As filed with the Securities and Exchange Commission on
                               November 14, 1996

                                                      Registration No. 333-12839
    

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

   
                                 AMENDMENT NO. 1
                                     to the
    
                             REGISTRATION STATEMENT
                                       on
                                    FORM S-1
                                      Under
                           THE SECURITIES ACT OF 1933
                              --------------------

   
                             MTR GAMING GROUP, INC.
                 (formerly known as Winners Entertainment, Inc.)
               (Exact name of Company as Specified in its Charter)
    
                 Delaware              7993                      84-1103135
         -----------------------     --------                ------------
         (State or other jurisdiction (Primary         (I.R.S. Employer
         of incorporation or organi-   SIC Code         Identification
         zation)                         Number)          Number)

                         1461 Glenneyre Street, Suite F
                         Laguna Beach, California 92651
                                 (714) 376-3010
               (Address, including zip code, and telephone number,
        including area code, of registrant's principal executive offices)


                                Edson R. Arneault
   
                             MTR GAMING GROUP, INC.
    
                         1461 Glenneyre Street, Suite F
                         Laguna Beach, California 92651
                                 (714) 376-3010
            (Name, Address, including zip code, and telephone number,
                   including area code, of agent for service)

                                 With copies to:
                             Kevin T. Collins, Esq.
                            Kenneth Zuckerbrot, Esq.
                                 Ross & Hardies
                               65 East 55th Street
                            New York, New York 10022

Approximate  date  of  commencement  of  proposed  sale  to  public:  As soon as
practicable after this registration statement becomes effective.



<PAGE>

     If any of the securities being registered on this form are to be offered on
a delayed or continuous  basis  pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

     If this form is filed to  register  additional  securities  for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list  the  Securities  Act  registration  statement  number  of the  earlier
effective registration statement for the same offering. [ ]

     If this form is a  post-effective  amendment  filed pursuant to Rule 462(b)
under the  Securities  Act,  check the following box and list the Securities Act
registration  statement number of the earlier effective  registration  statement
for the same offering. [ ]

     If delivery of the  prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

     The Company hereby amends this Registration Statement on such date or dates
as may be necessary to delay its  effective  date until the Company shall file a
further amendment which  specifically  states that this  Registration  Statement
shall  thereafter  become  effective  in  accordance  with  Section  8(a) of the
Securities  Act of  1933  or  until  the  Registration  Statement  shall  become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.

<PAGE>

   
                         CALCULATION OF REGISTRATION FEE
    
<TABLE>
<CAPTION>

Title of each                                                 Proposed
class of                                                      maximum                                                     Amount of
securities to                  Amount to be                   offering price                Aggregate                  registration
be registered                  registered                     per unit                      offering price                fee
-------------                  ------------                   --------------                --------------                ---

<S>                            <C>                            <C>                           <C>                           <C>   
Shares of                      183,206 Shares                 $1.03125 per                  $188,931.18                   $65.15
Common Stock,                                                 Share
par value
$.00001
per share (1)

Shares of                      1,492,860                      $1.06 per                     $1,582,431.60                 $545.67
Common Stock,                  Shares                         Share
par value
$.00001
per share (2)

Shares of                      50,000 Shares                  $1.03125 per                  $51,562.50                    $17.78
Common Stock,                                                 Share
par value
$.00001
per share (3)

Warrants to                    1,542,860                      ---                           ---                           ---
purchase an                    Warrants
aggregate of
1,542,860
shares of
Common Stock,
par value
$.00001 per
share (4)

   
Totals                                                                                                                   $628.60(5)


</TABLE>


     (1)  To be offered and sold by Selling  Stockholders  (as defined  herein).
          Registration  fee  calculated  pursuant  to Rule  457(c)  based on the
          average of the high bid and low ask price for the Common  Stock of the
          Company on September 23, 1996.

     (2)  To be offered and sold by Selling  Stockholders  upon the  exercise of
          the $1.06 Warrants (as defined herein). The $1.06 Warrants to purchase
          1,492,860  shares of Common Stock are  exercisable at a price of $1.06
          per  share.  In  accordance  with  Rule  457(g),  the  price  used for
          calculating  the  registration  fee is the exercise price of the $1.06
          Warrants.

     (3)  To be offered and sold by Selling  Stockholders  upon the  exercise of
          the $.80 Warrants (as defined  herein).  The $.80 Warrants to purchase
          50,000 shares of Common Stock are  exercisable  at a price of $.80 per
          share. In accordance with Rule 457(g),  the price used for calculating
          the  registration fee is based on the average bid and ask price of the
          Company's Common Stock on September 23, 1996.

     (4)  To be offered and sold by Selling  Stockholders  . In accordance  with
          Rule 457(g),  no separate  registration fee is required for the resale
          of the Warrants.

     (5)  Previously paid.
    

<PAGE>

   
                           WINNERS ENTERTAINMENT, INC.
                              CROSS REFERENCE SHEET



Forepart of Registration Statement and          Forepart of Registration
Outside Front Cover Page of Prospectus          Statement and Outside Front
                                                Cover Page of Prospectus

Inside Front and Outside Back Cover Pages        Available Information;
of Prospectus                                   Outside Back Cover Page of
                                                Prospectus

Summary Information, Risk Factors and           Prospectus Summary; Summary
Ratio of Earnings to Fixed Charges              Consolidated Financial and
                                                Operating Data; Risk Factors

Use of Proceeds                                 Use of Proceeds

Determination of Offering Price                 Not Applicable

Dilution                                        Not Applicable

Selling Security Holders                        Selling Stockholders

Plan of Distribution                            Plan of Distribution

Description of Securities to be                 Description of Securities
Registered

Interests of Named Experts and Counsel          Legal Matters; Experts

Information with Respect to the                 Business; Management; Price
Registrant                                      Range of Common Stock;
                                                Dividend Policy; Selected
                                                Financial Data; Management's
                                                Discussion and Analysis of
                                                Financial Condition and
                                                Results of Operations;
                                                Executive Compensation;
                                                Principal Stockholders;
                                                Certain Transactions;
                                                Consolidated and Interim
                                                Financial Statements

Disclosure of Commission Position on           Description of Securities
Indemnification for Securities Act
Liabilities

    

<PAGE>

   
                 SUBJECT TO COMPLETION, DATED NOVEMBER 14, 1996.
    

         Information  contained herein is subject to completion or amendment.  A
registration  statement  relating  to these  securities  has been filed with the
Securities  and Exchange  Commission.  These  securities may not be sold nor may
offers to buy be accepted prior to the time the registration  statement  becomes
effective.  This  prospectus  shall  not  constitute  an  offer  to  sell or the
solicitation of an offer to buy nor shall there be any sale of these  securities
in any state in which such offer,  solicitation  or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.


                                   PROSPECTUS


   
                             MTR GAMING GROUP, INC.
    

                      Warrants to purchase 1,542,860 shares
                  of Common Stock, par value $.00001 per share

          1,726,066 shares of Common Stock, par value $.00001 per share

   
         The registration  statement (the  "Registration  Statement"),  of which
this  Prospectus  forms  a  part,  registers  the  offer  and  sale  by  certain
stockholders  (the "Selling  Stockholders")  of MTR Gaming Group, Inc. ("MTR" or
the "Company"),  formerly known as Winners Entertainment,  Inc., of (i) warrants
to purchase up to an aggregate of 1,492,860  shares of common  stock,  par value
$.00001  per share (the  "Common  Stock") of the Company at a price of $1.06 per
share,  subject to adjustment (the "$1.06 Warrants");  (ii) warrants to purchase
up to an  aggregate  of 50,000  shares  of Common  Stock at a price of $0.80 per
share,  subject to adjustment (the "$.80 Warrants");  and (iii) 1,726,066 shares
of Common  Stock.  The $1.06  Warrants and the $0.80  Warrants are  collectively
referred to herein as the  "Warrants."  Of the 1,726,066  shares of Common Stock
registered herein,  183,206 shares are currently  outstanding and held by one of
the Selling  Stockholders and 1,542,860 shares are issuable upon the exercise of
the Warrants held by the Selling Stockholders. The Selling Stockholders acquired
the outstanding  shares of Common Stock and the Warrants offered hereby directly
from the Company in connection  with a secured  working  capital loan  agreement
(the "Term Loan  Agreement")  between a wholly-owned  subsidiary of the Company,
the Company as guarantor and a private lender. See "Management's  Discussion and
Analysis of  Financial  Condition  and  Results of  Operations  - Liquidity  and
Capital Resources" and "Selling  Stockholders." The Company will not receive any
of the proceeds from the sale of the shares of Common Stock and Warrants offered
hereby by the Selling Stockholders.  The Warrants are exercisable  commencing on
July 2, 1996 through the close of business on July 2, 2001. Except with respect
    

                                     - ii -

<PAGE>

to the exercise  price,  the $1.06 Warrants and $.80 Warrants are identical.  To
the extent any of the Warrants are exercised,  the Company will use the proceeds
thereof for its working capital purposes. See "Use of Proceeds."

   
         The Common Stock is quoted on the NASDAQ SmallCap  Market.  On November
4, 1996 the high bid and low asked  quotations  of the Common Stock were $1 3/16
and $1 3/16,  respectively.  Prior to this  offering  there  has been no  public
market for the  Warrants and the Company does not intend to apply for listing or
quotation of the Warrants on any securities exchange or stock market.
    

         The Selling Stockholders may sell the securities registered herein from
time to time in  transactions  in the  open  market  (including  any  securities
exchange  or  through  any  inter-dealer   quotation   system),   in  negotiated
transactions,  or by a combination of these methods, at fixed prices that may be
changed,  at market  prices at the time of sale,  at  prices  related  to market
prices or at  negotiated  prices.  The  Selling  Stockholders  may effect  these
transactions  directly with the purchasers by selling the securities  registered
herein to or through underwriters,  agents, or broker-dealers,  in each case who
may  receive  compensation  in the form of  discounts  or  commissions  from the
Selling  Stockholders  or otherwise from the  purchasers of such  securities for
whom the underwriters, agents or broker-dealers may act as agent or to whom they
may sell as principal, or both. See "Plan of Distribution."

   
         The  Company  will  bear all of the  expenses  in  connection  with the
registration of the Common Stock and Warrants offered hereby, which expenses are
estimated  to be  $96,000.  The  Selling  Stockholders  will  pay any  brokerage
compensation  in  connection  with their sale of the Common  Stock and  Warrants
registered herein.

AN INVESTMENT IN THE SECURITIES  OFFERED HEREBY  INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" WHICH COMMENCES ON PAGE 7 OF THIS PROSPECTUS.
    
THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE  COMMISSION NOR HAS THE SECURITIES AND EXCHANGE  COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.  ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

   
                The date of this Prospectus is November __, 1996.
    
                                     - ii -

<PAGE>

                              AVAILABLE INFORMATION

   
         The  Company  is  subject  to  the  informational  requirements  of the
Securities  Exchange  Act of 1934,  as amended  (the  "Exchange  Act")  and,  in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission").  Such reports,  proxy
and other  information  statements  filed by the  Company can be  inspected  and
copied at the public  reference  facilities  maintained by the Commission at 450
Fifth Street,  N.W.,  Room 1024,  Washington,  D.C.  20549,  and at its regional
offices  located at Seven World Trade  Center,  Suite 1300,  New York,  New York
10048,  and  Northwestern  Atrium Center,  500 West Madison Street,  Suite 1400,
Chicago,  Illinois 60661-2511;  and copies of such material can be obtained from
the  Public  Reference  Section  of  the  Commission  in  Washington,  D.C.,  at
prescribed rates.

         The Company has filed with the Commission a  Registration  Statement on
Form S-1 (the "Registration  Statement") pursuant to the Securities Act of 1933,
as amended  (the  "Securities  Act"),  with  respect to the  securities  offered
hereby.  This  Prospectus  (the  "Prospectus")  does  not  contain  all  of  the
information  set  forth  in the  Registration  Statement  and the  exhibits  and
schedules thereto.  For further  information with respect to the Company and the
securities  offered  hereby,  reference  is  hereby  made  to  the  Registration
Statement, and exhibits and schedules thereto.
    

         No dealer, salesman or any other person has been authorized to give any
information  or to make any  representation  other than those  contained in this
Prospectus in connection  with the offering  herein  contained  and, if given or
made, such information or representation  must not be relied upon as having been
authorized by the Company.  Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the facts herein set forth since the date hereof.


                                     - iii -

<PAGE>

                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----

         PROSPECTUS SUMMARY...................................................1

         RISK FACTORS.........................................................7

         USE OF PROCEEDS.....................................................15

         DIVIDEND POLICY.....................................................15

    
         CAPITALIZATION.................................................. ... 16
    

         PRICE RANGE OF COMMON STOCK..........................................17

         SELECTED FINANCIAL DATA..............................................18

         MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................19

         BUSINESS ............................................................40

   
         MANAGEMENT.......................................................... 62
    

         EXECUTIVE COMPENSATION...............................................64

   
         CERTAIN TRANSACTIONS................................................ 69

         PRINCIPAL STOCKHOLDERS.............................................. 73

         SELLING STOCKHOLDERS................................................ 75

         PLAN OF DISTRIBUTION................................................ 78

         DESCRIPTION OF SECURITIES........................................... 79

         SHARES ELIGIBLE FOR FUTURE SALE......................................89
    

         DESCRIPTION OF CERTAIN INDEBTEDNESS..................................97

   
         LEGAL MATTERS...................................................... 100

         EXPERTS.............................................................100
    

         INDEX TO FINANCIAL STATEMENTS.......................................F-1

                                     - iv -

<PAGE>
                               PROSPECTUS SUMMARY

         The following is a summary of certain information contained in the body
of this  Prospectus  and  should  be  read  in  conjunction  with  the  detailed
information and financial statements appearing elsewhere herein.


                                   THE COMPANY

         The  Company,  through  wholly-owned  subsidiaries,  owns and  operates
Mountaineer Race Track and Gaming Resort ("Mountaineer Park"), a resort facility
in Chester,  West  Virginia,  and owns a working  interest in proven oil and gas
reserves in Michigan.

   
         The Company was  incorporated  in March 1988 in Delaware under the name
"Secamur  Corporation,"  a wholly owned  subsidiary  of Buffalo  Equities,  Inc.
("Buffalo"),  and  later  "spun-off"  through  the  sale  of  its  stock  to the
stockholders  of Buffalo in January 1989. In June 1989,  the Company merged with
Pacific International  Industries,  Inc., which had been engaged in the contract
security guard services  business in Southern  California since its inception in
February 1987. Upon completion of the merger,  the Company was renamed Excalibur
Security  Services,  Inc., to reflect its new line of business.  After operating
unprofitably, the Company filed a voluntary petition for reorganization with the
U.S.  Bankruptcy  Court for the Central District of California in December 1990,
and became a Chapter 11 debtor-in-possession.  The Bankruptcy Court approved the
Company's  sale  of its  security  guard  services  business  in May  1991,  and
confirmed  the  Company's  plan of  reorganization  in December  1991.  The plan
authorized the Company to acquire,  primarily,  specified gaming and oil and gas
businesses.  Upon  confirmation  of the plan,  the  Company  changed its name to
Excalibur  Holding  Corporation.  In connection  with  management's  decision to
operate as a gaming company, the Company was renamed Winners Entertainment, Inc.
in August 1993. At the annual meeting of  stockholders  on October 15, 1996, the
stockholders of the Company approved a change of the Company's name from Winners
Entertainment, Inc. to MTR Gaming Group, Inc.
    

         Mountaineer Race Track & Gaming Resort - Chester, West
         Virginia

   
     Pursuant  to a stock  purchase  agreement  dated May 5, 1992,  the  Company
acquired all of the common stock of Mountaineer  Park, Inc.  ("Mountaineer"),  a
West Virginia corporation,  in December 1992.  Mountaineer Park, the site of the
Company's  gaming  business , offers an  entertainment  complex and  destination
resort  with  hotel,  dining  and  lounge  facilities,  and  outdoor  activities
including golf, swimming and tennis. Mountaineer Park is situated on a 606- acre
site on the  Ohio  River at the  northern  tip of West  Virginia's  northwestern
panhandle in Hancock County,  approximately  40 miles south of Youngstown,  Ohio
and 35 miles west of Pittsburgh, Pennsylvania.

    

<PAGE>

         Racetrack Facilities

   
         Mountaineer   Park  offers  live  horse  racing  before  clubhouse  and
grandstand  viewing areas with enclosed seating for year-round racing. The track
also conducts  simulcast  (closed  circuit  television)  thoroughbred  horse and
greyhound  dog  racing  from other  prominent  racetracks  around  the  country.
Mountaineer Park's main racetrack  consists of an oval dirt track  approximately
one mile in  length.  Inside  the main  track is a natural  turf  (grass)  track
measuring  seven  furlongs or 7/8 of a mile.  The racetrack is equipped with two
chutes for races of lengths from 4 1/2 furlongs to over one mile.  The racetrack
buildings  consist of the clubhouse and grandstand which provide  glass-enclosed
stadium and box seating for approximately  770 and 2,850 patrons,  respectively.
The buildings are each  three-stories  and are connected by an enclosed walkway.
Live and simulcast racing can be viewed by approximately 1,200 dining patrons in
two restaurants located in the clubhouse and grandstand.  In addition to seating
areas, the grandstand covers  approximately 57,000 square feet of interior space
on the main and mezzanine levels containing 42 parimutuel  windows and four food
and beverage concession stands. The clubhouse covers approximately 25,000 square
feet of interior space containing 22 parimutuel  windows.  The grandstand has an
indoor stage with a seating  capacity of  approximately  2,240, and has been the
site of several nationally  televised boxing matches. The racetrack apron, which
is accessible from both buildings, provides racing fans with up-close viewing of
horses  entering the  racetrack  and  crossing the finish line.  The stable area
accommodates  approximately  1,250  horses and is located  adjacent  to the main
track.  Mountaineer's  racetrack  parking lots have a combined capacity for over
2,900 vehicles.
    

         Lodge Facilities

   
         The  Mountaineer  Lodge (the  "Lodge")  is a two-story  facility  which
overlooks  the par three,  nine hole  "executive"  golf course near  Mountaineer
Park's main entrance on West Virginia State Route 2. The Lodge offers 101 rooms,
including  50 standard  rooms (one double  bed),  46 superior  rooms (two double
beds), and five king rooms and suites.  The Mountaineer  Lodge Dining Room seats
125 patrons for casual dining  overlooking  the golf course and an additional 68
patrons  may be seated on an  outside  deck,  weather  permitting.  In 1995,  in
response to increased patronage of the off-track betting,  video lottery gaming,
dining and bar facilities  located at the Lodge,  the Company expanded its 5,000
square foot  Speakeasy  Gaming  Saloon with an 8,000 square foot  addition.  The
capacity of the Speakeasy Gaming Saloon now stands at 750.  Extensive  off-track
wagering facilities continue to be maintained
    

                                      - 2 -

<PAGE>



at the Speakeasy Gaming Saloon.  The Lodge parking lots have a combined capacity
for approximately 370 vehicles.

         Video Lottery Facilities

   
         In addition to live and simulcast parimutuel wagering, Mountaineer Park
offers video lottery gaming through 800 leased video lottery terminals  ("VLTs")
located in the racetrack clubhouse, grandstand and Lodge. Mountaineer introduced
400 new  state-of-the-art  VLTs in September 1994,  replacing 165 older machines
operated  by the  Company  since  December  1992,  and  subsequently  placed  an
additional 400 VLTs into operation in June 1995. The racetrack houses 400 of the
VLTs in its Riverside  Gaming  Terrace on the second floors of the clubhouse and
grandstand,  and the Lodge offers the remaining 400 VLTs in the Speakeasy Gaming
Saloon, Derby Room and Iron Horse Lounge. Unlike the replaced machines,  each of
the new VLTs allows a player to select from several game themes, including up to
four versions of draw poker, one version of blackjack and two versions of keno.

         On July 3, 1996,  the Company  installed slot games on the first 350 of
its 800 VLTs. In October 1996, the Company installed slot games on an additional
50 VLTs bringing the total number of VLTs with slot games to 400. The new games,
which were authorized by West  Virginia's  state lottery laws for the first time
in June 1996,  include Double Diamond, a classic casino slot game with cherries,
bars and items that "spin" on video reels, and the internationally popular Black
Rhino game.  These new games are offered in  addition  to  blackjack,  poker and
keno.  Management  intends to install 200 additional VLTs with slot games within
the next year, and replace older VLTs that cannot  accommodate  the new games as
leases lapse,  subject to evidence that the Company's  current VLTs are utilized
to full capacity, so that by the end of fiscal year 1997, Mountaineer expects to
operate 1,000 VLTs with slot games.
    

         Recreational Facilities

   
         Mountaineer  Park has a par three,  nine-hole  "executive" golf course,
three tennis courts, a volleyball  court, a basketball court, two swimming pools
and two children's  swimming pools.  These facilities are made available for use
by Lodge guests and the general public at specified daily or seasonal rates.
    

         Trailer Park

     The Company  maintains a trailer park  consisting of 61 individual  lots on
approximately  11.5 acres located  across West  Virginia  State Route 2 from the
Lodge and the  entrance  to  Mountaineer  Park.  The lots are  rented  for fixed
monthly fees,  mostly to  individuals  who are employed by Mountaineer in racing
operations.  The Company is responsible for maintenance of the road and grounds,
refuse  removal and  providing  water and sewage  hook- ups. The tenants pay all
utility expenses.

                                      - 3 -

<PAGE>

         Undeveloped Land

         Mountaineer  owns,  as part of its 606 acre site, a 375 acre tract that
is currently  undeveloped.  The acreage is located directly across West Virginia
State Route 2 from the Lodge and  racetrack  main  entrance.  Management  has no
current plans to develop such property.

         Recent Developments

   
         On October 23, 1996,  the Company  announced its  unaudited  results of
operations for the three months ended September 30, 1996. Total revenues for the
period were  $13,097,000  as compared to  $7,904,000  for the three months ended
September 30, 1995, which  represents a $5,193,000 or 66% increase.  The Company
reported net income of  $1,448,000  for the third  quarter of 1996,  or $.08 per
share. This represents a $2,083,000 increase from the $635,000 net loss, or $.04
per share, reported for the same period in 1995.

         The Company also  announced that its net win (gross wagers less payouts
to players) from video lottery  operations  for the third quarter 1996 increased
93% to  $10,067,000  from  $5,220,000  for the third  quarter  1995, or $137 per
machine per day for the third  quarter  1996, as compared to $71 per machine per
day for the third quarter 1995.  The Company  realized an increase of $3,375,000
in operating  income from a loss of  $1,037,000  in the third quarter of 1995 to
$2,338,000 for the same period of 1996.

         Total revenues for the first nine months of 1996 were  $29,198,000,  up
$10,444,000,  or 56%,  from the  $18,754,000  reported  for the same period last
year. Net income  increased to $1,333,000 or $.07 per share,  for the first nine
months of 1996 from a loss of $3,384,000,  or $.21 per share, for the first nine
months of 1995.

         At the  annual  meeting  of  stockholders  on  October  15,  1996 , the
stockholders  approved (i) an amendment to the Company's Restated Certificate of
Incorporation  (the  "Certificate")  to change the Company's name to "MTR Gaming
Group, Inc. " and (ii) an amendment to the Company's Certificate to increase the
number of authorized shares of Common Stock from 25 million to 50 million.
    

                                      - 4 -

<PAGE>

   
The Company has filed an amended  Certificate  with the  Secretary of State of
Delaware to reflect these changes.

         On July 2, 1996,  Mountaineer entered into a financing arrangement with
a private  lender for a secured  working  capital loan pursuant to the Term Loan
Agreement (the "Term Loan") and a commitment  for a first  mortgage  refinancing
(the "Loan Commitment").  The $5 million loan is secured by a second mortgage on
all of  Mountaineer's  real  and  personal  property  and is  guaranteed  by the
Company.  The note  evidencing  the Term Loan  calls  for  monthly  payments  of
interest only at the rate of 12% per annum, and a default rate of 22% per annum.
As additional consideration for the note, the Company agreed to issue the lender
183,206 shares of Common Stock and five-year  Warrants to purchase an additional
1,142,860  shares  of  Common  Stock  at  $1.06  per  share.  The  Warrants  are
exercisable  for a period  of five  (5)  years  from  the date of the Term  Loan
Agreement.  Five-year Warrants to purchase an additional 50,000 shares of Common
Stock in the aggregate at an exercise price of $.80 per share were issued by the
Company to two  affiliates  of the lender.  Except with  respect to the exercise
price,  all of the Warrants  are  identical.  See  "Management's  Discussion  of
Financial   Condition   and  Results  of  Operations  -  Liquidity  and  Capital
Resources",  "Selling  Stockholders" and "Description of Certain  Indebtedness."
The  principal of the Term Loan is to be repaid at the end of a three year term,
during  which  period the Term Loan is  subject  to, on each  anniversary  date,
additional fees in cash equal to 8% of the outstanding principal balance, Common
Stock equal to 5% of the  outstanding  principal  balance divided by the average
daily  closing price on each business day for the 30 days prior to the third day
before the anniversary date, and additional warrants to purchase an aggregate of
250,000  shares of Common  Stock at an  exercise  price of $1.06 per share.  The
shares of Common  Stock and  Warrants,  which have been issued to the lender and
its  affiliates,  and the shares of Common Stock  underlying  such  Warrants are
covered  by this  Registration  Statement,  and the  shares of Common  Stock and
warrants  issuable to the lender in connection  with the Term Loan  Agreement in
the future, and the shares of Common Stock underlying such warrants, will be the
subject of future  registration  statements.  In addition  to the fees,  certain
restrictions  are imposed under the Term Loan  Agreement  limiting the Company's
ability  to incur  additional  debt,  make  capital  expenditures  and  increase
management's  compensation.  The Warrant  Certificates provide for adjustment to
the exercise  price of, and number of shares of Common Stock  issuable  pursuant
to, the  Warrants in the event the Company  issues  additional  securities  at a
price below the exercise price of the Warrants.  See  "Description of Securities
-Warrants."
    
                                      - 5 -

<PAGE>

   
         In connection  with the Term Loan,  the lender also provided a one year
Loan Commitment to lend  Mountaineer up to $11.1 million of additional  funds to
be used to refinance  the current first  mortgage  held by Bennett  Management &
Development  Corp.  ("Bennett").  The Loan  Commitment  is subject to  customary
conditions,  including  negotiation of definitive loan agreements,  but provides
that any  refinancing  would be on terms  no less  favorable  than  those of the
Company's  obligation to Bennett.  In connection with the Loan  Commitment,  the
Company paid a $110,000 commitment fee and issued the lender additional Warrants
to purchase 350,000 shares of Common Stock at the exercise price of $1.06. These
Warrants and the shares of Common Stock  underlying such Warrants are covered by
this Registration Statement.

         In order to assure  compliance  with  provisions  of the West  Virginia
Racetrack  Video  Lottery Act (the  "Lottery  Act")  concerning  control  over a
licensee of the West Virginia Lottery Commission (the "Lottery Commission"), the
lender has agreed  that it may not own,  through  the  exercise  of  warrants or
otherwise,  more than 5% of the  Company's  outstanding  Common Stock unless and
until the Commission either (i) approves the lender or (ii) provides an advisory
opinion  approving  an  arrangement  whereby the lender may own but may not have
voting  rights to any shares of Common Stock in excess of the 5%  threshold.  If
the lender becomes  disqualified  after such Lottery  Commission  approval,  any
shares held in excess of the 5% threshold,  if registered,  shall be sold by the
lender;  otherwise  such shares may be put to the Company for  repurchase by the
Company  at the  then  current  market  price,  payable  in cash or a note  with
interest payable monthly at 24% per annum with all principal due in one year.

         This Registration  Statement is being filed by the Company based on its
agreement to register the Common Stock and Warrants , subject to cash  penalties
if it is not  declared  effective  before seven and nine months from the date of
the Loan Agreement.

         Net proceeds to the Company after  repayment of a $250,000 loan from an
affiliate of the lender, legal fees, loan origination fees, fees associated with
the Loan Commitment and the costs of the  transaction  were  approximately  $4.2
million.  The loan  proceeds will be used by the Company to retire a substantial
portion of its accounts  payable,  to make future site improvements and decorate
the Speakeasy Gaming Saloon at Mountaineer  Park. The loan proceeds will be used
for television and print  advertising  campaigns in the Pittsburgh and Cleveland
markets.
    
                                      - 6 -

<PAGE>

   
     MTR,  a Delaware  corporation,  was  incorporated  in 1988.  The  Company's
executive offices are located at 1461 Glenneyre  Street,  Suite F, Laguna Beach,
California 92651, Telephone: (714) 376-3010.
    

                                  The Offering

   
Securities Offered.........     This Prospectus relates to an
                                offering by the Selling Stockholders
                                of (i) 1,542,860 Warrants, which,
                                when exercised, would entitle the
                                holders thereof to purchase, in the
                                aggregate 1,542,860 shares of Common
                                Stock, (ii) 1,542,860 shares of
                                Common Stock issuable upon exercise
                                of the Warrants, and (iii) 183,206
                                shares of             Common Stock
                                which are outstanding and held by
                                one of the Selling Stockholders.
                                The Warrants and the outstanding
                                shares of Common Stock were issued
                                to the Selling Stockholders in
                                private transactions in connection
                                with the Term Loan Agreement dated
                                as of July 2, 1996 between a wholly-
                                owned subsidiary of the Company and
                                one of the Selling Stockholders.
                                See "Selling Stockholders."
    

Securities Outstanding.....     As of September 13, 1996, the
                                Company had 18,869,397 shares of
                                Common Stock outstanding.  Assuming
                                that all of the Warrants are
                                exercised and no other shares of
                                Common Stock are issued subsequent
                                to September 13, 1996, the Company
                                would have 20,412,257 shares of
                                Common Stock outstanding.

Use of Proceeds............     The Company will not receive any
                                proceeds from the sale of the
                                Warrants or the shares of Common
                                Stock offered by the Selling
                                Stockholders.  To date, none of the
                                Warrants have been exercised.  If
                                all of the Warrants are exercised,
                                the Company will receive estimated
                                additional net proceeds of
                                $1,622,431.  The Company intends to
                                utilize any proceeds received from
                                the exercise of the Warrants as
                                working capital.  There can be no
                                assurance that any of the Warrants
                                will be exercised.  See "Use of
                                Proceeds."

Risk Factors...............     See "Risk Factors" for a discussion
                                of certain risk factors that should
                                be considered by prospective
                                investors in connection with an
                                investment in the securities offered
                                hereby.


                                  RISK FACTORS

   
         The securities offered hereby are speculative and involve a high degree
of risk.  They should not be purchased  by anyone who cannot  afford the loss of
his or her entire investment. In analyzing this offering,  prospective investors
should  consider  the  following  risk  factors,  as well as  other  information
contained in this  Prospectus  before making an  investment in such  securities.
Information contained in this Prospectus contains  "forward-looking  statements"

                                  - 7 -
<PAGE>

which  can be  identified  by the  use of  forward-looking  terminology  such as
"believes,"  "expects," "may," "will," "should,"  "intends," or "anticipates" or
the negative thereof or other variations thereon or comparable  terminology,  or
by  discussions  of strategy.  No assurance can be given that the future results
covered  by the  forward-looking  statements  will be  achieved.  The  following
matters  constitute  cautionary  statements  identifying  important factors with
respect  to  such  forward-looking  statements,   including  certain  risks  and
uncertainties,  that could  cause  actual  results to vary  materially  from the
anticipated results indicated in such forward-looking statements.  Other factors
could  also cause  actual  results to vary  materially  from the future  results
indicated in such forward-looking statements.

         Historical and Possible  Future Losses;  Working Capital  Deficit.  The
Company has incurred  substantial  losses in 1995,  1994 and 1993 and as of June
30, 1996,  the Company had current  liabilities  in excess of current  assets of
$8.4 million.  As of June 30, 1996,  the Company had an  accumulated  deficit of
$26.2 million.  Additionally,  the Company's  independent  accountants expressed
concerns that these factors  raised  substantial  doubt  regarding the Company's
ability to continue  as a going  concern in  connection  with their audit of the
Company's  1995  consolidated  financial  statements  for the fiscal  year ended
December  31,  1995.  For the six months  ended June 30,  1996,  the Company had
narrowed  its loss to $115,000  from $2.6 million for the  comparable  period in
1995. There can be no assurance, however, that the Company will achieve positive
cash flow from operations in the future or that the Company will have sufficient
working capital to service its obligations as they become due.
    

   
         Leverage and Debt Service. The Company has significant interest expense
and principal repayment obligations under its long term indebtedness,  including
the Term Loan originated pursuant to the Term Loan Agreement.  At June 30, 1996,
after  giving  effect to the Term Loan and the  application  of the net proceeds
therefrom,  the Company's pro forma total consolidated long-term debt (excluding
short term debt and redeemable  Common Stock) would have been  approximately $15
million,  consisting  of $9.6  million  outstanding  under the  Company's  first
mortgage loan (the "Bennett Loan") from Bennett , $5 million  outstanding  under
the Term Loan and  approximately  $459,000 of other  long-term debt. The Bennett
Loan is secured by a first mortgage on  Mountaineer's  real and personal  assets
and bears  interest  at the rate of 12.5% per year  with a  delinquency  rate of
14.5% and is guaranteed by the Company. The Bennett Loan requires the Company to
make  36  monthly  payments  of  principal  and  interest  based  on a 36  month
amortization schedule and contains no prepayment penalties. The Company recently
negotiated an Amendment to the Bennett Loan, which became effective  October 31,
1996. The Term Loan is secured by a second  mortgage on  Mountaineer's  real and
personal property and is guaranteed by the Company. The note evidencing the Term
Loan calls for monthly  payments  of interest  only at the rate of 12% per year,

                                      - 8 -
<PAGE>

and bears a default rate of 22% per year. The principal of the Term Loan must be
repaid at the end of the three  year  term,  during  which  period,  the loan is
subject , on each  anniversary  date, to additional  fees of cash equal to 8% of
the outstanding  principal balance,  Common Stock equal to 5% of the outstanding
principal balance divided by the average daily closing price of the Common Stock
on each  business  day for  the 30  days  prior  to the  third  day  before  the
anniversary  date,  and warrants to purchase  250,000 shares at $1.06 per share.
See  "Selected  Financial  Data",   "Management's  Discussion  and  Analysis  of
Financial Condition and Results of Operations  -Liquidity and Capital Resources"
and "Description of Certain Indebtedness."
    
         The  Company's  ability to service  its debt will be  dependent  on its
future performance, which will be affected by prevailing economic conditions and
financial,  business, regulatory and other factors, many of which are beyond the
Company's control.  Accordingly, no assurance can be given that the Company will
maintain  a level of  operating  cash flow that will  permit it to  service  its
obligations and to satisfy the financial  covenants in its loan  agreements.  If
the Company is unable to generate sufficient cash flow or is unable to refinance
or  extend  its  outstanding  indebtedness,  it will  have to adopt  one or more
alternatives,  such  as  reducing  or  delaying  future  expansion  and  capital
expenditures,  selling assets, restructuring debt or obtaining additional equity
capital. There is no assurance that any of these strategies could be effected on
satisfactory terms to 
   
the Company, if at all. Moreover, the terms and financial covenants contained in
certain of the Company's debt instruments may restrict the Company's  ability to
compete effectively in the gaming market by effectively  preventing expansion of
the  Company's   facilities   or  other   competitively   advantageous   capital
expenditures,  which may have an adverse  effect on the Company.  See  "Selected
Financial Data",  "Management's  Discussion and Analysis of Financial  Condition
and Results of Operations -- Liquidity and Capital  Resources" and  "Description
of Certain Indebtedness."
    
         Gaming  Regulation.  The Company's  business is highly  regulated.  The
ability of the  Company  to remain in  business,  and to  operate  profitability
depends upon the Company's  continued  ability to satisfy all applicable  gaming
laws and regulations.

   
         The  Company's  horse  racing   operations  are  subject  to  extensive
regulation by the West Virginia  Racing  Commission  (the "Racing  Commission"),
which is  responsible  for,  among other  things,  granting  annual  licenses to
conduct race meets,  approving  simulcasting post times, and other matters. When
granting  licenses,  the Racing  Commission  has the  authority to determine the
dates on which  Mountaineer  may conduct  races.  In order to conduct  simulcast
racing, Mountaineer is required under West Virginia law to hold a minimum of 220
live race days each year. The Racing Commission granted Mountaineer a license to
conduct a minimum of 220 live race days for 1996 .

                                      - 9 -

<PAGE>

         The operation of video lottery games in West Virginia is subject to the
Lottery  Act.  Licensing  and  regulatory  control is  provided  by the  Lottery
Commission . The Lottery Act provides that only licensed  horse race or dog race
facilities  may offer video gaming.  Accordingly,  the ability of the Company to
maintain its video lottery business  requires it to comply fully with the Racing
Commission to qualify for its license under the Lottery Act.

         The  Lottery  Act  regulates  the  ability  of  horse  race or dog race
facilities to offer video gaming.  Under the Lottery Act, only parimutuel  horse
or dog racing  facilities that were licensed by the Racing  Commission  prior to
January 1, 1994 and that  conduct at least 220 live racing dates for each dog or
horse  race  meeting,  or such  other  number as may be  approved  by the Racing
Commission, are eligible for licensure to operate video lottery games. There are
four racing  facilities  in West  Virginia  (two horse racing and two dog racing
including  Mountaineer  Park),  three of which currently satisfy the eligibility
requirements  of the Lottery Act, and are thus  eligible to offer video  lottery
gaming in the state. To provide video lottery  gaming,  the voters of the county
in which the facility is to be located  must approve such gaming in advance.  If
such  approval is obtained,  the facility may continue to conduct  video lottery
gaming  activities  unless the matter is resubmitted to the voters pursuant to a
petition signed by at least five percent
    

                                     - 10 -

<PAGE>

of the  registered  voters  in the  county,  who must wait at least  five  years
subsequent  to voter  approval to bring such a petition.  If approval is denied,
another  vote on the  issue  may not be held for a period  of two  years.  Video
lottery gaming was approved in Hancock County, the location of Mountaineer Park,
on May 10, 1994.

         Licenses granted by the Lottery Commission must be renewed by July 1 of
each year. A license to operate video  lottery games is a privilege  personal to
the license holder and, accordingly, is non-transferable. In order for a license
to remain in effect, Lottery Commission approval is required prior to any change
of  ownership  or control of a license  holder.  Unless  prior  approval  of the
Lottery  Commission is obtained,  the sale of five percent or more of the voting
stock of the license holder or any corporation  that controls the license holder
or the sale of a license  holder's  assets (other than in the ordinary course of
business),  or any interest therein, to any person not previously  determined by
the Lottery Commission to have satisfied the licensing qualifications, voids the
license. Accordingly,  should a party, unaffiliated with the Company, acquire 5%
or more of the voting stock of the Company, including purchases made on the open
market,  the Company's license could be jeopardized  insofar as such party would
be required to undergo approval by the Lottery Commission.

   
         Under the Company's Certificate, any person who purchases 5% or more of
the Common Stock without first securing Lottery Commission  approval to own such
shares,  is subject to the Company's  right to  repurchase  such shares from the
holder.  See "Risk Factors - Impact of Anti-takeover  Measures" and "Description
of Securities - Common Stock - Anti-takeover Provisions".

         Pursuant  to both the  Racing  Commission's  and  Lottery  Commission's
regulatory  authority,  the  Company  may be  investigated  by  either  body  at
virtually any time. Accordingly, the Company must comply with all gaming laws at
all times.  Should either body consider the Company to be in violation of any of
the applicable laws or regulations, each has the plenary authority to suspend or
rescind  the  Company's  licenses.  While the Company  has no  knowledge  of any
non-compliance,  and believes  that it is in full  compliance  with all relevant
regulations, should the Company fail to comply, its business would be materially
adversely effected.

         To date, the Company has obtained all governmental  licenses,  findings
of suitability, registrations, permits and approvals necessary for the operation
of its current gaming activities.  However,  no assurances can be given that any
new  licenses or  approvals  that may be required in the future will be given or
that existing ones will be renewed.
    

     Horse racing,  the first form of legalized  wagering in West Virginia,  was
the product of legislative initiative. The West

                                     - 11 -

<PAGE>

Virginia  legislature  approved on March 17, 1994, West Virginia's first form of
gaming activity by authorizing  video lottery machines under the Lottery Act. In
addition, the Lottery Act, the enabling legislation for video lottery gaming, is
subject to renewal pursuant to the West Virginia sunset  legislation every three
years.  The  Lottery  Act  will  expire  in  July  1997  if not  renewed  by the
legislature. Accordingly, the Company's ability to remain in the gaming business
depends on the continued  political  acceptability of gaming  activities to both
the public and state governmental officials. In addition, the gaming laws impose
high tax rates,  and fixed parimutuel  commission  rates which, if altered,  may
diminish the Company's profitability.

   
         During the next year,  West  Virginia  voters will elect a new governor
and, most likely, new state  legislators.  Due to the political nature of gaming
issues, and despite recent  appropriations  towards educational and recreational
purposes  derived from funds  generated by gaming  activities,  it is unknown at
this time  whether such new state  officials  will  maintain  the same  policies
towards gaming  activities,  particularly  video lottery gaming, as in the past.
Any substantial  unfavorable  change in the enabling laws or tax rates on gaming
revenues  could make the Company's  business  substantially  more onerous,  less
profitable  or  illegal,  which  would  have a  material  adverse  effect on the
Company's business. 


         Dependence  On Key  Personnel.  The Company is  currently  managed by a
small number of key  management  and  operating  personnel,  whose  efforts will
largely determine the Company's success. The success of the Company also depends
upon its ability to attract,  hire and retain  qualified  operating,  marketing,
financial and technical  personnel.  Competition for qualified  personnel in the
gaming industry is intense and, accordingly,  there can be no assurance that the
Company will be able to continue to hire or retain necessary personnel. The loss
of key  management  personnel,  particularly  Edson R.  Arneault,  the Company's
Chairman,  President and Chief Executive  Officer,  would likely have a material
adverse effect on the Company. See "Management."

          Competition.  In recent years, the number of gaming options  available
to consumers in the  Company's  principal  markets has  increased  considerably.
Mountaineer's   principal  direct   competitors  are  Wheeling  Downs,   located
approximately 40 miles to the south in Wheeling,  West Virginia and Thistledown,
located  approximately  85 miles to the northwest in Cleveland,  Ohio.  Wheeling
Downs  conducts  parimutuel  greyhound  dog  racing  and video  lottery  gaming.
Thistledown conducts parimutuel  thoroughbred horse racing but not video lottery
gaming.  The Company also competes with  statewide  lotteries in West  Virginia,
Pennsylvania and Ohio, off-track and on-site wagering in Pennsylvania, and, to a
lesser extent,
    
                                     - 12 -

<PAGE>

   
destination  gaming  facilities in Las Vegas and Atlantic City, as well as other
entertainment  options  available to  consumers,  including  live and  televised
professional and collegiate  major sports events.  The Company will also compete
with off-track wagering in Ohio, which has recently been approved in that state.
To the extent  that either  Pennsylvania  or Ohio  legalize  any forms of casino
gaming,  and West  Virginia  does not, or, if recent  proposals  for  land-based
gaming are eventually approved in West Virginia and the Company does not qualify
for a casino gaming license and other  entities do, the Company's  video lottery
operations  might  compete with any such new gaming  facilities  located  within
driving  distance of  Mountaineer  Park.  Such  facilities may offer more gaming
machines  than  Mountaineer,  or gaming  machines  which are  superior  to those
offered  by  Mountaineer,  as well as  forms of  gaming  not  available  in West
Virginia.  Taken together, such competition could have a material adverse effect
on the Company. See "Business-Competition."

         No  Dividends.  The  Company has not paid any  dividends  on its Common
Stock since its  inception  and does not  currently  foresee the payment of cash
dividends in the future.  Furthermore,  under the Company's  Term Loan Agreement
and the Warrants issued to its lender thereunder, the Company is prohibited from
paying any dividends without the lender's consent. The Company currently intends
to retain all earnings, if any, to finance its operations.

         Continued  Losses  from Horse  Racing and  Lodging,  Food and  Beverage
Business.  To date, the Company has incurred  continued  losses on the Company's
parimutuel commission business and lodging, food and beverage businesses,  which
have been offset by gains in the video lottery  business.  The Company  believes
that the  racing  business  is  currently  unprofitable,  and is  attempting  to
minimize  or  eliminate  losses  from such  operations  by  increased  marketing
efforts,  cost  cutting  and  enhancing  the quality of racing  activities.  The
Company  believes  that its  strategy  of  becoming  a  one-stop  entertainment,
recreation  and gaming  destination  resort will  produce  synergies  which,  in
combination with its video lottery operations,  may maximize  stockholder value.
Nonetheless,   there  can  be  no  guarantees  that  this  strategy  will  prove
successful,  that the Company's unprofitable operations can become profitable or
that the  Company's  profitable  operations  will  remain so. See  "Management's
Discussion  and  Analysis of  Financial  Condition  and Results of  Operations -
Results of Operations."

         Failure to Liquidate Discontinued Operations.  The Company owns certain
oil and gas properties in Michigan, which it is in the process of liquidating in
furtherance  of the  Company's  determination  to focus its  efforts on its core
gaming,  entertainment  and recreation  business.  To date, the Company has been
unable to find a buyer for these  properties.  Should  the  Company be unable to
find a buyer at a price which management believes represents fair value for the
    
                                     - 13 -

<PAGE>

properties,  the Company may be required to sell the  properties at a loss or to
write down the value of these assets on its balance sheet.

   
         Cyclical Nature of Business.  The Company's  primary business  involves
leisure and  entertainment.  During  periods of recession or economic  downturn,
consumers  may  reduce  or  eliminate  spending  on  leisure  and  entertainment
activities.  In the event that the Company's primary  demographic market suffers
adverse economic conditions,  the Company's revenues may be materially adversely
effected.  In addition,  the operations of Mountaineer are typically seasonal in
nature.   Winter  conditions  may  adversely  affect  transportation  routes  to
Mountaineer,  as well as cause  cancellations of live horse racing. As a result,
adverse  seasonal  conditions  could  have  a  material  adverse  effect  on the
operations of the Company.

         Limited  Public Market and  Liquidity.  The  Company's  Common Stock is
traded on the  Nasdaq  SmallCap  Market and  trading of the Common  Stock in the
over-the-counter  market is limited. A limited trading market could result in an
investor being unable to liquidate his or her investment.  For continued listing
on the Nasdaq SmallCap Market, the Company,  generally,  must have $2 million in
total assets, $1 million in total stockholders'  equity $200,000 in market value
of public  float,  a minimum bid price of $1.00 per share,  a minimum of 100,000
shares publicly held and a minimum of 300 stockholders. If the Company is unable
to satisfy Nasdaq's maintenance criteria in the future, its Common Stock will be
subject to being delisted,  and trading,  if any, in the Company's  Common Stock
would  thereafter be conducted in the  over-the-counter  market in the so-called
"pink sheets" or the NASD's  "Electronic  Bulletin  Board." As a consequence  of
such delisting,  an investor would likely find it more difficult to dispose,  or
to obtain quotations as to the price, of the Company's Common Stock.
    

         Lack of Public  Market.  There is currently no market for the Warrants.
The  Company  does not  intend  to apply  for  listing  of the  Warrants  on any
securities  exchange or to seek  approval for  quotation  through any  automated
quotation  system.  There can be no assurance as to the development or liquidity
of any market for the Warrants. If an active market does not develop, the market
price and liquidity of the Warrants will be adversely affected.

   
         Shares  Eligible for Future Sale. The Company had 18,869,397  shares of
Common Stock outstanding as of September 13, 1996. Of these outstanding  shares,
approximately 7,187,507 shares are "restricted securities" as defined under Rule
144 adopted by the Commission  under the  Securities Act ("Rule 144").  Of these
restricted  shares,  183,206 are  covered by this  Registration  Statement,  and
approximately  4,136,936  were  eligible  to be sold  under  Rule  144 . The (i)
183,206
    
                                     - 14 -

<PAGE>

   
shares of  outstanding  restricted  Common Stock  included in this  Registration
Statement will, if sold pursuant to this  Registration  Statement,  and (ii) the
1,542,860 shares of Common Stock included in this  Registration  Statement which
are issuable upon exercise of the Warrants  will, if issued upon exercise of the
Warrants and sold pursuant to this Registration  Statement,  be freely tradeable
without restriction under the Securities Act, except that any shares acquired by
an  "affiliate,"  as that term is  defined  under the  Securities  Act,  will be
subject to the resale  limitations  of Rule 144. In addition to the  Warrants to
purchase 1,542,860 shares of Common Stock registered herein, as of September 13,
1996 there were  outstanding  options and  warrants to purchase an  aggregate of
4,764,630 shares of Common Stock . In addition to the shares of Common Stock and
Warrants registered herein, the Company has filed a registration  statement with
respect to  4,836,340  shares of Common  Stock,  of which,  3,272,221  shares of
outstanding  Common  Stock,  878,250  shares of Common Stock  issuable  upon the
exercise of certain warrants of the Company,  and 685,869 shares of Common Stock
issuable upon the exercise of certain options of the Company. The future sale of
a  substantial  number of shares of Common  Stock by existing  holders of Common
Stock , and/or warrants and options  exercisable  for Common Stock,  pursuant to
Rule 144 or  through  effective  registration  statements,  may have an  adverse
impact on the market price of the Common Stock and could dilute the value of the
outstanding options or warrants of the Company.  See "Shares Eligible for Future
Sale" and "Description of Securities Registration Rights."

         Impact  of  Anti-takeover  Measures.  Certain  provisions  of the
Company's  Certificate  may have the  effect of making it more  difficult  for a
third party to acquire,  or of  discouraging  a third party from  attempting  to
acquire,  control of the  Company.  Such  provisions  could limit the price that
certain  investors  might be  willing  to pay in the  future  for  shares of the
Company's Common Stock.  Specifically,  the Company's  Certificate  requires the
Board of Directors (the "Board") to consider a variety of factors other than the
adequacy of the price  offered for the  Company's  securities  in  evaluating  a
takeover  attempt.  The  effect of this  provision,  in the event of a  takeover
attempt,  may be to prevent stockholders from receiving maximum returns on their
shares in the short-term and may deflate the price of the Company's Common Stock
over the long-term.  Additionally,  the Certificate  provides the Company with a
right to  repurchase  any shares of Common  Stock of the Company from any person
who acquires more than 5% of the voting stock of the Company. This provision was
adopted so that the Company can remain in compliance
    

   
with the Lottery Act, which  requires  advanced  approval of any  acquisition of
more  than  5% of the  Company's  Common  Stock.  Nonetheless,  there  can be no
assurance  that such  provision  can  provide  adequate  protection  against the
Company  losing  its  qualification  with  the  Lottery  Commission  due  to the
acquisition by a third party,  whether on the open market or otherwise,  of more
than 5% of the  Company's  Common  Stock,  as the  provision in the  Certificate
applies  only  retroactively  and the  Lottery  Act  requires  approval  of such
acquisitions  prospectively.  See  "Description  of  Securities - Common Stock -
Anti-Takeover Provisions."
    

                                 USE OF PROCEEDS

         The Company will not receive any proceeds from the sale of the Warrants
or the shares of Common Stock offered herein by the Selling Stockholders. If all
of the Warrants are exercised,  the Company will receive  estimated net proceeds
of  approximately  $1,622,431.  The  Company  intends  to utilize  any  proceeds
received from the exercise of the Warrants for general corporate purposes. There
can be no assurance that any of the Warrants will be exercised.

                                 DIVIDEND POLICY

         The Company has not paid any  dividends  on its Common  Stock since its
inception  and does not currently  foresee the payment of cash  dividends in the
future.  Furthermore,  the Company's Term Loan Agreement and the Warrants issued
to the lender  thereunder  prohibit  the  payment of any  dividends  without the
lender's  consent.  See  "Management's  Discussion  and  Analysis  of  Financial
Condition  and Results of  Operations - Liquidity  and Capital  Resources."  The
Company currently intends to retain any earnings to finance its operations.

                                     - 15 -

<PAGE>

                                 CAPITALIZATION

   
         The  following  table sets forth the  capitalization  of the Company at
June  30,  1996  and as  adjusted  to  reflect  the  closing  of the  Term  Loan
($4,378,000  net  proceeds) on July 2, 1996,  the repayment of $250,000 of short
term debt with the proceeds of the Term Loan,  the issuance of 183,206 shares of
Common  Stock with an  estimated  fair value of $250,000 as  discounted  and the
issuance of warrants to purchase  50,000  shares of the  Company's  Common Stock
with an estimated fair value of $6,000.
    

                                                         June 30, 1996
                                                       Actual    As Adjusted
                                                       ------    -----------

Short-term debt (excluding current
  maturities of long-term debt)                   $  718,000   $   468,000

   
Current portion of redeemable Common Stock           772,000       772,000
Current portion of long-term debt(2)               3,727,000     3,727,000
    
Total short-term debt                              5,217,000     4,967,000
                                                   ---------     ---------

   
Long-term debt--noncurrent portion
    
  12% Term Loan                                       -0-        5,000,000
  12.5% Bennett Loan                               6,233,000     6,233,000

Other long-term debt bearing interest at
  rates ranging from 8% to 12%                       130,000       130,000
                                                     -------     ---------

   
Total long-term debt--noncurrent portion           6,363,000    11,363,000
                                                   ---------   -----------

Redeemable Common Stock--noncurrent portion          246,000       246,000
                                                    ---------  ------------
    

Stockholders' equity:

   
Common Stock, $.00001 par value. 
 Authorized 25,000,000 shares at 
 June 30, 1996; issued and outstanding 
 18,869,375 shares at June 30, 1996(1) 
 and 19,052,581 shares as adjusted                     2,000        2,000
    
      Additional Paid-in Capital                  32,760,000    33,016,000

      Accumulated deficit                        (26,179,000)  (26,179,000)
                                                ------------- ------------

Total stockholders' equity                         6,583,000     6,839,000
                                                   ---------     ---------

Total capitalization                             $18,409,000   $23,415,000
                                                 ===========   ===========

                                     - 16 -

<PAGE>

   
     (1)  Excludes  4,836,340 shares of Common Stock reserved as of July 2, 1996
          for issuance pursuant to outstanding  options and warrants to purchase
          Common  Stock.  At the annual  meeting of  stockholders,  the  Company
          received stockholder approval to amend its Certificate to increase the
          authorized Common Stock from 25,000,000 to 50,000,000. The Company has
          filed an amended  Certificate  with the Secretary of State of Delaware
          to reflect this change.

     (2)  Does not give effect to the Amendment to the Bennett Loan which became
          effective  October 31, 1996. The Amendment  readjusts the amortization
          schedule  of  the  Bennett  Loan.  See  "Management's  Discussion  and
          Analysis of Financial  Condition and Results of Operations - Liquidity
          and Capital Resources" and "Description of Certain Indebtedness."
    

                           PRICE RANGE OF COMMON STOCK

   
         The  Company's  Common  Stock is traded  under the symbol  "MNTG".  The
Company's Common Stock is quoted on the NASDAQ SmallCap  Market.  On November 4,
1996, the high bid and low asked  quotations for the Company's Common Stock were
$1  3/16  and $1  3/16,  respectively.  As of  September  13,  1996  there  were
approximately 582 stockholders of record of the Company's Common Stock.

         The following table sets forth the range of high and low bid quotations
obtained  from the National  Quotations  Bureau for the Common Stock for the two
fiscal years ended  December 31, 1994 and 1995 and for the first three  quarters
of the fiscal year ending  December  31,  1996.  These quotes are believed to be
representative of inter-dealer quotations,  without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
    

                                     - 17 -

<PAGE>
                                                 High             Low
                                                 ----             ---

         Year Ended December 31, 1994:
          First Quarter                          7 3/16           3 7/8
          Second Quarter                         5 1/2            3
          Third Quarter                          4 1/4            1 15/16
          Fourth Quarter                         2 7/32           31/32

         Year Ended December 31, 1995:
   
          First Quarter                          1 15/16          1 1/16
          Second Quarter                         1 19/32          1 1/8
          Third Quarter                          1 9/16           1 1/16
          Fourth Quarter                         1 3/16           1 7/32
    

         Year Ending December 31, 1996:
   
          First Quarter                          29/32            11/32
          Second Quarter                         1 17/32          9/16
          Third Quarter                          1 1/2            13/16
    


                             SELECTED FINANCIAL DATA

   
         The selected  financial  data set forth below as of and for each of the
five  years  ended  December  31,  1995  have  been  derived  from  the  audited
consolidated financial statements of the Company , certain of which are included
elsewhere  in this  Prospectus,  and  should be read in  conjunction  with those
consolidated  financial  statements  (including  the  notes  thereto)  and  with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" also included  elsewhere herein.  The selected  financial data as of
and for the six months  ended June 30, 1995 and June 30, 1996 have been  derived
from the unaudited consolidated financial data of the Company which are included
elsewhere in this Prospectus and which in the opinion of management  include all
adjustments,  consisting only of normal recurring adjustments, which the Company
considers  necessary for a fair  presentation  of the results of operations  and
financial  condition for those  periods.  The financial  data for the six months
ended June 30, 1996 are not necessarily indicative of results to be expected for
the year.
    

                                     - 18 -

<PAGE>

<TABLE>
<CAPTION>

                                                Fiscal Year Ended December 31                                         Six Months
                                                                                                                    Ended June 30,

                          1995              1994         1993             1992             1991            1996             1995
                          ----              ----         ----             ----             ----            ----             ----

Statement of
Operations Data:

<S>                    <C>               <C>          <C>                 <C>                   <C>     <C>              <C>        
Net revenues           $24,979,000       $14,682,000  $12,797,000         $690,000              $0      $16,101,000      $10,824,000

Net loss from
continuing
operations             (5,313,000)       (6,902,000)  (5,913,000)      (2,749,000)       (447,000)        (115,000)      (2,646,000)

Loss per share 
from continuing
operations                   (.33)             (.48)        (.46)            (.42)           (.07)           (.01)            (.17)

Balance Sheet Data:

   
Working Capital                                                                          
(Deficiency)           (7,286,000)       (1,808,000)      313,000           60,000       (415,000)      (8,412,000)      (4,406,000)

Current Assets           1,972,000         3,555,000    2,354,000        2,974,000        375,000        2,204,000        2,696,000

Current Liabilities      9,258,000         5,363,000    2,041,000        2,914,000        790,000       10,616,000        7,102,000

Total Assets            25,747,000        23,958,000   19,137,000       16,812,000        478,000       25,614,000       27,695,000

Total Liabilities       19,763,000        14,200,000    6,040,000        5,641,000      1,565,000       19,031,000       18,878,000

Total 
Stockholders'
Equity (Capital                                                                             
Deficiency)              5,984,000         9,758,000   13,097,000       11,171,000      (1,087,000)      6,583,000        8,817,000
    

</TABLE>

   
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    

Results of Operations

     In December 1992, the Company acquired all of the outstanding  common stock
of  Mountaineer  with the  intent  of  enhancing  its  existing  facilities  for
promotion  as a high  quality  gaming,  racing and  recreation  resort.  Shortly
thereafter, the Company determined to focus its business primarily on the gaming
industry,  and de- emphasized its activity in other  businesses in order to more
fully devote corporate resources to Mountaineer,  as described elsewhere in this
Prospectus. See "Results of Discontinued Operations."

                                     - 19 -

<PAGE>

Results of Continuing Operations
Years Ended December 31, 1995, 1994 and 1993
--------------------------------------------

         The Company  incurred  significant  losses from  continuing  operations
during the years ended  December 31,  1995,  1994 and 1993  ("1995,"  "1994" and
"1993" respectively).  The Company incurred losses from continuing operations of
$5.3 million in 1995,  $6.9 million in 1994,  and $5.9 million in 1993,  largely
due to the  Company's  inability to operate,  market and maximize  revenues with
respect to its video lottery  business  during the final three  quarters of 1993
and  first  quarter  of 1994 due to delays  occasioned  by the  decision  of the
Supreme Court of West  Virginia  declaring  the enabling  legislation  for video
lottery  unconstitutional  and prior to the  reintroduction  and  passage of the
Lottery Act. In addition, legal settlement provisions, operating losses incurred
in the horse racing  operations of Mountaineer  and corporate  overhead  charges
added to the Company's losses.

Revenues
                                                   Years Ended December 31
                                             -------------------------------

                                      1995          1994               1993
                                      ----          ----               ----

Video Lottery Terminals           $16,479,000    $7,481,000         $5,293,000
Parimutuel Commissions              4,263,000     3,768,000          4,323,000
Lodging, Food and Beverage          3,046,000     2,276,000          2,344,000
Other                               1,191,000     1,157,000          1,054,000
                                    ---------     ---------          ---------
                                  $24,979,000   $14,682,000        $13,014,000
                                  ===========   ===========       ============


         Total  revenues  increased  by $10.3  million  from  1994 to  1995,  an
increase of 70%. Approximately $9.0 million or 87%, of the increase was produced
by video lottery  operations,  while parimutuel  commissions and lodging,  food,
beverage and other  operations at Mountaineer  Park  contributed $1.3 million or
13% of additional  revenues.  Total revenues increased by $1.7 million or 13% to
$14.7 million for 1994, from $13.0 million for 1993.

         Video Lottery Operations

   
         Revenues  from  video  lottery  operations  increased  120%,  from $7.5
million in 1994 to $16.5 million in 1995. In response to increased patronage and
a trend towards increased productivity of video lottery activities,  Mountaineer
doubled the number of VLTs to 800 in June 1995.  Video  lottery  revenues in the
second half of 1995  surpassed  $9.1  million,  a level 28% higher than revenues
earned in all of 1994. A comparison of fourth  quarter  revenues shows that 1995
outperformed  1994 by $1.6 million,  an increase of 57% over the $2.8 million of
revenues  earned in the final  quarter of 1994.  In December  1995,  the Company
completed an expansion of its Lodge gaming facilities, allowing the placement of
half of its VLTs at the Lodge with the other half remaining in the
    

                                     - 20 -
<PAGE>

racetrack  grandstand and clubhouse,  in response to a perceived demand for more
terminal availability on days when live racing is not conducted.

         VLT revenues  increased by $2.2 million or 41% to $7.5 million for 1994
as compared to $5.3 million in VLT revenues for 1993. The increase was primarily
attributable  to increased  utilization  of the 400 new VLTs which  replaced 165
older VLTs on September 1, 1994.

         Parimutuel Commissions

         Parimutuel commissions revenue is a function of wagering handle, with a
higher commission  earned on a more exotic wager, such as a trifecta,  than on a
single horse wager,  such as a win,  place,  or show bet. The Company  earned an
average  commission  rate of 20.6% in 1995,  up slightly  from the 20.3% average
commission rate earned in 1994.

         Both live and off-track  wagering handles  increased in 1995 from 1994,
yielding a 13% increase in parimutuel commissions to $4.3 million. Live wagering
handle  increased  4%, from $21.2  million in 1994 to $22.0  million in 1995, an
increase which slightly  surpassed the 3% increase in live race days from 220 in
1994 to 227 in 1995.  Purses  increased from an average of $22,500 in 1994 to an
average of $25,000 in 1995.

         In September 1995,  Mountaineer Park hosted the West Virginia Breeders'
Classics,  a night of stakes  races with  $330,000 in purses  funded by taxes on
statewide video lottery revenues.  Mountaineer Park broadcast a simulcast signal
of the stakes races, earning commissions on $351,000 of handle wagered off-site.

   
         Early in 1995, the Company expanded its off-track betting facilities in
the  racetrack  clubhouse,  grandstand  and  the  Lodge,  contributing  to a 24%
increase  in  simulcast  wagering  handle  from  $14.3  million in 1994 to $17.8
million in 1995,  representing  an  increase  of $3.5  million.  In April  1995,
Mountaineer Park began offering greyhound  off-track betting,  which contributed
$2.7 million to  increased  simulcast  handle in 1995.  The  remaining  $800,000
increase is attributable to the enhancement of Mountaineer's  off-track  betting
facilities and more extensive  offerings of simulcast racing.  For most of 1995,
Mountaineer  offered simulcast racing seven days per week,  compared to six days
per week in 1994.
    

         Parimutuel  commissions in 1994 decreased 13% to $3.8 million from $4.3
million for 1993. Total parimutuel  wagering handle decreased from $41.0 million
to $35.5 million or 13.4% for 1994 as compared to 1993.

         Live racing  handle  constituted  an 18% decrease from $25.7 million to
$21.1 million, while simulcast handle reflected only a

                                     - 21 -

<PAGE>

7% decrease to $14.3 million in 1994 from $15.3  million for 1993.  Although the
Company experienced an increase in live racing attendance of approximately 6,000
patrons,  from  234,000 to 240,000,  the  Company had fewer  racing days in 1994
(220) than 1993 (226). Management increased minimum daily purses from $18,000 in
1993 to  $22,500  in 1994 for live  racing in order to  attract  higher  quality
performing horses and higher spectator betting to increase parimutuel commission
revenues. Fifteen and one-half percent (15.5%) of VLT revenues are automatically
devoted to purse funding to achieve this management objective.

         Lodging, Food and Beverage

         Revenues earned from lodging,  food and beverage  activities  increased
34%, from $2.3 million earned in 1994 to $3.0 million in 1995. The increase is a
reflection of significantly greater attendance at the Company's video gaming and
off-track  betting  facilities,  as well as a  slight  increase  in live  racing
attendance.  Restaurant,  bar and concession facilities produced $582,000 of the
revenue increase,  while Lodge revenues  increased  $194,000.  Food and beverage
operations  accounted for approximately three quarters of the revenues earned by
this profit  center in both 1995 and 1994.  A fire in October  1994 caused 41 of
the Lodge's 101 rooms to be unusable  during the fourth  quarter of 1994 and the
first four months of 1995.

         Food,  beverage and lodging  revenues  decreased 3% from  slightly more
than $2.3 million for 1993 to slightly  under $2.3 million for 1994.  Guest room
revenues  decreased $50,000 or 8% from $621,000 to $571,000 for 1994 as compared
to the year ended 1993, which resulted from the reduction in available rooms due
to planned  remodeling  and  construction.  Additional  negative  impact on room
revenues was attributable to the fire damage sustained during the fourth quarter
of 1994.  Between 1993 and 1994, average occupancy remained stable at 46%, while
the average room rate  decreased  from $36 to $34.  Food and  beverage  revenues
increased  $38,000 to $1.7  million in 1994  compared to 1993.  The  increase is
primarily  due to the  higher  attendance  and  dining  room  menu  improvements
implemented in early 1994.

         Other Revenues

         Other sources of revenues consist primarily of non-core businesses such
as admission, programs, golf, tennis and swimming. While these lines of business
are not the Company's most  profitable,  the Company believes they are necessary
for the Company to continue to attract gaming patrons.  In total, other revenues
were virtually  unchanged  from 1994 to 1995,  amounting to  approximately  $1.2
million  each year.  Operations  in 1995 saw a  moderate  increase  in  revenues
relating to admission fees and program sales.  Other revenues  increased to $1.2
million from $1.1 million or 10% for 1994 as compared to 1993.

                                     - 22 -

<PAGE>

Operating Costs

         Total  operating  costs increased by 62%, from $13.4 million in 1994 to
$21.8  million  in  1995.   Approximately  $6.5  million  of  the  increase  was
attributable to the  substantial  growth in VLT revenues which more than doubled
from $5.7  million  in 1994 to $12.3  million  in 1995.  Parimutuel  commissions
expense accounted for $500,000 of the increase,  largely a reflection of the 13%
increase in commission revenues,  and lodging, food and beverage operating costs
increased  $900,000,  exceeding the $770,000  revenue  increase  earned by those
operations.  The gains  resulting  from the  profitability  of the video lottery
operations  have been offset by the losses  sustained by parimutuel  commissions
and lodging, food and beverage businesses; however, the Company has been able to
substantially reduce its losses due to the improvement in VLT operations.  Based
on this trend,  the Company is attempting to expand the video lottery  business,
while  attempting to reduce the losses of the parimutuel  and lodging,  food and
beverage businesses,  by increasing  productivity,  expanding marketing efforts,
increasing  purse  sizes and  attracting  higher  quality  jockeys and horses to
increase parimutuel wagering.

                                            Years Ended December 31
                                          --------------------------

Operating Costs                    1995              1994             1993
                                   ----              ----             ----

  Video Lottery Terminals      $12,256,000       $5,709,000      $3,720,000
  Parimutuel Commissions         5,064,000        4,563,000       5,136,000
  Lodging, Food and Beverage     3,285,000        2,337,000       2,364,000
  Other                          1,195,000          798,000         787,000
                                ----------       ----------       ---------
                               $21,800,000      $13,407,000     $12,007,000
                               ===========     ============     ===========


                                             Years Ended December 31
                                            ------------------------

Gross Profit (Loss)             1995            1994            1993
                                ----            ----            ----

  Video Lottery Terminals     $4,223,000     $1,772,000     $1,573,000
  Parimutuel Commissions       (801,000)      (795,000)      (813,000)
  Lodging, Food and Beverage   (239,000)       (61,000)       (20,000)
  Other                          (4,000)        359,000        267,000
                             ----------      ----------      ---------
                              $3,179,000     $1,275,000     $1,007,000
                              ==========     ==========     ==========


         Video Lottery Terminals Operating Costs

   
         Taxes on statutory  assessments  applicable  to VLT revenues  increased
from 35% of such  revenues  ("net  win")  prior to March  1994 to 53% of net win
thereafter.  This increase in assessment rate, coupled with the 120% increase in
VLT revenues,  resulted in a $4.5 million  increase in state taxes and statutory
assessments  from 1994 to 1995, to $8.4 million.  Approximately  $2.5 million of
1995 statutory costs were contributed to Mountaineer's
    

                                     - 25 -

<PAGE>

horseowners' association in the form of live racing purse payments,  compared to
$1.1 million in 1994,  while $80,000 was contributed to  Mountaineer's  employee
pension fund in 1995, up from $31,000 in 1994.

   
         VLT lease  expenses  increased from $790,000 in 1994 to $1.3 million in
1995, a reflection largely of the increased number of terminals leased, from 165
prior to September 1994, to 400 from September, 1994 through June, 1995, and 800
thereafter.  Salaries,  payroll  taxes  and  employee  benefits  increased  from
$503,000 in 1994 to $964,000 in 1995,  and utilities  increased from $125,000 to
$313,000,  both  increases  resulting  from  increased  personnel to service the
expanded number of gaming terminals and related increase in patronage.

         Cost of VLTs increased by $2.0 million or 53% from $3.7 million to $5.7
million for 1994 compared to 1993.  Contributing to this increase were statutory
expenses  which  increased  from $1.7  million in 1993 to $3.9 million for 1994,
excluding costs  associated with VLT leases of $790,000 and $1.2 million in 1994
and 1993,  respectively.  On March 17, 1994, the State of West Virginia approved
the  continued  operation  of VLTs,  however,  statutory  rates  paid to certain
entities were mandated at substantially  higher amounts than those previously in
effect as follows:
    

                                     March 18, 1994             March 17, 1994
                                      and Beyond                  and Prior
                                ----------------------    ---------------------

State of West Virginia               30.0%                           25.0% (1)
Hancock County                        2.0%                            0.0%
Horseman's Association               15.5%                           10.0%
Other                                 5.5%                            0.0%
                                     -----                           -----
Total Statutory Payments             53.0% (2)                       35.0%
                                     -----                           -----


(1)      Increased from 20% to 25% in June 1993.

(2)      Excludes  up to a 4%  administrative  fee  charged by the State of West
         Virginia based on revenues. In addition,  rates are applied to revenues
         net of this 4% administrative fee.

   
         In addition to the above rates,  the Company paid a 3%  management  fee
(after the State's 4%  administrative  fee), based on VLT revenues,  to American
Gaming and  Entertainment,  Ltd.  ("AGEL")  which began on October 26, 1994,  as
approved by the Lottery Commission. This management agreement was stayed in July
1995. A consulting  agreement  with American  Newco  providing for fees of up to
$20,000 per month, as discussed below,  replaced the management  agreement.  The
Company was also  required  to pay  additional  management  fees of 8% of income
before  depreciation,  amortization,  taxes and interest.  Total management fees
charged to the cost of
    

                                     - 24 -

<PAGE>

VLTs in 1994 were  $133,000.  From  January 1, 1993 to March 1993 and from April
1993 to August  1993,  the  Company  paid the  lessor  of its 165 video  lottery
terminals 23% and 10% of net revenues,  respectively.  This  agreement has since
been terminated.

         VLT cashier and technician  salaries expense in 1994 increased  $52,000
to $215,000 from 1993, which reflected the additional employees hired to support
the  operation  of 400 VLTs.  Increased  costs  for  utilities,  insurance,  and
rentals, due to enlarged facilities and increased personnel costs, accounted for
an additional increase of 17% for 1994 as compared to 1993.

         Parimutuel Commissions Operating Costs

   
         Salaries,  payroll  taxes and  employee  benefits  increased  from $2.2
million  in 1994 to $2.5  million  in 1995,  partly as an  accommodation  due to
certain inefficiencies caused by Mountaineer's extensive construction activities
in 1995.  A  general  upgrade  in  maintenance  activities  contributed  to this
increase, as well as a $65,000 increase in repair and maintenance supplies.  The
Company's  totalisator rents and payments of host track fees increased  $177,000
in 1995 from the prior year as a result of the 24% increase in revenues achieved
by its off-track  betting  operations.  Liability  insurance expense in 1995 was
$87,000  higher than the prior period,  a reflection of the increased  volume of
business and an industry-wide increase in jockey insurance.
    

         Cost of parimutuel  commissions  was lower by $573,000 or 11% from $5.1
million to $4.6 million for 1994  compared to 1993.  This decrease is consistent
with the decrease in parimutuel  revenues in 1994 largely due to the contractual
nature of the Company's  expenses,  as well as certain cost  reduction  measures
implemented by management.

         Lodging, Food and Beverage Operating Costs

   
         Mountaineer  experienced  an  increase in  lodging,  food and  beverage
operating  costs from 1994 to 1995 of  $948,000,  $695,000  of which  related to
increased costs attributable to food and beverage  operations.  Although cost of
sales rates  increased only slightly from 42% in 1994 to 44% in 1995,  this cost
category  increased by $303,000 in proportion to the $582,000 increase in sales.
Food and  beverage  labor  costs  rose  approximately  $320,000  which  was also
commensurate  with the  increase in revenues  despite no  appreciable  change in
occupancy rates from 1994 to 1995. The cost of lodging, food, and beverage sales
decreased from $2,364,000 for 1993 to $2,337,000 in 1994 or $27,000.
    

   
         Costs of Other Operating  Revenues

         Cost of other  revenues,  consisting  primarily of non-core  businesses
such as admission,  programs,  golf, tennis and swimming were higher by $422,000
or  64%  from   $778,000  to  $1.2   million  for  1995  as  compared  to  1994,
notwithstanding flat revenues for these operations in 1995. Approximately 81% of
such  increase  was directly  attributable  to expanded  hours of operation  and
increased  staffing and scope of off-track  betting  operations.  Costs of other
revenues  were higher by $11,000 or 1% from  $787,000  to  $798,000  for 1994 as
compared to 1993.
    
                                     - 25 -

<PAGE>

         Selling, General and Administrative Expenses, and Interest
         Expense

         Selling general and  administrative  expenses  decreased  $104,000 from
$6.7 million in 1994 to $6.6 million in 1995. Legal and other  professional fees
decreased  from $1.4  million  in 1994 to $1.1  million  in 1995.  In  addition,
several  non-recurring  charges  affected  selling,  general and  administrative
expenses as follows: a provision for settlement of legal actions of $525,000 and
development  costs write-offs of $200,000 in 1994, and provisions for settlement
of legal actions of $408,000 and doubtful notes  receivable from related parties
of $290,000, and relocation and severance charges of $596,000 in 1995.

   
         Selling,  general and  administrative  expenses at Mountaineer rose 4%,
from  $2.6  million  in 1994 to  $2.7  million  in  1995.  Advertising  expenses
increased  from $838,000 in 1994 to $935,000 in 1995 as revenues grew from $14.7
million  to $25.0  million.  Salaries  decreased  from $1.3  million  in 1994 to
$961,382 in 1995;  1994  compensation  includes  $600,000  in  non-cash  expense
incurred in connection  with stock options on the Company's  Common Stock issued
below  market  in  connection  with  an  employment   agreement  with  a  former
stockholder of Mountaineer. During the years 1995 and 1994, the Company incurred
noncash expenses of $2.1 million and $2.9 million, respectively.
    

         Interest  expense  decreased  24% from  $729,000 in 1994 to $557,000 in
1995 despite the increased  construction  loan balances  carried in 1995. Of the
interest  incurred  in  1995,  $1.1  million  was  capitalized  to the  cost  of
construction  compared to only $790,000 capitalized in 1994 due to higher levels
of construction activity in 1995.

         Selling,  general and administrative expenses increased by 5% from $6.4
million to $6.7 million in 1994 versus  1993.  Costs  included in this  increase
were the $525,000  for  settlement  of legal  actions,  a $200,000  write-off of
development,  design and  architectural  costs and legal and professional  fees,
which,  in the  aggregate,  caused an increase of  $1,039,000  from  $319,000 to
$1,359,000. In addition, payroll expenses increased from $812,000

                                     - 26-

<PAGE>

   
to $1,109,000 or $297,000 and  advertising  expenses  increased from $709,000 to
$838,000.  The Company experienced  significantly  higher legal and professional
fees in 1994 because of the West  Virginia  Supreme Court  litigation  and costs
associated with securing the ultimate  approval of VLT  operations.  The Company
also  incurred  fees  associated  with a new  collective  bargaining  agreement,
lawsuits in the normal course of business and contractual agreements consummated
in 1994,  including  agreements with the horseman's  association,  the lease for
VLTs, and the management agreement with AGEL.

         Interest  expenses  increased by $659,000  from $70,000 to $729,000 for
1994, as compared to 1993. The increase was attributable to the interest cost at
12.5% per annum on principal amounts borrowed for construction and redevelopment
activities  at  Mountaineer,  as  well as  approximately  $631,000  of  non-cash
interest expenses associated with Common Stock issued to Bennett. Interest costs
capitalized to construction  activities in 1994 totalled approximately $790,000,
and financing costs deferred in the  consolidated  balance sheet at December 31,
1994 were  $1,628,000  to be amortized  over the  expected  term of the loan for
construction  activities  (based on  qualified  assets) and  interest  expenses;
however, due to a settlement  negotiated in 1995 with Bennett,  $998,000 of such
costs which were accrued on that date, were cancelled and not amortized.

         Depreciation and amortization  expense  increased from $910,000 in 1994
to $1.5  million  in 1996,  a  reflection  of the  $5.9  million  investment  in
property, plant and equipment during that period.  Depreciation and amortization
expenses in 1994 increased $285,000 from a level of $625,000 in 1993, largely as
a result of the $3.4  million  investment  in capital  expenditures  incurred in
1994.  These  investments  were  made  as part of the  capital  improvement  and
expansion program at Mountaineer Park.

         During the years 1994 and 1993, the Company  incurred  noncash expenses
of $2.9  million  and $2.4  million,  including  depreciation  and  amortization
expenses of $1.1 million and $1.0 million, respectively.  From time to time, the
Company has issued Common Stock for services,  settlements and interest expenses
(see Notes 5, 9 and 15 in the "Notes to Consolidated Financial Statements.")
    

Six Months Ended June 30, 1996 and 1995
---------------------------------------

Revenues

         The Company  earned  revenues for the respective  six-month  periods in
1996 and 1995 as shown below:

                                     - 27 -

<PAGE>

                                         Six Months Ended
                                 June 30,               June 30,
                                   1996                   1995
                               --------------------   --------------------

Video lottery operations              $11,900,000             $6,843,000
Parimutuel commissions                  2,165,000              2,048,000
Lodging, food and beverage              1,573,000              1,391,000
Other revenues                            463,000                542,000
                               --------------------   --------------------

                                      $16,101,000            $10,824,000
                               ====================   ====================

         Operating revenues  increased  significantly in late 1995, most notably
in video lottery operations. Total revenues increased by $5.3 million or 49%, to
$16.1  million in the first half of 1996 from $10.8 million in the first half of
1995.

         The geographic area surrounding the Company's  operating  facilities in
West Virginia experienced extensive flooding and unusually heavy snowfall in the
first quarter of 1996.  Flood and snow damage in portions of Ohio, West Virginia
and Western  Pennsylvania  reached  levels  resulting  in their  designation  as
federal disaster areas. Nonetheless,  Mountaineer Park's facilities are situated
well above the flood plain and did not sustain  any damage.  Mountaineer  Park's
nearest   competitor  was   extensively   damaged  and  ceased   operations  for
approximately four weeks in the first quarter of 1996.

         Video Lottery Operations

         A summary of the video lottery gross winnings, less patron payouts, for
the six months ended June 30, 1996 and 1995 is as follows:

                                       Six Months Ended
                              June 30                June 30
                                1996                   1995
                            -------------------  ---------------------

Total gross wagers             $42,217,000            $23,178,000
 Less patron payouts           (30,317,000)           (16,335,000)
                            -------------------  ---------------------

Revenues - video
lottery operations             $11,900,000             $6,843,000
                            ===================  =====================

         VLT revenues for the six month period ended June 30, 1996  increased by
$5.1 million to $11.9  million,  or nearly  double the level of VLT revenues for
the  same  period  in 1995.  The  increase  was  primarily  attributable  to the
expansion of video  lottery  facilities,  the addition of 400 more  terminals in
July 1995 and the expansion of the Speakeasy Gaming Saloon in December 1995. The
results of video  lottery  operations  reflect a continuing  trend of increasing
aggregate net win. The Company maintained $82 per

                                     - 28 -

<PAGE>

machine net win per day for the six months  ended June 30, 1996 with 800 VLTs in
operation,  compared to $95 per day for the six months  ended June 30, 1995 with
only 400 VLTs in operation.

         On July 3, 1996, the Company  introduced  several  offerings of classic
casino  "slot"  games on 350 of its 800  VLTs.  The new  games  are  offered  in
addition to the  Company's  existing  gaming  choices of video  poker,  keno and
blackjack. The inception of video slot gaming coincided with the commencement of
a large  scale  marketing  campaign  aimed  beyond the 40 mile radius from which
Mountaineer has traditionally drawn the bulk of its patrons.  The Company earned
an average daily net win of $142 per terminal  during the period  between July 4
and August 31, 1996 following  installation of video slot games, compared to $68
per terminal during the same period in 1995.

         Parimutuel Commissions

         The Company's  revenues from racing  operations are derived mainly from
commissions  earned  on  parimutuel  wagering  handle  on  live  races  held  at
Mountaineer  Park and on races  conducted at other host racetracks and simulcast
at Mountaineer  Park. The Company's  total  parimutuel  commissions  for the six
months ended June 30, 1996 and 1995 are summarized below:

                                                     Six Months Ended
                                          June 30          June 30
                                            1996             1995
                                         ------------------------------------

Total parimutuel wagering handle        $20,182,000      $19,242,000
         Less patrons' winning         (15,990,000)     (15,314,000)
         tickets
                                      --------------------------------
                                          4,192,000        3,928,000
Less:
         State and County parimutuel      (246,000)        (224,000)
         tax
         Purses and Horsemen's          (1,781,000)      (1,656,000)
         Association
                                      --------------------------------

Parimutuel Commissions                   $2,165,000       $2,048,000
                                      ================================



         For the six months ended June 30, 1996,  simulcast  handle rose by $2.6
million,  or 32%  compared  to  $10.6  million  for the  same  period  in  1995.
Management  believes the increase  resulted  from  renovations  to track betting
facilities and an increase in the number of wagering days to seven days per week
at  multiple  facilities  within  Mountaineer  Park,  plus the  introduction  of
simulcast greyhound racing in the second quarter of 1995.

                                     - 29 -

<PAGE>

         Live racing handle declined by $1.7 million to $9.6 million, or 15% for
the six months  ended June 30, 1996 from $11.2  million for the six months ended
June 30, 1995.  Through the first half of 1996,  Mountaineer  Park had completed
108 of the annually  required 220 live racing days  compared to 113 days for the
same period in 1995.  Average  daily  purses,  which were  $25,000 in the second
quarter of 1995, have increased several times during 1995 and 1996 to $31,000 at
June 30,  1996,  and the Company  plans to raise daily  purses to $50,000 in the
fourth  quarter  of 1996.  Management  believes  that live  racing  handle  will
increase as racing  purses  increase,  based on the belief  that  higher  purses
attract higher quality  jockeys and horses,  which in turn captures the interest
of horse racing bettors from a larger geographic region. In accordance with this
philosophy,  the Company has recently  begun offering  moderately  funded stakes
races of up to $20,000,  with the intention of funding more sizable stakes races
if a favorable revenue trend develops from this practice. The Company also plans
to raise daily purses  (excluding  stakes  races)  approximately  50% to $50,000
during the fourth quarter of 1996.

         Food, Beverage and Lodging Operations

         Food, beverage and lodging revenues increased 13% to $1,573,000 for the
six months ended June 30, 1996 from  $1,391,000 for the same six month period in
1995.  Management  believes that refurbishment of the Lodge guest rooms early in
1995, in combination with other improvements at Mountaineer Park, contributed to
a $109,000  lodging  revenue  increase to $439,000  from  $330,000  for the same
period-to-period  comparison.  Forty-one guest rooms were unavailable for use in
the first  quarter  of 1995 due to smoke  damage  sustained  as a result of fire
experienced  in the fourth  quarter of 1994.  Food and  beverage  revenues  also
reflected  an  increase of $73,000 to  $1,134,000  from  $1,061,000  for the six
months ended June 30, 1995.

         Other Operating Revenue

         Other  sources  of  revenue  decreased  by  $79,000  to  $463,000  from
$542,000,  for the six month period  ended June 30,  1996,  compared to the same
period in 1995. Other operating  revenues are primarily derived from the sale of
programs,  parking and  admission  fees  relating to  Mountaineer  Park's racing
activities.

         Operating Costs

         Operating  costs and gross profit  earned from  operations  for the six
month periods ended June 30, 1996 and 1995 are as follows:

                                     - 30 -

<PAGE>

                                        Six Months Ended
Operating Costs                 June 30              June 30
                                  1996                1995
                                ----------------- --------------------

  Video lottery operations           $8,028,000           $4,892,000
  Parimutuel commissions              2,497,000            2,644,000
  Lodging, food and beverage          1,529,000            1,616,000
  Other revenues                        492,000              522,000
                                ----------------- --------------------

                                    $12,546,000           $9,674,000
                                ================= ====================
                                ----------------- --------------------


                                        Six Months Ended
Gross Profit (Loss)             June 30              June 30
                                  1996                1995
                                --------------------------------------

  Video lottery operations           $3,872,000           $1,951,000
  Parimutuel commissions              (332,000)            (596,000)
  Lodging, food and beverage             44,000            (225,000)
  Other revenues                       (29,000)               20,000
                                --------------------------------------

                                     $3,555,000           $1,150,000
                                ======================================

         The  Company's  49%  increase in revenues  resulting  from the expanded
scope of  entertainment  offerings  resulted  in higher  total costs as expenses
increased  by $2.9  million  to $12.5  million  in the  first  half of 1996,  an
increase of 30%, from $9.7 million for the six months ended June 30, 1995.

         Video Lottery Operations

         Costs of VLTs  increased by $3.1 million,  or 64%, from $4.9 million to
$8.0 million for the six months ended June 30, 1996,  compared to the six months
ended June 30, 1995,  reflecting  the increase in  statutory  expenses  directly
related to the 74% increase in video lottery revenues.  Such expenses  accounted
for $2.7 million of the total cost increase.

         After  payment of a state  administrative  fee of up to 4% of revenues,
Mountaineer  is obligated to make  payments  from the  remaining  video  lottery
revenues to certain funds  administered by the Lottery  Commission,  as follows:
State Tax Fund 30%,  Horsemen's  Purse Fund 15.5%,  Hancock  County Tax Fund 2%,
Breeders  Classics  Fund  1%,  Veterans  Memorial  Fund  1%,  and  0.5%  to  the
Mountaineer   Employee  Pension  Fund.  Taxes  and  assessments  paid  to  these
restricted funds are included in cost of video lottery operations

                                     - 31 -

<PAGE>

in the consolidated statements of operations.  Fund payments for
the respective six-month periods are as follows:

                                       Six Months Ended
                              June 30               June 30
                                1996                 1995
                             ------------------  --------------------

State Tax Fund                     $3,481,000            $1,999,000
Horsemen's Purse Funds              1,799,000             1,033,000
Other Funds                           870,000               501,000
                             ------------------  --------------------

                                   $6,150,000            $3,533,000
                             ==================  ====================

         In addition,  the Company paid  management fees of $198,000 to AGEL for
management  services for the six months ended June 30, 1995.  The Company's June
2,  1994  management  agreement  with  AGEL  was  suspended  pursuant  to a stay
agreement  effective  June 30, 1995,  until such time as Bennett,  the Company's
construction lender,  complied with certain financial disclosure requirements of
the Lottery Commission.

   
         On July 1, 1995,  the Company  and  American  Newco,  which the Company
believes is an affiliate of AGEL,  entered into a consulting  agreement  whereby
American  Newco agreed to provide  consulting  services in  connection  with the
Company's video lottery operations at the rate of $10,000 per month,  subject to
increases  of up to  $10,000  per month  for  additional  services  which may be
provided,   through  March  17,  1997.  The  personal  involvement  of  the  two
stockholders  of  American  Newco as  consultants  to the  Company is a material
element of the  consulting  agreement.  Such personal  involvement  has not been
provided  since  October 15,  1995,  and on May 10, 1996,  the Company  provided
American  Newco and AGEL with formal notice of termination of the consulting and
management  agreements,  respectively.  (Pursuant to a June 30, 1995  settlement
agreement between the Company,  Mountaineer and Gamma of West Virginia,  Inc., a
subsidiary of AGEL, in the event the consulting agreement with American Newco is
terminated for cause, the management agreement  automatically  terminates.) As a
result,  no consulting  fees have accrued in 1996. On May 14, 1996,  the Company
received  written notice from a representative  of AGEL demanding  payment under
the  management  agreement.  On September 19, 1996, the Company and AGEL settled
all claims with each other .
    

                                     - 32 -

<PAGE>

         VLT  salaries  expense  increased  by $154,000 to $401,000  for the six
months ended June 30,  1996,  compared to $247,000 for the six months ended June
30,  1995.  This  increase  was  attributable  to  staff  hired to  support  the
operations of the additional  VLTs.  Costs incurred by the Company for utilities
and insurance in 1996 due to enlarged facilities and expanded staff increased by
$122,000 to $255,000  for the six months  ended June 30, 1996 from  $133,000 for
the six months ended June 30, 1995.  Lease  expenses  increased from $435,000 in
the first half of 1995 to $718,000 in the first half of 1996, reflecting the 400
additional VLTs placed into service in the third quarter of 1995.

         Racing Operations

   
         Costs of parimutuel  commissions  declined  $147,000,  or 6%, from $2.6
million  in the first  half of 1995 to $2.5  million  in the first half of 1996.
Simulcast  host race fees and  totalisator  system  lease  expenses  relating to
simulcasting  operations  increased  $106,000 from the first half of 1995 to the
first half of 1996, due to expansion of this racing activity.  Totalisator lease
expenses  relating to live racing  declined  $75,000 from the first half of 1995
versus the same period of 1996 due to negotiation of more favorable  lease terms
in December 1995. The reduction in live race days, from 113 in the first half of
1995 to 108 in the same period in 1996,  also  contributed  to the  reduction in
expenses.
    

         Food, Beverage and Lodging Operations

         Food,  beverage and lodging expenses decreased by $87,000 to $1,529,000
in the  first  half  of 1996  from  $1,616,000  for the  same  period  of  1995,
reflecting greater operating efficiencies achieved in 1996.

         Costs of Other Revenues

         Costs of other  revenues  decreased  by $30,000 to $492,000 for the six
month  period  ended June 30, 1996 from  $522,000 for the six month period ended
June 30, 1995.

         General and Administrative Expenses

   
         General  and  administrative  expenses  for  the  first  half  of  1996
decreased  by $403,000 to $2.1  million or 16%,  from $2.5 million for the first
half of 1995.  Management's  efforts to reduce the cost of corporate  operations
produced a decrease in corporate general and administrative expenses of $150,000
from  $925,000,  or 16%, to $775,000 for the same  period-to-period  comparison.
Corporate  general  and  administrative  expenses  for  the  first  half of 1996
reflected  the  issuance of 200,000  shares,  valued at  $106,000,  for services
rendered  by  a  key  consultant  and  significant   stockholder.   General  and
administrative  expenses  at  Mountaineer  reflected a 13%  decrease,  from $1.6
million for 1995 to
    

                                     - 33 -

<PAGE>

$1.3 million for 1996 despite the expanded scope of Mountaineer's operations and
the assumption of certain corporate  responsibilities.  A $208,000 reversal of a
1995 provision for estimated  litigation losses had a favorable impact on second
quarter 1996 expenses.

   
         Advertising expenses,  included in general and administrative expenses,
decreased  by 19%,  from  $535,000 to $433,000 for the six months ended June 30,
1996, compared to the same period in 1995. Advertising expenditures are expected
to increase  significantly  in the second half of 1996 as the Company  commences
promotion of its new video slot games.
    

         Results of Discontinued Operations

   
         On March 31, 1993, the Company's Board approved a formal plan to divest
the  Company of certain  oil and gas  operations  the  Company  owns in Michigan
through a plan of orderly  liquidation.  This  decision  was based upon  several
factors  including  (i)  the  anticipated  potential  of  the  Company's  gaming
operations and the anticipated time to be devoted to it by management,  (ii) the
expiration  of "Section  29"  credits,  a credit  against  federal  income taxes
derived from gas produced from Devonian Shale and "tight sands"  formations from
wells  commenced  before January 1993,  (iii) the impact of delays in connection
with the West  Virginia  Supreme  Court  litigation  and  subsequent  passage of
enabling  legislation  for video lottery during 1994 which caused  management to
focus the Company's  efforts and financial  resources on  Mountaineer  Park, and
(iv) the  Company's  desire to  continue  to place its  primary  emphasis on its
gaming and recreational  businesses.  That plan of orderly liquidation  provided
for certain rework,  remediation and development costs to address  environmental
matters,  increased  production and  enhancement of the value of such properties
for sale.
    

         Descriptions  of the oil and gas properties  and financial  information
relating to  operating  results and balance  sheet items as of December 31, 1994
and  1995  and  as of  June  30,  1996  have  been  disclosed  as  "Discontinued
Operations" for purposes of this Prospectus.

         Although the Company has prepared a plan of liquidation with respect to
these  properties,  it has thus far been unable to effect a  liquidation  of its
Michigan properties due to the lack of financial resources available to complete
its rework  costs.  The Company has valued such  properties  at $2,616,000 as of
June 30,  1996,  net of  $252,000  of accrued  rework  costs,  which it believes
represents  net  realizable  value for the  properties.  Nonetheless,  given the
Company's  difficulty in finding a buyer for the properties,  it may be required
to sell the  properties at a loss and on terms  substantially  less favorable to
the Company than initially foreseen or,  alternatively,  to write down the value
of such assets

                                     - 34 -

<PAGE>

on its consolidated  balance sheet.  Management will thoroughly assess the carry
value of its Michigan properties during the fourth quarter of 1996.

         Liquidity and Capital Resources

         At June 30,  1996,  the Company had  current  liabilities  in excess of
current  assets of  approximately  $8.4 million,  of which  $772,000  relates to
redeemable  Common Stock  obligations  and $3.7 million  represents  the current
portion of long-term debt. The Company  secured a series of short-term  loans in
the second  quarter of 1996  totaling  $1.1 million to address cash flow demands
existing  prior  to the  funding  of the $5  million  Term  Loan in  July  1996.
Approximately $382,000 of these short-term obligations were repaid in the second
quarter and the remaining $718,000 were repaid or settled in July and August.

   
         Pursuant to the $10.2 million  Bennett Loan, the Company paid the first
five of the 36 requisite monthly principal  payments in May, June, July , August
and September 1996. Despite increases in revenues, repayment of the Bennett Loan
over 36 months could unduly burden the Company's  cash flow, and there can be no
assurance  that,  absent  approval  of the  restructuring  of the  Bennett  Loan
discussed  below or additional  financing on terms more  favorable than those of
the Bennett Loan, the Company could continue to pay such  indebtedness  and meet
all of its other  obligations.  The  Company  is taking the  following  measures
discussed  below to address its near-term and long-term  liquidity  concerns and
capital needs.
    

         Amendment of the Bennett Construction Loan Agreement

   
         The Bennett Loan,  which had an  outstanding  balance of  approximately
$8.8  million as of  September  30,  1996,  is secured  by a first  mortgage  on
Mountaineer's  real and personal property and is guaranteed by the Company.  The
Bennett Loan calls for 36 monthly  payments of principal and interest based on a
36 month amortization  schedule.  The Bennett Loan bears interest at the rate of
12.5% per year with a  delinquency  interest  rate of 14.5%.  The  Bennett  Loan
permits  prepayment by the Company without  interest or penalty.  In March 1996,
Bennett and its parent,  The Bennett Funding Group,  Inc.,  filed for protection
from creditors under Chapter 11 of the federal  bankruptcy  laws. The bankruptcy
court  assigned  a  trustee  to  administer  the  Bennett   companies  while  in
bankruptcy.  On July 1, 1996,  the Company lost an  application  for a Temporary
Restraining Order, which would have suspended payments of interest and principal
under the Bennett Loan. Despite this ruling, the Company continued  negotiations
with the Trustee and reached an agreement to restructure  the Bennett Loan which
became effective on October 31, 1996.
    

                                     - 35 -

<PAGE>

   
         By Amendment of the Construction Loan Agreement (the "Amendment") dated
September 19, 1996 among the Company,  Mountaineer  Park and Richard C. Breeden,
solely in his capacity as trustee (the "Trustee") of the estate of Bennett,  the
Company  and  Mountaineer  agreed to settle all  claims  against  Bennett.  This
Amendment  was approved by the United States  Bankruptcy  Court for the Northern
District of New York (the "Bankruptcy Court") on October 22, 1996. Based on this
Amendment,  the Company and Mountaineer  agreed to dismiss their lawsuit against
Bennett with prejudice. The material terms of the Amendment are as follows:

         The Amendment  modifies the schedule for  amortization of the principal
of the Bennett Loan such that instead of 36 equal monthly  payments of $283,333,
Mountaineer will make principal  payments of $75,000 per month from October 1996
through March 1997,  $125,000 per month from April 1997 through  September 1997,
$75,000 per month from October 1997 through March 1998,  $125,000 per month from
April 1998 to September  1998,  and $75,000 per month from October 1998 to March
1999.  The  remaining  principal  balance is due on April 30, 1999. In the event
that the Bennett Loan is not prepaid by December 31, 1997,  the interest rate on
any  outstanding  balance would,  as of January 1, 1998,  increase from 12.5% to
14.5%  until  paid in full;  provided,  however,  that (i) if the  Holder of the
second trust on Mountaineer's  property  (currently  Madeleine LLC ("Madeleine")
pursuant to a Deed of Trust and the Term Loan Agreement) for any reason does not
approve such interest rate increase,  then the interest rate would not increase;
and (ii) in lieu thereof,  the monthly  payments of principal  would increase to
$100,000  from October 1996 through  March 1997 and to $200,000  from April 1997
through September 1997 .

     The Amendment modifies the Company's  obligation to issue additional shares
of the  Company's  Common Stock to Bennett if the loan is not prepaid by January
1, 1997.  Whereas the Bennett Loan as previously amended required the Company to
issue  Bennett $2.5  million  worth of the  Company's  Common Stock based on the
average  market price for the 20 consecutive  trading days preceding  January 2,
1997, the Amendment  permits the Company,  at its option,  either to pay Bennett
$500,000 or issue  $750,000 in Common  Stock.  Similarly,  the Company  would be
permitted  to pay  $750,000  or issue $1 million in Common  Stock if the Bennett
Loan is not prepaid by July 1, 1997,  and pay $1 million or issue $1.25  million
in Common Stock if the Bennett Loan is not prepaid by December 31, 1997.  If the
Company elects to issue Bennett  additional  shares of Common Stock, such shares
would be subject to the  requirement  that,  to the extent such  issuance  would
otherwise  result in Bennett having voting rights  equivalent to more than 5% of
the Company's  issued and outstanding  shares of Common Stock,  then such voting
rights would be transferred to the Company's Board.
                                                    
                      
                                     - 36 -

<PAGE>

   
         To the extent any shares of Common Stock previously  issued pursuant to
the Bennett Loan or to be issued  pursuant to the Amendment are  restricted  and
are not  eligible  for public sale  pursuant to court order or  exemption,  then
Bennett would be entitled to piggyback  registration rights with respect to such
shares  should the Company or any  stockholder  of the Company make a registered
offering  of  Common  Stock,   excluding   registered  offerings  undertaken  in
connection with the Term Loan Agreement,  until December 31, 1997. Bennett would
also be entitled to demand  registration  rights after  December 31, 1997 or any
other time at which there is a registered  offering in connection  with the Term
Loan Agreement. See "Registration Rights".

         In the event the  Trustee  desires  to sell any of the shares of Common
Stock held by Bennett,  the Amendment also grants the Company the right to match
any bona fide offer of a non-affiliate to purchase the shares until December 31,
1997.  The  Amendment  likewise  grants  the  Company  an option  for the period
commencing  on the  date  Mountaineer  has  paid  the  Bennett  Loan in full and
terminating ten business days thereafter,  to purchase all (but not part) of the
1,530,000 shares currently held by Bennett for a price per share equal to 90% of
the average  closing bid price of the Common Stock as reported by Nasdaq for the
twenty (20) consecutive trading days immediately preceding the date on which the
Company  retires  the  Bennett  Loan.  In no event  will such price be less than
$1.125 per share.

         As part of the  Amendment,  AGEL,  an  affiliate  of Bennett  which had
performed  management  services at  Mountaineer  Park pursuant to the Management
Agreement,  delivered an acknowledgment  that the Management  Agreement had been
terminated  and that a June 30, 1995  Settlement  Agreement  among the  Company,
Mountaineer,  and AGEL was now deemed to be in effect. That Settlement Agreement
terminated  the  Management  Agreement  and settled  all of the  accounts of the
parties as of June 30, 1995.
    

         $5 Million Term Loan

   
         On July 2, 1996, the Company and  Mountaineer  entered into a financing
arrangement with a private lender for the Term Loan and Loan Commitment.  The $5
million  Term Loan is secured by a second  mortgage  on  Mountaineer's  real and
personal property and is guaranteed by the Company. The note evidencing the loan
calls for monthly  payments of interest only at the rate of 12% per annum, and a
default  rate of 22% per  annum.  The  Company  also  agreed to issue the lender
183,206  shares of its Common  Stock and  Warrants  to  purchase  an  additional
1,142,860 shares for no separate  consideration at $1.06 per share.  Warrants to
purchase an additional  aggregate amount of 50,000 shares at $.80 per share were
issued to two affiliates of the lender. The principal is to be repaid at the end
of the three  year  term,  during  which  time the loan is  subject  to, on each
anniversary  date,  additional  fees  in  cash  equal  to 8% of the  outstanding
principal balance, Common Stock equal to 5% of the outstanding principal balance
divided by the average  daily closing price of the Common Stock on each business
day for the 30 days  prior to the third day  before the  anniversary  date,  and
warrants to purchase  250,000  shares of Common  Stock at $1.06 per share.  This
loan can be prepaid without payment  penalty at the Company's  option.  The loan
proceeds  will  be used to pay  trade  accounts  payable,  fund  future  capital
expenditures,  and launch extensive television and print advertising  campaigns.
See "Description of Certain Indebtedness."
    

                                     - 37 -

<PAGE>

         $11.1 Million First Mortgage Commitment

   
         As part of the Term Loan transaction, the lender also provided the Loan
Commitment  which  expires on June 30, 1997,  whereby the lender  agreed to lend
Mountaineer up to $11.1 million of additional  funds to be used to refinance the
current  mortgage  held by Bennett on terms no less  favorable  than the Bennett
Loan.  The  Loan  Commitment  is  subject  to  customary  conditions,  including
negotiation of definitive  loan  agreements and no material  adverse  changes in
Mountaineer's business prior to closing. In connection with the Loan Commitment,
the  Company  paid a $110,000  commitment  fee and issued the lender  additional
Warrants to purchase 350,000 shares of Common Stock at $1.06 per share.

         If the  Company is able to close such  financing,  the Loan  Commitment
provides that the lender would be secured by a first  priority deed of trust,  a
first  priority lien and security  interest on  Mountaineer's  real and personal
property,  and a guarantee of the Company, an assignment of leases and rents and
a pledge of the stock of Mountaineer owned by the Company,  plus annual fees and
warrants  as reduced by the amount of  principal  repaid.  An initial  financing
facility fee of $888,000 would be payable upon closing along with 550,000 shares
of the  Company's  Common  Stock and  warrants to purchase  1,632,140  shares of
Common Stock at $1.06 per share.  The note evidencing the loan would provide for
monthly payments of interest only at the rate of 12% per annum.  Principal would
be payable at the end of a three year term,  during  which period the loan would
be subject to, on each anniversary date,  additional  financing facility fees of
cash equal to 8% of the  outstanding  principal  balance,  550,000 shares of the
Company's Common Stock and warrants to purchase an additional  550,000 shares at
$1.06 per share.  The loan proceeds  would be used to pay the initial  financing
facility  fee and to repay the Bennett  Loan.  The fair value of the issuance of
such shares of Common Stock will be charged to operations and, accordingly, will
have a material impact on the Company's statements of operations. The Company is
interested in finding a lender which can offer  superior terms to those provided
by the Loan  Commitment;  however,  the  lender  has a right  of  first  refusal
entitling the lender to match the basic terms of any other commitment  within 30
days of the receipt of another offer.  While  management is vigorously  pursuing
alternative  financing,  there can be no assurances  that such financing will be
obtained on terms  acceptable to management  or within  sufficient  time for the
Company to meet its ongoing obligations.
    

         Alternative Mortgage Financing

         The Company is continuing to seek alternative mortgage financing from a
number  of  prospective   lenders  on  more  favorable  terms  and  with  longer
amortization periods than those currently in

                                     - 38 -

<PAGE>

place. The Company believes that its recent increases in revenues, reductions in
accounts  payable  from  proceeds  of the  Term  Loan  and  improvements  in the
facilities  of  Mountaineer  Park will  permit the  Company to obtain  permanent
financing on satisfactory terms. If such a facility is offered, the Company will
avail itself of the early  repayment  clauses of its existing  loan  agreements.
There are no  assurances  that such  alternative  financing  will be obtained on
terms  acceptable to the Company or within  sufficient  time to meet its ongoing
obligations.

   
         The  Company  intends to  further  expand its  physical  renovation  of
Mountaineer Park in preparation for its marketing as a comprehensive destination
resort centered around extensive video gaming operations.  Significant increases
in revenues were provided by Mountaineer Park's expanded gaming operations after
the  introduction  of 400  additional  VLTs in  July  1995  and  the  subsequent
expansion of the  Lodge-based  Speakeasy  Gaming Saloon in December  1995.  This
trend has continued  since the  introduction of video slots gaming in July 1996.
Management  anticipates  further increases in the number of VLTs within the next
year and intends to replace older VLTs as leases lapse, subject to evidence that
the  existing  VLTs are  utilized  fully,  so that by fall of 1997,  the Company
expects to operate  1,000 VLTs with slot games.  Mountaineer's  revenue  streams
have historically  exhibited  seasonal peaks in the summer months with declining
patronage in the winter months.  Management believes that the emergence of video
gaming as its dominant  profit center will reduce the severity of these seasonal
fluctuations  in revenue;  however,  there can be no assurances  that this trend
will be appreciably altered.

         During  the six  months  ended  June 30,  1996,  the  Company  invested
$593,000 for  redevelopment  of its properties at Mountaineer  Park. The Company
borrowed  $1,100,000  under  short term  borrowing  arrangements  to service its
working  capital  requirements in the first half of 1996, and paid $1,076,000 in
short-term and long-term principal during the same period.
    

                                     - 39 -

<PAGE>

                                    BUSINESS

MOUNTAINEER RACE TRACK & GAMING RESORT

         Racetrack Facilities

         Mountaineer  Park offers horse racing  before  expansive  clubhouse and
grandstand  viewing areas with enclosed seating for year-round racing. The track
also conducts  simulcast  thoroughbred and greyhound racing from other prominent
racetracks.  Mountaineer's  main  racetrack  consists  of  an  oval  dirt  track
approximately  one mile in  length.  Inside  the main  track is a  natural  turf
(grass)  track  measuring  seven  furlongs or 7/8 of a mile.  The  racetrack  is
equipped  with two chutes for races of lengths  from 4 1/2  furlongs to over one
mile.  The racetrack  buildings  consist of the clubhouse and  grandstand  which
provide  glass-enclosed  stadium and box seating for approximately 770 and 2,850
patrons, respectively. The buildings are each three-stories and are connected by
an enclosed  walkway.  Live and simulcast  racing can be viewed by approximately
1,200 dining patrons in two restaurants located in the clubhouse and grandstand.
In addition to seating areas, the grandstand covers  approximately 57,000 square
feet of interior space on the main and mezzanine levels containing 42 parimutuel
windows and four food and  beverage  concession  stands.  The  clubhouse  covers
approximately  25,000  square feet of interior  space  containing  22 parimutuel
windows.  The  grandstand  has an  indoor  stage  with  a  seating  capacity  of
approximately  2,240,  and has  been the site of  several  nationally  televised
boxing matches.  The racetrack  apron,  which is accessible from both buildings,
provides racing fans with up-close  viewing of horses entering the racetrack and
crossing  the finish  line.  The stable area  accommodates  approximately  1,250
horses and is located  adjacent to the main track.  None of the horses are owned
by Mountaineer or the Company, however, Mountaineer leases stable space to horse
owners whose  horses race at  Mountaineer  Park.  Mountaineer  Park's  racetrack
parking lots have a combined capacity for over 2,900 vehicles.

         Lodge Facilities

   
         The Lodge is a two-story  facility  which  overlooks the golf course at
Mountaineer's main entrance on West Virginia State Route 2. The Lodge offers 101
rooms,  including  50 standard  rooms (one double bed),  46 superior  rooms (two
double beds), and five king rooms and suites.  The Mountaineer Lodge Dining Room
seats 125 patrons for casual  dining  overlooking  the golf course.  In 1995, in
response to increased patronage of the off-track betting,  video lottery gaming,
dining and bar facilities  located at the Lodge,  the Company expanded its 5,000
square foot Speakeasy Gaming Saloon with an 8,000 square foot addition. Capacity
of the Speakeasy Gaming Saloon now stands at 750.  Extensive  off-track wagering
facilities continue to be maintained at the Speakeasy Gaming
    

                                     - 40 -

<PAGE>

Saloon.  Lodge  parking  lots have a combined  capacity  for  approximately  370
vehicles.

         Video Lottery Facilities

   
         In  addition to live and  simulcast  parimutuel  wagering,  Mountaineer
offers video lottery gaming through 800 VLTs located in the racetrack clubhouse,
grandstand and the Lodge.  Mountaineer  introduced 400 new state-of-the-art VLTs
in September  1994,  replacing 165 older  machines  operated since the Company's
acquisition  of  Mountaineer  in  December  1992,  and  subsequently  placed  an
additional 400 VLTs into operation in June 1995. The racetrack houses 400 of the
VLTs in its Riverside  Gaming  Terrace on the second floors of the clubhouse and
grandstand,  and the Lodge offers the remaining 400 VLTs in the Speakeasy Gaming
Saloon, Derby Room and Iron Horse Lounge. Unlike the replaced machines,  each of
the new VLTs allows a player to select from several game themes, including up to
four versions of draw poker,  five versions of slot machine themes,  one version
of  blackjack  and two  versions of keno,  as well as  permitting  the player to
determine which cards to hold while playing draw poker. The Company is currently
authorized  to install up to 200 more VLTs which it intends to install  sometime
during 1997, subject to evidence that the Company's current VLTs are utilized at
full capacity.
    

         Recreational Facilities

         Mountaineer offers a par three nine-hole "executive" golf course, three
tennis courts,  a volleyball  court, a basketball  court, two swimming pools and
two children's  swimming pools.  These  facilities are made available for use by
Lodge guests and the general public at specified daily or seasonal fee rates.

         Trailer Park

   
         Located  across  West  Virginia  State  Route 2 from the  Lodge and the
entrance to Mountaineer Park, the Company maintains a trailer park consisting of
61 individual lots  constituting  approximately  11.5 acres. The lots are rented
for fixed monthly fees, mostly to individuals who are employed by Mountaineer in
racing  operations.  The Company is responsible  for maintenance of the road and
grounds, refuse removal and providing water and sewage hook-ups. The tenants pay
all utility expenses.
    

         Undeveloped Land

         Mountaineer  owns,  as part of its 606 acre site, a 375 acre tract that
is currently  undeveloped.  The acreage is located directly across West Virginia
State Route 2 from the Lodge and racetrack main entrance.  Management  currently
has no plans for development of such property.

                                     - 41 -

<PAGE>

Current Operations

   
         The  Company's  operating  revenues  at  Mountaineer  Park are  derived
principally  from its  racing and video  lottery  operations,  and,  to a lesser
extent,  its lodging,  food and  beverage  operations.  Additional  revenues are
generated from greens fees and other recreational facilities fees.
    

         Racing Operations

   
         The Company is subject to annual licensing requirements  established by
the Racing  Commission.  The Company's license was renewed in December 1995, and
will remain effective through December 1996.
    

         The Company's  revenue from racing  operations  is derived  mainly from
commissions earned on parimutuel wagering on live races held at Mountaineer Park
and on races  conducted at other "host"  racetracks  and  broadcast  live (i.e.,
import  simulcast) at  Mountaineer  Park. In  parimutuel  wagering,  patrons bet
against  each other  rather than  against the  operator of the  facility or with
pre-set odds.  The dollars  wagered form a pool of funds from which winnings are
paid based on odds  determined  solely by the wagering  activity.  The racetrack
acts as a  stakeholder  for the  wagering  patrons and deducts  from the amounts
wagered a "take-out" or gross  commission,  from which the racetrack  pays state
and county taxes and racing purses.  The Company's  parimutuel  commission rates
are fixed as a percentage of the total handle or amounts  wagered.  With respect
to Mountaineer Park's live racing  operations,  such percentage is fixed by West
Virginia law at three levels,  17.25%,  19% and 25%, depending on the complexity
of the wager. The lower rate applies to wagering pools involving only win, place
and show  wagers  while the  higher  rates  apply to pools  involving  wagers on
specified multiple events, such as trifecta,  quinella and perfecta wagers. With
respect to simulcast racing operations, the Company generally has opted to apply
the commission rates imposed by the jurisdictions of the host racetracks,  as it
may do with the  consent  of the  Racing  Commission.  Such rates vary with each
jurisdiction  and may be more or less favorable than the live racing  commission
rates. Out of its gross commissions, the Company is required to distribute fixed
percentages  to its fund for the payment of regular  purses (the "regular  purse
fund"),  the state of West  Virginia  and Hancock  County and,  with  respect to
commissions derived from simulcast  operations,  Mountaineer's  employee pension
plan.  After  deducting  state and county  taxes and,  with respect to simulcast
commission, simulcast fees and expenses and employee pension plan contributions,
approximately  one-half of the remainder of the  commissions  are payable to the
regular purse fund.

         Mountaineer  also  receives the  "breakage,"  which is the odd cents by
which the amounts  payable on each dollar wagered in a parimutuel pool exceeds a
multiple of ten cents. Breakage from

                                     - 42 -

<PAGE>

simulcast  wagers  is  generally  allocated  proportionately  between  the  host
racetrack  and  Mountaineer  on  the  basis  of the  amounts  wagered  at  their
respective facilities.

         Video Lottery Operations

   
         The Company is subject to annual licensing requirements  established by
the Lottery  Commission.  The  Company's  license was renewed in July 1996 for a
period of one year.

         The Company  derives  revenue from the operation of video lottery games
in the form of net win on the gross terminal income, or the total cash deposited
into a VLT less the value of credits  cleared  for winning  redemption  tickets.
Pursuant to the Lottery Act, the Company's commission is fixed at 47% of the net
win after deducting an administration fee of up to 4% of gross terminal revenues
first paid to the State of West Virginia.

         The VLTs are leased under a master lease  agreement  which requires the
Company to insure the machines for their full replacement  value, pay any taxes,
insurance and maintenance expenses and, upon the expiration of the lease, allows
the Company to purchase the VLTs at fair market value.  Monthly payments for the
first 400 VLTs were  $72,378 from  September  1994 through  December  1995.  The
second 400 VLTs were free of rent for the first six months after installation in
late June  1995.  The master  lease  agreement  provides  that the  Company  may
exercise  an option  to  purchase  the VLTs at the end of the  lease  term for a
nominal sum. The Company  accrued  monthly lease  expenses of $70,743 during the
deferral  period of July through  December  1995. On March 26, 1996,  the master
lease  agreement  was  amended to  reflect a new  monthly  consolidated  payment
schedule as follows:  (i) $0 in December  1995,  January 1996 and February 1996,
(ii) $119,471 in March and April 1996,  (iii) $183,176 from May through  October
1996,  and (iv) $119,471  from November 1996 through  January 1999. In addition,
the Company is obligated to make interest  payments  from March through  October
1996 at the rate of 15% of the past  due  periodic  rental  payments  under  the
master lease agreement, representing a total interest obligation of $26,278.

         In 1995, the Lottery Commission approved the linking of VLTs to enhance
the amount  that could be won on any single play of any single  terminal  within
the  linked  group.   The  Lottery   Commission  also  approved  nominal  payout
percentages for this gaming option,  commonly referred to as "progressives",  of
up to 95%. The Company expects to link  approximately  one-half of its VLTs into
several  progressive  playing groups located in the Riverside  Gaming Terrace at
the  racetrack  and the  Speakeasy  Gaming  Saloon at the Lodge.  The  Company's
supplier is working on the  development of progressive  gaming  software for the
Company's  existing  VLTs.   Management's  target  date  for  implementation  of
progressive gaming
    

                                     - 43 -

<PAGE>

   
play is the first  quarter  of 1997,  although  there can be no  assurance  that
progressive games will be successfully implemented by that date, or at all.
    

   
         In March 1996,  the West  Virginia  legislature  approved  the usage of
video game  themes  depicting  symbols on reels,  commonly  referred to as "line
games" or "slot games." On July 3, 1996, Mountaineer installed slot games on the
first 350 of its 800 VLTs.  The new games,  which were  introduced for the first
time in June 1996 pursuant to the new  legislation,  included Double Diamond,  a
classic casino slot game with  cherries,  bars and the like that "spin" on video
reels,  and the  internationally  popular Black Rhino game.  These new games are
offered in addition to blackjack,  poker and keno. Management intends to replace
older VLTs that cannot  accommodate these new games as leases lapse, and subject
to evidence that the Company's 800 VLTs  currently in place are utilized  fully,
the Company  intends to install an  additional  200 VLTs,  so that by the end of
1997, Mountaineer Park expects to operate 1,000 VLTs with slot games.
    

         Management of Video Lottery Operations

   
         Pursuant   to  the   Bennett   Loan   Agreement,   American   Gaming  &
Entertainment,  Ltd.  ("AGEL,"  formerly  named Gamma  International,  Ltd.) was
engaged by the Company  pursuant  to the June 2, 1994  Management  Agreement  to
provide  management  services for video  lottery and other gaming  activities at
Mountaineer  Park  permitted  under West Virginia law, other than its parimutuel
horse racing operations (the "Permitted  Activities").  The Company was required
to enter this Management Agreement with AGEL as a condition to the Bennett Loan.
Under the Management Agreement, AGEL was entitled to receive a management fee of
3% of the gross revenues of the Permitted  Activities after a 4%  administrative
fee.  In  addition,  AGEL was  entitled  to  receive 8% of the  earnings  before
interest,  taxes,  depreciation and amortization of all businesses conducted at,
or, in the case of off-track  betting,  generated as a result of, the operations
at  Mountaineer,  including the Permitted  Activities and all  parimutuel  horse
racing operations.
    

         The Company's  Management Agreement with AGEL was suspended pursuant to
a Stay  Agreement  effective  June 30,  1995  until  such time as  Bennett,  the
Company's  construction loan lender,  complied with certain  requirements of the
Lottery  Commission.  For the six months ended June 30,  1995,  the Company paid
AGEL $198,000, however, no additional payments were made after June 30, 1995. As
of June 30, 1995,  the Company and AGEL entered a settlement  agreement  staying
the Management Agreement. Simultaneously,

                                     - 44 -

<PAGE>

   
American Newco entered into a Consulting  Agreement with  Mountaineer to provide
consulting services in connection with Mountaineer's video lottery operations at
the rate of $10,000 per month,  subject to  increases of up to $10,000 per month
for possible  additional  services to be provided  through March 17, 1997.  Fees
under this Consulting  Agreement are  substantially  less than those which would
have been paid under the original Management  Agreement.  The agreements provide
that if the  Stay  Agreement  or the  Consulting  Agreement  are  terminated  in
accordance with certain specified  contingencies,  the Management Agreement will
also  terminate.  However,  the agreements  also provided that if Bennett should
fulfill certain requirements of the Lottery Commission and declare no later than
January 1, 1996 that it would  continue as lender to  Mountaineer on a permanent
basis,  the  Management  Agreement  will  be  reinstated  prospectively  and the
Consulting  Agreement  will  terminate.  Notwithstanding  such  agreements,  the
Company  has  reached  an  agreement   with  AGEL  as  of  September  19,  1996,
acknowledging  the  effectiveness of the June 30, 1995 settlement  agreement and
thereby terminating the Management Agreement.

         The personal  involvement of the two  stockholders  of American  Newco,
Inc.  in the  consulting  activities  is a material  element  of the  Consulting
Agreement.  Such personal  involvement  had not been provided  since October 15,
1995,  and on May 10, 1996,  management  provided  American  Newco and AGEL with
formal  notice of  termination  of the  consulting  agreement.  As a result,  no
consulting  fees have  accrued  since that time.  On May 14,  1996,  the Company
received  written notice from a representative  of AGEL demanding  payment under
the  Management  Agreement . Although  management  believes there are sufficient
grounds to terminate the Consulting and Management Agreements without additional
liability to the Company,  there can be no assurance that such terminations will
not be  successfully  challenged  or that the Company will not incur  additional
liability in connection with the agreements.

         On March 28, 1996 the Commission filed suit against The Bennett Funding
Corporation,  the parent of Bennett and an affiliate of a major  stockholder  of
AGEL,  seeking a financial  judgment  and civil  penalties  for actions that are
unrelated to Bennett's lending activities to Mountaineer. Also named in the suit
was  Patrick  Bennett,   Chief  Executive  Officer  of  Bennett,  the  Company's
construction  lender.  Management does not believe that these  developments will
have a material negative impact on the Company's licenses or financing efforts.
    
         Racetrack, Food and Beverage Operations

         The clubhouse restaurant is open a minimum of 220 days annually on live
race days, and offers seating for 650 customers with full lunch and dinner menus
and a private buffet.  Clubhouse  customers include racing fans, local residents
and private  social  groups.  Beverages and cocktails are also  available in the
clubhouse at the Riverside  Gaming  Terrace bar,  which  services  video lottery
players, as well as racing fans. The grandstand's Man O' War restaurant offers a
buffet primarily for bus and riverboat excursion tours and charter groups and is
open approximately 140 days annually. Renovation and expansion were completed in
March 1995 increasing  dining capacity of the Man O' War from 230 to 550. Closed
circuit television  monitors  displaying  Mountaineer's live and simulcast races
are provided at every table in both the Clubhouse and Man O' War Restaurants for
the  convenience of racing fans. The racetrack food and beverage  facilities are
intended to complement  the  entertainment  experience for racing fans and video
lottery  players  and,  therefore,  are  designed to offer  familiar  menus with
moderate pricing in a comfortable atmosphere.

                                     - 45 -

<PAGE>

   
         Lodge  customers  principally  include  local  residents  and  business
travelers visiting nearby steel plants and other businesses on weekdays,  with a
larger number of  recreational  customers and persons from non-local  markets on
weekends. Lodge facilities also include the Mountaineer Lodge Dining Room, which
seats  125  patrons  for  casual  dining  overlooking  the golf  course,  and an
additional 68 persons may be seated on an outside deck, weather permitting. Food
and beverages are also available at the Lodge in the Speakeasy Gaming Saloon and
the Iron Horse Lounge.  Table and barstool seating is available in the Speakeasy
Gaming  Saloon  and the Iron  Horse  Lounge  for the video  lottery  gaming  and
off-track  wagering  patrons  accommodated  there.  The  Lodge  and its food and
beverage   operations  are  operated  in  combination  with  its   entertainment
facilities and is utilized  principally to increase racing  attendance and video
lottery play. Accordingly, the Company maintains inexpensive room rates.
    

Improvement Plan And Expanded Operations

         Since its  acquisition of Mountaineer in December 1992, the Company has
been engaged in an ongoing  effort to renovate and, more  recently,  enhance and
expand  Mountaineer  Park,  which  was  first  opened  in  1951.  Prior  to West
Virginia's  adoption of the Lottery  Act in March  1994,  the Company  completed
certain  renovations  necessary to maintain the clubhouse  and lower  grandstand
areas,   including  upgrades  to  the  plumbing  and  electrical  systems,   the
installation of new furniture and furnishings and the redesign of the grandstand
parimutuel (wagering) windows. These improvements were made during 1993.

         In  1993,  the  Company  commenced  its  capital  improvement  program,
designed to upgrade and expand Mountaineer Park's existing

                                     - 46 -

<PAGE>



facilities to a level which would allow its marketing as a more upscale  gaming,
racing, and recreational destination resort.

   
         In 1994 and  1995,  the  Company  invested  $8.9  million  in  building
improvements,  furnishings,  fixtures  and  equipment  suitable  for large scale
gaming activities in its race track grandstand and clubhouse,  and an additional
$591,000  to convert a portion  of  existing  Lodge  space to gaming  areas.  In
response to increased  patronage at its Lodge gaming areas, the Company embarked
upon an 8,000 square foot  expansion of the Lodge video  lottery  facilities  in
1995.
    

         Mountaineer has expanded its off-track  betting  facilities in both the
racetrack  and Lodge  locations.  In 1994 and 1995,  the Company  invested  $1.9
million in two track-side restaurants offering seating for 1,200 racing patrons,
with new 13-inch  television  monitors  located at each table, and a total of 32
overhead monitors with 40-inch screens. A simulcast control center is located in
the  clubhouse   restaurant,   which  also  offers  video  and  graphic  overlay
capabilities.  This system  enables the Company to promote  upcoming  events and
Mountaineer's other entertainment  facilities, in addition to the day's live and
off-track racing schedule.  In 1995, the Company completed the renovation of the
Lodge  off-track  betting  facility,  offering  seating  for 198  patrons in the
Speakeasy Gaming Saloon. The Lodge simulcasting facility is served by 24 40-inch
television  monitors,  as well  as a  15-foot  projection  screen.  The  Company
currently  has  available 64 mutuel  windows in the  racetrack  facility and six
windows in the Speakeasy  Gaming Saloon,  to be supplemented  by  self-activated
portable betting terminals in 1996 and beyond.

         The Company also created a boxing arena and entertainment  stage, which
it has  integrated  into  the  grandstand  seating.  The  stage  is an  integral
component of the Company's efforts to expand Mountaineer Park's customer base by
offering new,  complementary forms of entertainment.  Mountaineer has hosted six
boxing events since December 1994,  including nationally televised bouts on ESPN
and USA Cable.  Mountaineer  paid fixed fees and provided  certain lodging at no
charge to the event  promoters.  Mountaineer  retained all proceeds  from ticket
sales, food and beverage sales and program sales.  Management  intends to engage
in similar events to increase  public  awareness and to thereby help to increase
future attendance at Mountaineer Park.

         The Lodge lobby and reception area were renovated in 1994,  followed by
restoration  of 41 guest  rooms  damaged  by fire and a general  renovation  and
upgrade of the 60 remaining guest rooms and common areas in 1995.

     Remaining  components of the improvements  plan scheduled for completion in
1996 consist of enhancements to the Speakeasy Gaming

                                     - 47 -

<PAGE>

Saloon, parking lot expansion and general paving. The cost of these improvements
is not expected to exceed $1.5 million.

Business Strategy

         The Company's business strategy is to increase revenues in all areas of
operations through the promotion and expansion of its video lottery business and
the enhancement of its racing and entertainment facilities.

         Develop and Market Mountaineer Park as a Diversified
         Entertainment Facility

   
         The Company believes that the Mountaineer  Park racetrack  facility has
not performed up to its potential in the past because it was utilized  primarily
to conduct parimutuel racing,  thereby limiting the facility's customer base and
under-utilizing  its  sizable   infrastructure   during  non-racing  times.  The
expansion of video lottery  operations and the  introduction  of bingo for local
senior citizen groups and simulcast boxing events at Mountaineer Park have begun
to remedy  these  deficiencies.  Management  believes  that the addition of such
improvements  and programs to those  already  completed,  will provide the right
product mix to attract an increasing number of visitors and more efficiently use
Mountaineer's  facilities  during  non-racing  times. It is anticipated that the
resulting benefits will be shared by parimutuel, as well as by video lottery and
other  entertainment  operations,  since patrons who  traditionally do not visit
horse  racetracks may , once at  Mountaineer  Park, be more inclined to wager on
racing.  In addition,  because a  significant  percentage of revenues from video
lottery  operations  must be  contributed  to the racing  purse  fund,  as video
lottery revenues increase, so will the size of purses.  Management believes that
this will have the  effect of  attracting  better  quality  racehorses,  further
enhancing Mountaineer Park's appeal to traditional horse racing fans who largely
generate the Company's parimutuel revenues.
    

         Expand Video Lottery Operations

         The  Company  intends  to  expand  its  video  lottery   operations  by
installing  an  additional  200  VLTs,  which  were  authorized  by the  Lottery
Commission  in 1995,  to replace  existing VLTs as leases lapse during the first
quarter of 1997,  subject to evidence that the  Company's 800 VLTs  currently in
place are utilized  fully.  By the fall of 1997, the Company  expects to operate
1,000 VLTs with slot games. The Company believes that its video lottery revenues
will  continue  to  increase  with  the   installation  of  new  machines,   the
implementation  of progressive and video slot games, and the  implementation  of
its expanded  marketing  plan.  With its current  involvement  in video  lottery
gaming and parimutuel  racing, its substantial  infrastructure and grounds,  and
the attractive location of its facility, management believes that Mountaineer is
positioned  to take  advantage  of any  future  forms  of  gaming  which  may be
legalized in West Virginia. There can be no assurances,  however, that the state
of West  Virginia  will  authorize  additional  gaming  activities  or that,  if
authorized, the Company would be licensed.

         Relocate Off-Track Wagering

         The Company recently relocated its primary  simulcasting  operations to
the Speakeasy Gaming Saloon at the Lodge.  Management  believes that by exposing
video lottery patrons to simulcast and

                                     - 48 -

<PAGE>

live racing,  new racing fans can be developed,  thereby  increasing  parimutuel
operations.  The expanded  clubhouse  simulcast  facilities are also expected to
create additional excitement and increase the level of activity at the racetrack
on live race days.

         Improve Live Racing Product and Commence Export Simulcasting
         Outside Hub Area

         The Company's ability to attract attendance at Mountaineer and wagering
on its live races is dependent,  in part,  upon the quality of the horses racing
at Mountaineer. Horse races at racetracks competing with Mountaineer, and at the
racetracks from which Mountaineer receives import simulcasts, have often been of
higher  quality  than  Mountaineer's  horse races,  thereby  attracting a larger
volume of wagering and higher average wagers than at Mountaineer Park. Beginning
in October 1994,  Mountaineer  has been able to attract better quality horses by
paying  incrementally higher purses. The increased purses reflect an increase in
the minimum daily purses guaranteed pursuant to the Company's agreement with the
horsemen's association, a non-union entity which represents the jockeys in their
dealings with Mountaineer.  Management's ability to increase further the size of
purses  will  depend on  increased  video  lottery  operations  and, to a lesser
extent,  expanded simulcast racing operations.  The Company  anticipates that it
will be able to continue  increasing purse sizes to levels  attractive to owners
of mid-level quality or better racehorses.

   
         Management has sponsored  several stakes races in 1996,  with purses of
up to $20,000  per race.  In  September  1995,  Mountaineer  sponsored  the West
Virginia  Breeders'  Classics stakes races, with purses totaling $330,000 funded
by state-wide video lottery tax revenue.  Mountaineer broadcast certain of these
races to a number  of other  racetracks  around  the  country,  and  intends  to
simulcast its regular card of live races within the next year.  Wagering handles
from participating racetracks are commingled with Mountaineer's on-site wagering
handle when it exports its simulcast signal.
    

         Commence Export Simulcasting Outside Hub Area

   
         Export simulcasting is a highly desirable source of revenue because the
direct costs  associated  with such  operations are relatively  low. The Company
believes  that  the  higher  average  purses   anticipated  from  video  lottery
contributions  will  improve  the  quality of races which it can export to other
racetracks,   off-track   betting   facilities,   casinos   and   other   gaming
establishments  once it has completed its improvement plan. In order to make its
races more attractive to simulcast outlets, the Company anticipates that it will
experiment with different post times, possibly adopting more evening racing days
which are preferable  because they do not compete with live racing  conducted by
host tracks. Although the Company intends to pursue export
    

                                     - 49 -

<PAGE>

simulcasting  possibilities  vigorously,  there  can be no  assurance  that such
opportunities will prove realistic or that the Company will be successful in its
pursuit of such business.

         Increasing Import Simulcasting

   
         The  Company  intends to  increase  the number and  quality of races it
makes  available for wagering by  simulcasting  additional  out-of-state  races.
Although  management  does not  anticipate  that it will  increase the number of
import  signals it can receive  simultaneously,  it will  increase the number of
races displayed with each available signal. In May 1995,  Mountaineer introduced
simulcasts of off-track  greyhound  racing,  and has since offered  thoroughbred
and/or  greyhound import  simulcasting  seven days per week.  Because  operating
expenses  associated  with  simulcast  racing  are  generally  lower  than those
associated with live racing, management believes that increases in the levels of
simulcast  wagering  would  result in greater  operating  profits  than  similar
increases in live racing levels.
    

Marketing

         Mountaineer's  primary market  includes four million  persons of gaming
age who reside  within a  one-hour  drive,  or  approximately  50 miles,  of the
facility   including  the  population   centers  of  Pittsburgh,   Pennsylvania,
Youngstown/Warren  and  Akron/Canton,  Ohio,  and  Wheeling,  West  Virginia.  A
secondary  market of 3.4 million  persons of gaming age reside within a two-hour
drive,  including Cleveland,  Ohio and Morgantown,  West Virginia.  Both markets
have an average household income of approximately $26,000.

   
         The  Company  has  adopted  and is in the  process  of  implementing  a
comprehensive marketing program to capitalize on Mountaineer's recently expanded
gaming  facilities to create a larger and more loyal  customer base. The program
includes (i) the Players Club, a player rating and tracking  system  designed to
reward  qualified  play  through the issuance of reward  certificates  which are
redeemable  for  food  and  beverages,  merchandise  and  other  services,  (ii)
entertainment  programming  featuring  boxing and other  special  events,  (iii)
attractive food and beverage pricing, (iv) comprehensive advertising,  and (v) a
bus program. Some features of the program are subject to approval by the Lottery
Commission. Prior to the formulation of the new marketing program, the Company's
marketing efforts consisted of limited  television,  radio and print advertising
and promotional events tied to major holidays or horse racing events.
    

Competition

         Mountaineer's  principal direct competitors are Wheeling Downs, located
approximately 40 miles to the south in Wheeling,  West Virginia and Thistledown,
located approximately 85 miles to the

                                     - 50 -

<PAGE>

   
northwest in Cleveland,  Ohio. Wheeling Downs conducts parimutuel  greyhound dog
racing and video lottery gaming.  Thistledown  conducts parimutuel  thoroughbred
horse racing but not video lottery.  Other than Wheeling Downs and  Thistledown,
there  are  currently  no  facilities  offering   competitive   parimutuel  live
thoroughbred  or video lottery  gaming within a 100-mile  radius of  Mountaineer
Park. As a result,  although  there are  facilities  located more than 100 miles
away,  management  does not  believe  that such other  facilities  compete  with
Mountaineer Park for a significant segment of its target customer base (although
they do compete to some extent for quality  racehorses).  In  addition,  none of
those  facilities,  all of which are  located  in  Pennsylvania  and  Ohio,  are
currently  licensed  to offer video  lottery  gaming.  The one  facility in West
Virginia, other than Mountaineer and Wheeling Downs, offering video lottery , is
located in the central part of the state and, as a result,  management  believes
it does  not  compete  to any  significant  extent  with  Mountaineer  Park  for
customers.  In addition,  one other  well-known  resort located  downstate,  has
sought  legislative  approval to operate a land-based  casino.  The Company also
competes  with  statewide  lotteries in West  Virginia,  Pennsylvania  and Ohio,
on-site and off-track wagering in Pennsylvania and other  entertainment  options
available to consumers, including live and televised professional and collegiate
major sports events.  The Company will also compete with  off-track  wagering in
Ohio, which was approved in 1996.
    

         The Company is attempting to attract  patrons by promoting  Mountaineer
Park as a complete  entertainment  complex  and  destination  resort  offering a
unique combination of quality racing,  video lottery wagering,  dining,  special
events and other entertainment  options, all in a physically  attractive setting
which is  easily  accessed  with  ample  on-site  parking.  To the  extent  that
Pennsylvania  or Ohio legalize any forms of casino gaming,  the Company's  video
lottery  operations  will  compete  with new gaming  facilities  located  within
driving  distances from  Mountaineer's  geographic  market.  Such facilities may
offer  more  gaming  machines  than  Mountaineer  as well as forms of gaming not
available in West Virginia.

Employees

   
         As of October 14, 1996,  Mountaineer  had  approximately  478 full-time
employees and 25 part-time employees,  of whom approximately 70 were represented
by a labor union under a collective bargaining agreement. The union representing
mutuel  clerks at the race  track  has been  expanded  in recent  years to cover
certain  employees  providing  off-track  betting  services  at  the  Lodge.  In
September 1996,  additional  employees voted to consider  expanding the union to
make  approximately  an additional  200 employees  union  members.  Based on the
information available to the Company, the Company believes that the vote on the
    

                                     - 51 -

<PAGE>

   
proposal to expand the union  coverage was 72 against and 60 for,  with 87 votes
challenged.  The Company is unable to predict the ultimate outcome of this vote.
As of October 14,  1996,  the Company also  employed one person,  at its current
corporate  offices in Laguna Beach,  California.  The Company  believes that its
employee  relations  are  good,  however,  there can no  assurance  that if such
expansion of the union is approved, the Company's employee relations will remain
on the same terms as in the past.
    

Regulation And Licensing

         Racing

   
         The  Company's  horse  racing   operations  are  subject  to  extensive
regulation  by the Racing  Commission,  which is  responsible  for,  among other
things,  granting annual licenses to conduct race meets,  approving simulcasting
post times, and other matters. When granting licenses, the Racing Commission has
the authority to determine the dates on which  Mountaineer may conduct races. In
order to conduct simulcast  racing,  Mountaineer is required under West Virginia
law to hold a minimum of 220 live race days each year. Mountaineer was granted a
license to conduct 220 live race days for 1996 .
    

         West Virginia law requires that at least 80% of Mountaineer's employees
must be citizens and  residents of West  Virginia and must have been such for at
least one year. In addition,  certain  activities,  such as simulcasting  races,
require the consent of the representatives of a majority of the horse owners and
trainers at Mountaineer Park.

         Mountaineer's   revenues  from  live  racing   operations  are  derived
substantially from its parimutuel  commissions,  which are fixed by the State of
West  Virginia  as  percentages  of  Mountaineer's  wagering  handles.  The West
Virginia  legislature could change these  percentages at any time,  although the
Company is not aware of any current proposal to do so.

   
         The Company's simulcast  activities that occur outside of West Virginia
could be subject to regulation by other state racing commissions, as well as the
provisions of the Federal  Interstate  Horse Racing Act of 1978, which prohibits
Mountaineer  from accepting  off-track  wagering on simulcast racing without the
approval of the Racing  Commission and,  subject to certain  exceptions,  of any
other  currently  operating  track within 60 miles,  or if none,  of the closest
track in any adjoining state.
    

         Video Lottery

         The operation of video lottery games in West Virginia is subject to the
Lottery  Act.  Licensing  and  regulatory  control is  provided  by the  Lottery
Commission.

                                     - 52 -

<PAGE>

   
         Prior to the  adoption of the  Lottery  Act in March 1994,  the Company
conducted  video  lottery  gaming  pursuant  to an  agreement  with the  Lottery
Commission which authorized the Company to operate video lottery machines at the
racetrack and Lodge as part of a video lottery pilot project. Under the terms of
the agreement,  the Company  retained  ownership or control of the video lottery
machines and other  equipment it provided for use in video  lottery  gaming.  In
March 1993, the Attorney  General of West Virginia issued an opinion that, under
the West Virginia  Constitution,  video lottery  machines could not be privately
owned. As a result of the Attorney General's opinion,  the Company was unable to
renew its agreement with the Lottery  Commission,  which was scheduled to expire
in June 1993. In October 1993, the Supreme Court of West Virginia found that the
legislature had not adequately  defined and authorized video lottery gaming and,
as a result, the Lottery  Commission's  authorization of video lottery gaming at
Mountaineer  was  invalid.  The court's  order was to become  effective  in late
November 1993, at which time video lottery gaming at Mountaineer  would have had
to  terminate.  However,  the court stayed its order pending  consideration  and
passage of satisfactory video lottery  legislation.  The subsequent  adoption of
the Lottery Act has not been contested in, or otherwise  addressed by, the court
or any other West Virginia court.

         Under the Lottery Act, only parimutuel  horse or dog racing  facilities
that were  licensed by the Racing  Commission  prior to January 1, 1994 and that
conduct at least 220 live racing  dates for each dog or horse race  meeting,  or
such other number as may be approved by the Racing Commission,  are eligible for
licensure to operate video lottery  games.  There are four racing  facilities in
West Virginia (two horse racing and two dog racing), including Mountaineer Park,
three of which  satisfy the  eligibility  requirements  of 1995.  The conduct of
video  lottery  gaming by a racing  facility  is subject to the  approval of the
voters of the county in which the  facility  is  located.  If such  approval  is
obtained,  the facilities may continue to conduct racing  activities  unless the
matter is resubmitted to the voters pursuant to a petition signed by at least 5%
of the  registered  voters,  who must wait at least  five  years to bring such a
petition. If approval is denied, another vote on the issue may not be held for a
period of two years.  Video lottery gaming was approved in Hancock  County,  the
location of Mountaineer Park, on May 10, 1994.
    

         In order to qualify as a "video  lottery  game," as the term is defined
under the  Lottery  Act, a game must,  among other  things,  be a game of chance
which utilizes an interactive  electronic  terminal  device allowing input by an
individual  player.  Such a game may not be based on any of the  following  game
themes: roulette, dice, or baccarat card games. Moreover, video lottery machines
must meet strict  hardware and software  specifications,  including  minimum and
maximum pay-out requirements,  and must be connected to the Lottery Commission's
central control computer by an on-line or dial-up

                                     - 53 -

<PAGE>

communication  system. Only machines registered with and approved by the Lottery
Commission may offer video lottery games.

   
         Under the Lottery Act, racetracks that conduct video lottery gaming, as
well as persons who service and repair video  lottery  machines  and  validation
managers  (persons who perform video  lottery  ticket  redemption  services) are
required to be licensed by the Lottery  Commission.  The  licensing  application
procedures are extensive and include  inquiries  into, and an evaluation of, the
character, background (including criminal record, reputation and associations) ,
business  ability and  experience of an applicant and the adequacy and source of
the applicant's financing arrangements.  In addition, a racetrack applicant must
hold a valid racing license,  have an agreement regarding video lottery revenues
with the  representatives  of a majority of the horsemen,  the parimutuel clerks
and the  breeders for the  racetrack  and post a bond or  irrevocable  letter of
credit in such amount as the Lottery  Commission  shall determine.  Finally,  no
license will be granted until the Lottery Commission determines that each person
who  has  "control"  of an  applicant  meets  all  of the  applicable  licensing
qualifications. Persons deemed to have control of a corporate applicant include:
(i) any holding or parent  company or  subsidiary  of the  applicant who has the
ability  to  elect a  majority  of the  applicant's  board  of  directors  or to
otherwise control the activities of the applicant;  and (ii) key personnel of an
applicant, including any executive officer, employee or agent, who has the power
to exercise  significant  influence  over  decisions  concerning any part of the
applicant's business operations.  The Company's license application was approved
by the Lottery Commission in June 1995. From March 1994 until such approval, the
Company conducted video lottery gaming under a provision of the Lottery Act that
permitted  any racetrack  authorized by the Lottery  Commission to conduct video
lottery  gaming  prior to November  1, 1993,  to continue to do so for a limited
time without additional licensure.

         Prior to Mountaineer  Park's loan with Bennett,  the Lottery Commission
approved  the  Company's  license in  September,  1994.  During the  relicensing
proceedings  prior to July 1, 1995, the Lottery  Commission  required Bennett to
submit audited financial  statements,  based on the combined effect of Bennett's
stock ownership in the Company,  its security  interest  pursuant to the deed of
trust in  connection  with the Bennett Loan,  and the fact that AGEL,  Bennett's
affiliate,  performed  management  services for the Company.  These factors have
required the Company to seek Lottery  Commission  approval of Bennett.  Although
Bennett  failed  to  initially  provide  information  required  by  the  Lottery
Commission,  the Lottery Commission relicensed  Mountaineer in June, 1995, after
which time Bennett  supplied the requisite  information.  In connection with the
relicensing  proceedings held in June 1996, the Lottery  Commission  released an
opinion  dated May 9, 1996 to the effect that  because  Bennett had the right to
vote less
    

                                     - 54 -

<PAGE>

   
than 5% of the outstanding stock of Winners  Entertainment,  Inc., the Company's
previous  name,  and AGEL,  an  affiliate  of Bennett,  was no longer  providing
management  services,  Bennett  could not  influence  or  control  Mountaineer's
business,  and thus, Lottery Commission approval was not required.  Accordingly,
no Lottery Commission approval of Bennett was required in 1996.

         Mountaineer is currently attempting to refinance its loan with Bennett.
Assuming the Lottery Commission does not change its current position,  if no new
lender  acquires the right to vote more than 5% of the voting stock and does not
obtain  the right to take an  active  role in the  affairs  of  Mountaineer,  no
Lottery Commission approval will be required. While the Company has no reason to
believe  that its license is in jeopardy as a result of either loan, a change in
policy by the Lottery  Commission  could affect  Mountaineer's  license and thus
adversely affect the Company.

         Licenses granted by the Lottery Commission must be renewed on July 1 of
each year. A license to operate video  lottery games is a privilege  personal to
the license holder and, accordingly, is non-transferable. In order for a license
to remain in effect, Lottery Commission approval is required prior to any change
of  ownership  or control of a license  holder.  Unless  prior  approval  of the
Lottery  Commission is obtained,  the sale of five percent or more of the voting
stock of the license holder or any corporation  that controls the license holder
or the sale of a license  holder's  assets (other than in the ordinary course of
business),  or any interest therein, to any person not previously  determined by
the Lottery Commission to have satisfied the licensing qualifications, voids the
license.
    

         Once  licensed,  a racetrack has the right to install and operate up to
400 video  lottery  machines and may operate  more than 400  machines  only upon
Lottery  Commission  approval.  The Company has  received  approval to operate a
total of 1,000 machines.

   
         Video  Lottery  machines  may  only be  operated  in the  areas  of the
racetrack where parimutuel wagering is permitted;  provided,  however, that if a
racetrack was authorized by the Lottery  Commission prior to November 1, 1993 to
operate video lottery  machines in another area of the  racetrack's  facilities,
such  racetrack  may  continue  to do so as long as there is one  video  lottery
machine in the parimutuel wagering area for each machine located in another area
of the racetrack. Accordingly, the Company may continue to operate video lottery
machines at the Lodge, provided that there are at least as many machines located
at Mountaineer's racetrack.
    

         The Lottery Act imposes  extensive  operational  controls  relating to,
among other matters, security and supervision,  access to the machines, hours of
operation, general liability insurance

                                     - 55 -

<PAGE>

coverage  and machine  location.  In  addition,  the Lottery Act  prohibits  the
extension  of credit for video  lottery  play and  requires  Lottery  Commission
approval before any video lottery  advertising  and  promotional  activities are
conducted.  The Lottery Act provides  for  criminal  and civil  liability in the
event of specified violations.

         All revenues  derived from the operation of video lottery games must be
deposited  with the  Lottery  Commission  to be  shared in  accordance  with the
provisions  of the Lottery  Act.  Under such  provisions,  each  racetrack  must
electronically  remit to the  Lottery  Commission  its "gross  terminal  income"
(total cash  deposited  into video  lottery  machines  less the value of credits
cleared for winning  redemption  tickets).  To ensure the  availability  of such
funds to the Lottery Commission,  each racetrack must maintain in its account an
amount equal to or greater than the gross terminal  income to be remitted.  If a
racetrack fails to maintain this balance, the Lottery Commission may disable all
of the racetrack's  video lottery machines until full payment of all amounts due
is made.  From the gross  terminal  income  remitted by a licensee,  the Lottery
Commission  will  deduct  up to 4% to cover  its  costs of  administering  video
lottery at the licensee's racetrack and divide the remaining amounts as follows:
47% is returned to the  racetrack,  30% is paid to the State's  general  revenue
fund, 15.5% is deposited in the racetrack's fund for the payment of purses,  and
the  remaining  9% is divided  among  tourism  promotion,  Hancock  County,  the
Breeders'  Classics,  the Veterans Memorial Program and the Racetrack  Employees
Pension Fund.

Discontinued Operations

         Bartlett Field Leases - Ohio

   
         In January  1992,  the Company,  through its wholly  owned  subsidiary,
ExCal Energy Corporation  ("ExCal") acquired  approximately 16,000 net developed
acres and 16,800  net  undeveloped  acres  (held by  production)  of oil and gas
leases  in the  Bartlett  Field in  Southeastern  Ohio from  Biscayne  Petroleum
Corporation,  an affiliate of Edson R. Arneault,  President and Chief  Executive
Officer and a Director of the Company.  Mr. Arneault was not affiliated with the
Company at the time of such acquisition.  The Company agreed to provide funds to
drill 40 gas wells on such  properties,  and in 1992,  the Company  attempted to
raise the required capital through a public  offering.  Due to the expiration of
"Section 29" credits (a credit  against  Federal  income taxes  derived from gas
produced from Devonian Shale and "tight sands"  formations  from wells commenced
before January 1993), in December 1992, the Company abandoned the offering. As a
result,   the  Company  recorded  certain  provisions  for  writedown  of  these
interests.  During 1993, the Company  allowed the leases for the net undeveloped
acreage  to  expire,  and  sold to  third  parties  approximately  2,300  of net
developed acres. In December 1994, all
    

                                     - 56 -

<PAGE>

of the remaining  leases were sold  pursuant to the plan of orderly  liquidation
described below.

         Bartlett Field Wells - Ohio

   
         In January 1992, ExCal acquired 77 gas wells in the Bartlett Field from
18  limited  partnerships  controlled  by  Mr.  Arneault  and  operated  by  his
affiliate,  Century Energy  Management  Company,  Inc. The wells were in need of
repair and the Company planned to incur rework costs to increase  production and
maximize the value of the assets. Aggregate annual gas production was 100,000 to
150,000 MCF, and management believed that with limited rework,  production could
be  increased  by at least 100%.  In December  1994,  all of the wells were sold
pursuant to the plan of orderly liquidation described below.
    

         Marathon-Otter Lake Field - Michigan

   
         In January 1992,  ExCal acquired all the issued and outstanding  shares
of Crystal Oil  Company,  Inc.  ("Crystal").  Crystal's  assets  consisted of an
average of a 64% net revenue  interest in  approximately  3.4 million barrels of
oil (proved  reserves)  plus 34 oil and gas wells and related  equipment  in the
Marathon-Otter  Lake  Field in the State of  Michigan.  In 1991,  the wells were
shut-in by Crystal  which had  undertaken  no material  drilling  since then. In
December 1992,  ExCal entered into a joint venture  agreement  with  Fleur-David
Corporation  ("Fleur-David"),  a minority stockholder of the Company, to perform
rework  and  remediation  activities  to  re-establish  production  and  provide
activities  necessary for compliance with state environmental  standards.  ExCal
contributed  its net revenue  interest in the proved  reserves and agreed to pay
25% of on-going costs in exchange for a 25% interest in the joint venture. For a
75%  interest  in the joint  venture,  Fleur-David  agreed to provide  technical
expertise and 75% of on-going costs. Fleur-David also obtained a covenant not to
sue for  clean-up  and  abandonment  costs from the state of Michigan by funding
$188,000  in an  environmental  escrow fund  required  by the state.  Costs were
estimated  at  $2,200,000  and have  included  rework of wells,  repairs  to oil
storage tank  batteries,  acid  treatments  of producing  formations,  plugging,
clean-up,  equipment removal,  waste disposal and soil removal costs required by
the Michigan  Department of Natural  Resources.  The Company is  responsible  to
provide 25%, or approximately $550,000 of such costs, of which $286,000 has been
paid primarily from proceeds from the exercise of certain stock options  granted
to Fleur-David by the Company, as well as cash from continuing operations.
    

         Plan of Orderly Liquidation

   
         On March 31, 1993, the Company's Board approved a formal plan to divest
its oil and gas operations over a
    

                                     - 57 -

<PAGE>

   
period of two years.  This decision was based upon several factors including (i)
the anticipated potential of the Company's gaming operations and the anticipated
time to be devoted to it by  management,  (ii) the  expiration  of "Section  29"
credits,  a credit  against  Federal income taxes derived from gas produced from
Devonian Shale and "tight sands"  formations from wells commenced before January
1993, and (iii) the impact of delays in connection with a political  controversy
over video lottery in West Virginia during 1993 which caused management to focus
the Company's  efforts and financial  resources on  Mountaineer.  To enhance the
value of the properties for sale, the plan of orderly  liquidation  provided for
remediation  costs to  address  certain  environmental  matters  and  rework and
development costs to increase future production.

         During 1993,  the Company began  disposition  of the Bartlett Field oil
and gas leases by selling to third parties or, based on certain contingencies in
the acquisition  agreement,  returning to their previous  owners,  approximately
2,300 net  developed  acres.  The  Company  received  approximately  $85,000  in
connection  with  the  sale of the  leases.  The  Company  also  allowed  leases
comprising  16,800 net  undeveloped  acres to expire.  At December 31, 1993, the
Company held net developed  acreage of 13,700 acres and reserves in the Bartlett
Field of 902,200 MCF.

         The  plan of  orderly  liquidation  also  called  for  rework  costs of
approximately  $150,000 in connection  with the Company's 77 Bartlett  Field gas
wells.  Because the wells were in various  states of disrepair,  the plan called
for maintenance of wells,  acid treatments of producing  formations and, in some
cases,  plugging and abandonment,  all for the purpose of increasing  production
and the value of such assets for ultimate sale. In mid-1993, the Company reduced
its  appropriation  for such rework  costs to $100,000,  which was  estimated to
increase  net cash flows  from  production  to a minimum  of $25,000  per month.
However,  after  completion of only $50,000 of such rework  costs,  the Bartlett
Field wells and  remaining  Bartlett  Field leases were sold in December 1994 to
Development & Acquisition  Ventures in Energy,  Inc.  ("DAVE"),  whose principal
stockholder  is the  brother  of Edson R.  Arneault,  the  President  and  Chief
Executive  Officer  and  a  Director  of  the  Company,   for  notes  valued  at
approximately   $426,000,   of  which  $150,000   (discounted  to  $126,000)  is
non-recourse, secured solely by the assets sold. See "Certain Transactions".
    

         At the time of the sale, the Company remained  obligated on a $590,000,
9% note to the previous  owners of the Bartlett Field wells.  On March 31, 1995,
the note was amended to provide the Company with a credit for the current  value
of 98,333 shares of the Company's  Common Stock issued to the previous owners in
March 1993 in the amount of $123,000.  The  amendment  further  provided for the
$467,000  balance of the note to be paid in monthly payments of interest only at
10% from May through October 1995, with principal

                                     - 58 -

<PAGE>

   
amortized over 36 months  thereafter  with a balloon  payment after 12 months on
October 1, 1996.  The note was payable at the option of the Company  through the
issuance  of Common  Stock on or  before  November  1, 1995 at the then  current
market value,  provided  that such shares were  registered by the Company at the
time of issuance.  The Company paid  monthly  interest  payments in May and June
1995,  and in October  1995,  the note was  canceled  in exchange  for  interest
payments for the months of July,  August and September  1995, and 373,600 shares
of the Company's  Common Stock,  subject to  registration  rights and valued for
purposes of the transaction at the then current market value of $1.25 per share.

         The Company  intends to sell its sole remaining oil and gas interest in
the   Marathon-Otter   Lake  Field  during  1996.  For  further   discussion  of
management's  plan of orderly  liquidation,  see  "Management's  Discussion  and
Analysis  of  Financial  Condition  and  Results  of  Operations  -  Results  of
Discontinued Operations".
    

Properties

         Gaming, Racing and Other Entertainment

   
         Mountaineer  Park is  comprised  of a  thoroughbred  race track and the
Lodge  providing  video lottery gaming,  off-track  wagering,  dining and lounge
facilities as well as facilities  for golf,  swimming,  tennis and other outdoor
activities covering approximately 606 acres (including 375 undeveloped acres) in
Chester, West Virginia. The Mountaineer facility encompasses approximately 4,100
feet of  frontage  on the Ohio  River and  approximately  2,500  feet of highway
frontage  straddling West Virginia State Route 2. At July 31, 1996,  Mountaineer
Park was encumbered by (i) a first deed of trust in favor of Bennett  Management
aggregating  $10.2 million in original  principal amount  (principal  balance of
approximately  $8.8 million as of September  30, 1996) and (ii) a second deed of
trust in favor of Madeleine collateralizing  indebtedness aggregating $5 million
in principal.
    

         Oil and Gas

   
         The Company's oil and gas interest constitutes a 25% joint venture in a
64% net revenue  interest in proved reserves with 34 net producible wells in the
Marathon-Otter  Lake  field in Lapeer and  Genesee  Counties,  Michigan.  Proved
reserves are estimated at 3,314,800  BBL. For  financial  and other  information
about  the  Company's  oil and gas  interests,  see  "Discontinued  Operations,"
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations - Results of  Discontinued  Operations,"  and Note 10 of the Notes to
Consolidated Financial Statements included elsewhere in this Prospectus.
    

                                     - 59 -

<PAGE>

         Equipment Leases

   
         At Mountaineer Park, the Company leases 800 video lottery  machines,  a
totalisator  system,  video tape and closed circuit television systems and other
equipment required for operations.  For discussion of such equipment leases, see
Note 7 of the Notes to Consolidated  Financial  Statements included elsewhere in
this Prospectus.
    

         Office Lease

   
         The Company  leases  approximately  880 square feet of office  space in
Laguna Beach, California for its corporate offices under an operating lease with
a monthly rental payment of $1,395. The lease for this office expires on October
31, 1996. The Company plans to close this office and move its corporate  offices
to Mountaineer Park on or about November 30, 1996.
    

Legal Proceedings

         Settled Litigation

   
     Jackpot  Enterprises,  Inc.  ("Jackpot")  v. Winners  Entertainment,  Inc.,
Circuit Court of Kanawha  County,  West Virginia Case No.  94-C-819.  On May 13,
1994,  the Company was served with a complaint in which Jackpot  sought an award
of 250,000  shares of the Company's  Common Stock as  liquidated  damages for an
alleged  breach of a January  27, 1993  agreement,  which  contemplated  a joint
venture between the parties to operate  Mountaineer  Park as well as a financing
arrangement,  and for alleged  intentional torts in refusing to issue the shares
of Common Stock.

         The parties settled these claims on February 28, 1995. The terms of the
agreement require the Company to issue to Jackpot, and include in a registration
statement,  such number of shares which, when combined with the 30,000 shares of
the Company's  Common Stock  previously  issued to Jackpot,  based on the market
price  for the  Common  Stock  on the date the  registration  statement  becomes
effective,  will  provide net  proceeds of $512,500 to Jackpot.  Pursuant to the
agreement,  after June 30,  1996,  the Company has the right to  reacquire  from
Jackpot at par value any shares  necessary  to limit  Jackpot's  net proceeds to
$512,500.  Moreover, if the registration statement was not declared effective by
April  29,  1995,  which  it was  not,  the  Company  was  required  to issue an
additional  12,500  shares  every  sixty days until the  effective  date of such
registration  statement.  In no  event,  however,  would the  Company  have been
required  to issue more than  250,000  shares.  Through  October 31,  1996,  the
Company has issued  220,000  shares  (excluding  the 30,000  shares  referred to
above) of its  Common  Stock in  accordance  with terms of the  agreement.  Such
shares
    

                                     - 60 -

<PAGE>

   
are covered by another registration statement filed with the Commission.

         In July 1994,  the Company and Crystal  Asset  Management  Group,  Ltd.
("CAM") settled all of CAM's claims arising from a financial  advisory agreement
dated April 1, 1993. Under the settlement agreement,  the Company was to pay CAM
$165,684 to cancel  previously  issued  warrants to purchase  135,000  shares of
Common  Stock at $7.00 per share  subject to  registration  rights,  and instead
issued  warrants to purchase  145,000  shares of Common Stock at $6.25 per share
prior to December 1996 with  registration  rights. An initial payment of $15,000
was made  upon  execution  of the  settlement  agreement,  however,  no  further
payments were made. On September 4, 1996, the Company entered into an agreement,
modifying the settlement  agreement.  The amendment to the settlement agreement,
provides for mutual releases of all claims in exchange for the Company's payment
of $90,000 in cash. The amendment to the  settlement  agreement also reduced the
exercise price of the previously issued warrants to $3.00 per share and extended
the term  thereof  through  January 15, 1998.  The  agreement  contemplates  the
registration of the shares underlying such warrants on a registration  statement
to be filed shortly after the date of the amendment to the settlement agreement.
The Company has filed a registration statement with respect to 145,000 shares of
Common  Stock  issuable  upon  exercise  of  warrants  held by CAM.  See "Shares
Eligible for Future Sale" and "Registration Rights."
    

         Pending Litigation

   
     George Jones v.  Mountaineer  Park, Inc. and Winners  Entertainment,  Inc.,
Case No. 95-C-103-G, Circuit Court of Hancock County, West Virginia. On June 19,
1995, the Company and its wholly owned subsidiary,  Mountaineer were served with
a complaint by George Jones,  claiming  breach and wrongful  termination  of Mr.
Jones' employment  agreement with  Mountaineer,  retaliatory  discharge,  fraud,
outrage,  and  defamation.  The  complaint  alleges,  among other  things,  that
Mountaineer terminated Mr. Jones' employment in September of 1993 in retaliation
for  his  efforts  to  investigate  alleged  improper  activities  occurring  at
Mountaineer.  Mr. Jones seeks an award for compensatory damages in the amount of
$1  million  and a like  amount in  punitive  damages.  Discovery  recently  has
commenced  in this action,  and the Company is seeking to be dismissed  from the
case.
    

         The Company and  Mountaineer  have answered the complaint,  denying any
liability to Mr. Jones.  Management has determined to defend the case vigorously
on  the  grounds  that  the  defamation  claim  is  barred  by  the  statute  of
limitations,  and the remaining  claims  should be dismissed  because Mr. Jones'
employment was properly and justifiably terminated. Mountaineer has been advised
by its insurance carrier that the claims against it are covered by

                                     - 61 -

<PAGE>

insurance.  Management  does not believe that either the Company or  Mountaineer
will  incur any  material  loss on  account  of such  claims but there can be no
assurance that this will be the case.

   
         Daniel Barrett v. Mountaineer Park, Inc., Case No.  94-C-147G,  Circuit
Court of Hancock County, West Virginia.  The Company was served with a complaint
in 1994 by a jockey who  sustained  head  injuries  from a fall during a race at
Mountaineer.  The plaintiff is seeking both  compensatory and punitive  damages.
Management believes that this matter will be covered by insurance.  There can be
no assurance that the Company's  insurance  coverage will be sufficient to cover
completely the Company's potential liability in this case.
    

         The Company (including its subsidiaries) is also a defendant in various
law suits  relating to routine  matters  incidental to its business.  Management
does not believe that the outcome of such  litigation,  in the  aggregate,  will
have any material adverse effect on the Company.


                                   MANAGEMENT


Executive Offices and Directors

         The following table sets forth information  regarding the directors and
executive offices of the Company.


                 Name       Age         Position and Office Held
                 ----       ---         ------------------------
Edson R. Arneault            49           President, Chief Executive
                                          Officer, Director
Thomas K. Russell            43           General Counsel, Chief
                                          Financial Officer, Secretary,
                                          Treasurer, Director
Robert L. Ruben              34           Assistant Secretary, Director
Robert A. Blatt              55            Director


Business Experience

   
         Edson R. Arneault,  49, has served as the Company's President and Chief
Executive  Officer  since April 26, 1995.  He is also a member of the  Company's
Board and an officer and director of the  Company's  subsidiaries,  Mountaineer,
Golden  Palace,  and ExCal.  He has served as a member of the Board  since 1992,
when he was elected President of ExCal. Mr. Arneault is also president and chief
executive  officer of Century Energy  Management Co., Inc.,  which he founded in
1987, and general partner
    

                                     - 62 -

<PAGE>

of numerous  partnerships  directly or indirectly engaged in the development and
production  of oil and gas.  Mr.  Arneault  also engages in oil and gas leasing,
drilling and operation through Biscayne Petroleum Corporation,  which he founded
in 1987.  Mr.  Arneault is a certified  public  accountant,  and served as a tax
partner with Seidman and Seidman (now "BDO Seidman"),  a public accounting firm,
in Grand Rapids,  Michigan,  from 1977 to 1980. Mr.  Arneault is a member of the
Independent  Producers Association of America, the Ohio Oil and Gas Association,
the Michigan Oil and Gas Association  and the Michigan  Association of Certified
Public  Accountants.  Mr. Arneault has been the Company's  liaison with the West
Virginia Lottery  Commission and Legislature with respect to Mountaineer  Park's
video lottery operations.

   
         Thomas K.  Russell,  43,  has  served  the  Company  as its  Secretary,
Treasurer,  Chief  Financial  Officer,  General  Counsel  and a  Director  since
December  1989.  Mr.  Russell  is also an officer  and  director  of ExCal,  SDR
Corporation  ("SDR") , a Nevada  corporation  owned and  controlled  by  certain
members of management and  stockholders  of the Company,  and  Mountaineer . Mr.
Russell is an attorney with  responsibility  for the  management of  compliance,
litigation  and general  legal  matters.  From 1979 to 1989, he was a practicing
attorney in Tustin and Palos Verdes, California emphasizing business litigation,
medical  malpractice and  representation of American Indian Tribes in tribal and
federal  courts and  legislative  and  administrative  matters.  Since 1975, Mr.
Russell has served as an officer or director of various  corporations engaged in
the oil, mining, hotel,  equipment leasing,  wholesale travel and motion picture
businesses.  Mr.  Russell  received  his  Bachelor  of  Arts in  Marketing  from
California  State  University  at  Fullerton  in 1975 and his Juris  Doctor from
Pepperdine  University in 1978. He has been an active member of the State Bar of
California since 1979.
    

         Robert L.  Ruben,  34,  is a  principal  in Freer &  McGarry,  P.C.,  a
Washington, D.C. law firm, where he has practiced since 1991. From 1986 to 1988,
Mr.  Ruben was  associated  with the firm of Bishop,  Cook,  Purcell & Reynolds,
which later merged with Winston & Strawn,  and from 1989 to 1991,  Mr. Ruben was
associated with the firm of Wickens, Koches & Brooks. Mr. Ruben is a graduate of
the  University  of  Virginia  and the  Dickinson  School  of Law and  practices
principally in the areas of commercial litigation and corporate/securities  law.
Freer & McGarry,  P.C.  has served as counsel to the Company  since  November of
1991, and Mr. Ruben has  represented  Mr. Arneault and various of his affiliates
since 1987.

   
         Robert A.  Blatt,  55, is the Chief  Executive  Officer of Island  Golf
Resorts,  L.L.C.,  Championship Golf Enterprises,  L.L.C.,  and Golf Development
Services,  Limited of St John's Antigua,  and a member of the board of directors
of AFP Imaging  Corporation.  Since 1979 he has been chairman and majority owner
of CRC Group,
    

                                     - 63 -

<PAGE>

   
Inc.,  and related  entities,  and since 1985,  a member (seat owner) of the New
York Stock Exchange,  Inc. From 1959 through 1991, Mr. Blatt served as director,
officer or  principal  of numerous  public and private  enterprises.  Mr.  Blatt
received  his  Bachelor of Science in Finance  from the  University  of Southern
California in 1962 and his Juris Doctor from the University of California at Los
Angeles in 1965. He is a member of the State Bar of California  (inactive) and a
Registered General Principal, of the NASD and the New York Stock Exchange, Inc.
    

                             EXECUTIVE COMPENSATION

   
         The following  table sets forth the  compensation  awarded,  paid to or
earned by the most highly  compensated  executive  officers of the Company whose
compensation exceeded $100,000 in the fiscal year ended December 31, 1995.
    

<TABLE>
<CAPTION>
                                                     Summary Compensation Table

                                                                                                         Long Term Compensation
                                                                                                         ----------------------
                                                     Annual Compensation
                                                     -------------------
                                                                                                  Awards                    Payouts
                                                                                                 ------                     -------
                                                                          Other      Restricted
                                                                          Annual       Stock          Options         LTIP     All
                                             Salary         Bonus         Comp.        Awards           SARs         Payouts  Other
              Name              Year         ($)(1)          ($)          ($)(2)        ($)            ($)(4)          ($)    Comp.
              ----              ----        --------        -----        --------      -----          --------        -----   -----

   
<S>              <C>            <C>           <C>           <C>           <C>        <C>                    <C>         <C>    <C> 
Edson R. Arneault(5)            1995          213,652       23,000          -            -            618,415           -       -
 Chairman, President and     
 Chief Executive Officer of   
 MTR Gaming Group, Inc.         1994          188,729         -           4,021      46,000(3)           -              -       -
                                1993          151,865                       -            -               -              -       -


Thomas K. Russell(5)            1995          147,288         -             -            -            358,316           -       -
 Secretary, Treasurer, 
 Chief  Financial  Officer,
 General  Counsel  and
 Director of MTR Gaming 
 Group, Inc.                    1994          134,075         -           2,789          -               -              -       -
                                1993          109,597       16,250          -            -               -              -       -

    
Michael R. Dunn (6)             1995           38,659         -             -            -            240,000           -    176,973
   
 Former President and           1994          204,437         -           12,500         -                              -       -
                                1993          161,436       36,250          -            -               -              -       -

 Chief Executive Officer of
 Winners Entertainment, Inc.
    
        
Compensation paid to all 
officers                       
and directors as a 
group during 1995               1995          399,599       23,000          -            -            975,731           -       -

</TABLE>

   
     (1)  Salaries for Mr. Arneault and Mr. Russell include accrued compensation
          for the  year  ended  December  31,  1995  of  $144,667  and  $41,554,
          respectively.  Subsequent to December 31, 1995, said amounts, together
          with interest at the rate of 10% per annum,  were  converted to shares
          of Common Stock at the market value of the shares on February 9, 1996,
          the effective date of the conversion.
    

     (2)  Represents  accrued 1994 vacation  compensation for executive officers
          distributed in 1994.

     (3)  Represents  the  dollar  value of a stock  award of  20,000  shares of
          restricted Common Stock.

   
     (4)  No options  were granted in 1994 or 1993.  All options  granted by the
          board of directors in 1995 were  approved by vote of the  stockholders
          at the Company's  annual  meeting of  stockholders  held September 11,
          1995.
    
                                     - 64 -

<PAGE>

     (5)  See "Employment Agreements" below.

     (6)  Mr.  Dunn   resigned  from  all  offices  with  the  Company  and  its
          subsidiaries  on April 26,  1995.  This  amount  represents  severance
          payments.

   
                              OPTION GRANTS IN 1995

         The following table contains information  concerning the grant of stock
options during fiscal year 1995 to the Company's executive officers named in the
Summary Compensation Table.
    

<TABLE>
<CAPTION>

                                                                                       Potential Realized Value at
                                                                                        Assumed Annual Rates of
                                                                                        Stock Price Appreciation
                                                                                           for Option Term
                                                                                          ---------------
                                      % of
                                      Total
                                     Options
                                     Granted
                  Options           in Fiscal      Exercise    Expiration
          Name    Granted             Year           Price        Date                   5%                   10%
          ----    -------             ----          -------       ----                   --                   ---

<S>               <C>                <C>           <C>                    <C>         <C>                  <C>     
Edson R.          378,415            45.98%        $1.219           Sept. 1998        $72,711              $152,686
Arneault
                  240,000            30.00%        $2.000(1)         Oct. 1997             0                     0


Thomas K.         223,316            27.01%         $1.219          Sept. 1998        $42,176               $89,702
Russell
                  135,000            11.25%        $2.000(1)         Oct. 1997             0                     0



Michael R.        240,000            20.00%        $2.000(1)         Oct. 1997             0                     0
Dunn

</TABLE>

   
     (1)  In October 1992, the Board granted  incentive stock options to certain
          executive  officers,  key personnel and employees to purchase,  in the
          aggregate,  1,200,000 shares of the Company's Common Stock for a price
          of $4.875  per  share.  In  December,  1994,  the Board  voted and the
          stockholders voted at the annual stockholders'  meeting, to reduce the
          exercise  price of such  incentive  stock options from $4.875 to $2.00
          per share.
    

                                     - 65 -

<PAGE>

                          FISCAL YEAR END OPTION VALUES

   
         The  following  table sets forth  information  regarding the number and
value of options held by each of the Company's  executive  officers named in the
Summary  Compensation Table as of December 31, 1995. None of the named executive
officers exercised any stock options during fiscal year 1995.
    
<TABLE>
<CAPTION>

                                            Number of Securities                                 Value of Unexercised in-
                                           Underlying Unexercised                               the-Money Options at Year
                                           Options at Fiscal Year                                       End ($)(1)
                                                   End(2)
                       ------------------------------------------------------------------------------------------------------------

          Name                    Exercisable               Unexercisable                Exercisable               Unexercisable
-----------------------------------------------------------------------------------------------------------------------------------

<S>                                 <C>                           <C>                         <C>                       <C>  
Edson R.                            759,749                       -                           0                          -
Arneault

Thomas K.                           436,816                       -                           0                          -
Russell

Michael R.                          419,133                       -                           0                          -
Dunn

</TABLE>

     (1)  Based on the market  price of the  Company's  Common Stock of $0.75 on
          December 31, 1995, as reported by Nasdaq.

   
     (2)  On January 23, 1996,  the Company,  pursuant to a qualified  incentive
          stock option plan, granted to Mr. Arneault and Mr. Russell, options to
          purchase  300,000  shares and 100,000  shares of the Company's  Common
          Stock,  respectively,  at the estimated fair market value price on the
          date of grant of $0.5625 . The  options are subject to approval at the
          next annual meeting of  stockholders.  Such option grants were made in
          1996, and are not reflected in the table above.
    

                         TEN-YEAR OPTIONS/SAR REPRICINGS

   
         The  following  table sets forth the number of options held by officers
of the Company  subject to repricing  during the fiscal year ended  December 31,
1995. See table entitled "Option Grants in 1995".
    

                                     - 66 -
<PAGE>

<TABLE>
<CAPTION>

                                                                                                                      Length of
                                                                                Exercise                               Original
                                                           Market Price         Price at                             Option Term
                                        Number of          of Stock at          Time of                              Remaining at
                                                           Repricing or       Repricing or        New Exercise          Date of
                                       Options/SARs         Amendment          Amendment             Price           Repricing or
        Name              Date           Amended               ($)                ($)                 ($)             Amendment
                                       Fiscal Year
-----------------------------------------------------------------------------------------------------------------------------------

<S>                          <C>         <C>                  <C>                <C>                 <C>               <C>    
Edson R.                Sep. 95          240,000              1.563              4.875               2.00              2 years
Arneault
-----------------------------------------------------------------------------------------------------------------------------------

Thomas K.               Sep. 95          240,000              1.563              4.875               2.00              2 years
Russell
-----------------------------------------------------------------------------------------------------------------------------------
Michael R.              Sep. 95          135,000              1.563              4.875               2.00              2 years
Dunn (6)

</TABLE>


Section 16(a) Beneficial Ownership Reporting Compliance

   
         Under  the  provisions  of  Section  16(a)  of the  Exchange  Act,  the
Company's  officers,  directors and 10% beneficial  stockholders are required to
file  reports  of  their  transactions  in the  Company's  securities  with  the
Commission. Based solely on a review of the Forms 3 and 4 and amendments thereto
furnished  to the  Company  during its most  recent  fiscal year and Forms 5 and
amendments  thereto  furnished  to the Company  with  respect to its most recent
fiscal year,  the Company  believes  that certain forms were not filed timely by
the Company's officers, directors and 10% beneficial stockholders.
    

         Of these persons,  Mr. Arneault did not file one report and filed seven
late reports relating to six transactions,  Mr. Russell filed three late reports
relating to two transactions, Mr. Ruben filed three late reports relating to one
transaction, Mr. Blatt filed three late reports relating to two transactions and
Mr.  Saunders did not file one report and filed 11 late  reports  relating to 10
transactions.  In  addition,  the Company has not  received at least two reports
from  Michael  Dunn,  the  Company's   former   President,   relating  to  eight
transactions or holdings known to the Company.


Employment Agreements

   
     Messrs.  Arneault and Russell  each has an  employment  agreement  with the
Company.  Each  agreement  provides for a three year period of employment by the
Company of each of these individuals.  Both agreements terminate on May 9, 1997.
Each employment agreement provides that the employee will receive a base salary
    

                                     - 67 -

<PAGE>

with annual cost of living adjustments,  increases  contingent on certain events
and  bonuses at the  discretion  of the Board.  Mr.  Arneault's  base  salary is
$228,900 and Mr. Russell's base salary is $157,500.

   
         Each agreement  provides that if the employee's period of employment is
terminated by reason of death or physical or mental incapacity, the Company will
continue to pay the employee or his estate the compensation otherwise payable to
the employee for a period of two years.  If the employee's  period of employment
is terminated for a reason other than death or physical or mental  incapacity or
for cause, the Company will continue to pay the employee the  compensation  that
otherwise would have been due to him for the remaining period of employment.  If
the employees'  period of employment is terminated  for cause,  the Company will
have no further obligation to pay the employee,  other than compensation  unpaid
at the date of termination.  The term "cause" is defined by the agreement as (i)
conviction  of a  felony,  (ii)  embezzlement  or  misappropriation  of funds or
property of the Company or its  affiliates,  or (iii) the employee's  refusal to
substantially  perform,  or willful misconduct in the performance of, his duties
and obligations under the agreement.

         In  the  event  that  the  termination  of  the  employee's  period  of
employment  occurs  after  there has been a change of control of the Company and
(i) the  termination  is not for cause or by reason of the death or  physical or
mental disability of the employee or (ii) the employee terminates his employment
for good reason,  then the employee will have the right to receive within thirty
days of the termination,  a sum that is three times his annual base salary,  but
not to exceed the amount  deductible by the Company  under the Internal  Revenue
Code of 1986.  The term  "change of control"  means (i) any change of control of
the Company  that would be  required  to be  reported on Schedule  14A under the
Exchange Act , (ii) any person becoming the direct or indirect  beneficial owner
of 20% or more of the  Company's  outstanding  voting  securities,  other than a
person  who  was an  officer  or  director  of the  Company  on the  date of the
agreement  or (iii) the  circumstance  in which  the  present  directors  do not
constitute  a  majority  of the  Board.  The term  "good  reason"  means (i) the
assignment  to the employee of any duties that in the  employee's  judgement are
inconsistent  with,  or  constitute a diminution  of, the  employee's  position,
authority,   duties  or  responsibilities,   (ii)  the  employee's   involuntary
relocation from San Juan Capistrano,  California or (iii) the Company's  failure
to comply with the compensation provisions of the agreement.
    

         Each  agreement  provides that,  during the term of the agreement,  the
employee will not compete with the business or any contemplated  business of the
Company either individually or as an officer, director,  stockholder,  employee,
agent,  partner or consultant of any entity at any location  within ninety miles
of any

                                     - 68 -

<PAGE>

   
locations at which the Company does business or at which the employee knows that
the Company contemplates doing business.
    

Compensation of Directors

   
         Mr.  Ruben and Mr.  Blatt are  entitled  to receive a fee of $2,500 for
each  quarterly  Board  meeting  that they  attend and are also  entitled  to be
reimbursed for out-of-pocket  expenses incurred in attending Board meetings. Mr.
Blatt is also  entitled  to a fee of $3,000 per month for serving as Chairman of
the  Finance  Committee  .  Directors  who are  employees  of the Company do not
receive  compensation  for  attendance  at Board  meetings,  but are entitled to
reimbursement for expenses that they incur in attending such meetings.
    

         On January 23, 1996,  Mr.  Ruben and Mr. Blatt were granted  options to
purchase 75,000 and 50,000 shares of the Company's  Common Stock,  respectively,
at the fair  market  value on the date of the grant of $0.5625  per  share.  The
options  are  exercisable  at any time and from time to time in whole of in part
for a period of three years from the date of grant.

Compensation Committee Interlocks and Insider participation

         On November 8, 1995, the Board voted to form an executive  compensation
committee  consisting of Mr. Ruben and Mr. Blatt, the Company's two non-employee
directors  (the  "Committee").   The  Committee  is  authorized  to  review  all
compensation  matters involving  directors and executive  officers and Committee
approval is required for any  compensation  to be paid to executive  officers or
directors who are employees of the Company.


                              CERTAIN TRANSACTIONS

   
         In January  1992,  pursuant to the  approval of the  Company's  plan of
reorganization by the United States Bankruptcy Court for the Central District of
California,  the Company acquired 100% of the stock of SDR, a Nevada corporation
owned and controlled by certain  members of management and  stockholders  of the
Company.  Pursuant to the plan of  reorganization,  in  exchange  for all of the
stock of SDR, the  stockholders of SDR received an aggregate of 3,169,583 shares
of the Company's Common Stock. SDR's principal asset was an option to purchase a
casino  development site in Cripple Creek,  Colorado,  which site was ultimately
reconveyed to its previous owner on July 21, 1993,  when the Company decided not
to proceed with development of the project.

         All  of  the  Company's  oil  and  gas  leases  were  acquired  by  its
subsidiary, ExCal, in January 1992 from Biscayne Petroleum Corporation, of which
Edson R. Arneault was president. At the time
    

                                     - 69 -

<PAGE>

   
of this  acquisition,  Mr.  Arneault was not affiliated  with the Company.  As a
result  of  this  transaction,   Mr.  Arneault  became  ExCal's  president.  The
acquisition  of such leases was part of a larger  transaction  involving (i) the
acquisition   by  ExCal  of  77  operating   wells  formerly  owned  by  limited
partnerships  (the  "Partnerships")   controlled  by  Mr.  Arneault,   (ii)  the
acquisition  of all of the  stock of  Crystal  Exploration  Company,  Inc.  from
Century Energy Management Company,  Inc., another affiliate of Mr. Arneault, and
(iii) the  employment of Mr.  Arneault by ExCal for a period of three years at a
salary  of  $120,000  per year and  participation  in other  board of  directors
approved compensation plans.

         Such leases were  acquired in exchange  for  $100,000  cash, a $790,000
non-interest  bearing note (of which $100,000 was paid on December 31, 1992, the
balance being due during 1993) and 50,000 shares of the Company's  Common Stock.
The Company and the  Partnerships  entered into  modifications of their original
agreement  dated  March 25 and  November  17,  1993,  March  30,  August  10 and
September  30, 1994,  and March 30, and October 1, 1995.  Under the terms of the
March 25, 1993 modification of the note, the balance remaining to be paid by the
Company to the  Partnerships  was $590,000 . Pursuant to the  modification,  the
Company paid  $100,000  cash and issued 98,333 shares of its Common Stock to the
Partnerships, which, based on the then current market value of the Common Stock,
satisfied  the  Company's  obligation  thereunder.  The  shares  issued  to  the
Partnerships,  together with 5,000 additional  shares issued in consideration of
the  Partnerships'  agreement to extend the date for registration from September
15, 1994 to October 15, 1994,  were to be  registered  for public sale under the
Securities Act. Because the registration  statement  covering the  Partnership's
shares  did not become  effective  before  March 31,  1995,  the March 30,  1995
modification of the agreement (i) reinstated the note with a principal amount of
$590,000 and increased the interest rate on the note  representing  the $590,000
balance to 10%,  (ii) reduced the balance to $467,084 by crediting the note with
the average share price of the Company's Common Stock for the first 14 days that
the shares were  eligible for sale under Rule 144, and (iii) amended the payment
schedule to provide  for  payments  of  interest  only from May 1, 1995  through
October 1, 1996 and twelve  payments of principal  and interest from November 1,
1995 through October 1, 1996 calculated on a 36 month amortization schedule with
a balloon  payment of the unpaid  balance  on October 1, 1995.  Pursuant  to the
October 1, 1995  modification,  the outstanding  balance of the note was retired
through the issuance of 373,600 shares of the Company's Common Stock.

         On December 16, 1994,  ExCal entered into an agreement to sell its Ohio
oil  and gas  leases  pursuant  to the  Company's  March  1993  plan of  orderly
liquidation to
    

                                     - 70 -

<PAGE>

   
DAVE, a  corporation  that is controlled  by David T.  Arneault,  the brother of
Edson R. Arneault. The buyer agreed to pay ExCal a total of $450,000 in the form
of (i) a promissory  note in the amount of $300,000  bearing  interest at 8% per
annum and payable in monthly  installments of $10,000 beginning six months after
the sale and (ii) $150,000  payable from the portion of the monthly net revenues
of the wells in excess of $10,000. In addition, if the leases are sold, ExCal is
to receive any unpaid balance of the $150,000 plus 50% of the payments  received
from the sale.  The bid  submitted  by DAVE was the highest of four  independent
bids  received  by the  Company.  Through  June 30, 1996 DAVE was current in its
payments  under  the  notes,  although  the  Company  has made  provisions  from
time-to-time for Edson R. Arneault to make certain  interest  payments on behalf
of DAVE.
    

         During 1994 and 1995,  various  corporate  affiliates  of Mr.  Arneault
advanced an aggregate sum of approximately  $100,000 to ExCal primarily to cover
overhead  expenses in connection  with the maintenance of leases and other costs
associated with the Company's existing oil and gas interests in Michigan and the
Company's former interests in Ohio. In February 1996, such accrued amount, along
with accrued  interest at the rate of 10% per annum, was converted into a demand
promissory note in the principal  amount of $100,218  payable to Mr. Arneault at
the rate of 10% per annum.

         To assist Fleur-David Corporation,  the Company's joint venture partner
in rework activities related to the Company's plan of orderly liquidation of its
oil and gas interests in Michigan,  Mr. Arneault  purchased 25,000 shares of the
Company's   Common  Stock  held  by  Fleur-David  in  July  1995  in  a  private
transaction.

         During 1995, Thomas K. Russell and Mark C. Russell,  his brother,  each
purchased a working interest in the Marathon-Otter  Lake oil and gas reserves in
Michigan, owned in part by the joint venture between the Company and Fleur-David
for an aggregate  amount of approximately  $50,000.  The subject working capital
interests  and others were offered by  Fleur-David  to raise  capital to finance
further rework and remediation activities at the property.

   
         Mr. Robert Ruben,  a member of the Company's  Board,  is a principal in
the law firm of Freer & McGarry,  P.C.,  which has performed  legal services for
the Company  since 1991.  During the fiscal year ended  December 31,  1995,  the
Company paid Freer & McGarry the sum of $86,295 for legal services.  The Company
and Freer & McGarry anticipate that the law firm will perform legal services for
the Company in the future.

         The Company has a note  receivable  for $240,000 from a stockholder  of
the Company  outstanding as of December 31, 1995 and 1994 respectively,  as well
as additional noninterest bearing advances of $62,000 made in 1994, which was
    

                                     - 71 -

<PAGE>

   
subsequently  converted into an additional  note.  The $240,000 note  receivable
bears interest at 8% per annum,  is due on demand,  and is unsecured.  No demand
has  been  made by the  Company's  management  through  December  31,  1995,  as
management believes recovery is doubtful.

         In March  1994,  the  Company  lent  $50,000 to a company for a term of
seven days in exchange for a promissory  note bearing  interest at 8% per annum.
The loan was made upon the  recommendation of a significant  stockholder of both
the Company and the recipient. During 1995, the Company recorded a provision for
loss in the amount of  $50,000.  In April 1996,  the  Company and the  recipient
renegotiated  and  cancelled  the  original  note,  and  executed a  replacement
confessed judgment  promissory note in the principal amount of $58,333 at 8% per
annum, all due and payable August 4, 1996.
    

         Notes Payable to Related Parties

   
         During the year ended December 31, 1993, the Company fully paid certain
8% notes  payable,  totaling  $401,000,  to the former  majority  stockholder of
Mountaineer and an existing stockholder of the Company.

         At December 31, 1993,  the Company had a $70,000  demand note due to an
officer/stockholder  of the Company that bore  interest at 6.25% per annum.  The
note was paid in full in January 1994.

         During 1995, the Company  incurred  salaries to key  management,  which
remain unpaid;  at December 31, 1995,  such amounts  accrued were  approximately
$204,000.  In February 1996, management agreed to accept an aggregate of 466,676
shares of the Company's  Common Stock in  satisfaction  of the amounts due them.
Such  shares  have  an  approximate  value  of  $204,000,   thus  no  additional
compensation expense was recorded as a result of this issuance of Common Stock.

         Common Stock and Warrants Issued in Connection with
         Plan of Reorganization
    

         As part of the Company's  Plan of  Reorganization,  which was confirmed
January 15, 1992,  the Company  issued  certain  warrants to purchase its Common
Stock.  During the year ended December 31, 1993, the Company received $2,239,000
for the  purchase  of  373,241  shares  of its  Common  Stock as a result of the
exercise of Series C warrants. The warrants expired in March 1993.

        Redeemable Common Stock

   
         In connection with certain  arrangements entered into by the Company as
of December 31, 1994,  367,937 shares of Common Stock could have been put to the
Company at $6.00 per share upon demand. In 1995, 98,333 redeemable shares issued
in  connection  with  its oil and gas  activities  were  satisfied  through  the
issuance of 373,600  additional  shares of its Common  Stock.  In 1995,  194,500
shares of Common Stock valued at $212,000  were issued for the  cancellation  of
104,500  redeemable  shares with put rights of certain  holders of Golden Palace
acquisition debt. In connection therewith, the Company issued 276,750 redeemable
shares with a guaranteed  selling  price of $1.50 per share , until such time as
such shares are included in a registration  statement filed with the Commission.
All of such shares are included in a  registration  statement  which the Company
has filed with the Commission. At November 2, 1996, 281,843 shares of redeemable
Common Stock were outstanding.
    

                                     - 72 -
<PAGE>

           STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   
         The  following  table  sets  forth,  as of  September  13 ,  1996,  the
ownership of the Company's  Common Stock by persons  owning more than 5% of such
stock,  and the ownership of such stock by the executive  officers  named in the
summary  compensation  table,  the directors  individually  and the officers and
directors as a group. As of September 13, 1996 there were  18,869,397  shares of
Common Stock  outstanding.  All such shares were owned both  beneficially and of
record, except as otherwise noted.
    


<TABLE>
<CAPTION>

                                                                Amount and
                                                                 Nature of
                                                                Beneficial                   Percentage of
                  Name and Address                               Ownership                       Class
-------------------------------------------------------------------------------------------------------------------

<S>              <C>                                                     <C>                               <C> 
Edson R. Arneault(1)                                                     2,412,133                         12.3
7199 Thornapple Drive
Ada, MI 49301

   
Donald G. & Bonnie Saunders                                              1,164,685                          6.0
1987 Family Trust(2)
    
900 East Desert Inn Road,
Suite 521
Las Vegas, Nevada 89109

   
Madeleine LLC(3)                                                         1,676,066                          8.2
950 Third Avenue,
    
New York, New York 10022
Bennett Management &                                                     1,530,000                          8.1
Development Corp.(4)
2 Clinton Square
Syracuse, NY 13202


Thomas K. Russell(5)                                                       540,626                          2.8
1461 Glenneyre Street,
Suite F
Laguna Beach, CA 92677

                                     - 73 -


<PAGE>

Robert A. Blatt(6)                                                         391,684                          2.1
The CRC Group
Larchmont Plaza
1890 Palmer Avenue,
Suite 303
Larchmont, NY 10538

Robert L. Ruben(7)                                                         113,228                          0.6
Freer & McGarry, P.C.
1000 Thomas Jefferson
Street, N.W.
Washington, D.C. 20007

All officers and directors                                               3,457,671                         17.1
as a group (4 persons)(8)

</TABLE>



   
     (1)  Includes  20,000  shares  and  options  and other  rights  to  acquire
          beneficial  ownership of 1,122,615  shares within 60 days of September
          13,  1996  held  by  Mr.  Arneault,   and  1,269,518  shares  held  by
          corporations and limited partnerships for which Mr.
    
         Arneault is a control person.

   
     (2)  Includes  1,191,816  shares and options,  warrants and other rights to
          acquire  beneficial  ownership of 625,869 shares exercisable within 60
          days  of  September  13,  1996,  held  directly  by Mr.  Saunders  and
          indirectly by a trust.
    

   
     (3)  Includes  183,206  shares and Warrants  exercisable  within 60 days of
          September  13, 1996 held by Madeleine . This  information  is based on
          information  supplied  to the  Commission  on a Schedule  13D filed by
          Madeleine on July 2, 1996. Stephen Feinberg owns directly no shares of
          the  Company.  By reason of the  provisions  of Rule  13d-3  under the
          Exchange Act, Stephen Feinberg,  the sole managing partner of Feinberg
          Management, L.P., the sole managing member of Madeleine, may be deemed
          to own  beneficially  183,206  shares  of Common  Stock and  1,492,860
          Warrants to  purchase  Common  Stock at $1.06 per share,  constituting
          approximately  8.2% of the  outstanding  Common  Stock of the Company.
          Madeleine  owns directly  183,206 shares of Common Stock and 1,492,860

                                     - 74 -

<PAGE>

          of the Warrants.  In consideration of the funding of the Term Loan and
          Loan Commitment by Lost Horizons Fund, L.P. ("Lost Horizons"), Illiad,
          L.P.  ("Illiad"),  Stix Partners,  L.P.  ("Stix  Partners"),  and to a
          discretionary  account  managed  by  Partridge  Hill  Management,  LLC
          ("Partridge Hill"), as more specifically described in the Schedule 13D
          filed by  Stephen  Feinberg  with  respect  to the  Common  Stock  and
          Warrants held by Madeleine,  Madeleine will assign to such parties and
          a  discretionary   account  managed  by  Partridge  Hill  all  of  the
          securities of the Company  owned by such parties such that,  upon such
          assignments,  the securities will be owned as follows: Lost Horizons -
          109,923.6  shares of Common Stock and 895,716  Warrants,  constituting
          approximately 5.04% of the shares of Common Stock outstanding;  Illiad
          - 45,801.5  shares and 373,215  Warrants,  constituting  approximately
          2.10% of the  shares of Common  Stock  outstanding;  Stix  Partners  -
          25,648.84 shares and 209,000.4  Warrants,  constituting  approximately
          1.17% of the shares of Common Stock outstanding; and the discretionary
          account  managed  by  Partridge  Hill - 1,832.06  shares and  14,928.6
          Warrants,  constituting  approximately  .08% of the  shares  of Common
          Stock  outstanding.  Madeleine has entered into an agreement  with the
          Company in which it has agreed to restrict its ability to exercise its
          Warrants  in order to  comply  with the  requirements  of the  Lottery
          Commission.   See   "Description   of   Securities   --  Common  Stock
          --Anti-takeover Provisions."

     (4)  Includes  780,000 shares for which voting rights have been assigned to
          the Board to satisfy licensing requirements of the Lottery Commission.

     (5)  Includes 103,810 shares and options to acquire beneficial ownership of
          436,816 shares  exercisable  within 60 days of September 13, 1996 held
          by Mr. Russell.

     (6)  Includes 341,684 shares and options to acquire beneficial ownership of
          50,000 shares exercisable within 60 days of September 13, 1996 held by
          Mr. Blatt.

     (7)  Includes 38,228 shares and options to acquire beneficial  ownership of
          75,000 shares exercisable within 60 days of September 13, 1996 held by
          Mr. Ruben.
    

     (8)  Includes Messrs. Arneault, Russell, Blatt and Ruben.


                              SELLING STOCKHOLDERS

General

   
         On July 2, 1996 the Company  issued  183,206 shares of Common Stock and
Warrants to purchase  an  aggregate  of  1,542,860  shares of Common  Stock to a
private  lender  and two of its  affiliates  in  connection  with the Term  Loan
Agreement  and related  Loan  Commitment.  Of the  Warrants,  1,492,860  have an
exercise price of $1.06 per share and 50,000 have an exercise price of $0.80 per
share.  Other than with respect to the exercise  price,  all of the Warrants are
identical.  In addition to the shares of Common  Stock and  Warrants to purchase
Common  Stock  which  were  initially  sold in  connection  with the  Term  Loan
Agreement,  the private lender is to receive Warrants equivalent to an amount of

                                     - 75 -

<PAGE>

stock determined on each anniversary date equal to 5% the outstanding  principal
balance  divided by the average  closing  price on each  business day for the 30
days prior to each  anniversary  date and warrants to purchase 250,000 shares at
$1.06 per share.  Contemporaneous  with the Term Loan,  the private  lender also
made a first mortgage  financing  commitment.  If such financing is consummated,
the Company  would be required to issue to the lender  550,000  shares of Common
Stock and warrants to purchase an additional 1,632,140 shares of Common Stock at
$1.06 per share.  Pursuant to the warrant agreements entered into by the Company
with each of the  Selling  Stockholders  (each a  "Warrant  Certificate")  and a
registration  rights  agreement  entered  into by the  Company  with the lender,
Madeleine , the Company  agreed to  indemnify  each of the Selling  Stockholders
against any liabilities,  under the Securities Act or otherwise,  arising out of
or based upon any untrue or alleged  untrue  statement of a material fact in the
Registration  Statement or this  Prospectus  or any omission of a material  fact
required to be stated therein except to the extent that such  liabilities  arise
out of or are based upon any untrue or alleged  untrue  statement or omission of
any  information  furnished  in writing to the Company by a Selling  Stockholder
expressly for use in the Registration Statement.  Insofar as indemnification for
liabilities  arising  under the  Securities  Act may be permitted to  directors,
officers or persons  controlling  the Company  pursuant  to its  certificate  of
incorporation and by-laws,  the Company has been informed that in the opinion of
the Securities and Exchange  Commission such  indemnification  is against public
policy as expressed in the Securities Act and is therefore unenforceable.
    

   
         The Selling  Stockholders have the right, at the Company's expense,  to
have the shares of Common Stock offered hereby registered for the offer and sale
to the public under the Securities  Act until (i) none of the shares  constitute
Registrable Securities (as defined in the Registration Rights Agreements and the
Warrant  Certificates)  or (ii) all of such shares may be sold under  Securities
Act Rule 144(k)  subject to the  Company  obtaining  an opinion of counsel,  and
counsel for the Selling  Stockholders  concurring  with such opinion,  that such
conditions were satisfied.

         In connection with the  registration of the securities  offered hereby,
the Company will supply  prospectuses  to the Selling  Stockholders  and use its
best efforts to qualify such  securities for sale in certain states which may be
designated by the Selling Stockholders.
    

                                     - 76 -
<PAGE>

Stock Ownership

   
         The table  below sets  forth the  number of shares of Common  Stock (i)
owned beneficially by each of the Selling  Stockholders;  and (ii) being offered
by each  Selling  Stockholder  pursuant  to this  Prospectus;  (iii) to be owned
beneficially  by each Selling  Stockholder  after  completion  of the  offering,
assuming that all of the Warrants held by the Selling Stockholders are exercised
and all of the shares  offered hereby are sold and that none of the other shares
held by the Selling  Stockholders,  if any, are sold and (iv) the  percentage of
outstanding shares of Common Stock to be owned by each Selling Stockholder after
completion of the offering,  assuming that all of the shares  offered hereby are
sold and that none of the other shares held by the Selling Stockholders, if any,
are sold.  For purposes of this table each Selling  Stockholder is deemed to own
beneficially  (i) the shares of Common Stock  underlying  the  Warrants  held by
them,  (ii) the  issued  and  outstanding  shares of Common  Stock  owned by the
Selling  Stockholder  as of September  13, 1996,  and (iii) the shares of Common
Stock underlying any other options or warrants owned by the Selling  Stockholder
which are exercisable as of September 13, 1996 or which will become  exercisable
within 60 days after September 13, 1996. Except as otherwise noted, none of such
persons or entities has had any material  relationship  with the Company  during
the past three years.
    

<TABLE>
<CAPTION>
                                                                                                                   Percentage
                                                                                                                      of
                                                                                                                  Outstanding
                                                                                           Number of              Shares to be
                                                                                        Shares to be                Owned
                                                                                           Owned                Beneficially
                                             Number of                                   Beneficially                After
                                              Shares               Number of                 After                 Completion
                                           Beneficially              Shares              Completion of                 of
    Selling Stockholders                       Owned                Offered                Offering               Offering(1)
    --------------------                       -----                -------                --------               -----------

<S>           <C>                        <C>                  <C>                               <C>            <C>
Madeleine LLC (1)                        1,676,066            1,676,066                         0              0

Bridge Capital                              25,000               25,000                         0              0

Brownstone Holding                          25,000               25,000                         0
                                         ---------            ---------

   
  Total                                  1,726,066            1,726,066

</TABLE>


     (1)  Includes 183,206 shares and Warrants  exercisable  within 60 days held
          by Madeleine . This  information is based on  information  supplied to
          the  Commission  on a Schedule 13D filed by Madeleine on July 2, 1996.
          Stephen Feinberg owns directly no shares of the Company.  By reason of
          the provisions of Rule 13d-3 under the Exchange Act, Stephen Feinberg,
          the sole  managing  partner of  Feinberg  Management,  L.P.,  the sole
          managing  member  of  Madeleine,  may be  deemed  to own  beneficially
          183,206  shares  of  Common  Stock  and  1,492,860  of  the  Warrants,
          constituting approximately 8.4% of the outstanding Common Stock of the
          Company.  Madeleine  owns directly  183,206 shares of Common Stock and
          1,492,860 of the Warrants. In consideration of the funding of the Term
          Loan  and  loan   commitment  by  Lost  Horizons  Fund,   L.P.  ("Lost
          Horizons"),  Illiad,  L.P.  ("Illiad"),  Stix  Partners,  L.P.  ("Stix
          Partners"),  and to a discretionary  account managed by Partridge Hill
          Management,  LLC ("Partridge Hill"), as more specifically described in
          the Schedule 13D filed by Stephen  Feinberg with respect to the Common
          Stock and  Warrants  held by  Madeleine,  Madeleine  will  assign to a
          discretionary  account managed by Partridge Hill all of the securities
          of the Company owned by such parties such that, upon such assignments,
          the  securities  will be owned as follows:  Lost  Horizons  -109,923.6
          shares   of   Common   Stock  and   895,716   Warrants,   constituting
          approximately 5.04% of the shares of Common Stock outstanding;  Illiad
          - 45,801.5  shares and 373,215  Warrants,  constituting  approximately
          2.10% of the  shares of Common  Stock  outstanding;  Stix  Partners  -
          25,648.84 shares and 209,000.4  Warrants,  constituting  approximately
          1.17% of the shares of Common Stock outstanding; and the discretionary
          account  managed  by  Partridge  Hill - 1,832.06  shares and  14,928.6
          Warrants,  constituting  approximately  .08% of the  shares  of Common
          Stock outstanding. Madeleine has entered into an agreement with the
    

                                     - 77 -

<PAGE>

   
          Company in which it agreed to restrict its exercise of the Warrants in
          order to comply with the  requirements  of the West  Virginia  Lottery
          Commission.   See   "Description   of  Securities  -  Common  Stock  -
          Anti-takeover Provisions."
    

                              PLAN OF DISTRIBUTION

   
         Shares of Common Stock currently outstanding and shares of Common Stock
issuable upon  exercise of the Warrants may be sold pursuant to this  Prospectus
by the  Selling  Stockholders.  These  sales may occur in  privately  negotiated
transactions  or in the  over-the-counter  market through brokers and dealers as
agents or to brokers and dealers as principals,  who may receive compensation in
the form of discounts or commissions  from the Selling  Stockholders or from the
purchasers of the Common Stock for whom the  broker-dealers  may act as agent or
to whom they may sell as principal, or both. The Company has not been advised by
the Selling  Stockholders  that they have made any arrangements  relating to the
distribution  of the  shares of Common  Stock  covered  by this  Prospectus.  In
effecting sales,  broker-dealers engaged by the Selling Stockholders may arrange
for other broker-dealers to participate. Broker-dealers will receive commissions
or  discounts  from  the  Selling  Stockholders  in  amounts  to  be  negotiated
immediately prior to the sale.
    

         Upon  being  notified  by  a  Selling  Stockholder  that  any  material
arrangement  (other  than a  customary  brokerage  account  agreement)  has been
entered  into  with a broker or  dealer  for the sale of shares  through a block
trade, purchase by a broker or dealer, or similar transaction,  the Company will
file a supplemented  Prospectus pursuant to Rule 424(c) under the Securities Act
disclosing  (a) the name of each such  broker-dealer,  (b) the  number of shares
involved, (c) the price at which such shares were sold, (d) the commissions paid
or discounts or concessions allowed to such broker-dealer(s), (e) if applicable,
that such  broker-dealer(s)  did not  conduct  any  investigation  to verify the
information set out in the Prospectus, as supplemented,  and (f) any other facts
material to the transaction.

         Certain of the Selling  Stockholders and any broker-dealers who execute
sales for the Selling Stockholders may be deemed to be "underwriters" within the
meaning of the  Securities Act by virtue of the number of shares of Common Stock
to be sold or resold by such persons or entities or the manner of sale  thereof,
or both.  If any of the Selling  Stockholders,  broker-dealers  or other holders
were  determined to be  underwriters,  any discounts or commissions  received by
them or by brokers or dealers acting on their behalf and any profits received by
them on the resale of their shares of Common Stock might be deemed  underwriting
compensation under the Securities Act.

                                     - 78 -

<PAGE>

   
         The Company has advised the Selling  Stockholders  that any purchase or
sale of the Common  Stock by them must be in  compliance  with  Rules  10b-6 and
10b-7 under the  Exchange  Act. In general,  Rule 10b-6 under the  Exchange  Act
prohibits any person connected with a distribution of the Company's Common Stock
(the  "Distribution") from directly or indirectly bidding for, or purchasing for
any account in which he has a beneficial interest, any Common Stock or any right
to purchase  Common Stock, or attempting to induce any person to purchase Common
Stock or rights to  purchase  Common  Stock,  until after he has  completed  his
participation in the Distribution (the "Distribution Period").
    

         During the  Distribution  Period,  Rule 10b-7  under the  Exchange  Act
prohibits  the  Selling  Stockholders  and  any  other  person  engaged  in  the
Distribution from engaging in any stabilizing bid or purchasing the Common Stock
except for the purpose of  preventing  or retarding a decline in the open market
price of the Common Stock. No such person may effect any stabilizing transaction
to facilitate any offering at the market.  Inasmuch as the Selling  Stockholders
will be  reoffering  and  reselling  the Common Stock at the market,  Rule 10b-7
prohibits them from effecting any  stabilizing  transaction  with respect to the
Common Stock.


                            DESCRIPTION OF SECURITIES

Common Stock

   
         The  Company is  currently  authorized  to issue  50,000,000  shares of
Common Stock,  par value $.00001 per share. As of September 13, 1996, there were
18,869,397  shares of Common Stock issued and  outstanding and held of record by
approximately 582 stockholders.

         As of September  13, 1996, a total of 6,309,490  shares of Common Stock
were reserved for issuance  pursuant to  outstanding  options and warrant of the
Company.

         A majority of the outstanding shares of the Company's Common Stock must
be  present  at a duly  called  stockholders'  meeting in order to have a quorum
under the Company's By-Laws.  Only those stockholders of record as of the record
date,  which  may be fixed not more  than 60 nor less  than 10 days  before  the
meeting, or stockholder action in lieu of a meeting, are entitled to vote on the
subject matter before the stockholders.  In most cases, if a quorum is present ,
the  affirmative  vote of the majority of the shares  represented at the meeting
constitutes an act of the stockholders.  Consequently,  the holders of one share
more than one-quarter of the outstanding  Common Stock could exercise  effective
control over the Company.  The affirmative vote of a majority of all outstanding
shares
    

                                     - 79 -

<PAGE>

   
entitled to vote, however,  is required to amend the Company's  Certificate , as
well as to accomplish certain other matters.

         All  shares of Common  Stock are equal to each  other  with  respect to
voting, liquidation, dividend and other rights. Owners of shares of Common Stock
are  entitled  to one vote  for  each  share  of  Common  Stock  they own at any
stockholders' meeting. Holders of shares of Common Stock are entitled to receive
such dividends as may be declared by the Board of Directors out of funds legally
available therefor, and upon liquidation are entitled to participate pro rata in
a distribution of assets available for such a distribution to stockholders.  The
Term Loan Agreement  restricts the payment of dividends to stockholders  without
the lender's consent.  There are no preemptive rights or privileges with respect
to any shares of Common  Stock.  The Common  Stock of the Company  does not have
cumulative  voting rights,  which means that the holders of more than 50% of the
shares  voting for the election of directors  may elect all of the  directors if
they  choose  to do so. In such  event,  the  holders  of the  remaining  shares
aggregating less than 50% would not be able to elect any directors.
    

Anti-takeover Provisions

         The Company's Certificate has two significant anti-takeover provisions.
Pursuant to Article VI of the Certificate,  any "Acquisition  Proposal" (defined
therein as a proposal by any person to (i) make a tender offer or exchange offer
for any equity securities of the Company,  (ii) merge or consolidate the Company
with  another  corporation,  or  (iii)  purchase  or  otherwise  acquire  all or
substantially  all of the  properties  and assets of the Company),  requires the
Board  to  scrutinize  such  Acquisition  Proposal  within  certain  guidelines.
Specifically,  the Certificate states that the Board, in exercising its judgment
with respect to the best  interests of the Company,  is  authorized  to give due
consideration to such factors as the Board determines to be relevant, including,
without limitation:

     (i) the interests of the Company's stockholders;

     (ii) whether the proposed  transaction might violate federal or state laws,
or affect the Company's ability to obtain required licenses;

                                     - 80 -

<PAGE>

     (iii) the  consideration  being  offered in the  proposed  transaction,  in
relation not only to the then current market price for the  outstanding  capital
stock of the Company,  but also to the market price for the capital stock of the
Company over a period of years,  the estimated price that might be achieved in a
negotiated  sale of the  Company  as a  whole  or in  part  or  through  orderly
liquidation,  the  premiums  over  market  price  for the  securities  of  other
corporations  in similar  transactions,  current  political,  economic and other
factors bearing on securities prices, and the Company's  financial condition and
future prospects; and

     (iv) the social,  legal and  economic  effects upon  employees,  suppliers,
customers  and others having  similar  relationships  with the Company,  and the
communities in which the Company conducts its business.

         The  Certificate  requires a  supermajority  of 80% of the  outstanding
shares of the Company  entitled to vote in the election of directors to amend or
repeal this provision.

   
         In addition  to this  provision  relating to the Board's  response to a
takeover offer, in response to regulatory requirements of the Lottery Commission
requiring  advance  approval of persons who acquire 5% or more of the  Company's
voting stock, Article VII of the Certificate provides the Company with the right
to redeem any shares acquired on the open market or otherwise. Specifically, the
Certificate  prohibits any Person (a natural person or entity) from becoming the
Beneficial Owner (as defined in conformance with Rule 13d-3 of the Exchange Act)
of five  percent (5%) or more of the  Company's  Common Stock unless such person
agrees in writing delivered to the Company at its registered office to:
    

     (1) provide to the Gaming  Authorities  (defined in the  Certificate as any
governmental authority regulating any form of gaming which has jurisdiction over
the Company or its subsidiaries)  information regarding such Person,  including,
without  limitation,  information  regarding other gaming related  activities of
such Person and financial  statements  and  disclosures,  in such form, and with
such updates, as may be requested and/or required by any Gaming Authority;

     (2) respond to written  and/or oral  questions  and  inquiries  that may be
propounded by any Gaming Authority; and

     (3) consent to the  performance  of any personal  background  investigation
that may be required by any Gaming Authority,  including, without limitation, an
investigation  of any criminal record and/or alleged  criminal  activity of such
Person.

   
         Notwithstanding  such  provisions,  any and all issued and  outstanding
shares of Common Stock held or otherwise owned by a Disqualified Holder (defined
in the Certificate as any
    

                                     - 81 -

<PAGE>

   
Beneficial Owner of shares of Common Stock, or its  subsidiaries,  whose holding
of Common  Stock may result,  in the  judgment of the Board,  in (i) the denial,
loss or  non-reinstatement  of any license or  franchise  from any  governmental
agency  applied  for or held by the  Company or any  subsidiary  to conduct  any
portion of the  proposed or actual  business  of the Company or any  subsidiary,
which  license or  franchise is  conditioned  upon some or all of its holders of
Common Stock meeting certain criteria, or (ii) the disapproval, modification, or
non-renewal of any contract  under which the Company or any of its  subsidiaries
has sole or shared authority to manage any gaming  operations)  shall be subject
to repurchase (such securities being defined as the "Repurchase  Securities") by
the Company at any time at the sole  discretion  of the Company by action of the
Board.  The  terms  and  conditions  of  such  repurchase  provided  for  by the
Certificate are as follows:

         (1) the repurchase price of the Repurchase Securities to be repurchased
pursuant to such  provision  shall be an amount  equal to the Fair Market  Value
(defined  as the  average  closing  price as quoted  on  Nasdaq  for the 20 days
preceding the repurchase) of such Repurchase Securities or such other repurchase
price  as  required  by  either  the  DGCL,  any  state  law  applicable  to the
determination  that a Beneficial  Owner is a  Disqualified  Holder or applicable
federal law;
    

         (2) the repurchase  price of such Repurchase  Securities may be paid in
cash, or  Corporation  Debt  Securities  (defined as any debt  securities of the
Company  which  comprise  all or a  portion  of the  repurchase  price),  or any
combination thereof;

         (3) if less than all of the  Repurchase  Securities  held or  otherwise
owned by one or more Disqualified Holders are to be repurchased,  the Repurchase
Securities  to be  repurchased  shall be  selected  in such  manner  as shall be
determined by the Company's  Board in their sole  discretion,  which may include
selection of the most  recently  acquired  Repurchase  Securities,  selection of
Repurchase  Securities  by lot, or selection of  Repurchase  Securities  in such
other manner as shall be determined by the Company's Board;

         (4) at least ten (10) days' written notice of the Repurchase Date shall
be given to the  Beneficial  Owner (and the record  holder if such Person is not
the Beneficial  Owner) of the Repurchase  Securities  selected to be repurchased
unless  notice  is waived  in  writing  by any such  holder)  provided  that the
Repurchase  Date may be the date on which written notice is given if the cash or
Corporation  Debt Securities  necessary to effect the repurchase shall have been
deposited  in trust  for the  benefit  of such  record  holder  and  subject  to
immediate  withdrawal  upon  surrender of the  certificates  for the  Repurchase
Securities to be repurchased;

                                     - 82 -

<PAGE>

   
         (5) from and after the Repurchase Date or such earlier date as mandated
by  either  the  DGCL,  any state law  applicable  to the  determination  that a
Beneficial Owner is a Disqualified Holder or applicable federal law, any and all
rights  of  whatever  nature  which  may be held  by the  Beneficial  Owners  of
Repurchase  Securities selected for repurchase  (including,  without limitation,
any rights to vote or  participate  in dividends  declared on  securities of the
same class or series as such Repurchase  Securities),  shall cease and terminate
and such  Beneficial  Owners shall  thenceforth  be entitled only to receive the
cash or Corporation Debt Securities payable upon repurchase; and

         (6) such other terms and conditions as the Board shall determine.
    

         All securities  subject to this restriction  bear a restrictive  legend
stating the fact that such  securities are subject to the  repurchase  option of
the  Company  and may not be  transferred  other  than in  accordance  with  the
Certificate.

   
         Transfer Agent

     The Transfer  Agent for the Common Stock is  Continental  Stock  Transfer &
Trust Company.

         Indemnification of Directors and Officers

         Under Section 145 of the DGCL, a  corporation  may indemnify any person
who was or is a party or is  threatened  to be made a party  to any  threatened,
pending or  completed  action,  suit or  proceeding,  whether  civil,  criminal,
administrative or investigative  (other than an action by or in the right of the
corporation),  by  reason  of the fact  that he is or was a  director,  officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation,  partnership,  joint  venture,  trust or other  enterprise  against
expenses  (including  attorneys'  fees),  judgments,  fines and amounts  paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding  if he acted in good faith and in a manner he reasonably  believed
to be in or not opposed to the best  interests  of the  corporation,  and,  with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.

         A corporation also may indemnify any person who was or is a party or is
threatened to be made a party to any threatened,  pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director,  officer,  employee or agent of
the  corporation,  or is or was serving at the request of the  corporation  as a
director, officer, employee or agent of another corporation,  partnership, joint
venture,  trust or other enterprise against expenses (including attorneys' fees)
actually and
    
                                     - 83 -

<PAGE>

   
reasonably  incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably  believed
to be in or not opposed to the best interests of the corporation.

     However,  in  such  an  action  by  or  on  behalf  of  a  corporation,  no
indemnification may be made in respect of any claim, issue or matter as to which
the person is adjudged liable to the  corporation  unless and only to the extent
that the court  determines  that,  despite the  adjudication of liability but in
view of all the circumstances,  the person is fairly and reasonably  entitled to
indemnification for such expenses which the court shall deem proper.

         In addition,  the indemnification  provided by Section 145 shall not be
deemed exclusive of any other rights to which those seeking  indemnification may
be entitled under any By-law,  agreement,  vote of stockholders or disinterested
directors or  otherwise,  both as to action in his  official  capacity and as to
action in another  capacity  while  holding such  office.  The  Certificate  and
By-laws of the Company are consistent with Section 145. The Certificate provides
that  no  director  shall  be  personally  liable  to  the  corporation  or  its
stockholders  for monetary  damages for breach of fiduciary  duty as a director,
except:  (i) for any breach of the director's duty of loyalty to the corporation
or its  stockholders,  (ii) for acts and  omissions  not in good  faith or which
involve  intentional  misconduct or knowing violation of the law; (iii) for acts
specified  in Title 8,  Section 174 of the DGCL,  or (iv) for which the director
derived an improper personal benefit.

         In  addition  to  the  Certificate,   the  Company's   By-laws  provide
indemnification  (the  "Indemnity  Provisions")  for any  person who is or was a
party to any  threatened,  pending or  completed  action,  suit,  or  proceeding
whether civil, criminal, administrative, arbitrative, investigative procedure by
reason of the fact that he or she was a director,  officer, employee,  fiduciary
or agent of the Company or served in such  capacity  with another  entity at the
Company's  request  (such  persons  are  defined  as an  "Indemnified  Party" or
"Indemnified  Parties").  With  respect to third party  actions,  the  Indemnity
Provisions represent the Company's commitment to indemnify based on such persons
incurring expenses  (including legal fees) judgments,  fines,  excise taxes, and
amounts paid in settlement based on civil or criminal matters.  In the case of a
civil  matter,  the  Indemnified  Parties must have acted in good faith and in a
manner  reasonably  believed  by that person to be in or not opposed to the best
interests of the Company.  With  respect to a criminal  matter,  the person must
have had no reasonable cause to believe that the conduct was unlawful.

         With respect to derivative actions, Indemnified Parties are entitled to
indemnification  for any and all expenses  (including  attorneys' fees) actually
and reasonably incurred by him or her in
    
                                     - 84 -

<PAGE>

   
connection with the settlement or defense of such actions. The Indemnified Party
must show that he or she acted in good faith and a manner reasonably believed by
that person to be in or not opposed to the best interests of the Company, except
that no  indemnification  shall be  available  if such person has been  adjudged
liable for  negligence  or  misconduct  in  performing  his or her duties to the
Company,  unless  the  court in  which  such  action  or suit  was  brought  has
determined upon application  that,  despite the adjudication of liability but in
view of all of the  circumstances  of the case, the Indemnified  Party is fairly
and  reasonably  entitled to  indemnification  for the  expenses the court deems
proper.  Nonetheless,  if the  Indemnified  Party is successful on the merits or
otherwise,  he or she need not show that the applicable  standard of conduct was
met. If not successful on the merits,  any  indemnification  may only be made if
the  Indemnified  Party  applies to the  Company for  indemnification  and (i) a
majority vote of a quorum of the Board,  or (ii) if a quorum is not available or
even if obtainable,  or if a quorum of  disinterested  directors so directs,  by
independent  legal  counsel  in a  written  opinion,  or  (iii)  by  vote of the
stockholders of the Company.

         With respect to both  derivative  actions and third party actions,  the
Indemnity  Provisions  also provide for the  advancement of expenses,  including
actual and reasonable  attorneys'  fees,  incurred in defending or investigating
any action,  suit,  proceeding or claim, subject to a written affirmation by the
Indemnified  Party or person  requesting an advance for such  Indemnified  Party
that he or she has met the  applicable  standard  of conduct  and that he or she
will repay such advance if it is  ultimately  determined  that he or she did not
meet the applicable standard of conduct.

         Notwithstanding the foregoing,  the Company has discretion to impose as
conditions to any of the  Indemnification  Provisions,  such requirements as may
appear  appropriate  in the specific case including but not limited to: (a) that
any counsel  representing  the person be mutually  acceptable to the Company and
the Indemnified  Party,  (b) that the Company has the right to assume control of
the  defense  of such  Indemnified  Party,  and (c)  that the  Company  shall be
subrogated to the extent of any payments made by way of  indemnification  to all
of such Indemnified  Party's right of recovery,  and do everything  necessary to
assure such rights of subrogation to the Company.

         The rights of  Indemnified  Parties under the Indemnity  Provisions are
not  exclusive  of any  other  rights  Indemnified  Parties  may have  under the
Certificate,  any  agreement,  vote  of  stockholders,   vote  of  disinterested
directors,  any liability  insurance policies (which the Board in its discretion
may obtain) or otherwise.

     Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Indemnified Parties pursuant to
    

                                     - 85 -

<PAGE>

   
the foregoing provisions, or otherwise, the Company has been advised that in the
opinion of the  Commission  such  indemnification  is against  public  policy as
expressed in the Securities Act and is, therefore,  unenforceable.  In the event
that a claim  for  indemnification  against  such  liabilities  (other  than the
payment by the  Company of expenses  incurred or paid by a director,  officer or
controlling person of the Company in the successful defense of any action,  suit
or  proceeding)  is asserted by such persons in connection  with the  securities
being registered,  the Company will,  unless in the opinion of its counsel,  the
matter  has  been  settled  by  controlling  precedent,  submit  to a  court  of
appropriate  jurisdiction  the question  whether such  indemnification  by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
    

Description of Warrants

         In  connection  with the Term Loan  Agreement,  the  Company  issued an
aggregate of 1,542,560  Warrants to a private  lender and two of its  affiliates
(the "Warrant Holders"),  all of which are presently  outstanding.  The Warrants
were issued  pursuant  to Warrant  Certificates  dated July 2, 1996  between the
Company and each of the Warrant Holders.

         Each  Warrant  entitles  the holder  thereof to  purchase  one share of
Common Stock (each a "Warrant  Share") from the Company.  The exercise  price of
1,492,560 of the Warrants is $1.06 per share and the exercise price of 50,000 of
the Warrants is $0.80 per share, in each case subject to adjustment as described
below. Subject to certain limitations, the Warrants may be exercised at any time
beginning  on July 2, 1996  until  5:00 p.m.  Pacific  Time on July 2, 2001 (the
"Expiration Date"). Warrants that are not exercised prior to the Expiration Date
will expire.

         Certain Terms

         Exercise

   
         In  order  to  exercise  all or any of the  Warrants  represented  by a
Warrant Certificate,  the holder thereof is required to surrender to the Company
a  completed  Exercise  Agreement  (as defined in the  Warrant  Certificate),  a
Warrant  Certificate  and cash or certified  check  payable to the Company in an
amount equal to the then  effective  Purchase Price for the shares for which the
Warrant  Certificate  is  being  exercised.   Certificates  for  Warrant  Shares
purchased  upon exercise of the Warrants will be delivered by the Company to the
holder thereof within five business days after the exercise.  The Warrant Shares
shall, when issued,  be duly authorized,  validly issued,  previously  unissued,
fully paid and nonassessable and will be free from all taxes,  liens and charges
with respect thereto.
    

                                     - 86 -

<PAGE>

         Adjustments

   
         The initial  purchase  price per Warrant shall be subject to adjustment
from time to time upon the  occurrence  of  certain  events  including:  (i) the
issuance or sale of any shares of Common Stock by the Company, (ii) the grant of
any rights to subscribe for or to purchase  Common Stock, or any options for the
purchase of Common Stock or any securities  convertible into or exchangeable for
Common Stock, (iii) the issuance or sale of convertible  securities,  whether or
not  immediately  exercisable,  or (iv) the  declaration  of any dividend or the
making of any other  distribution  of any stock of the Company payable in Common
Stock, options or convertible securities.  Upon the occurrence of such an event,
the holder shall be entitled to purchase  the number of Warrant  Shares equal to
that  percentage  of the total  number of shares of Common Stock that the holder
was entitled to purchase  immediately  prior to such event;  provided,  however,
that if the issuance of  securities  is made to all holders of the Common Stock,
then the Warrant  Holder shall be entitled to receive the number of shares which
such holder  would have been  entitled to receive had the holder  exercised  the
Warrants  immediately  prior  to  the  event.   Notwithstanding  this  fact,  no
adjustment  shall be made: (i) at any time prior to 30 months after repayment in
full of the  outstanding  amounts  under  the Term Loan  Agreement  and the Loan
Commitment  (if drawn  down by the  Company),  if (a) the  securities  issued in
connection  with such event  exceed the  holder's  purchase  price or if (b) the
event was  approved  in advance in writing by the  holders of a majority  of the
shares of Common  Stock  issuable  on the  exercise  of the  Warrants;  and (ii)
following  the date that is 30 months after the  repayment in full of all of the
outstanding  amounts under the Term Loan  Agreement and the Loan  Commitment (if
drawn down by the Company);  provided,  that notwithstanding (i) and (ii) above,
the adjustments provided for in the event of the issuance of Common Stock of the
Company shall be made to the extent that such issuance involves the offer and/or
issuance of securities to all holders of any class of securities of the Company;
provided,  further,  that the  provisions  referenced  above  will not limit any
adjustments   to  be  provided   pursuant  to  other  sections  of  the  Warrant
Certificate.  No  adjustment  need  be made  based  on  issuances  of  stock  to
employees,  directors  or  officers of the  Company in any fiscal  year,  not to
exceed 1% of the issued and  outstanding  shares of Common  Stock on the date of
issuance;  Common Stock issued in the ordinary course of business, not to exceed
 .5% of the outstanding shares of Common Stock on the day of issuance;  or any of
the Warrants or shares of Common Stock issued in  connection  with the Term Loan
Agreement or Loan  Commitment.  The holder of the Warrants  shall be entitled to
participate in any dividends  declared by the Company or any rights to subscribe
for the purchase of Common Stock, options, or convertible securities to the same
extent as such holder would be entitled after giving full effect to the exercise
of such  Warrants.  Finally,  should the  Company  undertake  a  subdivision  or
combination of its Common Stock to either increase such shares into a greater
    

                                     - 87 -

<PAGE>

   
number or  decrease  such  shares  into a lesser  number,  the  number of shares
purchasable under the Warrant Certificate are to be proportionately increased or
reduced.  If  conditions  arise  not  otherwise  covered  by  the  anti-dilution
provisions  discussed  above,  the  Company  is  required  to  appoint a firm of
independent certified public accountants of recognized national standing,  which
shall give their  opinion on any  adjustment  necessary to preserve the exercise
rights of the Warrant Holder.
    

         Reorganizations, Mergers, and Certain Other Transactions

         If any capital  reorganization or reclassification of the capital stock
of the  Company,  or  consolidation  or  merger  of  the  Company  with  another
corporation,  shall be effected so as to entitle the holders of the Common Stock
of the Company to receive  stock,  securities  or assets  with  respect to or in
exchange for shares of Common Stock,  then,  prior to and as a condition of such
reorganization, reclassification, consolidation, merger, sale or conveyance, the
Warrant holder shall be entitled to receive in lieu of any Warrant Shares,  such
shares of stock,  securities,  or assets as may be issued or payable in exchange
for a number of shares of Common Stock equal to the number of shares immediately
theretofore  purchasable  or  receivable  upon  exercise of the rights under the
Warrant Certificate had such reorganization,  reclassification, consolidation or
merger, sale or conveyance, not taken place.

         No Rights as Stockholders

   
     The holders of unexercised  Warrants are not entitled,  as such, to receive
notice of any  meeting of the  stockholders  of the  Company,  to consent to any
action  of the  stockholders  of the  Company,  to  receive  notice of any other
stockholder proceedings,  or to any other rights as stockholders of the Company,
except with  respect to dividend  subscription  rights and rights upon merger or
consolidation,  as discussed above, and none of the rights of the Warrant Holder
shall give rise to liability for the purchase  price of the Warrant Shares or as
a stockholder of the Company.
    

                                     - 88 -

<PAGE>

                         SHARES ELIGIBLE FOR FUTURE SALE

   
         The Company had  18,869,397  shares of Common Stock  outstanding  as of
September 13, 1996. Of these outstanding shares,  approximately 7,187,507 shares
are "restricted securities" as defined in Rule 144 . Of these restricted shares,
183,206 shares are issued and outstanding  and are covered by this  Registration
Statement and were sold in connection  with the Term Loan.  Such 183,206  shares
will, if sold pursuant to this Registration Statement,  and the 1,542,860 shares
of Common Stock  included in this  Registration  Statement  and  underlying  the
Warrants will, if issued upon exercise of the Warrants and sold pursuant to this
Registration  Statement,  be  freely  tradeable  without  restriction  under the
Securities Act, except that any shares  purchased and held by an "affiliate," as
that term is defined  under the  Securities  Act,  will be subject to the resale
limitations  of Rule 144.  In addition  to the  Warrants  to purchase  1,542,860
shares of Common Stock as of September 13, 1996 there were  outstanding  options
and warrants to purchase an aggregate of 4,743,371  shares,  all of which shares
will be restricted securities.  In addition to the Warrants and shares of Common
Stock  registered  herein,  the Company also has registered  4,836,340 shares of
Common  Stock on another  registration  statement.  Certain  of the  outstanding
shares of Common Stock and shares  underlying  outstanding  options and warrants
have registration rights, and are covered by a registration statement filed with
the Commission, as described more specifically in "Registration Rights."
    

         In  general,  under Rule 144 as  currently  in  effect,  any person (or
persons  whose  shares  are   aggregated),   including   affiliates,   who  have
beneficially owned shares for at least two years is entitled to sell, within any
three-month  period,  a number of shares that does not exceed the greater of one
percent of the then  outstanding  shares of the  Company's  Common  Stock or the
weekly  trading  volume in the  Company's  Common Stock during the four calendar
weeks  preceding  such sale. A person (or persons whose shares are  aggregated),
who is not deemed an affiliate of the Company,  and who has  beneficially  owned
shares for at least three  years is entitled to sell such shares  under Rule 144
without regard to the limitations described above.

Registration Rights

   
         Under a Separation  Agreement  effective  October 15, 1996, the Company
issued 15,000 shares of Common Stock and an option to purchase  30,000 shares of
Common Stock to Julie  Waring,  a former  employee of the Company.  These shares
have registration rights. None of these shares are included in this registration
statement.
    

                                     - 89 -

<PAGE>

   
         Pursuant to the Bennett Loan , the Company granted  registration rights
with respect to 1,530,000 shares of Common Stock issued thereunder.  Pursuant to
an Amendment to the Bennett Loan dated  September 19, 1996, the Company  amended
the  registration  rights with respect to the shares of Common Stock  previously
issued  under the Bennett Loan and granted  registration  rights with respect to
shares  issuable  pursuant  to  such  Amendment.  Whereas  the  Bennett  Loan as
previously  amended  required the Company to issue Bennett $2.5 million worth of
the  Company's  Common  Stock  based  on the  average  market  price  for the 20
consecutive  trading days preceding  January 2, 1997, the Amendment would permit
the  Company,  at its option,  either to pay  Bennett  $500,000 in cash or issue
$750,000 of Common  Stock.  Similarly,  the Company  would be  permitted  to pay
$750,000 or issue $1 million in Common  Stock if the Bennett Loan is not prepaid
by July 1, 1997,  and pay $1 million or issue $1.25  million of Common  Stock if
the Bennett Loan is not prepaid by December  31, 1997.  To the extent any shares
of Common Stock  previously  issued pursuant to the Bennett Loan or to be issued
pursuant to the  Amendment are  restricted  and are not eligible for public sale
pursuant to court order or exemption,  until December 31, 1997, Bennett would be
entitled to piggyback registration rights with respect to such shares should the
Company or any  stockholder of the Company make a registered  offering of Common
Stock,  excluding  registered  offerings  undertaken in connection with the Term
Loan Agreement until December 31, 1997. Bennett would also be entitled to demand
registration  rights after December 31, 1997 or any other time at which there is
a registered  offering in connection with the Term Loan  Agreement.  The Company
registered  1,120,000 of such shares on a registration  statement filed with the
Commission.

         Pursuant to a settlement  agreement signed on July 13, 1994 as modified
by an amendment dated September 4, 1996 between the Company and CAM, the Company
granted  registration  rights with respect to the 145,000 shares  underlying the
warrants  issued to CAM. The settlement  agreement as amended  contemplates  the
inclusion of such shares on a  registration  statement to be filed shortly after
the date of such  modified  agreement.  The  Company  has  filed a  registration
statement covering all of these shares.

         Pursuant to a Registration  Rights  Agreement  dated July 2, 1996, (the
"Registration Rights Agreement") between the Company and Madeleine , the Company
agreed to use its best efforts to register,  and have a  registration  statement
declared  effective,  with  respect to 183,206  shares of Common Stock issued to
Madeleine  in  connection  with the Term  Loan and any other  securities  of the
Company  acquired by Madeleine and any  securities  into or for which such other
securities are convertible or exercisable, whether acquired pursuant to the Term
Loan Agreement or otherwise (the "Additional
    

                                     - 90 -

<PAGE>

   
Shares")  (collectively the "Registrable  Securities").  The Registration Rights
Agreement   required  the  Company  to  effect  the  registration  of  any  such
Registrable  Securities  within  120 days of the date  the  Registration  Rights
Agreement,  and to  keep  such  registration  effective  until  (i)  none of the
securities covered by such registration continue to be Registrable Securities as
determined in accordance with the  Registration  Rights Agreement or (ii) all of
the Registrable  Securities become freely transferable under Securities Act Rule
144(k),  provided  that the  Company  secures an  opinion  of counsel  that such
conditions  have  been  satisfied  and  Madeleine's  counsel  concurs  with such
opinion.  Such shares are registered herein.

         In the  event  that  a  registration  statement  required  to be  filed
pursuant  to  the  Registration  Rights  Agreement  shall  fail  to be  declared
effective  on or  before  seven  calendar  months  from  the date of  demand  by
Madeleine (the "Demand Date"),  the Company shall pay Madeleine within 5 days of
the expiration of such seven calendar month period, 5% of the closing price (the
last recorded  sale price,  or if no sales are made that day, the average of the
bid and asked  prices,  as quoted on Nasdaq) of the Common Stock on the business
day  immediately  preceding  the end of such seven  month  period for each share
subject to the Registration  Rights Agreement.  In the event that a registration
statement  required to be filed pursuant to the  Registration  Rights  Agreement
shall fail to be declared  effective on or before nine calendar  months from the
Demand Date, the Company shall pay Madeleine  within five days of the expiration
of such nine calendar  month period,  and on the last day of each calendar month
thereafter until such registration  statement is declared effective,  10% of the
closing price of the Common Stock on the business day immediately  preceding the
end of such nine month or one-month  period, as applicable.  Similar  provisions
attach for any additional shares acquired by Madeleine.

         Pursuant to the Warrant Certificates issued to the Selling Stockholders
in connection with the Term Loan  Agreement,  the Company agreed to use its best
efforts to effect the registration of the resale of the Warrants issued to them,
and the issuance,  or if not permissible under the Securities Act, the resale of
the shares  issuable on exercise of the Warrants.  The Company agreed to use its
best  efforts  to  keep  such  registration   statement  continuously  effective
subsequent to the Commission's  determination of effectiveness until either none
of the securities covered by the registration  statement constitute  Registrable
Securities or all of the  Registrable  Securities  covered by such  registration
statement are freely  transferable under Rule 144(k),  provided that the Company
secures an opinion of counsel  satisfactory  to the Warrant Holder and concurred
upon by  counsel  to such  Warrant  Holder.  In the  event  that a  registration
statement  required to be filed pursuant to the Warrant  Certificates shall fail
to be declared
    
                                     - 91 -

<PAGE>

   
effective  on or before  February 1, 1997,  the Company  must pay to the Warrant
Holder an additional  amount equal to 5% of the closing price (the last recorded
sale price,  or if no sales are made that day,  the average of the bid and asked
prices, as quoted on Nasdaq) of the Common Stock on the business day immediately
preceding February 1, 1997 for each Warrant Share (determined on an as-converted
basis) to be  included  on such  registration  statement.  If such  registration
statement is not declared  effective by March 31, 1997,  the Company must pay to
the Warrant  Holder an  additional  penalty of 10% of the  closing  price of the
Common Stock on March 31, 1997, and the last day of each month  thereafter (each
a "10% Due Date") on the business day  immediately  preceding such 10% Due Date,
for each Warrant Share  (determined on an as-converted  basis) to be included on
such  registration  statement  until such  registration  statement  is  declared
effective.  Similar provisions attach for any subsequent  registration statement
to be filed on the request of the Warrant  Holder,  if registration is not filed
within 90 days, or declared effective seven months, or nine months  respectively
subsequent to the request of the Warrant  Holder.  Such Warrants are  registered
herein.

         Pursuant to an agreement dated April 2, 1996 and amended June 18, 1996,
the Company issued 133,416 shares of Common Stock to Dorothy M. van Haften.  The
Company agreed that it would register the shares on behalf of Ms. van Haften and
that in the event that the average  closing market price of the Common Stock was
less than $1.50 a share during the ninety (90) days  immediately  following  the
effective date of the registration  statement,  the Company would be required to
issue  additional  shares  equivalent  to the  difference  between $1.50 and the
average  market  price.  Due to the  Company's  failure to register  such shares
within the required  time period,  as of June 30, 1996,  the Company  executed a
promissory  note in favor of Ms. van Haften in the amount of $200,125.  The note
bears interest at the rate of 12% per year, payable in twenty-four  monthly (24)
installments.  If the Company is not in default  with  respect to its  repayment
obligations  under the note,  the principal of the note will be reduced based on
(i) the number of shares which become  eligible for resale  pursuant to Rule 144
or (ii) the number of shares  which are  registered,  multiplied  by the average
closing  market price of the Common Stock for the 90 trading days  following the
effective date of the registration statement or eligibility for sale pursuant to
Rule 144. For every $1.50 in principal amount paid by the Company, shares issued
to Ms. van Haften are redeemed, and thus the Company's registration  obligations
with respect to such redeemed shares are eliminated. As of October 15, 1996, the
Company had  redeemed  16,677  shares.  The Company  registered  116,739 of such
shares on a registration statement filed with the Commission.
    

   
     Pursuant to a Letter Agreement dated March 25, 1996 between the Company and
Edson R.  Arneault,  the  Company's  President and Chief  Executive  Officer and
member of the Board, the Company agreed to file a registration statement on Form
S-8 as soon as possible  with respect to 362,866  shares of Common Stock held by
Mr. Arneault. None of these shares are included in this Registration Statement.

         Pursuant to a Letter Agreement dated March 25, 1996 between the Company
and Thomas K. Russell,  Chief Financial  Officer,  General  Counsel,  Treasurer,
Secretary  and member of the Board,  the Company  agreed to file a  registration
statement  on Form S-8 as soon as  possible  with  respect to 103,810  shares of
Common  Stock held by Mr.  Russell.  None of these  shares are  included in this
Registration Statement.

         In  connection  with  the  issuance  of five  promissory  notes  to the
Company,  AstraFund was issued 100,000 shares of Common Stock with  registration
rights on March 20, 1996.  Subsequently,  the Company borrowed  additional funds
from Astrafund and as consideration  agreed to issue an additional 25,000 shares
with  registration  rights.  The  Company  registered  all of these  shares on a
registration statement filed with the Commission.
    
                                     - 92 -
<PAGE>

   
         Pursuant to a mutual release  agreement  dated October 18, 1995 between
the Company and Dublin Energy Corporation ("Dublin"), the Company agreed to file
a  registration  statement  with respect to 10,850  shares held by Dublin at the
earliest practicable time from the date of the agreement. The Company registered
all of these shares on a registration statement filed with the Commission.

         Pursuant to a separation  agreement  dated October 11, 1995 between the
Company and Barbara A.  Sigler,  the Company  agreed to use its best  efforts to
include 15,000 shares of Common Stock on a registration statement on Form S-1 or
S-3 at the earliest possible date,  without any guarantee that such registration
statement would actually be filed or  subsequently be declared  effective by the
Commission. None of these shares are included in this Registration Statement.

         Under an agreement dated August 9, 1995 with Lawrence L. Manypenny, the
Company agreed to use its best efforts to file a registration statement with the
Commission  at the  earliest  practicable  date to cover 77,449 of the shares of
Common  Stock  issued  under the  agreement.  The parties  acknowledged  that no
assurances could be given regarding timing of approval or that approval could be
obtained. The Company registered all of these shares on a registration statement
filed with the Commission.
    

         Pursuant to a  settlement  agreement  dated June 30,  1995  between the
Company and Michael Mapes, the Company agreed to use its best efforts to cause a
registration  statement to become effective with the Commission by June 30, 1996
with respect to 165,000 shares of

   
Common  Stock  (120,000 of which have since been  transferred  to Louis  Haskell
pursuant  to an  agreement  with Mr.  Mapes) and 20,000  shares of Common  Stock
issuable upon exercise of options. The agreement provides that withdrawal of the
registration  statement  prior to  effectiveness  will not  constitute a breach,
provided the shares are included in the next  registration  statement filed with
the Commission. The agreement further provides that the failure to register such
shares  shall not  constitute a breach of the  agreement  unless the Company has
registered  shares for another  selling  stockholder and could have included the
shares of Mr. Mapes but did not. If during the 90 days subsequent to the date of
the effectiveness of the registration statement, the average market price of the
Common Stock is less than $1.50 per share, then the Company is required to issue
additional shares in an amount equivalent to the difference  between the average
market  price and $1.50.  The  Company  registered  75,000 of these  shares on a
registration statement filed with the Commission.

                                     - 93 -

<PAGE>

         Pursuant to a  Settlement  Agreement  dated June 30,  1995  between the
Company and Glenn Hall,  the Company  agreed to use its best  efforts to cause a
registration statement covering 201,750 shares of Common Stock and 30,000 shares
of Common Stock  issuable on exercise of certain  options held by him. Under the
agreement,  withdrawal of the registration statement prior to effectiveness does
not  constitute  a  breach,  provided  the  shares  are  included  in  the  next
registration  statement filed with the Commission.  The agreement  provides that
the  failure  to  register  such  shares  shall not  constitute  a breach of the
agreement unless the Company has registered  shares for another  stockholder and
could have included the stockholder's shares but did not. Based on the Company's
failure to  register  such  shares  before June 30,  1996,  the Company  issue a
promissory  note for $235,125.  If during the ninety days subsequent to the date
of the effectiveness of the registration statement,  the average market price of
the Common  Stock is less than $1.50 per share,  then the Company is required to
issue additional  shares in an amount  equivalent to the difference  between the
average market price and $1.50. The Company  registered  231,450 of these shares
on a registration statement filed with the Commission.

         Pursuant to a termination of employment  letter agreement dated May 30,
1995 between the Company and Robin L.  Reynolds,  the Company  agreed to include
10,000  shares of Common Stock on a  registration  statement on Form S-3, if and
when such  registration  statement is approved by the Commission.  None of these
shares are included in this Registration Statement.

     Pursuant  to an  Agreement  dated May 31,  1994,  as amended on January 12,
1995,  between  the Company and  William E.  Blair,  Jr. and Bonnie  Blair,  the
Company is required to file a registration statement on Form S-8 with respect to
183,888 shares issuable upon
    

   
exercise  of  options  held by Mr.  and Mrs.  Blair.  None of these  shares  are
included in this Registration Statement.

         Pursuant to a Consulting Agreement dated December 30, 1994, between the
Company and Arie From, the Company granted  registration  rights with respect to
87,500  shares of Common  Stock,  150,000  shares of Common Stock  issuable upon
exercise of Warrants at the exercise  price of $1.06 per share,  and  additional
shares as fees for  professional  services  not to exceed  120,000.  The Company
agreed  to  register  such  shares on Form  S-3,  if and when such  registration
statement  is filed.  The Company has been  instructed  by Mr. From that 207,500
shares will be transferred to Astrafund, and that such shares will be subject to
the same registration  rights. The Company registered 150,000 of these shares on
a registration statement filed with the Commission.


                                     - 94 -
<PAGE>

         An Original Rider dated December 3, 1992 to a Stock Purchase  Agreement
(Merger  and Stock  Exchange  Agreement)  for all of the  outstanding  shares of
Mountaineer  dated  November 28, 1994 between the Company and the previous owner
of Mountaineer and affiliates of such owner,  contemplated the Company using its
best efforts to file a registration  statement covering 469,072 shares issued in
connection  with the  acquisition  of  Mountaineer.  Pursuant to an amendment to
Rider No. 4 to such an agreement,  the Company agreed to use its reasonable best
efforts to cause a  registration  statement to become  effective with respect to
such  shares.  In  addition,  the  Company  agreed  that if any shares were sold
pursuant  to  Rule  144  during  the  period  prior  to   effectiveness  of  the
registration statement or pursuant to the registration statement, within 20 days
of the  effectiveness of such  registration  statement,  at a price of less than
$6.00 per share based on the average  closing bid price of the Company's  Common
Stock as reported on Nasdaq for the ten days prior to the effective date of such
registration statement,  the Company would issue additional registered shares in
an amount equal to the  difference  between the price  received  and $6.00.  The
Company is in the process of renegotiating this agreement; however, there can be
no assurance that such  renegotiation  will be successful.  None of these shares
are included in this Registration Statement.

     Pursuant to an Amendment to a  Supplemental  Agreement  with respect to the
acquisition of 77 gas wells dated September 30, 1994 between the Company and the
Bartlett  Field  Partnerships  controlled by the  Company's  President and Chief
Executive  Officer,  Edson R.  Arneault,  as amended by letter  agreement  dated
October 2, 1995, the Company  agreed to use its best efforts to include  373,600
shares  plus an  additional  51,000  shares  issued  to such  Partnerships  on a
registration  statement  to be filed  with  the  Commission.  If a  registration
statement with respect to such shares did not become  effective before March 31,
1995, the Company was required to restate a note issued to such  partnerships in
the amount of $590,000 payable in 12 monthly  installments at the rate of 9% per
year, which would be reduced by an amount equal to the average closing bid price
of the  Company's  Common  Stock for the 14 days  subsequent  to April 15,  1996
multiplied  by 98,333.  The  Company  registered  378,600  of these  shares on a
registration statement filed with the Commission.

         Pursuant to a Consulting  Agreement dated September 1, 1994 between the
Company  and Eli  Dragisich,  the  Company  agreed  to file  three  registration
statements on Form S-8 to cover the three issuances of shares of Common Stock to
the stockholder. The Company agreed to file such registration statements as soon
as practicable  after December 31, 1994,  December 31, 1995 and February 1, 1997
respectively.  The  Company  registered  all of these  shares on a  registration
statement filed with the Commission.

         Pursuant  to a Warrant  dated  March 1, 1994,  between  the Company and
Ladenburg,  Thalmann  & Co.  Inc.  ("Ladenburg"),  the  Company  granted  demand
registration rights with respect to 300,000 shares of Common Stock issuable upon
exercise  of such  warrants,  provided  that  Ladenburg  or the holders of other
shares issuable upon exercise of warrants  requesting such  registration hold in
aggregate  not  less  than  the sum of (i) 50% of the  total  number  of  shares
issuable upon exercise of outstanding warrants of the Company and (ii) the total
number of shares  previously issued upon exercise of warrants and not previously
sold pursuant to a registered offering.  Alternatively,  if the Board authorizes
the filing of a registration  statement on any form (other than Form S-4) at any
time  prior to March 1,  2002,  Ladenburg  and any  other  registered  holder of
warrants  of the Company  shall have the right to be  notified of the  Company's
intent  to so file a  registration  statement  and to  include  either  all or a
portion of the warrants and shares  issuable  upon  exercise of warrants on such
registration  statement.  The Company  agreed to use its best efforts to include
all shares requested to be included on such registration  statement and to cause
such registration  statement to become effective and remain so for as long as no
amendment need be filed or in the case of a  registration  effected on Form S-3,
for a period of two  years.  The  Company  registered  all of these  shares on a
registration statement filed with the Commission.

                                     - 95 -
<PAGE>

         Pursuant to  subscription  agreements  dated  January  1994 between the
Company and various investors,  the Company granted a demand  registration right
with respect to 350,000  shares of Common Stock such that the Company within six
months of the request of such stockholders file as soon as reasonably possible a
registration  statement with the  Commission and the relevant state  authorities
(the  state in  which  the  stockholders  reside)  with  respect  to the  shares
subscribed for and to use its best efforts to keep such  registration  statement
effective  for one  year.  The  Company  registered  all of  these  shares  on a
registration statement filed with the Commission.
    

                                     - 96 -

<PAGE>

   
         In February,  1994, the Company issued 58,333 shares of Common Stock to
Lease  Equities,  Inc. as a form of commission  in  connection  with the private
placement of 350,000 shares of Common Stock.  The Company  granted  registration
rights  with  respect to such 58,333  shares,  such that upon the request of the
stockholders it would file a registration  statement with the Commission and the
relevant state authorities (the state in which the stockholders  reside) as soon
as  reasonably  possible and to use its best  efforts to keep such  registration
statement  effective for one year. The Company registered all of these shares on
a registration statement filed with the Commission.
    

   
Pursuant to various  stock option  plans and grants of options to employees  and
directors  of the  Company,  such  persons  have the right to  request  that the
Company  file a  registration  statement  on Form S-8 with  respect to 3,488,047
shares of Common Stock when issued  subsequent  to the exercise of such options.
None of these shares are included in this Registration Statement.
    

                       DESCRIPTION OF CERTAIN INDEBTEDNESS

   
     On June 27,  1994,  the  Company as  Guarantor ,  Mountaineer  and Bennett
entered the Bennett Loan agreement.  The Bennett Loan bears interest at the rate
of 12.5% per year with a  delinquency  rate of 14.5% with an original  principal
amount of $10.2  million.  The  Bennett  Loan  requires  the  Company to make 36
monthly  payments of  principal  and interest  based on a 36 month  amortization
schedule  through  April 30,  1995.  The Company  may prepay  such loan  without
penalty.  The  Bennett  Loan,  which had an  outstanding  principal  balance  of
approximately  $8.8  million as of  September  30,  1996,  is secured by a first
mortgage on  Mountaineer's  real and personal  property and is guaranteed by the
Company.  Bennett was issued an aggregate of 1,530,000 shares of Common Stock in
connection  with  the  Bennett  Loan.  See  "Principal  Stockholders."  The Loan
Agreement allows the Company at its option,  to prepay the outstanding  advances
by January 1, 1997. If such  prepayment  is not made by the Company,  it will be
obligated to issue an  additional  number of shares of its Common Stock equal to
$2.5 million divided by the average closing stock price per share for 20 trading
days prior to January 6, 1997.

         The  Company has  renegotiated  the Bennett  Loan by  Amendment  of the
Construction Loan Agreement (the "Amendment") dated September 19, 1996 among the
Company,  Mountaineer  Park and Richard C.  Breeden,  solely in his  capacity as
trustee  (the  "Trustee")  of the estate of  Bennett,  whereby  the  Company and
Mountaineer  agreed to settle all claims  against  Bennett.  This  Amendment was
approved by the  Bankruptcy  Court.  The material  terms of the Amendment are as
follows:

                                     - 97 -
<PAGE>

         The Amendment  modifies the schedule for  amortization of the principal
of the Bennett Loan such that instead of 36 equal monthly  payments of $283,333,
Mountaineer will make principal  payments of $75,000 per month from October 1996
through March 1997,  $125,000 per month from April 1997 through  September 1997,
$75,000 per month from October 1997 to March 1998, $125,000 per month from April
1998 to September  1998,  and $75,000 per month from October 1998 to March 1999.
The  remaining  principal  balance  would be due on April 30, 1999. In the event
that the Bennett Loan is not prepaid by December 31, 1997,  the interest rate on
any  outstanding  balance would,  as of January 1, 1998,  increase from 12.5% to
14.5%  until  paid in full;  provided,  however,  that (i) if the  Holder of the
second trust on Mountaineer's  property (currently  Madeleine pursuant to a Deed
of Trust and the Term Loan  Agreement)  for any  reason  does not  approve  such
interest rate increase,  then the interest rate would not increase;  and (ii) in
lieu thereof,  the monthly payments of principal would increase to $100,000 from
October  1996  through  March  1997 and to  $200,000  from  April  1997  through
September 1997.

         The  Amendment   also  modifies  the  Company's   obligation  to  issue
additional  shares of the  Company's  Common Stock to Bennett if the loan is not
prepaid by January 1, 1997.  Whereas  the  Bennett  Loan as  previously  amended
required the Company to issue Bennett $2.5 million worth of the Company's Common
Stock based on the average  market  price for the 20  consecutive  trading  days
preceding  January 2, 1997,  the Amendment  permits the Company,  at its option,
either to pay Bennett $500,000 or issue $750,000 in Common Stock. Similarly, the
Company  would be  permitted to pay $750,000 or issue $1 million in Common Stock
if the Bennett Loan is not prepaid by July 1, 1997, and pay $1 million or issue
    

$1.25 million in Common Stock if the Bennett Loan is not prepaid by December 31,
1997. If the Company elects to issue Bennett  additional shares of Common Stock,
such  shares  would be  subject to the  requirement  that,  to the  extent  such
issuance would otherwise  result in Bennett having voting rights greater than 5%
of the Company's issued and outstanding shares of Common Stock, then such voting
rights would be transferred to the Company's Board.

   
         To the extent any shares of Common Stock previously  issued pursuant to
the Bennett Loan or to be issued  pursuant to the Amendment are  restricted  and
are not  eligible  for public sale  pursuant to court order or  exemption,  then
Bennett would be entitled to piggyback  registration rights with respect to such
shares  should the Company or any  stockholder  of the Company make a registered
offering  of  Common  Stock,   excluding   registered  offerings  undertaken  in
connection with the Term Loan Agreement,  until December 31, 1997. Bennett would
also be entitled to demand  registration  rights after  December 31, 1997 or any
other time at which there is a registered  offering in connection  with the Term
Loan Agreement.
    

         In the event the  Trustee  desires  to sell any of the shares of Common
Stock held by Bennett,  the Amendment  would also grant the Company the right to
match any bona  fide  offer of a  nonaffiliate  to  purchase  the  shares  until
December 31, 1997. The Amendment  likewise  grants the Company an option for the
period  commencing on the date Mountaineer has paid the Bennett Loan in full and
terminating ten business days thereafter,  to purchase all (but not part) of the
1,530,000 shares currently held by Bennett for a price per share equal to 90% of
the average  closing bid price of the Common Stock as reported by Nasdaq for the
twenty (20)  consecutive  trading days  immediately  preceding the date on which
Mountaineer  retires the Bennett  Loan. In no event will such price be less than
$1.125 per share.

   
         As part of the  Amendment,  AGEL,  an  affiliate  of Bennett  which had
performed  management  services at  Mountaineer  Park pursuant to the Management
Agreement,  delivered an acknowledgment  that the Management  Agreement had been
terminated  and that a June 30, 1995  Settlement  Agreement  among the  Company,
Mountaineer,  and AGEL was now deemed to be in effect. That Settlement Agreement
terminated the  Management  Agreement and settled the accounts of the parties as
of June 30, 1995.
    
                                     - 98 -

<PAGE>

   
         On July 2, 1996, the Company as Guarantor and the Company's subsidiary,
Mountaineer,  entered into a financing  arrangement  with a private lender for a
secured  working  capital  loan  pursuant  to  the  Term  Loan  Agreement  and a
commitment for first mortgage refinancing  pursuant to the Loan Commitment.  The
$5 million loan is secured by a second mortgage on all of Mountaineer's real and
personal  property.  The note evidencing the loan calls for monthly  payments of
interest only at the rate of 12% per annum, and a default rate of 22% per annum.
As  additional  consideration,  the Company  agreed to issue the lender  183,206
shares  of  Common  Stock and  five-year  Warrants  to  purchase  an  additional
1,492,860 shares at $1.06 per share,  which are exercisable for a period of five
(5) years from the date of the Loan  Agreement.  The  principal of the Term Loan
must be repaid at the end of the three year term, during which period,  the Term
Loan is subject , on each anniversary  date, to additional fees of cash equal to
8% of the outstanding  principal  balance,  stock equal to 5% of the outstanding
principal  balance  divided by the average  daily closing price on each business
day for the 30 days  prior to the  third day  before  the  anniversary  date and
warrants  to purchase  250,000  shares of Common  Stock at $1.06 per share.  The
shares of Common Stock and Warrants  issued to the lender and its affiliates and
the  shares of  Common  Stock  underlying  such  Warrants  are  covered  by this
Registration  Statement  and the shares and  warrants  issuable to the lender in
connection with the Term Loan Agreement in the future and the shares  underlying
such Warrants  will be the subject of future  registration  statements.  Certain
restrictions  are imposed under the Term Loan  Agreement  limiting the Company's
ability  to incur  additional  debt,  make  capital  expenditures  and  increase
management's compensation. Anti-dilution provisions are included in the Warrants
which would adjust the  exercise  price of, and number of shares of Common Stock
issuable  pursuant to, the Warrants in the event the Company  issues  additional
securities at a price below the exercise price of the Warrants.

                                     - 99 -

<PAGE>

         As part of the  transaction,  the lender also  provided a one year Loan
Commitment to lend  Mountaineer  up to $11.1  million of additional  funds to be
used to  refinance  the  current  first  mortgage  held by  Bennett  . The  Loan
Commitment  is  subject  to  customary  conditions,   including  negotiation  of
definitive loan agreements,  but provides that any refinancing would be on terms
no less  favorable  than  those  of the  Company's  obligation  to  Bennett.  In
connection with the Loan Commitment, the
    

Company  paid a  $110,000  commitment  fee  and  issued  the  lender  additional
five-year Warrants to purchase 350,000 shares of Common Stock at $1.06 share and
issued  50,000  five year  Warrants to  affiliates  of the lender at an exercise
price of $0.80.  These  Warrants and the shares of Common Stock  underlying  the
Warrants are covered by this Registration Statement.

                                  LEGAL MATTERS

         The validity of the  Warrants  and the shares of Common  Stock  offered
hereby  will be passed  upon for the  Company by Ross & Hardies,  New York,  New
York.

                                     EXPERTS

   
         The   consolidated   financial   statements  of  the  Company  and  its
subsidiaries  included  herein as of December 31, 1995 and 1994, and for each of
the years in the three year period ended  December 31, 1995 have been audited by
Corbin & Wertz, independent certified public accountants,  as set forth in their
opinion included herein.  The financial  statements  referred to above have been
included  herein in reliance  upon such opinion given upon the authority of such
firm as experts in accounting and auditing.
    

                                     - 100 -

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


   
Independent Auditors' Report................................................F-2
    

Consolidated Financial Statements

   
Consolidated Balance Sheets as of December 31, 1995 and 1994 ...............F-3
    

Consolidated Statements of Operations for each of the years
   
  in the three-year period ended December 31, 1995..........................F-5

Consolidated Statements of Shareholders' Equity for each of the years 
  in the three-year period ended December 31, 1995 .........................F-6
    

Consolidated Statements of Cash Flows for each of the years
   
  in the three-year period ended December 31, 1995 ..........................F-9

Notes to Consolidated Financial Statements .................................F-11
    

Condensed and Consolidated Balance Sheets at December 31, 1995 and
   
  June 30, 1996 (Unaudited)................................................F- 33

Condensed and Consolidated  Statements of Operations for the Three
  Months and Six Months Ended June 30, 1996 and 1995 (Unaudited) ......... F- 35

Condensed and Consolidated  Statements of Cash flows for the Six
  Months Ended June 30, 1996 and 1995 (Unaudited)..........................F- 36

Notes to Condensed and Consolidated Financial Statements  (Unaudited)...  .F- 36
    

                                       F-1

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Winners Entertainment, Inc.

   
We  have  audited  the  accompanying  consolidated  balance  sheets  of  Winners
Entertainment, Inc. and its subsidiaries (the "Company") as of December 31, 1995
and 1994, and the related consolidated  statements of operations,  shareholders'
equity  and cash  flows for each of the  years in the  three-year  period  ended
December  31,   1995.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
    

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

   
In our opinion, the consolidated  financial statements referred to above present
fairly,   in  all  material   respects,   the  financial   position  of  Winners
Entertainment,  Inc. and its  subsidiaries as of December 31, 1995 and 1994, and
the  results of their  operations  and their cash flows for each of the years in
the  three-year  period ended  December 31, 1995 in  conformity  with  generally
accepted accounting principles.
    

The consolidated  financial  statements have been prepared  assuming the Company
will continue as a going concern. The Company has incurred substantial losses in
the past three years and has a significant  working  capital deficit at December
31, 1995. These conditions raise  substantial  doubt about the Company's ability
to  continue  as a going  concern.  Management  is  implementing  plans which it
believes will allow the Company to improve  operations and cash flows,  and meet
its  obligations  as they  come due (see  Note 1).  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.

   
                                                               /s/CORBIN & WERTZ
                                                                 Corbin & Wertz
    

Irvine, California
April 5, 1996

                                       F-2

<PAGE>

                           WINNERS ENTERTAINMENT, INC.
                           CONSOLIDATED BALANCE SHEETS
                        As of December 31, 1995 and 1994
<TABLE>
<CAPTION>


ASSETS                                               1995                1994
                                                     ----                ----
Current assets:
<S>                                                 <C>                  <C>        
  Cash                                              $   807,000          $ 1,057,000
  Restricted cash (Notes 7 and 13)                      426,000              646,000
  Accounts receivable, net of allowance
    for doubtful accounts of $70,000 and
    $93,870 in 1995 and 1994, respectively              174,000               79,000
  Notes receivable from related parties,
    net of allowance for doubtful accounts
   
    of $290,000 in 1995 (Note 8)                         62,000              352,000
  Prepaid management fees (Note 14)                         ---              220,000
  Prepaid purses (Note 13)                                  ---              352,000
  Deferred financing costs (Note 5)                     388,000              630,000
  Other current assets                                  115,000              219,000
                                                    -----------          -----------
    
         Total current assets                         1,972,000            3,555,000
                                                    -----------          -----------
Property and equipment, net
  (Notes 2, 4 and 5)                                 18,100,000           13,462,000
                                                    -----------          -----------
Net assets of discontinued oil and
   
  gas activities (Note 10)                            2,616,000            2,616,000
                                                    -----------          -----------
Other assets:
Deferred financing costs (Note 5)                           ---              998,000
Excess of cost of investments over
    
  net assets acquired, net of accumulated
  amortization of $770,000 and $517,000
  in 1995 and 1994 (Note 2)                           3,004,000            3,255,000
Deposits and other                                       55,000               72,000
                                                    -----------          -----------
                                                      3,059,000            4,325,000
                                                    -----------          -----------
                                                    $25,747,000          $23,958,000
                                                    ===========          ===========

</TABLE>

                                       F-3

<PAGE>

                           WINNERS ENTERTAINMENT, INC.
                     CONSOLIDATED BALANCE SHEETS - CONTINUED
                        As of December 31, 1995 and 1994

<TABLE>
<CAPTION>

LIABILITIES AND SHAREHOLDERS' EQUITY                         1995                1994
                                                             ----                ----

Current liabilities:
<S>                                                         <C>                  <C>        
  Accounts payable                                          $ 3,474,000          $ 2,259,000
  Accrued liabilities (Notes 7, 8,
   
    13 and 14)                                                2,257,000              805,000
  Current portion of long -term
    
    debt (Note 5)                                             2,536,000              648,000
  Current portion of redeemable common
    stock (Notes 2, 9 and 10)                                   991,000            1,651,000
                                                            -----------          -----------
         Total current liabilities                            9,258,000            5,363,000
                                                            -----------          -----------
   
Accrued financing costs (Note 5)                                    ---              998,000
Accrued liabilities (Notes 7 and 8)                             490,000              525,000
Long -term debt, less current portion
    
  (Note 5)                                                    8,071,000            5,095,000
Deferred income taxes (Note 11)                               1,529,000            1,662,000
Redeemable common stock, 441,854
  and 367,937 issued and outstanding at
  December 31, 1995 and 1994, net of
  current portion (Notes 2, 9 and 10)                           415,000              557,000
Commitments and contingencies (Notes
  5, 7, 9, 13 and 14)
Shareholders' equity (Notes 2, 3, 5,
  and 9):
  Common stock, par value $.00001,
    25,000,000 shares authorized;
    17,022,645 and 14,620,877 issued
    and outstanding in 1995 and
   
    1994, respectively                                            2,000                1,000
  Paid -in capital                                           32,115,000           30,508,000
  Receivable from exercise of
    stock options                                               (69,000)                 ---
  Accumulated deficit                                       (26,064,000)         (20,751,000)
                                                           ------------         ------------
    
         Total shareholders' equity                           5,984,000            9,758,000
                                                           ------------         ------------
                                                           $ 25,747,000         $ 23,958,000
                                                           ============         ============
</TABLE>


           See accompanying notes to consolidated financial statements


                                       F-4

<PAGE>

                           WINNERS ENTERTAINMENT, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
     For Each Of The Years In The Three-Year Period Ended December 31, 1995

<TABLE>
<CAPTION>

                                                                              1995                1994                1993
                                                                              ----                ----                ----

Revenues:
Video lottery terminals
<S>     <C>                                                                  <C>                  <C>                 <C>        
  (Note 14)                                                                  $16,479,000          $ 7,481,000         $ 5,293,000
Parimutuel commissions
  (Note 13)                                                                    4,263,000            3,768,000           4,323,000
Lodging, food and beverage                                                     3,046,000            2,276,000           2,344,000
Other                                                                          1,191,000            1,157,000           1,054,000
                                                                             -----------          -----------         -----------
                                                                              24,979,000           14,682,000          13,014,000
                                                                             -----------          -----------         -----------
Costs and expenses:
  Cost of video lottery terminals
    (Note 14)                                                                 12,256,000            5,709,000           3,720,000
  Cost of parimutuel commissions
    (Note 13)                                                                  5,064,000            4,563,000           5,136,000
  Cost of lodging, food and
    beverage                                                                   3,285,000            2,337,000           2,364,000
  Cost of other                                                                1,195,000              798,000             787,000
   
  Selling, general and admini-
    
    strative expenses (Note 7)                                                 6,564,000            6,668,000           6,370,000
  Depreciation and amortization                                                1,504,000              910,000             625,000
  Interest expense (Notes 5 and 8)                                               557,000              729,000              70,000
                                                                             -----------          -----------         -----------
                                                                              30,425,000           21,714,000          19,072,000
                                                                             -----------          -----------         -----------
Loss before income taxes                                                      (5,446,000)          (7,032,000)         (6,058,000)
Benefit for income taxes (Note 11)                                               133,000              130,000             145,000
                                                                             -----------          -----------         -----------
Loss from continuing operations                                               (5,313,000)          (6,902,000)         (5,913,000)
                                                                             -----------          -----------         -----------
Discontinued operations (Note 10):
  Loss on disposal of oil and gas
   
    operations                                                                       ---             (640,000)         (1,653,000)
                                                                          --------------          -----------         -----------
Loss from discontinued operations                                                    ---             (640,000)         (1,653,000)
                                                                          --------------          -----------         -----------
Net loss                                                                     $(5,313,000)         $(7,542,000)        $(7,566,000)
                                                                             ===========          ===========         ===========
Loss per share from continuing
    
  operations                                                                 $      (.33)         $      (.48)        $      (.46)
Loss per share from discontinued
  operations                                                                         .00                 (.04)               (.13)
                                                                             -----------          -----------         -----------
Net loss per share                                                           $      (.33)         $      (.52)        $      (.59)
                                                                             ===========          ===========         ===========
Weighted average number of
  shares outstanding                                                          16,226,743           14,523,377          12,883,031
                                                                             ===========          ===========         ===========

</TABLE>

           See accompanying notes to consolidated financial statements


                                       F-5

<PAGE>

                           WINNERS ENTERTAINMENT, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
     For Each Of The Years In The Three-Year Period Ended December 31, 1995

<TABLE>
<CAPTION>

                                                                                    Receivable
                                                                                       From
                                                                Additional          Exercise of
                                      Common Stock                Paid-In            of Stock     Accumulated
                                 Shares           Amount          Capital             Options       Deficit          Totals
                                 ------           ------          -------             -------       -------          ------

Balances, January 1,
   
<S>                            <C>                <C>          <C>                   <C>          <C>              <C>        
  1993                         11,226,231         $1,000       $17,013,000           $   ---      $(5,643,000)     $11,371,000
    
Shares issued from
  exercise of
  Series C warrants
   
  (Note 9)                         373,241           ---         2,239,000          ---                 ---          2,239,000
Shares canceled on
    
  notes payable and
  interest
  to affiliates
  (Note 10)                        (20,000)          ---          (120,000)         ---                 ---           (120,000)
Shares issued for
  notes payable and
  interest to
  affiliates, net
  of 98,333
  shares of
  redeemable common
  stock (Note 10)                   226,286           ---          792,000          ---                 ---            792,000
Shares issued for
  conversion
  of debentures
  (Note 6)                          416,197           ---          832,000          ---                 ---            832,000
Shares issued for
  services
  rendered and
  letter of credit
  fees (Notes 7
  and 9)                            197,787           ---          619,000          ---                 ---            619,000
Shares issued for
  cash, net
  of commissions
  (Note 9)                          746,755           ---        3,280,000          ---                 ---          3,280,000
Shares issued for
  investment
  in riverboat
  gaming (Note 2)                    50,000           ---          300,000          ---                 ---            300,000
Shares issued in
  connection
  with LVEN (Note 2)                250,000           ---          750,000          ---                 ---            750,000

</TABLE>

                                       F-6

<PAGE>


                           WINNERS ENTERTAINMENT, INC.
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - CONTINUED
     For Each Of The Years In The Three-Year Period Ended December 31, 1995

<TABLE>
<CAPTION>

                                                                                    Receivable
                                                                                       From
                                                                Additional          Exercise of
                                      Common Stock                Paid-In            of Stock     Accumulated
                                 Shares           Amount          Capital             Options       Deficit          Totals
                                 ------           ------          -------             -------       -------          ------

Shares issued for
 capital raising
<S>               <C>                <C>             <C>            <C>                <C>        <C>                 <C>    
 activities (Note 9)                 125,000           ---                 ---          ---           ---                ---
Compensation for stock
 options issued
 below fair
 value (Notes 2 and 9)                   ---           ---             600,000          ---           ---               600,000
Net loss                                 ---           ---                 ---          ---       (7,566,000)        (7,566,000)
                                  ----------         -----          ----------          ---       -----------         ----------
Balances, December 31,
 1993                             13,591,497         1,000          26,305,000          ---      (13,209,000)        13,097,000
Shares received in
 connection
 with settlement with
 LVEN (Notes 2 and 3)               (250,000)          ---            (750,000)         ---             ---           (750,000)
Shares issued to for
 cash, net of
 commissions (Note 9)                786,199           ---           2,193,000          ---             ---          2,193,000
Shares issued from
 exercise of stock
 options (Note 9)                     50,000           ---             200,000          ---             ---            200,000
Shares issued for
 services
 rendered and
 interest (Note 9)                   147,500           ---             210,000          ---             ---            210,000
Shares issued in
 connection with
 financing
 arrangement (Note 5)                285,000           ---           1,710,000          ---             ---          1,710,000
Shares issued for
 accounts
 payable (Note 9)                     10,681           ---              40,000          ---             ---             40,000
Compensation for stock
 options issued below
 fair value
 (Notes 2 and 9)                         ---           ---             600,000          ---             ---            600,000
Net loss                                 ---           ---                 ---          ---        (7,542,000)      (7,542,000)
                                  ----------         -----          ----------          ---        -----------        -----------
Balances, December 31,
 1994                             14,620,877         1,000          30,508,000          ---       (20,751,000)       9,758,000
Shares issued from
 exercise
 of stock options
 (Notes 2 and 9)                     286,667           ---             109,000      (69,000)            ---             40,000
Shares issued for
 services
 rendered and
 interest (Note 9)                    77,332           ---              42,000          ---             ---             42,000
Shares issued in
 connection with
 financing arrangement
 (Note 5)                            225,000         1,000           1,349,000          ---             ---          1,350,000

Cancellation of price
 guarantee
 in connection with
 financing
 arrangement (Note 5)                    ---           ---          (3,060,000)         ---             ---         (3,060,000)

</TABLE>
                                       F-7

<PAGE>


                           WINNERS ENTERTAINMENT, INC.
           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - CONTINUED
     For Each Of The Years In The Three-Year Period Ended December 31, 1995
<TABLE>
<CAPTION>

                                                                                   Receivable
                                                                                       From
                                                                Additional          Exercise of
                                      Common Stock                Paid-In            of Stock     Accumulated
                                 Shares           Amount          Capital             Options       Deficit          Totals
                                 ------           ------          -------             -------       -------          ------

Shares issued to replace
 price guarantee in
 connection with
 financing arrangement
<S>    <C>                         <C>               <C>                <C>            <C>            <C>               <C>      
 (Note 5)                          1,020,000           ---           1,530,000          ---                 ---          1,530,000
Shares forfeited by
 Company (510,000),
 retained by creditor,
 in connection with
 financing
 arrangement (Note 5)                     ---           ---             478,000          ---                 ---            478,000
Shares issued,
 and 104,500
 redeemable shares
 without rights
 canceled in connection
 with the Golden Palace
 acquisition debt
 (Notes 2 and 9)                     194,500           ---             212,000          ---                 ---            212,000
Shares issued, and
 98,333 redeemable
 shares with
 put rights canceled,
 in connection with
 oil and gas
 acquisition debt
 (Note 10)                           471,933           ---             590,000          ---                 ---            590,000
Shares issued in
 connection
 with legal
 settlement
 (Note 7)                            175,000           ---             414,000          ---                 ---            414,000
Shares issued for notes
 payable (Note 5)                     60,850           ---              43,000          ---                 ---             43,000
Cancellation of
 shares issued
 in 1994 for services
 rendered (Note 7)                   (97,500)          ---            (100,000)         ---                 ---           (100,000)
Adjustment to shares
 outstanding                         (12,014)          ---                 ---          ---                 ---                ---
Net loss                                 ---           ---                 ---          ---          (5,313,000)        (5,313,000)
                                  ----------        ------         -----------     --------        ------------        -----------
Balances, December 31,
 1995                             17,022,645        $2,000         $32,115,000     $(69,000)       $(26,064,000)       $ 5,984,000
                                  ==========        ======         ===========     ========        ============        ===========
</TABLE>


           See accompanying notes to consolidated financial statements


                                       F-8

<PAGE>

                           WINNERS ENTERTAINMENT, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
     For Each Of The Years In The Three-Year Period Ended December 31, 1995

<TABLE>
<CAPTION>

                                                                              1995                1994                1993
                                                                              ----                ----                ----

Cash flows from operating activities:
<S>                                                                         <C>                 <C>                  <C>         
Loss from continuing operations:                                            $(5,313,000)        $(6,902,000)         $(5,913,000)
  Adjustments to reconcile loss to
    net cash provided by (used in)
    continuing operating activities:
    Depreciation and amortization                                             1,504,000             910,000              625,000
    Provision for settlements (Note 7)                                          408,000             525,000                  ---
    Other non-cash provisions, net                                             (133,000)            125,000              510,000
    Provision for notes receivable
      from related parties                                                      290,000                 ---                  ---
    Common stock and options issued for
      services rendered and interest
    (Notes 2 and 9)                                                              77,000           1,340,000            1,219,000
    Change in operating assets and
      liabilities, net of effects of
      acquired companies:
      Prepaid management fees                                                   220,000            (220,000)                 ---
      Prepaid purses                                                            352,000            (352,000)                 ---
      Other current assets                                                       54,000              63,000               73,000
      Accounts payable                                                        1,676,000           1,221,000            1,049,000
      Other accrued liabilities                                               1,418,000            (244,000)            (341,000)
                                                                            -----------         -----------          -----------
         Cash provided by (used in)
           continuing operations                                                553,000          (3,534,000)          (2,778,000)
                                                                            -----------         -----------          -----------
Loss from discontinued operations:
  Oil and gas operations                                                            ---            (640,000)          (1,653,000)
  Adjustments to reconcile loss to
    net cash used in discontinued
    operating activities:
    Depletion                                                                       ---                 ---               25,000
    Provision for estimated loss on
      sale of discontinued oil and gas
      operations (Note 10)                                                          ---             567,000            1,546,000
                                                                            -----------         -----------          -----------
         Cash used in discontinued operations                                       ---             (73,000)             (82,000)
                                                                            -----------         -----------          -----------
Net cash provided by (used in) operating
  activities                                                                    553,000          (3,607,000)          (2,860,000)
                                                                            -----------         -----------          -----------
Cash flows from investing activities:
  Restricted cash                                                               220,000            (401,000)            (170,000)
  Proceeds from insurance reimbursement                                             ---             241,000                  ---
  Repayments (advances) on notes receivable
    from related parties                                                            ---              38,000             (160,000)
  Deposits and other assets                                                      17,000              (2,000)               5,000
  Capital expenditures                                                       (5,482,000)         (3,444,000)          (2,544,000)
  Expenditures for investment in riverboat                                          ---                 ---             (428,000)
  Net assets of discontinued oil and gas
    operations                                                                  (45,000)           (198,000)            (210,000)
                                                                            -----------         -----------          -----------
  Net cash used in investing activities                                      (5,290,000)         (3,766,000)          (3,507,000)
                                                                            -----------         -----------          -----------
</TABLE>


                                      F-9

<PAGE>

                           WINNERS ENTERTAINMENT, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
     For Each Of The Years In The Three-Year Period Ended December 31, 1995

<TABLE>
<CAPTION>

                                                                              1995                1994                1993
                                                                              ----                ----                ----

Cash flows from financing activities:
<S>                                                                             <C>                <C>                  <C>      
  Payments on notes payable                                                     (53,000)           (150,000)            (300,000)
  Proceeds from the issuance of long-term debt                                4,500,000           5,700,000              240,000
  Proceeds from the issuance of notes
    payable to shareholders                                                         ---                 ---              100,000
  Payments on notes payable to shareholders                                         ---             (70,000)            (432,000)
  Deferred finance costs                                                            ---             (61,000)                 ---
  Proceeds from issuance of common stock
  Series C warrants exercised                                                       ---                 ---            2,239,000
  Proceeds from issuance of common stock
    for cash, net                                                                                 2,193,000            3,280,000
  Proceeds from issuance of common stock
    in connection with LVEN                                                         ---                 ---              750,000
  Proceeds from issuance of common stock
    through exercise of stock options                                            40,000             200,000                  ---
                                                                            -----------         -----------          -----------
Net cash provided by financing
  activities                                                                  4,487,000           7,812,000            5,877,000
                                                                            -----------         -----------          -----------

Net increase (decrease) in cash                                                (250,000)            439,000             (490,000)
Cash, beginning of year                                                       1,057,000             618,000            1,108,000
                                                                            -----------         -----------          -----------
Cash, end of year                                                           $   807,000         $ 1,057,000          $   618,000
                                                                            ===========         ===========          ===========
Supplemental disclosures of cash flow
  information -
  Cash paid during the year for:
    Interest                                                                $   896,000         $   204,000          $    68,000
                                                                            ===========         ===========          ===========
    Income taxes                                                            $     4,000         $     5,000          $    15,000
                                                                            ===========         ===========          ===========
</TABLE>


           See accompanying notes to consolidated financial statements

                                      F-10

<PAGE>

                           WINNERS ENTERTAINMENT, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     For Each Of The Years In The Three-Year Period Ended December 31, 1995

NOTE 1 - GENERAL, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES

General

Secamur Corporation was incorporated on March 7, 1988.  Effective June 19, 1989,
Secamur Corporation and Pacific  International  Industries,  Inc., dba Excalibur
Securities  Services,  completed a merger  accounted  for under the  pooling-of-
interests method.  Prior to the merger,  Secamur  Corporation had no operations.
Secamur  Corporation   subsequently  changed  its  name  to  Excalibur  Security
Services,  Inc. During 1991, Excalibur Security Services,  Inc. formally changed
its name to Excalibur Holding Corporation.

Due to the inability of Excalibur Security  Services,  Inc. to attain profitable
operations,  its Board of  Directors,  on December 28,  1990,  filed a voluntary
petition  for  reorganization  with the  U.S.  Bankruptcy  Court in the  Central
District of California  for protection  under Chapter 11 of the U.S.  Bankruptcy
Code (see  Note 10) and in May  1991,  Excalibur  Holding  Corporation  sold the
assets of its discontinued security guard business.  Effective January 15, 1992,
a formal  plan was  approved  by the  Bankruptcy  Court to  operate  oil and gas
activities  and  to  devote  Excalibur  Holding  Corporation's  efforts  to  the
acquisition of new businesses.

In January 1992,  Excalibur Holding  Corporation formed ExCal Energy Corporation
(ExCal)  as a  wholly-owned  subsidiary  to  acquire  certain  assets of various
companies which were  controlled by the newly  appointed  president of ExCal for
the purpose of establishing oil and gas operations.

During 1992,  Excalibur  Holding  Corporation  acquired  all of the  outstanding
common  stock of Golden  Palace  Casinos,  Inc.,  an entity with no  significant
operations and cash of approximately  $3,200,000.  Excalibur Holding Corporation
utilized  substantially  all of the cash obtained from Golden Palace  Casinos to
finance the  acquisition of all of the  outstanding  common stock of Mountaineer
Park, Inc., which operates a thoroughbred horse track, a 101 room inn and dining
facility,  and video lottery  terminal  activities in West  Virginia.  Excalibur
Holding  Corporation  undertook a major renovation of this facility in 1993 with
cash expenditures, including capitalized finance costs incurred through December
31, 1995 of approximately $11,400,000.

Because of the significant  acquisitions by Excalibur Holding Corporation in the
gaming  industry  and their  long-term  potential,  it is  management's  current
strategy to focus all of its efforts in such industry. Accordingly, on March 31,
1993,  management  decided to adopt a formal plan of orderly  liquidation of its
oil and gas  properties  and is effecting an orderly sale of such assets  having
sold  approximately  30% of such assets in 1994 (see Note 10).  During 1993, the
Excalibur   Holding   Corporation   formally   changed   its  name  to   Winners
Entertainment, Inc. (the "Company").

Basis of Presentation

The  consolidated  financial  statements  have been presented on a going concern
basis,  which  contemplates  the  realization  of  assets  and  satisfaction  of
liabilities  in the normal  course of  business.  Certain  considerations  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
The Company has incurred  substantial  losses in 1995,  1994 and 1993, and as of
December  31,  1995,  the Company has current  liabilities  in excess of current
assets of $7,286,000. The Company expects that its continuing operations will be
derived  primarily by its operations at Mountaineer Race Track and Gaming Resort
("Mountaineer")  (see Note 2). The  Company's  business  strategy is to increase
revenues in all areas of  operations  through the promotion and expansion of its
video  lottery  business  and the  enhancement  of its racing and  entertainment
facilities. Therefore, the following factors pertain primarily to the operations
at Mountaineer. Management believes that it will be successful in its attempt to
continue to operate as a going  concern for the  foreseeable  future  based,  in
part, on the plans and factors described below:

     - Mountaineer  replaced 165 existing  terminals in September  1994 with 400
new  terminals,  and  upon  the  authorization  by  the  West  Virginia  Lottery
Commission,  Mountaineer  installed an additional 400 terminals in June 1995. In
March 1996, the West Virginia State Legislature  approved "line" (symbol) games,
which is expected to be in operation on at least 400 video lottery  terminals by
June 1996. In

                                      F-11

<PAGE>

         addition,  in  December  1995,  the Lottery  Commission  voted to allow
         progressive  video  lottery poker and keno games to exceed a 92% payout
         threshold. As a result, progressive blackjack, poker and keno games can
         now be  implemented  at payout  rates  competitive  with  other  gaming
         jurisdictions.  As the most  heavily  patronized  gaming  venue in West
         Virginia,  Mountaineer  is  uniquely  positioned  to  benefit  from the
         interest generated by progressive  jackpots.  Management  believes that
         such line games and  progressives  will have a  significantly  positive
         impact on the Company's operations. Total Mountaineer revenue increased
         from   $14,583,000  in  1994  to  $24,961,000  in  1995.  In  addition,
         Mountaineer's first quarter operating revenues have increased from $4.7
         million  (unaudited)  in 1995  to $7.2  million  (unaudited)  in  1996.
         Management  believes that the substantial and steady revenue  increases
         over the past three years at  Mountaineer  will continue and ultimately
         result in positive  cash flows from  operations.  However,  there is no
         guarantee  that the Company will achieve the  increases in revenues and
         cash flows it expects to occur.

-    As discussed in Note 3,  management  intends to refinance its $10.2 million
     construction loan in 1996. At December 31, 1995, approximately $2.3 million
     of this  balance is recorded  as a current  liability  in the  accompanying
     consolidated balance sheet. Mountaineer is currently in negotiations with a
     lender to refinance this debt and provide  additional  working  capital.  A
     $12,500 due diligence fee has been paid by Mountaineer  in connection  with
     the negotiations.  However,  there is no guarantee that Mountaineer will be
     successful in these negotiations.

-        In March 1996,  Mountaineer  received bridge financing from a different
         lender in the amount of $570,000,  net (see Note 16), which Mountaineer
         expects to repay with the proceeds from the aforementioned refinancing.

-        Mountaineer  has  expended  approximately  $11.4  million  for  capital
         improvements,  which  includes  expenditures  for the  lodge  which was
         damaged by fire in 1994. Management believes that the Company's capital
         improvements  have had a favorable  impact on the Company's  operations
         and  management  believes  this  should  continue  in 1996 and  beyond.
         However,  there  is  no  guarantee  that  such  favorable  impact  will
         continue.

-        As  discussed  in  Note  7,  Mountaineer   amended  its  video  lottery
         terminals'  lease  agreement in March 1996  resulting in a reduction of
         future monthly  payments over an extended term.  Scheduled annual lease
         payments under the original  agreement were  approximately  $1,859,000.
         The  amendment  reduced the  required  cash  outflows by  approximately
         $256,000 for 1996.

The consolidated  financial statements do not include any adjustments that might
be necessary  should the Company be unable to continue as a going  concern.  The
Company's  continuation  as a going  concern  is  dependent  on its  ability  to
generate  sufficient  cash flow to meet its  obligations  on a timely basis,  to
obtain  additional  financing  as may be  required,  and  ultimately  to  attain
profitable operations.

Consolidation

The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned  subsidiaries.  All significant intercompany  transactions have
been  eliminated  in  consolidation.  The  accounts  of the  Company's  acquired
companies include the operations from the consummation dates.

Discontinued Operations

The Company adopted a formal plan in March 1993 to discontinue operations of its
oil and gas  operations  (see Note 10). The net assets and operating  results of
the oil and gas segment are shown  separately in the  accompanying  consolidated
financial  statements as  discontinued  operations.  Although  management  still
retains  certain  assets to  maximize  their  ultimate  value upon  disposition,
management  believes that the classification as discontinued  operations remains
appropriate.

Cash and Restricted Cash

For purposes of the statements of cash flows, the Company considers  investments
purchased  with a remaining  maturity of three  months or less from the purchase
date to be cash equivalents.

                                      F-12

<PAGE>

Restricted cash includes collateralized, short-term certificates of deposit (see
Note 7), cash in banks designated for redevelopment  activities,  and unredeemed
winning tickets from its racing operations (see Note 13).

At December 31, 1995,  the Company has  approximately  $73,000 of deposits which
are in excess of limits insured by the Federal Deposit Insurance Corporation.

Property and Equipment

Property  and  equipment  is  stated at cost.  The  Company  capitalizes  direct
materials and labor,  and allocates  interest during the  construction  periods.
Depreciation  is computed  using the  straight-line  method  over the  following
estimated useful lives:

Buildings                                                   20 to 40 years
Furniture and fixtures                                      5 to 7 years
Equipment and automobiles                                   3 to 15 years

Interest  is  capitalized  to   construction   in  progress  during  periods  of
redevelopment based on qualifying assets,  using a method which approximates the
effective  interest  rate  method.  Interest  incurred  in  1995  and  1994  was
$1,711,000 and $2,337,000,  respectively. Interest capitalized in 1995 and 1994,
was  $1,127,000  and  $790,000,  respectively.  Interest  costs in 1993 were not
significant.

Fair Value of Financial Instruments

The Company has  financial  instruments  whereby the fair market  value of these
financial  instruments  could be  different  than that  recorded on a historical
basis on the  December  31,  1995  and 1994  consolidated  balance  sheets.  The
Company's  significant  financial  instruments consist of its long-term debt and
its redeemable  common stock.  An estimate of the fair value of these  financial
instruments  is not  practicable  because there is not an active market for such
financial instruments.

Deferred Financing Costs

The Company  capitalizes  certain loan costs in  connection  with its  financing
activities  (see Note 5) and these costs are amortized over the expected term of
the related  loans  using a method  that  approximates  the  effective  interest
method.

Excess of Cost of Investments Over Net Assets Acquired, Net

The  excess  of cost of  investments  over net  assets  acquired  (goodwill)  is
amortized on a straight-line  basis over the expected  periods to be benefitted.
The Company assesses the  recoverability of this intangible asset by determining
whether the  amortization of the goodwill balance over its remaining life can be
recovered  through  projected  undiscounted  cash flows.  The amount of goodwill
impairment,  if any, is measured based on projected  undiscounted cash flows and
is  charged  to  operations  in the  period  in  which  goodwill  impairment  is
determined  by  management.  Goodwill is being  amortized  on the  straight-line
method over an expected  fifteen year life. The methodology that management used
to project  results of operations  forward  twelve years,  which  represents the
remaining life of the goodwill as of December 31, 1995, was based on a five-year
trend line of expected  cash flows.  At December  31,  1995,  1994 and 1993,  no
impairment of goodwill was determined by management.

Amortization  expense included in the  consolidated  statement of operations for
the years ended  December  31,  1995,  1994 and 1993 is  $252,000,  $252,000 and
$266,000, respectively.

Revenue Recognition

The  Company  recognizes  revenues  from  parimutuel   commissions  earned  from
thoroughbred  racing  at the  time  wagers  are  made.  Such  commissions  are a
designated  portion of the wagering  handle as  determined  by the West Virginia
Racing Commission (the "Racing Commission").  Such revenues are shown net of the
taxes  assessed  by state and local  agencies,  as well as purses  and  contract
amounts paid to the Horsemen's Association (see Note 13).

Revenues from video lottery  terminals is the net win,  which is the  difference
between wins (wagers) and losses  (payouts),  and is recorded at the time wagers
are made (see Note 14).

                                      F-13

<PAGE>

Revenues from food and beverage are  recognized at the time of sale and revenues
from lodging are recognized at the time services are rendered.

Seasonality

The  operations  of  Mountaineer  are  typically  seasonal  in  nature.   Winter
conditions may adversely affect transportation routes to Mountaineer, as well as
cause  cancellations  of  live  horse  racing.  As a  result,  adverse  seasonal
conditions could materially effect the operations of the Company.

Accounting Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses during the reported  period.  Such
estimates may be materially different from actual financial results.

Income Taxes

The  Company  accounts  for  its  income  taxes  under  Statement  of  Financial
Accounting  Standards No. 109,  "Accounting  for Income Taxes" ("SFAS No. 109").
Under SFAS No. 109,  deferred taxes are based on the difference  between the tax
bases of assets  and  liabilities  and their  amounts  for  financial  statement
purposes;  deferred  taxes are then provided based on the estimated tax rates in
effect when the  temporary  differences  are  expected  to reverse.  The Company
records a valuation  allowance  for  deferred  tax assets when it is more likely
than not that such  deferred  tax assets  will not be  realized  through  future
operations (see Note 11).

Per Share Information

Per share  information  is  computed  by  dividing  net loss for the year by the
weighted average number of shares of common stock  outstanding  during the year.
The effect of common stock  equivalents  would be  antidilutive  for all periods
presented and is not included in the net loss per share calculations.

Reclassifications

Certain  reclassifications  have  been  made to the 1993  and 1994  consolidated
financial statements to conform with the 1995 presentation.


NOTE 2 - MERGERS AND ACQUISITIONS

Mountaineer Park, Inc.

On December  4, 1992,  the Company  acquired  all of the issued and  outstanding
common shares of Mountaineer Park, Inc.  (Mountaineer),  in a tax-free exchange,
for 183,181  shares of the  Company's  common  stock,  guaranteed at a per share
sales value of $6.00, an additional 400,000 shares of the Company's common stock
and approximately $91,000 in cash. Should the 183,181 shares, upon registration,
have a sales value in the aggregate less than $6.00 per share,  the Company will
register  additional  shares such that the total  market  value of the shares is
equal to approximately $1,099,000,  (183,181 shares times $6.00 per share) (Note
9).

The acquisition was accounted for as a purchase and, accordingly, the results of
operations  of the acquired  business have been  consolidated  with those of the
Company  commencing on December 4, 1992.  The purchase  price of $2,895,000  was
allocated  to the  acquired  assets  and  assumed  liabilities  based  on  their
respective fair values.  The purchase price exceeded the estimated fair value of
the net assets acquired by $2,774,000, which has been recorded as excess of cost
of investment over net assets acquired (see Note 1).

The  Company  paid  certain   outstanding   indebtedness   of   Mountaineer   of
approximately  $3,652,000  in cash and issued  approximately  446,496  shares of
common  stock  valued at  $2,428,000  to certain  creditors  of  Mountaineer  in
satisfaction   of  additional   obligations,   of  which  346,496   shares  have
registration  rights,  guaranteed  at a per share  sales  value of  $6.00.  Upon
registration, the Company will issue additional shares such that the market

                                      F-14

<PAGE>

value of the shares is equal to  approximately  $2,079,000.  The Company granted
put rights to the holder (a bank) of 60,604 of the  aforementioned  shares  (see
Note 9  "Redeemable  common  stock")  at $6.00 per  share,  all of which  became
exercisable  on or before  December  31,  1995.  No demand  has been made to the
Company. The Company has reflected certain amounts as current liabilities in the
accompanying  consolidated  balance sheets.  Mountaineer  Park, Inc.  operates a
thoroughbred  horse racing track and 800 video  lottery  terminals on a 606 acre
facility in Chester,  West  Virginia.  Mountaineer  also operates a 101 room inn
adjacent to the track, dining facilities,  as well as a nine-hole executive golf
course and other  recreational  facilities.  Certain operations are regulated by
agencies within the state of West Virginia, which includes annual licensing (see
Notes 13 and 14). At December 31, 1995, all significant licenses were in effect.

Golden Palace Casinos, Inc.

In October 1992, the Company  acquired all of the  outstanding  capital stock of
Golden Palace Casinos, Inc. ("GPC" and "Golden Palace"), a Minnesota corporation
organized to manage casinos on Indian  reservations.  Although Golden Palace had
no significant  operations at the time of the  acquisition,  it held,  through a
wholly owned  subsidiary,  a contract,  to manage a casino planned for an Indian
reservation  in Oklahoma,  subject to the  satisfaction  of certain  conditions.
Shortly  after the  acquisition  of Golden  Palace,  the West  Virginia  Lottery
Commission advised Management that, as a condition to licensing of the Company's
then-proposed  video lottery  operations at  Mountaineer,  the Company could not
engage in Indian gaming activities.  Consequently, in December 1992, the Company
sold the subsidiary holding the management  contract and agreed to not otherwise
engage  in  Indian  gaming  activities  as long as it  conducted  video  lottery
operations  in  West  Virginia.  Notwithstanding  the  sale  of  the  management
contract,  the acquisition of Golden Palace, which had substantial cash on hand,
provided the Company with sufficient funds to complete the acquisition of all of
the  outstanding  capital stock of  Mountaineer.  In connection  therewith,  the
Company  granted  put rights to the  holders  of  209,000 of the  aforementioned
shares (see Note 9  "Redeemable  common  stock") at $6.00 per share  should such
shares not have been registered by February 1, 1993; such  registration  has not
been effected to date.

On June 30, 1995, holders (2) of 104,500 shares of $6.00 redeemable common stock
received an aggregate of 366,750 shares of the Company's  common stock, of which
276,750  shares are  subject to  conversions  into notes at a value of $1.50 per
share  or  approximately  $415,000,  payable  in 24 equal  monthly  installments
beginning June 30, 1996,  interest at 12% per annum, in the event a registration
statement is not  effective.  Beginning June 30, 1995, the Company has the right
to purchase the 276,750  shares,  in whole or in part, at $1.50 per share,  less
any  credit  for  payments  made  through  the  date  of  repurchase.  Should  a
registration  statement  become effective before the notes are paid in full, the
Company will receive  credit for all payments  made,  as well as a credit for an
amount  equal to the average  closing  market  value for 90 days  following  the
effective  date  of  the   registration.   All  shares  issued  are  subject  to
registration,  to the  extent  such  shares  have not been sold by the  parties.
Considering  the  terms of the  settlement  discussed  above,  the  Company  has
recorded the value of the shares of $415,000 as  noncurrent  "redeemable  common
stock" in the accompanying consolidated balance sheet.

In addition,  on the acquisition  date, the Company issued options to holders of
Golden Palace  options to purchase (a) 190,000  shares of the  Company's  common
stock at $2.00 per share,  (b) 200,000  shares of the Company's  common stock at
$.01 per share,  and (c) warrants to purchase  283,250  shares of the  Company's
common stock at $2.40 per share through 1997.  Options to purchase 70,000 shares
at $0.01 were exercised in 1995 (Note 9).

LVEN

On August 12, 1993,  the Company  entered into a letter of intent with Las Vegas
Entertainment  Network,  Inc. (LVEN) to acquire,  through merger, the issued and
outstanding  shares of LVEN.  Pursuant to the letter of intent, the Company also
issued  250,000  shares of its common stock for $750,000 in cash.  The letter of
intent  provided  for other terms to be  negotiated;  however,  the parties were
unable to consummate a definitive agreement and the merger was not effected. The
Company and LVEN later reached a settlement arrangement in 1994 (see Note 3).

                                      F-15

<PAGE>

NOTE 3 - SALE OF RIVERBOAT INTEREST AND SETTLEMENT WITH LVEN

Riverboat Gaming

On March 2, 1993, the Company,  as assignee,  entered into an agreement with M&R
Investment  Company (M&R) for an assignment of an 80% interest in a ground lease
zoned for riverboat  gaming in Tunica,  Mississippi.  The ground lease covered a
riverboat  gaming site approved by the US Army Corps of  Engineers.  The Company
paid $106,937 on September 6, 1993 and $40,000 in rental  payments in accordance
with the terms of the agreement.  On March 9, 1993,  the Company  entered into a
joint venture  arrangement  with Regal Casinos,  the remaining  leaseholder,  to
construct  and operate a  riverboat.  On April 21, 1993,  the Company  agreed to
purchase  Regal's  20%  interest  in the  venture for $50,000 in cash and 50,000
shares of its common stock valued at $300,000.

On July 30, 1993, the Company entered into a joint venture arrangement with LVEN
and BP Group,  Ltd.,  which  agreed to assist in the funding,  construction  and
operation of the  riverboat.  On February 2, 1994, the Company sold its interest
in the venture. At December 31, 1993, the Company's  investment in the riverboat
venture was $728,000 as reflected in the accompanying consolidated balance sheet
at December 31, 1993.

On February 25, 1994, the Company entered into a settlement  agreement with LVEN
(see Note 2),  whereby the Company  sold its interest in the ground lease valued
at  $728,000  at  December  31,  1993,  and was  repaid its note  receivable  of
$200,000,  totaling $928,000.  Consideration  received was 250,000 shares of the
Company's  common  stock  owned by LVEN valued at  $750,000,  and the balance in
cash.  No  significant  gain or loss  resulted  from this sale of the  Company's
interest and note receivable.

The  parties  mutually  agreed to be  released  from all  claims  which may have
existed  as a result of the  abandonment  of the  proposed  merger  between  the
Company and LVEN.


NOTE 4 - PROPERTY AND EQUIPMENT

At December 31, 1995 and 1994, property and equipment consists of the following:

                                               1995                1994
                                               ----                ----
Land                                          $   371,000          $   371,000
Buildings                                      15,716,000           11,899,000
Equipment                                       2,021,000            1,294,000
Furniture and fixtures                          2,258,000            1,058,000
Construction in progress                          519,000              372,000
                                              -----------          -----------
                                               20,885,000           14,994,000
Less accumulated depreciation                  (2,785,000)          (1,532,000)
                                              -----------          -----------
                                              $18,100,000          $13,462,000
                                              ===========          ===========


Depreciation  expense charged to operations  during the years ended December 31,
1995, 1994 and 1993 is $1,252,000, $658,000 and $359,000, respectively.


NOTE 5 - LONG-TERM DEBT

Construction Note Payable

On June 27, 1994, the Company entered into a financing  arrangement with Bennett
Management  and  Development   Corporation   (Bennett)  for   construction   and
redevelopment  activities at  Mountaineer.  Pursuant to the  agreement,  Bennett
agreed to finance the Company $10,200,000 for construction with interest payable
monthly at 12.5% per annum,  subject to a default  rate of 14.5% per annum.  The
Company  received  advances of $5,700,000 from Bennett in 1994 and the remaining
$4,500,000 in 1995.  The loan is secured by a deed of trust on all real property
at the resorts. The outstanding  principal balance of the loan is $10,200,000 at
December 31, 1995.

The Company was  obligated  to issue 5 shares of common  stock for every $100 in
advances,  subject to a $6.00 per share  price  guarantee  by the Company at the
time of  registration  of such shares.  During 1995 and 1994, the Company issued
225,000  shares and 285,000  shares of its common stock valued at $1,350,000 and
$1,710,000,  respectively,  for a total value of  $3,060,000.  Such amounts were
recorded  by the  Company as deferred  financing  costs.  If the Company did not
register these shares by October 1, 1995, the interest rate would have

                                      F-16

<PAGE>

increased to 22.5% per annum (see  below).  In addition to the  financing  costs
above,  the Company  incurred a $200,000 loan fee to an investment  banker to be
amortized over the life of the loan.

In a series of  amendments to the loan  agreements  and  forbearance  agreements
which were executed between July 7, 1995 and January 12, 1996,  certain terms of
the Bennett loan agreement were amended by the parties as described below:

1) The  Company's  prepayment  option dates of July 1, 1995 and November 1, 1995
were deleted.  Upon amendment,  the  construction  loan is payable interest only
through May 31, 1996, with principal and interest payable monthly over 36 months
through April 30, 1999.

2) An interest rate escalation,  as defined in the original agreement,  of 22.5%
was deleted.

3) Under the July 7, 1995  amendment,  the $6.00 per share  price  guarantee  on
510,000  shares  discussed  above was  canceled  in exchange  for an  additional
1,020,000  shares of common stock at an estimated fair value of $1,530,000.  The
Company  capitalized  $1,530,000  as deferred  financing  costs.  This amount is
amortized to interest  expense and  construction in progress  through October 1,
1995 (see subsequent paragraphs).

The original  510,000 shares with $6.00 price guarantees were held by Bennett on
behalf of the  Company,  and in the event the Company  prepaid  the  outstanding
indebtedness  by October 1, 1995,  such shares  would have been  returned to the
Company. No prepayment was made on October 1, 1995, and accordingly, the 510,000
shares  were  forfeited  to Bennett  and were valued on October 1, 1995 at their
estimated fair value of $478,000.  This amount has been recorded as additions to
deferred  financing  costs and will be amortized from October 1, 1995 to January
2, 1997 (see Note 1).

The  Company  shall  register  all  shares  referred  to above with the SEC on a
best-efforts basis.

Bennett has  transferred the voting rights with respect to 780,000 shares to the
Board of  Directors  of the  Company,  and  Bennett  has  agreed  not to acquire
additional  common stock so that Bennett will not be permitted to vote more than
5% of the Company's common stock.

4) At December 31, 1994, deferred financing costs of $998,000 were recorded as a
reflection of future  obligations to Bennett.  The  requirement for these future
obligations was deleted from the amended agreement in July 1995,  resulting in a
$998,000 reduction in "deferred financing costs" with a corresponding  reduction
in "accrued financing costs".

5) The  amended  agreement  allows the  Company,  at its  option,  to prepay the
outstanding  advances by January 1, 1997. If such  prepayment is not made by the
Company,  it will be  obligated to issue an  additional  number of shares of its
common stock equal to $2,500,000, divided by the average closing stock price per
share for 20 consecutive trading days prior to January 2, 1997.

Management intends to refinance this note through the issuance of long-term debt
on satisfactory terms by January 2, 1997; however,  there are no assurances that
such obligation will be refinanced on terms satisfactory to the Company.

Interest expense charged to operations and interest  capitalized to construction
in progress  incurred  under this agreement for the year ended December 31, 1995
were  $547,000,  of which  $131,000  results  from  common  stock  issued by the
Company,  and $1,127,000,  of which $409,000 results from common stock issued by
the  Company,  respectively,  and for the year  ended  December  31,  1994  were
$700,000,  of which $614,000 results from common stock issued by the Company and
$709,000,  of which  $693,000  results  from common stock issued by the Company,
respectively.  At  December  31, 1995 and 1994,  the  Company had  approximately
$388,000  deferred as finance costs in connection  with this  arrangement in the
accompanying consolidated balance sheets.

Other Notes Payable

On December 4, 1992, the Company issued a 10% note in $93,750  principal  amount
payable to an unrelated party in connection with the acquisition of Mountaineer.
At December 31, 1994, the outstanding principal balance of the note was $43,000.
In 1995, the Company converted the note into 60,850 shares of its common stock.

                                      F-17

<PAGE>

On March 11, 1993, the Company issued 20% notes in $300,000 aggregate  principal
amount. Such notes were fully paid by October 10, 1993.

In September  1995, the Company  entered into an agreement with its  Totalisator
system  supplier to convert  $461,000 of outstanding  trade payables into a term
note.  Under the terms of the  agreement,  the  Company is  required  to make 21
monthly  interest  and  principal  payments of $17,800 and eight (8)  additional
payments of  approximately  $17,800 on various dates  through May 31, 1997.  The
loan, which is unsecured,  bears interest at the rate of 12% per annum. The loan
is subject to an acceleration  clause and other financial  disincentives  in the
event of default.  At December 31, 1995, the  outstanding  principal  balance is
$408,000.  The  Company  paid  $53,642 and $17,651 of  principal  and  interest,
respectively, in 1995 related to this term note.

Annual Commitments

Future annual principal payments under all indebtedness as of December 31, 1995,
assuming  the  Bennett  notes are prepaid on or before  January 2, 1997,  are as
follows:


         Years Ended December 31,

                  1996                $ 2,536,000
                  1997                  8,071,000
                                      -----------
                                      $10,607,000


NOTE 6 - CONVERTIBLE DEBENTURES

In connection  with the  acquisition  of Golden Palace (see Note 2), the Company
assumed unsecured  convertible  debentures  bearing interest at 8% per annum and
due on March 31, 1993. In 1993, the holders  agreed to convert such  debentures,
plus accrued  interest of  approximately  $82,000,  into  416,197  shares of the
Company's common stock.


NOTE 7 - COMMITMENTS AND CONTINGENCIES

Mountaineer Bond Requirements

Mountaineer  is required to maintain a $250,000 bond with the Racing  Commission
for its  operations  through  December 31, 1996.  The Company  obtained the bond
through a letter of credit  with a bank  which is  collateralized  by a $100,000
certificate of deposit (see Note 1) and a $150,000 bank deposit.

The  Company is also  required  to maintain a bond of $70,000 for the benefit of
the Lottery Commission  through June 30, 1996. The bonding  requirement has been
satisfied  via the  issuance of a $20,000  surety bond and two letters of credit
aggregating  $50,000,  each of which is  collateralized by certain bank deposits
(see Note 1).

Jackpot Settlement Agreement

In January 1993, the Company entered into a financing  arrangement  with Jackpot
Enterprises,  Inc.  (Jackpot),  the  proceeds  of  which  were  to be  used  for
redevelopment  activities.  Pursuant  to  such  arrangement,  Jackpot  initially
provided  the  Company  with a  $600,000  letter  of  credit  collateralized  by
Mountaineer  Park's  land and  improvements  to insure  the  performance  of the
Company's  obligations with respect to racing and video lottery activities under
its agreements  with the State of West Virginia.  For its letter of credit,  the
Company's  issued Jackpot 30,000 shares of its common stock which were valued at
$90,000.

The  Company  and  Jackpot  were  unable to  consummate  the  overall  financing
arrangement.  The agreement  provided that if financing could not be reached due
to certain contingencies,  the Company would be required to issue 250,000 shares
of its common stock as liquidated damages. On March 2, 1995,  management settled
such claim effective June 25, 1994, agreeing to issue shares of its common stock
with registration  rights. The number of shares of common stock to be issued was
based on $512,500 divided by the closing market price per share on the effective
date of  registration.  In the event the Company did not  register the shares by
May 2, 1995,  the Company  was, and  continued  to be,  required to issue 12,500
shares on such date and 12,500 shares each 60 days that such registration is not
effective.  In no event will the Company be obligated to issue more than 250,000
shares

                                      F-18

<PAGE>

of its common  stock.  The Company  recorded a provision for loss of $525,000 in
connection with the settlement which is included in the  consolidated  statement
of operations for the year ended December 31, 1994.

During 1995,  the Company  issued  175,000 shares of its common stock as part of
its settlement and, accordingly,  $414,000 was reduced from accrued liabilities.
At December 31, 1995,  $111,000 remains  included in accrued  liabilities in the
accompanying 1995  consolidated  balance sheet.  Management  expects to issue an
additional  75,000 shares of its common stock as  management  does not expect to
file an  effective  registration  statement  by the  deadline  provided  in this
agreement.

Other Settlement

In July 1994,  the Company  entered into an  agreement  settling all claims by a
consulting  firm arising from an April 1993 financial  advisory  agreement.  The
Company  agreed to pay fees and  expenses  of  $165,000.  An initial  payment of
$15,000 was made upon execution of the  settlement  agreement and two additional
payments  of $15,000  were  required  from the  proceeds  of  certain  unrelated
financings  by the Company by December 1, 1994.  Such payments were not made and
the entire  balance is due upon demand.  At December  31, 1995,  the Company has
$150,000  outstanding  under  the  agreement,  which  is  included  in  "accrued
liabilities" in the accompanying consolidated balance sheet.

Under the settlement agreement,  the Company canceled previously issued warrants
to purchase 145,000 shares of common stock with registration rights at $7.00 per
share,  and instead,  issued warrants to purchase 145,000 shares of common stock
with registration rights, exercisable at $6.25 per share through December 1996.

Operating Leases

Totalisator System Operating Lease

The Company  leased its  Totalisator  system under an operating  lease which was
amended  November  28, 1995 (see  below).  Under the terms of the lease prior to
amendment,  the Company was obligated to pay the lessor approximately $1,500 per
live race performance, plus .5% of the wagered handle in excess of $300,000. The
Company  was  also  paying  $300  per  live  race  day  ($550  if no  live  race
performance),  plus .5% of simulcast handle in excess of $60,000,  per simulcast
race day.

Under the amended  terms,  the  Company  must pay the greater of $1,000 per live
race  performance or 0.55% of the live racing handle.  In addition,  the Company
must  pay the  greater  of  $300  per  live  race  day  ($550  if no  live  race
performance) per simulcast race day or 0.55% of the simulcast racing handle. For
the years ended  December 31, 1995,  1994 and 1993,  the rent expense  under the
lease was approximately $529,000, $495,000 and $509,000,  respectively, which is
included in "cost of parimutuel  commissions" in the  accompanying  consolidated
statements of operations.

The Company also leases its videotape and closed circuit television systems at a
cost of $500 per race day and $125 per  simulcast  race day  under an  operating
lease  expiring in October 2002. The lease was entered into with a company whose
ownership  included the majority  shareholder  (an existing  shareholder  of the
Company)  at the time of its  inception.  The Company has the option to purchase
the equipment by October 1, 1996 at the estimated fair value of $350,000. Rental
payments made pursuant to this lease for the years ended December 31, 1995, 1994
and 1993 was approximately $142,000, $223,000 and $172,000, respectively.

Video Lottery Terminals Operating Lease

The Company leased 165 video lottery  terminals under an operating lease through
September 1994.  Under the terms of the lease,  the Company was obligated to pay
the lessor a fixed  percentage of video lottery terminal  revenues.  These video
lottery terminals were replaced in September 1994 as discussed below.

In September 1994, the Company entered into a master lease agreement for 400 new
video  lottery  terminals  which was  scheduled  to expire  September  1997 (see
below).  The monthly lease  payments on these 400 video lottery  terminals  were
$72,378,  plus  taxes,  insurance  and  maintenance  costs  (see  discussion  of
amendment to the master lease below).

On April 7,  1995,  the  Company  updated  the master  lease to provide  for 400
additional  video  lottery  terminals  which were  installed  in June  1995.  In
connection with this lease

                                      F-19

<PAGE>

addition,  the Company was obligated to pay 36 monthly  installments  of $83,000
beginning in January 1996 through  December 1998 for these 400 additional  video
lottery  terminals.  The Company has  normalized  rent expense over the 42 month
lease term (see discussion of amendment to the master lease below).

As of December  31,  1995,  the Company had past due  payments  under the master
lease agreement  amounting to $190,093 which constituted an event of default. On
March 26, 1996,  periodic  rental payments under the master lease agreement were
amended to reflect a new  consolidated  payment schedule as a result of an event
of  default by the  Company.  Under the new  agreement,  the  Company  must make
monthly  payments of  approximately  $119,000 in March and April 1996,  $183,000
from May through  October 1996 and $119,000 from  November 1996 through  January
1999. In addition to the amounts  reflected  above,  the Company is obligated to
make  interest  payments  from March  through  October  1996 at a rate of 15% on
certain  past due  rental  payments  under the  previous  agreement  for a total
interest obligation of $26,000.

Other Leases

The Company  leases  office  space for its  corporate  offices  under  operating
leases. To reduce overhead costs, the Company has moved to progressively smaller
offices on two occasions  since January 1, 1994. The Company's lease for a 6,034
square foot facility in Irvine, California expired at that time, and the Company
moved and entered into a new lease for a period of 36 months at a smaller  4,300
square foot office in San Juan Capistrano,  California. On November 1, 1995, the
Company  downsized again and moved to a smaller 880 square foot office in Laguna
Beach, California pursuant to a 12 month lease with an option to extend the term
for an  additional  six months.  On February 15, 1996,  the San Juan  Capistrano
office was subleased  through  December 15, 1996, the  termination  date for the
underlying  lease.  Net annual  minimum lease  payments at December 31, 1995 are
approximately  $41,000 and $17,000 per year in 1996 and 1997.  Rent  expense for
the  Company's  corporate  offices  included in the  consolidated  statements of
operations amounted to $78,000,  $84,000,  and $125,000 for 1995, 1994 and 1993,
respectively.

For the years ended  December 31, 1995,  1994 and 1993,  rent expense  under its
video lottery  leases was  $1,294,000,  $1,203,000  and $790,000,  respectively,
which is  included in "costs of video  lottery  terminals"  in the  consolidated
statements  of  operations.  At December  31,  1995,  the  Company has  recorded
deferred rent obligations of $408,000 in the accompanying  consolidated  balance
sheet, which is included in accrued liabilities.

Future  annual  minimum  payments  under  all  material  operating  leases as of
December 31, 1995 are as follows,  after providing for the amended video lottery
lease agreement described above:

         Years Ended December 31,

                  1996                   $2,075,000
                  1997                    1,912,000
                  1998                    1,915,000
                  1999                      522,000
                  2000                      113,000
                  Thereafter                212,000
                                         ----------
                      Total              $6,749,000

Litigation

In 1995,  the  Company was served with a  complaint  by a former  employee.  The
complaint was not answered  timely by the Company's  counsel and as a result,  a
default  judgment  was  entered  by the  court in the  amount  of  approximately
$308,000.  Management  has filed a motion to vacate the  judgment.  There are no
assurances  that the motion will be granted or the Company will be successful in
defending the matter.  Although  management  believes that the ultimate  outcome
will not necessarily result in a payment of the judgment amount, the Company has
recorded a  provision  for loss of  $308,000  in the  accompanying  consolidated
statement of operations during the year ended December 31, 1995.

The Company was served with a complaint in 1994 by a jockey who  sustained  head
injuries from a fall during a race at Mountaineer. The plaintiff is seeking both
compensatory and punitive damages.  Although the matter is covered by insurance,
management  has been advised by its carrier,  after  discovery that a jury could
award damages in excess of Mountaineer's $1 million policy limits.  In the event
that such an award is made, the Company would be

                                      F-20

<PAGE>

liable for any such excess amount.  Although management believes that the matter
will ultimately be resolved within the policy limits,  there can be no assurance
that it will.

The Company is party to various other  lawsuits  which have arisen in the normal
course of its  business.  Certain  matters are covered by  insurance,  after the
Company meets certain deductible requirements,  generally $2,500 per occurrence.
It is the opinion of management,  that the liability,  if any, arising from such
lawsuits would not have a material adverse effect on the Company's  consolidated
financial statements.

Environmental Considerations

The  Company has  developed  and is  implementing  a  corrective  action plan in
connection with leakage from underground storage tanks. Management has estimated
the cost of  corrective  action  to be  approximately  $143,000  for the cost of
equipment to be installed in 1995 and 1996 and for remediation in 1996 and 1997.
The Company has recorded a provision for anticipated expenditures of $143,000 in
1995 under "selling,  general and administrative" expenses, and has entered into
a service  contract for the  installation  of equipment  and future  remediation
costs.

Common Stock Registration Rights

As of  April 4,  1996,  the  Company  is  obligated  to  register  approximately
4,077,991  shares of its common stock and  4,813,143  shares of its common stock
underlying  certain  options and warrants (see Note 9), which if not registered,
could have an adverse  impact on the Company's  future  financial  operations or
cause substantial dilution to existing shareholders. As discussed elsewhere, the
Company has certain price guarantees to sellers of its common stock, which as of
April 4, 1996, and based on a closing market price per share of 7/8, the Company
would  have to issue  approximately  5.7  million  shares of its  common  stock.
Estimated  costs  of the  registration  are not  considered  significant  to the
consolidated financial statements taken as a whole. There are no assurances that
such registration will be effected.

Pension Plan

Mountaineer has a qualified defined contribution plan covering substantially all
of its employees (the "Plan"). The Plan was ratified  retroactively on March 18,
1994 by the  legislature of the State of West Virginia.  The Plan  contributions
are  based  on .25% of the  race  track  and  simulcast  wagering  handles,  and
approximately  0.5% of the net revenues of video  lottery  activities  beginning
March 18, 1994. Contributions to the Plan for the years 1995, 1994 and 1993 were
$179,000, $106,000 and $102,000, respectively.

Insurance Proceeds From Involuntary Conversion of Assets

In 1994, the Company experienced two fires at Mountaineer, believed to be caused
by arson,  in which the Company  received  approximately  $241,000 of  insurance
proceeds. The Company realized a nominal gain based on the net carrying value of
the assets destroyed in the fire.


NOTE 8 - RELATED PARTY TRANSACTIONS

Employment Contracts

Effective  December  4,  1992  (acquisition  date),   Mountaineer  entered  into
management agreements with certain former shareholders. In connection therewith,
the Company  granted  options to purchase  400,000 shares of its common stock at
$.50  per  share.  At the time the fair  value of the  Company's  common  stock,
subject to transferability restrictions, was approximately $3.50 per share. As a
result, Mountaineer recorded compensation expense of $600,000 for the year ended
December 31, 1994;  no amounts were charged in 1995.  The  agreements  have been
terminated by mutual consent without further obligation of the parties.

In addition,  the Company has entered into various  employment  agreements  with
certain  officers,  key  management  and a consultant for periods of up to three
years expiring in 1997. The agreements  provide for certain salaries,  and stock
and stock option  incentives  (see Note 9) in the  ordinary  course of business.
Minimum annual salaries are approximately $523,000.

                                      F-21

<PAGE>

Severance Agreement

On April 26,  1995,  the Company  entered  into a severance  agreement  with its
former  Chief  Executive  Officer.  In  connection  therewith,  the  Company  is
obligated to pay approximately $440,000 over a period of two years. In addition,
the Company  repriced  certain  incentive  options and is  obligated  to provide
certain  benefits  during  the term of the  agreement.  Management  discontinued
payments  under the  agreement due to their  discovery of certain  matters which
they believe  nullify the  agreement.  At December 31, 1995,  management  has an
accrued liability of $400,000 which is included in "accrued  liabilities" in the
accompanying 1995 consolidated balance sheet.

Notes Payable and Advances Receivable From Related Parties

The Company has a note receivable for $240,000 from a shareholder of the Company
at  December  31,  1995 and  1994,  as well as  additional  noninterest  bearing
advances of $62,000 made in 1994. The $240,000 note receivable bears interest at
8% per annum, is due on demand,  and is  collateralized by certain shares of the
Company's  common  stock.  No demand has been made by the  Company's  management
through December 31, 1995 as management  believes  recovery is doubtful.  During
1995,  the Company has  recorded a provision  for loss in the amount of $240,000
which is  included in  "selling,  general  and  administrative"  expenses in the
accompanying consolidated statement of operations.

In March 1994, the Company lent $50,000 to a company for a term of seven days in
exchange for a promissory  note bearing  interest at 8% per annum.  The loan was
made upon the  recommendation  of a significant  shareholder of both the Company
and the recipient. During 1995, the Company has recorded a provision for loss in
the amount of $50,000 which is included in "selling, general and administrative"
expenses in the  accompanying  consolidated  statement of  operations.  In April
1996, the Company and the recipient  renegotiated,  cancelled the original note,
and executed a substitute and replacement  confessed judgment promissory note in
the principal  amount of $58,333 at 8% per annum,  all due and payable August 4,
1996.

Notes Payable to Related Parties

During the year ended December 31, 1993, the Company fully paid certain 8% notes
payable totaling $401,000 to the former majority shareholder of Mountaineer (see
Note 2) and an existing shareholder of the Company.

At  December  31,  1993,  the  Company  had a  $70,000  demand  note  due  to an
officer/shareholder  that bore interest at 6.25% per annum. The note was paid in
full in January 1994.

During  1995,  the Company  incurred  salaries to key  management,  which remain
unpaid; at December 31, 1995, such amounts accrued were approximately  $204,000.
In February 1996,  management agreed to accept an aggregate of 466,676 shares of
the Company's  common stock in satisfaction of the amounts due them. Such shares
have an approximate  value of $204,000;  therefore,  no additional  compensation
expense will be recorded as a result of the issuance of common stock.


NOTE 9 - SHAREHOLDERS' EQUITY

Stock and Warrants Issued in Connection With Plan of Reorganization

As part of the Company's Plan of Reorganization, which was confirmed January 15,
1992, the Company issued certain  warrants to purchase its common stock.  During
the year ended  December  31,  1993,  the Company  received  $2,239,000  for the
purchase of 373,241  shares of its common  stock as a result of the  exercise of
Series C warrants. The warrants expired in March 1993.

Redeemable Common Stock

In  connection  with  certain  arrangements  entered  into by the  Company as of
December 31, 1994 (see Notes 2 and 10),  367,937  common  shares could have been
put to the Company at $6.00 per share upon demand.  In 1995,  98,333  redeemable
shares  issued  in  connection  with its oil and gas  activities  (Note 10) were
satisfied through the issuance of 373,600  additional shares of its common stock
as reflected in the aggregate in the accompanying 1995 consolidated statement of
shareholders'  equity.  In 1995,  194,500  common shares valued at $212,000 were
issued for the  cancellation  of 104,500  redeemable  shares  with put rights of
certain holders of Golden Palace acquisition debt. In connection therewith,

                                      F-22

<PAGE>

the Company issued 276,750  redeemable  shares which are subject to registration
with the SEC and have a guaranteed  selling price of $1.50 per share at the time
of registration. At December 31, 1995, 441,854 shares of redeemable common stock
are outstanding.

In connection therewith, the Company has classified the put value of such shares
of $1,405,000 and $2,208,000,  respectively, as "redeemable common stock" in the
consolidated  balance  sheets at  December  31,  1995 and 1994.  Management  has
reflected  the value  certain  of these  shares as a  current  liability  in the
accompanying  consolidated  balance  sheet at December  31, 1995 and 1994 to the
extent  management  believes these shares should have been  registered.  Amounts
reflected as noncurrent are based on scheduled payments in the event such shares
are not registered.

Common Stock and Options Issued for Services

From time to time in the  ordinary  course of  business,  the Company has issued
restricted common stock in exchange for services, interest and obligations.  The
Board of Directors has  determined the fair value of such shares based on 50% of
the  value of  freely  tradable  shares  as  determined  through  NASDAQ  market
quotations.   Such  values  are  charged  to  operations  or  have  extinguished
obligations depending upon the nature of the agreements.

During the year ended December 31, 1995, the Company issued 77,332 shares valued
at approximately $42,000 for services rendered, and the value of such shares was
charged to the 1995  consolidated  statement of  operations;  also see following
paragraph for additional shares issued in 1995.

During the year ended December 31, 1994, the Company issued 50,000 shares valued
at approximately  $110,000 for services  rendered,  and the value of such shares
was charged to the 1994 consolidated statement of operations.  Also in 1994, the
Company  issued  97,500  shares of its  common  stock  valued at  $100,000  to a
financial  consultant to seek capital for the Company; in 1995, such shares were
cancelled by mutual consent of the parties.  The value of such shares,  included
in noncurrent  "Accrued  Liabilities" at such value, will be settled through the
issuance of common stock in 1996. In addition,  the Company issued 10,681 shares
of its common stock for certain accounts payable valued at $40,000.

During the year ended  December  31, 1993,  the Company  issued  197,787  shares
valued at approximately $619,000 for services rendered and letter of credit fees
for Jackpot,  and the value of such shares was charged to the 1993  consolidated
statement of operations.

In connection with certain  employment  agreements (see Note 8), the Company has
granted to two former  shareholders of Mountaineer an option to purchase 400,000
shares  of the  Company's  common  stock  at $.50 per  share.  The  options  are
exercisable  beginning  January 1993 and expire  January 1996. The excess of the
estimated  value of these  shares  of $3.50  each  over  their  option  price is
included  as  compensation  expense  over the  two-year  term of the  employment
agreements,  as  amended.  Compensation  expense  included  in the  consolidated
statements of operations  for each of the years ended December 31, 1994 and 1993
is $600,000.

During 1995, 216,667 shares were exercised for $108,000 of which $69,000 remains
unpaid.  At December 31, 1995,  this receivable from the exercise of these stock
options is shown as a reduction in stockholders' equity.

Shares Issued for Cash

From January 1994 through May 1994,  the Company  issued  727,866  shares of its
common  stock  for  $2,193,000,  net  of  commissions  of  $146,000  and  58,333
restricted  shares of its common  stock.  The 58,333  shares  were  issued for a
capital  raising  activity  and thus are  effectively  charged  to  consolidated
shareholders' equity. In 1994, the Company received $200,000 for the exercise of
options to purchase 50,000 shares of its common stock.

From July  through  December  1993,  the Company  issued  746,755  shares of the
Company's  common  stock for  $3,280,000,  net of  commissions  of $592,000  and
125,000 restricted shares valued at $250,000. The 125,000 shares were issued for
a capital  raising  activity and thus are  effectively  charged to  consolidated
shareholders'  equity.  The 746,755  shares are exempt from  registration  under
Regulation S of the Securities Act of 1933, whereby  nonresident,  aliens of the
United  States  (i.e.,  foreign  purchasers)  may purchase  shares with a 40 day
restricted period.

See above and Note 2 for a total of 286,667  shares  purchased from the exercise
of stock options at $0.01 and $0.50, per share.

                                      F-23

<PAGE>

Stock Option Plans

In May 1992, the Board of Directors  approved the grant of nonqualified  options
to purchase  600,000  shares to certain  officers and  directors of the Company.
Each  option  entitles  the holder to purchase  one share of common  stock at an
exercise  price of $1.06 per share and is fully  vested as of the date of grant.
The  exercise  price  approximates  the fair  value of the shares at the date of
grant; such options expire in May 1997.

In October 1992, the Board of Directors  adopted an incentive  stock option plan
meeting the  requirements of Section 422 of the Internal  Revenue Code. The plan
reserves  1,200,000  shares for issuance  which were granted  effective  October
1992.  The options are  exercisable  at the then fair market value of $4.875 per
share (unless such options are granted to a 10%  shareholder,  in which case the
exercise  price would be no less than 110% of the then fair market  value),  and
are  exercisable   over  a  period  of  five  (5)  years,   subject  to  certain
restrictions.  Options to acquire approximately 1,200,000 shares are exercisable
at December  31, 1995 and no options have been  exercised  to date.  In December
1994,  the Board of  Directors  adopted an  amendment  to reprice the options at
$2.00 per share; shareholder approval was obtained on September 11, 1995.

In May 1995, the Board of Directors  approved the grant of nonqualified  options
to purchase  823,047  shares to certain  officers and  directors of the Company.
Each  option  entitles  the holder to purchase  one share of common  stock at an
exercise  price of  approximately  $1.22 per share and is fully vested as of the
date of grant.  The exercise price  approximates the fair value of the shares at
the date of grant; such options expire in September 1998.
Shareholder approval was obtained on September 11, 1995.

In  November  1995,  the Board of  Directors  adopted,  subject  to  shareholder
approval, an incentive stock option plan meeting the requirements of Section 422
of the Internal Revenue Code (see above for certain  requirements  under Section
422). The plan reserves 500,000 shares for issuance which were granted effective
January 23, 1996.  The options will be exercisable at the then fair market value
of $.5625  per  share,  and are  exercisable  over a period  of five (5)  years,
subject to certain restrictions.

From time to time,  the Company  issued  options and warrants  (exclusive of the
options  and  warrants  described  in the  preceding  paragraphs)  to  unrelated
entities in  connection  with  service  arrangements  to purchase  shares of its
common  stock at their  estimated  fair  value  ranging  from $0.01 to $8.00 per
share, expiring at various dates through April 1998.

During each of the years in the three year period ended December 31, 1995, stock
options and warrants activity is as follows:

                                      Shares                  Price Range
                                     Available                 per Share

Balance, January 1, 1993               3,388,176                 $0.01-$6.00
Granted                                  315,000                 $3.00-$8.00
Canceled                                 (70,185)                $3.00-$6.00
Exercised                               (373,241)                $4.00-$6.00
                                       ---------
Balance, December 31, 1993             3,259,750                 $0.01-$8.00
Granted                                1,155,000                 $3.00-$6.25
Canceled                                (605,000)                      $7.00
Exercised                                (50,000)                      $4.00
                                       ---------
Balance, December 31, 1994             3,759,750                 $0.01-$8.00
Granted                                  868,047                 $1.21-$2.00
Canceled                                 (10,000)                      $8.00
Exercised                               (286,667)                $0.01-$0.50
                                       ---------
Balance, December 31, 1995             4,331,130(1)              $0.01-$8.00
                                       =========
Exercisable at December 31, 1995       4,331,130
                                       =========

     (1) Includes  options to purchase  130,000  shares of common stock at $0.01
per share.

See Notes 2, 3, 5, 7 and 10 for  additional  transactions  in which the  Company
issued its common  stock and Note 7 for  discussion  on  commitment  to register
certain common stock and the underlying common stock of options and warrants and
dilution impact.


NOTE 10 - DISCONTINUED OPERATIONS

The  Company  acquired  certain  oil and gas  interests  as part of its  plan of
reorganization  in 1992.  On March 31, 1993,  the  Company's  Board of Directors
approved a formal plan of

                                      F-24

<PAGE>

orderly  liquidation  to divest its oil and gas  operations.  This  decision was
precipitated  by several  factors,  including  the  long-term  potential  of the
Company's  gaming  operations  and the  anticipated  time to be devoted to it by
management.  In February  1993,  the  Company  decided not to continue to pursue
funds in the public market to undertake  the drilling of oil and gas  properties
primarily  due to the  expiration  of "Section  29"  credits,  a credit  against
federal  income taxes for gas produced from Devonian  shale or tight  formations
from wells commenced before January 1993. As discussed further, the Company sold
certain  interests  in  these  oil and gas  assets  in  December  1994.  Certain
interests are  currently  under rework,  to be later sold after  management  has
enhanced the ultimate value of such interests.

The  following  is a  summary  of  the  significant  accounting  policies  and a
description of other issues pertaining to the oil and gas operations.

Significant Accounting Policies

The Company follows the successful  efforts method of accounting for its oil and
gas activities.  Costs of property  acquisitions,  successful exploratory wells,
all  development  costs,  and  support  equipment  are  capitalized.   Costs  of
unsuccessful exploratory wells are expensed when determined to be nonproductive.
Production  costs,  overhead and all exploratory  drilling costs are expensed as
incurred.  The carrying value of proved and unproved reserves are subjected to a
"ceiling  test"  based on the sum of (a)  discounted  future net cash flows from
proven reserve estimates, (b) the cost of properties not being amortized and (c)
the lower of cost or fair value of estimated  unproved  reserves;  impairment of
the  carrying  value  of such  reserves  is  charged  to  operations.  Costs  of
abandonment  and  remedial  work are  expensed  over the life of the net  future
production cash flows.

Depletion of the cost of producing oil and gas  properties  has been computed on
the  unit-of-production  method.  Due to the Company's  decision to  discontinue
these  operations,  no  depletion  has  been  recorded  adjusted  to  their  net
realizable value.

The consolidated  financial statements reflect the operating results and balance
sheet items of its oil and gas operations  separately from continuing operations
pursuant to the plan of divestiture.  The assets of the discontinued  operations
are shown net of the allocated liabilities.

In 1993,  management  believed that the operations would have been sold within a
period  of  one  to  two  years,  but  due  to  certain  delays  and  cash  flow
considerations, management was not able to complete its rework on the properties
in the state of Michigan within the time originally  estimated.  Management does
not intend to retain the interest for the purpose of operating the wells.

Standardized  Measure of  Discounted  Future Net Cash Flows and Changes  Therein
Relating to Proved Oil and Gas Reserves

Standardized  measures of discounted  future net cash flows and changes  therein
relating to proved oil and gas reserves are not presented since the Company does
not intend to produce any oil and gas on a continuing basis.

Remaining Oil and Gas Interests

The  Company's  remaining  assets are located in Michigan,  consisting  of a 25%
working  interest in a 64% net revenue  interest  in proved  reserves;  34 wells
exist on the property which have been inoperative since the Company's ownership.
Fleur-David  Corporation is currently in the process reworking the wells,  which
upon  commencement  of  production,  is expected to enable the wells to generate
production of  approximately  3,300,000  barrels (BBLs) of oil, over a period of
ten years, with approximately 65% of such reserves  recoverable over a period of
four  years.  Leases,  for  which the 34 wells  are  located,  are held by force
majeure (by production).

In December  1993,  the  Company  entered  into an  agreement  with  Fleur-David
Corporation, whereby the Company contributed its 64% (original interest) working
interests in proved  reserves.  Fleur-David  assumed a note payable of $375,000,
plus accrued interest from the Company, and paid approximately  $250,000 in well
lease  maintenance  costs.  In  addition,  Fleur-David  was  granted  options to
purchase  121,500 shares of the Company's common stock at their then fair market
value of $4.00  each.  Fleur-David  was also to  provide  substantially  all the
expertise  and fund 75% of the  costs  to  perform  rework  and  water-flood  of
approximately $2,200,000. The Company's is responsible for 25% of such

                                      F-25

<PAGE>

costs or approximately  $550,000 and will be paid through the proceeds  received
from the exercise of the options described above, as well as cash available from
continuing operations.

Fleur-David  also  obtained a covenant not to sue for  clean-up and  abandonment
costs  from the  State  of  Michigan,  as  required  by the  joint  venture,  by
depositing $188,000 into an environmental  escrow account required by the state.
The Company retains a 25% net revenue  interest in the joint venture through the
joint  venture.  An adjustment to the carrying value of these oil and gas proved
reserves  was not  affected  since  the  additional  costs  incurred,  and to be
incurred  by  Fleur-David,  enhance  the value of the  interest  retained by the
Company by a corresponding amount.

The Michigan  well sites  require  certain  remedial  activities,  which include
abandonment costs. Management has estimated the cost of such remedial activities
to range from $1,200,000 to $2,000,000 should its current plan of operation with
Fleur-David not continue. Management expects to continue with its initial rework
and eventual waterflood project with Fleur-David to minimize the Company's costs
associated  with  remediation  and  abandonment  of  the  wells.  The  Company's
estimated cost of rework and waterflood, as a 25% joint venture interest holder,
is $550,000,  $297,000 of which has been paid through December 31, 1995, and the
remaining  $252,000  included as a liability  in the net assets of  discontinued
operations in the accompanying 1995 consolidated balance sheet.

Oil and Gas Leases

Certain  leases  were  acquired  in  1992  as  part  of the  Company's  plan  of
reorganization  from  Biscayne  Petroleum  Corporation.  On March 25, 1993,  the
seller agreed to amend certain terms of the acquisition agreement,  which, as so
amended, provided for the payment of $50,000 in 1993 and the issuance of 226,286
shares of the Company's  common stock in satisfaction of the purchase price. The
March 1993  amendment  also  rescinded the issuance of 20,000 shares in December
1992  for  $100,000  of  debt  and  $20,000  of  interest  as  reflected  in the
consolidated  statements of  shareholders'  equity.  The purchase price remained
unchanged,  after the amendment discussed above, at $2,000,000. The leases, held
by  production,  were  assigned  for  consideration,  along  with  the 77  wells
discussed below, in December 1994.

Oil and Gas Wells

Certain oil and gas interests,  consisting of 77 production wells, were acquired
in 1992 as part of the Company's plan of reorganization  from Biscayne Petroleum
Corporation.  On March 25, 1993, the sellers  agreed to convert the  outstanding
principal balance of an unpaid acquisition note of $590,000,  into 98,333 shares
of the Company's common stock subject to registration  rights and a put right at
a price of $6.00 per share (see Note 9 "Redeemable  common stock"),  and payment
of $100,000 in March 1993.

In September 1994, the Company negotiated certain additional terms extending the
date by which the  registration of the 98,333 shares was required to be effected
to March 31,  1995,  as  amended.  However,  because  the  registration  was not
effected  as of March  31,  1995,  subject  to the terms of the  agreement,  the
Company was  obligated  to pay  $590,000,  less the average  market value of the
98,333 shares of common stock for a value of $123,000,  or $467,000, in 12 equal
monthly installments,  together with interest at 9% per annum beginning April 1,
1995.

On March 31,  1995,  the  agreement  was amended to extend the payment  term and
amounts such that the note will be interest  only at 10% per annum from April 1,
1995 until October 1, 1995, at which time the outstanding  principal balance was
to be  amortized  over 36 months with a balloon  payment due on October 1, 1996,
together with unpaid interest thereon. On October 1, 1995, the parties agreed to
covert the entire  principal  balance of  $467,000  into  373,600  shares of the
Company's  common stock based on a value of $1.25 per share. In 1995, the 98,333
shares discussed above, plus the 373,600 shares (471,933) valued at an aggregate
amount of $590,000 are reflected in the accompanying  consolidated  statement of
shareholders' equity during the year ended December 31, 1995.

In  September  1993,  the Company  recorded a  provision  of  $1,471,000  for an
estimated  loss  on  the  disposal  of  its  leases  and  77  wells  located  in
Southeastern Ohio. The Company's estimate was based on the current conditions in
the  gas  market,  estimated  costs  to  prepare  such  sites  for  sale,  lease
expirations (see reserve quantity information below) and sales commissions.

                                      F-26

<PAGE>

Related Party Transactions

Sale of Oil and Gas Leases and Wells

In December 1994, the Company entered into an arrangement to sell certain proved
and  unproven  gas  reserves  located  in  Southeast  Ohio for  notes  valued at
approximately  $426,000 to a party related to an officer and  shareholder of the
Company.  In connection  therewith,  the Company  obtained two notes, a $300,000
note, bearing interest at 8% per annum,  payable $10,000 per month beginning May
1995, and a $150,000  noninterest  bearing note,  payable based on 50% of excess
revenues over $10,000 per month from production, secured by the assets sold. The
Company  recorded  a loss on the  sale of  these  assets  of  $567,000  which is
included in loss on disposal of oil and gas  operations.  At December  31, 1995,
the principal balance on the note receivable is approximately $386,000.

Notes Payable

During 1994 and 1995,  various corporate  affiliates of Mr. Arneault advanced an
aggregate sum of  approximately  $100,000 to ExCal  primarily to cover  overhead
expenses in connection with the maintenance of leases and other costs associated
with the  Registrant's  existing  oil and gas  interests  in Michigan and former
interests in Ohio. In February  1996,  such accrued  amount,  along with accrued
interest  thereon  at the rate of 10% per  annum,  was  converted  into a demand
promissory note in the principal  amount of $100,218  payable to Mr. Arneault at
the rate of 10% per annum.  No material  overhead  expenses  are  expected to be
incurred in 1996.

The following  summarizes  the net assets of the  discontinued  operations as of
December  31,  1995 and 1994 and the results of its  operations  for each of the
years in the three-year period ended December 31, 1995.

                                                Balance sheet items
                                            December 31, 1995 and 1994
<TABLE>
<CAPTION>

                                                                                  1995                1994
                                                                                  ----                ----

Assets:
<S>                                                                             <C>                  <C>       
  Cash                                                                          $      ---           $      ---
  Receivable from sale of assets                                                    386,000              426,000
  Oil and gas activities -
    Working interest in proved oil and gas
      properties                                                                  2,582,000            2,582,000
                                                                                 ----------           ----------
                                                                                  2,968,000            3,008,000
                                                                                 ----------           ----------
Less liabilities:
  Accrued liabilities                                                              (252,000)            (350,000)
  Payables to related parties                                                      (100,000)             (42,000)
                                                                                 ----------           ----------
Net assets                                                                       $2,616,000           $2,616,000
                                                                                 ==========           ==========
</TABLE>


                                         Results of its operations for the
                                   years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>

                                                                     1995          1994               1993
                                                                     ----          ----               ----

<S>                                                                  <C>           <C>                 <C>      
Revenues                                                             $  ---        $184,000            $ 268,000
                                                                     ------        --------            ---------
Costs and expenses:
  General and administrative                                            ---         148,000              224,000
  Operating costs, including depletion
    of $100,000 in 1993                                                 ---         109,000              226,000
                                                                     ------        --------            ---------
Total costs                                                             ---         257,000              450,000
                                                                     ------        --------            ---------
Loss from operations                                                 $  ---        $(73,000)           $(182,000)
                                                                     ======        ========            =========
</TABLE>


                                      F-27

<PAGE>

Reserve Quantity Information

<TABLE>
<CAPTION>

                                                                                    Oil                Gas
                                                                                 (in BBLs)          (in MCF)

Proved developed:
<S>                 <C>                                                           <C>                  <C>      
  Balances, January 1, 1993                                                       2,134,800            1,095,530
    Revisions of previous estimates                                                     ---              (58,378)
    Production                                                                          ---             (134,952)
                                                                                  ---------            ---------
  Balances, December 31, 1993                                                     2,134,800              902,200
    Revisions of previous estimates                                             1,180,000(1)                 ---
    Production                                                                          ---              (99,000)
    Sale of assets                                                                      ---             (803,200)
                                                                                  ---------            ---------
  Balances, December 31, 1994                                                     3,314,800                  ---
    Activity                                                                            ---                  ---
  Balances, December 31, 1995                                                     3,314,800                  ---
                                                                                  =========            =========

</TABLE>

(1)      In 1994,  management  determined  that certain  reserves  existed in an
         additional  formation  (Berea) which has been included in the Company's
         reserve analysis.


NOTE 11 - INCOME TAXES

At December  31,  1995,  the Company has net  operating  loss  carryforwards  of
approximately   $23,000,000  for  federal  income  tax  reporting  purposes  and
approximately  $5,111,000 for state reporting  purposes,  expiring through 2010.
The Tax Reform Act of 1986  includes  provisions  which  limit the  Federal  net
operating  loss  carryforwards  available  for use in any given  year if certain
events,  including a significant  change in stock ownership,  occur.  Because of
such limitations,  the Company may only utilize net operating loss carryforwards
of approximately $1,500,000 per year for such losses of approximately $3,200,000
incurred prior to December 1992;  additional  limitations  are believed to exist
between 1992 to 1995.  Temporary  differences  are not  considered  significant,
exclusive of the differences (see below) in financial and tax reporting bases of
assets acquired from Mountaineer in a statutory tax-free exchange.

At December 31, 1995 and 1994, the deferred taxes of $1,529,000 and  $1,662,000,
respectively,  represent  the  nondeductible  tax bases of assets  acquired from
Mountaineer totaling approximately  $4,900,000 net of depreciation.  The benefit
for income taxes in the consolidated statement of operations for the years ended
December  31, 1995,  1994 and 1993  represents  the tax effect of  nondeductible
depreciation less certain minimum state taxes paid.

The Company's  only  significant  deferred tax asset as of December 31, 1995 and
1994 is approximately $8,700,000 and $6,800,000, respectively related to the net
operating loss carryforwards for federal and state tax reporting  purposes.  The
Company's  valuation  allowance at December 31, 1995 and 1994 was  approximately
$8,700,000 and 6,800,000,  respectively.  The valuation  allowance at January 1,
1994 and 1993 was  approximately  $3,467,000 and $1,079,000,  respectively.  The
difference  between the federal  income tax benefit  using a 34% and the benefit
recorded in the  accompanying  statements of operations for each of the years in
the three-year  period ended December 31, 1995 related primarily to increases in
the valuation allowances in each year.

NOTE 12 - SEGMENT REPORTING

The Company  operates in two segments,  oil and gas and gaming.  The Company has
not presented  segment  information  in accordance  with  Statement of Financial
Accounting  Standards  No. 14,  "Financial  Reporting for Segments of a Business
Enterprise"  because  its oil and gas  operations  have been  discontinued,  are
separately disclosed in the accompanying  consolidated  financial statements and
will not be significant in the future.


NOTE 13 - RACING OPERATIONS

The Company  conducts  thoroughbred  horse racing at Mountaineer Park Race Track
and  Gaming  Resort.  Under  West  Virginia  Horse  Racing  Law,  the  Company's
commission  revenue is a designated  portion of the parimutuel  wagering  handle
(amounts wagered).

                                      F-28

<PAGE>

The Racing  Commission  authorized a minimum of 220 days of racing;  the Company
was in compliance with this provision in years reported.  The Company is subject
to annual licensing requirements  established by the Racing Commission which has
been renewed through December 31, 1996.

In  August  1994,  the  Company  renewed  its  contract  with the West  Virginia
Horsemens' Benevolent Protection Association (HBPA) for a period of three years.
In connection therewith,  the Company is required to provide average daily horse
racing purses of at least $22,500,  as well as operate a certain number of races
per day based on criteria provided in the contract.

The Company pays purses for each race day to the horsemen and HBPA.  The Company
receives a credit  towards  future purses for the  difference of purses paid and
amounts earned by the horsemen and HBPA. The horsemen and HBPA earn a percentage
of the live and  simulcast  (satellite  off-track  wagering)  race  handle  less
winning  tickets and certain costs  incurred by the Company,  including  certain
video lottery  contractual  expenses  (approximately  15.5% of net video lottery
revenues) paid to the horsemen and HBPA.

The  amounts  paid  in  excess  of  the  amounts  earned  are  reflected  in the
accompanying  balance sheet as "prepaid purses" and totaled $352,000 at December
31, 1994.  At December 31, 1995,  purses  earned in excess of amounts  funded of
$85,000 are reflected in the  accompanying  1995  consolidated  balance sheet as
"accrued liabilities".

A summary of the parimutuel handle and deductions, including off-track wagering,
for the years ended December 31, 1995, 1994 and 1993 are as follows:

<TABLE>
<CAPTION>

                                                            1995                1994                 1993
                                                            ----                ----                 ----

Total parimutuel wagering
<S>                                                        <C>                 <C>                  <C>         
  handles                                                  $ 39,819,000        $ 35,475,000         $ 40,961,000
Less patrons' winning
  tickets                                                   (31,637,000)        (28,246,000)         (32,646,000)
                                                           ------------        ------------         ------------
                                                              8,182,000           7,229,000            8,315,000
Less:
  Parimutuel tax paid to:
    State of West Virginia
      and county                                               (472,000)           (442,000)            (448,000)
  Purses and Horsemen's
    Association                                              (3,447,000)         (3,019,000)          (3,544,000)
                                                            -----------         -----------          -----------
Parimutuel commissions                                      $ 4,263,000         $ 3,768,000          $ 4,323,000
                                                            ===========         ===========          ===========

</TABLE>

NOTE 14 - GAMING OPERATIONS

On March 17, 1994, the West Virginia State Legislature  expressly authorized the
operation  of up to 400 video  lottery  terminals  through  December  31,  1994,
subject to voter approval in a Hancock County referendum,  which was approved on
May 10, 1994. The statute  authorizing the operation of video lottery  terminals
expires,  unless  extended,  on June 13,  1997.  In 1995,  the Company  received
approval from the West Virginia Lottery Commission (the "Lottery Commission") to
operate up to 1,000 video  lottery  terminals,  and  subsequently  increased the
number of terminals in operation from 400 to 800.

One  half of all  video  lottery  terminals  must be  located  in the  racetrack
grandstand and clubhouse,  while the balance may be located at the Company's on-
site lodge, as long as parimutuel  wagering is operated therein.  The Company is
subject to annual licensing  requirements  established by the Lottery Commission
which was renewed through June 1996.

In connection with its video lottery  operations,  the Company had the following
gross wins and losses for the years ended December 31, 1995, 1994 and 1993:

<TABLE>
<CAPTION>

                                                            1995                1994                 1993
                                                            ----                ----                 ----

<S>                                                        <C>                 <C>                  <C>         
Total gross winnings                                       $ 55,988,000        $ 23,214,000         $ 16,736,000
Less losses (patron payouts)                                (39,509,000)        (15,733,000)         (11,443,000)
                                                           ------------        ------------         ------------
Revenues - Video lottery
  terminals                                                $ 16,479,000        $  7,481,000         $  5,293,000
                                                           ============        ============         ============
</TABLE>

                                      F-29

<PAGE>

With respect to the  operations of video lottery  terminals  subsequent to March
17, 1994, the Company pays an administrative  fee to the Lottery  Commission not
to exceed 4% of video  lottery  terminal net revenues.  After  assessment of the
administrative  fee,  the  Company  is  obligated  to  contribute  legislatively
designated  amounts to various  funds.  These  amounts are  included in "cost of
video lottery terminals" in the consolidated statements of operations.

Amounts  contributed  to these funds for the years ended  December  31, 1995 and
1994 were as follows:

                                             1995                1994
                                             ----                ----

HBPA purses (Note 13)                       $2,470,000           $1,070,000
Company pension plan (Note 7)                   80,000               31,000
West Virginia tourism promotion fund           478,000              187,000
West Virginia Breeders' Classic fund           159,000               62,000
West Virginia general fund                   4,780,000            2,371,000
Hancock County general fund                    319,000              125,000
Veterans Memorial fund                         159,000               63,000
                                            ----------           ----------
                                            $8,445,000           $3,909,000
                                            ==========           ==========

On June 2, 1994, the Company entered into a development  agreement with American
Gaming  Entertainment,  Ltd. (formerly Gamma International,  Ltd.) ("AGEL"),  an
affiliate  of  Bennett,   to  provide   services  for  development   activities,
implementation  of  accounting  and  information  systems and certain  personnel
activities until AGEL was approved by the Lottery  Commission.  Upon approval in
October 1994, a long-term management agreement was executed.

Pursuant to the  management  agreement,  the Company was  obligated to pay 3% of
gross  revenues,  of video  lottery and other  non-parimutuel  gaming and gaming
support  operations,  as defined,  plus 8% of earnings before  interest,  taxes,
depreciation  and  amortization,  as defined,  from all operating  activities of
Mountaineer. In the event of default by the Company, it would be required to pay
certain  monies based on the remaining  number of months through 1997, or in the
case of extension of video  lottery  activities  by the State of West  Virginia,
through  the term of the  agreement.  The  monthly  base  default  fee begins at
$83,333.  Management  and  consulting  fees  charged  to "cost of video  lottery
terminals" in the accompanying  consolidated statements of operations during the
years ended  December 31, 1995 and 1994 were $321,000 and  $133,000,  until such
time as a stay agreement was executed (see below). In addition, during 1994, the
Company  advanced AGEL $300,000 which was used to reduce future  management fees
and expenses.  At December 31, 1994, prepaid management fees in the accompanying
consolidated balance sheet were $220,000.

The Company's  management agreement with AGEL has been stayed pursuant to a stay
agreement  effective  June 30,  1995,  and has  been  replaced  by a  consulting
agreement,  dated  July 1,  1995,  until such time that  Bennett  complies  with
certain  requirements of the Lottery Commission.  The consulting agreement calls
for American Newco, Inc. (owned by certain officers and shareholders of AGEL) to
continue to provide  consulting  services in connection with the Company's video
lottery operations at the rate of $10,000 per month,  subject to increases of up
to $10,000 per month for  additional  services  which may be  provided,  through
March 17, 1997. Fees under this consulting agreement are substantially less than
those which would have been paid under the original management agreement.

Should  the  stay  agreement  or  the  consulting  agreement  be  terminated  in
accordance  with  certain   contingencies   contained  therein,  the  management
agreement shall also terminate. However, should the Lottery Commission determine
that Bennett has fully  complied  with its  information  requirements,  then the
management  agreement  will be  reinstated  with the  original  terms as defined
above.  At  December  31,  1995,  accrued  consulting  fees in the  accompanying
consolidated balance sheet totaled $60,000.

The personal  involvement of the two  shareholders  of American  Newco,  Inc. as
consultants  to  the  Company  is a  material  element  of the  contract.  Since
September 1995, neither shareholder has provided such services and, as a result,
the Company has paid no  consulting  fees since that time.  Management  believes
that such failure to perform  constitutes  a material  breach of the  Consulting
Agreement and a resulting material breach of the Management Agreement.  Although
there can be no assurances,  Management  believes that the Management  Agreement
will not be reinstated.

                                      F-30

<PAGE>

NOTE 15 - STATEMENTS OF CASH FLOWS

The  statements  of cash flows  exclude  the  effects of noncash  investing  and
financing  activities  for all periods  presented.  Supplemental  disclosures of
significant noncash activities are as follows:

1995

In 1995,  202,833  redeemable  common shares valued at $1,217,000 were satisfied
through 463,600  additional  shares of its common stock (see Notes 2, 9 and 10).
Also see following paragraph for additional shares issued in 1995.

The Company issued 225,000 shares to Bennett for loan fees; these amounts,  plus
285,000  shares  valued at  $1,710,000  (aggregate  $3,060,000  of  costs)  were
reversed  in 1995 due to the  cancellation  of the  $6.00  price  guarantee.  In
satisfaction of such, the Company ultimately issued 1,020,000  additional shares
valued at $1,530,000 and  relinquished  its rights to the original  510,000 at a
value of $478,000.  Such costs were  accounted  for as deferred  finance  costs,
interest and capitalized  interest to its  construction in progress (Notes 1 and
5).

During the year ended December 31, 1995, the Company issued 77,332 shares valued
at approximately $42,000 for services rendered, and the value of such shares was
charged to the 1995 consolidated statement of operations.  Certain services were
rendered  in 1995 which were to be  satisfied  through  the  issuance  of common
stock;  however,  the parties  cancelled 97,500 shares issued in 1994 which were
valued at $100,000. Such amounts are reflected as a reduction from stockholders'
equity with a corresponding increase in accrued liabilities.

In connection with the Jackpot  settlement  (Note 7), the Company issued 175,000
shares of its common stock in  satisfaction  of noncurrent  accrued  liabilities
totalling  $414,000  ($525,000  accrued at  December  31,  1994);  approximately
$77,000 at December 31, 1995 are expected to be reduced  through the issuance of
75,000 shares in 1996.

Certain finance fees totalling  $997,500 (Note 5) which were accrued as deferred
finance costs in at December 31, 1995, were canceled due to the amendment by the
Company and Bennett.  In addition in 1995,  the Company  issued 60,850 shares in
satisfaction of a note payable of approximately $43,000.

1994

During  1994,  the Company  issued  50,000  common  shares for various  services
rendered valued at $110,000. The Company also issued 10,681 and 97,500 shares of
its common  stock  valued at $40,000  and  $100,000,  respectively  for  certain
accounts  payable and other current assets.  The Company  recorded  compensation
expense of  $600,000  as a result of options to purchase  the  Company's  common
stock at below market values granted to two former  shareholders  of Mountaineer
(see Note 9).

From July 1994 to December 1994, the Company issued 285,000 common shares valued
at  $1,710,000,  accrued  $200,000 in loan  commissions  to be paid in 1995, and
accrued $998,000 of construction financing costs which will be satisfied through
the issuance of common stock.  Components of such costs of $1,568,000,  $709,000
and $631,000  are excluded  from cash  expended  for deferred  financing  costs,
buildings and improvements and interest expense, respectively.

In December  1994,  the Company  accrued a liability for the Jackpot  settlement
costs of $525,000  which will be  satisfied  through the  issuance of its common
stock in 1995.

See Note 3 for  discussion of sale of investment  and  settlement  agreement for
noncash transactions.

During  1994,  the Company  had certain  noncash  provisions,  net of  benefits,
reflected in operations aggregating a net benefit of $29,000.

1993

On January 1, 1993, the Company adopted SFAS 109,  "Accounting for Income Taxes"
and,  as  a  result,  recorded  deferred  income  taxes  of  $1,952,000  with  a
corresponding increase to property.

                                      F-31

<PAGE>

In April 1993,  the Company  issued  50,000 shares of its common stock valued at
$300,000 to acquire a 20% interest in a ground lease (see Note 2).

On March 31, 1993, the holders of $750,000, 8% convertible debentures elected to
convert their  debentures and accrued interest of $82,000 into 416,197 shares of
common stock.

On March 25,  1993,  $1,382,000  in debt related to oil and gas  activities  was
converted  into 226,266  shares of common stock  (valued at $792,000) and 98,333
shares of  Redeemable  common stock (valued at  $590,000).  In addition,  20,000
shares of  common  stock  issued in 1992 for  $100,000  of debt and  $20,000  of
interest were rescinded.

In July 1993, the Company  reconveyed land acquired in Cripple Creek,  Colorado,
valued at $1,315,000, to the seller in exchange for long-term debt of $1,315,000
(see Note 2).

The Company issued 197,787 shares for various  services  rendered in 1993 valued
at $619,000.  The Company recorded  compensation expense of $600,000 as a result
of options to purchase the Company's common stock at below market values granted
to former shareholders of Mountaineer (See Note 9).

During  1993,  the Company  had certain  noncash  provisions,  net of  benefits,
reflected in  operations  aggregating  $145,000.  Such amounts were  expected to
provide future benefits or were based on estimates at December 31, 1992.

NOTE 16 - SUBSEQUENT EVENTS

Expanded Gaming Legislation

In March  1996,  the West  Virginia  code was  amended  to  permit  game  themes
depicting symbols on reels,  commonly referred to as "line games" or "video slot
games".  The legislation will go into effect in June 1996,  unless vetoed by the
Governor of West Virginia.

Lease Amendment

In March  1996,  the  Company  amended  its master  lease for its video  lottery
terminals (see Note 7).

Bridge Financing

In March  1996,  the  Company  entered  into  five  short-term  note  agreements
aggregating  $750,000  due in  five  monthly  equal  principal  installments  of
$150,000  each,  commencing  30 days  from the  date of the  loan.  The  Company
received an aggregate  $570,000 of proceeds.  In  addition,  the Company  issued
75,000  shares  of  its  common  stock  valued  at   approximately   $50,000  as
consideration  for the  loan.  Total  interest  costs on this  indebtedness  are
expected to be approximately $230,000 and will be charged to operations in 1996.


                                      F-32

<PAGE>

                    CONDENSED AND CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                        June 30,         December 31,
                                                          1996               1995
                                                          ----               ----

ASSETS
Current Assets:
<S>                                                      <C>                <C>        
  Cash and cash equivalents                              $   893,000        $   807,000
  Restricted cash 411,000 426,000
  Notes receivable from related parties, net of
    allowance for doubtful accounts of $290,000               62,000             62,000
  Accounts receivable, net of allowance for
    doubtful accounts of $112,000 and $70,000
    for 1996 and 1995, respectively                          224,000            174,000
  Deferred financing costs                                   268,000            388,000
  Other current assets                                       346,000            115,000
                                                         -----------        -----------
         Total current assets                              2,204,000          1,972,000
                                                         -----------        -----------
Property:
  Land   371,000                                             371,000
  Buildings                                               15,716,000         15,716,000
  Equipment and automobiles                                2,292,000          2,258,000
  Furniture and fixtures                                   2,046,000          2,021,000
  Construction in progress                                   989,000            519,000
                                                         -----------        -----------
                                                          21,414,000         20,885,000
  Less accumulated depreciation                           (3,525,000)        (2,785,000)
                                                         -----------        -----------
                                                          17,889,000         18,100,000
Net Assets of Discontinued
  Oil and gas activities                                   2,616,000          2,616,000
Other Assets:
  Excess  of  cost of  investments  over 
  assets  acquired,  net of  accumulated
  amortization of $896,000 and $770,000 
  for 1996 and 1995, respectively                          2,878,000          3,004,000
  Deposits and other                                          27,000             55,000
                                                         -----------        -----------
                                                           2,905,000          3,059,000
                                                         -----------        -----------
TOTAL ASSETS                                             $25,614,000        $25,747,000
                                                         ===========        ===========
</TABLE>


                       See accompanying notes to financial statements.

                                      F-33

<PAGE>

                    CONDENSED AND CONSOLIDATED BALANCE SHEETS

                                                June 30,         December 31,
                                                  1996               1995
                                                  ----               ----

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Accounts payable                              $  2,606,000       $  3,474,000
  Accrued liabilities                              2,183,000          2,096,000
  Accrued leases                                     610,000            161,000
  Short term notes payable                           718,000                  0
  Current portion of long term debt                3,727,000          2,536,000
  Redeemable common stock                            772,000            991,000
                                                ------------       ------------
         Total current liabilities                10,616,000          9,258,000
Accrued Liabilities                                  343,000            490,000
Deferred Income Taxes                              1,463,000          1,529,000
Long Term Debt, net of current                     6,363,000          8,071,000
Redeemable Common Stock, net of current              246,000            415,000
                                                ------------       ------------
Total Liabilities                                 19,031,000         19,763,000
                                                ------------       ------------
Shareholders' Equity:
  Common stock                                         2,000              2,000
  Paid-in-capital                                 32,760,000         32,115,000
  Receivable from exercise of stock options                0            (69,000)
  Accumulated deficit                            (26,179,000)       (26,064,000)
                                                ------------       ------------
         Total shareholders' equity                6,583,000          5,984,000
                                                ------------       ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY      $ 25,614,000       $ 25,747,000
                                                ============       ============



                       See accompanying notes to financial  statements.

                                      F-34

<PAGE>


               CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS

                       Three Months Ended Six Months Ended

<TABLE>
<CAPTION>
                                                                        June 30                              June 30
                                                                        -------                              -------
                                                               1996               1995             1996               1995
                                                               ----               ----             ----               ----

Revenues:
<S>                                                          <C>                <C>                <C>                <C>        
  Video lottery terminals                                    $ 6,142,000        $ 3,892,000        $11,900,000        $ 6,843,000
  Pari-mutuel commissions                                      1,157,000          1,151,000          2,165,000          2,048,000
  Food, beverage and lodging                                     921,000            873,000          1,573,000          1,391,000
  Other                                                          303,000            305,000            463,000            542,000
                                                             -----------        -----------        -----------        -----------
Total Revenue                                                $ 8,523,000        $ 6,221,000        $16,101,000        $10,824,000
                                                             -----------        -----------        -----------        -----------
Costs and Expenses:
  Cost video lottery terminals                               $ 4,083,000        $ 2,710,000        $ 8,028,000        $ 4,892,000
  Cost of pari-mutuel commissions                              1,361,000          1,393,000          2,497,000          2,644,000
  Cost of food, beverage and
    lodging                                                      848,000            871,000          1,529,000          1,616,000
  Cost of other revenues                                         276,000            304,000            492,000            522,000
  General and administrative
    expenses                                                     883,000          1,380,000          2,078,000          2,481,000
  Depreciation and amortization                                  407,000            317,000            866,000            620,000
                                                             -----------        -----------        -----------        -----------
Total Costs and Expenses                                     $ 7,858,000        $ 6,975,000        $15,490,000        $12,775,000
                                                             -----------        -----------        -----------        -----------
Operating Income (Loss)                                          665,000           (754,000)           611,000         (1,951,000)
Interest Expense                                                (593,000)          (344,000)          (792,000)          (760,000)
                                                             -----------        -----------        -----------        -----------
Income (Loss) Before Income Taxes                                 72,000         (1,098,000)          (181,000)        (2,711,000)
Benefit for Income Taxes                                          33,000             32,000             66,000             65,000
                                                             -----------        -----------        -----------        -----------
Net Income (Loss)                                            $   105,000        $(1,066,000)       $  (115,000)       $(2,646,000)
                                                             ===========        ===========        ===========        ===========
Net Income (Loss) Per Share                                  $       .01        $      (.07)       $      (.01)       $      (.17)
                                                             ===========        ===========        ===========        ===========
Weighted Average Number of Shares
  Outstanding                                                 18,274,708         15,260,481         18,217,246         16,033,815
                                                             ===========        ===========        ===========        ===========

</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-35

<PAGE>

               CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                 Six Months          Six Months
                                                    Ended               Ended
                                             June 30, 1996       June 30, 1995
                                              -------------       -------------
<TABLE>
<CAPTION>

CASH FLOW FROM OPERATING ACTIVITIES
<S>                                                   <C>                  <C>         
Net Loss                                              $  (115,000)         $(2,646,000)
Adjustments to reconcile net losses to
  net cash used in operating activities:
    Depreciation and amortization                         866,000              613,000
    Common stock issued and stock options
      granted for services rendered                       292,000                    0
  Common stock issued for interest expense                230,000              315,000
  Provision for doubtful accounts                          40,000                    0
  Provision for settlement agreements                    (208,000)              18,000
  Deferred income taxes                                   (66,000)             (65,000)
Net Change in Assets and Liabilities:
  Prepaid expenses and other                              (80,000)             450,000
  Restricted cash                                          15,000              286,000
  Net assets of discontinued operations                         0              (26,000)
  Accounts payable and accrued expenses                  (347,000)             973,000
                                                      -----------          -----------
  CASH PROVIDED BY (USED IN) OPERATING
    ACTIVITIES                                            627,000              (82,000)
                                                      -----------          -----------
CASH FLOWS FROM INVESTING ACTIVITIES
  Deposits and other                                       28,000                2,000
  Capital expenditures                                   (593,000)          (3,573,000)
                                                      -----------          -----------
  CASH USED IN INVESTING ACTIVITIES                   $  (565,000)         $(3,571,000)
                                                      -----------          -----------
CASH FLOW FROM FINANCING ACTIVITIES
  Principal payments                                   (1,076,000)                   0
  Proceeds from issuance of notes payable               1,100,000            3,652,000
  Proceeds from issuance of common stock                        0               27,000
                                                      -----------          -----------
CASH PROVIDED BY FINANCING ACTIVITIES                 $    24,000          $ 3,679,000
                                                      -----------          -----------
NET INCREASE (DECREASE) IN CASH                            86,000               26,000
Cash, Beginning of Period                                 807,000            1,057,000
                                                      -----------          -----------
Cash, End of Period                                   $   893,000          $ 1,083,000
                                                      ===========          ===========
</TABLE>


                See accompanying notes to consolidated financial statements.


NOTE 1 - BASIS OF PRESENTATION

The accompanying  unaudited  condensed,  consolidated  financial statements have
been prepared in accordance with generally  accepted  accounting  principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation  S-X.  Accordingly,  they do not include all of the information
and  disclosures  required  by  generally  accepted  accounting  principles  for
complete  financial  statements.  In the opinion of Management,  all adjustments
(consisting of only normal recurring accruals)  considered  necessary for a fair
presentation  have been included  herein.  Operating  results for the six months
ended June 30, 1996 are not  necessarily  indicative  of the results that may be
expected for the year ended December 31, 1996. For further information, refer to
the  consolidated  financial  statements  and  notes  thereto  included  in  the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1995.


NOTE 2 - CONTINGENCIES

In 1995, the Registrant  recorded a provision for loss in the amount of $308,000
for a legal  settlement  based on  management's  estimates.  In June  1996,  the
related  lawsuit  was  dismissed  upon  payment  of a $100,000  settlement.  The
remaining  $208,000  reserve was reversed in June,  1996,  and is reflected as a
reduction  in  general  and   administrative   expenses  in  the  Condensed  and
Consolidated Statements of Operations.

The  Registrant has developed and is  implementing  a corrective  action plan to
stop leakage from  underground  storage tanks at its Mountaineer  Race Track and
Resort facility in Chester,  West Virginia.  In 1995,  Management  estimated the
cost of the plan to be $140,000,

                                      F-36

<PAGE>

consisting of $60,000 in monitoring and operational costs to be expended in 1995
and 1996,  and  $80,000 in capital  expenditures  to be  incurred  in 1996.  The
Registrant  recorded  a  provision  of  $140,000  in 1995  for  these  projected
expenses.  The Registrant  expended  $45,000 relating to this contingency in the
second half of 1995 and $59,000 in the first half of 1996.


NOTE 3 - INCOME TAXES

The  benefit  for  income  taxes  recorded  in  the  accompanying  statement  of
operations  for the six month  periods ended June 30, 1996 and 1995 results from
non-tax deductible  depreciation  expense attributable to the purchase method of
accounting for the  investment.  At June 30, 1996, the Registrant has recorded a
non-current  valuation  allowance  of  approximately  $8.7  million  against its
primary  deferred tax assets (net operating loss  carryforwards  for federal and
state income tax purposes).  At June 30, 1996, the Registrant has  approximately
$23  million in net  operating  loss  carryforwards,  however,  as a result of a
change of  ownership  of the  Registrant  during  1992 due to  issuances  of the
Registrant's  common  stock,  the use of such net operating  loss  carryforwards
earned during 1992 through 1995 is subject to certain limitations.


NOTE 4 - DISCONTINUED OIL AND GAS ACTIVITIES

                               BALANCE SHEET ITEMS

                                                 June 30          December 31
                                                  1996               1995
                                                  ----               ----

ASSETS
  Term note receivable                            $  192,000         $  236,000
  Production note receivable                         150,000            150,000
  Oil and gas activities:
    Working interest in proved oil and gas
      properties                                   2,582,000          2,582,000
                                                  ----------         ----------
                                                   2,924,000          2,968,000
                                                  ----------         ----------
LIABILITIES
  Accounts payable and accrued liabilities          (293,000)          (252,000)
  Payables to related parties                        (15,000)          (100,000)
                                                  ----------         ----------
NET ASSETS                                        $2,616,000         $2,616,000
                                                  ==========         ==========

The  Registrant's  remaining  oil  and  gas  assets  are  located  in  Michigan,
consisting  of a 25% working  interest  in a 64% net revenue  interest in proved
reserves.  Thirty-four  wells  are  located  on the  property  which  have  been
inoperative  since the  Registrant  acquired the property in December  1992. The
well sites require certain remedial activities, which include abandonment costs.
Management  has  estimated  the cost of such  remedial  activities to range from
$1,200,000 to $2,000,000  should its current plan of operation with  Fleur-David
not  continue.  Management  expects  to  continue  with its  initial  rework and
eventual  waterflood project with Fleur-David to minimize the Registrant's costs
associated  with  remediation  and  abandonment of the wells.  The  Registrant's
estimated cost of rework and waterflood, as a 25% joint venture interest holder,
is  $550,000,  $311,000  of which has been paid  through  June 30,  1996 and the
remaining  $239,000  included as a liability  in the net assets of  discontinued
operations in the accompanying June 30, 1996 condensed and consolidated  balance
sheet.

Related Party Transactions

Sale of Oil and Gas Leases and Wells.  In December 1994, the Registrant  entered
into an arrangement to sell certain proved and unproven gas reserves  located in
Southeast Ohio for notes valued at approximately  $426,000 to a party related to
an officer and  shareholder  of the  Registrant.  In connection  therewith,  the
Registrant obtained two notes, a $300,000 note bearing interest at 8% per annum,
payable at $10,000 per month  beginning June 1995,  and a $150,000  non-interest
bearing note,  payable based on 50% of production  revenues in excess of $10,000
per month,  secured by the assets sold.  The  Registrant  recorded a loss on the
sale of these  assets of  $567,000  in 1994.  At June 30,  1996,  the  principal
balance on the term note is approximately $192,000, and the principal balance of
the production note is $150,000.

Notes  Payable.  During  1994 and  1995,  various  corporate  affiliates  of Mr.
Arneault advanced an aggregate sum of approximately $100,000 to the Registrant's
ExCal subsidiary primarily

                                      F-37

<PAGE>

to cover  overhead  expenses in connection  with the  maintenance  of leases and
other costs associated with the  Registrant's  existing oil and gas interests in
Michigan and former  interests in Ohio. In February 1996,  such accrued  amount,
along with accrued  interest thereon at the rate of 10% per annum, was converted
into three demand promissory notes in the aggregate principal amount of $100,218
payable to such  corporate  affiliates  of Mr.  Arneault  at the rate of 10% per
annum.  At June 30,  1996,  two of the notes  have  been paid and the  principal
balance on the remaining note payable is $15,000.  No material overhead expenses
are expected to be incurred in 1996.


NOTE 5 - LICENSING

In June 1996,  Mountaineer's  video lottery license was renewed through June 30,
1997.


NOTE 6 - SETTLEMENT AGREEMENT

In January  1993,  the  Registrant  entered  into a financing  arrangement  with
Jackpot  Enterprises,  Inc. On March 2, 1995, the Registrant  settled a claim by
Jackpot,  effective  June 25,  1994,  by agreeing to issue  shares of its common
stock with  registration  rights.  The number of shares is based on a guaranteed
price of $512,500 divided by the closing market price per share on the effective
date of registration.  The Registrant  recorded a provision for loss of $525,000
in  connection  with the  settlement  which  was  included  in the  consolidated
statement of operations for the year ended December 31, 1994.

The  Registrant  issued  125,000 shares to Jackpot on the date of the settlement
and,  for  every  60  days  the  registration  statement  remains  unfiled,  the
Registrant is obligated to issue an additional 12,500 shares, up to a maximum of
125,000  additional  shares. At June 30, 1996, 100,000 of such additional shares
have been issued;  37,500 of such  additional  shares were issued during the six
months ended June 30, 1996, to which a value of $52,000 was ascribed and charged
to accrued liabilities.  The issuance of such shares has been, and will continue
to be reflected in the statement of stockholders'  equity at no additional value
or consideration.


NOTE 7 - LONG-TERM DEBT

Construction Note Payable

In March 1996, Bennett Management & Development  Corporation and its parent, The
Bennett Funding Group,  Inc.,  filed for protection from creditors under Chapter
11 of the federal bankruptcy laws. The bankruptcy court subsequently  assigned a
trustee to  administer  the  affairs of the  estates  while in  bankruptcy.  The
Registrant  has continued to remit  interest and  principal  payments to Bennett
Management & Development  Corporation  under the terms of the construction  loan
agreement,  as amended  January 1996. The outstanding  principal  balance of the
construction  note payable is $9,633,333 at June 30, 1996. The  Registrant  paid
$566,666 and $638,000,  respectively,  of principal and interest relating to the
construction note in the first six months of 1996.

Term Notes

In September 1995, the Registrant entered into an agreement with its totalisator
system  supplier to convert  $461,000 of outstanding  trade payables into a term
note.  Under the terms of the  agreement,  the Registrant is required to make 21
monthly interest and principal payments of $17,800 and 8 additional  payments of
approximately  $17,800 on various dates through May 31, 1997. The loan, which is
unsecured,  bears interest at the rate of 12% per annum.  The loan is subject to
an  acceleration  clause  and  other  financial  disincentives  in the  event of
default.  At June 30, 1996, the outstanding  principal balance is $251,000.  The
Registrant paid $157,000 and $21,000 of principal and interest, respectively, in
the first six months of 1996 related to this term note.

In May 1996,  the Registrant  reached a settlement  agreement with the holder of
52,250  shares of  redeemable  common  stock,  valued at  $313,000,  as  further
described in Note 9. Pursuant to the settlement agreement, the Registrant agreed
to pay $25,000  upon  execution  of the  settlement  agreement  and  delivered a
promissory note calling for a total of three payments of $5,000 due on August 1,
1996,  November  1, 1996 and  February  1, 1997;  a payment of $50,087 on May 1,
1997; and a total of four annual  payments of $40,087 due on May 1, 1998 through
2001.  The promissory  note,  which is unsecured,  does not bear  interest.  The
obligation to pay the amounts identified above was discounted at the rate of 8%,
and long

                                      F-38

<PAGE>

term  debt  in  the  amount  of  $206,000  was  recorded  in the  Condensed  and
Consolidated Balance Sheet, as of June 30, 1996.

The Registrant charged $601,000 and $760,000,  respectively, to interest expense
relating  to  long-term  debt in the six month  periods  ended June 30, 1996 and
1995.  The  Registrant  capitalized  $267,000 and  $1,027,000 of interest in the
first two quarters of 1996 and 1995, respectively.


NOTE 8 - SHORT TERM NOTES PAYABLE

In the first half of 1996,  the  Registrant  entered into a series of short-term
note agreements with three lenders  aggregating  $1,100,000.  Under the terms of
the  agreements  the  Registrant  is obligated to repay a total of $1,302,000 in
interest and  principal in 1996.  In addition,  the  Registrant  issued  100,000
shares of its common stock, and warrants to purchase 50,000 shares of its common
stock at $0.80 per share,  valued in the  aggregate  at $81,000 as  supplemental
consideration  for the loans.  The remaining  principal  balance of the notes is
$718,000 at June 30, 1996. Future principal obligations for the loans, which are
unsecured, are as shown below:

                                    July           August
                                    1996            1996            Total
                                    ----            ----            -----

$600,000 short-term notes dated
  March 22, 1996                    $112,000        $106,000        $218,000
$250,000 short-term note dated
  May 30, 1996                       250,000               0         250,000
$250,000 short-term note dated
  June 7, 1996                             0         250,000         250,000
                                    --------        --------        --------
                                    $362,000        $356,000        $718,000
                                    ========        ========        ========

The Registrant charged $192,000 to interest expense relating to short-term notes
in the first half of 1996.


NOTE 9 - CAPITAL TRANSACTIONS

During  1995,  the  Registrant  incurred  salaries to key members of  management
totaling  $204,000  which  remained  unpaid at December 31, 1995. On February 9,
1996, the board of directors approved two agreements to issue a total of 466,676
shares of the  Registrant's  common stock in  satisfaction  of $186,000 of these
liabilities  (plus accrued interest of $3,300  calculated at the rate of 10% per
annum) based on the closing market price of the stock on that day of $.40625 per
share. The agreements provide that for a term of one year commencing February 9,
1996, in the event the initial holders  propose to sell any of the shares,  they
shall be required to notify the  Registrant of such intention and the Registrant
may then elect,  at any time before the proposed  date of sale,  to purchase the
shares at the price of $1.00 per share,  payable  within two days after the date
of such election.  Otherwise,  the shares may be sold as proposed.  In addition,
the  Registrant  shall have the right at any time to  purchase  the shares for a
price of $1.00 per share within two days after notice of its intention to do so.

In November 1995,  the Registrant  entered into an agreement to compensate a key
consultant for services  previously  rendered to the  Registrant.  The agreement
provided for the issuance of 200,000 shares of the Registrant's  common stock to
the  consultant and  registration  of the shares on From S-8 with the Securities
and Exchange  Commission.  The  registration  statement was filed on December 4,
1995, and the shares were issued effective January 19, 1996.

In November 1995, the Registrant's board of directors adopted an incentive stock
option plan  meeting the  requirements  of Section 422 of the  Internal  Revenue
Code,  subject to shareholder  approval.  In accordance  with the plan,  500,000
shares were  reserved for  issuance on January 23, 1996 at an exercise  price of
$.5625 per share,  based on the closing  market  price of the stock on that day.
The options  are  exercisable  over a period of five  years,  subject to certain
limitations.

On  January  23,  1996,  the  board  of  directors  granted  to its two  outside
directors,  Robert A. Blatt and Robert L. Ruben,  non-qualified stock options to
purchase  50,000  shares and 75,000  shares of the  Registrant's  common  stock,
respectively, at the fair market value

                                      F-39

<PAGE>

of the  shares  on the date of grant of  $0.5625  per  share.  The  options  are
immediately exercisable for a term of five years.

On March 22,  1996,  the  Registrant  issued  100,000  shares of common stock in
connection with the short-term  financing described in Note 8 above. Such shares
were valued at the fair market  value of $.8125 per share on that date,  and are
being amortized to interest expense over the life of the related loan.

In 1992,  the  Registrant  acquired  all of the capital  stock of Golden  Palace
Casinos, Inc. in exchange for 4,311,000 shares of the Registrant's common stock.
With  respect to 209,000  shares of such stock,  the  founders of Golden  Palace
Casinos were granted put rights  requiring the  Registrant to redeem such shares
at $6.00 per share at the request of the holders ("Redeemable  Shares"). On June
30, 1995,  holders of 104,500 Redeemable Shares received an aggregate of 366,750
shares of the Registrant's  common stock, of which 276,750 shares are subject to
conversion into notes at a value of $1.50 per share or  approximately  $417,000.
The  Registrant  negotiated  settlements  in the second quarter of 1996 with the
holders of the remaining  104,500  Redeemable  Shares as described  below and in
Note 7. As a result of these  settlements,  the  Registrant  recorded a $211,000
increase to paid-in-capital,  reflecting the  reclassification of 104,500 shares
to stockholders' equity. The $206,000 long-term note payable was recorded in the
accompanying Condensed and Consolidated Balance Sheet. There was no gain or loss
arising from the settlement agreements.

Pursuant to one of the settlement  agreements,  the  Registrant  agreed to issue
133,416 shares of the Registrant's common stock (the "Shares"). In the event the
average  market  price of the  Registrant's  common stock is less than $1.50 per
share for the 90 trading days following the effective  date of the  registration
statement,  the  Registrant  will be required to issue that number of additional
shares  required  to satisfy  the  difference  between  $1.50 per share and such
average  market price.  If the Shares were not  registered by June 30, 1996, the
Registrant  agreed to execute a promissory  note in the amount of $200,125  with
interest at 12% per year from the date of the note,  payable in 24 equal monthly
installments.

So long as the  Registrant  is not in  default  with  respect  to its  repayment
obligations under the promissory note, if such note is required to be delivered,
then upon either (i) the  registration  of the Shares or (ii) the eligibility of
the Shares for public sale pursuant to SEC Rule 144, then the  Registrant  shall
receive as a credit  against any amounts then due under the note an amount equal
to the average  closing market price of the common stock for the 90 trading days
following  the  effective  date of the  registration  statement  or the date the
Shares  become  eligible  for public  sale under Rule 144.  Upon  execution  and
delivery  of the  promissory  note,  the  Registrant  will  have  the  right  to
repurchase  the  Shares  for $1.50 per share and  would,  upon such  repurchase,
receive a like credit  against the amount due under the note.  The  creditor may
extinguish  the  Registrant's  right of repurchase  upon notice,  resulting in a
credit  against  the note equal to $1.50 per share  multiplied  by the number of
shares as to which the right of repurchase had been extinguished.


NOTE 10 - SUBSEQUENT EVENTS

Finance Arrangement
   
On  July  2,  1996,  the  Registrant's  Mountaineer  subsidiary  entered  into a
financing arrangement with a private lending firm for a working capital loan and
a commitment for first mortgage refinancing. The $5 million loan is secured by a
second mortgage on Mountaineer's real and personal property and is guaranteed by
the  Registrant.  The note  evidencing  the loan calls for  monthly  payments of
interest only at the rate of 12% per annum, and a default rate of 22% per annum.
The  Registrant  also  agreed to issue the lender  183,206  shares of its common
stock and  warrants  to  purchase an  additional  1,141,250  shares at $1.06 per
share.  The principal is to be repaid at the end of the three year term,  during
which the loan is subject to, on each anniversary date,  additional fees in cash
equal  to 8% of the  outstanding  principal  balance,  stock  equal to 5% of the
outstanding principal balance divided by the average daily closing price on each
business  day for the 30 days  prior to the third day  before  each  anniversary
date,  and  warrants to  purchase  250,000  shares of common  stock at $1.06 per
share.  Certain  restrictions are imposed  limiting the Registrant's  ability to
incur  additional  debt,  make capital  expenditures  and increase  management's
compensation, and anti-dilution provisions are included to protect the lender in
the event the Registrant issues additional
    
                                      F-40

<PAGE>

securities at a price below $1.06 per share without the consent of the lender or
subsequent holders of the warrants.

As part of the  transaction,  the lender also provided a one year  commitment to
lend Mountaineer up to $11.1 million of additional funds to be used to refinance
the current first  mortgage held by Bennett  Management & Development  Corp. The
commitment  is  subject  to  customary  conditions,   including  negotiation  of
definitive loan  agreements.  In connection with the financing  commitment,  the
Registrant  agreed to pay a  $110,000  commitment  fee and to issue  the  lender
additional  warrants to  purchase  350,000  shares of common  stock at $1.06 per
share.

In order to assure  compliance  with  provisions of the West Virginia  Racetrack
Video Lottery Act concerning  control over a licensee of the State Lottery,  the
lender has agreed  that it may not own,  through  the  exercise  of  warrants or
otherwise,  more than 5% of the Registrant's outstanding common stock unless and
until the West  Virginia  Lottery  Commission  either (i) approves the lender or
(ii) provides an advisory  opinion  approving an arrangement  whereby the lender
may own but may not  have  voting  rights  to any  shares  in  excess  of the 5%
threshold.  If the lender  becomes  disqualified  after such Lottery  Commission
approval, any shares held in excess of the 5% threshold, if registered, shall be
sold by the  lender  in the  market;  otherwise  such  shares  may be put to the
Registrant  at the then market  price,  payable in cash or a note with  interest
payable monthly at 24% per annum and all principal due in one year.

The Registrant  agreed to register the stock and warrants with the SEC,  subject
to cash penalties if such  registration  is not initially  filed on or before 90
days  from  the  date  of the  loan  agreement,  and up to two  additional  cash
penalties if the  registration is not declared  effective  before seven and nine
months  from the  date of  demand  therefor  by the  lender.  All  warrants  are
exercisable for a term of five years.

Net proceeds after  repayment of a $250,000 loan from an affiliate of the lender
pending the closing,  due diligence and loan  origination  fees, fees associated
with the take-out  commitment and the costs of the transaction are approximately
$4.2  million.  The  loan  proceeds  will be used by  Mountaineer  to  retire  a
substantial  portion of its accounts payable,  make future site improvements and
decorate the Speakeasy  Gaming  Saloon.  The loan proceeds will also be used for
television  and print  advertising  campaigns in the  Pittsburgh  and  Cleveland
markets.

Commencement of Video Slot Operations

On July 3, 1996,  Mountaineer  introduced  several  offerings of classic  casino
"slot"  games on 350 of its 800  video  lottery  terminals.  The new  games  are
offered in addition to  Mountaineer's  existing  gaming  choices of video poker,
keno and  blackjack.  Mountaineer  earned an  average  daily net win of $139 per
terminal  in the  first 33 days  following  installation  of video  slot  games,
compared to $68 per  terminal  during the same  period in 1995.  There can be no
assurance that the revenue levels generated  immediately  after the inception of
video slot operations can be sustained in future periods.

Note Receivable

   
In 1995, the Registrant  recorded a $50,000 loss provision in connection  with a
short  term  loan  advanced  in  1994 to a  company  with a  common  significant
shareholder. In April 1996, a confessed judgment promissory note was obtained to
secure payment for the loan.  Payment of $58,333,  including  interest at 8% per
annum, was due on August 4, 1996,  however,  no payment was made. The Registrant
is  currently  negotiating  to collect the amount now due and will  proceed with
legal  action  if   Management   determines   that  such   negotiations   become
unproductive.
    

                                      F-41

<PAGE>

PART II.  INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.  Other Expenses of Issuance and Distribution.

         The following is a list of the estimated expenses to be incurred by the
Company in connection with the  distribution of the securities  being registered
hereby, other than underwriting discounts and commissions.

   
                  Registration Fees.............................      $  628.00
                  Accountants' Fees and Expenses................     $15,000.00
                  Legal Fees and Expenses.......................     $65,000.00
                  Printing Expenses.............................     $10,000.00
                  Miscellaneous.................................     $ 5,000.00
                          Total.................................     $95.628.00
    


Item 14.   Indemnification of Directors and Officers

   
         Under  Section 145 of the DGCL a  corporation  may indemnify any person
who was or is a party or is  threatened  to be made a party  to any  threatened,
pending or  completed  action,  suit or  proceeding,  whether  civil,  criminal,
administrative or investigative  (other than an action by or in the right of the
corporation),  by  reason  of the fact  that he is or was a  director,  officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation,  partnership,  joint  venture,  trust or other  enterprise  against
expenses  (including  attorneys'  fees),  judgments,  fines and amounts  paid in
settlement actually and reasonably incurred in connection with such action, suit
or proceeding  if he acted in good faith and in a manner he reasonably  believed
to be in or not opposed to the best  interests  of the  corporation,  and,  with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
    

         A corporation also may indemnify any person who was or is a party or is
threatened to be made a party to any threatened,  pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director,  officer,  employee or agent of
the  corporation,  or is or was serving at the request of the  corporation  as a
director, officer, employee or agent of another corporation,  partnership, joint
venture,  trust or other enterprise against expenses (including attorneys' fees)
actually  and  reasonably  incurred  by him in  connection  with the  defense or
settlement  of such  action or suit if he acted in good faith and in a manner he
reasonably  believed  to be in or not  opposed  to  the  best  interests  of the
corporation. However, in such an action by or on

                                      II-1

<PAGE>

behalf of a corporation, no indemnification may be made in respect of any claim,
issue or matter as to which the  person is  adjudged  liable to the  corporation
unless  and only to the  extent  that the court  determines  that,  despite  the
adjudication  of liability but in view of all the  circumstances,  the person is
fairly and  reasonably  entitled to indemnity for such expenses  which the court
shall deem proper.

   
         In addition,  the indemnification  provided by Section 145 shall not be
deemed exclusive of any other rights to which those seeking  indemnification may
be entitled under any bylaw,  agreement,  vote of stockholders or  disinterested
directors or  otherwise,  both as to action in his  official  capacity and as to
action in another capacity while holding such office. The Certificate and Bylaws
of the Company are consistent with Section 145 . The  Certificate  provides that
no director shall be personally  liable to the  corporation or its  stockholders
for monetary damages for breach of fiduciary duty as a director,  except: i) for
any  breach  of  the  director's  duty  of  loyalty  to the  corporation  or its
stockholders,  ii) for acts and  omissions  not in good  faith or which  involve
intentional  misconduct  or  knowing  violation  of the  law;  iii) for acts for
specified  in Title 8,  Section 174 of the DGCL,  or iv) for which the  director
derived an improper personal benefit.

         In  addition  to  the  Certificate,   the  Company's   By-laws  provide
indemnification  (the  "Indemnity  Provisions")  for any  person who is or was a
party to any  threatened,  pending or  completed  action,  suit,  or  proceeding
whether civil, criminal, administrative, arbitrative, investigative procedure by
reason of the fact that he or she was a director,  officer, employee,  fiduciary
or agent of the Company or served in such  capacity  with another  entity at the
Company's  request  (such  persons  are  defined  as an  "Indemnified  Party" or
"Indemnified  Parties").  With  respect to third party  actions,  the  Indemnity
Provisions represent the Company's commitment to indemnify based on such persons
incurring expenses  (including legal fees) judgments,  fines,  excise taxes, and
amounts paid in settlement based on civil or criminal matters.  In the case of a
civil  matter,  the  Indemnified  Parties must have acted in good faith and in a
manner  reasonably  believed  by that person to be in or not opposed to the best
interests of the Company.  With  respect to a criminal  matter,  the person must
have had no reasonable cause to believe that the conduct was unlawful.
    

         With respect to derivative actions, Indemnified Parties are entitled to
indemnification  for any and all expenses  (including  attorneys' fees) actually
and  reasonably  incurred by him or her in  connection  with the  settlement  or
defense of such actions. The Indemnified Party must show that he or she acted in
good  faith  and a manner  reasonably  believed  by that  person to be in or not
opposed to the best  interests  of the Company,  except that no  indemnification
shall be available if such person has been adjudged

                                      II-2

<PAGE>

   
liable for  negligence  or  misconduct  in  performing  his or her duties to the
Company,  unless  the  court in  which  such  action  or suit  was  brought  has
determined upon application  that,  despite the adjudication of liability but in
view of all of the  circumstances  of the case, the Indemnified  Party is fairly
and  reasonably  entitled to  indemnification  for the  expenses the court deems
proper.  Nonetheless,  if the  Indemnified  Party is successful on the merits or
otherwise,  he or she need not show that the applicable  standard of conduct was
met. If not successful on the merits,  any  indemnification  may only be made if
the  Indemnified  Party  applies to the  Company for  indemnification  and (i) a
majority vote of a quorum of the Board,  or (ii) if a quorum is not available or
even if  obtainable,  or if a quorum of  disinterested  directly so directs,  by
independent  legal  counsel  in a  written  opinion,  or  (iii)  by  vote of the
stockholders of the Company.
    

         With  respect to both  derivative  actions  and actions and third party
actions,  the Indemnity Provisions also provide for the advancement of expenses,
including  actual and  reasonable  attorneys'  fees,  incurred in  defending  or
investigating  any  action,  suit,  proceeding  or claim,  subject  to a written
affirmation by the  Indemnified  Party or person  requesting an advance for such
Indemnified Party that he or she has met the applicable  standard of conduct and
that he or she will repay such advance if it is ultimately determined that he or
she did not meet the applicable standard of conduct.

         Notwithstanding the foregoing,  the Company has discretion to impose as
conditions to any of the  Indemnification  Provisions,  such requirements as may
appear  appropriate  in the specific case  including but not limited to: a) that
any counsel  representing  the person be mutually  acceptable to the Company and
the  Indemnified  Party,  b) that the Company has the right to assume control of
the  defense  of such  Indemnified  Party,  and c) that  the  Company  shall  be
subrogated to the extent of any payments made by way of  indemnification  to all
of such Indemnified  Party's right of recovery,  and do everything  necessary to
assure such rights of subrogation to the Company.

   
         The rights of  Indemnified  Parties under the Indemnity  Provisions are
not  exclusive  of any  other  rights  Indemnified  Parties  may have  under the
Certificate,  any  agreement,  vote  of  stockholders,   vote  of  disinterested
directors,  any liability  insurance policies (which the Board in its discretion
may obtain) or otherwise.
    

         Insofar as indemnification for liabilities arising under the Act may be
permitted  to  Indemnified  Parties  pursuant to the  foregoing  provisions,  or
otherwise,  the Company has been advised  that in the opinion of the  Commission
such  indemnification  is against  public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification

                                      II-3

<PAGE>

against  such  liabilities  (other  than the  payment by the Company of expenses
incurred or paid by a director,  officer or controlling person of the Company in
the  successful  defense of any action,  suit or proceeding) is asserted by such
persons in connection with the securities  being  registered,  the Company will,
unless in the opinion of its counsel the matter has been settled by  controlling
precedent,  submit to a court of appropriate  jurisdiction  the question whether
such  indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

Item 15.  Recent Sales of Unregistered Securities

   
         On January 15, 1993, the Company issued 6,000 shares of Common Stock to
Herzog,  Heine & Geduld pursuant to its exercise of certain warrants to purchase
Common  Stock at $6.00 per share for an  aggregate  purchase  price of $360,000.
This  transaction  was completed in reliance on the exemption from  registration
provided by 11 U.S.C. Section 1145.

         On January 15, 1993,  the Company  issued 10,000 shares of Common Stock
to Spear  Leeds & Kellogg  pursuant  to its  exercise  of  certain  warrants  to
purchase  Common  Stock at $6.00 per share for an  aggregate  purchase  price of
$60,000.  This  transaction  was  completed  in reliance on the  exemption  from
registration provided by 11 U.S.C. Section 1145.
    

         On February 2, 1993,  pursuant to a collateral  pledge  agreement,  the
Company issued 30,000 shares of Common Stock to Jackpot  Enterprises,  Inc. with
an  aggregate  value  of  $90,000.   This  issuance  was  considered  a  private
transaction pursuant to Section 4(2) of the Act.

   
         On February 4, 1993, the Company issued 5,659 shares of Common Stock to
Hector  Salitrero  in  settlement  of $26,710 in accrued  liabilities  for legal
services rendered prior to that date. This issuance was completed in reliance on
the exemption from registration provided by 11 U.S.C. Section 1145.

         On February 4, 1993, the Company issued 3,957 shares of Common Stock to
Freer & Alagia  in  settlement  of  $38,200  in  accrued  liabilities  for legal
services rendered prior to that date. This issuance was completed in reliance on
the exemption from registration provided by 11 U.S.C. Section 1145.

         On February 16, 1993,  the Company issued 14,500 shares of Common Stock
to Herzog,  Heine & Geduld  pursuant  to its  exercise  of certain  warrants  to
purchase  Common  Stock at $6.00 per share for an  aggregate  purchase  price of
$87,000.  This  transaction  was  completed  in reliance on the  exemption  from
registration provided by 11 U.S.C. Section 1145.
    

                                      II-4

<PAGE>

   
         On February 18, 1993,  the Company issued 20,000 shares of Common Stock
to Man & Company pursuant to its exercise of certain warrants to purchase Common
Stock at $6.00 per share  for an  aggregate  purchase  price of  $120,000.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C. Section 1145.

         On February 19, 1993,  the Company issued 40,171 shares of Common Stock
to Cede & Company  pursuant  to its  exercise  of certain  warrants  to purchase
Common  Stock at $6.00 per share for an  aggregate  purchase  price of $241,026.
This  transaction  was completed in reliance on the exemption from  registration
provided by 11 U.S.C. Section 1145.

         On March 1, 1993,  the Company issued 98 shares of Common Stock to Dean
Sessions  pursuant to his exercise of certain  warrants to purchase Common Stock
at $4.00 per share for an aggregate purchase price of $392. This transaction was
completed in reliance on the exemption from  registration  provided by 11 U.S.C.
Section 1145.
    

   
         On March 2, 1993,  the Company  issued  1,518 shares of Common Stock to
Cede & Company  pursuant to its exercise of certain  warrants to purchase Common
Stock at $6.00  per  share  for an  aggregate  purchase  price of  $9,108 . This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C. Section 1145.

         On March 4, 1993,  the Company  issued 15,000 shares of Common Stock to
Herzog,  Heine & Geduld pursuant to its exercise of certain warrants to purchase
Common Stock at $6.00 per share for an aggregate purchase price of $90,000. This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C. Section 1145.

         ** 3 On March 9, 1993,  the Company issued 2,000 shares of Common Stock
to Cede & Company  pursuant  to its  exercise  of certain  warrants  to purchase
Common Stock at $6.00 per share for an aggregate purchase price of $12,000. This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C. Section 1145.
    

                                      II-5

<PAGE>

   
         On March 11, 1993,  pursuant to a loan  agreement,  the Company  issued
options to purchase  5,000 shares of Common Stock at an exercise  price of $8.70
to Arnold and Joyann M.  Espeseth.  The  options,  which  vested upon  issuance,
expired unexercised on March 11, 1995. This was a private  transaction  effected
pursuant to Section 4(2) of the Act.
    

         On March 22, 1993, the Company issued options to purchase 50,000 shares
of Common Stock for $7.25 per share to M & R  Investments,  Inc.  These  options
vested upon issuance and expired  unexercised  on December 31, 1993.  This was a
private transaction effected pursuant to Section 4(2) of the Act.

   
         On March 30, 1993,  the Company issued 47,781 shares of Common Stock to
Cede & Company  pursuant to its exercise of certain  warrants to purchase Common
Stock at $6.00 per share  for an  aggregate  purchase  price of  $286,686.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C. Section 1145.

         On March 30,  1993,  the Company  issued 147 shares of Common  Stock to
Paine  Webber  pursuant to its exercise of certain  warrants to purchase  Common
Stock at  $6.00  per  share  for an  aggregate  purchase  price  of  $882.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C. Section 1145.

         On April 1, 1993, pursuant to a professional  services  agreement,  the
Company  approved the  issuance of warrants to purchase up to 500,000  shares of
Common Stock at an exercise price of $7.00 per share to Crystal Asset Management
Group,  Inc.  The  warrants  were to vest  incrementally  from  the  date of the
agreement  at the rate of 45,000  shares  per  month and were to be  exercisable
through  December 31, 1996.  Warrants to purchase  135,000  shares were actually
issued and remained  unexercised  until they were canceled and replaced pursuant
to a  settlement  agreement,  dated July 13,  1994,  with  warrants  to purchase
145,000  shares at $6.25 per share through  December 31, 1996.  The terms of the
replacement  warrants were modified  pursuant to a settlement  agreement between
the parties.

         On April 15, 1993,  the Company  issued 3,013 shares of Common Stock to
Charles Schwab  pursuant to its exercise of certain  warrants to purchase Common
Stock at $6.00  per share  for an  aggregate  purchase  price of  $18,078.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C. Section 1145.
    

         On April 15, 1993,  the Company issued 6 shares of Common Stock to Bear
Stearns  Securities  pursuant to its  exercise  of certain  warrants to purchase
Common Stock at $6.00 per share for an  aggregate  purchase  price of $36.  This
transaction was completed in

                                      II-6

<PAGE>

   
reliance on the exemption from registration provided by 11 U.S.C. Section 1145.
    

         On April 15, 1993,  the Company issued 72,271 shares of Common Stock to
Man & Company  pursuant to its exercise of certain  warrants to purchase  Common
Stock at $6.00 per share  for an  aggregate  purchase  price of  $433,626.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C.
   
 Section 1145.

         On April 15, 1993,  the Company issued 19,317 shares of Common Stock to
Herzog,  Heine & Geduld pursuant to its exercise of certain warrants to purchase
Common  Stock at $6.00 per share for an  aggregate  purchase  price of $115,902.
This  transaction  was completed in reliance on the exemption from  registration
provided by 11 U.S.C. Section 1145.

         On April 15, 1993,  the Company  issued 1,202 shares of Common Stock to
National  Financial  Services  pursuant to its  exercise of certain  warrants to
purchase  Common  Stock at $6.00 per share for an  aggregate  purchase  price of
$7,212.  This  transaction  was  completed  in  reliance on the  exemption  from
registration provided by 11 U.S.C. Section 1145.

         On April 16, 1993, the Company issued 103,759 shares of Common Stock to
Cede & Company  pursuant to its exercise of certain  warrants to purchase Common
Stock at $6.00 per share  for an  aggregate  purchase  price of  $622,554.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C. Section 1145.

         On April 19, 1993,  the Company issued 28,145 shares of Common Stock to
Cede & Company  pursuant to its exercise of certain  warrants to purchase Common
Stock at $6.00 per share  for an  aggregate  purchase  price of  $168,870.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C. Section 1145.
    

         On April 22, 1993,  the Company  issued 3,243 shares of Common Stock to
Paine  Webber  pursuant to its exercise of certain  warrants to purchase  Common
Stock at $6.00  per share  for an  aggregate  purchase  price of  $19,458.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by 11 U.S.C.
   
 Section 1145.
    

         On May 7, 1993, in  consideration  of  professional  services  rendered
pursuant to a consulting  agreement,  the Company issued 30,000 shares of Common
Stock with an aggregate value of $93,750 to Dallas Gold & Silver Exchange.  This
was a private transaction effected pursuant to Section 4(2) of the Act.

                                      II-7

<PAGE>

         On May 7, 1993,  the Company  issued  18,333  shares of Common Stock to
Electronic  Concepts,  Inc. in settlement of $110,000 in accrued liabilities for
services  rendered prior to that date. This was a private  transaction  effected
pursuant to Section 4(2) of the Act.

         On May 7, 1993,  pursuant to an  amendment  to an oil and gas  property
acquisition  agreement,  the Company  issued  226,286  shares of Common Stock to
Biscayne Petroleum  Corporation for notes payable and interest with an aggregate
value of $792,000.  This was a private transaction  effected pursuant to Section
4(2) of the Act.

   
         On May 13, 1993,  pursuant to a stock exchange  agreement,  the Company
issued 4,321,000 shares of Common Stock with an aggregate value of $3,210,481 to
the  stockholders  of Golden  Palace  Casinos,  Inc. in exchange  for all of the
outstanding shares of common and preferred stock of Golden Palace Casinos,  Inc.
These were private transactions effected pursuant to Section 4(2) of the Act.
    

         On May 13, 1993,  pursuant to a stock exchange  agreement,  the Company
issued  416,197  shares of Common Stock with an  aggregate  value of $832,394 in
exchange for debentures held by Golden Palace Casinos debenture  holders.  These
were private transactions effected pursuant to Section 4(2) of the Act.

   
         On May 21,  1993,  pursuant to an  amendment to an oil and gas property
acquisition agreement,  the Company issued 98,333 shares of Common Stock to nine
oil and gas partnerships for a note payable and interest with an aggregate value
of $123,000. This was a private transaction effected pursuant to Section 4(2) of
the Act.  On  October 1,  1995,  pursuant  to  another  amendment,  the  Company
authorized the issuance of 373,600  additional  shares of Common Stock valued at
$467,000.  This  transaction  was  completed in reliance on the  exemption  from
registration provided by Section 4(2) of the Act.
    

         On July 6, 1993,  pursuant to an  offering  circular  and  subscription
agreement,  the Company issued 60,000 shares of Common Stock to EBC Zurich A. G.
for an aggregate purchase price of $480,000,  of which aggregate  commissions of
$45,000 were paid.  This  transaction was completed in reliance on the exemption
from registration provided by Regulation S of the Act.

   
         On July 27, 1993,  pursuant to a  subscription  agreement,  the Company
authorized the issuance of 100,000 shares of Common Stock to Winterport Holdings
for a price of $4.95 per share. This transaction was to be completed in reliance
on the  exemption  from  registration  provided by  Regulation  S of the Act. On
September 22, 1993,  the subject shares were canceled and returned to authorized
and unissued status when Winterport canceled its subscription.
    

                                      II-8

<PAGE>

         On August 1O, 1993,  pursuant to an offering  circular and subscription
agreement,  the Company issued 55,000 shares of Common Stock to Now Model,  Inc.
for a price of $5.0375 per share for an aggregate purchase price of $277,063, of
which aggregate commissions of $27,706 were paid. This transaction was completed
in reliance on the exemption from  registration  provided by Regulation S of the
Act.

         On August 17, 1993, pursuant to a subscription  agreement,  the Company
issued  250,000  shares of Common Stock to Las Vegas  Entertainment,  Inc. for a
price of $3.00 per  share.  Pursuant  to a  settlement  agreement,  the  Company
repurchased  the shares for $3.00 per share on  February  22,  1994.  This was a
private transaction effected pursuant to Section 4(2) of the Act.

         On August 16, 1993,  pursuant to an offering  circular and subscription
agreement, the Company issued 79,076 shares of Common Stock to Mid Pacific Bank,
NV for a price of $5.50 per share for an aggregate  purchase  price of $434,918,
of which  $52,992 was paid in  commissions.  This  transaction  was completed in
reliance on the exemption from registration provided by Regulation S of the Act.

         On August 16, 1993,  pursuant to an offering  circular and subscription
agreement,  the Company issued 8,027 shares of Common Stock to Mid Pacific Bank,
NV for a price of $5.0375 per share for an aggregate purchase price of $440,436,
of which  $4,044 was paid in  commissions.  This  transaction  was  completed in
reliance on the exemption from registration provided by Regulation S of the Act.

         On August 17, 1993,  pursuant to an offering  circular and subscription
agreement,  the Company authorized the issuance 22,610 shares of Common Stock to
Giga  Distribution for a price of $5.0375 per share.  This transaction was to be
completed in reliance on the exemption from registration  provided by Regulation
S of the Act. On  September  30,  1993,  the subject  shares were  canceled  and
returned to authorized and unissued status when Giga  Distribution  canceled its
subscription.

         On August 17, 1993,  pursuant to an offering  circular and subscription
agreement,  the Company issued 43,750 shares of Common Stock to Montagu  Capital
for a price of $5.0375 per share for an aggregate purchase price of $220,391, of
which  $22,039  was paid in  commissions.  This  transaction  was  completed  in
reliance on the exemption from registration provided by Regulation S of the Act.

         On September 2, 1993, pursuant to an offering circular and subscription
agreement,  the Company issued 30,000 shares of Common Stock to Montagu  Capital
for a price of $5.50 per share for an aggregate  purchase price of $165,000,  of
which  $30,375  was paid in  commissions.  This  transaction  was  completed  in
reliance on the exemption from registration provided by Regulation S of the Act.

                                      II-9

<PAGE>

         On September 2, 1993, pursuant to an offering circular and subscription
agreement,  the Company issued 49,505 shares of Common Stock to MidPacific  Bank
for a price of $5.40 per share for an aggregate  purchase price of $267,327,  of
which  $44,678  was paid in  commissions.  This  transaction  was  completed  in
reliance on the exemption from registration provided by Regulation S of the Act.

   
         On  September   29,  1993,   pursuant  to  an  offering   circular  and
subscription  agreement,  the Company  issued  300,000 shares of Common Stock to
European Private Investments, Inc., of Panama for a price of $5.25 per share for
an  aggregate  purchase  price  of  $1,575,000,  of which  $216,000  was paid in
commissions.  This  transaction  was completed in reliance on the exemption from
registration provided by Regulation S of the Act.
    

         On October 29,  1993,  the Company  issued  options to purchase  10,000
shares of Common  Stock for  $8.00  per  share to  Curtis  Russell,  an  outside
consultant.  These  options  vested upon  issuance  and expired  unexercised  on
December 31, 1994. This was a private  transaction  effected pursuant to Section
4(2) of the Act.

   
         On November 17, 1993, pursuant to an offering circular and subscription
agreement,  the Company authorized the issuance 25,000 shares of Common Stock to
Now Model,  Inc.  for a price of $3.90 per  share.  This  transaction  was to be
completed in reliance on the exemption from registration  provided by Regulation
S of the Act. On December 1, 1993, the subject shares were canceled and returned
to authorized and unissued status when Now Model Inc. canceled its subscription.
    

         On November 17, 1993, pursuant to an offering circular and subscription
agreement,  the Company authorized the issuance 34,000 shares of Common Stock to
Now Model,  Inc.  for a price of $3.90 per  share.  This  transaction  was to be
completed in reliance on the exemption from registration  provided by Regulation
S of the Act. On December 1, 1993, the subject shares were canceled and returned
to  authorized  and  unissued   status  when  Now  Model.   Inc.   canceled  its
subscription.

         On November 17, 1993, pursuant to an offering circular and subscription
agreement,  the Company authorized the issuance 20,611 shares of Common Stock to
Inversiones  Paterik for a price of $3.90 per share.  This transaction was to be
completed in reliance on the exemption from registration  provided by Regulation
S of the Act. On December 1, 1993, the subject shares were canceled and returned
to  authorized  and  unissued  status  when  Inversiones  Paterik  canceled  its
subscription.

         On November 17, 1993, pursuant to an offering circular and subscription
agreement,  the Company  authorized the issuance 8,365 shares of Common Stock to
Trex  International  Commercializadora  for a price of  $3.90  per  share.  This
transaction was to be completed

                                      II-10

<PAGE>

in reliance on the exemption from  registration  provided by Regulation S of the
Act. On  December 1, 1993,  the subject  shares were  canceled  and  returned to
authorized  and  unissued  status  when  Trex  International   Commercializadora
canceled its subscription.

   
         On November 17, 1993, pursuant to an offering circular and subscription
agreement,  the Company  authorized the issuance of 3,921 shares of Common Stock
to Inverlink CA, Venezuela for a price of $3.90 per share.  This transaction was
to be  completed  in reliance on the  exemption  from  registration  provided by
Regulation S of the Act. On December 1, 1993,  the subject  shares were canceled
and returned to authorized  and unissued  status when  Inverlink  CA,  Venezuela
canceled its subscription.
    

         On November 17, 1993, pursuant to an offering circular and subscription
agreement,  the Company authorized the issuance of 50,000 shares of Common Stock
to Montagu  Capital for a price of $3.90 per share.  This  transaction was to be
completed in reliance on the exemption from registration  provided by Regulation
S of the Act. On December 1, 1993, the subject shares were canceled and returned
to  authorized   and  unissued   status  when  Montagu   Capital   canceled  its
subscription.

         On November 17, 1993, pursuant to an offering circular and subscription
agreement,  the Company authorized the issuance 50,000 shares of Common Stock to
Atlantic Global  Management for a price of $3.90 per share. This transaction was
to be  completed  in reliance on the  exemption  from  registration  provided by
Regulation S of the Act. On December 1, 1993,  the subject  shares were canceled
and returned to authorized and unissued status when Atlantic  Global  Management
canceled its subscription.

         On November 19, 1993, pursuant to an offering circular and subscription
agreement,  the Company  issued  28,156  shares of Common  Stock to  Inversiones
Paterik,  CA for a price of $3.50 per share for an aggregate  purchase  price of
$98,546, of which $33,280 was paid in fees and commissions. This transaction was
completed in reliance on the exemption from registration  provided by Regulation
S of the Act.

   
         On November 23, 1993, pursuant to an offering circular and subscription
agreement,  the Company issued 33,600 shares of Common Stock to Now Model, Inc.,
of the British  Virgin  Islands for a price of $3.125 per share for an aggregate
purchase price of $105,000,  of which $20,458 was paid in fees and  commissions.
This  transaction  was completed in reliance on the exemption from  registration
provided by Regulation S of the Act.
    

         On November 24, 1993, pursuant to an offering circular and subscription
agreement, the Company issued 28,571 shares of Common Stock to Banco Cooperativo
Costar  RL for a price of $3.50 per share  for an  aggregate  purchase  price of
$99,999, of which $33,770 was

                                      II-11

<PAGE>

paid in fees and commissions.  This transaction was completed in reliance on the
exemption from registration provided by Regulation S of the Act.

         On November 24, 1993, pursuant to an offering circular and subscription
agreement, the Company issued 14,285 shares of Common Stock to Banco Cooperativo
Costar  RL for a price of $3.50 per share  for an  aggregate  purchase  price of
$49,998, of which $16,885 was paid in fees and commissions. This transaction was
completed in reliance on the exemption from registration  provided by Regulation
S of the Act.

         On November 30, 1993, pursuant to an offering circular and subscription
agreement,  the Company  issued 5,357  shares of Common  Stock to Inverlink  CA,
Venezuela  for a price of $3.50  per share for an  aggregate  purchase  price of
$18,750, of which $6,332 was paid in fees and commissions.  This transaction was
completed in reliance on the exemption from registration  provided by Regulation
S of the Act.

         On November 30, 1993, pursuant to an offering circular and subscription
agreement,   the  Company   issued   11,428  shares  of  Common  Stock  to  Trex
International  Commercializadora for a price of $3.50 per share for an aggregate
purchase  price of $39,998,  of which $13,494 was paid in fees and  commissions.
This  transaction  was completed in reliance on the exemption from  registration
provided by Regulation S of the Act.

   
         On December 2, 1993,  pursuant to a consulting  agreement,  the Company
issued  warrants to purchase  100,000 shares of Common Stock for $3.00 per share
to Cyndel & Company,  Inc.,  50,000 of which were  exercisable  from December 2,
1993  through  December  2, 1994,  and the  remaining  50,000 from March 2, 1994
through March 1995. This was a private transaction  effected pursuant to Section
4(2) of the Act.  None of these  warrants  were  exercised at the time they were
canceled . Upon  cancellation  the warrants were  replaced  with other  warrants
pursuant to a consulting  agreement dated September 21, 1994 whereby the Company
approved  the  issuance of  warrants to purchase up to 120,000  shares of Common
Stock for $3.00 per share to Cyndel. The new warrants were to be issued in equal
monthly   increments  for  twelve  months  commencing   October  21,  1994,  and
exercisable for a term of two years from the date issuance. Warrants to purchase
20,000  shares were  actually  issued by November 1, 1994,  when the  consulting
agreement was canceled along with the warrants for the remaining 100,000 shares.
This  transaction  was completed in reliance on the exemption from  registration
provided by Section 4(2) of the Act.
    

         On  December  15,  1993,  pursuant  to an oil and gas  joint  operating
agreement, the Company issued options to purchase 121,500 shares of Common Stock
for $4.00 per share to Fleur-David  Corporation.  These options replaced options
previously issued to

                                      II-12

<PAGE>

   
Fleur-David  Corporation  on December  15, 1992 to  purchase  130,000  shares of
Common Stock for $3.30 per share.  The new options  vested upon issuance and had
an expiration date, as extended, of December 15, 1995.  Fleur-David  Corporation
exercised  options to purchase 50,000 shares on June 28, 1994, and the remaining
options  to  purchase  71,500  shares  expired  unexercised.  This was a private
transaction effected pursuant to Section 4(2) of the Act.
    

         On January 7, 1994,  pursuant to an offering  circular and subscription
agreement, the Company authorized the issuance 200,000 shares of Common Stock to
MidPacific  Bank NV for a price of $3.00 per share.  On January  27,  1994,  the
subject shares were canceled and returned to authorized and unissued status when
MidPacific  Bank  NV  canceled  its  subscription.  This  transaction  was to be
completed in reliance on the exemption from registration  provided by Regulation
S of the Act.

         On January 7, 1994,  pursuant to an offering  circular and subscription
agreement, the Company authorized the issuance 100,000 shares of Common Stock to
Global  Financial  Services  SA for a price of $3.00 per share.  On January  27,
1994,  the subject  shares were canceled and returned to authorized and unissued
status  when  Global  Financial  Services SA  canceled  its  subscription.  This
transaction  was to be completed in reliance on the exemption from  registration
provided by Regulation S of the Act.

         On January 12, 1994,  pursuant to an offering circular and subscription
agreement,  the Company  issued  8,000 shares of Common Stock to Jose Tost for a
price of $3.00 per share for an aggregate  purchase  price of $24,000,  of which
$3,949 was paid in fees and  commissions.  This  transaction  was  completed  in
reliance on the exemption from registration provided by Regulation S of the Act.

         On January 14, 1994,  pursuant to an offering  circular  supplement and
subscription  agreement,  the Company  issued  48,611  shares of Common Stock to
Banco  Cooperativo  Costar RL for a price of $3.00  per  share for an  aggregate
purchase price of $145,833,  of which $23,996 was paid in fees and  commissions.
This  transaction  was completed in reliance on the exemption from  registration
provided by Regulation S of the Act.

         On January 17, 1994,  pursuant to an offering circular and subscription
agreement,  the  Company  issued  5,000  shares  of  Common  Stock  to  Offshore
Investment  Fund Ltd. for a price of $3.00 per share for an  aggregate  purchase
price of  $15,000,  of which  $2,467  was  paid in fees  and  commissions.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by Regulation S of the Act.

   
         On January 18, 1994,  pursuant to an offering circular and subscription
agreement, the Company authorized the issuance of 300,000 shares of Common Stock
to Metro Funding Corp SA for a price
    
                                      II-13

<PAGE>

of $3.00 per share.  On March 1, 1994,  the  subject  shares were  canceled  and
returned to authorized  and unissued  status when Metro Funding Corp SA canceled
its  subscription.  This  transaction  was to be  completed  in  reliance on the
exemption from registration provided by Regulation S of the Act.

         On January 18, 1994,  pursuant to an offering circular and subscription
agreement,  the Company issued options to purchase 50,000 shares of Common Stock
for $3.50 per share to Thomas and  Regina  Farida.  These  options  vested  upon
issuance and expired  unexercised  on January 18,  1995.  This  transaction  was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

         On January 18, 1994,  pursuant to an offering circular and subscription
agreement,  the Company issued options to purchase 50,000 shares of Common Stock
for  $3.50  per share to John and  Thomas  Farida.  These  options  vested  upon
issuance and expired  unexercised  on January 18,  1995.  This  transaction  was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

         On January 18, 1994,  pursuant to an offering circular and subscription
agreement,  the Company issued options to purchase 50,000 shares of Common Stock
for $3.50 per share to Ronald and Ban Farida. These options vested upon issuance
and expired  unexercised on January 18, 1995. This  transaction was completed in
reliance on the exemption from registration provided by Section 4(2) of the Act.

         On January 18, 1994,  pursuant to an offering circular and subscription
agreement,  the Company issued options to purchase 50,000 shares of Common Stock
for $3.50 per  share to Larry and  Denise  Farida.  These  options  vested  upon
issuance and expired  unexercised  on January 18,  1995.  This  transaction  was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

         On January 18, 1994,  pursuant to an offering circular and subscription
agreement,  the Company issued options to purchase 50,000 shares of Common Stock
for  $3.50  per  share to Terry and Karen  Farida.  These  options  vested  upon
issuance and expired  unexercised  on January 18,  1995.  This  transaction  was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

         On January 18, 1994,  pursuant to an offering circular and subscription
agreement, the Company issued options to purchase 100,000 shares of Common Stock
for $3.50 per  share to Pattah  Investments,  Inc.  These  options  vested  upon
issuance and expired  unexercised  on January 18,  1995.  This  transaction  was
completed in

                                      II-14

<PAGE>

reliance on the exemption from registration provided by Section 4(2) of the Act.

         On January 21, 1994,  pursuant to an offering  circular  supplement and
subscription agreement, the Company issued 13,157 shares of Common Stock to Trex
International  Commercializadora for a price of $3.00 per share for an aggregate
purchase  price of $39,471,  of which  $6,495 was paid in fees and  commissions.
This  transaction  was completed in reliance on the exemption from  registration
provided by Regulation S of the Act.

         On January 24, 1994,  the Company  issued 28,388 shares of Common Stock
to Freer & Alagia Chartered in settlement of $102,197 in accrued liabilities for
services rendered prior to that date. The shares were subsequently registered on
Form S-8 filed with the Securities Exchange Commission on January 24, 1994. This
was a private transaction effected pursuant to Section 4(2) of the Act.

   
         On January 24, 1994,  the Company  issued 14,539 shares of Common Stock
to Patrick  H. Allen in  satisfaction  of  $52,340  in accrued  liabilities  for
services rendered prior to that date. The shares were subsequently registered on
Form S-8 filed with the Securities Exchange Commission on January 24, 1994. This
was a private transaction effected Pursuant to Section 4(2) of the Act.
    

         On January 24, 1994,  the Company  issued 37,728 shares of Common Stock
to Robert L. Ruben in settlement of $135,821 in accrued liabilities for services
rendered prior to that date. The shares were subsequently registered on Form S-8
filed with the Securities  Exchange  Commission on January 24, 1994.  This was a
private transaction effected pursuant to Section 4(2) of the Act.

         On January 28, 1994,  the Company  issued 10,000 shares of Common Stock
to Matthew A.  Valentine in  settlement  of $30,000 in accrued  liabilities  for
services  rendered prior to that date. This was a private  transaction  effected
pursuant to Section 4(2) of the Act.

         On February 3, 1994,  pursuant to an offering circular and subscription
agreement, the Company issued 50,000 shares of Common Stock to Thomas and Regina
Farida  for an  aggregate  purchase  price of  $175,000.  This  transaction  was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

         On February 3, 1994,  pursuant to an offering circular and subscription
agreement,  the Company  issued 50,000 shares of Common Stock to John and Thomas
Farida  for an  aggregate  purchase  price of  $175,000.  This  transaction  was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

                                      II-15

<PAGE>

         On February 3, 1994,  pursuant to an offering circular and subscription
agreement,  the Company  issued  50,000 shares of Common Stock to Ronald and Ban
Farida  for an  aggregate  purchase  price of  $175,000.  This  transaction  was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

         On February 3, 1994,  pursuant to an offering circular and subscription
agreement,  the Company issued 50,000 shares of Common Stock to Larry and Denise
Farida  for an  aggregate  purchase  price of  $175,000.  This  transaction  was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

         On February 3, 1994,  pursuant to an offering circular and subscription
agreement,  the Company  issued 50,000 shares of Common Stock to Terry and Karen
Farida  for an  aggregate  purchase  price of  $175,000.  This  transaction  was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

         On February 3, 1994,  pursuant to an offering circular and subscription
agreement,  the  Company  issued  100,000  shares  of  Common  Stock  to  Pattah
Investments,  Inc. for an aggregate purchase price of $350,000. This transaction
was completed in reliance on the exemption from registration provided by Section
4(2) of the Act.

   
         On February 15, 1994, pursuant to an offering circular and subscription
agreement, the Company issued 200,000 shares of Common Stock to European Private
Investments,  Inc.,  of Panama  for a price of $3.00 per share for an  aggregate
purchase  price of  $600,000,  of which  $60,000 was paid in  commissions.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by Regulation S of the Act.
    

         On February 16, 1994, pursuant to a consulting  agreement,  the Company
issued  58,333  shares of Common  Stock with an  aggregate  value of $175,000 to
Lease  Equities  Fund,  Inc. This  transaction  was completed in reliance on the
exemption from registration provided by Section 4(2) of the Act.

   
         On February 23, 1994, pursuant to a consulting  agreement,  the Company
issued  warrants to purchase  300,000 shares of Common Stock for $4.00 per share
to  Ladenburg,  Thalmann & Company,  exercisable  from February 28, 1994 through
February 28, 2000. This was a private  transaction  effected pursuant to Section
4(2) of the Act.

         On March 2, 1994,  pursuant to an offering  circular  and  subscription
agreement,  the Company issued 50,000 shares of Common Stock to Sal  Cuccurullo,
of Panama  for a price of $3.00 per share  for an  aggregate  purchase  price of
$150,000,  of  which  $15,000  was paid in  commissions.  This  transaction  was
completed in reliance on the exemption from registration  provided by Regulation
S of the Act.
    

                                      II-16

<PAGE>

         On April 22, 1994,  pursuant to a subscription  agreement,  the Company
issued  50,000 shares of Common Stock to Sal  Cuccurullo,  Panama for a price of
$3.00 per share for an aggregate  purchase  price of $150,000,  of which $15,000
was paid in  commissions.  This  transaction  was  completed  in reliance on the
exemption from registration provided by Regulation S of the Act.

         On April 16, 1994,  the Company  issued 2,500 shares of Common Stock to
Gary C.  Wykidal in  settlement  of $6,500 in accrued  liabilities  for services
rendered prior to that date. This was a private transaction effected pursuant to
Section 4(2) of the Act.

         On April 22,  1994,  pursuant to a  consulting  agreement,  the Company
issued  warrants to purchase  100,000 shares of Common Stock for $3.00 per share
to Turin & Associates.  The warrants were  exercisable from the date of issuance
through  April 22,  1996,  at which time they  expired  unexercised.  This was a
private transaction effected pursuant to Section 4(2) of the Act.

         On April 26, 1994,  pursuant to a purchase agreement for an interest in
a joint  venture,  the  Company  issued  50,000  shares of Common  Stock with an
aggregate  value  of  $300,000  to  Regal  Casinos,  Inc.  This  was  a  private
transaction effected pursuant to Section 4(2) of the Act.

   
         On April 26,  1994,  pursuant  to a stock  award , the  Company  issued
20,000  shares of Common  Stock with an  aggregate  value of $46,000 to Edson R.
Arneault.  This was a private  transaction  effected pursuant to Section 4(2) of
the Act.

         On April 26,  1994,  pursuant  to a stock  award , the  Company  issued
25,000  shares of Common Stock with an  aggregate  value of $57,500 to Albert A.
Forte. This was a private  transaction  effected pursuant to Section 4(2) of the
Act.
    

         On April 29, 1994,  the Company issued 10,681 shares of Common Stock to
Archisystems  International in settlement of $39,655 in accrued  liabilities for
services rendered prior to that date. The shares were subsequently registered on
Form S-8 filed with the Securities Exchange Commission in April 1994. This was a
private transaction effected pursuant to Section 4(2) of the Act.

         On April 29, 1994,  the Company  issued 5,556 shares of Common Stock to
Urban  Systems in  settlement  of $20,000 in accrued  liabilities  for  services
rendered prior to that date. The shares were subsequently registered on Form S-8
filed with the Securities  Exchange Commission in April 1994. This was a private
transaction effected pursuant to Section 4(2) of the Act.

         On February 16, 1994, pursuant to a consulting  agreement,  the Company
issued  125,000  shares of Common Stock with an  aggregate  value of $250,000 to
Campai Investments, Ltd. This transaction was

                                      II-17

<PAGE>

completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

   
         On  June  28,  1994,  in  payment  of  financing  costs  pursuant  to a
construction loan agreement, the Company approved the issuance of 510,000 shares
of Common Stock to Bennett . The Company was obligated to register the shares by
a certain  deadline or be subject to put rights at $6.00 per share.  By December
31, 1994, the Company had issued 285,000 of such shares at an aggregate value of
$1,710,000,  and by December 31, 1995,  Company had issued the remaining 225,000
shares at an  aggregate  value of  $1,350,000.  Pursuant to an  amendment to the
construction  loan agreement,  the put rights were cancelled and replaced 20,000
shares  causing  the  entire  transaction  to  have  a net  aggregate  value  of
$1,530,000.  This  transaction  was completed in reliance on the exemption  from
registration provided by Section 4(2) of the Act.
    

         On June 28, 1994,  the Company  issued 50,000 shares of Common Stock to
Fleur-David  Corporation pursuant to its exercise of certain options to purchase
Common  Stock at $4.00 per share for an  aggregate  purchase  price of $200,000.
This  transaction  was completed in reliance on the exemption from  registration
provided by Section 4(2) of the Act.

         On  September  1, 1994,  the Company  authorized  the issuance of up to
36,000 shares of Common Stock in payment of consulting fees to Eli Dragasich. Of
this  amount,  1O,800  shares with an  aggregate  value of $5,832 were issued on
August 29, 1995, and 15,600 shares with an aggregate value of $8,775 were issued
on June 28, 1996. This was a private  transaction  effected  pursuant to Section
4(2) of the Act.

         On September 12, 1994, pursuant to an employment agreement, the Company
issued options to purchase  30,000 shares of Common Stock for $2.00 per share to
Paul E. Anthony. One third of the options vested after one year with the balance
vesting  in  equal  monthly  increments  over  the  following  two  years.  This
transaction  was  completed  in  reliance  on the  exemption  from  registration
provided by Section 4(2) of the Act.

         On September 12, 1994, pursuant to an employment agreement, the Company
issued options to purchase  30,000 shares of Common Stock for $2.00 per share to
Pat  Marasco.  One third of the options  vested  after one year with the balance
vesting in equal monthly increments over the following two years. The underlying
shares are subject to registration  on Form S-8. This  transaction was completed
in reliance on the exemption from  registration  provided by Section 4(2) of the
Act.

     On October 1, 1994, pursuant to an employment agreement, the Company issued
options to purchase  30,000  shares of Common Stock for $2.00 per share to David
J. Mesko. One third of the options

                                      II-18

<PAGE>

vested after one year with the balance vesting in equal monthly  increments over
the following two years.  The underlying  shares are subject to  registration on
Form S-8.  This  transaction  was  completed in reliance on the  exemption  from
registration provided by Section 4(2) of the Act.

         On October 3, 1994, the Company issued 20,917 shares of Common Stock to
Lawrence Manypenny in settlement of $73,209 in accrued  liabilities for services
rendered prior to that date. This was a private transaction effected pursuant to
Section 4(2) of the Act.

         On December 14,  1994,  in payment of interest  expense  pursuant to an
amendment to an oil and gas property acquisition  agreement,  the Company issued
5,000 shares of Common  Stock with an  aggregate  value of $4,700 to various oil
and  gas  partnerships.  This  transaction  was  completed  in  reliance  on the
exemption from registration provided by Section 4(2) of the Act.

         On January 24, 1995,  the Company issued 216,667 shares of Common Stock
to William and Bonnie  Blair  pursuant to their  exercise of certain  options to
purchase Common Stock at $0.50 per share.  The options were issued to the Blairs
in December 1992 as employment compensation by the Company and all of the shares
were  registered on Form S-8 filed with the  Securities  Exchange  Commission on
January 20, 1995.  This  transaction  was completed in reliance on the exemption
from registration provided by Section 4(2) of the Act.

   
         On February 28, 1995, pursuant to a settlement  agreement,  the Company
authorized  the  issuance  of up to  250,000  shares of Common  Stock to Jackpot
Enterprises,  Inc.  The  Company  recorded a  provision  for loss of $525,000 in
connection with the settlement.  By October 31, 1996, 250,000 of such shares had
been issued. This was a private transaction effected pursuant to Section 4(2) of
the Act.
    

         On May 31, 1995, pursuant to a severance agreement,  the Company issued
options to purchase  15,000  shares of Common Stock for $2.00 per share to Robin
L. Reynolds.  The options vested at the date of issuance and are exercisable for
a term  of five  years.  This  transaction  was  completed  in  reliance  on the
exemption from registration provided by Section 4(2) of the Act.

         On July 26, 1995, pursuant to a severance agreement, the Company issued
10,000  shares of Common  Stock with an aggregate  value of $6,563,  to Robin L.
Reynolds.  This  transaction  was  completed in reliance on the  exemption  from
registration provided by Section 4(2) of the Act.

                                      II-19

<PAGE>

         On August 29,  1995,  pursuant to a settlement  agreement,  the Company
issued  56,532  shares of Common  Stock  with an  aggregate  value of $78,439 to
Lawrence Manypenny.  This was a private transaction effected pursuant to Section
4(2) of the Act.

         On September 11, 1995,  pursuant to an incentive stock option plan, the
Company  approved the issuance of options to purchase  378,415  shares of Common
Stock  for  $1.22  per  share to Edson R.  Arneault.  The  options  vested  upon
approval,  are exercisable for a term of five years,  and the underlying  shares
are subject to registration on Form S-8. This was a private transaction effected
pursuant to Section 4(2) of the Act.

         On September 11, 1995,  pursuant to an incentive stock option plan, the
Company  approved the issuance of options to purchase  222,316  shares of Common
Stock  for  $1.22  per share to Thomas  K.  Russell.  The  options  vested  upon
approval,  are exercisable for a term of five years,  and the underlying  shares
are subject to registration on Form S-8. This was a private transaction effected
pursuant to Section 4(2) of the Act.

   
         On September 11, 1995,  pursuant to an incentive stock option plan, the
Company  approved the issuance of options to purchase  222,316  shares of Common
Stock  for  $1.22 per share to Donald  G.  Saunders.  The  options  vested  upon
approval,  are exercisable for a term of five years,  and the underlying  shares
are subject to registration on Form S-8. This was a private transaction effected
pursuant to Section 4(2) of the Act.
    

         On October 1, 1995,  pursuant  to a  severance  agreement,  the Company
issued options to purchase  30,000 shares of Common Stock for $2.00 per share to
Bobbe A. Sigler.  The options vested at the date of issuance and are exercisable
for a term of five years.  The underlying  shares are subject to registration on
Form S-8.  This  transaction  was  completed in reliance on the  exemption  from
registration provided by Section 4(2) of the Act.

         On November 14, 1995, pursuant to a settlement  agreement,  the Company
issued  201,750  shares of Common Stock to Glenn Hall. The shares were issued in
exchange for  cancellation  of $6.00 put rights in connection with 52,250 shares
issued  to Mr.  Hall in 1992 with an  aggregate  value of  $313,500.  This was a
private transaction effected pursuant to Section 4(2) of the Act.

         On November 14, 1995,  the Company issued 40,000 shares of Common Stock
to Glenn Hall  pursuant to his  exercise of certain  options to purchase  Common
Stock at $0.01 per share.  This  transaction  was  completed  in reliance on the
exemption from registration provided by Section 4(2) of the Act.

         On November 20, 1995, pursuant to a settlement  agreement,  the Company
issued 165,000 shares of Common Stock to Michael Mapes.

                                      II-20

<PAGE>

The shares  were  issued in  exchange  for  cancellation  of $6.00 put rights in
connection  with 52,250  shares  issued to Mr.  Mapes in 1992 with an  aggregate
value of $313,500.  This was a private transaction  effected pursuant to Section
4(2) of the Act.

         On November 20, 1995,  the Company issued 30,000 shares of Common Stock
to Michael Mapes pursuant to his exercise of certain  options to purchase Common
Stock at $0.01 per share.  This  transaction  was  completed  in reliance on the
exemption from registration provided by Section 4(2) of the Act.

         On December 4, 1995,  pursuant to a settlement  agreement,  the Company
issued  60,850  shares of Common  Stock  with an  aggregate  value of $43,000 to
Dublin Energy Corporation.  This was a private transaction  effected pursuant to
Section 4(2) of the Act.

         On January 19, 1996,  pursuant to a consulting  agreement,  the Company
issued  200,000  shares of Common Stock with an  aggregate  value of $106,125 to
Donald G. Saunders.  The issuance of the shares was authorized by the Company on
November  17,  1995.  The  shares  were  registered  on Form S-8 filed  with the
Securities  Exchange  Commission  on  December  4,  1995.  This  was  a  private
transaction effected pursuant to Section 4(2) of the Act.

   
         On January 23, 1996,  pursuant to an employee  stock  option plan,  the
Company  authorized the issuance of options to purchase 300,000 shares of Common
Stock for  $0.5625  per share to Edson R.  Arneault.  The  options  vested  upon
issuance,  are exercisable for five years and the underlying  shares are subject
to registration on Form S-8.

         On January 23, 1996,  pursuant to an employee  stock  option plan,  the
Company  authorized the issuance of options to purchase 100,000 shares of Common
Stock for  $0.5625  per share to Thomas K.  Russell.  The  options  vested  upon
issuance,  are exercisable for five years and the underlying  shares are subject
to registration on Form S-8.

         On January 23, 1996,  pursuant to an employee  stock  option plan,  the
Company  authorized the issuance of options to purchase 100,000 shares of Common
Stock  for  $0.5625  per  share  to an  employee  pool  to be  allocated  by the
Compensation  Committee  of the Board of  Directors.  The  options  vested  upon
issuance,  are exercisable for five years and the underlying  shares are subject
to registration on Form S-8.
    

         On January 23,  1996,  pursuant to a severance  agreement,  the Company
issued  options to purchase  30,000 shares of Common Stock for $0.5625 per share
to Julie Waring. The options vested at the

                                      II-21

<PAGE>

date of issuance and are  exercisable  for a term of five years.  The underlying
shares are subject to registration  on Form S-8. This  transaction was completed
in reliance on the exemption from  registration  provided by Section 4(2) of the
Act.

         On January  23,  1996,  pursuant to an outside  directors  compensation
agreement,  the Company issued options to purchase 75,000 shares of Common Stock
for  $0.5625 per share to Robert L.  Ruben.  The  options  vested at the date of
issuance and are exercisable for a term of five years. The underlying shares are
subject to registration on Form S-8. This  transaction was completed in reliance
on the exemption from registration provided by Section 4(2) of the Act.

         On January  23,  1996,  pursuant to an outside  directors  compensation
agreement,  the Company issued options to purchase 50,000 shares of Common Stock
for  $0.5625 per share to Robert A.  Blatt.  The  options  vested at the date of
issuance and are exercisable for a term of five years. The underlying shares are
subject to registration on Form S-8. This  transaction was completed in reliance
on the exemption from registration provided by Section 4(2) of the Act.

         On  February  9, 1996,  the Company  approved  the  issuance of 362,866
shares of Common  Stock,  valued at $0.40625 per share,  to Edson R. Arneault in
settlement of $147,414 in accrued  liabilities  for services  rendered  prior to
that date.  The  shares are  subject  to  registration  on Form S-8.  This was a
private transaction effected pursuant to Section 4(2) of the Act.

         On  February  9, 1996,  the Company  approved  the  issuance of 103,810
shares of Common  Stock,  valued at $0.40625 per share,  to Thomas K. Russell in
settlement of $42,173 in accrued liabilities for services rendered prior to that
date.  The shares are subject to  registration  on Form S-8.  This was a private
transaction effected pursuant to Section 4(2) of the Act.

         On May 1,  1996,  pursuant  to a loan  agreement,  the  Company  issued
100,000 shares of Common Stock, with an aggregate value of $81,250, to AstraFund
Limited.  This  transaction  was  completed  in reliance on the  exemption  from
registration provided by Section 4(2) of the Act.

         On July 26, 1996, pursuant to a severance agreement, the Company issued
15,000 shares of Common Stock,  with an aggregate  value of $7,500,  to Bobbe A.
Sigler. The shares are subject to registration on Form S-8. This transaction was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Act.

         On July 2, 1996,  pursuant to a bridge loan between  Bridge Capital LLC
and the Company, the Company issued 25,000 warrants to

                                      II-22

<PAGE>

purchase  Common  Stock  for  $3,125.  This was a private  transaction  effected
pursuant to Section 4(2) of the Act.

         On July 2, 1996,  pursuant to a bridge loan between Brownstone Holdings
LLC and the Company,  the Company issued 25,000 warrants for $3,125.  This was a
private transaction pursuant to Section 4(2) of the Act.

   
         On July 2,  1996,  pursuant  to the Term Loan  Agreement,  the  Company
issued 183,206 shares of Common Stock,  with an aggregate value of $250,000,  to
Madeleine . This  transaction  was completed in reliance on the  exemption  from
registration provided by Section 4(2) of the Act.

         On July 2,  1996,  pursuant  to The Term Loan  Agreement,  the  Company
issued warrants to purchase 1,491,250 shares of Common Stock for $1.06 per share
to Madeleine . The warrants were exercisable upon issuance and expire on July 2,
2001.  This  transaction  was  completed  in  reliance  on  the  exemption  from
registration provided by Section 4(2) of the Act.

         On July 2,  1996,  pursuant  to the Term Loan  Agreement,  the  Company
issued  warrants to purchase  25,000 shares of Common Stock for $0.80 per share,
with an aggregate  value of $3,125,  to Bridge  Capital  LLC. The warrants  were
exercisable  upon  issuance  and expire on July 2, 2001.  This  transaction  was
completed in reliance on the  exemption  from  registration  provided by Section
4(2) of the Securities Act.
    

         On July 2, 1996,  pursuant  to a loan  agreement,  the  Company  issued
warrants to purchase 25,000 shares of Common Stock for $0.80 per share,  with an
aggregate value of $3,125,  to Bridge Capital LLC. The warrants were exercisable
upon  issuance and expire on July 2, 2001.  This  transaction  was  completed in
reliance on the exemption from registration provided by Section 4(2) of the Act.

   
         On July 10,  1996,  pursuant  to a  settlement  agreement,  the Company
issued 133,416 shares of Common Stock to Dorothy van Haaften. This was a private
transaction  effected  pursuant to the exemption from  registration  provided by
Section 4(2) of the Act.
    


Item 16.  Exhibits

         The  following  are  filed  either  as  exhibits  to this  Registration
Statement or  incorporated  by  reference to the exhibits to prior  Registration
Statements and reports of the Company as indicated:


                                      II-23

<PAGE>

<TABLE>
<CAPTION>

                                                                                                             Exhibit No.
                                                                                                              or
                                                                                                              Incorporation
       Exhibit No.          Item Title                                                                        by Reference
       -----------          ----------                                                                        ------------

   
<S>                <C>                                                                                          <C>       
                   3.1      Restated Certificate of Incorporation for                                           **
                            Winners Entertainment, dated   August 17,
                            1993
                   3.2      By Laws                                                                              *
                   3.3      Certificate of Amendment of Restated                                                ++
    
                            Certificate of Incorporation of Winner's
                            Entertainment, Inc. dated October 10, 1996
   
                   4.1      Specimen of Common Stock Certificates                                                *
                   4.2      Warrant Certificate No. 1 issued to                                               ####
                            Madeleine  LLC,  dated  July 2,  1996,  to  purchase
                            891,250   shares   of   Common   Stock  of   Winners
                            Entertainment,  Inc.  at $1.06  per  share  for five
                            years commencing July 2,
    
                            1996.
   
                   5.1      Opinion of Ross & Hardies                                                          E-1
                  10.1      Amendment to June 27, 1994 Construction                                            ###
    
                            Loan Agreement, dated October 31, 1995,
                            among Bennett Management & Development
                            Corporation, the Company and Mountaineer
                  10.2      Construction Loan Agreement Amendment                                              ***
                            between the Mountaineer, Gamma of West
                            Virginia and Bennett Management &
                            Development Corp.
   
                  10.3      Term Loan Agreement among Mountaineer Park,                                       ####
                            Inc., Winners Entertainment, Inc. and
                            Madeleine LLC, dated July 2, 1996
                  10.4      First Amendment to Term Loan Agreement                                            ####
                            among Mountaineer, the Company and
                            Madeleine LLC, dated July 2, 1996
                  10.5      Promissory Note by Mountaineer, Inc. to                                           ####
                            Madeleine  LLC, dated July 2, 1996
                  10.6      Security Agreement made by Mountaineer                                            ####
                            Park, Inc. in favor of Madeleine  LLC,
                            dated July 2, 1996
    
                  10.7      Deed of Trust, Leasehold Deed of Trust,                                           ####
                            Security Agreement, Assignment, Fixture
   
                            Filing and Financing Statement by and among
                            Mountaineer Park, Inc., Deborah A. Sink and
                            Carl D. Andrews as Trustees, and Madeleine
                            LLC as the Secured Party, dated July 2,
                            1996
                  10.8      Stock Transfer Agreement between the                                            
                            Company and Madeleine LLC, dated July 2,                                          ####
                            1996
    

</TABLE>

                                      II-24

<PAGE>

   

<TABLE>
<CAPTION>
<S>               <C>                                                                                        <C> 
                  10.9      Registration Rights Agreement between                                            ####
                            Madeleine LLC and Winners Entertainment,
    
                            Inc., dated July 2, 1996
   
                 10.10      Financing Commitment from Madeleine, LLC to                                      ####
                            Mountaineer, dated July 2, 1996.
    
                 10.11      October 31, 1995 Amendment to June 27, 1994                                       ****
                            Construction Loan Agreement by and among
                            Bennett Management & Development
                            Corporation, Mountaineer, and the Company
                 10.20      November 28, 1995 Amendment to June 27,                                           ****
                            1994 Construction Loan Agreement by and
                            among Bennett Management & Development
                            Corporation, Mountaineer, and the Company
                 10.12      Construction Loan Agreement for $10.2                                             ****
                            million between the Company, Mountaineer,
                            Gamma International, Ltd. and Bennett
                            Management & Development Corp.
                 10.13       January 12, 1996 Amendment to June 27,                                           ****
                            1994 Construction Loan Agreement by and
                            among Bennett Management & Development
                            Corporation, Mountaineer, and the Company
                 10.14      November 29, 1995 Agreement by and between                                        ****
                            Autotote Systems, Inc. and Mountaineer
                            Park, Inc. for totalisator services
                            provided pursuant to an agreement dated
                            September 21, 1984, as amended.  Letter
                            agreement dated April 12, 1995 attached as
                            Exhibit "A"
                 10.15      Totalisator Services Agreement between                                            ****
                            Autotote Systems, Inc. dated November 29,
                            1995 and Mountaineer
                 10.16      Master Lease Agreement #154920 and Schedule                                       ****
                            2 thereto between IGT-North America and
                            Mountaineer for video lottery machine
                            equipment lease dated June 19, 1995
                 10.17      Amendment to Master Lease Agreement by and                                        ****
                            among IGT-North America, Mountaineer and
                            the Company dated March 26, 1996
                 10.18      Note for $10.2 million between the Company,                                       ****
                            Mountaineer and Bennett Management &
                            Development Corp.
   
                 10.19      Amendment, dated February 10, 1995, to                                               #
                            Construction Loan Agreement, dated June 27,
                            1995, between Mountaineer Park, Inc. and
                            Bennett Management & Development
                            Corporation
                 10.20       Amendment, dated May 11, 1995, to                                                   #
                            Totalisator Services Agreement, dated March
                            15, 1988, between Autotote Limited and
                            Mountaineer
    

</TABLE>

                                      II-25

<PAGE>

   
<TABLE>
<CAPTION>
<S>              <C>                                                                                            <C>               
                 10.21      Master Lease Agreement, dated August 10,                                             #
                            1994, between IGT-North America and
                            Mountaineer
                 10.22      Totalisator Services Agreement, dated                                                #
                            March 15, 1988, between Autotote Limited
    
                            and Mountaineer Park, Inc.
   
                 10.23       Amendment, dated April 10, 1995, to                                                ##
                            Construction Loan Agreement, dated June 27,
                            1994, between Mountaineer and Bennett
                            Management & Development Corporation
                 10.24      Amendment, dated July 7, 1995, to                                                   ##
                            Construction Loan Agreement, dated June 27,
                            1994, between Mountaineer and Bennett
                            Management & Development Corporation
    
                 10.25      Amendment dated September 19, 1996, to the                                           +
                            Construction Loan Agreement, dated June 27,
                            1994, between Mountaineer and Bennett
                            Management & Development Corporation
                 10.26      Order Approving Settlement of Winners                                               ++
                            Entertainment/Mountaineer Park Litigation;
                            United States Bankruptcy Court for the
                            Northern District of New York, dated
                            October 22, 1996
                  23.1      Consent of Ross & Hardies (included in                                             E-1
                            Exhibit 5.1)
   
                  23.2      Consent of Corbin and Wertz                                                        E-2
                  27.0      Financial Data Schedule                                                           ####
                  99.1      Schedule II - Valuation and Qualifying                                             E-3
    
                            Accounts

</TABLE>


*        Previously  filed as an  exhibit  to the  Company's  Form  10-K for the
         Fiscal  Year  ended  December  31,  1989  and  incorporated  herein  by
         reference thereto.

**       Previously  filed as an  exhibit  to the  Company's  Form  10-K for the
         Fiscal  Year  ended  December  31,  1993  and  incorporated  herein  by
         reference thereto.

***      Previously  filed as an  exhibit  to the  Company's  Form  10-K for the
         Fiscal  Year  ended  December  31,  1994  and  incorporated  herein  by
         reference thereto.

****     Previously  filed as an  exhibit  to the  Company's  Form  10-K for the
         Fiscal Year ended June 30, 1994 and  incorporated  herein by  reference
         thereto.

   
#        Previously  filed as an exhibit to the  Company's  10-Q for the Quarter
         ended March 31, 1995 and incorporated herein by reference thereto.
    

                                      II-26

<PAGE>

   
##       Previously  filed as an exhibit to the  Company's  10-Q for the Quarter
         ended June 30, 1995 and incorporated herein by reference thereto.

###  Previously  filed as an exhibit to the Company's 10-Q for the Quarter ended
     September 30, 1995 and incorporated herein by reference thereto.

#### Previously  filed as an exhibit to the Company's 10-Q for the Quarter ended
     June 30, 1996 and incorporated herein by reference thereto.

+        Previously  filed  as an  exhibit  to  the  Company's  Form  8-K  dated
         September 30, 1996 and incorporated herein by reference thereto.

++       Previously filed as an exhibit to the Company's Form 8-K dated November
         1, 1996 and incorporated herein by reference thereto.

(b)      Schedule II follows the exhibits hereto.
    

                                      II-27

<PAGE>


Item 17.  Undertakings.

         The undersigned Company hereby undertakes:

         (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:

             (i)  To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;

             (ii) To reflect in the prospectus any facts or events arising after
the  effective  date  of  the   Registration   Statement  (or  the  most  recent
post-effective  amendment  thereof)  which,  individually  or in the  aggregate,
represent a fundamental  change in the information set forth in the Registration
Statement;  notwithstanding the foregoing, any increase or decrease in volume of
securities  offered (if the total dollar value of  securities  offered would not
exceed that which was  registered) and any deviation from the low or high end of
the estimated  maximum offering range may be reflected in the form of prospectus
filed with the  Commission  pursuant  to Rule 424(b) if, in the  aggregate,  the
changes  in the  volume  and price  represent  no more than a 20%  change in the
maximum  aggregate  offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.

            (iii) To include any material  information  with respect to the plan
of distribution not previously  disclosed in the  Registration  Statement or any
material change to such information in the Registration Statement.

         Provided,  however,  that paragraphs (1)(i) and (1)(ii) do not apply if
the registration  statement is on Form S-3 or S-8, and the information  required
to be included in a post-effective amendment by those paragraphs is contained in
the  periodic  reports  filed by the  Company  pursuant to Section 13 or Section
15(d) of the Exchange Act that are incorporated by reference in the Registration
Statement.

         (2) That,  for the  purpose  of  determining  any  liability  under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.

         (3) To remove from registration by means of a post-effective  amendment
any of the securities being registered which remain unsold at the termination of
the offering.

                                      II-28

<PAGE>

         (4)  Insofar  as  indemnification  for  liabilities  arising  under the
Securities Act of 1933 may be permitted to directors,  officers and  controlling
persons of the Company  pursuant to any provision or arrangement,  or otherwise,
the Company has been advised that in the opinion of the  Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore,  unenforceable. In the event that a claim for indemnification
against  such  liabilities  (other  than the  payment by the Company of expenses
incurred or paid by a director,  officer or controlling person of the Company in
the  successful  defense of any action,  suit or proceeding) is asserted by such
director,  officer or controlling person in connection with the securities being
registered,  the Company  will,  unless in the opinion of its counsel the matter
has been  settled by  controlling  precedent,  submit to a court of  appropriate
jurisdiction the question whether such  indemnification  by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

                                      II-29

<PAGE>

                                   SIGNATURES


   
         Pursuant  to the  requirements  of the  Securities  Act  of  1933,  the
registrant  has duly  caused  this  registration  statement  to be signed on its
behalf by the undersigned thereunto duly authorized in the City of Laguna Beach,
State of California, on November 12, 1996.
    



                                            WINNERS ENTERTAINMENT, INC.
                                            (Company)

   
                                            By: /s/EDSON R  ARNEAULT
    
                                                Edson R. Arneault, President
                                                and Chief Executive Officer



<PAGE>

                                   SIGNATURES

         Pursuant  to the  requirements  of the  Securities  Act of  1933,  this
Registration  Statement  has  been  signed  by  the  following  persons  in  the
capacities and on the dates indicated.




<TABLE>
<CAPTION>


   
<S>                                     <C>                                         <C>
/s/EDSON R. ARNEAULT                    Director, President and                      November 12, 1996
Edson R. Arneault                       Chief Executive Officer
                                        Principal Executive Officer)
    

   
/s/THOMAS K. RUSSELL                    Director, Secretary,                         November 12, 1996
Thomas K. Russell                       Chief Financial Officer,
                                        General Counsel and
                                        Treasurer (Principal
                                        Financial and
                                        Accounting Officer)


/s/ROBERT L. RUBEN                      Director, Assistant                          November 12, 1996
Robert L. Ruben                         Secretary



/s/ROBERT A. BLATT                      Director                                     November 12, 1996
Robert A. Blatt
    

</TABLE>

<PAGE>


   
                                INDEX TO EXHIBITS
    

   
    Opinion of Ross & Hardies                                     E-1
    Consent of Corbin & Wertz                                     E-2
    Schedule II - Valuation & Qualifying Accounts                 E-3