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, 1997

                [ ] 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)

               802 - 1985 Bellevue Ave.
      West Vancouver, British Columbia, Canada             V7V 1B6
      ----------------------------------------             --------
      (Address of principal executive offices)            (Zip Code)

                     Issuer's telephone number: 604-921-2811

       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]

     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: $4,103

     As of May 31, 1998  (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
$2,627,550.

     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, 1998,  74,128,997  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]


<PAGE>



                                Table of Contents


                                                                            Page
PART I                                                                      ----

   Item 1.   Description of Business                                           4
   Item 2.   Description of Property                                          14
   Item 3.   Legal Proceedings                                                22
   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        23
   Item 7.   Financial Statements                                             26
   Item 8.   Changes In and Disagreements With Accountants
               on Accounting and Financing Disclosure                         35


PART III

   Item 9.   Directors, Executive Officers, Promoters and Control
               Persons: Compliance with Section 16(a) of the Exchange Act     35
   Item 10.  Executive Compensation                                           37
   Item 11.  Security Ownership of Certain Beneficial Owners and Management   37
   Item 12.  Certain Relationships and Related Transactions                   39
   Item 13.  Exhibits and Reports on Form 8-K                                 41






                                       2
<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
June 1, 1998.

     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 Compan 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.


     Item 1. DESCRIPTION OF BUSINESS

     Introduction.

     Empire Gold Inc. (together with its wholly owned subsidiary,  Argosy Mining
G.m.b.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.




                                       3
<PAGE>


     On December 17, 1996, as part of a series of transactions which resulted in
a change in control of the  Company,  the  Company  acquired  all the issued and
outstanding  stock in Argosy Mining G.m.b.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"),  which 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.

     (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 transfe 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




                                       4
<PAGE>


additional 1,000,000 shares of common stoc 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 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 $1,000,00 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 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:



                                       5
<PAGE>

<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  were
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.

     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 in the Schellgaden North property,  which includes old workings. The
first of eight  diamond  core holes was  drilled to a depth of 300  meters.  The
remaining  seven  core  holes  are also  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 core is drilled,  the samples will be analyzed for geologic attributes
and the presence of gold. Based on the results of the core samples,  the Company
will decide whether to drill  additional  core samples to confirm or support its
findings,  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.



                                       6
<PAGE>


     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 which 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).

     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 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 its 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 within the project
area.  Olivine  as  an  industrial  mineral  has  a  growing  importance  as  an
environmentally  accepted  mineral  product in the  industry for  abrasives  and
related materials.




                                       7
<PAGE>


     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 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 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.



                                       8
<PAGE>


     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.

     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:

     Magnesite,  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





                                       9
<PAGE>


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 for
life  and  health  of  persons,  objects  in the  property  of  others  and  not
transferred  to him for 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 comes to death or suffers
from injury to his body or health or an object is damaged by a mining  operation
this is referred as a mining damage.

     Mining  activities  must be carried out in such a way to avoid emissions in
the best way 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.  In the case of any accident  occurring in other mining operations the
holder of the mining  rights is obliged to send  rescue men and  equipment  upon
request in as far as this does not disturb its 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  regular  basis.  In case of land
owners minerals production may be commenced or recommenced after an interruption
of more than five years on the base 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 1997, gold prices  fluctuated from a low
of  $281.50  to a high of $366.00  per  ounce.  During the last ten years,  gold
prices have  averaged less than $400 per ounce.  Modern heap leach  technologies
has allowed  lower  grades of ore bodies to be mined.  For several  years,  this
trend  created a  resurgence  in the United  States and  internationally  in the
traditional  gold  producing  areas,  of  exploration  activity  for gold in the
minerals industry.



                                       10
<PAGE>


     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.

     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. No employees are expected to 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 were 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.




                                       11
<PAGE>

     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 which 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.  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  $239,000 on  exploration  and
evaluation of the property during the year ended December 31, 1997.

     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  which 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 reported
gold grades were sufficiently high and underground  workings from the old mining
operations  periods 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. As the initial hole of the Schellgaden
North Gold Project this hole's purpose 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.





                                       12
<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:

          1.   6.00 to 33.00  meters,  10  individual  gold  layers  with values
               ranging from 28 to 731 ppb, corresponding to Schulterbau Horizon;

          2.   43.72 to 56.00  meters,  3  individual  gold  layers  with values
               ranging from 16 to 34 ppb;

          3.   76.00 to 111.00  meters,  8  individual  gold  layers with values
               ranging from 16 to128 ppb;

          4.   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;

          5.   209.20 to 225.50 meters,  4 individual  gold layers,  with values
               ranging from 15 to 12,920 ppb;

          6.   239.18 to 242.10, 1 individual gold layer, old workings,  no core
               sample available;

          7.   261.00 to 275.00,  3 individual gold layers,  with values ranging
               from 15 to 137 ppb; and

          8.   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 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.




                                       13
<PAGE>


     During the summer and fall of 1998,  the Company  intends to  continue  its
core  drilling  program  over  an area of 500 by  1500  meters  on the  property
overlying  the main old workings.  Work will continue on the remaining  seven of
eight  diamond  core  holes  which  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  of  procured  all  necessary  permits  for  the  planned
Schellgaden  North diamond drilling program scheduled for the summer and fall of
1998.  After the work is completed,  or at year's end, the Company will submit a
work  report  to the  Mine  Department  Office.  This  is  for  the  purpose  of
continuation  and/or renewal of its respective claims.  Management believes that
this work program 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 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.




                                       14
<PAGE>


     Kreuzeck West - Rabant.  The Kreuzeck West - Rabant Property are unimproved
exploration  properties  without  known  reserves  which 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 to 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 which
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.

     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 45o 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 34-40o north. They
are intersected by steeper dipping to vertical  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.



                                       15
<PAGE>


     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 35-60o 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 which
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 which
are  located in Eastern  Carinthia,  Austria.  The  expenditures  to date on the
properties  have  been  limited  and  comprised  of  evaluation  costs and lease
maintenance costs. Each property consists of 27.4 square kilometers and are 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 were 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.  Exploration  programs  will be  developed  for Kliening and
Kliening West - Buchbauer based on the  availability of capital and developments
on the Schellgaden North property.



                                       16
<PAGE>


     Strassegg-Gasen.  The Strassegg-Gasen Property is an unimproved exploration
property  without known reserves which 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 1 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 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  are held by currently
valid and  maintained  leases which expire,  in part on December 31, 1997 and in
part on December 31, 1998.

     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






                                       17

<PAGE>


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 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 coexis for each others  benefit.  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 was filed in the State of New
York, Supreme Court, County of Livingston, case number 799-1997. 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 legal defense of the Company is being provided by the insurance carrier
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.


     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.




                                       18
<PAGE>

     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.

         Quarter Ending                     High Bid                   Low Bid
         --------------                     --------                   -------

         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

     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

     This  Management  Discussion  and  Analysis or Plan of  Operation  contains
certain forward looking  statements as more fully described in the front of this
Report.

     Since its inception in 1940, the Company incurred  cumulative net losses of
$47,905,306.  Of such  amount,  $601,342  represents  losses from the  Company's
current  business of the evaluation,  exploration and development of gold mining
prospects.  The  remainder  of its  accumulated  losses  relates  to  results of
operations of the Company's  prior  business from  inception  through  December,
1996. The Company discontinued operations in 1996 of all prior businesses except
that of the evaluation,  exploration  and development of gold mining  prospects.
Further,  at December 31,  1997,  the Company has  negative  working  capital of
$162,035,  representing  the  excess of current  liabilities  of  $192,863  over
current assets of $30,370.  The Company  expects to continue to incur losses and
will be unable to generate  sufficient working capital to sustain its operations
until it can  produce  and  sell at a profit  precious  metals  from its  mining
properties.  Until then,  the timing and amounts of the  Company's  expenditures
will depend  upon a number of factors,  including  the  availability  of working
capital,  the status and timing of its  explorations  activities and the efforts
required to identify and evaluate potential mining  properties.  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.





                                       19
<PAGE>


     Mineral Properties and Deferred Development Costs

     Mineral Property and Deferred  Development  Costs were $439,507 at December
31, 1997 compared to $200,192 at December 31, 1996. These costs  capitalized and
reflected  on the  Company's  Balance  Sheet as "Mineral  property  and deferred
development costs". These cost relate to the Company's nine Austrian properties.
Cost  incurred  in 1997 for  preparatory  work for the  drilling  program on the
Company's  Schellgaden property were $239,315.  The capitalized cost of $200,192
at  December  31,  1996  represent  th  acquisition  cost of the  nine  Austrian
properties.

     Results of Operations

     General and  Administrative  Expenses for the years ended December 31, 1997
and 1996 were $78,362 and $10,285,  respectively.  The increase in 1997 compared
to 1996 result from the  reactivation  of the  Company and the  commencement  of
business in the exploration and development of mineral properties.  The increase
in costs in 1997 were the  results of  expenditures  for  transfer  agent  fees,
shareholder reporting costs and travel.

     Legal fees for the years ended  December 31, 1997 and 1996 were $91,652 and
Nil,  respectively.  The costs incurred in 1997 pertain to  commencement  of the
business of the evaluation, exploration and development of gold mining prospects
of the Company and complying with regulatory filing requirements.

     Audit fees for the years ended  December 31, 1997 and 1996 were $24,042 and
Nil,  respectively.  The  increase  is due to the  additional  company  activity
associated with the 1996 restructuring..

     Management fees for the years ended December 31, 1997 and 1996 were $71,822
and Nil, respectively. The increase in management fees is due to commencement of
the mineral exploration business of the Company.  Commencing January 1, 1997 the
Company  entered  into an agreement  with United  Tri-Star  Resources  Ltd. , to
provide certain management and administrative  services.  Under the terms of the
agreement  the fee is Cdn.  $5,000 per month for January  through April 1997 and
Cdn. $10,000 per month thereafter. The total fee was $71,822 (Cdn. $100,000) for
the year ended December 31, 1997.

     Exploration  expenditures - Canada represent the cost of investigation of a
potential  acquisition in Canada.  These expenditures were $262,207 for the year
ended December 31, 1997. Exploration  expenditures - Ghana represent the cost of
investigation  of  potential  acquisitions  in Ghana.  These  expenditures  were
$44,700 for the year ended  December 31, 1997. No  exploration  expenditures  of
this nature were incurred in the year ended December 31, 1996.

     The net loss from  continuing  operations  for the years ended December 31,
1997 and 1996 was  $568,682 and $8,624,  respectively.  The increase in the loss
was due to the increase in operating expenses for the reasons noted above.

     In the year ended  December 31, 1996, the loss from the  discontinued  real
estate development operations was $32,660,  primarily resulting from the sale of
development  resort lots. Also, in the year ended December 31, 1996, the Company
disposed of its  subsidiaries,  NRC Inc.,  Arendswood  Homes Inc.,  and National
Building Systems Inc., which were involved in the development of resort lots for
a net gain of $185,086.  There was no gain or loss from discontinued  operations
in 1997.

     The Company's combined net loss from continuing and discontinued operations
for the year ended  December  31,  1997,  amounted to  $568,682  compared to net
income of $143,802 in 1996.






                                       20
<PAGE>


     Liquidity and Capital Resources

     In 1996, the Company discontinued its real estate development operations, a
change of control of the Company occurred and subsequently nine gold exploration
properties in Austria were acquired.  The Company  entered into its new business
plan after  management  determined  to enter the mineral  exploration  business.
However,  the Company does not have sufficient  capital with which to pursue its
new business plan. The Company, therefore, continues to consider 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 new business plan

     The Company has a net working capital deficit  (current assets less current
liabilities)  of $162,035  at December  31,  1997.  The Company has  $192,863 in
current  liabilities  of which $50,370  pertains to a prior year over accrual of
liabilities. Current assets amounted to $30,828 at December 31, 1997.

     The Company used $373,924 in net cash for operating activities for the year
ended December 31, 1997, compared to $2,549 in 1996. The cash used in operations
for the year ended December 31, 1997 consisted of a net loss of $568,682  offset
by increases of $71,900 in accounts payable and accrued liabilities,  $15,890 of
shareholder advances and $6,968 in accounts receivable, and offset by a decrease
of a security deposit of $100,000.

     The Company used $239,315 and Nil in net cash for investing  activities for
the year  ended  December  31,  1997 and  1996,  respectively.  Net cash used in
investing  activities  for the year ended  December  31, 1997 was  comprised  of
$239,315 of deferred  exploration  costs  incurred  for the  exploration  of the
Company's nine Austrian properties.

     The cash provided by net financing activities was $455,885 and $384,546 for
the year ended December 31, 1997 and 1996,  respectively.  During the year ended
December 31, 1997, the Company  received  $481,250 from the sale of common stock
offset by common  stock issue costs of $25,265.  During the year ended  December
31, 1996, the Company received  $579,130 from the sale of common stock offset by
common stock issue costs of $36,000.  Also, in 1996,  $158,584 due to the former
controlling  shareholder  was  extinguished  as a result of the  transfer of the
Company's three wholly-owned subsidiaries,  NRC Inc., Arendswood Homes Inc., and
National Building Systems Inc., and its remaining  development resort lots to an
affiliate of that shareholder.


                         -THIS AREA INTENTIONALLY BLANK-




                                       21
<PAGE>


Item 7.  FINANCIAL STATEMENTS.

INDEPENDENT AUDITOR'S REPORT


To the Shareholders and Board of Directors
of Empire Gold Inc.

We have audited the consolidated  financial  statement of financial  position of
Empire  Gold  Inc.  and  subsidiary  as of  December  31,  1997 and the  related
consolidated  statement of operations changes in stockholders'  equity, and cash
flow  for the  year  ended  December  31,  1997.  These  consolidated  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Empire Gold Inc. and
its  subsidiary at December 31, 1997,  and the results of their  operations  and
their  cash flows for the year ended  December  31,  1997,  in  conformity  with
generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in Note 1 (d) to
the financial  statements,  at December 31, 1997, the Company has an accumulated
deficit  of  $47,905,306  and a  working  capital  deficiency  of  $162,035.  In
addition,  additional  capital  will be required to proceed  with the  Company's
exploration program.  These matters raise substantial doubt about its ability to
continue as a going concern. Managemen plans in regard to these matters are also
described in Note 1(d). The financial statements do not include adjustments that
might result from the outcome of this uncertainty.


                                                       /s/ KPMG
Toronto, Canada                                        KPMG
June 12, 1998                                          Chartered Accountants





                                       22
<PAGE>



INDEPENDENT AUDITORS' REPORT


To the Shareholders and Board of Directors of National Enterprises, Inc.
(effective September 2, 1997 the Company changed its name to Empire Gold Inc.)

We have  audited the  accompanying  consolidated  balance  sheet and the related
consolidated  statement of operations,  cash flow, and changes in  shareholders'
deficit of  National  Enterprises,  Inc. as of and for year ended  December  31,
1996. These  consolidated  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated financial statements based on our audits.

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

In our opinion,  the  consolidated  financial  statements  audited by us present
fairly,  in  all  material   respects,   the  financial   position  of  National
Enterprises,  Inc. and its subsidiaries at December 31, 1996, and the results of
their  operations  and their cash flows for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the company will continue as a going concern. As discussed in Note 1 to the
consolidated   financial  statements,   on  April  14,  1992,  the  Company  was
reorganized  under Chapter 11 of the U. S.  Bankruptcy  Code.  Under the Plan of
Reorganization  most of the operating  assets have been sold or transferred to a
liquidating  trust for the benefit of creditors.  During 1996,  the Company sold
its  subsidiaries  which held all of its  remaining  operating  assets.  It then
acquired  a new  subsidiary  which  owned  certain  mineral  concessions.  These
concessions  are  unproven  and  the  Company's  ability  to  establish  ongoing
operations is dependent upon these rights being  commercially  developed and the
Company's  ability to raise adequate  capital to develop them. The  consolidated
financial  statements  do not  include  adjustments  that might  result from the
outcome of this uncertainty.


                                                /S/ James Smith & Company
Dallas, Texas                                   JAMES SMITH & COMPANY
June 30, 1997                                   A Professional Corporation





                                       23
<PAGE>

<TABLE>
<CAPTION>

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


                                                      Note           1997            1996
                                                      ----           ----            ----

<S>                                                  <C>         <C>             <C>         
ASSETS

Current assets:
       Cash ........................................            $     12,796    $    170,150
       Accounts receivable .........................                  18,032          25,000
       Security deposit ............................  6                    0         100,000
                                                                ------------    ------------
                                                                      30,828         295,150

Mineral properties and deferred exploration costs ..                 439,507         200,192
                                                                ------------    ------------

Total Assets .......................................            $    470,335    $    495,342
                                                                ============    ============


LIABILITIES AND SHAREHOLDERS' DEFICIT

Current liabilities:
       Accounts payable ............................            $     67,428    $     37,703
       Accrued liabilities .........................                 104,338          67,370
       Due to related party ........................  6                5,207               0
       Shareholder advance .........................  6               15,890               0
                                                                ------------    ------------
                                                                     192,863         105,073
Shareholders' Equity
       Common stock ................................  5           48,228,778      47,258,893
       Common stock subscriptions, net .............  5                    0         514,000
       Common stock transferred by Affiliate .......  1              (46,000)        (46,000)
       Accumulated deficit .........................             (47,905,306)    (47,336,624)
                                                                ------------    ------------
Total Shareholders' Equity .........................                 277,472         390,269
                                                                ------------    ------------

Total Liabilities and Shareholders' Equity .........            $    470,335    $    495,342
                                                                ============    ============
</TABLE>

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





                                       24
<PAGE>

<TABLE>
<CAPTION>

                                EMPIRE GOLD, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                        For the Years Ended December 31,


                                                     Note       1997          1996
                                                     ----       ----          ----

<S>                                                  <C>        <C>       <C>         
Income
       Interest income ...........................       $     4,103    $      1,661

Expenses
       General and administrative ................            78,362          10,285
       Legal .....................................            91,652               0
       Audit .....................................            24,042               0
       Management fees ...........................    6       71,822               0
       Exploration expenditures - Canada .........           262,207               0
       Exploration expenditures - Ghana ..........            44,700               0
                                                         -----------      ----------

                                                             572,785          10,285
                                                         -----------      ----------

Loss from continuing operations ..................          (568,682)         (8,624)

Discontinued operations
       Loss from operations ......................    8            0         (32,660)
       Gain on disposal ..........................                 0         185,086
                                                         -----------      ----------

Net income (loss) ................................       $  (568,682)   $    143,802
                                                         ===========      ==========

Net income (loss) per common share ...............       $     (0.01)   $          *
                                                         ===========      ==========

Weighted average number of common
shares outstanding ...............................        73,073,153      69,566,083
                                                        ============      ==========
</TABLE>


* Less than $0.01 per share.

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





                                       25
<PAGE>

<TABLE>
<CAPTION>


                                EMPIRE GOLD, INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                        For the Years Ended December 31,

                                                               Note           1997               1996
                                                               ----           ----               ----

<S>                                                            <C>         <C>                <C>      
Cash flows from operating activities
Net income (loss) ............................................             $(568,682)         $ 143,802
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
       Accounts receivable ...................................                 6,968            (25,000)
       Security deposit ......................................  6            100,000           (100,000)
       Accounts payable ......................................                34,932            (31,351)
       Accrued liabilities ...................................                36,968             10,000
       Shareholders advance ..................................  6             15,890                  0
                                                                           ---------          ---------
Net cash used by operating activities ........................              (373,924)            (2,549)
                                                                           ---------          ---------

Cash flows from investing activities
       Deferred exploration costs - Austria ..................              (239,315)          (200,192)
       Decrease in assets of discontinued
       operations ............................................                     0            (13,592)
                                                                           ---------          ---------

Net cash provided (used) by investing activities .............              (239,315)          (213,784)
                                                                           ---------          ---------

Cash flows from financing activities
       Proceeds from sale of common stock ....................  5            455,985             29,130
       Proceeds from sale of common stock subscriptions ......                     0            514,000
       Related party borrowings extinguished .................  6                  0           (158,584)
       Cancellation of shares ................................                  (100)                 0
                                                                           ---------          ---------

Net cash provided by financing activities ....................               455,885            384,546
                                                                           ---------          ---------

Net increase (decrease) in cash ..............................              (157,354)           168,213

Cash at beginning of year ....................................               170,150              1,937
                                                                           ---------          ---------

Cash at end of year ..........................................             $  12,796          $ 170,150
                                                                           =========          =========
</TABLE>


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





                                       26
<PAGE>

<TABLE>
<CAPTION>

                                                         EMPIRE GOLD, INC.
                                     CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

                                                                                        Common
                                    Number of                          Common           Stock
                                     Common            Common           Stock       Transferred by     Accumulated 
                                     Shares             Stock        Subscriptions     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)

Sale of common
stock subscriptions ..........               0                0          514,000                0                0          514,000

Exercise of stock
options ......................         971,000           29,130                0                0                0           29,130

Transfer of common
stock by Affiliate ...........               0           46,000                0          (46,000)               0                0

1996 net income ..............               0                0                0                0     $    143,802          143,802
                                  ------------     ------------     ------------     ------------     ------------     ------------

December 31, 1996 ............      70,005,997     $ 47,258,893     $    514,000     $    (46,000)    $(47,336,624) $       390,269

Common stock issued ..........       4,125,000          969,985         (514,000)               0                0          455,985

Cancellation of
common stock .................          (2,000)            (100)               0                0                0             (100)

1997 net loss ................               0                0                0                0         (568,682)        (568,682)
                                  ------------     ------------     ------------     ------------     ------------     ------------

December 31, 1997 ............      74,128,997     $ 48,228,778     $          0     $    (46,000)    $(47,905,306)    $    277,472
                                  ============     ============     ============     ============     ============     ============
</TABLE>

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





                                       27
<PAGE>

                                Empire Gold, Inc.
                   Notes to Consolidated Financial Statements
                           December 31, 1997 and 1996

NOTE 1 - BASIS OF PRESENTATION AND ACQUISITION:

(a)  General

     In September  1997,  the Company  changed its name to Empire Gold Inc. (the
     "Company") from National Enterprises Inc.

     In December 1996, as part of a series of  transactions  which resulted in a
     change in control of the Company, the Company sold the subsidiaries holding
     the  remaining  inventory of resort  development  lots and acquired all the
     issued and  outstanding  stock of an Austrian  company.  In connection with
     this acquisition,  the Company acquired 100% of the ownership  interests in
     nine gold exploration  properties located in Austria.  As a result of these
     transactions,  the business of the Company  changed from the sale of resort
     home sites and panelized  public housing to the evaluation and  exploration
     of gold mining prospects located in Austria.

(b)  Basis of Presentation

     These  financial  statements have been prepared on the going concern basis,
     which  assumes  realization  of assets and  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, 1997,  the
     Company has an  accumulated  deficit of $47,905,306  and a working  capital
     deficiency  of  $162,035.  The  Company  incurred  a loss  from  continuing
     operations of $568,682 in 1997 and $8,624 in 1996. 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  th  outcome  of  this
     uncertainty.

(c)  Acquisition of Argosy Mining G.m.b.H.

     On December 17, 1996, the Company  acquired all the issued and  outstanding
     stock of Argosy Mining G.m.b.H., an Austrian corporation (Argosy G.m.b.H.),
     from Argosy Mining Corp., a Canadian  corporation  (Argosy  Mining),  which
     owns mineral rights to explore for gold reserves in nine prospects  located
     in Austria.  The consideration for the transaction  included the payment by
     the  Company of $200,192  in cash and the  transfer  to Argosy  Mining from
     Mercury   Immobilien  und   Verwaltungs  AG  (Mercury),   the   controlling
     shareholder  of the  Company  of  2,300,000  shares of common  stock in the
     Company, valued at $.02 per share,  representing the bid price in December,
     1996, for an aggregate amount of $46,000. The transfer of shares by Mercury
     to Argosy Mining has been  accounted for in the  accompanying  consolidated
     balance sheets as an increase in common stock in the amount of $46,000 with
     a corresponding deduction to shareholders' deficit in the amount of $46,000
     and separately  disclosed as "common stock  transferred by affiliate".  The
     acquisition  was  accounted  for under the purchase  method of  accounting.
     Accordingly,  the purchase  price was allocated to the assets  acquired and
     liabilities  assumed based on their fair values at the  respective  date of
     acquisition.  The  results of  operations  since  December  17,  1996,  are
     included in the accompanying consolidated financial statements.

     The following  summarized pro forma information assumes the acquisition had
     occurred on January 1, 1996:

                                                          1996
                                                          ----
          Interest Income                              $  5,661
                                                        =======
          Loss from continuing operations              $(65,624)
                                                        =======
          Net income                                   $ 81,802
                                                        =======



                                       28
<PAGE>


(d)  Discontinued Operations

     In  the  year  ended   December  31,  1996,   the  sale  of  the  Company's
     subsidiaries,  which held the  remaining  inventory  of resort  development
     lots,  has been reported as  discontinued  operations  in the  accompanying
     financial statements.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
     and  its  subsidiaries.   All  significant  intercompany  transactions  and
     accounts are eliminated in consolidation.

(b)  Mineral Properties and Deferred Costs

     Costs  relating  to  the   acquisition,   exploration  and  development  of
     non-producing  mining  properties held by the Company 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  relating to its gold mining prospects  located in Austria
     and  are  not   intended  to  reflect   present  or  future   values.   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.

(c)  Translation of Foreign Currencies

     The net assets of the foreign  operations  of the Company is  translated at
     the appropriate  period-end exchange rates. Income and expense accounts are
     translated at average monthly  exchange rates. Net exchange gains or losses
     resulting from such translation are excluded from results of operations and
     accumulated  as a separate  component of  stockholders'  equity.  Gains and
     losses from  foreign  currency  transactions  are  included in other income
     (expense).

(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.

(e)  Cash Flows

     For purposes of the  statement  of cash flows,  the Company  considers  all
     highly  liquid  investments  with  maturities of three months or less to be
     cash equivalents.

(f)  Loss Per Share

     Earnings  (loss) per common share (EPS) is computed based on the provisions
     of Statement of Financial  Accounting  Standards (SFAS) No. 128,  "Earnings
     Per Share." Basic EPS is computed by dividing  income  available to commons
     shareholders by the  weighted-average  number of common shares  outstanding
     during the period.  Diluted EPS reflects the potential  dilution that could
     occur if securities or other contracts to issue common stock were exercised
     or converted into common  shares.  The adoption of SFAS No. 128 in 1997 did
     not result in the restatement of the loss per share reported in 1996.





                                       29
<PAGE>


NOTE 3 - INCOME TAXES

The tax  effects  of the  temporary  differences  that give rise to  significant
portions  of the  deferred  tax  assets  at  December  31,  1997 and 1996 are as
follows:

                                                       1997            1996
    Deferred Tax Assets:
    Net operating loss carry forwards               $ 202,057       $  3,018
    Valuation allowance                              (202,057)        (3,018)
                                                      -------        -------
    Net deferred tax assets                         $    --         $   --
                                                      =======        =======

At  December  31, 1997 the Company has net  operating  loss carry  forwards  for
income tax purposes of approximately $577,486 which begin to expire in 2004.

The  potential  future tax assets have not been  recognized  because the Company
does not believe it is more likely than not that the benefit will be realized in
the future.


NOTE 4 - STOCK OPTION PLAN

On September 2, 1997,  the Company  adopted a  non-qualified  stock option plan.
Under the terms of the plan,  the Company's  Board of Directors is authorized to
grant  options to purchase up to 7,500,000  of common stock to key  employees of
the Company, including officers and directors.  7,500,000 shares of common stock
have been  reserved  for  issuance  pursuant  to the  exercise  of options to be
granted under the plan. No options have been granted under this plan.

On November 29, 1996 certain  officers,  directors  and former  employees of the
Company  exercised  475,000  options to purchase  971,000 shares of common stock
granted under a  non-qualified  stock option plan adopted in 1995. The remaining
504,000 stock options outstanding under this plan were canceled on that date.


NOTE 5 - COMMON SHARES

(a)  were  amended  in  1997  resulting  in the  elimination  of the  previously
     authorized preferred shares.

(b)  The  subscriptions  were  accepted by the Board of Directors  in 1997.  The
     Company incurred common share issue costs of $36,000, for a finders fee, in
     connection  with  the  subscription  resulting  in net  proceeds  from  the
     offering of $514,000.

(c)  of one share of common stock of the Company and one warrant to purchase one
     share of common stock of the  Company.  The Company  incurred  common share
     issue  costs  of  $25,265,  for a  finders  fee,  in  connection  with  the
     subscription  resulting in net  proceeds of the offering of $455,985.  Each
     warrant may be exercised for $0.25 per share at any time prior to March 31,
     1998 and for $0.30 per share at any time thereafter, but prior to September
     30, 1998.  At December 31, 1997,  1,925,000  share  purchase  warrants were
     outstanding.


NOTE 6 - RELATED PARTY TRANSACTIONS

In 1996, the Company transferred the ownership of its wholly-owned subsidiaries;
NRC Inc.,  Arendswood  Homes Inc., and National  Building  Systems Inc. to Danca
Investments,  Inc.,  an  affiliate  of the former  controlling  shareholder,  as
payment in full of all debts outstanding to the shareholder, and its affiliates.




                                       30
<PAGE>

In  December  1996,  the  controlling  shareholder  entered  into  a  Put/Escrow
Agreement with a number of shareholders of the Company. In September 1997, those
shareholders agreed to terminate the Put/Escrow Agreement and a security deposit
of $100,000 plus interest of $3,968 was returned to the Company.

In 1996,  the Company  paid a  management  fee of $12,000 to an affiliate of the
controlling shareholder.

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 $71,822 (Cdn.  $100,000) in 1997. At December 31, 1997, $5,207 (1996
- Nil) was due to this company.

In September 1997, a shareholder who is also a director of the Company  advanced
$15,890 to the Company which remains  outstanding at year end. This advance does
not bear interest and has no fixed terms of repayment.


NOTE 7 - COMMITMENTS AND CONTINGENCIES

The  Company  is a  defendant  in a lawsuit  filed in 1997  seeking  unspecified
damages  related  to the  destruction  of a  modular  building  in a  fire.  The
plaintiff alleged that components of the modular building were manufactured by a
division of the Company in 1990. The Company is represented by counsel  retained
by  its  professional  liability  insurance  carrier.  This  lawsuit  is in  the
discovery phase.  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.


NOTE 8 - DISCONTINUED OPERATIONS

On December 11, 1996, the Company  transferred the ownership of its wholly owned
subsidiaries;  NRC, Inc.,  Arendswood Homes, Inc. and National Building Systems,
Inc.  (the former  subsidiaries);  to Danca  Investments,  Inc., an affiliate of
Arendscor  as payment in full for all debts  outstanding  to  Arendscor  and its
affiliates.  The transfer of the former  subsidiaries  constitutes a disposal of
substantially  all of the  Company's  real estate  development  operations.  The
operating results of the former subsidiarie have been segregated as discontinued
in  the  accompanying  consolidated  statements.   The  loss  from  discontinued
operations for the year ended December 31, 1996, consists of the following:

                                                             1996
                                                             ----
         Land sales                                       $ 492,320
         Less: Cost of Sales                               (457,528)
                                                           --------
                                                             34,792
         General and administrative (including management
         fees of $12,000)                                    67,452
                                                           --------
         Loss from discontinued operations                $ (32,660)
                                                           ========




                                       31
<PAGE>


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

             None

                                    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 May 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

Campbell Deacon                     50               Director                           1994

Edward Jan Smith                    50               Director                           1996

C.W. Leigh Cassidy, C.A.            42               Director, Vice President,          1996
                                                     Chief Financial Officer
                                                     and Secretary

Matthew Gaasenbeek, III             68               Director                           1993

Robert Needham                      69               Director                           1997

William Warke                       72               Director                           1997

Dr. Hans R. Klob                    50               Vice President, Exploration        1997
</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 (199 1996) and Managing Director of Investment Department of
Schoeller & Co., Bank AG (1969-1990).

     D. Campbell  Deacon.  Mr. Campbell has been a director of the Company since
1994 and served as  President  and Chief  Executive  Officer of the Company from
1994 until July, 1997. He has been the President and Chief Executive  Officer of
United Tri-Star Resources  Corporation since 1994 and was the Chairman and Chief
Executive Officer of the investment banking firm of Deacon,  Barclays,  de Zoete
Wedd from 1986 to 1994.




                                       32
<PAGE>


     C.W. Leigh Cassidy,  C.A. Mr.  Cassidy has been the Vice  President,  Chief
Financial Officer and Secretary of the Company since December, 1996. Since 1996,
Mr. Cassidy has been Vice  President,  CFO of United  Tri-Star  Resources  Ltd.,
International Reef Resources Ltd., Tri-Star Gold Corp.  Previously,  he was Vice
President,  CFO of Emtech Ltd. (1993-1995),  Vice President,  CFO, Taramira Inc.
(1992-1993),   Group  Vice  President,   CFO,  Household  Financial  Corporation
(1987-1992).

     Edward Jan Smith.  Mr. Smith has been a director of the Company since 1996.
From 1993 to 1996,  he was the  Secretary,  Vice  President,  Finance  and Chief
Financial Officer of the Company. Since 1997 he has been Vice President, Finance
of Lambert  Fenchurch  US  Holdings,  an  insurance  service  firm.  He was Vice
President and Chief Financial Officer of MacLean Oddy & Associates,  a wholesale
insurance  brokerage firm from 1996 to 1997. He was a principal in Smith, Sibley
& Co.,  from 1991 to 1993 and was with Price  Waterhouse  from 1980 to 1991.  In
1994, the Securities and Exchange Commission  announced the settlement of a Rule
2(e) administrative proceeding brought against Mr. Smith and one other person in
connection  with audits  performed in 1987 and 1988 of another  company when Mr.
Smith was a partner in Price  Waterhouse.  The  settlement was reached to end an
investigation  that had been in progress for five years.  Under the terms of the
settlement,  Mr.  Smith did not admit or deny the  charges  and was barred  from
practicing before the Commission as an auditor for a period of nine months.  The
terms of the  settlement  does not limit or restrict,  in any way,  Mr.  Smith's
acting as a director of the Company.

     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 industr 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.

     William Warke. Mr. Warke is primarily  involve in the  investigation of the
Tulameen Project on behalf of the Company. He was President of Tiffany Resources
Inc. from 1984 to 1997 a company listed on the Vancouver Stock Exchange involved
in the business of exploration.  Previously,  Mr. Warke was President of Rampart
Resources  Ltd.,  from 1985 to 1986, a company listed on the Vancouver  Exchange
involved in the  business of minerals  exploration,  and was  President  of Cima
Resources  Inc.,  from 1975 t 1980, a company  listed on the Vancouver  Exchange
which  brought into  operation  two copper  mines in Chile and a lead,  zinc and
silver mine in Canada's Yukon territory.

     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.




                                       33
<PAGE>


     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 and 1997, 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.

     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

D. Campbell Deacon                               2,000,000                                 2.70%
300, 90 Adelaide Street West
Toronto, Ontario   M5H 3V9

W. Leigh Cassidy, C.A                            1,000,000                                 1.35%
300, 90 Adelaide Street West
Toronto, Ontario   M5H 3V9

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

Edward Jan Smith                                   610,000                                 0.82%
110-14755 Preston Rd.
Dallas, Texas 75240

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

William Warke                                       Nil                                     Nil
802-1985 Belleville Ave.
West Vancouver, British Columbia

Hans R. Klob                                     1,000,000                                 1.35%
Freyung 6/7
A-!010, Venna, Austria

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

</TABLE>



                                       34
<PAGE>


(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  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 owns several claim
blocks  within the  outlined  Tulameen  project  area which are  intended  to be
transferred into the Company.

     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.  In the meantime
Mr. Warke, a long-time holder of a valid Free Miners Certificate, is holding the
complete block of mineral claims acquired and staked for the Company,  including
properties held in Mr. Warke's personal  possession.  It is the intent that when
Lodestone is in the possession of a Free Miners  Certificate that the said block
of mineral claims acquired, staked and in private holding by Mr. Warke be vended
into Lodestone.

     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. While the verbal agreement is
not  definitive at this time,  the Company  expects that the  anticipated  total
purchase  price will  include  (i) the  acquisition  from Mr.  Warke of both the
properties  previously  owned by him and those  acquired  for the benefit of the
Company,  (ii) the acquisition from Mr. Warke of the Portable Assessment Account
("PAC Account") credit held by Mr. Warke arising from his previous  expenditures
on personally held properties in the area in excess of expenditures required for
the  maintenance  of mineral  claims by the Ministry of Energy and Mines for the
Province  of British  Columbia,  and (iii)  compensation  for Mr.  Warke for his
services  to plan and manage the  acquisition  and  staking of the said  mineral
claims in the Tulameen project area for the benefit of the Company.




                                       35
<PAGE>


     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  directors D. Campbell
Deacon  and C.  W.  Leigh  Cassidy  are  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.
The  agreement  may be  terminated by either party in any year by giving a least
three months written notice. The total fee through December 31, 1997 was $71,822
(Cdn. $100,000).

     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 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.




                                       36
<PAGE>


     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 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)




                                       37
<PAGE>


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)

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, 1997,  the Company
filed one Current Report on Form 8-K, dated October 24, 1997, reporting the sale
of equity securities pursuant to Regulation S.




                                       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:    June 29, 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:    June 29, 1998
         ------------------------------
         Florian Riedl-Riedenstein, Chairman, President,
         Chief Executive Officer (Principal
         Executive Officer), and Director

By:      /s/ C. W. Leigh Cassidy                         Date:    June 29, 1998
         -----------------------
         C. W. Leigh Cassidy, Vice President,
         Director, Chief Financial Officer (Principal
         Financial and Accounting Officer)
         and Secretary

By:      /s/ D. Campbell Deacon                          Date:    June 29, 1998
         ----------------------
         D. Campbell Deacon, Director

By:      /s/ Edward Jan Smith                            Date:    June 29, 1998
         --------------------
         Edward Jan Smith, Director

By:      /s/ Matthew Gassenbeek, III                     Date:    June 29, 1998
         ---------------------------
         Matthew Gaasenbeek, III, Director

By:      /s/ Robert Needham                              Date:    June 29, 1998
         ------------------
         Robert Needham, Director

By:      /s/ William Warke                               Date:    June 29, 1998
         -----------------
         William Warke, Director

By:      /s/ Hans R. Klob                                Date:    June 29, 1998
         ----------------
         Hans R, Klob, III, Vice President, Exploration






                                       39