------------------------------
     Florian Riedl-Riedenstein, Chairman, President,
     Chief Executive Officer (Principal
     Executive Officer), and Director

     In accordance with the Exchange Act, this Report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

By:  /s/ Florian Riedl-Riedenstein                     Date: December 31 1998
     ---------------------------------
     Florian Riedl-Riedenstein, Chairman, President,
     Chief Executive Officer (Principal
     Executive Officer), and Director

By:  /s/ Matthew Gaasenbeek                            Date: December 31 1998
     ---------------------------------
     Matthew Gaasenbeek, III, Director

By:  /s/ Robert Needham                                Date: December 31 1998
     ---------------------------------
     Robert Needham, Director

By:  /s/  Hans R. Klob                                 Date: December 31 1998
     ---------------------------------
     Hans R, Klob, III, Vice President, Exploration



By:  Eunice Ludlow                                     Date: December 31 1998
     ---------------------------------
     Eunice R. Ludlow, Chief Financial Officer and
     Company Secretary.

                                       39