UNITED STATES
                  SECURITIES AND EXCHANGE COMMISSION
                        Washington, D.C.  20549

   
                               FORM 10-K/A
    

                                                         1

<PAGE>




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

              For the fiscal year ended March 31, 1996

                    Commission File Number 1-7375

                        COMMERCE GROUP CORP.

       (Exact name of registrant as specified in its charter)

          DELAWARE                                39-6050862

(State or other jurisdiction                (I.R.S. Employer
of incorporation or organization)            Identification No.)

                        6001 North 91st Street
                    Milwaukee, Wisconsin 53225-1795
          (Address of principal executive offices) (Zip Code)

 Registrant's telephone number, including area code: (414) 462-5310

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

                                     Name of each exchange
     Title of each class              on which registered
Common Shares $0.10 par value        Boston Stock Exchange
                                   National Association of Security
                                   Dealers Automated Systems (NASDAQ)

Securities registered pursuant to Section 12(g) of the Act: None

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

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

                                                         2

<PAGE>




The  aggregate  market  value of the voting stock held by  nonaffiliates  of the
registrant based on the quote of the NASDAQ Small Cap Issue on May 15, 1996, was
approximately $ 15,216,165.

Common shares outstanding as of March 31, 1996, were 7,792,209.

DOCUMENTS INCORPORATED BY REFERENCE

Part III  incorporated  by  reference  from the  registrant's  definitive  Proxy
Statement  for its  Annual  Meeting of  Shareholders  to be filed,  pursuant  to
Regulation  14A,  no later  than 120 days  after the  close of the  registrant's
fiscal year.

<PAGE>

                       COMMERCE GROUP CORP.
                    1996 FORM 10-K ANNUAL REPORT
                  Fiscal Year Ended March 31, 1996


                        TABLE OF CONTENTS

                              PART I

                                                                 Page

Item 1.    Business    . . . . . . . . . . . . . . . . . . . .  .  3
Item 2.    Properties  . . . . . . . . . . . . . . . . . . . .  . 24
Item 3.    Legal Proceedings.  . . . . . . . . . . . . . . . . .  41
Item 4.    Submission of Matters to a Vote of Security Holders. . 41
Item 4(a). Executive Officers of the Company . . . . . . . . . .  41


                                PART II

Item 5.    Market for the Company's Common Equity and Related
           Stockholders'Matters. . . . . . . . . . . . . . .  . . 43
Item 6.    Selected Financial Data. . . . . . . . . . . . . . . . 44
Item 7.    Management's Discussion and Analysis of Financial
           Condition and Results of Operations. . . . . . . . . . 44
Item 8.    Financial Statements and Supplementary Data. . . . . . 50
Item 9.    Changes in and Disagreements on Accounting and
           Financial Disclosure . . . . . . . . . . . . . . . . . 70


                                                         3

<PAGE>



                               PART III

Item 10.   Directors and Executive Officers of the Registrant . . 70
Item 11.   Management Remuneration and Transactions. . . .  . . . 70
Item 12.   Security Ownership of Certain Beneficial Owners and
           Management . . . . . . . . . . . . . . . . . . . . . . 70
Item 13.   Certain Relationships and Related Transactions . . . . 70

                                PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports
           on Form 8-K . . . . . . . . . . . . . . . . . . . . . 71

The Company will furnish a copy of any exhibit filed as a part of this report to
any shareholder of record upon receipt of a written request from such person and
payment of the  Company's  reasonable  expenses  for  furnishing  such  exhibit.
Requests should be made to the Assistant Secretary of the Company at the address
set forth on the cover page of this report.

<PAGE>

                                PART I

Item 1.  Business

Introduction

   
Commerce Group Corp.  ("Commerce,"  the "Company,"  and the  "Registrant")  is a
developmental stage company based in Milwaukee,  Wisconsin, primarily engaged in
the  business  of  developing  mines and  producing  gold in the  Republic of El
Salvador,  Central America,  through its  Commerce/Sanseb  Joint Venture ("Joint
Venture").  Commerce  holds a nearly 100% interest  (detailed  below) in the San
Sebastian  Gold  Mine  ("SSGM")  and is  exploring  four  other  potential  gold
prospects located in El Salvador.  There are approximately 1.7 million ounces of
proven gold ore reserves at the SSGM, and at two of the other El
Salvador gold mines. Currently and for all financial statement periods presented
herein,  SSGM is the only one of the  Company's  properties  which has generated
revenues,  although there are strong initial  indications of gold ore present at
the other sites.
    

Commerce is currently producing gold at a facility referred to in this report as
the San Cristobal Mill and Plant ("SCMP") by

                                                         4

<PAGE>



processing tailings from the SSGM. These tailings are waste material left as the
by-product  of  past  mining  operations  at  the  SSGM.  The  SCMP  is  located
approximately  13 miles  from the  SSGM.  Commerce  acquired  this  facility  on
February 23, 1993, and thereafter made substantial renovations and modifications
to the plant and equipment  before and after placing this facility in operation.
Production  began on March 31, 1995, and during the fiscal year ending March 31,
1996,  5,993 ounces of bullion  containing 3,161 ounces of gold and 1,489 ounces
of silver were produced at this facility from these tailings. Revenues from this
production  were used  primarily  to fund  further  exploration  of  virgin  ore
reserves  at the  SSGM,  to  fund  the  development  of the  four  other  mining
prospects, and to fund improvements at the SCMP.

Commerce's   current   business  plan  is  to  secure   sufficient   capital  to
substantially increase its production of gold to at least 40,000 ounces per year
and to develop  additional  gold ore reserves.  The Company  expects to increase
production by developing an open-pit mine and a heap-leach  operation on site at
the SSGM and by acquiring  additional  mining  equipment which will permit it to
process  virgin  ore at  the  SCMP.  The  heap-leach  operation  will  have  the
capability   of  producing   (through   processing  a  higher   volume  of  ore)
significantly  more gold than could be produced at the SCMP, which has a present
maximum capacity of 400 tons per day.  Commerce will also continue to drill test
holes  at  previously  unexplored  areas at the site of the SSGM and at its four
other potential mining prospects.

Aside  from its  mining  operations,  Commerce  independently  and  through  its
partially and  wholly-owned  subsidiaries  conducts other  business  activities,
which at present are substantially less significant than its gold production and
exploration in El Salvador:  (1) land  acquisition  and real estate  development
through  its  wholly-owned  subsidiaries,  San Luis  Estates,  Inc.  ("SLE") and
Universal  Developers,   Inc.  ("UDI");  (2)  real  estate  sales,  through  its
wholly-owned  subsidiary,  Homespan  Realty  Co.,  Inc.  ("Homespan");  (3)  the
operation of a 331-acre  campground known as Standing Rock Campground,  which is
owned by Homespan and operated by the Company; and (4) advertising,  through its
wholly-owned subsidiary, Piccadilly Advertising Agency, Inc. ("Piccadilly").

<PAGE>

Commerce was incorporated in Wisconsin in September 1962, and it

                                                         5

<PAGE>



merged into a Delaware corporation in 1971. Its common shares have been publicly
traded since 1968. Commerce acquired 82 1/2% of the authorized and issued shares
of San Sebastian Gold Mines, Inc. ("Sanseb"), a Nevada corporation.  The balance
of Sanseb's shares are held by approximately  200 unrelated  shareholders.  From
1969 forward, Commerce has provided substantially all of the capital required to
develop a mining operation at the SSGM, to fund exploration,  and to acquire and
refurbish the SCMP. On September  22, 1987,  Commerce and Sanseb  entered into a
joint venture agreement (named the "Commerce/Sanseb Joint Venture" and sometimes
referred  to herein  as the  "Joint  Venture"  or  "Comseb")  to  formalize  the
relationship  between Commerce and Sanseb with respect to the mining venture and
to divide profits  commensurately with Commerce's  substantial  investment.  The
terms of this agreement  authorize  Commerce to supervise and control all of the
business  affairs  of the Joint  Venture.  Under this  agreement  90% of the net
pre-tax  profits of the Joint Venture will be distributed to Commerce and 10% to
Sanseb, and because Commerce owns 82 1/2% of the authorized and issued shares of
Sanseb,  Commerce in effect has over 98% interest in the activities of the Joint
Venture.

The Joint  Venture  leases the SSGM from a  52%-owned  subsidiary,  Mineral  San
Sebastian,  S.A.  de C.V.  ("Misanse"),  an El  Salvador  corporation.  Although
Misanse  owns  the  real  estate  comprising  the site of the  SSGM,  the  lease
agreement  grants  Comseb the right to all gold  produced in  exchange  for a 5%
royalty  over a term of 25 years  beginning  on the first day gold is  produced,
which  Comseb may, at its option,  extend for an  additional  25 years.  Because
Commerce owns 52% of Misanse,  Comseb in effect pays a royalty amounting to less
than 2 1/2% of its gold production to parties other than its own shareholders.

The Joint  Venture is  registered  as an operating  entity to do business in the
State of Wisconsin,  U.S.A. and in the Republic of El Salvador, Central America.
Under the Joint Venture Agreement,  Commerce is authorized to sign agreements on
behalf of the Joint Venture.

As of March 31, 1996, the total investment in the El Salvador mining projects by
Commerce, three of Commerce's wholly-owned  subsidiaries,  Sanseb, and the Joint
Venture amounted to $36,318,848.  The  profitability  and viability of the Joint
Venture is dependent upon, not only the price of gold in the world market (which
can be unstable), but also upon the political stability of El Salvador and

                                                         6

<PAGE>



the  availability of adequate  funding for either the SCMP operation or the SSGM
open-pit, heap-leaching operation or for the four other exploration projects.

The following chart illustrates the ownership of the Company's  subsidiaries and
joint ventures.

   
Commerce Group Corp., a Delaware corporation ("Company")

         1.       82.5% Subsidiary, San Sebastian Gold Mines, Inc. ("Sanseb"). 
 Nevada
                  corporation operates Joint Venture, under which arrangement 
Company receives
                  90% of pre-tax profits and SanSeb receives 10% [Effective 
economic interest in
                  Joint Venture is 98%].

         2.       52% Subsidiary, Mineral San Sebastian, SA de CV.  El Salvador
 corporation -
                  owns the SSGM and leases to Sanseb for 25 years, plus 25 year
extension, for
                  50% of gold production.


         3.       100% Subsidiary, San Luis Estates, Inc., Colorado corporation,
 developer of 7,000
                  areas of land in Costella County, Colorado.

         4.       100% Susbsidiary, Universal Developers, Inc., Wisconsin 
corporation, inactive.

         5.       100% Subsidiary, Homespan Realty Co., Inc., a Wisconsin
 corporation, owns and
                  operates a 331-acre campground in Missouri.

         6.       100% Subsidiary, Piccadilly Advertising Agency, Inc.,
 Wisconsin corporation,
                  provides advertising services only to the Company and its
subsidiaries.

Certain specialized mining terms are defined herein under "Glossary" below.
    
The Mining Properties

The Company,  through the Comseb  Joint  Venture,  is  currently  engaged in the
mining activities at five separate sites in the country of El Salvador. From its
first  involvement  with  Sanseb in 1968 and until  1993,  all of the  Company's
exploration and development of its mining activities took place at one site, the
San  Sebastian  Gold Mine.  On February 23, 1993,  the Company  acquired the San
Cristobal Mill and Plant, which is located approximately 13 miles from the SSGM.
Subsequently the Company acquired certain  exploration  rights to sites known as
the Modesto  (August,  1993),  the San Felipe-El Potosi (in September 1993), the
Hormiguero (in September, 1993) and the Montemayor (in March, 1995). The Company
maintains a business office in San Miguel, El Salvador, and employs over 300

                                                         7

<PAGE>



professionals and skilled, semi-skilled, mill personnel and miners
at the sites of its operations.

<PAGE>

At  the  current  stage  of  the  exploration  and  development,  the  Company's
geologists have defined the following gold reserves:



                                                         8

<PAGE>



                                                         Contained
                                       Tons      Grade     Ounces
1.  San Sebastian Gold Mine
    (a)  Tailings                     250,000    0.080     20,000
    (b)  Dumps waste (average grade)  960,000    0.130    124,800
    (c)  Stope fill (estimated)     1,000,000    0.340    340,000
    (d)  Open pit--virgin ore      13,400,000    0.087  1,165,800
                                   ----------           ---------
                                   15,610,000           1,650,600

2.  San Felipe-El Potosi
    (a)  Tailings                     185,000    0.060     11,100

3.  Modesto Mine
    (a)  Virgin ore (proven and
         probable)                     80,000    0.235     18,800
                                   ----------           ---------
                           Total:  15,875,000           1,680,500

In management's  opinion,  the Company's ongoing  exploration and development at
the five sites will substantially increase the Company's proven ore reserves.

The San Sebastian Gold Mine

The SSGM is situated on a mountainous  tract of land consisting of approximately
1,470 acres of explored and  unexplored  mining  prospects.  The SSGM is located
approximately three miles off of the Pan American Highway, northwest of the City
of Santa  Rosa de Lima,  El  Salvador.  The  tract is  typical  of the  numerous
volcanic  mountains  of  the  coast  range  of  southeastern  El  Salvador.  The
topography is mountainous  with elevations  ranging from 300 to 1,500 feet above
sea level. The mountain slopes are steep, the gulches are well defined,  and the
drainage is excellent.

The tailings,  dump material, and stope fill at the SSGM, are the by-products of
past mining  operations.  The  tailings are the residue of higher grade ore once
milled and processed to recover the then economically  feasible fraction of gold
present in the  material.  The dump material is actually gold ore which has been
mined in the search for higher  grades of gold ore and piled to the side of past
excavations.  The  stope  fill  was  primarily  used to fill  the  voids  in the
underground workings of the past SSGM mining activities. Virgin gold ore, as the
term is used in this report, is gold ore which is

                                                         9

<PAGE>



in the open pit and readily  available  for  processing;  it also  includes  the
undeveloped underground gold ore.

Virgin  gold ore at the SSGM  represents  the  majority  of the  material  (13.4
million  tons)  included in the  Company's  reserves.  The Company  plans to use
open-pit  mining  and  truck  the  gold  ore to one or more  heap-leaching  pads
developed on site at the SSGM site. The use of open-pit mining and heap-leaching
techniques  will enable the Company to process a higher  volume of gold ore than
can be processed at the SCMP or through the type of tunnelling  operations  used
by the Company in the past.  The  Company  plans to continue to operate the SCMP
after  developing  a  leach-pad  operation  at the SSGM,  using the  facility to
process the higher grade ore it  encounters in the course of mining at the SSGM.
The  milling  operation  at the SCMP is expected to return a higher rate of gold
recovery than can be expected from heap-leaching techniques.

<PAGE>

To date, production has focused on the tailings. There are approximately 250,000
tons of tailings  available  for  processing,  and these  tailings  have shown a
consistent  assay  average  grade of at least 0.10 ounces of gold per ton. In an
article  published  by Mining &  Scientific  Press,  dated  September  8,  1917,
entitled "Geology of the San Sebastian Mine, El Salvador," it was observed: "The
tailings  from the mill contain  approximately  0.10 oz. gold  regardless of the
value of the heading assay. Gold telluride has occasionally been found, but even
when the ore is roasted  prior to  cyaniding,  the tailings  still contain about
0.10  oz.  gold."  The  first  year's  production  has  shown  a lack  of  grade
consistency, therefore, the grade is unbalanced and greatly varies.

The 960,000 tons of dump  material  present at the SSGM site has grades  ranging
from 0.082 to 0.178  ounces of gold per ton.  An  analysis of the stope fill was
made by the Company's  consulting  geologist who has confirmed  that about 7% of
the stope fill had been removed and processed during the 1973-1978  period.  The
grade of the stope fill  averages  0.34 ounces of gold per ton. It is  estimated
that  there  are  about  one  million  tons  available  for  treatment  from the
underground  operations.  It is necessary to remove the material which has caved
in the adits to reach the stope fill areas.

All residue from the  contemplated  operations  will be stockpiled for potential
future processing dependent upon the price of gold,

                                                        10

<PAGE>



improvements in technology, and the depletion of better grading
material.

There is good  access to the SSGM.  The City of Santa Rosa de Lima (3 miles from
the SSGM) is a substantial  trading center.  The SSGM is  approximately 30 miles
from San Miguel,  which is El Salvador's  second largest city, and approximately
108 miles  southeast of El Salvador's  capital city, San Salvador.  SSGM is also
approximately  26 miles  from the City of La Union  which has port and  railroad
facilities.  Several  major  commercial  airlines  provide  daily flights to San
Salvador.  An airline commuter  service provides daily scheduled  flights to the
cities of Santa Rosa de Lima, San Miguel, and La Union.

The Company (through the Comseb Joint Venture) leases the SSGM from
Mineral San Sebastian, S. A. ("Misanse"), an El Salvadoran
corporation.  The Company owns 52% of the total of Misanse's issued
and outstanding shares.  The balance of the shares are owned by
about 100 El Salvador, Central American and United States' citizens.
(Reference is made to Note 6 of the financial statements for related
party interests.)

Misanse Mining Lease

On July 28,  1975,  an amended  lease  agreement  between  Misanse as lessor and
Sanseb  as  tenant  was  executed  by the  parties  giving  the  tenant  all the
possessions  and mining  rights that pertain to the SSGM as well as other claims
that may  already  have or could be claimed in the future  within the 1,470 acre
plat of land  encompassing  the  SSGM.  The  lease was  further  amended  to run
concurrently with the concession described herein and may be extended for one or
more equal periods by the tenant as long as the tenant has paid the rent and has
complied with other  obligations  under the lease and the concession.  The lease
further  provides  that the  tenant  will pay rent to equal 5% of the gross gold
production  revenues obtained from the leased SSGM and further commits itself to
maintain  production  taking into  consideration  market,  political,  and other
conditions.  In no case  will the rent be less  than  1,800  colones  per  month
(approximately  $206 per  month at the  current  rate of  exchange).  The  lease
further  provides that, in the event the lessor wishes to sell the property,  it
must first give  preference to the tenant;  the lease further  provides that the
tenant must give  preference to employ its former  mining  employees and Misanse
shareholders.

                                                        11

<PAGE>




The lease is freely  assignable by the Joint Venture  without notice to Misanse.
The lease may also be cancelled  by the Joint  Venture on thirty day's notice to
Misanse and thereafter all legal obligations thereunder shall cease.

<PAGE>

In the event that new  extended  bodies of ore are  discovered,  Misanse  may be
required to make  proper  claim for them  through the  Ministry of Economy of El
Salvador's Department of Energy, Mines and Hydrocarbons, and include such claims
in the present lease.  Such addition to the lease is required to be made without
additional rental payment, except that the expenses for procuring the concession
shall be borne by the Joint Venture.

Misanse Concession Agreement

On July 23, 1987, in an official  ceremony in the City of Santa Rosa de Lima, El
Salvador,  President  Jose  Napoleon  Duarte  of the  Republic  of El  Salvador,
presented  the  "concession"  which is the official  decree  granting  rights to
extract gold ore from the SSGM.  In order to obtain the mining  concession  from
the  Government  of El Salvador,  on December  22, 1986,  the Company and Sanseb
entered  into an  agreement  (incorporated  by  reference  to  Exhibit  I of the
Company's  S.E.C.  Form 10-K filed for the  period  ended  March 31,  1988) with
Misanse as follows:

Under the terms of the concession and agreement  referred to in the  concession,
the Joint Venture has agreed to the following:

(a)  The Joint Venture will pay to approximately 270 former El
     Salvador employees pursuant  to a settlement agreement dated
     June, 1985, as follows:  A sum of approximately 500,000 colones
     (approximately U.S.  $57,208 at the current rate of exchange)
     in three (3) installments contingent upon the production and
     sale of gold, to wit:  one-third is to be paid from the sale of
     the first production of gold; one-third is to be paid one (1)
     year thereafter; and one-third is to be paid two (2) years
     after the first payment; a sum of 205,214 colones has been paid
     which reduces the total amount due as of March 31, 1996, to
     294,786 colones or U.S. $33,728.

(b)  Preference is to be given to the former Sanseb employees and
     Misanse shareholders in filling any job vacancies, providing

                                                        12

<PAGE>



     that there is a need for their skills or services.

(c)  From the SSGM profits  earned,  5% of the gross wages paid to the full-time
     employees  shall be paid into a newly created  pension fund for the benefit
     of the employees.

(d)  From the SSGM profits earned, a sum of 500,000 colones annually (equivalent
     to  $57,208  at the  present  rate of  exchange)  will be paid by the Joint
     Venture as a social tax for the benefit of the  community  in the SSGM area
     which  said  funds  are  to be  used  for  social,  economic,  educational,
     recreational,  health,  welfare,  medical  or  for  such  other  beneficial
     community services as determined by the Joint Venture.

(e)  At such time as the Government of El Salvador  forms a cooperative  for the
     benefit of the employees,  the Joint Venture has agreed to contribute  from
     its annual pre-tax earnings,  the sum of 5% of its pre-tax profits, but, in
     any event,  not less than a minimum  amount  equal to 5% of 8% of the total
     assets.

(f)  Pursuant to an agreement with the El Salvador Minister of
     Economy, at the request of the Company to the El Salvador
     Central Reserve Bank and/or office of the El Salvador Minister
     of Foreign Commerce, it will be able to convert the El Salvador
     currency into United States' currency for the payment of its
     loans, interest, and any other obligations, including the
     payment of dividends.  Presently, there are no restrictions in
     converting the El Salvador colones into United States'
     currency.  The Company, as a foreign investor, may hold dollar
     accounts in El Salvador banks and may use these accounts to
     obtain local financing.

(g)  On November 30, 1987, the El Salvador Minister of Foreign Commerce issued a
     project  approval for the gold mining operation which was ratified on April
     15, 1988.

<PAGE>

(h)  In consideration  for the obligations  agreed to by the Joint Venture,  the
     Government  of El  Salvador  agreed to exempt  the Joint  Venture  from the
     payment of all import duty,  fiscal or municipal taxes  whatsoever.  The El
     Salvador  Department of Customs  refused to recognize  this  exemption.  On
     November 15, 1993, the Joint Venture's attorneys filed a declaratory

                                                        13

<PAGE>



     proceeding  with the El Salvador  Constitutional  Supreme  Court  ("Court")
     informing the Court that the Joint Venture's rights were being violated and
     that the Court should restrain the Department of Customs from attempting to
     collect any duty.

On May 18,  1994,  the El  Salvador  Constitutional  Supreme  Court  of  Justice
declared  that the Joint Venture is entitled to be  temporarily  exempt from the
payment of all import duty, fiscal and municipal taxes on the import of any item
relating to the needs of the SSGM  pending its review of the  petition  filed on
November 15, 1993, and that the Company's Joint Venture's  constitutional rights
are to be preserved. The El Salvador Department of Customs takes a position that
the Supreme  Court could deny the  exemption,  therefore,  in lieu of paying the
Custom's  duty, it is accepting a payment bond in an amount of the Custom's duty
until a final  decision is made.  It is charging the Company the 10% added value
tax (as of July 1995,  13%) which is refundable to the extent of 6% of the value
of the Joint  Venture's  exports.  The Joint  Venture plans to export all of its
gold.

Misanse Mineral Concession-Government of El Salvador

On  January  27,  1987,  the  Government  granted  a right  to the  SSGM  mining
concession ("concession") to Misanse which was subject to the performance of the
El Salvador Mining law requirements.  These rights were simultaneously  assigned
to the Joint Venture.

On July 23,  1987,  the  Government  of El  Salvador  delivered  and  granted to
Misanse,  possession of the mining concession.  This is the right to extract and
export minerals for a term of 25 years (plus a 25-year renewal option) beginning
on the first day of production  from the real estate which  encompasses the SSGM
owned by Misanse.  Misanse assigned this concession to the Joint Venture.  Under
the  concession  and applicable El Salvador law, the Joint Venture has the right
to  export  said  minerals  for  five  years  beginning  with the  first  day of
production  without imposition of mineral or export taxes. It also has the right
to import free of duty,  equipment and all other items  necessary to operate the
SSGM.

The  concession,  or the right to mine gold, is subject to  cancellation  by the
Government of El Salvador if there is an  abandonment of the property such as if
there is no  demonstration  that the  concession  holder  intends  to carry  out
exploration, exploitation, or development of the property in good faith during a

                                                        14

<PAGE>



six-month  period after the concession is granted or if the work of exploration,
exploitation  or development is suspended for six months or if the  exploration,
exploitation  or development is reduced to an extent that the effort used cannot
be regarded as being  reasonable in relation to the  importance and resources of
the mining property.

In the event of public disaster or disturbance of the public order, all mines in
the given locality shall be regarded as being in  exploration,  exploitation  or
development without the necessity of any special formality. Such event did occur
when, on November 11, 1989, the guerrillas  attempted to seize the Country of El
Salvador.  On January 16,  1992,  a peace accord and  cease-fire  agreement  was
entered into by the Government of El Salvador and its opposition. The transition
from war to peace was effected  without any serious  occurrences and final peace
was declared on December 15, 1992,  with a three-year  period to comply with the
terms of the peace pact.

The work of a concession may be suspended by permission of a competent authority
for a reasonable period not to exceed one year. An exception would be in case of
acts  of God  or  force  majeure  in  which  case  the  period  may be  extended
successively as long as such reasons exist.

<PAGE>

A concession may be fortified for lack of security measure,  or if its condition
would endanger the lives of workers, or for failure to comply with provisions of
the  Mining  Code or other  provisions  enacted  with  respect  to any aspect of
exploitation  in the  mining  industry,  unless  corrected  within a  reasonable
period.

The Complimentary  Mining Law states that, in addition to the cases mentioned in
the El Salvador Mining Code, abandonment of the mine will be presumed if after a
significant  reduction or exhaustion of the veins,  beds, or other  formation in
exploitation, three months is allowed to pass without adequate efforts either to
exploit other  deposits  existing in the  concession or to discover new deposits
suitable for exploitation.

By Article 22 of the El Salvador Mining Code, a concession may be granted for an
unlimited  time, as long as the concession  holder  complies with the conditions
imposed by law. The Joint  Venture's  concession is for a period of  twenty-five
years,  beginning on the first day of production,  and with a right to extend it
for an

                                                        15

<PAGE>



additional twenty-five years.

In addition,  the El Salvador  Constitution  contains certain  provisions which,
although not referring  specifically to mining, are applicable thereto.  Article
138, for  example,  prohibits  confiscation  of property as a penalty or for any
other reasons,  but, in the event that any authority  violates this prohibition,
the confiscated property is imprescriptible.

During  February 1996, and effective 120 days  thereafter,  the Government of El
Salvador  adopted a revised mining law. This law grants longer  exploration  and
exploitation  terms. It also contains a provision that three percent of the gold
receipts will be paid to the  Government  of El Salvador and an  additional  one
percent is to be paid to the municipality  where the mine is located.  There are
other  provisions  that the Company is reviewing to obtain a clear status of the
mining law.

Proposed Mining, Mill, Heap-Leaching and Exploration Operations

San Cristobal Mill and Plant ("SCMP") Recovery and Processing
Systems

On February 23, 1993, the Company, on behalf of the Joint Venture acquired SCMP,
a precious  metals'  cyanide  leaching  mill and plant  rated with a capacity of
processing  200 tons per day  which  utilized  the  following  unit  operations:
crushing, grinding,  thickening,  agitated leaching, counter current decantation
of  leach  solution,   recovery  of  precious   metals  by  zinc   precipitation
(Merrill-Crowe),  and direct smelting of precipitates to produce precious metals
as dore and tailings' disposal.

The Company's  engineers  recommended that this processing system be retrofitted
and  converted  to process the SSGM  tailings by a  cyanidation  carbon-in-leach
(CIL)  system to recover the  residual  cyanide  soluble  precious  metals.  The
retrofitting  has been  completed  and the first pouring of gold on a test basis
took place on March 31,  1995.  The SCMP is being  operated on a  "start-up  and
build-up" to a gradual full capacity  system during this trial and  modification
period.

Although the Joint Venture owns the mill, plant and related  equipment,  it does
not own the land and certain  buildings.  Since  February  23,  1993,  the Joint
Venture attempted to either lease or

                                                        16

<PAGE>



purchase  this  real  estate  from  an  Agency  of the El  Salvador  Government,
Corporacion  Salvadorena de Inversiones  ("Corsain").  On November 12, 1993, the
Joint Venture entered into an agreement with Corsain to lease  approximately 166
acres of land and the  buildings  for a period of ten years.  The annual  rental
charge is U.S.  $11,500 payable in advance and subject to annual increases based
on the United States'  percentage rate of inflation.  Also as agreed, an $11,500
security  deposit was required and this deposit is subject to an annual increase
based on the U.S.  inflation  rate.  The premises are  strategically  located to
process gold ore from three of the four other mining  prospects  that are in the
exploration stage.

<PAGE>

SCMP Project Operating Plan

Production Schedule

Preproduction  development,  consisting  primarily  of  expansive  road and site
improvements to the mine and mill sites,  and delivery of tailings'  reclaim and
expansive  mill  equipment  modification,  has taken place during the last year.
Initial  production is from the SSGM tailings.  After that tailings' resource is
exhausted, tailings will come from the San Felipe-El Potosi Mine (Potosi), or in
the event that  crushing  and grinding  equipment  is  acquired,  then the Joint
Venture plans to process the higher grade ore from the SSGM.

The Joint  Venture  dedicated  extraordinary  efforts to attain  its  production
goals,  but there were delays in  establishing  the SCMP in a mode to accomplish
its expectations.  Substantial  modifications had to take place and a completely
new force of labor had to be  seasoned  to operate  the SCMP.  An unusual  rainy
aftermath of the hurricane season caused hauling problems and many metallurgical
differences  were  encountered  due to the unbalance of the tailings'  grade and
consistency;  in the handling of the tailings,  coarse  material  separation was
encountered  creating  difficulties  in achieving  its  production  goal.  Other
related   factors   delayed  the  Joint   Venture  from   realizing  its  goals.
Nevertheless,  the operations, if recorded on a profit or loss basis, would have
reflected a nominal profit.  It is expected that the ongoing  technical  changes
should activate the increase of the profits to meet the projections.

The other sources of gold ore from the SSGM to be used at the SCMP

                                                        17

<PAGE>



operation  will be obtained  from the stope fill or higher  grade gold ore after
obtaining  access through the underground  workings from the main ore body. This
gold ore will have to be crushed and  pulverized  which  increases the cost, but
then the yield is expected to be at a 92%  recovery.  The income from the higher
recovery of gold ore will be substantially  more than the greater cost involved,
providing that the world gold market price does not decline below $200 an ounce.

SCMP Continued Operating Plans

Tailings from SSGM and/or Potosi are reclaimed  utilizing a  rubber-tired  wheel
loader and loaded into 20-25 ton trucks for  transport to the SCMP.  Trucks then
haul the tailings approximately 15 miles from the SSGM or approximately 30 miles
from Potosi to the SCMP. Mine employees are  responsible  for tailings'  reclaim
activities  including  determination of areas to be reclaimed,  truck and loader
operating and maintenance, and head sampling and sample analysis.

The  tailings  are  received  at the SCMP where they are  weighed,  logged,  and
sampled.  Weighing is performed  utilizing a conveyor  belt scale and/or a truck
scale located on the SCMP site.  The tailings are then unloaded at the SCMP site
and stockpiled.  An area was developed to allow  stockpiling of more than 15,000
tons on the SCMP site.

SSGM  tailings are  transferred  from the  stockpile  to a feed bin  utilizing a
rubber-tired wheel loader. The feed bin has a capacity of approximately 10 cubic
yards (13.5  tons).  Feed is fed at a  controlled  rate onto a  conveyor,  which
transfers the feed to the next part of the process. The conveyor includes a belt
scale (weightometer) for instantaneous determination of feed rate and totalizing
of tonnage fed to the process.

<PAGE>

The conveyor discharges into a chute which transports the material into the ball
mill which  serves as a repulper.  Water is added to the solids in the ball mill
to a pulp  density of  approximately  40% to 50%  solids by weight,  and lime is
added to raise the alkalinity of the pulp to  approximately  PH 10.5. The repulp
tank includes a mixing  agitator for suspension and  conditioning of the slurry.
The slurry is transferred from the repulp tank to the leaching process utilizing
a slurry transfer pump.

                                                        18

<PAGE>




Slurry  transferred  from the repulp tank is directed to a 20 mesh static  sieve
bend screen to remove any oversize or trash material. The slurry then enters the
first of six agitated  leach tanks  utilized  for cyanide  leaching of the pulp.
This provides for approximately 24 hours leach retention time. A seventh tank is
maintained in operable  condition as a standby unit.  Liquid cyanide is added to
the first leach tank to dissolve the gold.

Precious  metals recovery is  accomplished  by utilizing  carbon-in-leach  (CIL)
methods where activated carbon is utilized to adsorb the gold from the solution.
Each leach tank is equipped with an air lift pump for inter-stage advancement of
carbon,  and  an air  swept  stationary  screen  for  retention  of  carbon  and
downstream  gravity transfer of pulp. A 20 mesh carbon safety screen is attached
to the end of the leaching circuit.  An air blower provides air for operation of
the air lifts and air sweep on the screens.  Pulp loaded with precious metals in
the carbon from the CIL process is passed over a carbon  recovery  screen  where
the carbon is  retained  and washed,  and the pulp is  directed  back to the CIL
process. The carbon is moved  counter-current to the pulp flow in order that the
highest  possible  gold  loadings are obtained and highly active fresh carbon is
maintained in the last leach tanks.

Liquid ferrous sulfate is added to the tailings to destroy any residual cyanide.
Tailings  from the CIL process are directed to the  tailings'  impoundment  area
using a slurry  transfer  pump.  Tailings are stored in a tailings'  impoundment
area with tailings' water reclaimed as required.

Loaded (gold  containing)  carbon is transferred from the carbon recovery screen
to  the  strip  and  acid  wash  circuits.  The  carbon  is  stripped  utilizing
atmospheric Zadra desorption methods, with the resulting pregnant strip solution
reporting to  electrowinning,  where gold containing sludge is formed,  which is
pyrometallurgically  refined on-site to dore metal. The carbon is acid washed to
remove  detrimental  impurities  prior  to  being  transferred  back  to the CIL
circuit.

Reagents (cyanide, lime) are made up in separate agitated mix tanks. The cyanide
mix tank  holds up to three days worth of 20%  cyanide by weight  solution.  The
lime mix tank  holds up to one  eight-hour  shifts  worth of 20% lime by  weight
slurry.  The lime is pumped to the repulp tank and CIL  process as required  for
alkalinity  control.  The cyanide is pumped to the CIL process and carbon  strip
circuit as

                                                        19

<PAGE>



required.

Process  water is  provided  from mine  sources  and stored in a 40'  thickener.
Process water is pumped from the thickener to various  locations  throughout the
process. If water treatment is required it is done by utilizing the thickener as
a mixing/precipitation device.

Electricity  is  supplied  by local  public  utilities.  In the  event  power is
discontinued for any reason whatsoever,  an emergency generator to produce power
is on site to maintain and take over the process system.

SCMP Personnel

The SCMP employees,  during this past year's start-up testing period  (including
its own  trained  security  personnel)  totals  about 144  persons.  The SCMP is
operated 24 hours per day, seven days per week and 52 weeks per year.

<PAGE>

SSGM Open-Pit, Heap-Leaching Operation

The Joint Venture has placed the SCMP into operations.  It now intends to obtain
a sum of $6 million or more to commence an open-pit,  heap-leaching operation at
the SSGM site.  An additional $7 million or more is estimated to be required for
the crushing  system and mining  equipment  if the Joint  Venture were unable to
lease this equipment.  After these funds are obtained, the Joint Venture intends
to start  processing  gold ore from its open pit at a production  level of 2,000
tons per day.  During the second year, the production  level plans are to expand
production  to 3,000  tons  per day  (the  funds  for  this  expansion  could be
generated from  profits).  An increase to process 4,000 tons of gold ore per day
would take place during the third year and another  expansion  to process  6,000
tons per day would take place at the beginning of the fifth year,  and all funds
for this expansion should be available  through a combination of earned profits,
borrowing, or other sources. The independent feasibility study and the Company's
Project  Summary  report  comfortably  support  this  program  as the  estimated
projected production costs are substantially lower than a current $390 per ounce
market  price of gold.  The total  volume of proven gold ore  reserves  from the
open-pit  area amount to 13.4 million tons with an average grade of 0.087 ounces
of gold per ton. With the anticipated

                                                        20

<PAGE>



production volume, there is at least an eight-year supply of gold ore. More gold
ore would be  developed  during  this  period of time as it is  believed  that a
substantial amount of gold ore can be proven.

The leach pad site  consisting of  approximately  3.7 acres on the SSGM property
was chosen  because of the  relatively  even  grade  level,  the access to water
supply,  electric  power,  roads,  telephone  service,  and because of its close
proximity to the open-pit area.

Gold ore will be crushed to produce  stones of a size which will  maximize  gold
recovery. If required, lime and cement will be added "agglomerated" to such gold
bearing  material  that will require  this  process to assist the  heap-leaching
operation, in accordance with metallurgical recommendations.

This  leach pad will be  constructed  with a plastic  liner  sandwiched  between
layers of gravel to protect its  integrity.  On top, the liner will be protected
with a six-foot layer of one-inch  gravel  comprised of  gold-bearing  material.
Material to be processed  and  agglomerated  if necessary  will,  in stages,  be
heaped an additional 20 feet on top of this protective  layer,  and then removed
at the end of the leaching cycle.

Basically,  this process involves the placement of material containing gold onto
a  "pad"  which  is  impermeable  to  liquids,  sprinkling  the  "heap"  with  a
water-based  chemical  solution  which will  dissolve the gold as it  percolates
through the  material,  collecting  the solution at the bottom of the heap as it
runs off the pad, and then  recovering the gold from the solution.  The chemical
solution  is  actually  recycled  through  the  heap  many  times  before  it is
processed,  in  order to  maximize  the  recovery  of gold  and to  recycle  the
chemicals.

Gold laden  cyanide  solution  will be collected at the base of the pad and then
will be  filtered  through a series of carbon  adsorption  columns  (a series of
open-topped  tanks)  where the gold will be drawn out of the  solution  and into
beds of granular  activated  carbon.  Next,  the carbon from the columns will be
washed  with  acid to strip the gold from the  carbon  into a more  concentrated
solution.  Lastly,  gold will be removed from this acid solution by electrolysis
(the same process used in  gold-plating)  first by collecting  the gold on steel
wool type  cathodes,  and then by  electrolytically  transferring  the gold to a
charged  metal plate in another acid  solution.  After their use in processing a
batch of gold, the cyanide and acid

                                                        21

<PAGE>



solutions,  as well as the carbon,  will be replenished  and recycled to process
the next batch. This procedure is similar to the existing SCMP process.

<PAGE>

Exploration Projects

The Joint Venture is performing the following El Salvador exploration programs:

   (1)  At the SSGM site which is located  approximately  two and one-half miles
        northwest of the City of Santa Rosa de Lima,  Department of La Union, El
        Salvador.

   (2)  At the San Felipe-El Potosi Mine and its extension, the El Capulin Mine,
        which are located near the City of Potosi,  Department of San Miguel, El
        Salvador (approximately 18 miles northwest of the City of San Miguel).

   (3)  At the  Hormiguero  Mine which is located about five miles  southeast of
        the SCMP near the City of Comacaron in the Departments of San Miguel and
        Morazan, El Salvador.

   (4)  At the Modesto Mine which is located  near the City of El Paisnal  about
        19 miles from the Capital City in the  Department  of San  Salvador,  El
        Salvador.

   (5)  At the  Montemayor  Mine which is located  about 14 miles  northeast  of
        SCMP, about six miles northwest of SSGM, and two and one-half miles east
        of the City of San Francisco Gotera in the Department of Morazan.

All of the above mines were formerly in  production  and did produce gold and/or
silver.  In addition to the channel  trenching,  test pit holes, and underground
adit  openings,  the Joint Venture has acquired its own diamond  drilling rig to
explore in depth, the above described  potential targets.  All of the properties
have promising geologic  surroundings and alternations,  and all have been mined
and produced gold in the past.

Also,  the Joint  Venture has its own SSGM on-site  laboratory  with  full-time,
trained  personnel  working three shifts to fire assay the gold ore samples.  It
also has two full-time surveying crews

                                                        22

<PAGE>



consisting of ten persons.  (Reference is made to Item 2.
Properties for additional detailed information.)

Gold Prices, Sales, Marketing and Competition

   
Since the Joint Venture is in operation and producing  gold on a limited  basis,
its  revenues,  profitability  and cash flow will be greatly  influenced  by the
price of gold.  The gold price is  unpredictable,  can  fluctuate  widely and is
affected by numerous factors beyond the Company's  control,  including,  but not
limited to,  expectations  for  inflation,  the relative  strength of the United
States'  dollar in relation to other major  currencies,  political  and economic
conditions, and production costs in major gold-producing
regions.  The supply and demand for gold also affects the price. The Company has
not and does not expect in the  forseeable  future to engage in hedging or other
transactions  to minimize the risk of fluctuations in gold prices or currencies.
Gold and silver can be sold on numerous  markets  throughout the world,  and the
market price is readily  ascertainable  for such metal.  There are many refiners
and smelters available to process these precious metals. Refined gold and silver
can also be sold to a large number of precious  metal  dealers on a  competitive
basis.  The Joint  Venture's  SCMP  operation  which produces dore is refined by
Handy & Harman's refinery located in the United States.
    

The Joint Venture will not be a major gold producer of gold based on the size of
existing gold mining  companies.  The Company believes no single  gold-producing
Company has a large  impact to offset  either the price or supply of gold in the
world market.  There are many  companies in the world  producing  gold.  Many of
these companies have  substantially  greater  technical and financial  resources
than the Company. The Company believes that the expertise of the Joint Venture's
experienced employees, its low overhead and its projected low cost of production
will allow it to compete effectively and to produce reasonable profits.

   
To date  inflation,  currency  and  interest  rate  fluctuations  have not had a
material impact on the Company or its results of operations.
    

Environmental Matters

The  exploration,  development and production  processes  conducted by the Joint
Venture  in the  Republic  of El  Salvador  presently  are  not  subject  to any
categorical regulations regarding environmental protection.

                                                        23

<PAGE>




The  Joint  Venture  believes  that it is in its best  interest  to use  similar
environmental  standards as are enforced in the United States  regarding  safety
precautions,  employee health and safety,  air quality  standards,  pollution of
stream and fresh water sources,  waste  material,  odor,  noise,  dust and other
reasonable environmental protection practices.

Political Environment in El Salvador

The following information is an excerpt from a report entitled,
"U.S.  Embassy--San Salvador Country Commercial Guide for the fiscal
year 1995":

"El Salvador's  successful  two-year peace process  recently came to culmination
with peaceful presidential,  legislative,  and municipal elections, in which the
political party of the ex-guerrillas, the FMLN, participated.  Though losing the
presidential  election, the FMLN and a coalition of other left of center parties
won 22 seats in the 84-seat  Legislative  Assembly,  becoming  the second  major
political  force in the  country.  The [1994]  presidential  election was won by
Armando Calderon Sol, the candidate of the  right-of-center  Arena party,  which
won 39 seats in the Assembly. Arena moderated its right-wing policies during the
administration of outgoing President Alfredo Cristiani, ending the 12-year civil
war as well as greatly liberalizing the economy and reducing corruption.

"El Salvador has an excellent relationship with the United States, solidified by
12 years of close  cooperation  during the Salvadoran  civil war. Leaders of the
FMLN have established close relations with the U.S. government,  seeing it as an
honest broker during the peace process.  The vast majority of Salvadoran  people
also view the U.S. in a favorable light, a sentiment  augmented by the fact that
almost a million Salvadorans live in the U.S.

"El Salvador has a Presidential  political system, with a unicameral Legislative
Assembly and an independent judiciary dominated by the Supreme Court.  Elections
for  President are held every five years;  for the Assembly and  municipalities,
every  three  years.  They  were  concurrent  in 1994.  Arena  is the  strongest
political party in the country,  currently controlling the executive,  a working
majority  in the  assembly  (with  the help of a  smaller  party),  and the vast
majority of municipalities. The FMLN controls the second largest number of seats
in the  Assembly  and came in  second  in the  first  round of the  Presidential
election. The center-left Christian

                                                        24

<PAGE>



Democratic  Party (PDC) has seen its support slowly erode since  controlling the
Presidency and Assembly in the mid-1980s. It still controls,  however,  eighteen
seats  in the  new  Assembly.  There  are  several  other  small,  insignificant
parties."

Economy Status

The following selected  information on El Salvador was obtained from excerpts of
the "Central Intelligence Agency World Fact Book":

"Overview: The agricultural sector accounts for 24% of GDP, employs about 40% of
the labor force, and contributes about 66% to total exports. Coffee is the major
commercial  crop,  accounting  for 45% of  export  earnings.  The  manufacturing
sector, based largely on food and beverage  processing,  accounts for 19% of GDP
and 15% of  employment.  In 1992-94 the  government  made  substantial  progress
toward privatization and deregulation of the economy.  Growth in national output
in 1991-94 nearly averaged 5%, exceeding growth in population for the first time
since 1987;  and  inflation  in 1994 of 10% was down from 19% in 1993.  National
product:

<PAGE>

"National product:  GDP - purchasing power parity - $9.8 billion
(1994 est.)

"National product real growth rate:  5% (1994 est.)

"National product per capita:  $1,710 (1994 est.)

"Inflation rate (consumer prices):  10% (1994 est.)

"Unemployment rate:  6.7% (1993)

"Budget:
"revenues:  $846 million "expenditures:  $890 million,
including capital expenditures of $NA (1992 est.)

"Exports:  $823 million (f.o.b., 1994 est.)
"commodities:  coffee, sugarcane, shrimp
"partners:  US, Guatemala, Costa Rica, Germany

"Imports:  $2.1 billion (c.i.f., 1994 est.)
"commodities:  raw materials, consumer goods, capital goods

                                                        25

<PAGE>



"partners: US, Guatemala, Mexico, Venezuela, Germany

"External debt:  $2.6 billion (December 1992)

"Industrial production:  growth rate 7.6% (1993)

" . . .

"Industries:  food processing, beverages, petroleum, nonmetallic
products, tobacco, chemicals, textiles, furniture

"Agriculture:  accounts for 24% of GDP and 40% of labor force
(including fishing and forestry); coffee most important commercial
crop; other products - sugarcane, corn, rice, beans, oilseeds, beef,
dairy products, shrimp; not self-sufficient in food

" . . .

"Economic aid:
"recipient: US commitments,  including Ex-Im (FY70-90), $2.95 billion (plus $250
million  for  1992-96);  Western  (non-US)  countries,  ODA  and  OOF  bilateral
commitments (1970-89), $525 million

"Currency:  1 Salvadoran colon (C) = 100 centavos

"Exchange rates:  Salvadoran colones (C) per US$1 - 8.760 (January
1995), 8.750 (1994), 8.670 (1993), 8.4500 (1992), 8.080 (1991),
8.0300 (1990)

"Fiscal year:  calendar year"

<PAGE>

Investment Climate in El Salvador

The following information is reproduced from a report prepared by
the U.S. Embassy named, "U.S. Embassy - San Salvador Country
Commercial Guide FY 1996":

"- Openness to Foreign Investment

"The  Salvadoran  Government  is committed  to  attracting  foreign  investment.
Companies from the United States,  Canada,  Germany,  Korea,  Taiwan, and Mexico
have made investments here with favorable

                                                        26

<PAGE>



results. The primary legislation  governing foreign investment in El Salvador is
the 1990 Export Reactivation Law; and the 1988 Foreign Investment  Promotion and
Guarantee law.

"The 1988 Foreign  Investment and Promotion Law is a comprehensive  statute.  To
investors who register with the Ministry of Economy this law provides:

"-Unrestricted remittance of net profits for investors in industrial
activities.

"-Remittance  of net  profits  up to fifty  percent  of the  registered  foreign
capital  per year  for  investors  in  commercial  and  service  activities.  In
practice, however, there is free convertibility of capital.

"-Unrestricted  remittance of funds obtained from the  liquidation of a business
in proportion to the foreign funds invested.

"-Unrestricted  remittance  of  royalties  and fees for use of foreign  patents,
trademarks, technical assistance and other similar services.

"-Foreign  investors  may hold dollar  accounts in El Salvador and may use these
accounts to obtain local financing.

"...

"Under the Export  Reactivation Law of 1990, firms not located in free zones and
exporting  less than one hundred  percent of their  production may apply for tax
rebates of six percent of the FOB value of these exports. However, the paperwork
to obtain this rebate is cumbersome.

"In 1994 the government  announced that it was setting up a one-stop  office for
foreign  investment  in the Ministry of Economy,  where  investors  now register
their investments.  To date, no concrete steps have been taken towards this end.
The  registration  process  is  supposed  to be  non-discriminatory  and  is not
considered an impediment to investment.

"It is not necessary to have a local partner in El Salvador.  Some
maquila operations are completely foreign-owned.  Three
multinational oil companies operate in El Salvador, and two of these

                                                        27

<PAGE>



companies share a small refinery.  Two U.S. banks have offices in El
Salvador.  The banking law has been modified to encourage other
foreign banks to enter the country.  Although foreign investment in
newly-privatized banks is limited, there are no restrictions on
ownership of new banks.

<PAGE>

"Conversion and Transfer Policies

"El Salvador has a freely convertible currency that trades at approximately 8.75
colones per dollar.  This currency is buoyed by family remittances of nearly one
billion  dollars per year from  Salvadorans  who reside outside the nation.  The
nation's  banks and many foreign  exchange  houses  actively  trade  dollars and
colons.  Foreign businesses freely remit profits,  repatriate capital, and bring
in capital for additional investments.  Banks publish their exchange rates daily
in local newspapers.

"Expropriation and Compensation

"The last case of expropriation began in 1986, when the government  nationalized
the assets of CAESS, San Salvador's  electric  distribution  company.  Six years
later,  shareholders received the first payment of ten million dollars. In March
1993,  the  government  concluded  payments  of cash and  bonds and the case was
settled to the satisfaction of all parties.

"In 1960 the  United  States and  Salvadoran  governments  signed an  investment
guarantee  treaty,  which  guaranteed U.S.  investors  against losses that could
arise from currency  inconvertibility or expropriation.  As of July 1995, the US
and El Salvador have nearly completed  negotiating a bilateral investment treaty
(BIT) that would encompass all aspects of investment. It has not been signed for
technical reasons.

" . . .

"Political Violence (as it may affect investments)

"El Salvador  continues its transition to a peacetime  society after 12 years of
civil conflict.  There have been few confirmed acts of political  violence since
the  elections in mid-1994.  Although  general  crime levels are high and are of
concern to the business

                                                        28

<PAGE>



community,  we are not aware of political violence specifically aimed at foreign
investors, their businesses or their property.

"Performance Requirements

"El  Salvador's  investment  legislation  does not require  investors  to export
specific amounts, transfer technology,  incorporate set levels of local content,
or fulfill other performance criteria.

"Right to Private Ownership and Establishment

"Foreign  citizens and private  companies can freely establish  businesses in El
Salvador.  However,  foreigners are prohibited from operating  small  businesses
with start-up capital of less than the equivalent of USD 25,000 dollars. This is
not  seen as an  impediment  to  foreign  investment,  and  does  not seem to be
strictly  enforced.  There are several  sectors  shielded from foreign and local
private investment or competition.  The national telephone company (ANTEL),  the
water and sewer company (ANDA),  and the electric company (CEL) are owned by the
state, but their monopolies are slowly being  dismantled.  For example,  private
power  generation is now allowed  (although for practical  purposes,  it must be
sold to CEL for distribution),  and a U.S. company has formed a partnership with
ANTEL to operate the country's  cellular phone system.  Artesanal fishing within
12 miles of the coast is limited to citizens of El Salvador.  Commercial fishing
between 12 to 200 miles from the coast can be undertaken by Salvadoran citizens,
foreigners legally residing in El Salvador, or joint ventures legally registered
with  the  government.   Commercial  fishing  licenses  must  be  obtained  from
CENDEPESCA, a government entity.  Foreigners may engage in sport fishing without
restriction in any of El Salvador's coastal waters.

" . . .

"Regulatory System (laws and procedures as they pertain to
investment)

<PAGE>

"The laws and policies of El Salvador are relatively  transparent  and generally
foster competition.  Bureaucratic procedures, although cumbersome, have improved
in recent years and are  relatively  streamline for foreign  investors.  Sectors
that are still regulated or owned by the state, such as electricity, water and

                                                        29

<PAGE>



telecommunications,  are slowly moving towards  privatization  or  de-regulation
that will allow for  investment and  competition.  The  superintendent  of Banks
supervises  the banking  system,  but interest  rates are  determined  by market
forces.  Banking-law reforms have attracted two new foreign banks to the country
in the last year, and several new financial  institutions  have been established
by Salvadoran investors. Gasoline prices are `controlled' by the government, but
are actually based on an average of U.S. Gulf Coast refinery prices.

"Bilateral Investment Treaties

"The United States and El Salvador signed an investment guarantee treaty in 1960
designed  to  protect  U.S.   investors   against   expropriation   or  currency
inconvertibility.  The  United  States  and El  Salvador  also have a  framework
agreement  for  a  Trade  and  Investment  Council  (TIC).  An  all-encompassing
bilateral  investment  treaty which would  address  issues such as [as] national
treatment for foreign investors, transfers, expropriation,  investment disputes,
tax policies,  etc., is being negotiated,  but has not been signed for technical
reasons.  The US and Salvadoran  government are working towards but have not yet
reached agreement on a Tax Information Exchange Agreement.

"El  Salvador  is a  member  of the  Central  American  Common  Market,  and has
approximately 50 commercial and technical  cooperation treaties in effect. Three
of these treaties (Mexico,  Spain, and Venezuela) look to promote  coinvestment.
Mexico's economic  difficulties have led to the deferral of planned negotiations
on a  free  trade  agreement.  El  Salvador  is a  member  of  the  World  Trade
Organization.

"OPIC

"The Overseas  Investment  Corporation (OPIC) has a bilateral  agreement with El
Salvador.  OPIC has approved insurance coverage for the expansion of a U.S. bank
in El Salvador, and is considering several other projects. OPIC insures currency
inconvertibility,   expropriation   and  civil  strife,  as  well  as  corporate
financing.  El Salvador  is a member of the  Multilateral  Investment  Guarantee
Agency (MIGA).

"Labor

"Of El Salvador's labor force of approximately 1.5 million workers,

                                                        30

<PAGE>



34 percent  work in the  agricultural  sector.  This is followed by services (21
percent), commerce (18 percent) and manufacturing (15 percent). The minimum wage
in the  industrial  and  commerce  sectors is 1050 colons  roughly 120 dollars a
month.  Urban  employees  with  minimal  skills  generally  earn at least twenty
percent  more than the  minimum  wage.  Although  the  minimum  wage is less for
agricultural  workers,  coffee  plantation owners report that they pay above the
minimum wage to attract workers during the harvest.

"According  to a Planning  Ministry  survey of 5,000  urban and rural  families,
unemployment in 1994 was 7.7 percent. Visible underemployment could add three to
seven percent to that figure. However, some construction contractors cannot find
sufficient  skilled  workers,  due to the amount of projects  now underway in El
Salvador.  According  to the above  survey,  150,000 more people are employed in
1994 than 1993. The statistics from this survey are not considered precise,  but
do indicate trends.

"Salvadoran  labor is  perceived  as hard  working  and  trainable.  The general
educational  level is low,  which may  inhibit  the  development  of  industries
needing  skilled,  educated  labor.  In  addition,  there  is a lack  of  middle
management-level  talent,  which often results in foreigners being brought in to
perform such tasks.

<PAGE>

"The Constitution of December 1983 guarantees the right of employees to organize
into  associations  and unions.  Employers  are free to hire union or  non-union
labor. Closed shops are illegal.

". . .

"Capital Outflow Policy

"There are no restrictions on capital outflow for Salvadorans, nor are there any
specific incentives to invest capital outside El Salvador.  Regarding investment
outflow, Salvadoran investors have interests in hotels, real estate and industry
in  Mexico,  Guatemala,  Honduras,  Costa  Rica,  Panama  and the U.S.  Accurate
statistics about the size of these investments are not available.

"Major Foreign Investors

"Coastal Technologies - owner/operators of the Nejapa

                                                        31

<PAGE>



power-generating plant.  Estimated value over USD 140 million
dollars.

"Kimberley Clark de C.A. - owns a paper products factory.

"Texaco Caribbean - fuel storage and lubricant  blending plant in Acajutla,  and
service station/grocery markets throughout the country.

"Esso Standard Oil - together with Shell, owns and operates a small oil refinery
in Acajutla. Also own service station/grocery marts throughout the country.

"Shell  El  Salvador  - shares  an oil  refinery  with  Esso,  and owns  service
station/grocery marts throughout the country.

"Bayer de El Salvador - owns a modern pharmaceutical processing
plant.

"Sara Lee Knit Products - owns a clothing assembly plant in the El Pedregal free
trade zone.

"Xerox de El Salvador - sells and services office equipment and
computers.

"Western Petroleum - produces and exports alcohol to the U.S.

"British American Tobacco - manufactures cigarettes."

Efforts to Obtain Capital

Substantial  consideration,  time and  effort  continue  to be  given to  secure
investment  capital through various financial  arrangements for the operation of
the SCMP, the SSGM, and the other exploration projects. The Company, Sanseb, and
the Joint Venture have considered the past political situation in El Salvador to
have been unstable and a great deterrent to the investment community. The stigma
of the past political unrest still continues as a barrier to investors.

<PAGE>

The Company has been successful in obtaining investment funds that were required
to retrofit and operate its SCMP, conduct its various

                                                        32

<PAGE>



exploration and drilling program, and for its current needs. It believes that it
will be able to obtain the funds it will require to conduct its business affairs
until the Joint Venture  begins  earning  profits and has adequate cash flow. An
investment of approximately U.S. $13 million will be needed for its contemplated
SSGM open-pit,  heap-leaching  operation.  It is estimated that an additional $2
million  would be  required  to expand the SCMP  facilities  and $10  million is
needed  for a  drilling  program  on the five  exploration  projects.  Plans for
obtaining these funds are in process.

Land Acquisition and Development

During the past years, the Company has  substantially  reduced its activities in
the business of land acquisition and real estate development which was conducted
principally through its two wholly-owned  subsidiaries,  San Luis Estates,  Inc.
("SLE"),  a Colorado  Corporation,  and Universal  Developers,  Inc. ("UDI"),  a
Wisconsin Corporation.

SLE had been the developer of a large tract of land for  recreation,  retirement
and other individual  purposes  consisting of approximately  7,000 acres of land
which was  subdivided  in the San Luis  North  Estates  Subdivision  located  in
Costilla County, Colorado, which abuts the Town of San Luis, Colorado, and which
lies  between  the San Juan and  Sangre de Cristo  mountain  ranges in  southern
Colorado.  This tract of land had been subdivided into 1,205 five-acre or larger
parcels,  unimproved  except for gravel roads now maintained by Costilla County,
drainage, survey, staking, and water rights adjudication.

As of March 31, 1996,  there  remained an  inventory of 40 five-acre  parcels of
real estate which  represents  less than 4% of the total lots  developed in this
subdivision. It is the intent of the Company to sell the remaining lot inventory
as a bulk  sale for cash or to  exchange  it for other  assets or to reduce  its
debts.  This land  inventory is not  considered  material or  significant to the
Company's operations.

SLE believes that it is in compliance  with the requirement of the Department of
Housing and Urban development ("HUD") to sell its remaining lots in the San Luis
North Estates Subdivision; if necessary, it intends to maintain its registration
effective with HUD in anticipation of selling its remaining lots unless it finds
that it is exempt from the HUD rules and regulations.

                                                        33

<PAGE>




SLE also owns twelve improved lots located in the City of Fort Garland, Costilla
County,  Colorado.  The assets of SLE have served as a source of collateral  for
funds advanced to the Company and its majority-owned subsidiaries.

The Company's  wholly-owned  subsidiary,  Homespan,  owns a 331-acre  campground
known as Standing  Rock  Campground  located in Camden  County,  Missouri.  This
recreational  resort  includes  approximately  three  quarters of a mile of lake
frontage on the Lake of the Ozarks, 130 campsites of which 120 campsites include
hook ups for  electricity,  water,  sewer,  and a pad for  recreational  vehicle
parking.  A clubhouse and also several ancillary  buildings are on the premises.
The Company is the operator of the  campground  and is leasing  space to campers
and others on a daily, weekly, or monthly basis.

Misanse, the Company's majority-owned subsidiary (52%) owns the SSGM real estate
consisting of approximately  1,470 acres which is located  approximately two and
one-half  miles  northwest  of the  City of Santa  Rosa de Lima,  off of the Pan
American  Highway,  and about 108 miles  southeast  of the  Capital  City of San
Salvador,  El  Salvador,  and it is about 11 miles  west from the  border of the
Country of  Honduras.  It is also about 26 miles from the City of La Union which
has railroad and port  facilities.  An airline  commuter  service provides daily
scheduled flights to the City of Santa Rosa de Lima.

<PAGE>

On November 27, 1994, the Company purchased 22 acres of land on the Modesto Mine
site which is  located  due north of the City of Paisnal  and  approximately  19
miles north of San Salvador, the capital city of El Salvador.  Reference is made
to "Item 2. Properties," for additional information.

Real Estate Sales

Homespan, the local real estate marketing subsidiary of the Company is presently
inactive.  It has no  significant  activity and is not material to the Company's
operation.  Homespan  holds the title to the real estate located in Colorado and
the Standing Rock Campground ("SRC"),  located in the Lake of the Ozarks. SRC is
operated  by the  Company.  Assets of  Homespan  have also served as a source of
collateral for funds loaned to the Company and its majority-owned subsidiaries.

                                                        34

<PAGE>




Advertising

The Company owns 100% of the outstanding common stock of Piccadilly  Advertising
Agency, Inc. ("Piccadilly"), a Wisconsin Corporation.  Piccadilly provides, when
required,  advertising  services to the Company and its other  subsidiaries when
they are needed.  It was and still may be able to obtain  advertising  discounts
because of its agency status.  Piccadilly's  operations  are not  significant or
material to the Company's operations.

Patents and License Agreements

On July 23,  1987,  the  Government  of El  Salvador  delivered  and  granted to
Misanse,  possession  of a mining  concession.  This is the right to extract and
export minerals for a term of 25 years (plus a 25-year renewal option) beginning
on the  first  day of  production  from the real  estate  owned by  Misanse  and
encompassing  the SSGM.  Misanse  assigned this concession to the Joint Venture.
Under the  concession  and  applicable El Salvador  law,  including a bi-lateral
agreement,  the Joint  Venture  has the right to export said  minerals  for five
years beginning with the first day of production,  without imposition of mineral
or export taxes. It also has the right to import free of duty, equipment and all
other  items  necessary  to  operate  the SSGM.  (Reference  is made to "Item 1.
Concession Agreement")

The Joint Venture has  applications  pending with the El Salvador  Department of
Energy,  Mines and  Hydrocarbons  for the  exploration  rights of the  following
mining  properties  located in El Salvador:  San Felipe-El  Potosi Mine, and its
extension,  the El Capulin Mine, the Hormiguero  Mine, the Modesto Mine, and the
Montemayor Mine. The Company and its subsidiaries hold no patents or trademarks.

Significant Customers

The Company presently has no individual  significant customers in which the loss
of one or more would have an adverse  effect on any segment of its operations or
from whom the Company has received more than 10% of its  consolidated  revenues;
however,  since the Joint  Venture is producing  gold,  the gold in dore form is
sold at the world market price to a refinery located in the United States.

Miscellaneous


                                                        35

<PAGE>



Backlog orders are not significant to either the Company's or its majority-owned
subsidiaries'  areas of  operations,  or at this  time is any  portion  of their
operations  subject to  renegotiation  of profits or termination of contracts at
the election of the United States' Government.

<PAGE>

Neither the Company nor its  majority-owned  subsidiaries  conduct any  material
research  and  development  activities,  except as indicated in this report with
respect  to the  Joint  Venture  and its  mining  exploration  and  exploitation
programs.

Federal,  state and local provisions  regulating the discharge of materials into
the environment will not have a substantial effect on the capital  expenditures,
earnings or  competitive  position  of the Company or any of its  majority-owned
subsidiaries.

Financial Information About Industry Segments Lines of Business

Operation

Campground:  For the years ended March 31, 1996,  1995 and 1994,  revenues  have
been  generated  from  the  campground  business.  Although  Homespan  owns  the
campground real estate, the Company is the campground operator.

Land Sales

The Company intends to sell its remaining lots in Colorado on a bulk basis.

Mining

The Company's  primary strategy,  through its Joint Venture,  is to use its SCMP
facilities  to  process  gold ore  transported  from SSGM and other  exploration
opportunities  located in the  Republic of El  Salvador.  The Joint  Venture has
produced gold from its SCMP operations during this start-up period.

The Company  anticipates that the capital required for the purchase of equipment
and working  capital can be  obtained  from the sale of its common or  preferred
shares,  bonds,  equity  offerings,  loans,  leases,  partial  sale of its  gold
reserves, sale of gold, or from a

                                                        36

<PAGE>



combination of these and other creative funding possibilities.

Competition

The Company believes that neither it, nor any other  competitor,  has a material
effect on the precious metal markets,  and that the price that the Joint Venture
will receive for its sale of gold is dependent upon world market conditions over
which neither it nor any other single competitor has control.

Employees

As of March 31, 1996,  the Joint Venture  employed  approximately  304 full-time
persons  from  El  Salvador  to  perform  its  exploration,   exploitation,  and
development  programs;  to produce gold from its SCMP facilities;  and to handle
the administration of its activities. None of these employees are covered by any
collective  bargaining  agreements.  It has developed a harmonious  relationship
with  its   employees,   and  it  believes   that  it  is  the  largest   single
non-agricultural  employer in the El Salvador  Eastern Zone.  Also,  the Company
employs approximately four persons (plus part-time help) in the United States.

<PAGE>

Insurance

The Joint Venture has in existence  insurance  through an El Salvador  insurance
company with the following  coverage:  general liability,  vehicle liability and
extended coverage,  fire, explosion,  hurricane,  cyclone,  tornado,  windstorm,
hail,    flood,    storm,    earthquake,    tremor   or    volcanic    eruption,
politically-motivated  violence,  terrorism,  strikes,  work  stoppages,  riots,
uprisings,  malicious acts, vandalism, and related acts. As additional equipment
and assets are acquired or improvements are made, the insurance  coverage can be
increased accordingly.

                           Industry Segments
                           -----------------

1. Unaffiliated Sales                       Year Ended March 31,

Industry        Location             1996         1995          1994
------------    -------------  ----------   ----------   -----------

                                                        37

<PAGE>



Mining          El Salvador    $        0   $        0   $         0
Campground      Missouri, USA      55,692       54,600        54,804
Real Estate     Colorado, USA           0        9,000             0

2. There Were No Intersegment Sales

3. Total Revenues                           Year Ended March 31,

Industry        Location              1996         1995         1994
------------    -------------  -----------  ----------- ------------
Mining          El Salvador    $         0  $         0 $          0
Campground      Missouri, USA       55,692       54,600       54,804
Real Estate     Colorado, USA            0        9,000            0
Other           Delaware/Wis.,
                USA              1,289,568      759,581      453,160
                               -----------  -----------  -----------
                     Total:    $ 1,345,260  $   823,181  $   507,964

4. Operating Profit (Loss)                  Year Ended March 31,

Industry        Location              1996         1995         1994
------------    -------------  -----------  -----------  -----------
Mining          El Salvador    $         0  $         0  $         0
Campground      Missouri, USA       (6,741)      (7,336)      (8,325)
Real Estate     Colorado, USA            0        7,676            0
Interest Income El Salvador/
                Delaware
                Wisconsin, USA     794,543      274,407       75,177
                               -----------  -----------  -----------
                     Total:    $   787,802  $   274,747  $    66,852

5. Identifiable Assets                      Year Ended March 31,

Industry        Location              1996         1995         1994
------------    -------------  -----------  -----------  -----------
Mining          El Salvador    $18,838,770  $15,692,668  $12,808,590
Campground      Missouri, USA    1,135,500    1,135,500    1,135,500
Real Estate     Colorado, USA       21,000       21,000       22,325
Corporate Assets                   517,845      768,305      238,148
                               -----------  -----------  -----------
                     Total:    $20,513,115  $17,617,473  $14,204,563

   
Glossary of Mining and Financial Terms



                                                        38

<PAGE>



Adit - horizontal or nearly  horizontal  passage driven form the surface for the
working or unwatering  of a mine. If driven  through the hill or mountain to the
surface on the opposite side it would be a tunnel.  A passage driven into a mine
from the side of a hill.

Agitated  leaching - vigorous  stirring of pulp in a tank by low-pressure air or
mechanical  means to prevent  settlement  used in the leaching of gold and other
minerals from finely ground aqueous  suspension in which oxygen its essential as
chemical reaction, for example, the cyanide process.

Breccia - fragmental  rock, the components of which are angular,  and therefore,
it is  distinguished  from  a  conglomerate  in  that  its  components  are  not
waterworn.  There are friction or fault breccias,  talus breccias,  and eruptive
breccias.  Any rock formation  essentially  composed of  uncemented,  or loosely
consolidated, small angular-shaped fragments.

Carbon adsorption - extracting  dissolved gold and silver from solvents in which
soluble  complexes  of gold and silver  physically  adhere to  activated  carbon
particles.

CIL -  carbon-in-leach,  a process for the recovery of gold from the ore. Ore is
ground  finely and mixed with a dilute  sodium-cyanide  solution to dissolve the
gold which is absorbed onto carbon.  The gold enriched carbon is stripped of the
gold and the gold is recovered wither through electrolysis or precipitation.

CIP -  carbon-in-pulp,  a process  similar to CIL except that the ore is leached
with cyanide prior to carbon loading.

Contained  ounces - estimate of the total number of ounces of gold  contained in
an ore body, a portion of which are not recoverable.

Country rock - rock  traversed by or adjacent to an ore deposit.  Applied to the
rocks  surrounding and penetrated by mineral veins or invaded by and surrounding
an igneous  intrusion.  The rock in which a mineral  deposit or an  intrusion is
enclosed.

Cross section or cross cut - profile  portraying an interpretation of a vertical
section of the earth  explored by  geographical  and/or  geological  methods.  A
cutting or a section across. A section at right angles to, especially the longer
axis of anything.

Dore - gold and silver  bullion which  remains in a cupelling  furnace after the
lead has been oxidized and skimmed off. An unrefined  bar of bullion  containing
an alloy of gold silver and impurities.

Drill rig - a drill  machine  complete  with all tools and  accessory  equipment
needed to drill boreholes.

Drilling  - act or  process  of making a  circular  hole with a drill.  Use of a
compressed-air rock drill to prepare rock for blasting.  The operation of making
deep holes with a drill for

                                                        39

<PAGE>



prospecting, exploration, or valuation.

         Blasthole  drilling - drilling of holes in rock to insert an  explosive
         charge.  The drill holes are usually 3-8 meters apart. The blast breaks
         up the rock so it can be dug out.

         Diamond  drilling  -  drilling  with a hollow  bit  which has a diamond
         cutting rim to product a cylindrical  core that is used for  geological
         study and assays. Used in exploration.

         Infill drilling - drilling at shorter  intervals between holes, used to
         provide  greater  geological  details  and to  help  establish  reserve
         estimates.


         Rotary  drilling - drilling  with a bit that breaks the rock into chips
         rather than core. Faster and cheaper than diamond  drilling,  the chips
         are forced by water and air tot he surface of examination.

         Reverse  circulation  drilling  - type of rotary  drilling  that uses a
         double-waited  drill pipe.  Compressed  air,  water,  or other drilling
         medium is forced down the space  between the two pipes to the drill bit
         and the grilled  chips are flushed  back up to the surface  through the
         center tube of the drill pipe.

Dump  material  -  spoil  heap  at the  surface  of a mine  stored  for  further
reclamation.

Electrowinning  -  recovery  of metal  from an ore by  means of  electrochemical
processes.

Extraction - process of mining and removal of ore from a mine. The separation of
a metal or valuable mineral from an ore or concentrate.

Fire assay - assaying  of metallic  ores,  usually  gold and silver,  by methods
requiring a furnace heat. It commonly  involves the processes of  scorification,
cupellation, etc.

Flotation - method of mineral  separation in which a froth created in water by a
variety of reagents floats some finely crushed minerals,  whereas other minerals
sink.

Footwall - wall or rock under a vein. It is called the floor in bedded deposits.
Opposite  wall from hanging  wall,  the underside of vein or lens in relation to
dip of ore  deposit.  In metal  mining,  the part of the country rock which lies
below the ore deposit.

Grade - classification of an ore according to the desired or worthless  material
in it or according to value.

Hanging wall - rock on the upper side of a mineral vain or deposit.

Heap leaching - economical process used for the recovery of ore.  Ore is placed 
in a heap on an

                                                        40

<PAGE>



impermeable  pad and cyanide is  sprinkled  over the heap and  collected  at the
bottom after percolating through the ore and dissolving the metals.

Heap leach pad ("heap") - large,  impermeable  foundation  or pad used as a base
for ore during heap leaching. The solution is collected and does not escape from
the circuit.

Leach - to wash or to drain by percolation. To dissolve minerals out of the ore,
as by the use of cyanide or chlorine solutions, acids, or water.

Leaching - removal in  solution  of the more  soluble  minerals  by  percolating
waters.  Extracting  soluble  metallic  compound  from  an  ore  by  selectively
dissolving  it in a  suitable  solvent.  The  solvent is  usually  recovered  by
precipitation of the metal or by other methods.

Leach  material  -  material   sufficiently   mineralized  to  be   economically
recoverable by selectively dissolving the wanted mineral in a suitable solvent.

Leach pad - pad used as base for ore; the pad prevents the leach  solution  from
escaping and can be used continually.



                                                        41

<PAGE>



Leach  pile -  mineralized  materials  so as to permit  wanted  materials  to be
effectively and selectively dissolved by the application of suitable solute.

Merrill-Crowe  process - process  utilized  to recover  soluble  gold and silver
values from a sodium-cyanide  leaching solution by precipitating  with zinc dust
after the leaching solution is clarified and deoxygenated by vacuum treatment.

Metric   conversion  - 1 acre = 0.4047  hectare 1 foot = 0.3048  meters 1 mile =
         1.6093 kilometers 1 ton = 0.9072 tonne 1 troy ounce = 31.1034 grams
         1 ounce per ton = 34.2848 grams per tonne

Mill - reducing plant where ore is  concentrated  and/or metals  recovered.  The
whole mineral  treatment  plant in which  crushing,  wet  grinding,  and further
treatment of the ore is conducted.

Mineralization - process of converting or being converted in to a mineral,  as a
metal into an oxide,  sulfide,  etc. The  processes  taking place in the earth's
crust resulting in the formation of valuable minerals or ore bodies.

Mineralized  zone -  mineral-bearing  belt or area extending across or through a
district.  It is usually  distinguished  from a vein or lode as being wide,  the
mineralization  extending  in some  cases  hundreds  of feet from a  fissure  of
contact place.

Mining lease - legal contract for the right to work a mine and extract the 
mineral or other
valuable deposits from it under prescribed conditions of time, price, rental
 or royalties.  Also
called mineral lease.

Open-pit mining - form of operation  designed to extract  minerals that lie near
the surface.

Ore-reserves  - the term is  usually  restricted  to ore of which  the grade and
tonnage have been  established  with reasonable  assurance by drilling and other
means. The total tonnage and average value or proved ore, plus the total tonnage
and value (assumed) of the probable ore.

Ounce - troy ounce, which is equivalent to 31.1034 grams

Pyrites - the term pyrites as frequently used,  literally,  means a mineral that
strikes fire. It is applied to any of a number of metallic-looking  sulfides, of
which iron pyrites (pyrite) are the most common.

Recovery - amount of gold ore metal,  expressed in weight or money per ton which
is obtained from the treatment of ore.

                                                        42

<PAGE>






                                                        43

<PAGE>



Shaft - evacuation of limited area compared with its depth,  made for finding or
mining  or  ventilating  underground  workings.  The term is often  specifically
applied to approximately  vertical shafts,  as distinguished  from an incline or
inclined  shaft.  A shaft in metal  mining may be sunk upon a vein,  even if the
inclination is but slight.

Stope -  excavation  from  which  ore has been  excavated  in a series of steps.
Usually  applied to highly incline or verticle  veins. To excavate ore in a vein
by driving  horizontally upon it a series of workings,  one immediately over the
other, or vice versa.  Each horizontal  working is called a stope. Also workings
in a mine,  or the  activity by which ore is broken from blocks in ore  reserves
and other areas.

Sulfate - a salt or an ester of sulfuric acid, of which most of the salts except
those barium, lead, strontium , and calcium are fairly soluble in water.

Sulfide - a compound of sulfur with more than one element. A salt or na ester of
hydrogen  sulfide.  Except for the sulfides of the alkali  metals,  the metallic
sulfides are usually insoluble in water and occur in many cases as minerals.

Tailings - those portions of washed ore regarded too poor to be treated  further
after  economically  recoverable  metals have been  extracted  by milling.  This
material may be recrushed or retreated.

Waste material - a part of the ore deposit too low in grade of economic value at
the time,  but this material may be store  separately in the hope that it can be
profitable treated later.

Winze - a vertical or inclined opening, or excavation,  connecting two levels in
a mine, deferring from a raise only construction.  A winze is sunk underhand and
a rise is put up overhand. When the connection is completed, and one is standing
at the top, the opening is referred to as a winze, and when at the bottom,  as a
raise, or rise. Also, it is usually a connection between two levels, and is sunk
in the ore body; interior mine shaft.
    
Item 2.  Properties

Corporate Headquarters

The Company  leased  approximately  3,100  square  feet of office  space for its
corporate  headquarters on the second floor of the building known as the General
Building located at 6001 North 91st Street,
Milwaukee, Wisconsin, at a rental charge of $2,145 on a month-to-month basis. 
 As of December
1, 1995, the Company increased
the space it rents to 4,032 square feet with a monthly rental charge
of $2,789. The lessor is General Lumber & Supply Co., Inc. ("General
Lumber"), a Wisconsin Corporation.  The Company's President, Edward
L. Machulak  owns 55% of the common stock of General Lumber.  Edward
L. Machulak disclaims any interest in the balance of General Lumber

                                                        44

<PAGE>



common stock which is owned by two of Mr. Machulak's  brothers,  his wife, and a
trust  for  the  benefit  of his  children.  In  addition,  the  Company  shares
proportionately  any increase in real property taxes and any increase in general
fire and extended coverage  insurance on the property.  In lieu of cash payment,
the  Lessor  has  agreed  to  apply  the  monthly  rental  payments  owed to the
open-ended, secured, on-demand promissory note(s) due to it.

Real Estate Holdings
   

The following chart summarizes the Company's real estate holdings:
<TABLE>
<CAPTION>

                                                                                 Cost to            Anticipated
     Name of            Nature of              Date                            Bring into             Date of
    Property            Property             Acquired            Cost          Operations           Operations



San Sebastian
<S>                     <C>                  <C>                 <C>           <C>                <C>                 
 Gold Mine              Leasehold            1968                       --     operational         operational
San Cristabal Mill
  and Plant           Ownership and Lease    1993                  1,323,280***      *                      *
Modesto                   Lease              1994                26,469***         **                  **
San Felipe -
 El Potosi                Lease              1993                                  **                  **
Hormiguero            Explor. rights         1993                                  **                  **
Montemayor            Explor. rights         1995                                  **                  **
San Luis Estates        Ownership            1971                   21,000          *                   *
Standing Rock
 Campground             Ownership            1983                1,135,000          *                   *
Misanse                 Ownership            1968                   23,336         **                  **
Laboratory and
  Real Estate           Ownership            1968                29,789***         **                  **
</TABLE>

*        Not applicable since these properties are held for sale or are already 
operational.
**       Currently operational.
***      Represents investment by Sanseb joint venture.

         Until such time as test drilling can be completed,  the Company  cannot
         predict  the cost or  timing  of  bringing  any  mining  property  into
         operations.
    
A description  of the Company's  real estate  holdings are set forth in "Item 1.
Land Acquisition and Development." Real estate assets have served as a source of
collateral  for funds  loaned to the Company and its wholly and  partially-owned
subsidiaries.

San Sebastian Gold Mine ("SSGM")

Tailings from the SSGM are being  transported  to the SCMP site to produce gold.
SCMP is gradually  increasing  its tonnage  process to its full  capacity of 400
tons per day. It plans to mine virgin

                                                        45

<PAGE>



gold ore from its open pit and to  extract  the stope fill from  underground  to
produce  gold on its own site.  The property  consists of 1,470  acres.  SSGM is
located approximately 2 1/2 miles northwest of the City of Santa Rosa de Lima in
the Department of La Union, Republic of El Salvador, Central America.

SSGM Current Status

The Joint  Venture has commenced  producing  gold at the SCMP site. It processed
approximately  100,000  tons of the  360,000  tons of  tailings  during the last
fiscal year. Plans are to gradually increase its daily tonnage until it is up to
the full capacity of the SCMP.

The Company,  through its Joint Venture is conducting the following  activities:
It is in the  development  and  pre-production  mining  stage which  consists of
completing its survey, mapping, site preparation, infrastructure,  construction,
planning,  and in the  performance  of the  auxiliary  work needed to begin gold
production at the SSGM site. The Joint Venture's geologists have determined that
SSGM has minable gold ore reserves via an open pit of approximately 13.4 million
tons of gold ore which should  contain  approximately  1.166  million  ounces of
gold. In addition, it has approximately 960,000 tons of dump material, and about
one million  tons of stope fill.  Presently,  the Company is seeking  funding to
purchase equipment,  to purchase  inventory,  and to use for working capital for
its on-site proposed open-pit, heap-leaching operation. In addition, the Company
is actively  engaged in the  exploration  and development of the peripheral area
(including  diamond drilling)  surrounding the main body of gold ore in order to
increase its gold ore reserves.

<PAGE>

The Company's main objective and plan, through the Joint Venture,  is to operate
a moderate tonnage, low-grade, open-pit, heap-leaching operation to produce gold
on its SSGM site.  Dependent on the grade of ore and the tonnage  processed,  it
anticipates  producing  more  than  40,000  ounces  of gold  from its  open-pit,
heap-leaching  operations during the first twelve full operating months and more
thereafter.

SSGM Geology

The ore deposit consists of contact-fissure veins carrying
gold-bearing pyrite.  The veins occur at the contact between

                                                        46

<PAGE>



quartz-monzonite porphyry dike and surrounding eruptives which are basalt capped
by trachyte.  All the rocks are of recent age, probably late tertiary.  The SSGM
lies  within  a  silicified  and  hydrothermally  altered  zone of acid to basic
volcanoes roughly within a two-square kilometer area.

The  occurrence  is  typical  of  the  late  stage  deposition  associated  with
instrusives in Island Arc plate  tectonics  dating millions of years (four to 65
million) ago. These are typically polymetallic precious metal-base deposits with
high grade  veining in large haloes of low grade  resembling  in part the Kuroko
deposits in Japan.  The dike is shaped like a  flattened  "s" and  consists of a
2,800 foot long essentially  vertical  east-west  segment,  a northwest striking
western  section  "dragged"  sharply  north for 800 feet and  dipping 70 degrees
northeast and a vertical south-east striking east.

Its geologists state that it is similar in size and physical  characteristics to
the large  low-grade,  open-pit  Pueblo  Viejo  Mine  located  in the  Dominican
Republic.

SSGM Ore Reserves

As of March 31,  1996,  the SSGM has  approximately  13.4 million tons of virgin
proven gold ore reserves,  grading  0.087 ounces of gold per ton and  containing
about 1.2 million ounces of gold.  Overall the stripping  ratio is low,  ranging
from zero in the Coseguina Hill area which is highly mineralized and consists of
a series of high angle  vertical veins to a possible  stripping  ratio of 1:3 to
1:8. It is planned to use these reserves; they will be screened, crushed and, if
required,  they will be  agglomerated  and placed on a proposed leach pad on the
SSGM site. In addition,  there are approximately 250,000 tons of tailings with a
grade of 0.08  ounces of gold per ton and about one  million  tons of stope fill
with a grade of 0.34 ounces per ton. (For additional  information,  reference is
made  to  "Item  1.  Proposed  Mining,   Mill,   Heap-Leaching  and  Exploration
Operations.")

Since July,  1987 through  March 31, 1996,  the following  exploration  has been
performed on the SSGM site:  surface channel  trenching,  33,386 meters (110,173
feet/20.9 miles); test pit hole excavations, 655 vertical meters (2,162 feet/.41
miles);  underground  workings and adit  openings,  962 meters  (3,175  feet/.60
miles).  Also,  42,234  assay  samples  were  completed  at the Joint  Venture's
laboratory located near the SSGM site. The surface samples averaged 0.026

                                                        47

<PAGE>



ounces  of gold  per ton over an area  approximately  1,000  feet in  width  and
approximately 5,000 feet in length.

SSGM Diamond Drilling Program

The Joint Venture has completed eight diamond drill holes at the SSGM site. Five
were on the San Juan Hill  which  ranged in depth  from 106 feet to 172 feet and
the grade varied (dependent on the rock encountered) from 0.01 to 0.15 ounces of
gold per ton.  Three drill holes were drilled in the Coseguina area from 62 feet
to 255 feet.  The grade of gold varied from 0.01 to 0.54 ounces of gold per ton.
In some areas former adits were  encountered  which prevented the drilling to go
to a deeper depth.  It presently is working two shifts and ten to 15 persons are
employed.

<PAGE>

SSGM Proposed Mining Open-Pit, Heap-Leaching Operations at the SSGM
Site

The open-pit  ore will be loaded into trucks by wheel  loaders and hauled to the
recovery plant area. The ore will then be placed into a vibrating  screen hopper
which will  remove  gold ore larger  than 3/4 inches in size.  Lime,  cement and
cyanide solution will be added if needed to this crushed ore. If needed, it will
then be placed  into an  agglomerator  to convert the fine  material  into small
stable pellets saturated with cyanide solution. The material will be conveyed to
the leach pad and stacked using conveyors.

The first step will be to load the first  sections  of the pad with the  crushed
ore. Belt conveyors will be used to transfer ore to a stacking conveyor to build
a heap.  After  loading is  completed,  the ore cures and the top surface of the
heap will be manually  levelled.  Leaching of the heap proceeds by  distributing
barren  sodium  cyanide  leach  solution to the heap with  sprinklers or by drip
irrigation.

The gold will be recovered  via a carbon  column  system where the porous carbon
recovers  the solvent  gold by  adsorption.  The carbon will be stripped and the
solution will flow through an  electrowinning  cell where gold will be recovered
from the strip solution by electroplating onto stainless steel wool cathodes.

Gold laden steel wool cathodes will be periodically removed from the
electrowinning cells and transferred to the replating cell.  In the

                                                        48

<PAGE>



replating  cell the gold will be  electrolytically  stripped from the steel wool
and plated onto stainless steel cathode sheets.

The gold will be recovered  from the  cathodes,  mixed with fluxes,  placed in a
crucible,  and heated in a furnace  until  melted.  The gold will then be poured
into molds to form dore bars.

SSGM Ownership of the Property

The San Sebastian Gold Mine real estate consisting of approximately 1,470 acres,
is owned by Misanse, a Salvadoran  Corporation.  The Company owns 52% of Misanse
common shares that are issued and outstanding.

History and Development-SSGM

The  San   Sebastian   Gold  Mine  has  a  long  history  of  gold   production.
Unquestionably,  the  SSGM  deposit  was the  jewel  of the El  Salvador  mining
industry and one of the most prolific gold mines in Central America.

Prior  to  1880,  the SSGM was  probably  known to the  natives  of the area and
Spaniards,  and may have produced gold during colonial days; however, no records
of  production  exist.  Numerous  artifacts  in the Santa Rosa  River  below the
present day SSGM provide mute evidence of primitive early day mining operations.

In 1883, an American  company hired Mr. Charles Butters to conduct  experimental
metallurgical  tests  on ore from the SSGM in his  laboratory  in New  York.  He
determined that amalgamation and gravity  concentration could not be effectively
employed, but that the gold was amenable to recovery by chlorination.

From 1885-1888, the first effective exploration work at the SSGM was done by the
above-mentioned  American  company.  Mr.  Butters  was  contracted  to  build  a
30-ton-per-day  chlorination  plant at the SSGM site. This small scale operation
proved unsuccessful, and the SSGM ceased production.

In 1898, the property was purchased by General Lisandro Letona.

<PAGE>

In 1904, Mr. Butters, believing that the SSGM was a valuable

                                                        49

<PAGE>



property which had been grossly mismanaged, acquired the property in association
with Mr. David J. Pullinger of Johannesburg,  South Africa, for $100,000. Within
a year of  acquisition,  Mr. Butters had established ore reserves of 42,560 tons
with  an  average  content  of 2.75  ounces  per  ton.  Their  operations  mined
approximately  $1,000,000  worth of gold from ore bearing  gold at two and three
quarter ounces or more per ton.

From  1904 to 1908,  three  investigations  were  made at the  SSGM  site by Mr.
Butters and his staff regarding the type of beneficiation process best suited to
the SSGM ores. It was determined that roasting, followed by cyanidation, and the
recovery of the gold by means of combined  electrolytic and zinc  precipitation,
was the  most  effective  method.  In  later  years,  roasting  of the  ores was
discontinued.

(During the period 1890-1898,  Mr. Butters had been active in the development of
cyanidation  of gold ores at the Rand Mine in South Africa,  and  recognized the
process as a revolutionary metallurgical practice.)

Continuous  operations at the SSGM by Butters Salvador Mines were performed from
1908 to 1917,  at which time  operations  ceased due to  exhaustion of what they
believed  to be all of the high grade  (two  ounces or more of gold per ton) ore
body. Butters Salvador Mines was voluntarily liquidated in October, 1917.

Initially,  mill  capacity  was 20 tons per day; it later  increased to 40 tons,
then to 100 tons, and finally,  120 tons per day. For a period of several years,
mill  heads  averaged  no less  than two  ounces  of gold per ton.  The SSGM was
considered  among the richest gold mines in the world.  During the peak years of
operation (1908-1917),  more than 1,500 people were employed at the SSGM. During
this interval of time,  the SSGM is reported to have produced  950,000 ounces of
gold.

From 1917 to 1921,  small  operations  at the SSGM,  under the  direction of Mr.
Butters, yielded approximately 150,000 ounces of gold.

In 1924, Mr. G. Swanquist, a former member of Mr. Butters' staff,
obtained the rights to develop the SSGM, but did no work worthy of
mention.

From 1933 to 1953, owing to the increase in the world price of gold

                                                        50

<PAGE>



from $20.67 per ounce to $35.00 per ounce,  operations  were  renewed  under the
name of Butters Salvador Mines, Ltd. Initially, only the richest ore shoots were
mined;  later,  level and shaft  pillars were  exploited.  In 1933,  the rate of
milling was approximately 40 tons per day.  Diminishing grade and labor problems
forced closure in 1953.  During the period 1933 to 1945,  approximately  150,000
ounces of gold were produced,  and from 1945 to 1953, 30,000 ounces of gold were
produced.

In 1953, when Butters  Salvador Mines,  Ltd. ceased  operations,  members of the
labor union  acquired the property in lieu of a severance  pay  settlement.  The
members of the union organized Misanse, an El Salvador Corporation,  and managed
monthly  shipments of approximately 70 tons of surface oxide ore and old fill to
the nearby Mina Lola mill.

In 1964, a ten-ton-per-day  flotation and cyanide plant operated  intermittently
on an unprofitable basis.

From 1967 to 1968, there were unprofitable  small-scale  high-grading operations
on an intermittent basis by various local miners working under a contract system
with Misanse.

<PAGE>

The Company's investment in Sanseb dates back to 1969. Sanseb acquired its lease
to mine gold from Misanse in 1968.  During March of 1973,  the Company  acquired
control of Sanseb,  and since then,  owns 2,002,037 (82 1/2%) of Sanseb's issued
and outstanding common shares.

From 1969 to 1972,  work  advanced  in  reopening  collapsed  SSGM  tunnels  and
workings, with limited mining-milling  operations.  A straight cyanidation plant
was  installed  using zinc box  (shavings)  precipitation  and  operating  on an
intermittent basis with limited daily production.

From February of 1973 to 1978, reorganization of Sanseb under the control of the
Company,  with continuous and increased  production from the SSGM, was commenced
along with extensive plant modifications,  including conversion to Merrill Crowe
type (zinc dust)  precipitation.  The existing mill was upgraded to 100 tons per
day when this plant was  installed.  The  underground  tunnels and workings were
rehabilitated. While the SSGM produced significant

                                                        51

<PAGE>



revenue, heavy exploration and development costs strained the cash
flow of the operation.

On February 6, 1978, Sanseb ordered  operations at the SSGM suspended due to the
unavailability  of investment  capital and the lack of continuity in management,
both   exacerbated  by  labor  and  primarily  due  to  the  political   unrest,
particularly  in the Eastern Zone of El Salvador  where the SSGM is located.  On
May 6, 1978, as a result of the decision to suspend operations, former employees
of Sanseb  claimed  that  Sanseb was  obligated  under El  Salvador  law for the
payment of severance pay to its former  employees.  Sanseb's  legal position was
that it temporarily  suspended  operations due to the political  instability and
since it did not  terminate all  activities,  it was not liable at that time for
the  severance  pay.  In  January of 1979,  a lower El  Salvador  Court  awarded
possession of the mining  rights (not the real estate) to the former  employees.
It is  believed  that the Court had no right to award a  concession  as only the
Government of El Salvador has this right and authority.

During 1979, when the embargo was in effect, Mr. Robert Villatoro  contracted to
operate the SSGM.  From the reports  provided by his  employees,  it is believed
that he  extracted  more  than  10,000  ounces  of gold.  Mr.  Villatoro  ceased
operations  during 1981 or 1982 when the guerrillas were extremely active in the
eastern part of El Salvador which includes the SSGM area.

During this time a dramatic  increase in the world  market price of gold (a peak
of over  $800/oz.  in 1980) as well as  developments  in the  technology of gold
extraction presented new opportunities for the Company and Sanseb at the SSGM.

In February,  1985, the Company made an on-site  inspection of the mill and SSGM
site,  which disclosed that the buildings,  offices,  machine shop,  laboratory,
mill and  equipment  were  completely  destroyed.  Also,  the SSGM  tunnels  and
workings consisting of approximately 37 miles were demolished and collapsed. The
Company  consulted  with  geologists  and  engineers  to  develop  a new plan of
extracting  gold from the reserves  developed in the Company's  exploration  and
development  program  and  to  process  gold  via  an  open-pit,   heap-leaching
operation.

In June, 1985, the Company and Sanseb settled the claims of Sanseb's
former employees by agreeing to compensate them for the severance
pay with proceeds attained from future gold production.  The El

                                                        52

<PAGE>



Salvador Court, on June 6, 1985, had decreed, in a non-appealable  order, to the
nullification of all previous acts of the previous  Court's orders,  and removed
the embargo previously decreed.  In addition,  the El Salvador Court ordered the
return of all of the assets,  rights and everything else  whatsoever  previously
owed to the Company, Misanse and Sanseb.

<PAGE>

The Company had no  significant  activity at the SSGM site from  February,  1978
through  January 1987.  The present  status is that,  since  January,  1987, the
Company, through the Joint Venture, has completed certain of the required mining
pre-production  preliminary  stages in the minable proven gold ore reserve area,
and it is active in attempting to obtain  financing for the project.  It is also
engaged in the exploration and the expansion program to develop  additional gold
ore reserves in the area surrounding the minable gold ore reserves.

On July 27, 1987, El Salvador  President  Jose Napoleon  Duarte,  at an official
ceremony  in the City of Santa  Rosa de Lima,  personally  presented  the mining
concession to Misanse, which simultaneously was assigned to Commerce Group Corp.
and San Sebastian Gold Mines, Inc.

During  October,  1989, the Joint Venture set up in the City of San Miguel,  its
own  laboratory  equipment  and began  performance  of assays  from its SSGM ore
sample.  It  trained  its  personnel  to use this  modern  laboratory  which was
equipped with modern technical equipment.

Since 1990 to present date, extensive channel trenching,  adit openings and test
pit excavations  developed thousands of fire assay samples. They were assayed at
the Joint Venture  laboratory.  This laboratory was relocated to a Company-owned
site near the SSGM. Extensive dirt roads and a bridge were constructed. Electric
lines to the  laboratory  were  restored.  A diamond  drilling  program has been
initiated to determine if there are additional gold ore reserves on this site.

During this  twelve-month  period ended March 31, 1996, the Company has advanced
funds, performed services, and allocated its general and administrative costs to
the Joint Venture.

San Cristobal Mill and Plant ("SCMP") Recovery and Processing System

                                                        53

<PAGE>




SCMP Location

SCMP is  located  near  the  City  of El  Divisadero,  (off of the Pan  American
Highway),  and is  approximately  13 miles east of the City of San  Miguel,  the
second largest City in the Republic of El Salvador, Central America.

SCMP Lease Agreement

On  November  12,  1993,  the  Joint  Venture  entered  into an  agreement  with
Corporacion Salvadorena de Inversiones ("Corsain"),  a governmental agency of El
Salvador,  to lease for a period of ten years,  approximately  166 acres of land
and buildings on which its gold processing mill, plant and related equipment are
located,  and which is  approximately 15 miles east of the SSGM site. The annual
lease  payment  is U.S.  $11,500  (payable  in El  Salvador  colones at the then
current rate of exchange), payable annually in advance, and subject to an annual
increase  based on the annual  United  States'  inflation  rate.  As  agreed,  a
security  deposit of U.S.  $11,500  was paid on the same date which also will be
increased annually to correspond with the annual U.S. inflation rate.

SCMP Mill and Plant Process Description

On February 23, 1993, at an auction held by an El Salvador  Court,  the Company,
on behalf of the Joint Venture,  was the successful  bidder in acquiring SCMP, a
precious  metals'  cyanide  leaching  mill and plant  rated with a  capacity  of
processing  200 tons of virgin  ore per day  consisting  of the  following  unit
operations:  crushing, grinding, thickening,  agitated leaching, counter current
decantation of leach solution, recovery of precious metals by zinc precipitation
(Merrill-Crowe),  and direct smelting of precipitates to produce precious metals
as dore and tailings' disposal.

Instead of utilizing the existing recovery system, the Joint Venture's engineers
have designed a carbon-in-leach (CIL) process which is described in detail under
Project Operating Plan.

<PAGE>

The advantage of beginning the  processing of gold ore with the tailings is that
the  tailings  do not  have to be  mined,  ground  or  pulverized.  The  cost of
processing this material is substantially low, and it is expected to recover 70%
of the gold from the SSGM

                                                        54

<PAGE>



tailings (70% from the Potosi tailings) during a twelve-hour cycling
period.

The Joint Venture  completed  the  retrofitting,  rehabilitation,  repairing and
restoring  of the SCMP's  plant and  presently  is  producing  gold on a limited
production basis by processing the tailings from its SSGM.

SCMP Gold Ore Sources

The Joint  Venture has several  sources of gold ore to process at the SCMP:  the
approximately 250,000 tons of SSGM tailings (the residue of the higher grade ore
processed  in the past)  which have an average  grade of at least 0.08 ounces of
gold per ton; the 185,000 tons of Potosi tailings which have an average grade of
0.06 ounces of gold per ton; the SSGM  open-pit  virgin ore; the dump  material;
and the ore and stope fill from the underground workings.

The other sources of gold ore to be used at the SCMP  operations  are the higher
grade  gold ore (0.13  ounces or higher)  which  could be  processed  with a 92%
recovery  grade,  but at a lower volume of 200 tons per day. The income from the
higher  recovery of gold ore will be  substantially  more than the greater  cost
involved in this process.  There is a sufficient amount of dump material,  stope
fill and higher grade  virgin gold ore that could be used via the SCMP  crushing
and  grinding  process to  recover  92% or more of the gold  which  recovery  is
substantially  more than the 60%  recovery  of gold  through  the  heap-leaching
process.  The Joint Venture's  geologists  estimate that there are more than one
million  tons of  higher  grade  ore from the  stope  fill  (underground)  to be
processed via the SCMP. It is intended to expand the SCMP to a larger production
capacity.

Current Status

The start-up,  testing and adjustment stage of processing the remaining  250,000
tons of SSGM  tailings via trucking  this ore to the SCMP has  commenced and the
Joint  Venture  is in this  preliminary  stage of  producing  gold.  The SCMP is
designed to process  400 tons per day by  utilizing  12-hour  cycles that should
recover  approximately  70% of the gold from the tailings.  The average grade is
now about 0.08 ounces of gold per ton.

During this fiscal year the Joint Venture did process at the SCMP  approximately
74,000 dry tons (approximately 100,000 wet tons) of

                                                        55

<PAGE>



tailings  which yielded 5,993 ounces of dore and accounted for 3160.64 ounces of
gold and 1488.86 ounces of silver.  The gross  receipts  amounted to $1,238,612.
The  average  selling  price  of gold was  $391.00/oz.  and  silver  was sold at
$4.91/oz.  The proceeds from the sale of gold and silver were used to reduce the
amount of Company advances to the Joint Venture.

San Felipe-El Potosi Mine ("Potosi") and its extension the El
Capulin Mine ("El Capulin")

Potosi Location

The Joint Venture has commenced an  exploration  program on the Potosi  property
which is located approximately 18 miles northwest of the City of San Miguel, the
second largest city in the Republic of El Salvador,  on a paved road 15 miles to
the City of  Chapalteque  and then west three miles on a gravel road to the City
of Potosi.  The historical  records  indicate that the potential of developing a
gold mine is above average.

<PAGE>

Potosi Historical Information

Historical  records  evidence that exploration and production of gold took place
in 1899 and that Potosi was worked  intermittently  from 1906 through 1952.  The
main production  period in six levels was from 1938 through 1952 at a rate of 35
to 50 tons per day.  Production  data  avouch  that  30,000  ounces of gold were
produced from 1945 through 1952 after which the mine became dormant. During this
time a  limited  underground  exploration  program  confirmed  that the gold ore
reserves were of commercial value. The gold assays from some of the former drill
hole  samples  on the  southern  extension  of the  north-south  portion of this
property showed a grade of 0.10 to 0.35 ounces of gold per ton of ore.

Potosi Geology

The  Potosi  vein  type   occurrences   are  very   strong,   persistent,   poor
quartz-calcite  fissure  fillings from two to ten feet wide and up to 3,400 feet
in length.  On a regional  scale,  the veins are  fairly  straight-forward  type
structures but in detail they can be complicated.  Dips in the north-south veins
are steeper than in the lattice  systems such as the 50 degrees to 90 degrees in
the Potosi

                                                        56

<PAGE>



type. The proportion of gold-to-silver  increases in north-south  striking veins
or in veins of any orientation whose dips more closely approach the vertical.

Two relatively narrow north-south veins, 450 feet apart, have been worked in the
past by vertical and an inclined shaft for up to 2,100 feet along the strike and
to depths of between 180 and 440 feet below  surface on four to six levels.  The
veins are contained in coarse-grained augite andesites.  The larger of the veins
is up to ten feet in width,  dipping 55 degrees to 75 degrees  west.  The second
vein is weaker in structure  and about three feet in width.  Gold values seem to
be indiscriminately associated with quartz and do not seem to diminish at depth.
Assay plans and ore reserve  sections  completed  in 1952 show 30 blocks with an
average grade of 0.6563 ounces of gold per ton. Holes drilled from the projected
extension  of the  north-south  portion  of one of the  veins  returned  various
five-foot  sludge samples grading 0.10 to 0.35 ounces of gold per ton with a one
foot of core length  grading at 0.39 ounces of gold per ton. It appears that the
deposition took place at higher temperatures than attributed to silver, thus the
vertical zoning of gold deposition is deeper or has a larger vertical  dimension
than silver;  therefore the  possibility of  considerable  ore below levels is a
realistic one. The age  mineralization is past laramide with the host rock being
rhyolite. The previous gold-silver ratio was 0.3:1.

Potosi Tailings' Reserve

Since October 25, 1993,  Comseb has had a full-time crew,  ranging from 25 to 30
employees,  conducting an  exploration  program  consisting of surveys,  channel
trenching,  adit  openings,  test pit  holes,  excavation  and  drilling  of the
tailings to determine its gold content.

Twenty-four  test pit hole  excavations  have been  plotted  and drilled on this
four-acre site of tailings. The depth to the bottom of the tailings' pile varied
from 7.00 to 10.2  meters (23 to 34 vertical  feet) and a total of 137.6  meters
(454  feet) of test pit hole  excavations  were  completed.  The 573 fire  assay
samples (tailings) indicated an average grade of gold per ounce to be 0.06 (0.06
times  185,000 tons should  contain  11,100  ounces of gold times a 70% recovery
should yield about 7,770 ounces of gold).

Potosi and El Capulin Exploration Undertakings

                                                        57

<PAGE>




A total of 1,354 meters (4,467 feet) of channel trenching were achieved. A total
of 548 meters  (1,808  feet) of adits have been  restored for entry into the old
workings. A tabulation of the work completed by the Joint Venture is as follows:

<PAGE>

1. Surface

   a.  Twenty surface channel trenches were completed and the 1,180 samples that
       were fire  assayed  reflected a grade of gold of 0.02 ounces per ton. Two
       surface veins were intercepted, reflecting a grade of gold of 0.05 ounces
       per ton.

 2.  Potosi Underground Workings

   a.   Guayabito Adit:  No veins were discovered;  the 399 samples
        that were fire assayed reflected an average grade of gold of
        0.01 ounces per ton.

   b.   Guarumo Adit:  The three samples that were fire assayed
        reflected an average grade of gold of 0.05 ounces per ton.

   c.   San Isidro  Adit:  The 243 samples  that were fire  assayed  reflected a
        grade of gold of 0.02  ounces  per ton and four  samples  that were fire
        assayed from an intercepted vein show a grade of gold of 0.04 ounces per
        ton.

   d.   Cacho de Oro:  The 59 samples that were fire assayed
        reflected an average grade of gold of 0.07 ounces per ton.
        This vein appears to correspond with the Guarumo vein
        system.

   e.   Canon 821:  The 34 samples that were fire assayed reflected
        an average grade of gold of 0.05 ounces per ton.

3. The El Capulin Mine

Surface:  The 109 samples that were fire assayed  reflected an average  grade of
gold of 0.09 ounces per ton. The 228 samples that were fire assayed from an area
1,000 to 1,300 feet away from the above-surface ore reflected a grade of gold of
0.03 ounces per ton

4. Tailings

                                                        58

<PAGE>




The 573 samples that were fire assayed  reflected a grade of gold of 0.06 ounces
per ton.

Exploration on this property will continue with channel trenching, re-opening of
former adits, and to include diamond core drilling,  mapping and sampling of the
known mineralized  areas to determine if there is any other gold  mineralization
on this property. Diamond drilling may be utilized to outline the more promising
shoots and to check for continuity at depth.

Potosi Exploration Concession

The exploration  concession application was filed on September 6, 1993, with the
Department of Energy,  Mines and  Hydrocarbons,  a division of the El Salvador's
Minister of Economy's office, by the owners of the real estate,  the Cooperative
San Felipe-El Potosi. The concession consists of approximately 6,100 acres.

While the  concession  application  is  pending,  it  precludes  any others from
performing  exploration  on this site.  Upon  assessing  that the  property  has
potential  mining  prospects,  the Joint  Venture has the right to apply for the
mining concession.

<PAGE>

Potosi Lease Agreement

The Joint  Venture  entered into a lease  agreement  with the San Felipe  Potosi
Cooperative  ("Cooperative") of the City of Potosi, El Salvador on July 6, 1993,
to lease  the real  estate  for a period of 30 years and with an option to renew
the lease for an additional 25 years,  for the purpose of mining and  extracting
minerals and under
the following basic terms and conditions:

1. The term of the  lease  will be for a period  of 30 years  plus an  option to
   automatically extend the lease for an additional 25 years.

2. The  lease  payment  will  be 5% of  the  gross  receipts  derived  from  the
   production of precious metals from this site and will be payable monthly.

3. The Joint Venture will advance to the Cooperative the funds
   required to obtain the mining concession from the El Salvador

                                                        59

<PAGE>



   Department of Energy,  Mines and  Hydrocarbons  and all related costs will be
   reimbursed or will become a deduction from future rental payments.

4. The  Joint  Venture  will,  when it is in  production,  employ  all of the 45
   qualified  members  of the  Cooperative,  providing  that there is a need for
   their particular skill or service.

5. The Joint Venture will furnish  medicine and first aid medical  assistance to
   all of its employees to the extent that such benefits are not provided by the
   El Salvador Social Security System.

6. An employee life insurance program is to be seriously considered by the Joint
   Venture when production commences,  providing that the cost of such insurance
   is not excessive.

Modesto Mine

Modesto Mine Location

The Modesto  Mine is located due north of the town of El Paisnal,  approximately
19 miles north of the Capital City,  San Salvador.  The Joint Venture  considers
this  property as a good gold mining  prospect and since  August,  1993,  it has
proceeded with an exploration program.

Modesto Mine Geology

From its  geologist  and from the records  available to the Joint  Venture,  the
following information was obtained:

Two persistent veins "Paderon" and "Chicharron"  outcrop along the crests of two
parallel hogback ridges 1,900 meters apart, and are composed of thick flat-lying
andesite flows capped by discontinuous patches of rhyolite.  These were examined
in  1948-1950  by M. Buell along  strike (45 degrees) for 2,240 meters and 2,760
meters  respectively and down dip (60 degrees to 80 degrees southeast) a maximum
of 25 meters. The Paderon vein was barren but the north-eastern  1,320 meters of
the Chicharron returned the following values:

1.   "D" winze, five meters deep, northeast end:  0.46 ounces of
     silver, 0.82 ounces of gold over 61 meters horizontally; 0.71

                                                        60

<PAGE>



     ounces of  silver,  0.61  ounces of gold over 3.1  meters  vertically  from
     quartz of undetermined orientation in rhyolite; 0.30 ounces of silver, 1.20
     ounces of gold  from a 15-ton  dump and a value of  $14.653  per ton from a
     ten-ton dump. (The market price of gold was pegged at $35 an ounce.)

<PAGE>

2.   "S" winze, 420 meters southwest of "D" winze:  no values.

3.   "5" winze, 882 meters southwest of "D" winze:  1.85 ounces of
     silver, 0.65 ounces of gold over an average of 1.0 meter to a
     depth of 11 meters below outcrop.  A 30-ton dump ran 2.28
     ounces of silver and 0.82 ounces of gold.

4.   "14" winze, 1,320 meters southwest of "D":  0.78 ounces of
     silver, 0.22 ounces of gold to 19 meters below outcrop.  A
     60-ton dump ran 0.15 ounces of silver, 1.14 ounces of gold;
     average of six dump samples was 0.68 ounces of silver, 0.31
     ounces of gold.  A surface sample representing a ten-meter
     width of vein structure gave 0.06 ounces of silver, 0.09 ounces
     of gold, including 1.5 meters of 0.40 ounces of silver and 0.50
     ounces of gold on the footwall.

A 155 meter crosscut,  driven to intersect the vein 62 meters  vertically  below
surface  and 80 meters  northeast  of "14" winze  encountered  only weak  quartz
mineralization.  Of 20 samples taken in 45 meters of drift,  one returned  10.25
ounces of silver and 0.35 ounces of gold over 1.20 meters and the  remaining  19
averaged less than 0.40 ounces of silver and 0.05 ounces of gold.

On 30 meters of drifting up to seven meters below surface at "5" winze,  1,095.6
tons grading 1.66 ounces of silver and 0.505 ounces of gold were indicated.

The  mineralization  is the Potosi type, very finely banded,  milky,  aphanitic,
sulfide-free quartz, with a gold-silver ratio similar to El Dorado's. No calcite
was seen on the  dumps.  Wall rock  alteration  is not  noticeable  on  surface,
however fine grained  silicification and pyritization of the andesite appears on
the "5" winze dumps.



                                                        61

<PAGE>



Modesto Mine Ore Reserves and Exploration Results

The exploration  through March 31, 1996, has  accomplished  the following:  Four
bodies of gold ore have been blocked which contain  approximately  18,800 ounces
of gold in 80,000 tons of ore with an average  grade of 0.235 ounces of gold per
ton.

The Modesto Mine  appears to be a very good gold  prospect.  Since  October 1993
through August 1995,  three veins were discovered  which extend over a length of
one and one-half miles and a width of about one mile. The width of this area has
a series of  perpendicular  and  oblique  tiny veins well  dispersed  which is a
desirable ore for an open-pit operation.

There are three vein systems:

(1)  In the Chicharron Vein, 59 surface channel trenches were hand
     excavated in a one and one-half mile length and over 1,895
     assay samples were taken.  The vein width averages about 17
     feet and the surface grade averaged 0.04 ounces of gold per
     ton.  In the land that the Company has purchased, the average
     surface grade is 0.20 ounces of gold per ton, over a length of
     1,250 feet.  A preliminary ore reserve calculation of this
     small area using a depth of 100 feet reflects a potential of
     another 21,000 ounces of gold.

(2)  The Intermidy Vein is located 1,170 feet south of the Chicharron  Vein. Ten
     channel trenches were hand excavated for a distance of 1,065 feet. The vein
     widths  ranged  from four feet to seven feet.  Over 265 fire assay  samples
     reflected  an average of 0.02 ounces of gold per ton. The gold in this area
     is well distributed.

(3)  The Paredon Vein is located about one mile from the  Chicaharron  Vein. The
     eight trenches over a length of 1,881 feet and 68 assay samples reflected a
     grade of 0.02 ounces of gold per ton.

<PAGE>

There are three underground workings:

(1)  Adit No. 10 -  the highest adit in 165 feet of workings is 4.29
     feet in width.  310 assay samples showed an average of 0.03
     ounces of gold per ton.

                                                        62

<PAGE>




(2)  Winze No. 5 is located 660 feet north of the Taladron  Adit and is about 44
     feet in depth. About 28 feet from the surface, the first crosscut was found
     and  followed.  The dump  material  assayed from 327 samples  averaged 0.35
     ounces of gold per ton.

(3)  Taladron  Adit (597 feet area) was cleared  with an average  width of about
     seven feet.  A total of 60 assay  samples were taken mainly from the basalt
     area.  Some of the stope fill material  proved a grade of gold ranging from
     0.02 to 0.45 ounces of gold per ton. At a depth of 150 vertical  feet,  the
     Chicharron Vein was intercepted.


The  Joint  Venture  employs  from 22 to 28  employees  to  work  at  this  mine
exploration program.

Modesto Mine Present and Proposed Exploration Program

After  completing  the  necessary  surveying,  mapping and  planning,  the Joint
Venture  proceeded to clean and trench the vein  exposure.  Since August,  1993,
2,104  metric  feet of surface  channel  trenching  (6,943  feet) and 345 meters
(1,139 feet) of adit cleaning were  completed.  In addition,  four inclines have
been completed.  A total of 3,400 fire assay samples were  performed.  The Joint
Venture will  continue  the channel  trenching  and the  reopening of the former
adits as well as to formalize its own drilling program.

Modesto Mine Concession/Ownership

On or about  September 2, 1993, the Joint Venture  through one of its employees,
filed an  application  with the El  Salvador  Department  of  Energy,  Mines and
Hydrocarbons  to explore the 4,000  hectares  (9,800 acres) of property known as
the Modesto  Mine.  The  application,  together with the consent to explore this
area from the  property  owners  owning  more than 25% of total  area,  has been
acknowledged  as being received by the Director of the El Salvador  Agency.  The
Joint Venture had  submitted  its original  plan to the El Salvador  Director of
Energy,  Mines and  Hydrocarbons on January 24, 1994,  outlining its exploration
program.

Hormiguero Mine ("Hormiguero")

Hormiguero Location


                                                        63

<PAGE>



The Hormiguero is located  approximately  five miles  southeast from SCMP off of
the Pan American Highway in the Departments of San Miguel and Morazan, Comacaran
Jurisdiction, in the Republic of El Salvador. The Joint Venture plans to survey,
map, plat, plan and develop an exploration program.

Hormiguero Current Status

The Joint Venture continues to develop an exploration  program on the 5,000 acre
site. An application  for  exploration  has been filed on September 6, 1993 with
the Department of Energy, Mines and Hydrocarbons,  a division of the El Salvador
Minister of Economy's office.

<PAGE>

The  Hormiguero  property  continues  to  be  in  the  stages  of  being  mapped
geologically and topographically on a referenced grid in order to provide a base
to plan a drilling program with the objective to prove that a commercial body of
ore may extend below the bottom of the former workings.  This drilling  activity
would also  determine if the faulted north end of the Gallardo  vein  continues.
Further  drilling would evidence the  mineralization  of four explored veins: La
Gloria, Victoria, Tecolote and El Dorado.

Hormiguero Geology and Historical Information

The following  information  was obtained from a report  entitled,  "Mining in El
Salvador-United Nations Development Programs
1968-1971,":

". . . From 1913 to 1918 the Comacaran Gold Mining Co. produced
607,062 ounces of silver and 72,142 ounces of gold from 208,096
tons.  (Swanquist), and when this company liquidated in 1919 the El
Salvador Silver Mining Co., formed by some of the Butters Co.
personnel, continued operations on a small scale until 1921.  In
1930 the mine was reopened by the original property owners, the
Gonzalez family, and functioned periodically until 1948, producing
during the last 3 years about 21,000 ounces of silver and 3700
ounces of gold.  "Straight arithmetic averaging from the production
figures gives an overall recovered grade of 0.351 oz. gold and 2.92
oz. silver for the period 1913-1918, or assuming a 10% mill less, a
mill head of 0.386 oz.  gold and 3.21 oz. silver.  Mill records for
1917, the only surviving technical data, give a bullion production

                                                        64

<PAGE>



of 139,369.36  ounces of silver and 17,193.84 ounces of gold from 61,890 tons. A
mill head calculated from this, again at 10% mill loss, was probably 0.30 ounces
gold and 2.47 ounces silver."

   "Although  known  locally . . . as  `Hormiguero'  the  deposit is  actually a
composite of three separate  sections,  the Gallardo,  Guadalupe and Hormiguero,
all in coarse-grained  andesite,  grouped about and formerly connected by aerial
tramway  to  a  central  mill  situated  immediately  southwest  of  the  Canton
Hormiguero.  The Gallardo and Guadalupe veins are strong,  persistent structures
striking 045 [degrees] and 020  [degrees]  respectively  and forming thin ridges
500 feet east and 1,750 feet west of the central  mill.  Both are  composite and
slightly  braided  structures  composed  of two main  parallel  branches 70 feet
apart,  and several  interconnecting  sub-branches,  all dipping greater than 60
[degrees] west. Vein material is banded and crustiform quartz-calcite, secondary
manganese  oxides and  probaly  [sic]  rhodochrosite,  weakly  mineralized  with
pyrite, spalerite, galena and chalcopyrite.  Strong proplylitization accompanied
by  considerable  pyrite has attacked the  andesites  outward for about ten feet
from the walls  resulting in the formation of yellowish  red,  clayey  oxidation
products on surface.

   "The  Gallardo  has been worked on six levels for 2050 feet along  strike and
400 feet  vertically.  Access  was  through  the  Benjamin  adit at the  extreme
southwest end and an inclined (61  [degrees])  shaft 350 feet from the northeast
end. Two vertically plunging ore shoots 300 and 600 long and 500 feet apart were
stoped to the 5th level where the larger  bottomed,  according to notations on a
long section made by the El Salvador Silver Mining Co. in 1920.  Limited stoping
above the  Benjamin  adit  suggests  a third  shoot in that area and a  possible
unexplored  prolongation of the vein towards the southwest. An abrupt cut-off of
the north  (larger) ore shoot  coincident  with the north end of the mine may be
due to lateral  fault  displacement;  an  undeveloped  segment of the vein might
therefore be anticipated further north.

   "Horizontal  development  of the  Guadalupe  vein  opened a 1600 foot  strike
length on both a hanging wall and footwall branch,  but the dip, exposed on five
levels to 350 feet has been examined in an unsystematic manner more suitable for
exploration  than  exploitation.   Little  ore  has  in  fact  been  taken  from
underground;  most of the  production  appears to have come from open cuts.  The
only regular mining has been confined to a 400 foot lens on the footwall branch,
150 feet south of the main three-compartment production shaft, which

                                                        65

<PAGE>



was from  surface  200 feet  vertically  to the  third  level,  and from a small
irregular shoot directly  opposite it in the footwall branch.  Outside of these,
the underground  layout leaves the general  impression that the  distribution of
ore grade mineralization is highly erratic and randomly dispersed.

<PAGE>

   "1100 feet, and north of the Gallardo and Guadalupe mines, five steeply north
(?) dipping,  parallel,  curving veins (Emilio, Oriente Emilio,  Hormiguero, San
Francisco and 4 de Julio) evenly spaced over a width of 200 feet, constitute the
separate   Hormiguero  mine.  They  lie  between  the   hypothetical   northward
prolongation of the Gallardo and Guadalupe  structures and have been worked over
an aggregate  strike  length of 1200 feet starting from a point 700 feet west of
the Guadalupe  projection  first 500 feet  east-west then through a 700 foot arc
curving to the southwest into alignment  width,  and 900 feet north of the north
end of the Gallardo  vein.  At least 7 levels were  developed to a depth of over
400 feet from a vertical 2 compartment  shaft. The amount of stoping is unknown;
the available  data show that  irregular 100 to 200 foot long shoots were worked
to  depths of 300 and 400 feet on the  east-west  striking  portions  of the San
Francisco and 4 Julio veins.

   "Four  other  virtually  unexplored  veins  known as La Gloria or  Esperanza,
Victoria or Tilden,  Tecolote  and El Dorado,  occur 500 to 900 feet west of the
Gallardo and Hormiguero  mines.  The Gloria and Tecolote strike  east-west;  the
remaing [sic} two are roughly parallel to the Gallardo.  In a letter dated 1919,
a geologist named Mr. Swanquist states that initial exploration and very limited
mining obtained  `encouraging results' from the Tecolote and `fair ore' from the
El Dorado.

   "The same letter mentions two additional  prospects,  the Consuelo of unknown
location but `700 feet from the plant and just being opened up' and the La Posa,
on the Las Garzas  river,  north of Canton  Hormiguero  from  which ore  grading
$10.92 per ton ($20.00 gold and $1.11?  [.385]  silver),  with values  mainly in
silver, was mined over 4 to 5 foot widths, in a 35 foot winze."

In 1921,  i.e.  during El Salvador  Silver Mine's final year of  operation,  the
following ore reserves were blocked out:

Proven:  (U.S. dollar values based on a $20.00 per ounce gold price

                                                        66

<PAGE>



and a $0.385 per ounce silver price.)
                                                 Dollar Value
                                   Tons    Grade    Per Ton
                                  ------   -----    -------
(a)  Guadalupe Hanging Wall Vein  11,208   0.353     $7.06
     Guadalupe Footwall Vein       7,528   0.319     $6.37
(b)  Hormiguero and Gallardo      10,000   0.400     $8.00
                                  ------
     Total                        28,736

Probable:

(a)  Guadalupe Hanging Wall Vein  21,900   0.295     $5.89
     Guadalupe Footwall Vein      23,556   0.340     $6.80
                                  ------
     Total                        45,456

(Proven and probable gold and silver ore reserves total 74,192 tons.)

Exploration  should  center on the  undeveloped  veins,  on the  possibility  of
extending  the  Hormiguero  veins  farther  to the  east  and  west,  and on the
unexplored ground between the north end of the Gallardo vein and the Hormiguero.

<PAGE>

Hormiguero Ownership

The surface is owned by various individuals and families.

Montemayor Mine ("Montemayor")

Montemayor Location/Ownership

The Joint Venture has obtained permission from a number of property owners which
permits the Joint Venture to enter their  property for the purpose of exploring,
exploiting  and  developing  the  property and then,  if  feasible,  to mine and
extract  minerals  from this  property.  The term of this  permission  is for an
infinite period. Montemayor is located about 14 miles northeast of the SCMP, six
miles  northwest  of the  SSGM  and  about  two  miles  east of the  City of San
Francisco  Gotera  in  the  Department  of  Morazan,  Republic  of El  Salvador.
Historical records evidence that the potential for the

                                                        67

<PAGE>



Montemayor to become an exploration and development  gold-producing  prospect is
good.

Montemayor Geology and Historical Information

The following  information  was obtained from a report  entitled,  "Mining in El
Salvador-United Nations Development Program
1968-1971":



                                                        68

<PAGE>



"Montemayor-Lola Area

"The eastern and northeastern  limits of the Three Corners area are defined by a
scattering  of three small mines and numerous  prospects  distributed  along the
course of the south-flowing Rio Montemayor in a system of parallel normal faults
collectively  known as the  `Montemayor  lineament'.  Consistent with the origin
proposed under `General  Geology' these have been probably induced by subsidence
along the northern  margin of the central  graben,  resulting  in a  progressive
tensional  failure  that has  sliced  the  pyroclastic  rocks of the area into a
series of  tabular  blocks  stepped  successively  upward to the  northeast  end
culminating in the steep serrated ridges of the Copetillos escarpment.  This has
resulted in the creation of a 13,000 foot-wide  regional `sheeted' zone composed
of closely spaced, northwest striking, west dipping parallel faults,  stretching
for five miles  northeast along the river and has imported to the river gorge an
assymetric  cross section whose higher,  northeast  slope is underlain by deeply
dissected  acid to basic  tuffs and  lower  southwest  slope by the low  rolling
andesitic, Three Corners terrain.

"Extensive  veining in the fragmentals has produced a lengthy  mineralized  zone
roughly  coincident with the `sheating,'  which includes the Montemayor  deposit
near  the  headwaters  of  the  river  and,  arranged  in  en-echelon  alignment
downstream,  the Tebanco, Lola, and Tepeyac occurrences and the minor Salamanca,
Jimerito, Mina Grande, Copetilla and La Joya showings.

"The veins, which dip almost universally 50 degrees to 80 degrees southwest, are
normal  quartz-calcite,  sulfide-poor fracture fillings,  distinguished by their
remarkable lateral  persistence and unfortunate  paucity of workable ore shoots.
Sporadically  distributed  in lenses three to eight feet wide and up to 200 feet
long and  separated  by longer  stretches  of barren  ground,  these have so far
yielded enough tonnage to sustain  mining  operations  only at the marginal Mina
Lola. On the whole, however, the area is little explored.

<PAGE>

"Montemayor

"The Montemayor  property  embraces a group of small mine openings and prospects
aligned along a series of parallel southeast striking veins following the course
of the Montemayor river for 16,000 feet,

                                                        69

<PAGE>



from its  headwaters to the beginning of the  pronounced  `S' bend enclosing the
old Tabanco mine.  Some  confusion over the names and locations of these various
workings  has always  existed;  for the purpose of this  report,  the  following
nomenclature,  adapted  from  early  maps of the  district,  will  be  employed.
Proceeding upstreams [sic], the workings are:

"(a) Montemayor-comprises   the   Montemayor,   Montanita  and  Santa  Gertrudis
     sections, extending for 2700 feet upstream from the Caserio Montemayor.

"(b) Tempisque-4800  feet north of the Caserio  Montemayor  and 1200 feet up the
     east bank of the river.

"(c) Banadero-Carao-Carago-4500 to 8000 feet upstream from
     Tempisque.

"Mining was  confined to  Montemayor;  appreciable  underground  exploration  to
Montemayor and Tempisque. No motor road reaches the properties; access is either
by five kms.  of the mule trail along the  southwest  bank of the river from the
end of the Santa Rosa de Lima-Caserio El Tabanco road or cross-country about the
same distance by mule trail from a north branch of the Gigante road. Trails also
lead into the headwater area from the town of Sociedad.

"Historical information is sketchy.  The area was almost certainly
worked in conjunction with the Tabanco mine, first by the English
company until about 1855, then the Cia. Francesa de Minas de El
Salvador who operated it some time between 1856 and 1882 (Guzman).
Until 1914 (?) no information is forthcoming; then the mine was
comprehensively sampled by the Butters Co. and its successors
between 1915 and 1921 and by the R.W.  Habard Co. and Central
American Mines around 1936.  Apparently the only production from
1856 to 1936 was obtained by the English and French companies but
the figures are unknown.

"Roberts and Irving  report that the mine was again  functioning  at 60 tons per
day in 1945 under Sr.  Benjamin  Gonzalez,  yielded a value of  $233,818  over a
three year period.  Grebe (1955) does not confirm this and the data may refer to
the Hormiguero mine which Sr.  Gonzalez had in production at that time.  Finally
in 1963  the  principal  showings  were  taken up by a local  enterprise,  Minas
Montemayor, S.A. and received a little more attention up until 1967.


                                                        70

<PAGE>



"The vein system is  apparently  controlled  by a simple set of poorly  exposed,
northwest striking faults paralleling the river and outcropping  occasionally in
the river bed and rarely on the steep east slope of the river gorge. Dips are to
the  southwest  between  50  degrees  and 60  degrees.  Vein  mineralization  is
quartz-calcite   with  weak   disseminated   pyrite  and  a  small  quantity  of
chalcopyrite,  spalerite  and galena.  The host rocks are a succession of coarse
andesitic tuffs and agglomerates,  fine acid tuffs and flows  propylitized along
the  veins,  and  locally  silicified  towards  the  north  end of the  zone  of
mineralization.

"Formal  mining was  confined  to three  parallel  veins  spaced over a 500 foot
interval up the east bank from the creek, at Montemayor.  The footwall Montanita
vein was opened for 200 and 250 feet  respectively  on two levels  about 70 feet
apart,  served by a winze and two crosscuts,  and stoped over 100(?) feet on the
upper level and 200(?) feet on the lower.  Two levels opened at 115 and 215 feet
off a 2 compartment  shaft traced the middle  (Montemayor) vein for 640 feet and
disclosed a 200 foot long ore shoot,  centered on the shaft and partially stoped
before  1917,  that might have  graded  around 12 ounces  silver and 0.29 ounces
gold. On this same structure, 1250 feet north of the shaft in the separate Santa
Gertrudis  section,  perhaps 9000 tons grading  $31.00 at gold and silver $0.507
were extracted from a 90 by 220 foot area,  averaging 7 feet wide,  developed on
four levels through a second vertical shaft.

<PAGE>

"The  hanging wall  `sulfide'  vein  located 40 feet west of the  Montemayor  is
apparently  more  heavily  mineralized  but  contained  no ore  over  75 feet of
drifting driven from the lower Montemayor level.

"On the Tempisque showing, two levels, 30 feet apart vertically and
served by two adits, have revealed 520 feet of the Tempisque vein
running 5.49 oz. silver and 0.14 oz gold over a 2.7 foot width,
according to sampling by the R.W. Hebard Co. in 1936.  Check
sampling by the present owners in 1966 returned an indicated grade
of 3.68 oz. silver and 0.115 oz. gold over four feet, on the lower
level.

"Work on the Carago  section has been  purely  exploratory;  the only  surviving
records (map MM-8) show an average  width of 2.3 feet of 9.95 ounces  silver and
0.16 ounces  gold in a 60 foot shaft and a 160 foot long drift,  spaced 280 feet
apart."

                                                        71

<PAGE>




Montemayor Current Status

From July 19, 1995 to March 31, 1996,  the following  exploration  was achieved:
surface  channel  trenching  was  performed  in an area of over 270 meters  (891
feet); and ten channel trenches were performed in an area of over 97 meters (320
feet).  From this  trenching,  100 fire assay  samples were shipped to the Joint
Venture's laboratory.

A total of 48 samples of fire  assays were  completed.  They varied from 0.01 to
0.14 ounces of gold per ton with an over-all average of 0.035. The Joint Venture
has 11 underground adits and workings in the process of being cleaned. They are:

Polvorera Adit No. 1          56 meters        (185 feet)
Polvorera Adit No. 2         100 meters        (330 feet)
Lechuza Adit                  60 meters        (198 feet)
Cablote Adit                   7 meters         (23 feet)
Montanita Adit                75 meters        (248 feet)
Guascanal Adit                19 meters         (63 feet)
Sirena Adit                    7 meters         (23 feet)
El Indio Adit                 29 meters         (96 feet)
Tempisque Sub Level No. 2      9 meters         (30 feet)
El Indio Winze                10 meters         (33 feet)
Guaruma Winze                 12 meters         (40 feet)

Total                        384 meters      (1,269 feet)

A total of 309 samples of fire assays were taken. Only 48 samples of fire assays
were completed. Between 20 to 30 employees are employed at this site.

Comseb Laboratories (Lab)

The Joint Venture has two  laboratories:  one located at the SCMP facilities and
the other on real estate  owned by the Company  near the SSGM site.  At the SSGM
Lab, the Joint Venture employs five employees for each  eight-hour  shift and it
recently  has been working  three  shifts per day. A total of 51,165  samples of
fire  assays have been  completed  through  March 31,  1996.  Approximately  six
employees are working at the SCMP laboratory.

<PAGE>

Item 3.  Legal Proceedings

                                                        72

<PAGE>




The Company is not a party to any legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders

None.

Item 4(a).  Executive Officers and Managers of the Company

Listed  below are the names and ages of each of the present  executive  officers
and managers of the Company  together with the  principal  positions and offices
held by each as of the end of the Company's fiscal year ended March 31, 1996.

                                Executive
                Age as of     Offices Held       Period Served
    Name      March 31, 1996  With Company(1)    In Office (2)
-------------------------------------------------------------------
Edward L. Machulak  69      President, Chief
                            Executive Officer,
                            and Operating and
                            Financial Officer   9/19/62 to present
                            Treasurer           06/78 to present

Edward A. Machulak  44      Executive Vice
(Son of the President)      President           10/16/92 to present
                            Secretary           1/12/87 to present
                            Assistant Secretary 4/15/86 to 1/12/87

Luis A. Limay       54      Project and Mine
                            Manager             10/86 to 1995
                            Manager of El
                            Salvador Operations 03/95 to present

(1)  Neither have there been nor are there any arrangements  nor  understandings
     between any  Executive  Officer and any other person  pursuant to which any
     Executive Officer was elected as an Executive Officer.

(2)  Executive  Officers are elected by the Directors for a term expiring at the
     Directors' Annual Meeting and/or hold such positions until their successors
     have been elected and have qualified.

   Family relationships

                                                        73

<PAGE>




   Edward A. Machulak,  presently a Director, Member of the Directors' Executive
   Committee,  Executive Vice President,  and Secretary, is the son of Edward L.
   Machulak,  the  Company's  Chairman of the Board of  Directors  who is also a
   Member  of the  Directors'  Executive  Committee,  and is the  President  and
   Treasurer  of the  Company.  Attorney  John E.  Machulak  (son of  Edward  L.
   Machulak) of the law firm of Machulak, Hutchinson, Robertson, Dwyer & O'Dess,
   S.C. is the legal counsel for the Company.

<PAGE>

   Directors', Officers', and Key Management's Experience

   The  business  experience  of  each  of  the  Directors,  Officers,  and  Key
   Management is as follows:

   Edward L. Machulak has been employed by the Company  since  September,  1962.
   Mr. Machulak has served as the President, Director, and Chairman of the Board
   of Directors of the Company since 1962,  Treasurer  since 1978,  and on March
   11, 1991, he was elected as a Member of the Directors' Executive Committee.

   He is a Director and the President  for each of the  Company's  subsidiaries:
   Homespan  Realty Co., Inc.;  Piccadilly  Advertising  Agency,  Inc.; San Luis
   Estates, Inc.; San Sebastian Gold Mines, Inc.; and Universal Developers, Inc.
   He is the authorized  representative of the Commerce/Sanseb Joint Venture. He
   is a Director and Treasurer of Mineral San Sebastian  S.A. de C.V. Also he is
   involved in various capacities with the following companies: General Lumber &
   Supply Co., Inc., Director;  Edjo, Ltd., Director and Secretary; and Landpak,
   Inc., Director and Secretary.

   Edward A.  Machulak was elected and holds the  following  Company  positions:
   Director  as of  October  28,  1985;  a member  of the  Directors'  Executive
   Committee as of March 11, 1991;  Executive  Vice  President as of October 16,
   1992;  Secretary as of January 12, 1987;  and he was the Assistant  Secretary
   from April 15, 1986 through  January 12, 1987. His business  experience is as
   follows:  Director and  Corporate  Secretary of General  Lumber & Supply Co.,
   Inc., a building material  wholesale and retail  distribution yard from April
   1, 1970 to November 1983;  Director and President of Gamco, Inc., a marketing
   and advertising company, from November

                                                        74

<PAGE>



   1983 to present;  Director and  President  of Circular  Marketing,  Inc.,  an
   advertising and marketing business, from March 1986 to present;  Director and
   President of Edjo, Ltd., a company  involved in the development,  subdividing
   and sale of land and real estate from June 7, 1973 to present;  Director  and
   President of Landpak,  Inc., a corporation which owns, operates,  manages and
   sells  real  estate  from  September   1985  to  present;   Partner  of  WEEM
   Investments,  a real estate oriented business from May 1976 through 1995; and
   he was involved in other corporate real estate ventures and activities  since
   1976.

   Clayton H. Tebo has been a Director of the Company since March 11, 1991.  Mr.
   Tebo  had been a  Director  of the  Company  from  the  Company's  inception,
   September, 1962, through March 1, 1969. Mr. Tebo has been retired since March
   6, 1969,  however, he has been retained from time to time by the Company as a
   consultant  for special  projects.  He also was the special  assistant to the
   President prior to and after his 1969 retirement.

   Luis Alfonso  Limay was appointed to the position of Project and Mine Manager
   since October 1986 and is  responsible  for managing the daily affairs of the
   Joint Venture. During March, 1995, Mr. Limay was appointed to the position of
   Manager of El  Salvador  operations  which now  supersedes  his  position  as
   Project and Mine Manager.  Mr. Limay was employed by Sanseb from 1977 through
   March  1978 as its chief  geologist.  He  obtained  degrees  in  geology  and
   engineering from the National  University of San Marlos,  Lima, Peru, and the
   University  of  Toronto.  He was  employed  as  chief  geologist  by  Rosario
   Resources in a Honduran  underground  mining  operation  and he held the same
   position with Canadian Javelin in El Salvador.

<PAGE>


                               PART II



Item 5.  Market for the Company's Common Stock and Related
         Stockholders' Matters

(a)  Principal Market and Common Stock Price


                                                        75

<PAGE>



The Company's  common shares are traded on the Boston Stock  Exchange  under the
symbol  "CMG"  or  "CMG.BN,"  since  November  29,  1974,  and on  the  National
Association of Securities  Dealers  Automated  Quotation  System Small-Cap Issue
(NASDAQ) under the symbol "CGCO" since March 23, 1987, and the shares are listed
daily in the Milwaukee Journal Sentinel, a Wisconsin newspaper, under "Wisconsin
Stocks,"  under the name of "Commerce  Group." The common shares are also listed
in many nationwide newspapers.

The  following  table sets forth the range of high ask and low bid prices of the
common shares as reported by NASDAQ for the periods  indicated.  Such quotations
reflect inter-dealer prices without retail mark-up, mark-down or commission, and
may not necessarily represent actual transactions.

For the period ended               March 31, 1996  March 31, 1995
                                     High   Low      High   Low
                                    -----  -----    -----  -----
First quarter ending June 30        $4.63  $3.75    $2.75  $1.63
Second quarter ending September 30  $3.75  $3.00    $3.50  $2.63
Third quarter ending December 31    $3.25  $2.63    $3.13  $2.38
Fourth quarter ending March 31      $3.25  $2.75    $4.50  $3.50

(b)  Approximate Number of Holders of Common Shares

   
As of March  31,  1996,  the  common  shares  were held by  approximately  3,000
shareholders of record of which more than 99% are United States' residents.
    

(c)  Dividend History

Subject to the rights of holders of any outstanding  series of preferred  shares
to receive  preferential  dividends,  and to other  applicable  restrictions and
limitations,  holders  of  shares of  common  shares  are  entitled  to  receive
dividends if and when  declared by the Board of Directors  out of funds  legally
available. No dividends were payable during the last fiscal year ended March 31,
1996.  The  declaration  of future  dividends will be determined by the Board of
Directors  in light of the  Company's  earnings,  cash  requirements  and  other
relevant considerations.

<PAGE>

Item 6.  Selected Financial Data


                                                        76

<PAGE>



The  following  table sets forth  certain  consolidated  financial  data for the
respective periods presented and should be read with the Consolidated  Financial
Statements  and the related  notes  thereto,  and  Management's  Discussion  and
Analysis of Financial Condition and
Results of Operations.

                       1996         1995         1994         1993         1992
                -----------  -----------  -----------  -----------  -----------
Year ended March 31:
Total revenue   $ 1,345,260  $   823,181  $   507,964  $   403,242  $   364,747
                ===========  ===========  ===========  ===========  ===========


                                                        77

<PAGE>



Income from
continuing
operations      $   787,802  $   274,747  $    66,852  $    41,970  $    22,583
                ===========  ===========  ===========  ===========  ===========
Income (loss) from
continuing operations
per share:
  Primary       $      0.11  $     0.046  $      0.01  $      0.01  $      0.01
                ===========  ===========  ===========  ===========  ===========
  Fully diluted $      0.11  $     0.045  $      0.01  $      0.01  $      0.00
                ===========  ===========  ===========  ===========  ===========
Cash dividends
declared per common
share           $         0  $         0  $         0  $         0  $         0
                ===========  ===========  ===========  ===========  ===========
At year end:
Total assets    $20,513,115  $17,617,423  $14,204,563  $13,568,374  $12,156,852
                ===========  ===========  ===========  ===========  ===========
Long-term notes
payable         $    20,259  $   120,000  $   245,000  $   245,000  $         0
                ===========  ===========  ===========  ===========  ===========
Convertible preferred
stock                     0            0            0            0      250,000
                ===========  ===========  ===========  ===========  ===========
Total long-term
obligations and
convertible preferred
stock           $    20,259  $   120,000  $   245,000  $   245,000  $   250,000
                ===========  ===========  ===========  ===========  ===========

Item 7.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations

The following  discussion provides  information on the results of operations for
the three years ended March 31, 1996, 1995 and 1994 and the financial condition,
liquidity and capital  resources for the same three-year  period.  The financial
statements of the Company and the notes  thereto  contain  detailed  information
that should be referred to in conjunction with this discussion.

Introduction

The Joint Venture is in the pre-production stage at the SSGM and it
simultaneously is performing four separate programs.  First, it has

                                                        78

<PAGE>



commenced a limited  production of gold by  processing  the SSGM tailings at its
SCMP  facility  which is  located  approximately  15 miles  from the SSGM  site.
Second,  it is installing a pilot  open-pit,  heap-leaching  gold process on the
SSGM site. Third, it is continuing its SSGM site  preparation,  the expansion of
its exploration and exploitation targets, and the enlargement and development of
its gold ore  reserves.  Fourth,  it is exploring the potential of the four gold
mine prospects  identified as the San Felipe-El  Potosi Mine, and its extension,
the El Capulin Mine, the Hormiguero  Mine, the Montemayor  Mine, and the Modesto
Mine, all located in El Salvador, Central America.  Concurrently,  it also is in
the  process of  obtaining  the  necessary  funding  for each of these  separate
programs while it continues its limited  production of gold and the exploration,
exploitation and development of its mining prospects.  The more than twelve-year
El Salvador  war and the general  disbelief  that peace will  prevail had been a
material  deterrent  in  obtaining  funding  for  the  resumption  of  the  SSGM
operations and for the  restoration  of the SCMP. On December 15, 1992,  through
the auspices of the United Nations,  the end of the war was declared  contingent
upon a three-year term to comply with all of the conditions of this pact.  Peace
prevails.

<PAGE>

Current Status

   
The Company,  on February 23, 1993, through its Joint Venture acquired the SCMP,
a precious  metals' leaching mill and plant which has the capacity of processing
200 tons of virgin gold ore and
precious  metals' ore per day or 400 tons of tailings.  While the Joint  Venture
did operate the mill to its full capacity for a few months commecing March 1995,
the mill has operated at a lower  production rate of 204 tons per day due to the
following  factors.  A new labor  force had to be trained  to operate  the SCMP;
metallurgical  differences  had to be resolved;  the rainy season was  unusually
severe;  the head  grade  variances;  and  problems  were  encountered  with the
handling of the separation of the coarse  material in the tailings.  Taking into
account  all of the factors  affecting  the SCMP,  if the Joint  Venture had not
offset all of the  revenues  ($1,238,612)  from the gold sales by  reducing  the
advances to the Joint Venture, it would have earned a nominal profit.
    

This  production of gold broadens the Company's  objectives  and now enables the
Company to commence a complementary  operation while  continuing its endeavor to
obtain  sufficient  funds for the SSGM which is its major and original  goal and
presently is in the developmental  stage. The Company's main objective and plan,
through the Joint Venture, is to operate at the SSGM site, a moderate

                                                        79

<PAGE>



tonnage, low-grade open-pit,  heap-leaching,  gold-producing mine and it intends
to commence this major  gold-mining  operation as soon as adequate funding is in
place.  Dependent on the grade of ore processed,  it then anticipates  producing
approximately 12,000 ounces of gold from the SCMP operation and 40,000 ounces of
gold from its SSGM  open-pit,  heap-leaching  operation  during the first twelve
full  operating  months.  The Joint Venture  continues to conduct an exploration
program to develop additional gold ore reserves at the SSGM and at the following
four other mines: the San Felipe-El  Potosi,  and its extension,  the El Capulin
Mine,  the Modesto Mine,  the  Hormiguero  Mine,  and the  Montemayor  Mine; all
located in El Salvador.

Since the Joint  Venture  commenced  producing  gold at the SCMP,  albeit a very
exiguous  operation,  and a  forerunner  of its  greater  goals,  the  Company's
revenues, profitability and cash flow will be greatly influenced by the price of
gold. Gold prices  fluctuate  widely and are affected by numerous  factors which
will be beyond the Company's control,  such as, expectations for inflation,  the
strength of the U.S. dollar, overproduction of gold, global and regional demand,
or political and economic  conditions.  The combined  effect of these factors is
difficult;  perhaps impossible to predict.  Should the market price of gold fall
below the Company's  production costs and remain at such level for any sustained
period,  the Company could experience  losses.  Under these  circumstances,  the
Company could choose to suspend operations in order to minimize losses.

The Company believes that neither it, nor any other  competitor,  has a material
effect on the precious  metal markets and that the price it will receive for its
production  is  dependent  upon  world  market  conditions  over which it has no
control.

<PAGE>

Results of Operation Fiscal Years March 31, 1996 Compared to March
31, 1995

The  Company  had a net gain of  $787,802  or $.11 per share for its fiscal year
ended March 31,  1996  compared to a net gain of $274,747 or $.046 per share for
the previous fiscal year or an increase of 287%. This increase was  attributable
primarily  to the  additional  interest  income  earned from the advances to the
Joint Venture.  This fiscal year the interest earned was $1,286,739  compared to
the prior fiscal year's interest earnings of $751,389. This gain results

                                                        80

<PAGE>



primarily from a charge of interest due to the increase of advances to the Joint
Venture of  $11,799,074  for this period or a net increase of  $3,122,766  (36%)
from the last fiscal period which amounted to $8,676,308.  The total advances to
the Joint Venture  during this fiscal period  amounted to  $13,037,686  but were
reduced by the $1,238,612 revenues received from the gold sales.

Likewise the Company's  borrowings  have  increased  from  $2,725,014  (1995) to
$3,583,480  (1996) or  approximately  32% and the interest  expense for 1996 has
increased slightly from $466,604 to $470,710 for the last year.

Almost all of the costs and expenses  incurred by the Company are  allocated and
charged to the Joint Venture.  The Joint Venture  capitalizes all of these costs
and expenses  and will  continue to do so until such time as it resumes its gold
mine operation.  At the time production commences,  these capitalized costs will
be charged as an expense  based on a per unit  basis.  If the  prospect  of gold
production becomes unlikely,  all of these costs will be written off in the year
that this occurs.

Results of Operation Fiscal Years March 31, 1995 Compared to March
31, 1994

The  Company had a net gain of  $274,747  or $0.046 per share  earnings  for its
fiscal year ended March 31, 1995, compared to a net gain of $66,852 for the year
ended March 31, 1994, an increase of over 400%. The basic reason for an increase
in  income  was due to the  additional  interest  income  earned  from the Joint
Venture $751,389 (1995) compared to $451,180  (1994).  This increase of interest
income was  attributable  to an  increase  of  advances  to Joint  Venture  from
$5,792,230  in 1994 to  $8,676,308  in 1995  (50%  increase).  Furthermore,  the
interest  expense,  due to an increase  in  interest  rates,  was  increased  to
$466,604 (1995) compared to $357,391 (1994).

The general  administrative and campground  expenses of $80,505 in 1995 compared
to $83,721 in 1994 was slightly  lower due to a decrease in the cost  associated
with the repair  and  maintenance  of  campground  buildings.  The  increase  in
interest expense of $109,213 in 1995 was primarily  attributable to the increase
of the prime interest rate which is the basis for the interest rate charged.

Liquidity and Capital Resources


                                                        81

<PAGE>



The Company  continues to be cognizant of its cash liquidity until it is able to
produce  adequate  profits from its gold  production.  It will attempt to obtain
sufficient funds to assist the Joint Venture in placing the SSGM into production
as the anticipated SCMP profits (unless  accumulated over a period of time) will
not be  sufficient  to meet the SSGM  capital and the other  mining  exploration
needs.  In order to  continue  obtaining  funds to conduct  the Joint  Venture's
exploration,  exploitation,  development, expansion programs, and the production
of gold from the SSGM open-pit, heap-leaching operation, it may be necessary for
the Company to obtain funds from other  sources.  The Company may be required to
borrow funds by issuing open-ended,  secured,  on-demand or unsecured promissory
notes or by selling its shares to its directors,  officers and other  interested
investors.

   
During the past, the Joint Venture was engaged in exploration,  exploitation and
development  programs designed to increase its gold ore reserves.  The prospects
of  expanding  the gold  reserves  are  positive.  The funds needed by the Joint
Venture were obtained  from the Company via net  advances:  $3,122,761 in fiscal
1996. The Company believes that these advances significantly  contributed to the
value of the SSGM and to the value of its other mining  prospects as the results
of the exploratory efforts evidence a potential substantial increase of gold ore
reserves,  which add value to the Joint Venture and to the Company.  The Company
was able to obtain sufficient funds to complete the retrofitting of the SCMP, to
purchase consumable inventory, to purchase certain hauling and loading equipment
and for  working  capital  use.  The  Company  has been able to obtain the funds
required  for its and the  Joint  Venture's  undertaking  via a debt and  equity
structure of funding.  From  September,  1987 to March 31, 1996, the Company and
three of its  wholly-owned  subsidiaries  advanced a sum of  $11,799,074  to the
Joint Venture, exclusive of gold sale proceeds.
    


<PAGE>

Advances to the Joint Venture

Advances to the Joint Venture  during the Company's  fiscal year ended March 31,
1996 were derived from the various sources including related parties as follows:

                                                        82

<PAGE>




Funding Sources                From
                       Related      Other
                       Parties     Sources        Total
                     -----------  -----------  -----------
Accounts payable &
accruals etc.        $   (2,074)  $ (357,936)  $ (360,010)
Notes payable           827,536       30,930      858,466
Equity                  774,306      572,488    1,346,794
Net income                           787,802      787,802
                     -----------  -----------  -----------
Totals               $1,599,768   $1,033,284   $2,633,052
Increase in cash &
cash equivalents                     489,714      489,714
                     -----------  -----------  -----------
Advances to
the Joint Venture    $1,599,768   $1,522,998   $3,122,766
                     ===========  ===========  ===========



Therefore,  the Company  continues to rely on its directors,  officers,  related
parties and others for its funding needs.  The Company  believes that it will be
able to obtain such short-term funds as are required from the same sources as it
has in the past.  In turn,  then it can advance the funds  required by the Joint
Venture to continue the  exploration,  exploitation and development of the SSGM,
and the other  exploration  prospects,  for the  operation of SCMP and for other
necessary  Company   expenditures.   Anticipated  profits  from  the  SCMP  gold
production provide a limited amount of cash for corporate  purposes.  It further
believes that the funding  needed to proceed with the continued  exploration  of
the five exploration targets for the purpose of increasing its gold ore reserves
should be $10 million.

These programs will involve airborne  geophysics,  stream chemistry,  geological
mapping  trenching and drilling.  The Joint Venture believes that it may be able
to joint  venture  these  exploration  costs with other mining  companies.  From
September,  1987 through  March 31, 1996,  the Company has advanced to the Joint
Venture,  the  sum  of  $11,208,809  and  three  of the  Company's  wholly-owned
subsidiaries have advanced the sum of $590,265, for a total of $11,799,074.  The
funds  advanced to the Joint Venture were used  primarily  for the  exploration,
exploitation,  and  development of the SSGM, for the  construction  of the Joint
Venture laboratory

                                                        83

<PAGE>



facilities  on real  estate  owned by the  Company  near the SSGM site,  for the
operation  of the  laboratory,  for the  purchase of a 200-ton per day used SCMP
precious metals' cyanide leaching mill and plant, for the  retrofitting,  repair
and modernization of its SCMP facilities,  for consumable inventory, for working
capital to commence the  production of gold, for  exploration  costs for the San
Felipe-El Potosi Mine, and its extension, the El Capulin Mine, the Modesto Mine,
the Hormiguero Mine, and the Montemayor Mine, for SSGM infrastructure, including
rewiring  and  repairing  about two  miles of the  Company's  electric  lines to
provide electrical service, for the purchase of equipment, laboratory chemicals,
and  supplies,  for parts  and  supply  inventory,  for the  maintenance  of the
Company-owned dam and reservoir,  for extensive road extension and preservation,
for its participation in the construction of a bridge,  for community  telephone
building and facilities,  for the purchase and advance lease payment of the real
estate on the Modesto Mine, and many other related needs.

<PAGE>

SCMP Operations, SSGM & Other Mine Exploration

   
Items 1 and 2 of this report  describe  the  Company's  current  activities  and
status. The Company,  through its Joint Venture, has reduced its advances to the
Company  from its sale of gold,  therefore,  the  advances  reported  are  after
deducting  these gold sale  proceeds.  Presently  the Company  believes that the
technical  SCMP  problems  will be  resolved  to  permit it to reach its goal of
processing  400 tons of tailings each day of  operation.  In the event the Joint
Venture's goals are reached, then the profits and cash flow should provide funds
that could be used to commence the SSGM open-pit,  heap-leaching  operation. The
Company  estimates  that it will need at least U.S. $13 million to start a 2,000
ton per day  heap-leaching  operation  and over time to increase the  production
capacity  to 6,000 tons per day at the SSGM.  These  funds  would be expended in
excavation  and  equipment  costs of $6 million to develop the open pit mine and
constuct a leach pad, and mining  equipment and crushing  equipment at a cost of
$7 million to extract and process the ore. The profit and cash flow  projections
reflect that the invested  capital could be recovered during the first 18 months
of full production. It further believes that it should be able to raise adequate
funds to  proceed  with its  goals  which  include  the SCMP  expansion  and the
acquirement of a crushing system. These plans include the raising of $2.1 in net
    

                                                        84

<PAGE>



   
proceeds  from the sale of Series A Convertible  Preferred  Stock in fiscal 1997
and the placement of additional  equity  securities on similar terms  Management
believes that these funds, together with with additional placements and proceeds
of gold sales,  will be  sufficient  to operate the SCMP and SSGM during  fiscal
1998.
    

Employees

The Joint Venture employs  approximately  304 full-time persons from El Salvador
(up to 325 persons,  including part-time  employees) to perform its exploration,
exploitation,   and  development   programs;  to  produce  gold  from  its  SCMP
facilities;  and to handle the  administration of its activities.  None of these
employees are covered by any collective bargaining agreements.  It has developed
a continuous  harmonious  relationship with its employees.  It believes that the
Joint Venture is the largest single  non-agricultural  employer in El Salvador's
Eastern  Zone.  Also,  the Company  employs  approximately  four  persons  (plus
part-time help) in the United States.



                                                        85

<PAGE>



Insurance

The Joint Venture has in existence  insurance  through an El Salvador  insurance
company  with  the  following  general  coverage:  general  liability,   vehicle
liability and extended coverage, fire, explosion,  hurricane,  cyclone, tornado,
windstorm,  hail,  flood,  storm,  earthquake,   tremor  or  volcanic  eruption,
politically-motivated  violence,  terrorism,  strikes,  work  stoppages,  riots,
uprisings,  malicious acts, vandalism, and related acts. As additional equipment
and assets are acquired or improvements are made, the insurance coverage will be
increased accordingly.

Related Party Loans, Obligations and Transactions

The  related  party  transactions  are  included  in  detail in the Notes to the
Consolidated Financial Statements.

Company Advances to the Joint Venture

Since  September  1987  through  March 31, 1996,  the Company,  and three of its
subsidiaries,  have advanced to the Joint Venture  $11,799,074.  Included in the
total  advances is the interest  charged to the Joint Venture by the Company and
this charge amounts to $3,667,420  through March 31, 1996. The Company furnishes
all of the funds required by the Joint Venture.

Efforts to Obtain Capital

Since the  concession  was granted,  and through the present  time,  substantial
effort is exercised in securing  funding through various  sources,  all with the
purpose  to  resume  operations  of  the  SCMP  and  SSGM  and to  continue  the
exploration of its other mining prospects.

<PAGE>

The Company, Sanseb, and the Joint Venture consider the past political situation
in the Republic of El Salvador to have been unstable, and believe that the final
peace  declaration  on  December  16,  1992,  has put an end to war.  Presently,
interested  investors  continue  to be  apprehensive  and  skeptical  about  the
political  status of the  Republic of El Salvador and  therefore  continue to be
hesitant to invest the funds required. However, during the past fiscal year, the
Company was able to invest a sum of $3,122,766, net of the additional $1,238,612
received from the sale of gold.

                                                        86

<PAGE>



Therefore,  a total of  $4,361,378  has  been  reinvested  into the El  Salvador
operations. This includes allocation of the Company's expenditures.  The Company
believes  that it will be able to  obtain  adequate  financing  to  conduct  the
present operations during the fiscal year ended March 31, 1997.

<PAGE>

Item 8.  Financial Statements and Supplementary Data

              Index to Consolidated Financial Statements
                   And Supplementary Financial Data

                                                                 Page

Report of Independent Certified Public Accountants . . . . . . . . 51

Financial Statements:

Consolidated Balance Sheets, Years Ended
  March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . .  52
Consolidated Statements of Income, Years Ended
  March 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . . 53
Consolidated Statements of Changes in Shareholders' Equity
  Years Ended March 31, 1996, 1995 and 1994 . . . . . . . . . . .  54
Consolidated Statements of Cash Flows,
  Years Ended March 31, 1996, 1995 and 1994 . . .. . . . . . . . . 55
Notes to Consolidated Financial Statements . . . . . . . . . . . . 56
Quarterly Financial Data (Unaudited) . . . . . . . . . . . . . . . 68

Supplementary Financial Data:

Report of Independent Accountants on the Financial
  Statements Schedules . . . . . . . . . . . . . . . . . . . . . . 78

Financial  statements schedules other than those listed herein have been omitted
since  they  are  either  not  required,  are not  applicable,  or the  required
information is included in the financial statements and related notes.

<PAGE>

               REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


                                                        87

<PAGE>




To the Shareholders and Board of Directors of Commerce Group Corp.
and Consolidated Subsidiaries:

We have  audited  the  consolidated  balance  sheets  of  Commerce  Group  Corp.
("Company"), a Delaware Corporation, and its subsidiaries,  as of March 31, 1996
and 1995,  and the related  consolidated  statements of  operations,  changes in
shareholders'  equity and cash flows,  for each of the three fiscal years in the
periods ended March 31, 1996, 1995, and 1994. These financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Commerce Group Corp. and its subsidiaries as of March 31, 1996 and 1995, and the
consolidated  results of their  operations  and their cash flows for each of the
three  fiscal  years in the periods  ended March 31, 1996,  1995,  and 1994,  in
accordance with accounting principles generally accepted in the United States.

REDLIN AND ASSOCIATES
Certified Public Accountants


Milwaukee, Wisconsin
April 13, 1996

<PAGE>


                                                        88

<PAGE>



          COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
                 Consolidated Balance Sheets--March 31


                                             1996          1995
                       ASSETS         -----------   -----------

Current Assets
  Cash                                $    55,653   $   545,367
  Investments                             198,982       198,982
  Accounts receivable                     143,476             0
  Inventories                             118,748             0
  Prepaid items                               986           620
                                      -----------   -----------
    Total current assets                  517,845       744,969

Real estate (Note 4)                    1,179,836     1,179,836
Advances to Joint Venture
Net of Gold Sale Proceeds (Note 3)     11,799,074     8,676,308
Investment in Joint Venture (Note 3)    7,016,360     7,016,360
                                      -----------   -----------
  Total assets                        $20,513,115   $17,617,473
                                      ===========   ===========
                           LIABILITIES

Current liabilities
  Accounts payable                    $   148,051   $   222,423
  Notes and accrued interest
   payable to related parties
   (Note 5)                             3,084,370     2,256,834
  Notes and accrued interest
   payable to others (Note 5)             499,110       468,180
  Accrued salaries                      1,204,140     1,257,190
  Accrued directors' fees                       0        47,950
  Accrued legal fees                       76,883       166,355
  Other accrued expenses                  341,054       173,630
                                       ----------    ----------
    Total liabilities                   5,353,608     4,592,562

Commitments and contingencies
 (Notes 3, 5, 6, 7 & 14)

                          SHAREHOLDERS'EQUITY


                                                        89

<PAGE>



Preferred Stock
  Preferred Stock, $0.10 par
   value
  Authorized 250,000 shares:
  Issued and outstanding
  1996-none; 1995-none (Note 10)      $         0   $         0

Common  stock,  $0.10  par  value:  Authorized  15,000,000  shares;  issued  and
  outstanding:
  1996 - 7,792,209                        779,221
  1995 - 7,294,719                                      729,472
Additional paid in capital             12,973,006    11,675,961
Retained earnings (deficit)             1,407,280       619,478
                                      -----------   -----------
  Total shareholders' equity           15,159,507    13,024,911
                                      -----------   -----------
  Total liabilities and
    shareholders' equity              $20,513,115   $17,617,473
                                      ===========   ===========

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

<PAGE>

    COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
       Consolidated Statements of Income--March 31

                                  1996        1995        1994
                            ----------  ----------  ----------
Revenues:
Campground income           $   55,692  $   54,600  $   54,804
Land Sales                           0       9,000           0
Interest income                  2,669       6,172       1,980
Interest income-Joint
 Venture (Notes 3 & 13)      1,286,739     751,389     451,180
Miscellaneous Income               160       2,020           0
                            ----------  ----------  ----------
  Total revenue              1,345,260     823,181     507,964

Expenses:
Cost of Land Sales                   0       1,325           0
General and administrative

                                                        90

<PAGE>



 and campground expenses        86,748      80,505      83,721
Interest expense               470,710     466,604     357,391
                            ----------  ----------  ----------
  Total expenses               557,458     548,434     441,112
                            ----------  ----------  ----------
Net income (Loss)              787,802     274,747      66,852
Credit (charges) for
  income taxes                       0           0           0
                            ----------  ----------  ----------
Net income (loss) after
 income tax credit
 (charge)                   $  787,802  $  274,747  $   66,852
                            ==========  ==========  ==========
Net income (loss) per
 shares (Note 2)                  $.11       $.046        $.01
                            ==========  ==========  ==========
Weighted av. shares
outstanding (Note 2)         7,368,058   5,941,950   4,828,496
                            ==========  ==========  ==========
Fully diluted income
 per common share                 $.11       $.045        $.01
                            ==========  ==========  ==========
Weighted average diluted
 number of shares and
 assuming all rights and
 options were exercised
 on March 31, 1996 (Note 2)  7,465,898   6,101,006   5,808,274
                            ==========  ==========  ==========

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

<PAGE>

   COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
    Consolidated Statements Of Change in Shareholders'
    Equity For the Years Ended March 31, 1996, 1995 and 1994

                                       Common Stock
                       ---------------------------------------------
                                              Capital in    Retained
                          Number               Excess of    Earnings
                        of Shares  Par Value   Par Value   (Deficit)
                       ----------  ---------  ----------  ----------

                                                        91

<PAGE>



Balance March 31, 1993  4,773,253  $477,325  $ 8,173,387  $  277,879

Net income for FY
March 31, 1994                                               66,852

Common shares issued
  Cash                    145,000    14,500      130,500
  Cancellation of debt    168,707    16,871      208,556
                       ----------  --------  -----------   ---------
Balance March 31, 1994  5,086,960   508,696    8,512,443     344,731

Net income for FY
March 31, 1995                                               274,747

Common shares issued

  Dir./off./employee/
   services comp.         101,800    10,180      141,890
  Payment of debt         859,076    85,908    1,543,359
  Stock options/rights    978,066    97,807    1,005,151
  Cash/equipment
   lease/purchase         268,817    26,881      473,118
                       ----------  --------  -----------   ---------
Balance March 31, 1995  7,294,719   729,472   11,675,961     619,478

Net income for FY
 March 31, 1996                                              787,802

Common shares issued
  Dir./off./employee/
   services comp.          45,384     4,538      110,069
  Payment of debt         248,468    24,847      739,090
  Stock options/rights     60,260     6,026      139,624
  Cash/equipment lease/
   purchase               143,378    14,338      308,262
                       ----------  --------  -----------  ----------
Balance March 31, 1996  7,792,209  $779,221  $12,973,006  $1,407,280
                       ==========  ========  ===========  ==========

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

<PAGE>


                                                        92

<PAGE>




<TABLE>
<CAPTION>
   
   
            COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
                      Consolidated Statements of Cash Flows
                          For the Years Ended March 31



                                                                  1996               1995             1994
Operating Activities:
<S>                                                     <C>                   <C>                 <C>             
Net Income (loss)                                       $           787,802   $         274,747   $         88,852
Changes in other operating assets and
 liabilities (net):
         Accounts receivable & inventory                          (262,224)                   0                  0
         Other assets                                                 (366)                 973              (268)
         Accounts payable                                          (74,372)             116,241             48,764
         Accrued salaries                                          (53,050)             267,550            129,750
         Accrued directors' fees                                   (47,950)             (6,850)              7,860
         Accrued legal fees                                        (89,473)           (113,257)             14,562
         Accrued liabilities                                        167,425             (1,260)             49,451
         Common stock issued for service                            114,607             152,070                  0
Cash provided (used) by
  operating activities                                  $           542,399   $         690,214   $        316,971

Investing Activities:
         Cash advances to joint venture                         (2,845,282)         (1,865,869)          (589,619)
         Non cash advances to joint venture                     (1,516,096)         (1,018,209)          (565,930)
         Gross advances to joint venture                        (4,361,378)         (2,884,078)        (1,555,549)
         Less:  gold sale proceeds                                1,238,612                   0                  0
         Net advances to joint venture                  $       (3,122,766)   $     (2,884,078)   $    (1,155,549)

Financing Activities
         Net borrowings                                             858,466           (508,555)            358,523
         Common stock issuance                                    1,232,187           3,232,224            370,427
         Funds provided by financing activities                   2,090,653           2,723,669            728,950
Increase (decrease) in cash and cash equivalents                  (489,714)             529,805          (109,628)
         Cash-beginning of year                                     545,367              15,562            125,190
         Cash-end of year                               $            55,653   $         545,367   $         15,526

    

</TABLE>


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

                                                        93

<PAGE>




<PAGE>



                                                        94

<PAGE>



        COMMERCE GROUP CORP. AND CONSOLIDATED SUBSIDIARIES
            Notes to Consolidated Financial Statements
                           March 31, 1996

(1) The Company and Basis of Presentation of Financial Statements

(a)   Commerce Group Corp. ("Commerce," the "Company" and/or
      "Registrant") and its 82 1/2% owned subsidiary, San Sebastian
      Gold Mines, Inc.  ("Sanseb") have formed the Commerce/Sanseb
      Joint Venture ("Joint Venture") for the purpose of performing
      gold mining and related activities, including, but not limited
      to, exploration, extraction and processing of gold in the
      Republic of El Salvador, Central America.   Gold bullion, the
      Joint Venture's principal product, is produced in El Salvador
      and sold in the United States.  Exploration is taking place at
      the San Sebastian Gold Mine ("SSGM") which is located near the
      City of Santa Rosa de Lima.  Exploration is also taking place
      at four other mining properties, all located in the Republic
      of El Salvador, Central America.

      Presently,  the Joint Venture is in the  pre-production  stage at the SSGM
      and it simultaneously is performing four separate programs: it has started
      to  produce  gold on a start  up (not  full  production)  basis at its San
      Cristobal Mill and Plant ("SCMP") which is located  approximately 15 miles
      from  the  SSGM  site;  the  second  program  is to  begin  its  open-pit,
      heap-leaching  process on the SSGM site;  the third program is to continue
      its  SSGM  site   preparation,   the  expansion  of  its  exploration  and
      exploitation  targets, and the enlargement and development of its gold ore
      reserves;  and the fourth program is to explore the potential of four gold
      mine  exploration  prospects  identified as the San Felipe-El Potosi Mine,
      and its extension,  the El Capulin Mine, the Hormiguero  Mine, the Modesto
      Mine,  and the  Montemayor  Mine,  all  located  in El  Salvador,  Central
      America.  Concurrently,  it  also  is in  the  process  of  obtaining  the
      necessary  funding  for each of these  separate  programs  while its Joint
      Venture  continues  its gold  production,  exploration,  exploitation  and
      development operations.

(b)   The Company,  a United States'  corporation  (incorporated  as a Wisconsin
      corporation in 1962 and consolidated with a Delaware corporation in 1971),
      presents its consolidated financial statements in U.S. dollars.

                                                        95

<PAGE>






                                                        96

<PAGE>



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

(d)   Accounts  receivable  consist  of gold  bullion  shipped  to the  refinery
      pending the settlement date.

(e)   Inventories consist of gold on hand at the El Salvador mill
      site.

   
(f)      Investments consist of precious stones which are stated at the lower
of cost or market value.
    

(2)   Significant Accounting Policies

<PAGE>

Principles of Consolidation

The consolidated financial statements include the operations of the
Company and all of its majority-owned subsidiaries:  Homespan Realty
Co., Inc. ("Homespan"); Piccadilly Advertising Agency, Inc.
("Piccadilly"); San Luis Estates, Inc. ("SLE"); Universal
Developers, Inc. ("UDI"); San Sebastian Gold Mines, Inc. ("Sanseb");
and Mineral San Sebastian, S.A. de C.V. ("Misanse").  The Company
does not include in its financial statements the operations of the
Joint Venture.  Other than the Joint Venture, all significant
intercompany accounts and transactions have been eliminated.  For
further information regarding consolidated subsidiaries see Note 8.

<PAGE>

Income Taxes

The Company files a consolidated Federal Income Tax return with its subsidiaries
(See Note 9).

Income (Loss) Per Common Share

Net income per share is calculated based on the weighted average

                                                        97

<PAGE>



number of common  shares  issued and  outstanding  during this fiscal year.  The
Company does not include in this calculation any common stock equivalent, rights
or contingent issuances of common stock.

In computing  the shares on a fully diluted  basis,  the net income per share is
based on the  assumption  that all rights and options were exercised on the last
day of the period that is being reported.

If on March 31, 1996,  97,840 option shares would be added  assuming that all of
the stock options would be exercised,  and if these shares would be added on the
last day of this fiscal year period to the weighted average calculated number of
shares  which  amounts  to  7,368,058,  the  total  number  of  shares  would be
7,465,898,  and the profit per share for the fiscal year ended  March 31,  1996,
would be  approximately  the same. The same  assumptions  were used for the same
1995 fiscal period.

Foreign Currency

The Company itself is not involved in any foreign currency
transactions as it deposits U.S. funds primarily through bank wire
transfer of funds from its U.S. bank account into the Joint
Venture's El Salvador bank accounts.  The Joint Venture is obligated
to repay the Company for funds advanced in U.S. dollars.

Major Customer

The Joint  Venture  produces  gold and  silver.  It sells its gold to a refinery
located in the United States.  Given the nature of the precious  metals that are
sold, and because many potential  purchasers of gold and silver exist, it is not
believed that the loss of any customer would adversely affect either the Company
or the Joint Venture (Note 3).

(3) Commerce/Sanseb Joint Venture ("Joint Venture")

The  Company  is in a joint  venture  with and owns 82 1/2% of the total  common
stock  (2,002,037  shares) of Sanseb,  a U.S. State of Nevada  chartered  (1968)
corporation.  The  balance  of  Sanseb's  stock  is  held by  approximately  180
non-related shareholders,  including the President of the Company who owns 2,073
common  shares.  Sanseb was formed to explore,  exploit,  research,  and develop
adequate  gold  reserves  and then it produced  gold from SSGM from 1972 through
February 1978.

                                                        98

<PAGE>




<PAGE>

On September  22,  1987,  the Company and Sanseb  entered  into a joint  venture
agreement to formalize their relationship with respect to the mining venture and
to account for the Company's  substantial  investment in Sanseb. Under the terms
of the agreement,  the Company is authorized to supervise and control all of the
business  affairs of the Joint  Venture and has the  authority to do all that is
necessary  to  resume  mining  operations  at the SSGM on  behalf  of the  Joint
Venture.  The net pre-tax  profits of the Joint Venture will be  distributed  as
follows: Company 90%; and Sanseb 10%.

The joint venture  agreement  further provides that the Company has the right to
be compensated  for its general and  administrative  expenses in connection with
managing the Joint Venture.

Under the joint  venture  agreement,  agreements  signed by the  Company for the
benefit of the Joint Venture create obligations binding upon the Joint Venture.

The Joint  Venture is registered to do business in the State of Wisconsin and in
the Republic of El Salvador, Central America.

Accounting Matters

The Joint  Venture  records  all costs and  expenses  as capital  items which is
reduced by the gold sale proceeds and it will write off these  cumulative  costs
on a unit of production  method at such time as it begins producing gold derived
from the virgin gold ore. If the prospect of gold  production,  due to different
conditions and circumstances becomes unlikely, all of these costs may be written
off in the year that this occurs.

Advances to Joint Venture

As of March 31, 1996, the Company's advances were $11,208,809,  and three of the
Company's  wholly-owned  subsidiaries'  advances  were  $590,265  for a total of
$11,799,074.

Investment in El Salvador Mining Projects

During the fiscal year, the Company has advanced funds,  performed services, and
allocated its general and administration costs to the Joint Venture.

                                                        99

<PAGE>




As  of  March  31,  1996,  the  Company,  Sanseb  and  three  of  the  Company's
wholly-owned subsidiaries have invested (including carrying costs) the following
in its Joint Venture:

The Company's advances since 09/22/87;
  net of gold sale proceeds                        $11,208,809
The Company's initial investment                     3,508,180
Sanseb's investment in the Joint Venture             3,508,180
Sanseb's investment in the mining projects
  and amount due to the Company                     17,503,414
                                                   -----------
Total:                                              35,728,583
Advances by the Company's three subsidiaries           590,265
                                                   -----------
Combined total investment                          $36,318,848
                                                   ===========

<PAGE>

SSGM Activity

The Company had no  significant  activity at the SSGM site from  February,  1978
through January,  1987. The present status is that, the Company,  since January,
1987, and thereafter,  the Joint Venture,  since September,  1987, has completed
certain of the required mining pre-production  preliminary stages in the minable
proven gold ore reserve area,  and the Company is active in attempting to obtain
adequate financing for the proposed open-pit,  heap-leaching  operations on this
site.  The Joint  Venture is also engaged in the  exploration  and the expansion
program to develop  additional  gold ore  reserves in the area  surrounding  the
minable gold ore reserves and at four other El Salvador mining prospects.

Mineral San Sebastian S.A. de C.V. ("Misanse")

(a)  Misanse Corporate Structure

The SSGM real estate is owned by and leased to the Joint  Venture by Misanse,  a
Salvadoran chartered corporation. The Company owns 52% of the total of Misanse's
issued and outstanding shares. The balance is owned by approximately one hundred
El Salvador,  Central American, and United States' citizens. The Company has the
right to select six of Misanse's ten directors. (Note 6)


                                                        100

<PAGE>



(b)  SSGM Mining Lease

On July 28,  1975,  an amended  lease  agreement  between  Misanse as lessor and
Sanseb as tenant was signed by the parties giving the tenant all the possessions
and mining  rights that  pertain to the SSGM as well as other  claims to mineral
rights  that may already  have or could be claimed in the future  within the 595
hectares  (1,470 acres) plat of land  encompassing  the SSGM. The 25-year lease,
which  begins on the date gold  production  begins,  was further  amended to run
concurrently  with the  concession  described  herein and may be extended for an
additional  25 years by the  tenant as long as the  tenant has paid the rent and
has complied  with other  obligations  under the lease and the  concession.  The
lease  further  provides  that the tenant will pay rent  equivalent to 5% of the
gross gold production  revenue obtained from the leased SSGM and further commits
itself  to  maintain  production  taking  into  consideration  market  and other
conditions. In no case will the rent be less than eighteen hundred "colones" per
month (approximately $206 per month at the current rate of exchange).  The lease
further  provides that, in the event the lessor wishes to sell the property,  it
must first give  preference to the tenant;  the lease further  provides that the
tenant  must give  preference  to employ  former  mining  employees  and Misanse
shareholders,  providing  they  qualify for the  available  position.  The lease
agreement  was  assigned on January 29, 1987 to the Company and Sanseb  together
with the mining concession application.

The lease is freely  assignable by the Joint Venture  without notice to Misanse.
The lease may also be canceled by the Joint  Venture on thirty  day's  notice to
Misanse, and thereafter, all legal responsibilities thereunder shall cease.

In the event that additional gold ore is discovered, Misanse is required to make
proper  claim for it under the  jurisdiction  of the  Ministry  of Economy of El
Salvador's  Director of Energy,  Mines, and Hydrocarbons,  and include it in the
present  concession.  Such  addition to the lease is required to be made without
any changes to the rental  payment,  except that the expenses for  expanding the
concession shall be borne by the Joint Venture.

<PAGE>

(c)  Mineral Concession

On January 27, 1987, the Government granted a right to the mining

                                                        101

<PAGE>



concession ("concession") to Misanse which was subject to the performance of the
El Salvador Mining law requirements.  These rights were simultaneously  assigned
to the Company and Sanseb.

On July 23, 1987,  the  Government  of El Salvador  delivered and granted to the
Company's 52% owned subsidiary,  Misanse,  possession of the mining  concession.
This is the right to extract and export  minerals for a term of 25 years (plus a
25-year renewal  option)  beginning on the first day of production from the real
estate  which  encompasses  the SSGM owned by  Misanse.  Misanse  assigned  this
concession to the Joint Venture. Under the concession and applicable El Salvador
law,  the Joint  Venture  has the right to export  said  mineral  for five years
beginning  with the first day of  production  without  imposition  of mineral or
export  taxes.  It also has the right to import free of duty,  equipment and all
other  items  necessary  to  operate  SSGM.  (Reference  is  made to (h) in this
category.)

Effective  February 1, 1996,  the  Government of El Salvador  passed a law which
will  require  mining  companies  to pay to it three  percent  of its gold  sale
receipts  and an  additional  one  percent  is to be  paid  to  the El  Salvador
municipality which has jurisdiction of the mine site.

Under the terms of the concession and agreements  referred to in the concession,
the Joint Venture has agreed to the following:

(1)     The Joint Venture will pay to 270 former El Salvador
        employees pursuant  to a settlement agreement dated June,
        1985, as follows: A sum of approximately 500,000 colones
        (approximately U.S. $57,208 at the current rate of exchange)
        in three (3) installments contingent upon the production and
        sale of gold, to wit:  one-third is to be paid from the sale
        of the first production of gold; one-third is to be paid one
        (1) year thereafter; and one-third is to be paid two (2)
        years after the first payment.  The sum of 205,214 colones
        has been paid which reduces the total amount due as of March
        31, 1996, to 294,786 colones or U.S. $33,728.

(2)     Preference  is to be given to the former  Sanseb  employees  and Misanse
        shareholders  in filling any job  vacancies,  providing  that there is a
        need for their skills or services;

(3)     From the profits earned, 5% of the gross wages paid to the

                                                        102

<PAGE>



        full-time employees shall be paid into a pension fund;

(4)     From the profits earned, a sum of 500,000 colones annually
        (equivalent to $57,208 at the present rate of exchange) will
        be paid by the Joint Venture as a social tax for the benefit
        of the community in the SSGM area which said funds are to be
        used for social, economic, educational, recreational,
        health, welfare, medical or for such other beneficial
        community services as determined by the Joint Venture;

(5)     At such time as the  Government of El Salvador  forms a cooperative  for
        the benefit of the employees, the Joint Venture has agreed to contribute
        from its annual pre-tax earnings,  the sum of 5% of its pre-tax profits,
        but, in any event,  not less than a minimum  amount equal to 5% of 8% of
        the total assets;

<PAGE>

(6)     Pursuant to an agreement with the El Salvador Minister of
        Economy, at the request of the Company or the Joint Venture
        to the El Salvador Central Reserve Bank and/or office of the
        El Salvador Minister of Foreign Commerce, it will be able to
        convert the El Salvador currency into United States'
        currency for the payment of its loans, interest, and any
        other obligations, including the payment of dividends.
        Presently, there are no restrictions into converting the El
        Salvador colones into United States' currency.

On November  30, 1987,  the El Salvador  Minister of Foreign  Commerce  issued a
project  approval for the gold mining  operation which was ratified on April 15,
1988.

In  consideration  for  the  obligations  agreed  to by the  Joint  Venture  the
Government of El Salvador agreed to exempt the Joint Venture from the payment of
all  import  duty,  fiscal  or  municipal  taxes  whatsoever.  The  El  Salvador
Department of Customs refused to recognize this exemption. On November 15, 1993,
the  Joint  Venture's  attorneys  filed a  declaratory  proceeding  with  the El
Salvador  Constitutional  Supreme Court  ("Court")  informing the Court that the
Joint  Venture's  rights were being violated and that the Court should  restrain
the Department of Customs from attempting to collect any duty.


                                                        103

<PAGE>



On May 18,  1994,  the El  Salvador  Constitutional  Supreme  Court  of  Justice
declared  that the Joint Venture is entitled to be  temporarily  exempt from the
payment of all import duty, fiscal and municipal taxes on the import of any item
relating to the needs of the SSGM  pending its review of the  petition  filed on
November  15,  1993,  and that the  Company's  constitutional  rights  are to be
preserved.  The El  Salvador  Department  of Customs  takes a position  that the
Supreme  Court  could  deny the  exemption,  therefore,  in lieu of  paying  the
Custom's  duty,  it is  accepting a payment  guarantee  bond in an amount of the
Custom's  duty until a final  decision is made. It is charging the Company a 10%
added value tax prior to June 30, 1995, and 13%  thereafter  which is refundable
to the  extent  of 6% of the  value of the Joint  Venture's  exports.  The Joint
Venture intends to export all of its gold.

Gold Reserves

The Joint  Venture's  geologists  have determined that the minable and estimated
gold reserves are  approximately  15,875,000 tons which should contain 1,680,500
ounces of gold.  The  value of this gold ore  reserve  is not  reflected  in the
balance  sheet and since gold  production  has  commenced on a limited  start-up
basis these gold ore reserves will have a significant impact on future earnings.

SCMP Land and Building Lease

On  November  12,  1993,  the  Joint  Venture  entered  into an  agreement  with
Corporacion Salvadorena de Inversiones ("Corsain"),  a governmental agency of El
Salvador,  to lease for a period of ten years,  approximately  166 acres of land
and buildings on which its gold  processing  mill,  plant and related  equipment
(the SCMP) are  located,  and which is  approximately  15 miles east of the SSGM
site. The annual lease payment is U.S.  $11,500  (payable in El Salvador colones
at the then current rate of exchange),  payable annually in advance, and subject
to an annual  increase  based on the annual United  States'  inflation  rate. As
agreed,  a security  deposit of U.S.  $11,500 was paid on the same date and this
deposit will be subject to increases  based on any United  States'  inflationary
rate adjustments.

<PAGE>

Modesto Mine


                                                        104

<PAGE>



(a) Real Estate Lease

On August 26, 1994, the Company  entered into a fifteen-year  lease agreement to
lease  approximately  30 acres of key vacant land  located at the  Modesto  Mine
site,  near the  City of El  Paisnal,  El  Salvador,  at a cost of one  thousand
colones per manzana per year or approximately  U.S. $67 per acre. A condition of
the  lease  was  a  five-year   prepayment   provision  of  87,500   colones  or
approximately  U.S.  $10,011.  Also, the Company has a first right of refusal to
purchase this land.

(b) Real Estate Ownership

On  November  27,  1994,  the  Company  entered  into an  agreement  to purchase
approximately  22 acres of land which abuts the land leased at the Modesto  Mine
site.

(c) Concession

The Joint Venture has acquired an extendible  exploration concession from the El
Salvador Director of Energy, Mines and Hydrocarbons effective April 5, 1994, and
thereafter extended.

San Felipe-El Potosi Mine ("Potosi")

(a) Real Estate Lease Agreement

The Joint Venture entered into a lease  agreement with the San Felipe-El  Potosi
Cooperative  ("Cooperative") of the City of Potosi, El Salvador on July 6, 1993,
to lease the real estate encompassing the San Felipe-El Potosi Mine for a period
of 30 years and with an option  to renew the lease for an  additional  25 years,
for the purpose of mining and extracting  minerals and under the following basic
terms and conditions:

1. The  lease  payment  will  be 5% of  the  gross  receipts  derived  from  the
   production of precious metals from this site which will be payable monthly.

2. The Joint  Venture  will  advance to the  Cooperative  the funds  required to
   obtain the mining concession from the El Salvador Department of Energy, Mines
   and  Hydrocarbons  and all  related  costs which will be  reimbursed  or will
   become a deduction from future rental payments.

                                                        105

<PAGE>




3. The  Joint  Venture  will,  when it is in  production,  employ  all of the 45
   qualified members of the Cooperative providing that there is a need for their
   particular skill or service.

4. The Joint Venture will furnish  medicine and first aid medical  assistance to
   all of its employees to the extent that such benefits are not provided by the
   Salvadoran Social Security System.

5. An employee life insurance program is to be seriously considered by the Joint
   Venture when production commences,  providing that the cost of such insurance
   is not excessive.

<PAGE>



                                                        106

<PAGE>



(b) Exploration Concession

The exploration  concession application was filed on September 6, 1993, with the
Department  of Energy,  Mines and  Hydrocarbons,  a division  of the El Salvador
Minister of Economy's office, by the owners of the real estate,  the Cooperative
San Felipe-El Potosi. The concession consists of approximately 6,100 acres.

(4) Real Estate Ownership

The Company and its subsidiaries own a 331-acre  campground  located on the Lake
of the Ozarks,  Camden  County,  Missouri;  40 lots in the San Luis North Estate
Subdivision, Costilla County, Colorado; and 12 lots in the City of Fort Garland,
Costilla  County,  Colorado.  Misanse owns the 1,470 acre SSGM site located near
the City of Santa Rosa de Lima in the Department of La Union, El Salvador. Other
real estate in El Salvador is as follows: the Joint Venture leases the SCMP land
and buildings on which its mill,  plant and  equipment are located.  In addition
the Joint Venture has entered into lease arrangements based on the production of
gold  payable  in the form of  royalties  with  one of the  three  other  mining
prospects in the Republic of El Salvador.  Reference is made to Note 3 for other
real estate ownership or leases.

(5) Notes Payable and Accrued Interest

                                                  March 31

Notes payable consist of the following:       1996          1995
                                        ----------    ----------
Mortgage and promissory notes to related parties, interest ranging from 1% to 4%
over prime rate, but not less than 16%,  payable monthly,  due on demand,  using
the undeveloped land, real estate and all other assets owned by the Company, its
subsidiaries and the Joint
Venture as collateral (Note 6)          $3,084,370    $2,256,834

Other (consists primarily of
short-term notes and accrued
1996 interest  of $262,955

                                                        107

<PAGE>



(1995, $242,988.21) issued to
trade creditors and others,
interest of varying  amounts,
in lieu of actual cash payments)           499,110       468,180
                                        ----------    ----------
                         Total:         $3,583,480    $2,725,014
                                        ==========    ==========

(6)  Related Party Transactions

The Company,  in an attempt to preserve  cash, had prevailed on its President to
accrue  his  salary  for  the  past 15  years:  11  years  at  $67,740  annually
($745,140);  and  four  years at  $114,750  annually  ($459,000)  for a total of
$1,204,140.

In addition,  with the consent and approval of the  Directors,  the President of
the Company,  as an individual  and not as a Director or Officer of the Company,
entered into the following financial  transactions with the Company,  the status
of which is reflected as of March 31, 1996:

<PAGE>

The amount of funds which the Company has borrowed from its President  from time
to time, together with accrued interest, amounts to $1,346,304. To evidence this
debt,  the Company has issued its  President  a series of  open-ended,  secured,
on-demand promissory notes, with interest payable monthly at the prime rate plus
2%, but not less than 16% per annum.

The Company had  borrowed,  as of March 31,  1996,  an  aggregate  of  $342,002,
including accrued interest,  from the Company's  President's Rollover Individual
Retirement   Account  (RIRA).   These  loans  are  evidenced  by  the  Company's
open-ended, secured, on-demand promissory note, with interest payable monthly at
the prime rate plus 4% per annum, but not less than 16% per annum.

In order to satisfy  the  Company's  cash  requirements  from time to time,  the
Company's  President has sold or pledged as collateral for loans,  shares of the
Company's  common stock owned by him. In order to  compensate  its President for
selling or pledging his shares on behalf of the Company,  the Company has made a
practice  of  issuing  him the  number of  restricted  shares  of  common  stock
equivalent to the number of shares sold or pledged, plus an additional number of

                                                        108

<PAGE>



shares equivalent to the amount of accrued interest calculated at the prime rate
plus 3% per annum.  The Company  received all of the net cash  proceeds from the
sale or from the pledge of these shares.  The Company returned all of the shares
(70,100) borrowed from him during this fiscal period and it issued 24,096 of its
common  shares for the payment of interest  for the shares  loaned or pledged as
collateral for the benefit of the Company.  It may owe additional  common shares
for such shares loaned or pledged by him for  collateral  purposes to others for
the benefit of the Company,  all in accordance  with the terms and conditions of
Director  approved  open-ended loan agreements dated June 20, 1988,  October 14,
1988, May 17, 1989, and April 1, 1990.

On February 15, 1987, the Company granted its President, by unanimous consent of
the Board of Directors  compensation  in the form of a bonus in the amount of 2%
of the pre-tax profits  realized by the Company from its gold mining  operations
in El Salvador, payable annually over a period of twenty years commencing on the
first day of the month following the month in which gold production commences.

Prior  financial  statements  have  detailed  that the President has acquired on
December 10, 1993,  the  ownership of 203 Misanse  common  shares.  In addition,
effective as of June,  1995, he  personally,  for his own account,  purchased an
additional  264  Misanse  common  shares  from  a  Misanse   shareholder  in  an
arms-length  transaction.  Therefore,  he presently  owns a total of 467 Misanse
common shares. There are a total of 2,600 Misanse shares issued and outstanding.

Also with the consent  and  approval  of the  Directors,  a company in which the
President has a 55% ownership  entered into the  following  agreements,  and the
status is reflected as of March 31, 1996.

The Company leased approximately 3,100 square feet on a month-to-month basis for
its corporate  headquarters  office;  the monthly rental charge was $2,145,  and
beginning  on December 1, 1995,  the  Company  increased  the amount of space it
rents  to  4,032  square  feet  and the  monthly  rental  charge  was  increased
accordingly to $2,789. The annual amount charged for the past three fiscal years
is as follows: 1996, $28,316; 1995, $25,740; and 1994, $25,740.

<PAGE>

The same related company provides consulting,  administrative  services,  use of
data processing equipment, use of its vehicles and

                                                        109

<PAGE>



other property as required by the Company.  Total charges for these
services were as follows:  1996, $7,920; 1995, $7,620; and 1994,
$4,320.

In lieu of cash  payments for the office  space  rental and for the  consulting,
administrative  services,  etc.,  these amounts due are added each month to this
related company's open-ended,  secured,  on-demand promissory note issued by the
Company.

In addition,  this related  company does use its credit  facilities  to purchase
items needed for the Joint Venture's mining needs.

This  related  company  has  been  issued  an  open-ended,   secured,  on-demand
promissory  note  which at March 31,  1996,  amounts to  $1,175,984;  the annual
interest  rate is 4% plus the  prime  rate,  but not less  than  16%,  and it is
payable monthly.

The Company's  Directors have consented and approved the following  transactions
which status are reflected as of March 31, 1996:

The President's  wife's Individual  Retirement Account ("IRA") has the Company's
open-ended,  secured,  on-demand promissory note in the sum $176,985 which bears
interest  at an  annual  rate of prime  plus 3%,  but not less  than 16% and the
interest is payable monthly.

The Law Firm which  represents  the Company in which a son of the President is a
principal is owed the sum of $76,883 for legal services rendered.  Also, the son
of the  President and his son's wife have the  Company's  open-ended,  on-demand
promissory  note in the sum of $43,095 which bears interest at an annual rate of
16% payable monthly.

The Directors, by their agreement,  have deferred cash payment of their Director
fees beginning on January 1, 1981,  until such time as the Company's  operations
are profitable.  The Director fees are $750 for each quarterly  meeting and $250
for attendance at any other Directors' meeting.  The Executive Director fees are
fixed at $250 for each  meeting.  The  Directors  and  Officers  have a right to
exchange the amount due to them for the Company's common shares.

On September 16, 1994, the Directors adopted a resolution offering the Directors
and Officers of the Company a right to exchange the compensation due to them for
the  Company's  common  shares  valued at the lowest bid quote  reflected in the
NASDAQ Monthly Statistical

                                                        110

<PAGE>



Summaries during a twelve-month  period preceding the exercise of this right. As
of  March  31,  1996,  pursuant  to the  S.E.C.  Form 8  Registration  Statement
effective as of April 4, 1994, the Directors/Officers  exercised their rights to
purchase  5,048  shares  at a price  of  $2.625  per  share  in  payment  of all
compensation due to them as of March 31, 1996.



                                                        111

<PAGE>



The Company  advances  funds,  allocates  and charges its  expenses to the Joint
Venture. The Joint Venture in turn capitalizes all of these advances,  costs and
expenses  until  such  time as it  resumes  its gold mine  operation.  When full
production  commences,  these  capitalized  costs  will be charged as an expense
based on a per ton production  basis.  The Company also charges interest for its
advances to the Joint Venture which interest rate is established to be the prime
rate quoted on the first day of each month plus four  percent and said  interest
is payable monthly.

<PAGE>

Company Advances to the Joint Venture
                                       Total           Interest
                                      Advances          Charges
                                    -----------      ----------
Balance April 1, 1990               $ 1,625,163      $  252,060
  Year Ended March 31, 1991             718,843         266,107
  Year Ended March 31, 1992             698,793         312,004
  Year Ended March 31, 1993           1,003,617         347,941
  Year Ended March 31, 1994           1,155,549         451,180
  Year Ended March 31, 1995           2,884,078         751,389
  Year Ended March 31, 1996           3,122,766       1,286,739
                                    -----------      ----------
Balance March 31, 1996              $11,208,809      $3,667,420

Advances by three of the Company's
 wholly-owned subsidiaries              590,265               0
                                    -----------      ----------
Total Advances March 31, 1996       $11,799,074      $3,667,420
                                    ===========      ==========
(7)  Commitments

Reference is made to Notes (3), (5), (6) and (14).

(8)  Consolidated Subsidiaries

The following  subsidiaries,  all majority-owned by the Company, are included in
the consolidated  financial statements of the Company. All intercompany balances
and transactions have been eliminated.

                                          Percentage of Ownership
                                          -----------------------
     Homespan Realty Co., Inc.                    100.0%

                                                        112

<PAGE>



     Mineral San Sebastian, S.A. de C.V.           52.0%
     Piccadilly Advertising Agency, Inc.          100.0%
     San Luis Estates, Inc.                       100.0%
     San Sebastian Gold Mines, Inc.                82.5%
     Universal Developers, Inc.                   100.0%


(9)  Income Taxes

At March 31, 1996, the Company and its subsidiaries have estimated net operating
losses  remaining  in a sum of  approximately  $5,400,000  which may be  carried
forward to offset future  taxable  income;  the net  operating  losses expire at
various times to the year of 2011.

<PAGE>

(10)  Stock Options, Rights, Preferred Stock, and Stock Loans

The following stock options are in existence:

                Expiration    Term with    Option Price    Option
Issue Date         Date       Extensions   Per Share       Shares
----------      ----------    ----------   ------------    ------
05/27/94         05/27/97     3 years       $2.00          30,000
05/31/94         05/31/96     2 years       $3.00          10,880
05/31/94         05/31/97     3 years       $2.00          30,000
06/02/94         06/02/96     2 years       $3.00           2,000
06/02/94         06/02/96     2 years       $3.00           1,000
03/22/95         09/22/97    30 months      $4.00          20,710
03/30/96         03/29/98     2 years       $5.00           1,375
03/30/96         03/29/98     2 years       $5.00           1,875
                                                          -------
        Total Options issued and outstanding              $97,840
                                                          =======

To the President - Stock Rights

Reference  is made  to Note 6,  Related  Party  Transactions,  of the  Company's
financial  statements which disclose the terms and conditions of the share loans
to the Company by the President and the interest  which is payable to him by the
Company's issuance of its common shares.

Said interest payable is for shares loaned to the Company and/or for

                                                        113

<PAGE>



such shares loaned or pledged for collateral  purposes,  or for unpaid interest,
all in accordance with the terms and conditions of Director approved  open-ended
loan agreements dated June 20, 1988, October 14, 1988, May 17, 1989 and April 1,
1990.

Share Loans - Others

A series of  borrowings  of the  Company's  common  shares  were made  under the
provision that the owners would sell said shares as the Company's designee, with
the proceeds  payable to the Company.  In  exchange,  the Company  agreed to pay
these  shares  loaned  within 31 days or less by issuing its  restricted  common
shares,  together with interest payable in restricted common shares at a rate of
6% per annum in advance  for a minimum  period of two  years:  a total of 74,300
shares were borrowed through March 31, 1996, and 74,300 restricted common shares
were issued in payment.  In addition,  a total of 8,916 restricted common shares
were earned for the interest due.

Preferred Stock

The Directors of the Company have the authority to issue an unlimited  number of
preferred shares. There are 250,000 shares $0.10 par value of authorized shares;
none were issued or outstanding during the two fiscal years ended March 31, 1996
and 1995.

The preferred shares are issuable in one or more series.  The Board of Directors
is authorized  to fix or alter the dividend  rate,  conversion  rights (if any),
voting  rights,  rights and terms of  redemption  (including  any  sinking  fund
provisions),  redemption price or prices,  liquidation preferences and number of
shares constituting any wholly unissued series of preferred shares.

<PAGE>

S.E.C. Form 8 Registration

On April 4, 1994, the Company filed its Securities and Exchange  Commission Form
8  Registration  Statement No.  33-77226  under the  Securities  Act of 1933, to
register 500,000 of the Company's $.10 par value common stock for the purpose of
distributing  shares  pursuant to the  guidelines of the Company's 1994 Services
and Consulting Compensation Plan. From the 500,000 shares registered,

                                                        114

<PAGE>



192,184 were issued and 307,816 shares are authorized to be issued.

(11)  Interest Income on Advances to the Joint Venture

From  time to time the  Company  advances  funds,  services,  etc.  to the Joint
Venture. The interest rate charged is the prime interest rate fixed on the first
day of each month plus 4%. The interest is payable monthly. (Note 6)

(12)  Litigation

There is no litigation.

(13)  Quarterly Financial Data (Unaudited)

The following is a tabulation of unaudited selected quarterly  operating results
for March 31, 1996, and March 31, 1995:

                                                        Net Income
                              Net Income (Loss) Per
                                Revenues(a)   (Loss)(b)    Share
                               ----------    ---------    ------
First quarter       06/30/95   $  299,687    $ 173,459    $  .02
Second quarter      09/30/95      329,240      207,139       .03
Third quarter       12/31/95      355,729      206,487       .03
Fourth quarter      03/31/96      360,604      200,717       .03
                               ----------    ---------     -----
     Total as of    03/31/96   $1,345,260    $ 787,802     $ .11
                               ==========    =========     =====

First quarter       06/30/94   $  174,708    $  31,636     $.005
Second quarter      09/30/94      183,895       42,214      .007
Third quarter       12/31/94      223,475       74,837      .013
Fourth quarter      03/31/95      241,103      126,060      .021
                               ----------    ---------     -----
     Total as of    03/31/95   $  823,181    $ 274,747     $.046
                               ==========    =========     =====

(a)  Includes interest income from Joint Venture

(b)  Includes  interest  expense incurred on funds borrowed and then advanced to
     the Joint Venture.

<PAGE>

                                                        115

<PAGE>




(14) Contingent Liabilities

In the event the El Salvador Constitutional Supreme Court should decide that the
Joint  Venture is subject to the payment of custom duty taxes,  then the Company
would  have  contingent  liability  as it has,  on behalf of the Joint  Venture,
agreed to  reimburse  an El  Salvador  Insurance  Company  the funds that may be
disbursed to the El Salvador  customs'  office in connection with the payment of
guarantee bonds it has issued in lieu of cash payment for the import duties. The
total sum of payment  guarantee  bonds issued by the Insurance  Company  through
March 31, 1996, amounts to approximately $20,000.

   
(15) Supplemental Cash Flow Information


Supplemental  Disclosure of cash flow  information for the years ended March 31,
1996, 1995, and 1994 is as follows:


Cash paid during the year for:            1996            1995             1994

Interest                                 $      0        $     0        $      0
Income taxes                                    0              0               0
Non-cash financing activities
Equipment capital leases                 $ 35,775        $     0        $      0
    

Item 9. Changes in and Disagreements with Accountants on Accounting
        and Financial Disclosure

None






                              PART III

Item 10.  Directors and Executive Officers of the Registrant

The  information  called  for by  Item  10 is  incorporated  by  reference  from
information   under  the  caption  "Election  of  Directors"  in  the  Company's
definitive  proxy statement to be filed pursuant to Regulation 14A no later than
120 days after the close of its fiscal

                                                        116

<PAGE>



year.  The information on Executive Officers is contained in Part I,
Item 4(a) of this Form 10-K.

Item 11.  Executive Compensation

The  information  called  for by  Item  11 is  incorporated  by  reference  from
information  under  the  caption  "Executive   Compensation"  in  the  Company's
definitive  proxy statement to be filed pursuant to Regulation 14A no later than
120 days after the close of its fiscal year.

Item 12.  Security Ownership of Certain Beneficial Owners and
          Management

The  information  called  for by  Item  12 is  incorporated  by  reference  from
information  under the caption "Voting  Securities" and "Principal  Shareholders
and Ownership by Management" in the Company's  definitive  proxy statement to be
filed  pursuant to Regulation  14A no later than 120 days after the close of its
fiscal year.

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
executive  officers and directors and persons  beneficially  owning greater than
ten percent of the outstanding  shares, to file reports of ownership and changes
in ownership  with the  Securities  and Exchange  Commission.  Based solely on a
review of the copies of such forms  furnished to the Company or  representations
that no Form 5 was required,  the Company believes that all Section 16(a) filing
requirements were complied with as required.

Item 13.  Certain Relationships and Related Transactions

The  information  called  for by  Item  13 is  incorporated  by  reference  from
information under the caption "Certain  Relationships and Related  Transactions"
in the Company's  definitive  proxy statement to be filed pursuant to Regulation
14A no later than 120 days after the close of its fiscal year.

<PAGE>

                              PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on
          Form 8-K

                                                        117

<PAGE>




(a)  Financial Statements and Schedules

See index to Consolidated Financial Statements, Supplementary Data, Consolidated
Financial  Statements  of the  Registrant  and its  subsidiaries  and  Financial
Schedules in Part II, Item 8 of this report.

Report of Independent Accountants on the
 Financial Statement Schedules . . . . . . . . . . . . . . . . . 78

Schedule IV (1) Indebtedness of Related Parties. . . . . . . . . 79

Schedule IV (2) Indebtedness to Related Parties. . . . . . . . . 80

Schedule X (1) Supplementary Income Statement Information
 March 31, 1996, 1995 and 1994. . . . . . . . . . . . . . . . . .82

(b) Reports on Form 8-K

None.

(c) Exhibits

The exhibit numbers in the following list correspond to the numbers  assigned to
such  exhibits in Item 601 of  Regulation  S-K. The exhibit  numbers noted by an
asterisk (*) indicate  exhibits  actually  filed with this Annual Report on Form
10-K. All other exhibits are  incorporated  by reference into this Annual Report
on Form 10-K.

Exhibit No.            Description of Exhibit                  Page

3.1           Articles of Incorporation of the
              Company (Incorporated by reference to
              the Company's Registration Statement
              No. 2-66932 on Form S-I filed on April
              22, 1980.)

3.2           By-laws of the Company.  (Incorporated
              by reference to Exhibit 3.2 to the
              Company's Form 10-K for the year ended
              March 31, 1993.)

4             Instruments defining the rights of
              security holders, including indentures.

                                                        118

<PAGE>




4.1           Subscription Agreement, and Two-Year
              Stock Option (10,000 shares), Robert C.
              Skeen, both dated July 10, 1992
              (Incorporated by reference to Exhibit
              4.10 of the Company's Form 10-K for the
              year ended March 31, 1993.)  Option was
              exercised on July 10, 1995.

4.2           Two-Year Stock Option, Machulak,
              Hutchinson, Robertson, Dwyer & O'Dess,
              S.C., May 11,1992 (Incorporated by
              reference to Exhibit 4.11 of the
              Company's Form 10-K for the year ended
              March 31, 1993.)

<PAGE>

4.2(a)        Agreement dated May 13, 1994, to extend
              the Machulak, Hutchinson, Robertson,
              Dwyer & O'Dess, S.C. Stock Option
              expiration date to expire November 11,
              1995.  (Incorporated by reference to
              Exhibit 4.11(a) of the Company's Form
              10-K for the year ended March 31,
              1994.)

4.2(b)        Agreement dated March 14, 1995, to
              extend the Machulak, Hutchinson,
              Robertson, Dwyer & O'Dess, S.C. Stock
              Option expiration date to expire
              February 11, 1996.  50,000 partial
              option exercised, February 27, 1995
              remaining option shares, 50,260 were
              exercised on February 8, 1996.
              (Incorporated by reference to Exhibit
              4.8(b) of the Company's Form 10-K for
              the year ended March 31, 1995.)

4.3           Three-Year Stock Option Agreement dated
              May 27, 1994, (30,000 Shares).
              (Incorporated by reference to Exhibit
              10.14 of the Company's Form 10-K for
              the year ended March 31, 1994.)


                                                        119

<PAGE>



4.4           Three-Year Stock Option Agreement dated
              May 31, 1994, (30,000 Shares).
              (Incorporated by reference to Exhibit
              10.15 of the Company's Form 10-K for
              the year ended March 31, 1994.)

4.5           Two-Year Stock Option Agreement dated
              May 31, 1994, (10,880 Shares).
              (Incorporated by reference to Exhibit
              10.16 of the Company's Form 10-K for
              the year ended March 31, 1994.)


4.6           Two-Year Stock Option Agreement dated
              June 2, 1994 (2,000 Shares).
              (Incorporated by reference to Exhibit
              4.12 of the Company's Form 10-K for the
              year ended March 31, 1995.)

4.7           Two-Year Stock Option Agreement dated
              June 2, 1994 (1,000 Shares).
              (Incorporated by reference to Exhibit
              4.13 of the Company's Form 10-K for the
              year ended March 31, 1995.)


4.8           30-Month Stock Option Agreement dated
              March 22, 1995 (20,710 Shares).
              (Incorporated by reference to Exhibit
              4.14  of the Company's Form 10-K for
              the year ended March 31, 1995.)

4.9*          Two-Year Stock Option Agreement dated
              March 30, 1996 (1,375 Shares).                     83

4.10*         Two-Year Stock Option Agreement dated
              March 30, 1996 (1,875 Shares).                     87


9             Voting Trust Agreement--not applicable.

10            Material contracts regarding sale of
              assets and deferred compensation.


                                                        120

<PAGE>



<PAGE>

10.1          Bonus compensation, Edward L. Machulak,
              February 16, 1987 (Incorporated by
              reference to Exhibit 7 of the Company's
              Form 10-K for the year ended March 31,
              1987.)

10.2          Loan Agreement and Promissory Note,
              Edward L.  Machulak, June 20, 1988
              (Incorporated by reference to Exhibit
              10.2 of the Company's Form 10-K for the
              year ended March 31, 1993.)

10.3          Loan Agreement and Promissory Note,
              Edward L.  Machulak, October 14, 1988
              (Incorporated by reference to Exhibit
              10.3 of the Company's Form 10-K for the
              year ended March 31, 1993.)

10.4          Loan Agreement and Promissory Note,
              Edward L.  Machulak, May 17, 1989
              (Incorporated by reference to Exhibit
              10.4 of the Company's Form 10-K for the
              year ended March 31, 1993.)

10.5          Loan Agreement and Promissory Note,
              Edward L.  Machulak, April 1, 1990
              (Incorporated by reference to Exhibit
              10.5 of the Company's Form 10-K for the
              year ended March 31, 1993.)

10.6          Letter Agreement, Edward L. Machulak,
              October 10, 1989 (Incorporated by
              reference to Exhibit 10.6 of the
              Company's Form 10-K for the year ended
              March 31, 1993.)

10.7          Michael J. Dwyer:  Subscription
              Agreement, February 18, 1993, Security
              Agreement, February 23, 1993,
              Promissory Note, February 23, 1993,
              Two-Year Stock Option, March 26, 1993
              (Incorporated by reference to Exhibit

                                                        121

<PAGE>



              10.7 of the  Company's  Form  10-K for the year  ended  March  31,
              1993.) Option was exercised on December 12, 1994.

10.8          Edward L. Machulak:  Subscription
              Agreement, February 18, 1993, Security
              Agreement, February 23, 1993,
              Promissory Note, February 23, 1993
              (Incorporated by reference to Exhibit
              10.8 of the Company's Form 10-K for the
              year ended March 31, 1993.)  This
              promissory note was converted into
              restricted common shares on March 22,
              1996.

10.9          John E. Machulak:  Subscription
              Agreement, February 22, 1993, Security
              Agreement, February 23, 1993,
              Promissory Note, February 23, 1993,
              Two-Year Stock Option, March 26, 1993
              (Incorporated by reference to Exhibit
              10.9 of the Company's Form 10-K for the
              year ended March 31, 1993.)  Option was
              exercised on December 12, 1994. This
              promissory note was converted into
              restricted common shares on March 22,
              1996.

10.10         Loan  Agreement  and  Promissory  Note  dated  January  19,  1994.
              (Incorporated  by reference to Exhibit 10.10 of the Company's Form
              10-K for the year ended March 31, 1995.)

<PAGE>

10.11         Robert C. Skeen and Lillian M. Skeen:
              Loan Agreement and Promissory Note
              dated February 23, 1994.  (Incorporated
              by reference to Exhibit 10.12 of the
              Company's Form 10-K for the year ended
              March 31, 1994.)

10.11(a)      Robert C. Skeen and Lillian M. Skeen:

                                                        122

<PAGE>



              February 23, 1994 Loan Agreement  Amendment #1 dated May 27, 1994.
              (Incorporated  by reference to Exhibit  10.12(a) of the  Company's
              Form 10-K for the year ended March 31, 1994.)

10.11(b)      Robert C. Skeen and Lillian M. Skeen:
              February 23, 1994 Loan Agreement
              Amendment #2 dated July 6, 1994.
              (Incorporated by reference to Exhibit
              10.11(b) of the Company's Form 10-K for
              the year ended March 31, 1995.)

10.11(c)      Robert C. Skeen and Lillian M. Skeen:
              February 23, 1994 Loan Agreement
              Amendment #3 dated August 11, 1994.
              (Incorporated by reference to Exhibit
              10.11(c) of the Company's Form 10-K for
              the year ended March 31, 1995.)

10.11(d)      Robert C. Skeen and Lillian M. Skeen:
              February 23, 1994 Loan Agreement
              Amendment #4 dated March 16, 1995.
              (Incorporated by reference to Exhibit
              10.11(d) of the Company's Form 10-K for
              the year ended March 31, 1995.)

10.11(e)      Robert C. Skeen and Lillian M. Skeen:
              February 23, 1994 Loan Agreement
              Amendment #5 dated March 22, 1995.
              (Incorporated by reference to Exhibit
              10.11(e) of the Company's Form 10-K for
              the year ended March 31, 1995.)

10.12         John A.  O'Brien,  Loan Agreement and
              Promissory Note dated May 10, 1994.
              This exhibit was inadvertently omitted
              in the March 31, 1994, U.S.  Securities
              and Exchange Commission Form 10-K
              filing.  (Incorporated by reference to
              Exhibit 10.12 of the Company's Form
              10-K for the year ended March 31,
              1995.)


                                                        123

<PAGE>



10.13         Paul E. Machulak, Loan Agreement and
              Promissory Note dated June 3, 1994.
              (Incorporated by reference to Exhibit
              10.13 of the Company's Form 10-K for
              the year ended March 31, 1995.)

10.13(a)      Paul E.  Machulak, June 3, 1994 Loan
              Agreement Amendment #1 dated March 27,
              1995.  (Incorporated by reference to
              Exhibit 10.13(a) of the Company's Form
              10-K for the year ended March 31,
              1995.)

10.14         John E.  Machulak and Susan R.
              Robertson, Loan Agreement and
              Promissory Note dated June 3, 1994.
              (Incorporated by reference to Exhibit
              10.14 of the Company's Form 10-K for
              the year ended March 31, 1995.)

10.15         Anthony J.  Strigenz, Loan Agreement
              and Promissory Note dated August 11,
              1994.  (Incorporated by reference to
              Exhibit 10.15 of the Company's Form
              10-K for the year ended March 31,
              1995.)

<PAGE>

10.16         Elizabeth Ann Strigenz, Loan Agreement
              and Promissory Note dated March 24,
              1995.  (Incorporated by reference to
              Exhibit 10.16 of the Company's Form
              10-K for the year ended March 31,
              1995.)

11*           Schedule of Computation of Net Income
              Per Share.                                         91

13            Annual Report to security holders, Form
              10-Q or Quarterly Report to security
              holders:

              Annual Report for the period ended

                                                        124

<PAGE>



              March 31,  1996,  will include the Form 10-K and will be submitted
              120 days within the fiscal year end.

21*           Subsidiaries of the Company.                       92

23.1*         Consent of the independent auditors of
              the Company.                                       93

99.0          Additional Exhibits

99.1*         Confirmation agreement, General Lumber
              & Supply Co., Inc., April 5, 1996.                 94

99.2*         Confirmation Agreement, Edward L.
              Machulak, April 5, 1996.                          106

99.3*         Confirmation Agreement, Edward L.
              Machulak Rollover Individual Retirement
              Account, April 5, 1996.                           118

99.4*         Confirmation Agreement, Sylvia Machulak
              Rollover Individual Retirement Account,
              April 5, 1996.                                    124

99.5          Concession Agreement Assignment to the
              Company by Misanse (Incorporated by
              reference to Exhibit 1 of the Company's
              Form 10-K for the year ended March 31,
              1988.)

99.6          Other Material Information:
              Restatement of prior period financial
              statements (Incorporated by reference
              to Item 7 of the Company's Form 10-K
              for the year ended March 31, 1989.)

99.7          The El Salvador Constitutional Supreme
              Court of Justice order issued on May
              12, 1994, suspending immediately any
              charges to the Joint Venture for import
              duty taxes of any kind and dated May
              18, 1994 (English and Spanish.)
              (Incorporated by reference to Exhibit

                                                        125

<PAGE>



              28.6 of the Company's Form 10-K for the
              year ended March 31, 1994.)

99.8          Form S-8 Registration Statement
              effective date April 4, 1994, File No.
              33-77226.  (Incorporated by Reference
              as this S-8 Registration has been
              filed.)

99.9(d)(1)*   Certified financial statements
              Commerce/Sanseb Joint Venture for the
              fiscal year ending March 31, 1996.                134

<PAGE>

99.10(d)(2)   Individual financial  statements of majority-owned  companies have
              been  omitted   because  these   companies  do  not  constitute  a
              significant or material contribution to the Company.

<PAGE>

     COMMERCE GROUP CORP.  FORM 10-K - MARCH 31, 1996

                              PART IV



                                                        126

<PAGE>



                            SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the Company has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized on April 30, 1996.

                            COMMERCE GROUP CORP.
                            (Company)


                            By:  /s/Edward L.  Machulak
                                 -------------------------------
                                 Edward L. Machulak Director,
                                 Chairman of the Board of Directors,
                                 Member of Executive Committee,
                                 Director-Emeritus, President,
                                 Treasurer, Chief Executive,
                                 Operating and Financial Officer


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

          Name                 Office                  Date

/s/ Edward L. Machulak    Director, Chairman of     April 30, 1996
----------------------    the Board of Directors    --------------
Edward L. Machulak        Member of Executive Committee,
                          Director-Emeritus, President
                          and Treasurer

/s/ Edward A. Machulak    Director, Member of       April 30, 1996
----------------------    Executive Committee,      --------------
Edward A. Machulak        Executive Vice President
                          and Secretary

/s/ Clayton H. Tebo       Director                  April 30, 1996
----------------------                              --------------
Clayton H. Tebo



                                                        127

<PAGE>



<PAGE>

   REPORT OF INDEPENDENT ACCOUNTANTS ON THE FINANCIAL STATEMENT
                            SCHEDULES



Our report on the consolidated  financial statements of Commerce Group Corp. for
its fiscal years ended March 31, 1996, 1995, 1994, 1993 and 1992, is included in
this Form 10-K. In connection with our audits of such financial  statements,  we
have also audited the following:  supplementary  income  statement  information,
selected  financial data report, and the related financial  statement  schedules
listed in Item 14(a) of this Form 10-K.

In our opinion, the consolidated  financial statement  information and schedules
referred to above, when considered in relation to the basic financial statements
taken as a whole,  present  fairly,  in all material  respects,  the information
required to be included  therein,  all in accordance with accounting  principles
generally accepted in the United States.

REDLIN AND ASSOCIATES
Certified Public Accountants



Milwaukee, Wisconsin
April 13, 1996