TREASURE & EXHIBITS INTERNATIONAL INC, 10-K, 2000-05-16

TREASURE & EXHIBITS INTERNATIONAL INC
10-K, 2000-05-16
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the Fiscal Year Ended December 31, 1998

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

For the transition period from ______________ to _______________.

Commission File No. 2-96366-A

TREASURE AND EXHIBITS INTERNATIONAL, INC.
--------------------------------------------------
(Name of registrant as specified in its charter)

Florida 59-2483405
- -------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)

2300 Glades Road, Suite 450, West Tower, Boca Raton, Florida 33431
------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Include Area Code: (561) 750-7200

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $.001 par value
------------------------------
(Title of Class)

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 ninety (90) days. Yes No X

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]

28,990,756 shares of common stock of the Registrant were outstanding as of
April 10, 2000. As of such date, the aggregate market value of the voting and
non-voting common equity held by non-affiliates, based on the closing price on
the Nasdaq SmallCap Market, was approximately $12,559,293.

DOCUMENTS INCORPORATED BY REFERENCE

None

<PAGE>

TABLE OF CONTENTS

Page
-------

PART I

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

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS........................ 4
ITEM 6. SELECTED FINANCIAL DATA................................ 5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.......................................... 6
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK...................................... 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............ 8
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................... 8

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT............................................. 8
ITEM 11. EXECUTIVE
COMPENSATION........................................... 9
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.................................. 10
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS........................................... 12

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.................................... 13

SIGNATURES............................................................... 14

<PAGE>

PART I

ITEM 1. BUSINESS

Incorporated in Florida on January 16, 1985, Treasure and Exhibits
International, Inc. (the "Company"), formerly Vanderbilt Square Corporation,
originally engaged in the business of equipment rental through our wholly owned
subsidiary Hi-Tech Leasing, Inc. At that time we also provided management
services to Corrections Services, Inc. ("CSI"). In July 1997, we sold our
subsidiary to CSI and received 2,000,000 shares of CSI stock which were
subsequently distributed to Company shareholders as dividends. Thereafter we
entered a letter of intent to acquire an affiliated company, Michael's
International Treasure Jewelry, Inc. ("Michaels"); and the Company and Michaels,
as co-lessees, entered a lease purchase agreement with Seahawk Deep Ocean
Technology, Inc. (and its partners, collectively "Seahawk") to acquire certain
Treasure and artifacts (the "Artifacts") known as the Dry Tortugas Treasure. As
a compliment to the proposed Michaels acquisition, on March 19, 1998, we
exercised our option to purchase the Artifacts for $682,500 in cash, a $200,000
promissory note, and the issuance of 9,500,000 shares of our common stock, with
certain put options attached. We borrowed the cash portion of this transaction,
as well as the funds to pay off the $200,000 note, from our affiliate First
Capital Services, Inc. ("First Capital"). After completing a lengthy due
diligence process, and the determination that Michaels' operations could not be
audited, we abandoned the Michaels acquisition. On December 31, 1998, we sold a
portion of the Artifacts to an unrelated third party purchaser in exchange for a
$750,000 note receivable. Simultaneously, the purchaser entered into a credit
arrangement with First Capital, who paid the Company the $750,000 and took a
security interest in those pieces of the Artifacts purchased. The purchaser
subsequently defaulted on its loan obligation to First Capital, who then
accepted the pledged Artifacts in lieu of foreclosure.

On October 30, 1998, we executed a lease purchase agreement for a casino
cruise ship which provided for monthly lease payments of $80,000, payable
quarterly in advance. We funded this venture with additional borrowings from
First Capital and another affiliated company, First Consolidated Financial Corp.
("First Consolidated"). To coincide with our projected floating casino
operations, on December 29, 1998 we acquired approximately 200 gambling machines
from American Consolidated Amusement, Inc., along with a related 4000 square
foot leasehold interest in Sunny Isles Beach, Florida, in consideration for
1,500,000 shares of the Company's common stock and assumption of a $750,000 note
owed to First Capital, which was secured by a pledge of the gambling machines.
The casino cruise ship launched its maiden voyage in January 1999 wherein we
discovered certain structural and/or operational defects. We ceased lease
payments for the ship and the lessor took possession thereof. We operated the
adult gaming facility for a short time; and thereafter closed the facility upon
determining that the business was not viable.

By December 1999 we had defaulted on our master loan agreement with First
Capital whereby we had acquired funds to purchase the Artifacts and casino ship,
as well as the $750,000 note to First Capital. At the close of business of
December 31, 1999, First Capital accepted the remaining Artifacts and gambling
machines and related assets as settlement of amounts due under both the master
loan agreement and the $750,000 note.

In January 2000, we entered into a letter of intent to acquire 100% of
Union IPO Corporation ("Union IPO"), a Nevada corporation in exchange for
15,000,000 shares of the Company's common stock. Union IPO is an investment firm
targeting labor resources and union based venture capital, and promoting union
friendly technology companies. In connection with the Union IPO acquisition, a
majority of our shareholders have approved a name change to Union IPO, Inc. and
an increase in the number of authorized shares from 50,000,000 to 100,000,000.

We expect that from time to time in the future we will have opportunities
to invest or participate in ventures outside of, but connected to, our core
businesses. We will evaluate any such opportunities and, where we deem the
potential of such opportunities to merit participation or investment, we may
enter into additional ventures outside of our core businesses.

1
<PAGE>

Marketing

Other than the short lived operations of the El Dorado Casino cruise ship
and the operation of the adult gaming facility in 1999, we have not conducted
any business nor marketed any operations. Union IPO has retained Market
Management International, a public relations firm located in Winter Park,
Florida to provide marketing services. Union IPO's strategy of investing in, and
developing promising union friendly technology growth companies includes the
formation of an advisory board consisting of retired Union members, consultants
and/or pension fund advisors. Union IPO plans for the advisory board to
concentrate on private investments such as venture capital, startups, and real
estate investments; and to use its union connections to form strategic alliances
and to provide investment opportunities. Additionally, Union IPO relies on the
efforts of our operating and executive management team who regularly contact
union personnel and administrators of union venture capital.

In the event that the Union IPO acquisition is not consummated, we will
rely exclusively upon the efforts of Mr. Larry Schwartz, the Company President
to seek and obtain other business opportunities.

Competition

Following a closing of the acquisition of Union IPO, we will enter the
general venture capital marketplace which is highly competitive. We consider
CMGI, Inc. ("CMGI"), a Nasdaq 100 company, our largest competitor and exemplar
in this field. Through its subsidiaries and/or affiliates, CMGI operates a
strategic online investment firm, via its @Venture affiliates.

Union IPO also competes with numerous small venture capital firms including
but not limited to: eCompanies in Santa Monica, California; eHatchery in
Atlanta, Georgia; Intend Change in Santa Clara, California; Venture Frogs in San
Francisco, California; and Ventureworx in Charlotte, North Carolina. We do not
know of any company which only targets union based venture capital, and by
specializing and offering a family of union friendly services we hope to
capitalize in this area.

The market for Internet services is rapidly evolving and highly
competitive; principal competitive factors include name recognition,
performance, ease of use, variety of value added services, functionality and
quality of support. Union IPO is a new company and is not as well known as many
of its competitors. Additionally many competitors have greater financial,
technical and marketing resources than Union IPO.

Employees

On April 30, 1998, Edward Meyers resigned as our secretary and treasurer
leaving only one employee, Mr. Larry Schwartz, serving as president. On January
4, 1999 we hired Mr. Lee Summers as chief executive officer; however he resigned
from the Company's employ within five months, again leaving Mr. Schwartz as the
Company's only employee. Mr. Schwartz serves as President and works on a part
time basis. Upon consummation of the Union IPO acquisition, we will have two
full time employees: Mr. Brian Murphy and his brother Mr. John Murphy to serve
as President and Vice President respectively.

ITEM 2. PROPERTIES

During 1998, we maintained executive corporate offices at 2300 Glades Road,
Suite 450 in Boca Raton, Florida, provided cost free from our affiliate First
Capital. On December 7, 1998 we entered a one year lease for 15,000 square feet
of office space and additional dockage for the casino boat. The lease provided
for monthly payments of $12,000 plus $1.00 per every passenger in excess of
7,500. We vacated these premises in April 1999 and the landlord filed a lawsuit
and obtained a default judgment for approximately $130,000.

In 1999 we leased 1,866 square feet of office space in Boca Raton, Florida
pursuant to a three year lease which provided for monthly payments of $2,307.50
for the first year; $29,074.50 for the second year and $30,532.84 for the third
year. We vacated these premises in August 1999, and settled with the landlord
for payment of current rents totaling approximately $9,000. We also acquired the
leasehold pertaining to the adult gaming facility in Sunny Isles Beach Florida,
which consisted of a 3000 square foot facility and monthly payments of $6,500
for a two year term. With the cessation of the casino business, we vacated the
adult gaming premises, and the Boca Raton office space and ceased making lease
payments in the end of 1999. Neither landlord has not made a claim for unpaid
rent as of the date of this report. As of September 1999, we reestablished our
offices at 2300 Glades Road, Suite 450 in Boca Raton, Florida, cost free from
our affiliate First Capital.

2
<PAGE>

Union IPO maintains corporate offices at 11316 North Radner, Raleigh, North
Carolina, which consists of 500 square feet, cost free from an affiliate. We
believe the Union IPO property is adequate to support our current and
anticipated operations.

ITEM 3. LEGAL PROCEEDINGS

In October 1999, Odyssey Marine Exploration, Inc. ("Odyssey") obtained a
default judgment against us in the approximate amount of $340,000 in connection
with its claims that the Company allegedly had failed to honor the put options
set forth in the Artifact purchase agreement. Thereafter Mr. Schwartz negotiated
and personally guaranteed a forbearance agreement which provided that Odyssey
would not execute on the judgment and would transfer its common stock of the
Company to Mr. Schwartz provided that Mr. Schwartz and/or the Company make
weekly payments of $25,000. After Mr. Schwartz paid approximately $100,000, we
defaulted on the remainder of the weekly payments, and Mr. Schwartz and Odyssey
reached a subsequent oral agreement which provides that Odyssey will keep all of
its shares of the Company's common stock, provided such shares are free trading,
in consideration of the sum of $45,000. Mr. Schwartz had agreed to pay this
amount personally as he has already received 480,000 shares of the Company's
common stock from Odyssey pursuant to the first forbearance agreement.

In connection with the acquisition of the casino ship, we executed a lease
purchase option with Entertainment Cruises, Inc., which provided for monthly
lease payments of $80,000 payable in advance quarterly, as well as reimbursement
for insurance, crew costs and other operating expenses. Upon return of the
ship's first voyage, we discovered that the ship was materially unfit to sail in
high seas and/or in seas extending over three miles from the shoreline in that
the ship did not have sufficient stabilizers to provide sufficient passenger
comfort. We believed that this constituted a material breach of the
lease/purchase agreement and/or fraud in the inducement of the execution of such
agreement, and has prevented us from continuing our floating casino operations.
We returned the ship to the lessor, who then filed a lawsuit against the Company
claiming damages in excess of $1,000,000. We are aggressively defending this
lawsuit and are pursuing our counterclaims against the lessor, including fraud,
misrepresentation, breach of contract and warranty.

In connection with the cessation of our casino ship operations, Merrill
Stephens Dry Dock, Inc. sued us in the Dade County Circuit court for
approximately $23,000 for services and materials allegedly provided in
connection with the building of a platform for the ship. We have retained
counsel to defend this matter and Mr. Schwartz has agreed to attempt to settle
this matter with personal funds. Terminal Plaza, Inc. a dock facility in Dade
County where we docked and loaded the ship has also sued us and obtained a
default judgment in the approximate amount of approximately $130,000 for claims
relating to a one year lease for office and dockage in Dade County. The lease
provided for monthly payments of $12,000 plus $1.00 per passenger in excess of
$7,500. We have entered into a verbal agreement to settle this matter for
$15,000, which is subject to final documentation and which Mr. Schwartz has
personally agreed to pay.

In December 1998 we acquired the assets of an adult gaming facility in
Sunny Isles Beach, Florida, along with an assignment of the lease facility in
exchange for 1,500,000 shares of the Company's common stock and assumption of a
$750,00 note payable to First Capital. We also entered into a verbal agreement
with the seller to operate the facility on our behalf. We operated the adult
gaming facility for a short time; and thereafter closed and vacated the facility
upon determining that the business was not viable. First Capital accepted the
gambling machines and related assets as settlement of amounts due under the
$750,000 note. The seller claimed $100,000 for past due management fees for
which we have reached a settlement agreement with the seller for $80,000. We
have paid $25,000 of this amount and owe $55,000, which Mr. Schwartz has agreed
to pay personally.

3
<PAGE>

During the last quarter of 1999, Mr. Lee Summers, the Company's former
chief executive officer, sued us for alleged back wages in the approximate
amount of $40,000 in the Palm Beach County State Circuit Court. We have reached
an agreement to settle this matter for the issuance of approximately 150,000
shares of the Company's common stock.

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

During the first quarter of 1998, a majority of shareholder interest
consented to change the Company's name from Vanderbilt Square Corp. to Treasure
and Exhibits International, Inc. No other matters were submitted to a vote of
the security holders in 1998; however during the first quarter of 2000, a
majority of shareholder interest consented to changing the Company's name to
Union IPO, Inc. and increasing the authorized shares from 50,000,000 to
100,000,000.

PART II

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

Market Information

The Company's common stock trades on the Over the Counter Market on the
National Association of securities Dealers OTC Bulletin Board under the symbol
"VNSR". The following table sets forth the high and low bid and asked sales
price for the periods indicated. Bid Price Asked Price

High Low High Low
------ ----- ------ -----
Calendar Year 1998

Fourth Quarter.................... $.25 $.03 .28 .06
Third Quarter..................... .12 .03 .16 .06
Second Quarter.................... .18 .03 .21 .06
First Quarter.............................. .25 .12 .28 .18

Calendar Year 1997

Fourth Quarter.................... .25 .18 .35 .20
Third Quarter..................... .38 .25 .40 .25
Second Quarter.................... .30 .16 .35 .20
First Quarter..................... .33 .18 .40 .25

The quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions.

At April 11, 2000, the bid price of the Common Stock was $.57.

Holders

As of April 10, 2000, there were approximately 148 holders of record.
Additional shares of the Company's commons stock are held by additional
shareholders at brokerage firms and/or clearing houses. The Company therefore,
was unable to determine the precise number of beneficial owners of common stock
as of April 10, 2000.

4
<PAGE>

Dividends

The Company has never declared or paid any cash dividend on its Common
Stock and does not expect to declare or pay any such dividend in the foreseeable
future.

Sales of Unregistered Securities

In connection with our proposed acquisition of Michael's International
Treasure Jewelry, Inc. ("Michaels"); the Company and Michaels, as co-lessees,
entered a lease purchase agreement with Seahawk Deep Ocean Technology, Inc. (and
its partners, collectively "Seahawk") to acquire certain treasure and artifacts
(the "Artifacts") known as the Dry Tortugas Treasure. On March 19, 1998, we
exercised our option to purchase the Artifacts for $682,500 cash, a $200,000
promissory note, and the issuance of 9,500,000 shares of common stock to
Seahawk, with certain put options attached.

On July 24, 1998, First Consolidated Financial Corp. ("First
Consolidated"), a closely held Florida corporation under common control with the
Company acquired 2,876,429 shares of restricted common stock of the Company from
Seahawk Deep Ocean Technology, Inc., a Colorado corporation which acquired the
shares as part of the consideration paid by the Company for the acquisition of
the Artifacts on or about March 19, 1998. Pursuant to the terms of the stock
purchase agreement, First Consolidated paid $450,677 to acquire the common stock
from Seahawk. First Consolidated paid approximately 40% at closing and the
balance by installment payments. First Consolidated's director and chief
executive officer is Mr. Larry Schwartz, who is also the sole director and chief
executive Officer of the Company.

On December 29, 1998 we acquired the assets of American Consolidated
Amusement, Inc., which consisted of approximately 200 gambling machines along
with a related 4000 square foot leasehold interest located in Sunny Isles Beach,
Florida, in consideration for the issuance of 1,500,000 shares of the Company's
common stock to American Consolidated Amusement, Inc. and assumption of a
$750,000 note owed to First Capital, which was secured by a pledge of the
gambling machines. During this same time period, we issued 1,500,000 shares of
common stock valued at $202,500 to Mr. Larry Schwartz in satisfaction of past
due management fees owed to First Consolidated Corp. and in consideration of his
personally guaranteeing certain corporate obligations.

Pursuant to the agreement between the Company, Mr. Larry Schwartz and
Odyssey Marine Exploration, Inc., executed on November 10, 1999 to forbear
execution of the default judgment acquired by Odyssey in the approximate amount
$340,000, Mr. Larry Schwartz acquired 480,000 shares of the Company's common
stock directly from Odyssey.

ITEM 6. SELECTED FINANCIAL DATA

The Company's historical figures as of and for the years ended December 31,
1994, 1995, 1996, 1997 and 1998 have been derived from its consolidated
financial statements and related notes. The historical figures that follow are
qualified by reference to our financial statements and the related notes thereto
set forth herein.
<TABLE>

Years ended December 31,
---------------------------------------------------------
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>

Income Statement Data:
Revenues............................ $108,928 $99,710 $227,902 $144,283 $5,345
General and administrative expenses. 110,129 91,595 169,509 130,047 218,899
Net income (loss)................... 6,642 1,498 59,443 20,840 (999,146)
========== ========== ========== ========== ==========
Net income (loss) per share ........ $0.0 $0.0 $0.0 $0.0 $(0.04)
========== ========== ========== ========== ==========
Weighted average shares
outstanding ..................... 14,515,066 14,224,096 14,847,281 16,437,088 23,648,920
========== ========== ========== ========== ==========
Balance Sheet Data:
Total assets........................ 1,004,085 920,910 1,063,919 195,938 3,471,597
Total liabilities................... 78,987 40,810 51,673 17,083 3,886,888
</TABLE>

5
<PAGE>

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

Results of Operations

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenues. Net revenues decreased by 96.3% from $144,283 for the year ended
December 31, 1997 to $5,345 for the year ended December 31, 1998. Realized and
unrealized gain in investments in marketable securities decreased by 96.9% from
$111,578 in 1997 to $3,410 in 1998. The decrease in gain on investments was
attributable to a decline in the market price and the distribution of our
holdings in CSI to the Company's shareholders.

General and administrative expenses. General and administrative expense
increased by 68.3% from $130,047 in 1997 to $218,899 in 1998. The increase in
general and administrative expenses was primarily attributable to costs incurred
in connection with the creation of an infrastructure to manage the Company and
the increased costs incurred in connection with operations.

Losses from Continuing Operations. Losses from continuing operations
totaled $503,554, for the year ended December 31, 1998, a decrease of $530,382
from income of $26,828 during 1997. This decrease is primarily attributable to
increased general and administrative expenses relating to start up and leasing
costs of a casino cruise ship, and acquisition of the adult gaming facility.

Losses from Discontinued Operations. In 1998 we abandoned our intended
acquisition of Michaels International Treasure Jewelry Inc., and sold a portion
of the Artifacts for $750,000. The revenue and related costs are included in
discontinued operations. Loss from discontinued operations totaled $495,592, net
of income tax benefit of $290,000, for the year ending December 31, 1998,
compared to a loss of $5,988 relating to the sale of our equipment leasing
subsidiary Hi-Tech Leasing, Inc. As a result, we had a net loss of $999,146 in
1998 compared to net income of $20,840 realized in 1997.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Our revenues for the year ended December 31, 1997 were $144,283 as compared
to $227,902 for the year ended December 31, 1996. The increase in revenues was
caused primarily from an increase in income from sales of marketable equity
securities.

Operating expenses decreased to $130,047 for the year ended December 31,
1997 as compared to $169,509 at December 31, 1996. The difference between
operating expenses at December 31, 1997 and December 31, 1996 was $39,462. The
principal reason for the difference was the decrease in selling, general and
administrative expenses. Net income for the year ended December 31, 1997 was
$20,840 as compared to net income of $59,443 for the year ended December 31,
1996. The decrease of $38,603 for the year ended December 31, 1997 as compared
to 1996 was principally due to a decrease in earnings from the sale of
marketable equity securities.

Liquidity and Capital Resources

At December 31, 1998, we had a working capital deficit of $3,115,791 and a
cash balance of $1,544. This compares to working capital of $178,855 and a cash
balance of $179,795 at December 31, 1997. At December 31, 1998, we had current
assets of $771,097 as compared to $195,938 at December 31, 1997; total assets of
$3,471,597 at December 31, 1998 as compared to $195,938 at December 31, 1997;
current and total liabilities of $3,886,888 at December 31, 1998 as compared to
$17,083 at December 31, 1997; and a negative net worth of $415,291 at December
31, 1998 as compared to net worth of $178,855 at December 31, 1997. The increase
in assets was principally due from the original purchase of the Artifacts and a
note receivable of $750,000 resulting from the sale of a portion of the
Artifacts, and the recording of net assets for discontinued operations.

6
<PAGE>

During the year ended December 31, 1998, we had a decrease in cash and cash
equivalents of $178,251, from $179,795 to $1,544. This decrease in cash was
principally due to start up costs incurred in connection with the acquisition of
business operations. As a result of the loss incurred in 1998, operating
activities used $321,001 in cash during 1998.

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

At December 31, 1997, we had working capital of $178,855 and a cash balance
of $179,795 as compared to $715,530 and a cash balance of $250,209 at December
31, 1996. At December 31, 1997, we had current assets of $195,938 as compared to
current assets of $763,977 at December 31, 1996; total assets of $195,938 as
compared to $1,063,919 at December 31, 1996; current liabilities of $17,083 as
compared to $48,447 at December 31, 1996; total liabilities of $17,083 as
compared to $51,673 at December 31, 1996 and a net worth of $178,855 at December
31, 1997 as compared to $1,012,246 at December 31, 1996. The decrease in current
assets and working capital is primarily attributable to a decrease in investment
in marketable trading securities. The decrease in net worth is attributable to
the decrease in investment in marketable trading securities together with a
decrease in investment in unconsolidated subsidiary. On August 28, 1997, we
distributed substantially all of our investment in our affiliate CSI to the
Company's shareholders on a .17 per one basis.

Subsequent Events

Artifacts. Subsequent to March 19, 1999, substantially all of the
outstanding shares issued pursuant to the Artifact purchase agreement were put
to the Company at a per share price of $.17. As a result, the amount of
$1,615,000 is reflected as a liability. Odyssey Marine Exploration, Inc. filed a
lawsuit alleging our failure to comply with the purchase agreement and related
put options. Thereafter Mr. Schwartz negotiated and personally guaranteed a
forbearance agreement which provided that Odyssey would not execute on the
judgment and would transfer its common stock of the Company to Mr. Schwartz
provided that weekly payments of $25,000 were made. After paying approximately
$100,000, we defaulted on the remainder of the weekly payments, and Mr. Schwartz
and Odyssey reached a subsequent oral agreement which provides that Odyssey will
keep all of its shares of the Company's common stock, provided such shares are
free trading, and a payment of $45,000. Mr. Schwartz has agreed to pay this
amount personally as he received 480,000 shares of the Company's common stock
from Odyssey pursuant to the first forbearance agreement.

Casino operations. In January 1999, our casino cruise ship launched its
maiden voyage whereon we discovered that the ship did not have sufficient
stabilizers thereby causing many of the passengers to became sea-sick. Because
we were unable to operate the ship with positive cash flow, we stopped making
lease payments under the lease/purchase agreement, and the lessor, Entertainment
Cruises, Inc. took possession of the ship. The lessor has filed a lawsuit for
the outstanding amount due under the lease (in excess of $1,000,000) and we have
counterclaimed for misrepresentations and fraud, as well as breach of warranty.

First Capital Loans. In connection with our option to purchase the
Artifacts and lease of the casino cruise ship, our affiliate First Capital Corp.
loaned us approximately $1,882,000 pursuant to a master loan agreement. In
connection with our purchase of assets from American Consolidated Amusement,
Inc., we assumed a $750,000 note owed to First Capital. By December 1999 we had
defaulted on our master loan agreement as well as the $750,000 note to First
Capital. At the close of business of December 31, 1999, First Capital accepted
the remaining Artifacts and gambling machines and related assets as settlement
of amounts due under both the master loan agreement and the $750,000 note, plus
unpaid interest.

Year 2000 Issue

We experienced no material failures and incurred no material costs or
losses as a result of the Year 2000 Issue.

Impact of Inflation

Inflation has not been a major factor in our businesses since inception.
There can be no assurances that this will continue.

7
<PAGE>

Certain Factors Affecting Future Operating Results

This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference assuming consummation of the Union IPO acquisition
include the following: possible fluctuations in the growth and demand for union
laborers; regulation of unions and related labor issues; intense competition for
union member capital venture; currency, economic, financing and other risks
inherent in investment markets; uncertainty regarding the rate of growth of
union friendly high-tech companies; and general economic conditions. In the
event that we do not acquire Union IPO, then we believe that in order to
commence active operations, we must acquire an operating company. We will
continue to look for potential business opportunities; however we are solely
dependent upon the efforts of our president Mr. Schwartz in this area. We have
only limited funds available to aid in the search of a business opportunity and
there can be no assurance that we will raise additional capital to enable us to
acquire a suitable potential business opportunity, or that we will ever acquire
such business opportunity.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company, together with the
independent auditors' report thereon of Rachlin, Cohen & Holtz, LLP, appear
beginning on page F-1 of this report. See Index to Financial Statements.

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

On January 25, 1999, we dismissed Thomas W. Klash as our CPA. At that time
we had not entered into an engagement agreement with Mr. Klash for the audit of
our financial statements for the fiscal year ended December 31, 1998; and
neither of the auditors reports or our financial statements for the fiscal years
ended December 31, 1997 and 1996 contain an adverse opinion or a disclaimer, or
was qualified or modified as to uncertainty, audit scope or accounting
principles.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Information Regarding Executive Officers and Directors

The following table sets forth the names, ages and offices of the present
executive officers and directors of the Company. The periods during which such
persons have served in such capacities are indicated in the description of
business experience of such persons below.

Name Age Position
------ ----- ----------
Larry Schwartz 51 President, Secretary, Treasurer and Director
Brian Murphy 34 President Elect, Director nominee
John Murphy 30 Vice President Elect

All officers serve at the discretion of the Board of Directors. Brian
Murphy and John Murphy are brothers; and have been elected to serve in their
offices contingent upon the closing of the Union IPO acquisition. Otherwise,
there are no family relationships among any of the directors or officers of the
Company.

Larry Schwartz. Mr. Schwartz was appointed President on August 27, 1997 and
assumed the duties of secretary and treasurer on April 30, 1998 upon the
resignation of Edward Meyer. Mr. Schwartz is also president and chief executive
officer of First Capital Services, Inc. and First Consolidated Financial
Corporation. He is presently and has for the last seven years been engaged in
the business of asset based lending, financial consulting services and financial
placement services. Mr. Schwartz holds a BS degree from Boston State College and
an MA degree from Boston College.

8
<PAGE>

Brian Murphy. Mr. Murphy is president of Union IPO Corporation, a recently
formed Nevada company engaged in the investment business. He is also serving his
second term as president of the United Food and Commercial Workers Union Local
24. In 1997, he was elected to serve a three year term as Vice President of the
North Carolina AFL-CIO Union.

John Murphy. Mr. Murphy is a CPA, and the vice president of Union IPO
Corporation. He is also a senior business consultant at Signature Systems, Inc.
in Rockville, Maryland. Prior thereto he served as navision application
developer for AVF, Inc., and assistant controller for the National Football
League Players Association. He was a staff auditor at Thomas Harvey & Co and
graduated from West Virginia University with a BS degree.

Compliance With Section 16(a) of Exchange Act

Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission. All of the filing requirements were
satisfied on a timely basis in 1998. In making these disclosures, the Company
has relied solely on written statements of its directors, executive officers and
shareholders and copies of the reports that they filed with the Commission.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning cash and non-cash
compensation paid or accrued for services in all capacities to the Company
during the three years ended December 31, 1998 of each of the Company's most
highly compensated executive officers.
<TABLE>

Long Term
Annual Compensation Compensation
--------------------------------------------------- ----------------
Other Annual Stock
Name and Principal Position Year Salary ($) Bonus ($) Compensation ($) Options (#)(2)
- --------------------------- ------ ------------ ----------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>

Larry Schwartz.................. 1998 0 0 (1) 0
President 1997 0 0 (1) 0

Lee Summers..................... 1998 0 0 (2) (2)
Executive Vice President

Norman Becker................... 1997 4,000 0 1,163 0
Former President 1996 4,000 0 3,338 0

Diane Aquino.................... 1997 7,500 0 0 0
Former Secretary and Treasurer 1996 7,500 0 0 0

</TABLE>

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

(1) In 1997 and 1998, First Consolidated Financial Corp. earned $30,000 and
$60,000 respectively in management fees pursuant to a written agreement
with the Company. In 1998, Mr. Schwartz received 1,500,000 shares of the
Company's common stock in connection with settlement of unpaid management
fees owed to First Consolidated and for personally guaranteeing certain
corporate obligations. Mr. Schwartz is both an officer and major
shareholder of First Consolidated Financial Corp.
(2) The Company and Mr. Summer entered a three year employment contract
commencing January 4, 1999 providing for annual compensation ranging from
$100,000 to $150,000; immediate issuance of 100,000 shares of the Company's
common stock and stock options at $.23 exercisable during the term of the
employment contract. On June 4, 1999 Mr. Summers left the Company and in
the fourth quarter of 1999, filed a law suit in the state circuit court of
Palm Beach County, Florida claiming alleged back wages of $40,000. He has
verbally agreed to accept 150,000 shares of the Company's common stock as
settlement of his claims; however the settlement is subject to final
documentation.

9
<PAGE>

Compensation of Directors

No additional compensation of any nature is paid to any directors.

Company Performance

The following graph compares the cumulative total investor return on the
Company's Common Stock for the five year period ended December 31, 1998 with an
index consisting of returns from a peer group of companies, consisting of the
Nasdaq Non-Financial Index (the "Nasdaq Non-Financial Index"), and The Nasdaq
Stock Market Composite Index (the "Nasdaq Composite Index").

The graph displayed below is presented in accordance with Securities and
Exchange Commission requirements. Shareholders are cautioned against drawing any
conclusions from the data contained herein, as past results are not necessarily
indicative of future performance. This graph in no way reflects the Company's
forecast of future financial performance.

<TABLE>

Base Period December December December December December
December 31 1993 31 1994 31 1995 31 1996 31 1997 31 1998
---------------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>

Treasure & Exhibits 100 85.71 89.29 257.14 257.14 42.86
Nasdaq Composite Index 100 110 145 180 225 308
Nasdaq Non-Financial Index 100 105 140 170 200 290
</TABLE>

[GRAPH APPEARS AT THIS LOCATION DEPICTING THE FOLLOWING STOCK PERFORMANCE]

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table is furnished as of April 11, 2000, to indicate
beneficial ownership of shares of the Company's Common Stock by (1) each
shareholder of the Company who is known by the Company to be a beneficial owner
of more than 5% of the Company's Common Stock, (2) each director, and named
officer of the Company, individually, and (3) all officers and directors of the
Company as a group. The information in the following table was provided by such
persons.

10
<PAGE>

Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership (1) Class
--------------------- -------------------------- ----------
Larry Schwartz (2)...................... 4,154,824 (2) 14.3%
Seahawk Deep Ocean Technology, Inc.(3).. 2,802,084 9.7%
All executive officers and directors
as a group (1 persons) 4,154,824 14.3%

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

Change in Control Following Acquisition of Union IPO

Upon consummation of the Union IPO acquisition, 15,000,000 shares of the
Company's common stock will be issued to shareholders and/or shareholder
designees in accordance with the Exchange agreement. The following table is
furnished as of April 11, 2000, to indicate beneficial ownership of shares of
the Company's Common Stock by (1) each shareholder of the Company who is known
by the Company to be a beneficial owner of more than 5% of the Company's Common
Stock, (2) each director, and named officer of the Company, individually, and
(3) all officers and directors of the Company as a group, assuming issuance of
the additional 15,000,000 shares pursuant to the Union IPO acquisition.

Name and Address Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership (1) Class
--------------------- -------------------------- -----------
Larry Schwartz (2)......................... 6,554,824 (2) 14.9%
Seahawk Deep Ocean Technology, Inc.(3)..... 2,802,084 6.4%
Brian Murphy (4)........................... 1,000,000 2.3%
Tom Tedrow (5)............................. 6,400,000 (5) 14.5%
All executive officers and directors
as a group (1 persons) 1,000,000 2.3%

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

(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws, where applicable, and the information
contained in the footnotes to the table.
(2) Address is 2300 Glades Road, Boca Raton, Florida 33431, and includes
2,174,824 shares owned by First Consolidated Financial Corp., which is
owned and controlled by Mr. Schwartz, as well as 2,400,000 shares owned by
Union Consulting Group, Inc. a company owned 50% by Mr. Schwartz.
(3) Address is 5102 S. Westshore Blvd., Tampa, Florida 33611.
(4) Address is 234 S. Broad Street, Winston Salem, North Carolina 27101.
(5) Address is P.O. Box 2004, Winter Park, Florida 32790; and includes
2,000,000 shares held in the name of Market Management International, Inc.,
a company owned and controlled by Mr. Tedrow; 2,000,000 shares held in the
name of Shipwright Assets Ltd; and 2,400,000 held in the name of Union
Consulting Group, Inc., a company owned 50% by Mr. Tedrow.

11
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Since 1997, we have leased executive offices, cost free from First Capital
Services Corp., ("First Capital"), a company controlled by Mr. Larry Schwartz.
We executed a management contract with First Consolidated Financial Corp. which
provided for payment of $10,000 per month in fees for one year, automatically
renewable unless terminated. We modified the agreement in 1998 to reduce the
monthly fees to $5,000 per month. In 1997 and 1998, First Consolidated Financial
Corp. earned $30,000 and $60,000 respectively in management fees.

In connection with the proposed Michaels International Treasure Jewelry
("Michaels") acquisition, on March 19, 1998, we exercised our option to purchase
Artifacts from Seahawk Deep Sea Technology, Inc., for $682,500 cash, a $200,000
promissory note, and the issuance of 9,500,000 shares of common stock, with
certain put options attached. We borrowed the cash portion of this transaction,
together with the funds necessary to repay the $200,00 promissory note, from our
affiliate First Capital. On December 31, 1998, after abandoning the Michaels
acquisition, we sold a portion of the Artifacts to an unrelated third party
purchaser in exchange for a $750,000 note receivable. Simultaneously, the
purchaser entered into a credit arrangement with First Capital, who paid the
Company the $750,000 owed and took a security interest in those Artifacts
purchased. The purchaser defaulted on its loan obligation to First Capital, who
accepted the pledged Artifacts in lieu of foreclosure.

On October 30, 1998, we entered a lease purchase agreement for a casino
cruise ship which provided for monthly lease payments of $80,000, payable
quarterly in advance. We funded this venture with additional borrowings from
First Capital and another affiliated company, First Consolidated Financial Corp.
("First Consolidated"). Both First Capital and First Consolidated are affiliates
since Mr. Schwartz is both an officer and major shareholder of both companies.

To coincide with our projected floating casino operations, on December 29,
1998 we acquired approximately 200 gambling machines from American Consolidated
Amusement, Inc., along with a related 4000 square foot leasehold interest
located in Sunny Isles Beach, Florida, in consideration for 1,500,000 shares of
the Company's common stock and assumption of a $750,000 note bearing interest at
12% owed to First Capital, which was secured by a pledge of the gambling
machines. We operated the adult gaming facility for a short time; and thereafter
closed the facility upon determining that the business was not viable.

First Capital has provided primary financing pursuant to the master loan
agreement which provided for interest at 12% and due on December 1,2000. The
loan is secured by all our assets. We had outstanding loan amounts to First
Capital at December 31, 1998 of approximately $1,882,000. First Consolidated
provided financing in the amount of $289,000 through December 31, 1998. This
loan is due on demand, bears interest at 12%, and is unsecured.

By December 1999 we had defaulted on our master loan agreement with First
Capital whereby we had acquired funds to purchase the Artifacts and casino ship,
as well as the $750,000 note to First Capital. At close of business of December
31, 1999, First Capital accepted the remaining Artifacts and gambling machines
and related assets as settlement of amounts due under both the master loan
agreement and the $750,000 note.

Mr. Schwartz and First Capital have agreed to settle the following lawsuits
on our behalf, including paying all incidental costs as well as settlement
costs, conditioned upon closing the Union IPO acquisition:

1. Litigation with Odyssey Marine Exploration, Inc. relating to claims
regarding the purchase of the Artefacts and put options and its
outstanding judgment of approximately $340,000 against us.

2. Litigation with Entertainment Cruises, Inc., relating to their claims
for monthly lease payments of $80,000 for the cruise ship.

3. Litigation with Merrill Stephens Dry Dock, Inc. relating to their
claims for services and materials allegedly provided in connection
with the building of a platform for the ship.

4. Litigation with Terminal Plaza, Inc. relating to alleged dock facility
charges and satisfaction of a $130,000 judgment plus pre and post
judgment interest.

5. Litigation with American Consolidated Amusement, Inc. regarding its
claims for management fees

6. Litigation with Mr. Lee Summers for alleged back wages in the
approximate amount of $40,000.

12
<PAGE>

PART IV

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

(a) The following documents are filed as a part of this Report:

(1) Financial Statements:

(i) Report of Independent Auditor
(ii) Consolidated Balance sheet as of December 31, 1998 and December
31, 1997
(iii)Consolidated Statement of Operations for the three years ending
December 31, 1998, 1997 and 1996
(iv) Consolidated Statement of Shareholders equity for the three years
ended December 31, 1998, 1997 and 1996
(v) Consolidated Statement of Cash Flows for the three years ended
December 31, 1998, 1997 and 1996
(vi) Notes to Consolidated Financial Statements

(2) Financial Statement Schedules None

(3) Exhibits

27.1 Financial Data Schedule

(b) Reports on Form 8-K

During the quarter ended December 31, 1998 we filed a report of Form 8-K of
the lease purchase option for a casino cruise ship. We also reported the
acquisition of the assets of American Consolidated Amusement in exchange
for 1,500,000 shares of the Company's common stock and assumption of a note
payable of $750,000.

SIGNATURES

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

TREASURE AND EXHIBITS INTERNATIONAL, INC.

By: /s/ Larry Schwartz
---------------------------------------
Larry Schwartz
President, Chief Executive Officer and
Chief Financial Officer

Dated: May 16, 2000

13
<PAGE>

TREASURE AND EXHIBITS INTERNATIONAL, INC. AND SUBSIDIARIES

Index to Consolidated Financial Statements

Page
------

Independent Auditor's Report.................................................F-1

Consolidated Balance Sheets as of December 31, 1998 and 1997.................F-3

Consolidated Statements of Operations for the Years ended December
31, 1998, 1997 and 1996...................................................F-4

Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1998, 1997 and 1996..........................................F-5

Consolidated Statements of Cash Flows for the Years ended December 31,
1998, 1997 and 1996.......................................................F-6

Notes to Consolidated Financial Statements...................................F-7

14
<PAGE>

TREASURE AND EXHIBITS INTERNATIONAL, INC.

INDEX TO FINANCIAL STATEMENTS

Page
------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1 - F-2
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheets F-3
Statements of Operations F-4
Statements of Stockholders' Equity (Deficiency) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7 - F-20

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Treasure and Exhibits International, Inc.
Boca Raton, Florida

We have audited the accompanying consolidated balance sheet of Treasure and
Exhibits International, Inc. as of December 31, 1998, and the related statements
of operations, stockholders' equity (deficiency) and cash flows for the year
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Treasure and
Exhibits International, Inc. as of December 31, 1998, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As described in Note 2 to the
consolidated financial statements, the Company is subject to certain significant
risks and uncertainties, which conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans with regard
to these matters are also described in Note 2 to the consolidated financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of these significant risks and uncertainties.

RACHLIN COHEN & HOLTZ LLP

Fort Lauderdale, Florida
April 18, 2000

F-1
<PAGE>

Board of Directors and Shareholders
Treasure and Exhibits International, Inc.
Boca Raton, Florida

INDEPENDENT AUDITOR'S REPORT

I have audited the accompanying consolidated balance sheet as of December 31,
1997 and the related statements of operations and stockholders' equity and cash
flows for each of the two years ended December 31, 1997. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audits.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Treasure and Exhibits
International, Inc. as of December 31, 1997 and the results of its operations
and its cash flows for each of the two years ended December 31, 1997, in
conformity with generally accepted accounting principles.

Thomas W. Klash
Certified Public Accountant
Hollywood, Florida
February 9, 1998

F-2
<PAGE>
TREASURE AND EXHIBITS INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1998 AND 1997

ASSETS
1998 1997
------ ------
Current Assets:
Cash and cash equivalents $ 1,544 $ 179,795
Investments in marketable securities 19,553 16,143
Note receivable 750,000 -
---------- ----------
Total current assets 771,097 195,938

Property and Equipment 2,700,000 -

Other Assets 500 -
---------- ----------
$ 3,471,597 $ 195,938
========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current Liabilities:
Accounts payable and accrued liabilities $ 100,834 $ 17,083
Notes and loans payable - related parties 2,171,054 -
Estimated liability related to put option 1,615,000 -
---------- ----------
Total current liabilities 3,886,888 17,083
---------- ----------
Commitments, Contingencies, Related Party Transactions
and Subsequent Event - -

Stockholders' Equity (Deficiency):
Common stock $.0001 par value, 50,000,000 shares
authorized; 28,990,756 and 16,490,756 shares issued
and outstanding 2,899 1,649
Additional paid-in capital 1,541,113 1,137,363
Deficit (1,959,303) (960,157)
---------- ----------
(415,291) 178,855
---------- ----------
$ 3,471,597 $ 195,938
========== ==========

See notes to consolidated financial statements

F-3
<PAGE>

TREASURE AND EXHIBITS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>

1998 1997 1996
------ ------ ------
<S> <C> <C> <C>

Revenue:
Interest and dividend income $ 1,935 $ 32,101 $ 39,424
Realized and unrealized gain on investments
in marketable securities 3,410 111,578 187,493
Direct finance lease income - 604 985
--------- ---------- ----------
5,345 144,283 227,902

General and Administrative Expenses 218,899 130,047 169,509
--------- ---------- ----------
Income (Loss) From Continuing Operations Before
Other Income and Income Taxes (213,554) 14,236 58,393

Other Income:
Equity in earnings of unconsolidated subsidiary - - 26,453
--------- ---------- ----------
Income (Loss) From Continuing Operations Before
Income Taxes (213,554) 14,236 84,846

Income Tax (Expense) Benefit (290,000) 12,592 (25,403)
--------- ---------- ----------
Income (Loss) From Continuing Operations (503,554) 26,828 59,443
--------- ---------- ----------
Discontinued Operations:
Loss from operations of discontinued operations,
net of $290,000 income tax benefit (495,592) - -
Loss on disposal of subsidiary - (5,988) -
--------- ---------- ----------
(495,592) (5,988) -
--------- ---------- ----------
Net Income (Loss) $ (999,146) $ 20,840 $ 59,443
========= ========== ==========
Net Income (Loss) Per Common Share - Basic
and Diluted:
Continuing operations $ (0.02) $ - $ -
Discontinued operations (0.02) - -
--------- ---------- ----------
Net Income (Loss) $ (0.04) $ - $ -
========= ========== ==========
Weighted Average Number of Common Shares Outstanding 23,648,920 16,437,088 14,847,281
=========== =========== ============
</TABLE>

See notes to consolidated financial statements

F-4
<PAGE>

TREASURE AND EXHIBITS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996

<TABLE>

Common Stock Additional
Paid-in Treasury
Shares Amount Capital Deficit Stock Total
--------- --------- ------------ --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>

Balance, December 31, 1995 13,935,850 $ 1,499 $ 970,557 $ (9,221) $(82,735) $ 880,100
-
Year Ended December 31, 1996: -
Stock dividend 1,499,156 150 166,806 (166,956) - -
Purchase of treasury stock (249,100) - - - (33,070) (33,070)
Sale of treasury stock 1,212,450 - - - 105,773 105,773
Net income - - - 59,443 - 59,443
------------- --------- ------------ ----------- --------- -----------
Balance, December 31, 1996 16,398,356 1,649 1,137,363 (116,734) (10,032) 1,012,246

Year Ended December 31, 1997:
Sale of treasury stock 92,400 - - - 10,032 10,032
Dividend distribution - - - (864,263) - (864,263)
Net income - - - 20,840 - 20,840
------------- --------- ------------ ----------- --------- -----------
Balance, December 31, 1997 16,490,756 1,649 1,137,363 (960,157) - 178,855

Year Ended December 31, 1998:
Issuance of common stock to acquire: -
Artifacts, net of put option 9,500,000 950 (950) - - -
Business 1,500,000 150 202,350 - - 202,500
Stock issued for services 1,500,000 150 202,350 - - 202,500
Net loss - - - (999,146) - (999,146)
------------- --------- ------------ ----------- --------- -----------
Balance, December 31, 1998 28,990,756 $ 2,899 $ 1,541,113 $(1,959,303) $ - $ (415,291)
============= ========= ============ =========== =========
</TABLE>

See notes to consolidated financial statements

F-5
<PAGE>

TREASURE AND EXHIBITS INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>

1998 1997 1996
------ ------ ------
<S> <C> <C> <C>

Cash Flows from Operating Activities:
Net income (loss) $(999,146) $ 20,840 $ 59,443
Adjustments to reconcile net income (loss) to net cash and
cash equivalents provided by (used in) operating activities:
Expenses paid by affiliate on behalf of Company 395,804 - -
Stock issued for services 202,500 - -
Deferred income taxes - (11,564) 25,403
Provision for bad debts - - 74,000
Realized and unrealized gain on sale of marketable securities (3,410) (105,950) (243,081)
Loss on sale of subsidiary - 5,988 -
Equity in earnings of unconsolidated subsidiary - - (26,453)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable - 4,334 23,225
Other assets (500) 143 -
Increase (decrease) in:
Accounts payable and accrued liabilities 83,751 (23,026) 5,291
Income taxes payable - 3,749 (9,741)
Proceeds from sale of marketable securities - 245,107 728,716
Purchases of marketable securities - (76,642) (531,320)
---------- --------- ---------
Net cash provided by (used in) operating activities (321,001) 62,979 105,483
---------- --------- ---------
Cash Flows from Investing Activities:
Loans and advances to:
Affiliates (125,000) (160,000) (74,043)
Other - (6,500) (9,250)
Principal payments received:
Affiliates 125,000 193,907 15,695
Others - 13,161 32,229
Principal collections on direct financing leases - 2,272 3,379
Proceeds from sale of unconsolidated subsidiaries - 44,511 4,753
Investment in unconsolidated subsidiary - (220,744) (18,119)
Purchase of equipment - - (7,100)
---------- --------- ---------
Net cash used in investing activities - (133,393) (52,456)
---------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from notes payable - affiliates 142,750 - -
---------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (178,251) (70,414) 53,027

Cash and Cash Equivalents, Beginning 179,795 250,209 197,182
---------- --------- ---------
Cash and Cash Equivalents, Ending $ 1,544 $ 179,795 $ 250,209
========== ========= =========
Cash Paid for Interest $ 3,333 $ - $ -
========== ========= =========
</TABLE>

See notes to consolidated financial statements

F-6
<PAGE>

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Capitalization

The Company was organized as Vanderbuilt Square Corp. under the laws of the
State of Florida on January 16, 1985. On February 10, 1998, the name of the
Company was changed to Treasure and Exhibits International, Inc. Until
mid-1997, the Company was engaged in leasing equipment to customers through
its wholly-owned subsidiary, Hi-Tech Leasing, Inc. (Hi-Tech); deriving
revenue from investments in marketable securities; and rendering consulting
advice and administrative and office management services to its affiliate,
Corrections Services, Inc. (CSI). CSI is a publicly-held company engaged in
marketing an electronic monitoring system to corrections agencies and
facilities.

At December 31, 1996, the Company owned a 27.7% interest in CSI and was
otherwise affiliated with CSI through common management and control. On
July 28, 1997, the Company sold its entire investment in Hi-Tech to CSI in
exchange for 2,000,000 restricted shares of CSI's authorized but previously
unissued restricted common stock. The Company valued the common shares
received in the purchase and sale transaction at $731,000 and reported a
loss on the sale of its subsidiary, Hi-Tech, amounting to $5,988.

On August 28, 1997, the Company distributed substantially all of its
holdings in CSI to the Company's stockholders pro-rata with their
respective ownership interests in the Company. Each Company stockholder
received .17 shares of CSI Common Stock for each share of the Company's
Common Stock held. No fractional shares were issued and no cash was
distributed in lieu of fractional shares. Instead, a full share of CSI
Common Stock was distributed for each remaining fractional share held by a
Company stockholder at the time of the distribution. The Company treated
the distribution of its CSI Common Stock as a dividend.

Principles of Consolidation

These consolidated financial statements include results of operations of
High Tech and Professional Programmers, Inc. until the dates of disposal
(see Note 7). All significant intercompany transactions have been
eliminated.

Cash and Cash Equivalents

The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.

F-7
<PAGE>

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Investments

The Company classifies its investment securities in one of three
categories: trading, available for sale, or held to maturity. Trading
securities are bought and held principally for the purpose of selling them
in the near term. Held-to-maturity are those securities in which the
Company has the ability and intent to hold the security until maturity. All
other securities not included in trading or held-to-maturity are classified
as available for sale. Trading and available for sale securities are
recorded at fair value. Held-to-maturity securities are recorded at
amortized costs, adjusted for the amortization or accretion of premiums and
discounts. Investment securities at December 31, 1998 and 1997 consist of
common stocks, which are classified as trading.

Unrealized holding gains and losses, net of the related tax effect on
trading securities, are included in earnings. Realized gains and losses
from the sale of trading securities are determined on a specific
identification basis. Dividend and interest income are recognized when
earned.

Property and Equipment

Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets.
Gain or loss on disposition of assets is recognized currently. Repairs and
maintenance which do not extend the lives of the respective assets are
charged to expense as incurred. Major replacements or betterments are
capitalized and depreciated over the remaining useful lives of the assets.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
concentrations of credit risk are cash and cash equivalents. The Company
maintains deposit balances at financial institutions that, from time to
time during the year, may exceed federally insured limits. The Company
maintains its cash with a financial institution which the Company believes
limits these risks. At December 31, 1998, the Company did not have deposits
in excess of federally insured limits.

Income Taxes

The Company accounts for its income taxes using Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which
requires the recognition of deferred tax liabilities and assets for
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.

F-8
<PAGE>

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs incurred for
the years ended December 31, 1998, 1997 and 1996 were not material.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and related
interpretations, in accounting for its employee stock options rather than
the alternative fair value accounting allowed by SFAS No. 123, "Accounting
for Stock-Based Compensation." APB No. 25 provides that the compensation
expense relative to the Company's employee stock options is measured based
on the intrinsic value of the stock option. SFAS No. 123 requires companies
that continue to follow APB No. 25 to provide a pro-forma disclosure of the
impact of applying the fair value method of SFAS No. 123.

The Company follows SFAS No. 123 in accounting for stock options issued to
non-employees.

Net Income (Loss) Per Common Share

Basic net income (loss) per common share has been computed by dividing net
income (loss) by the weighted average shares outstanding. Diluted loss per
common share has not been presented since in 1998, the effect of common
share equivalents would be anti-dilutive, and in 1997 and 1996, the effect
of the common share equivalents was not material.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying disclosures. Although these estimates are based on
management's knowledge of current events and actions it may undertake in
the future, they may ultimately differ from actual results.

Recent Accounting Pronouncements

In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and No. 131, "Disclosures About Segments
of an Enterprise and Related Information". SFAS No. 130 establishes
standards for reporting and displaying comprehensive income, its components
and accumulated balances. SFAS No. 131 establishes standards for the way
that public companies report information about operating segments in annual
financial statements and requires reporting of selected information about
operating segments in interim financial statements issued to the public.
Both SFAS No. 130 and SFAS No. 131 are effective for periods beginning
after December 15, 1997. The Company adopted these new accounting standards
in 1998, and their adoption had no effect on the Company's financial
statements and disclosures.

F-9
<PAGE>

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of the
gain or loss recognition on the hedging derivative with the recognition of
(i) the changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of
change. On June 30, 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133." SFAS No. 133 as amended by SFAS No. 137 is
effective for all fiscal quarters of fiscal years beginning after June 15,
2000.

Historically, the Company has not entered into derivatives contracts to
hedge existing risks or for speculative purposes. Accordingly, the Company
does not expect adoption of this standard on January 1, 2001 to affect its
financial statements.

NOTE 2. SIGNIFICANT RISKS AND UNCERTAINTIES

Going Concern Considerations

The accompanying financial statements have been presented in accordance
with generally accepted accounting principles, which assume the continuity
of the Company as a going concern.

As reflected in the financial statements, the Company incurred a net loss
of approximately $999,000 for the year ended December 31, 1998, and the
financial position reflects a stockholders' deficiency of approximately
$415,000 as of December 31, 1998. During 1999, the Company discontinued all
of its business operations and surrendered all of its remaining assets to
First Capital Services, Inc., (First Capital) an entity related by common
control and ownership, in settlement of outstanding loans payable, in lieu
of foreclosure.

As discussed below, the Company is the defendant in several matters of
pending litigation resulting from various components of the discontinued
operations, the ultimate outcome of which is not presently susceptible to
reasonable measurement or estimation.

F-10
<PAGE>

NOTE 2. SIGNIFICANT RISKS AND UNCERTAINTIES (Continued)

Going Concern Considerations (Continued)

Management's plans with regard to these matters include the following:

In January 2000, the Company entered into a letter of intent to acquire
100% of Union IPO Corporation ("Union IPO"), a Nevada corporation, in
exchange for 15,000,000 shares of the Company's common stock. Union IPO is
an investment firm targeting labor resources and union-based venture
capital, and promoting union-friendly technology companies. In connection
with the Union IPO acquisition, a majority of the stockholders has approved
a name change to Union IPO, Inc.

The Company expects that from time to time in the future, they will have
opportunities to invest or participate in ventures outside of, but
connected to, the core businesses. The Company's management will evaluate
any such opportunities and, where they deem the potential of such
opportunities to merit participation or investment, they may enter into
additional ventures outside of the core business.

The eventual success of management's plans cannot be ascertained with any
degree of certainty.

Pending Litigation

The Company is involved in several matters of pending litigation as
follows:

In October 1999, Odyssey Marine Exploration, Inc. ("Odyssey") obtained a
default judgment against the Company in the approximate amount of $340,000
in connection with its claims that the Company allegedly had failed to
recognize the put options set forth in the Artifact purchase agreement (see
Note 3). Thereafter, the CEO negotiated and personally guaranteed a
forbearance agreement which provided that Odyssey would not execute on the
judgment and would transfer their common stock of the Company to the CEO
provided that the CEO and/or the Company made weekly payments of $25,000.
After the CEO paid approximately $100,000, the Company defaulted on the
remainder of the weekly payments, and the CEO and Odyssey reached a
subsequent oral agreement which provided that Odyssey keep all of its
shares of the Company's common stock, provided such shares are free
trading, in consideration of the sum of $45,000. The CEO had agreed to pay
this amount personally as he had already received 480,000 shares of the
Company's common stock from Odyssey pursuant to the first forbearance
agreement.

The lessor of the casino cruise ship filed a claim to enforce the full
terms of the lease, including payment of late fees and costs, alleging
damages in excess of $1,000,000. The Company intends to defend the claim to
its full ability and pursue all counterclaims against the lessor that are
available.

F-11
<PAGE>

NOTE 2. SIGNIFICANT RISKS AND UNCERTAINTIES (Continued)

Pending Litigation (Continued)

In 1999, the lessor of the berth filed a claim to enforce the full terms of
the lease including fees and costs. The lessor has received a default
judgment in the amount of $130,000.

In March 2000, the Company was named as a defendant in litigation filed by
an entity which performed services on the casino cruse ship. The litigation
is seeking payment in full of all charges as yet unpaid, approximately
$20,000, plus costs. The Company is attempting to negotiate a settlement.

Summary

The conditions described above regarding going concern considerations and
pending litigation raise substantial doubt as to the ability of the Company
to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the
outcome of these significant risks and uncertainties.

NOTE 3. DISCONTINUED OPERATIONS

Abandoned Acquisition of Business

On September 10, 1997, the Company entered into a Letter of Intent to
acquire all of the outstanding capital stock of Michael's International
Treasure Jewelry, Inc. (Michael's), a privately-held corporation. This
entity is affiliated to the Company by virtue of common principal
stockholders. Michael's operates retail jewelry stores in Miami and Key
West. The stores specialize in the sale of jewelry designed with coins of
antiquity.

The terms of this Letter of Intent specified a purchase price of
$3,500,000, consisting of $350,000 cash and $3,150,000 of the Company's
authorized, but previously unissued, restricted common stock. A total of
8,200,989 shares were anticipated to be issued in connection with the
acquisition.

During the third quarter of 1998, the Company concluded that the planned
acquisition of Michael's was not feasible and canceled the Letter of
Intent. All costs incurred in connection with this proposed acquisition
have been charged to operations in the accompanying financial statements.

Acquisition and Partial Sale of Artifacts

On October 1, 1997, the Company entered into a one year Lease/Purchase
Agreement with Seahawk Deep Ocean Technology, Inc. (Lessor) and Michael's
(Co-Lessee) for the "Dry Tortugas Treasure" (the Treasure). The
Lease/Purchase Agreement obligated Seahawk to lease the Treasure to the
Co-Lessees for a term of one year. The lease provided for quarterly lease
payments of $67,500.

F-12
<PAGE>

NOTE 3. DISCONTINUED OPERATIONS (Continued)

Acquisition and Partial Sale of Artifacts (Continued)

It was the Company's intention to display these artifacts at Michael's
flagship store in Key West, Florida.

On March 19, 1998, the Company exercised its option to purchase the
Treasure. Consideration named in the agreement amounted to $2,497,500,
comprised of $682,500 cash payments, a $200,000 promissory note and
9,500,000 shares of the Company's restricted common stock valued by the
buyer and seller at $1,615,000. The Company retained the right to
repurchase up to 8,000,000 shares of the restricted common stock at prices
ranging from $.135 to $.15 per share. The repurchase option expired
unexercised on June 10, 1998.

The Company granted the artifacts seller a one year right, commencing March
19, 1999, to put all or any of the 9,500,000 shares of restricted common
stock to the Company at per share prices ranging from $.085 to $.17 per
share.

Subsequent to March 19, 1999, substantially all the outstanding shares
pursuant to this agreement were put to the Company at a per share cost of
$.17 (see Note 2). As a result of this action, the amount related to this
put option ($1,615,000) has been reflected in the accompanying financial
statements as a liability (estimated liability related to put option).

Substantially all cash required to purchase the artifacts was borrowed from
entities affiliated by common control and ownership (see Note 4). The
artifacts were pledged as collateral for the resulting notes payable.

On December 31, 1998, the Company sold a portion of the artifact collection
to an unrelated third party ("the Purchaser") in consideration for a
$750,000 note receivable. The note bore interest at 12% and was due June
30, 1999. On December 31, 1998, the Purchaser entered into a credit
arrangement with First Capital, an entity related to the Company by common
control. First Capital, which is in the business of asset-based lending and
factoring, agreed to lend the Purchaser $750,000 and accept the artifacts
purchased as collateral. First Capital then paid the Company pursuant to
the terms of the note receivable with the Purchaser. The Purchaser
subsequently defaulted on its obligation to First Capital and First Capital
accepted the artifacts in lieu of foreclosure.

Due to the fact that the cost of the artifacts sold was not reliably
determinable, this transaction has been accounted for on the cost recovery
method, whereby the cost has been reduced by the amount of the selling
price, and no gain or loss has been recognized in the accompanying
financial statements in connection with the partial sale of the artifact
collection.

During 1999, the Company defaulted on its obligation to First Capital and,
on December 31, 1999, entered into an agreement with First Capital, whereby
First Capital accepted the remaining artifact collection in lieu of
foreclosure (see Note 4).

F-13
<PAGE>

NOTE 3. DISCONTINUED OPERATIONS (Continued)

Gaming Operations

Lease of Casino Cruise Ship

On October 30, 1998, the Company entered into a one-year lease/purchase
option for a casino cruise ship. The lease payments were $80,000 monthly,
payable quarterly, in advance. At the lease signing, a maintenance reserve
of $50,000 was to be established by the Company. In addition, the Company
was to reimburse the lessor for monthly insurance, taxes, crew costs and
other running expenses. The lease/purchase option contained an option to
purchase the vessel at any time prior to the end of the lease term for
$6,000,000. Fifty percent of all lease payments paid would be credited to
the purchase price. The lease was personally guaranteed by the Chief
Executive Officer and major stockholder of the Company. The Company
intended to operate the casino cruise ship as a floating gambling casino
and restaurant, sailing from Miami, Florida.

The Company funded the entry into casino cruise ship operations, including
initial payments pursuant to the lease purchase option, with additional
borrowings from entities affiliated by common control and ownership.

The ship had its maiden voyage with customers in January 1999. During 1999,
the Company was not able to operate the casino facility with positive cash
flow and, as a result, was not able to comply with the terms of the lease;
therefore, the lessor took possession of the boat.

In October 1999, the lessor instituted litigation seeking full payment of
all unpaid amounts plus damages pursuant to the lease purchase option,
which the litigation alleges is in excess of $1,000,000 (see Note 2).

Berth and Lease Agreement

On December 7, 1998, the Company entered into a berth and lease agreement
for a term of twelve months. The lease provided berth space for the casino
cruise ship, together with office space, to be used for ticketing and
reservations. The monthly rent was $12,000, plus $1.00 per passenger in
excess of 7,500 passengers per month.

In June 1999, the lessor instituted litigation (see Note 2) seeking payment
under the lease of all unpaid amounts plus damages. The Company has not
made the lease payments called for in the lease commencing with April 1999.
The Company vacated the space May 1, 1999. The lessor, pursuant to
litigation, received a default judgment in the amount of $130,000.

F-14
<PAGE>

NOTE 3. DISCONTINUED OPERATIONS (Continued)

Gaming Operations (Continued)

Acquisition of Adult Gaming Complex

In December 1998, the Company acquired the assets of a newly constructed,
at that time unopened, adult gaming complex in exchange for the assumption
of $750,000 of debt and the issuance of 1,500,000 shares of Company common
stock. The debt that was assumed was owed to First Capital, a related
party, and was collateralized by all assets of the adult gaming complex.

The Company entered into a verbal management agreement with the seller to
operate the adult gaming complex on the Company's behalf in exchange for a
fee. In 1999, the Company entered into a settlement agreement with the
management company, whereby the Company was to pay $80,000 in full
settlement of all obligations under the previous verbal agreement, and the
management company was to vacate the premises. In September 1999, the
Company paid $25,000 pursuant to this agreement; $55,000 remained unpaid.

In December 1999, the Company determined that the adult gaming complex was
not a viable business operation and closed the facility permanently.

On December 15, 1999, the Company surrendered all remaining assets of the
adult gaming complex to First Capital in settlement in lieu of foreclosure
of all amounts due under the note payable assigned to the Company in the
purchase.

Lease Assignment - Adult Gaming Complex

In connection with the acquisition of the adult gaming complex, the Company
accepted assignment of the lease for the facility which the adult gaming
complex occupied. The lease was for a term of 2 years and provided for a
monthly rent of $6,500. In October 1999, the Company vacated the premises
and ceased making lease payments. The landlord has made no claim for unpaid
rent.

Summary

During 1999, the Company surrendered, in lieu of foreclosure, all assets in
connection with the gaming operations, and the artifacts acquired, in
settlement of outstanding principal and interest due to First Capital, an
affiliate (see Note 4).

Consequently, the results of operations and estimated operating loss
through the date of disposal relating to these operations have been
presented as discontinued operations in the accompanying statements of
operations.

F-15
<PAGE>

NOTE 3. DISCONTINUED OPERATIONS (Continued)

Summary (Continued)

The following represents the summarized results of operations of the
discontinued operations for the year ended December 31, 1998.

Revenue $ 750,000
Expenses 1,535,592
-----------
Income tax benefit 290,000
-----------
Loss from operations of discontinued operations $ (495,592)
===========

NOTE 4. RELATED PARTY TRANSACTIONS

Related Party Loans

The Company has secured financing for its operations primarily from the
following two parties who are related to the Company by means of a common
controlling stockholder:

Approximate Principal Balance,
December 31, 1998
------------------------------
First Capital Services, Inc.
(First Capital) $1,882,000
First Consolidated Financial Corp.
(First Consolidated) 289,000
---------
$2,171,000
=========

First Capital has provided primary financing with total outstanding loan
amounts at December 31, 1998 of approximately $1,882,000. First Capital
loaned funds to the Company pursuant to a master loan agreement for a
maximum of $2,000,000, which provided for interest payable monthly at 12%
and principal repayment on December 1, 2000. The loan was secured by all
the Company's assets including the artifacts. In addition, the Company
accepted assignment of a loan in the amount of $750,000 in connection with
the purchase of the adult gaming complex. This note earned interest at 12%,
payable monthly, with the principal due on February 16, 2000 and was owed
to First Capital. This note was secured by all the assets of the adult
gaming complex.

Both of these notes were satisfied in full in December 1999 with the
surrender of collateral in lieu of foreclosure.

First Consolidated provided financing in the amount of $289,000 through
December 31, 1998. First Consolidated is a major stockholder and is owned
by the Company's Chief Executive Officer during 1998. The loan was due on
demand, bears interest at 12% and is uncollateralized.

F-16
<PAGE>

NOTE 4. RELATED PARTY TRANSACTIONS (Continued)

Related Party Transactions

The Company entered into the following transactions with various entities
and individuals affiliated by virtue of common management or stock
ownership:

1998 1997 1996
---- ---- ----
Consulting and professional fees $30,000 $69,065 $43,525
Office administration - 12,848 15,300
Rent expense - 12,600 16,200
Interest expense 98,692 - -
Loss on sale of subsidiary - 5,988 -
Interest income - invested with affiliates - (3,849) -

Consulting Agreement

On October 1, 1997, the Company entered into a consulting agreement with
First Consolidated Financial Corp., a major stockholder, which provided for
annual compensation of $120,000 per annum. In May 1998, this agreement was
amended to provide for annual compensation of $60,000. In December 1998,
1,500,000 shares of common stock were issued to the Company president and
First Consolidated's majority stockholder in full payment of unpaid
consulting fees due under this agreement, as well as compensation for
services provided in connection with the acquisition of the adult gaming
complex and the personal guarantee of the casino ship lease.

NOTE 5. COMMITMENTS

Facilities Lease

In February 1999, the Company entered into a lease for office facilities
for a term of three years. The average monthly rent is $2,425 for a total
of $87,297 over the three year period. In August 1999, the Company vacated
the space.

Employment Agreement

On January 4, 1999, the Company entered into an employment agreement with
the Chief Executive Officer who also served as President/director. The
agreement, which was for a three-year term, and provided for, among other
things, annual compensation ranging from $100,000 to $150,000, customary
employee benefits and twelve months severance upon termination. In
addition, the agreement provides for the issuance of 200,000 shares of
Company common stock and immediately vesting stock options to purchase
Company common stock at $.23 per share. In June 1999, this employment
agreement was terminated. The employee has filed litigation and is seeking
damages.
F-17
<PAGE>

NOTE 6. MARKETABLE SECURITIES

1998 1997
------ ------
Cost $40,180 $40,180
Unrealized loss (20,627) (24,037)
-------- --------
Market value $19,553 $16,143
======== ========

NOTE 7. TRANSACTIONS WITH SUBSIDIARIES

Investment In and Sale of Unconsolidated Subsidiary

At December 31, 1996, the Company owned a 27.7% interest in Corrections
Services, Inc. ("CSI"). The investment was accounted for using the equity
method for recognizing income or loss from its investment.

On July 28, 1997, the Company received 2,000,000 additional shares of CSI
authorized, but previously unissued restricted Common Stock, in exchange
for the sale of its entire investment in High-Tech Leasing, Inc. The
estimated fair value of the common shares received amounted to $731,000.
The Company reported a loss on the disposition of Hi-Tech Leasing, Inc.
amounting to $5,988 as reflected in the accompanying consolidated statement
of operations for the year ended December 31, 1997. The Company's earnings
and cash flows reflect the operations of Hi-Tech Leasing, Inc. through July
28, 1997.

On August 28, 1997, the Company distributed substantially all of its
investment in CSI to the Company's stockholders. The Company's stockholders
received .17 shares of CSI common stock for each share held. No fractional
shares were issued and no cash was distributed in lieu of fractional
shares. One full share of CSI common stock was distributed for each
fractional share remaining. The distribution of CSI common stock was
reflected as a dividend in the accompanying statement of stockholders'
equity.

CSI was affiliated to the Company during 1997 and 1996 through officers and
directors and principal stockholders in common.

Transfer of Wholly-Owned Subsidiary

On September 30, 1997, the Company settled an obligation owing to
Corrections Services, Inc., an affiliate, with the assignment of 100% of
its investment interest in Professional Programmers, Inc., an inactive,
wholly-owned subsidiary. The estimated fair value of the investment
transferred amounted to $16,152.

F-18
<PAGE>

NOTE 8. PROPERTY AND EQUIPMENT
1998
------
Artifacts $1,747,500
Adult gaming facility 952,500
----------
$2,700,000
==========

No depreciation has been provided, as these assets were not placed in
service until 1999. All assets were surrendered in lieu of foreclosure as
of December 31, 1999 in settlement of amounts owed to First Capital (see
Notes 3 and 4).

NOTE 9. INCOME TAXES

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes.
SFAS No. 109 is an asset and liability approach for computing deferred
income taxes.

A reconciliation of income tax computed at the statutory federal rate to
income tax expense (benefit) is as follows:
<TABLE>

1998 1997 1996
------ ------ ------
<S> <C> <C> <C>

Tax provision at the statutory rate $(368,000) $ 3,052 $24,078
State income taxes, net of federal income tax - - 1,325
Benefit of net operating loss carryforward - (15,644) -
Change in valuation allowance 368,000 - -
---------- --------- ---------
$ - $(12,592) $25,403
========== ========= =========

The components of current tax expense (benefit) are as follows:
Continuing operations $ 290,000 $(12,592) $25,403
Discontinued operations (290,000) - -
---------- --------- ---------
Income tax expense $ - $(12,592) $25,403
========== ========= =========
</TABLE>

The net tax effects of temporary differences between the carrying amount of
assets and liabilities for financial reporting purposes and the amounts
used for income tax purposes are reflected in deferred income taxes.
Significant components of the Company's deferred tax assets as of December
31, 1998 and 1997 are as follows:

1998 1997
------ ------
Net operating loss carryforward $386,000 $ 16,000
Allowance for market value of investments 7,000 9,000
Less valuation allowance (393,000) (25,000)
--------- --------
Net deferred tax asset $ - $ -
========= ========

As of December 31, 1998, sufficient uncertainty exists regarding the
realizability of these deferred tax assets and, accordingly, a 100%
valuation allowance has been established.

F-19
<PAGE>

NOTE 9. INCOME TAXES (Continued)

At December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $1,044,000 which expire
through 2018.

In accordance with certain provisions of the Tax Reform Act of 1986, a
change in ownership of greater than 50% of a corporation within a three
year period will place an annual limitation on the corporation's ability to
utilize its existing tax benefit carryforwards. Such a change in ownership
may have occurred in 1998. As a result, based upon the amount of the
taxable loss incurred to December 31, 1997, the Company estimates that an
annual limitation may apply to the net operating loss carry forward
existing as of that date ($45,000). The Company's utilization of its tax
benefit carryforwards may be further restricted in the event of subsequent
changes in the ownership of the Company.

NOTE 10. DIVIDEND DISTRIBUTIONS

On August 6, 1996, the Board of Directors of the Company declared a 10%
stock dividend of the outstanding common stock of the Company. The stock
dividend was paid on September 24, 1996 to all stockholders of record at
the close of business on August 23, 1996.

As more fully described in Note 7 to the financial statements, the Company
distributed 2,803,446 shares of CSI restricted common stock to shareholders
of record on August 26, 1997. The estimated fair market value of the
securities amounted to $864,263.

NOTE 11. SUBSEQUENT EVENT

F-20

<ARTICLE> 5

<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,544
<SECURITIES> 19,553
<RECEIVABLES> 750,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 771,097
<PP&E> 2,700,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,471,597
<CURRENT-LIABILITIES> 3,886,888
<BONDS> 0
0
0
<COMMON> 2,899
<OTHER-SE> (418,190)
<TOTAL-LIABILITY-AND-EQUITY> 3,471,597
<SALES> 0
<TOTAL-REVENUES> 5,345
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 218,899
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (213,554)
<INCOME-TAX> (290,000)
<INCOME-CONTINUING> (503,554)
<DISCONTINUED> (495,592)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (999,146)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)

</TABLE>