As filed with the Securities and Exchange Commission on October 31, 1996

                                                      Registration No. 333-14475
    

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                             ----------------------
   
                                 AMENDMENT No. 1
                                     to the
    
                             REGISTRATION STATEMENT
                                       on
                                    FORM S-3
                                      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





<PAGE>



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

         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>
<TABLE>
<CAPTION>



                         CALCULATION OF REGISTRATION FEE

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           3,272,221         $1.390625 per         $4,550,433         $1,570
Common Stock,       Shares             Share                       
par value                                                
    
$.00001
per share (1)

   
Shares of           1,564,119         $1.390625 per         $2,175,103           $750
Common Stock,        Shares            Share                     
par value                                                   
    
$.00001
per share (2)

   
Totals                                                                         $2,320(3)
    
</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 October 14, 1996.

   
     (2)  To be offered and sold by Selling  Stockholders  (as  defined  herein)
          upon the issuance of Common Stock  pursuant to the exercise of certain
          Warrants  and Options (as defined  herein).  In  accordance  with Rule
          457(c)  the price used for  calculating  the  registration  fee is the
          average of the high bid and low ask price for the Common  Stock of the
          Company on October 14, 1996.

     (3)  A filing fee of $2,396  relating to  4,993,840  shares of Common Stock
          was previously paid. A lower number of shares reflected above is being
          registered herein.
    


<PAGE>



   
                 SUBJECT TO COMPLETION, DATED OCTOBER 31, 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.

   
             4,836,340 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 4,836,340
shares of common stock,  par value $.00001 per share (the "Common Stock") of the
Company.  Of the  4,836,340  shares  of  Common  Stock  registered  herein,  (i)
3,272,221  shares are  outstanding  and held by the Selling  Stockholders;  (ii)
685,869 shares are issuable upon the exercise of certain options (the "Options")
to purchase  Common Stock held by the Selling  Stockholders;  and (iii)  878,250
shares are issuable upon the exercise of certain  warrants (the  "Warrants")  to
purchase Common Stock held by the Selling Stockholders. The Selling Stockholders
acquired the  outstanding  shares of Common Stock offered hereby and the Options
and  Warrants  directly  from the Company in  connection  with  various  private
issuances of Common Stock, Options and Warrants. See "Selling Stockholders." The
Company  will not  receive  any of the  proceeds  from the sale of the shares of
Common  Stock by the Selling  Stockholders.  To the extent any of the Options or
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 October
29, 1996 the high bid and low asked  quotations of the Common Stock were $1 7/16
and $1 3/8, respectively.
    

         The Selling Stockholders may sell the securities registered herein from
time to time in transactions in the open market


<PAGE>



(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 offered hereby, which expenses are estimated to
be $33,000.  The Selling  Stockholders  will pay any brokerage  compensation  in
connection with their sale of the Common Stock 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 October __, 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 a  registration  statement  on Form  S-3  (the
"Registration  Statement") with the Commission 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.

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE


         The Company hereby  incorporates  by reference into this Prospectus (i)
its Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1995 which
contains certified financial statements for the Company's latest fiscal year for
which a Form 10-K was required to have been filed with the Commission,  (ii) all
other reports filed by the Company with the Commission pursuant to Section 13(a)
or 15(d) of the Exchange Act since December 31, 1995,  including but not limited
to, Quarterly Reports on Form 10-Q for each of the Quarters Ended March 31, 1996
and June 30,  1996 and (iii) the  description  of the  Company's  Common  Stock,
$.00001 par value per share, as contained in its registration  statement on Form
8-A, filed with the Commission on August 2, 1992.


                                     - iii -

<PAGE>



         All documents filed by the Company  pursuant to Sections 13(a),  13(c),
14 and 15(d) of the Exchange Act, subsequent to the date hereof and prior to the
filing  of a  post-effective  amendment  to  the  Registration  Statement  which
indicates  that all of the  securities  offered  hereby  have been sold or which
deregisters  all such securities  then remaining  unsold,  shall be deemed to be
incorporated  by reference into this Prospectus and to be a part hereof from the
date of filing of such documents.

         Any statement contained herein or in a document  incorporated or deemed
to be  incorporated  by  reference  herein  shall be  deemed to be  modified  or
superseded for purposes of this  Prospectus to the extent that such statement is
modified or  superseded  by a statement  contained  herein or in a  subsequently
filed  document  which  also is or is deemed  to be  incorporated  by  reference
herein. Any such statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus.

         The Company will provide, without charge, to each person (including any
beneficial  owner) to whom this  Prospectus is  delivered,  upon written or oral
request of such person,  a copy of any and all of the information  that has been
incorporated  by reference in this  Prospectus  (not including  exhibits to such
information unless such exhibits are specifically incorporated by reference into
such  information).  Such requests should be directed to Edson R. Arneault,  MTR
Gaming  Group,   Inc.,  State  Route  2,  Chester,   West  Virginia  26034  tel.
304-387-2400.



                                     - iv -

<PAGE>




                                TABLE OF CONTENTS
                                                                         Page

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

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

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

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

CAPITALIZATION..............................................................15

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

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

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
   
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................. 20
    

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

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

EXECUTIVE COMPENSATION......................................................65

CERTAIN TRANSACTIONS........................................................70

PRINCIPAL STOCKHOLDERS......................................................74

SELLING STOCKHOLDERS........................................................76

   
PLAN OF DISTRIBUTION....................................................... 82

DESCRIPTION OF SECURITIES.................................................. 83

SHARES ELIGIBLE FOR FUTURE SALE............................................ 91

DESCRIPTION OF CERTAIN INDEBTEDNESS........................................ 99

LEGAL MATTERS............................................................. 102

EXPERTS................................................................... 102
    

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



                                      - v -

<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  acquired
through merger, 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.  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
threestories 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
persons  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 at the Speakeasy  Gaming Saloon.
The Lodge parking lots have a combined capacity for approximately 370 vehicles.



                                      - 2 -
<PAGE>

         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,  and  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  hookups.  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.  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 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
    

                                      - 4 -

<PAGE>

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 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," 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,  stock
equal to 5% of the outstanding  principal balance (valued at the average closing
bid  price  for the 30 days  prior to each  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 another registration statement which the
Company has filed with the  Commission.  The shares of Common Stock and warrants
issuable to the lender in connection  with the Term Loan Agreement in the future
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.

         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
another registration statement which the Company has filed with the Commission.

         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

                                      - 5 -
<PAGE>

(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.

   
         The Company  filed a  registration  statement  for the Common Stock and
warrants currently held by the lender. Certain cash penalties may be assessed if
such registration statement is not declared effective prior to February 2, 1997.
See "Shares Eligible for Future Sale - Registration Rights".
    

         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 also be
used for  television  and print  advertising  campaigns  in the  Pittsburgh  and
Cleveland markets.

     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
<TABLE>
<CAPTION>

   
<S>                                                 <C>  
Securities Offered.........                          This Prospectus relates to an
                                                     offering by the Selling Stockholders
                                                     of 4,836,340 shares of
                                                     Common Stock consisting of (i)
                                                     685,869 shares of Common
                                                     Stock issuable upon exercise of the
                                                     Options; (ii) 878,250 shares
                                                     issuable upon exercise of the
                                                     Warrants; and (iii)          
                                                     3,272,221 shares of outstanding
                                                     Common Stock which are currently
                                                     outstanding and held by the Selling
                                                     Stockholders.  The Options, Warrants
                                                     and the outstanding shares of Common
    

                                      - 6 -
<PAGE>

   
                                                     Stock were issued to the Selling
                                                     Stockholders in private transactions
                                                     which the Company has engaged in
                                                     from time to time.  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 Options and Warrants
                                                     are exercised and no other shares of
                                                     Common Stock are issued subsequent
                                                     to September 13, 1996, the Company
                                                     would have 20,433,516
                                                     shares of Common Stock outstanding.

Use of Proceeds............                          The Company will not receive any
                                                     proceeds from the sale of the shares
                                                     of Common Stock offered by the
                                                     Selling Stockholders.  If all of the
                                                     Options and Warrants are exercised,
                                                     the Company will receive estimated
                                                     net proceeds of
                                                     $3,398,392.  The Company
                                                     intends to utilize any proceeds
                                                     received from the exercise of the
                                                     Options and Warrants as working
                                                     capital.  There can be no assurance
                                                     that any of the Options or 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.

</TABLE>

                                  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"
which  can be  identified  by the  use of  forward-looking  terminology  such as
"believes," "expects," "may," "will," "should,"

                                      - 7 -
<PAGE>

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 future results indicated in such forwardlooking  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  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  (including  $3.4  million  of such  loan
classified as current debt)  outstanding under the Company's first mortgage loan
(the "Bennett Loan") from Bennett,  $5 million outstanding under the Term Loan ,
andapproximately  $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  has not yet  become  effective.  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
    

                                      - 8 -
<PAGE>

   
for monthly  payments of interest only at the rate of 12% per year,  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,  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 at $1.06 per share.


         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

                                      - 9 -
<PAGE>

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 its 1996
year.

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

                                     - 10 -

<PAGE>

         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  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.

                                     - 11 -

<PAGE>

         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  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  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

                                     - 12 -

<PAGE>

   
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 businesses.  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
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 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
    

                                     - 13 -
<PAGE>

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.

   
         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 adopted under the Securities Act. Of these restricted shares,  3,272,221 are
covered  by  this  Registration  Statement,  and  approximately  4,136,936  were
eligible to be sold under Rule 144 under the  Securities  Act ("Rule 144").  The
(i) 3,272,221  shares of  outstanding  restricted  Common Stock included in this
Registration  Statement;  and (ii) the 1,564,119 shares of Common Stock included
in this  Registration  Statement which are issuable upon exercise of the Options
and Warrants will, if 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
1,564,119  shares of Common  Stock  issuable  upon  exercise  of the Options and
Warrants covered by this registration  statement, as of September 13, 1996 there
were  outstanding  options and  warrants to purchase an  aggregate  of 4,743,371
shares of Common Stock which have not been registered  with the  Commission.  In
addition,  the Company has registered  (i) 183,206 shares of Common Stock,  (ii)
1,542,860  shares of Common Stock  issuable  upon the exercise of warrants,  and
(iii) 1,542,860  warrants on another  registration  statement which it has filed
with the Commission. The future sale of a substantial number of shares of Common
Stock by existing  holders of Common  Stock and holders of 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 outstanding options or warrants.  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
    

                                     - 14 -
<PAGE>

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 West  Virginia  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 shares
of Common  Stock  offered  herein  by the  Selling  Stockholders.  If all of the
Options and Warrants are  exercised,  the Company  will  receive  estimated  net
proceeds  of  approximately  $3,398,392.  The  Company  intends to  utilize  any
proceeds  received  from the  exercise of the Options and  Warrants  for general
corporate  purposes.  There  can be no  assurance  that any of the  Options  and
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.


                                 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

                                     - 15 -

<PAGE>

   
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  totaling
$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;
         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
                                                 ===========   ===========


(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.

                                     - 16 -

<PAGE>

   
(2)  Does not give effect to the  Amendment  to the Bennett  Loan which  becomes
     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  "WINS".  The
Company's Common Stock is quoted on the NASDAQ SmallCap  Market.  On October 14,
1996, the high bid and low asked  quotations for the Company's Common Stock were
$1  5/32  and $1  7/32,  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.

                                                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



                                     - 17 -
<PAGE>

                             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>
                                                                                                                      Six Months
                                                Fiscal Year Ended December 31                                       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>


                                     - 19 -

<PAGE>

   
                      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  deemphasized  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."

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.

                                     - 20 -

<PAGE>

         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  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
both 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, an increase of $3.5 million.  In April 1995,  Mountaineer  Park
began offering greyhound off-track betting, which contributed $2.7 million to
    

                                     - 21 -
<PAGE>

increased   simulcast  handle  in  1995.  The  remaining  $800,000  increase  is
attributable to the enhancement of Mountaineer's offtrack 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 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.

                                     - 22 -
<PAGE>

         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.


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
                                    ==========       ==========       ==========

                                     - 23 -
<PAGE>

         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  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.

                                     - 24 -
<PAGE>

   
         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 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  operation.  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.


                                     - 25 -
<PAGE>

         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  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.
    

         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.
    
                                     - 26 -

<PAGE>

         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 to $1,109,000
or $297,000 and advertising expenses increased by 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,  in  reflection  of the $5.9  million  investment  in
property,  plant  and  equipment  during  that  period.  1994  depreciation  and
amortization  expenses  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.")
    
                                     - 27 -

<PAGE>

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:


                                                       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 
                                          $11,900,000               $6,843,000
operations
    
                                 ======================    =====================

                                     - 28 -

<PAGE>

         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 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
         tax                              (246,000)                  (224,000)
         Purses and Horsemen's
         Association                    (1,781,000)                (1,656,000)
                                     ------------------------------------------

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

                                     - 29 -

<PAGE>


         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.

         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.

                                     - 30 -

<PAGE>

         Operating Costs

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


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

                                     - 31 -

<PAGE>

                                          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,  however,  this agreement may be subject to the approval
by the bankruptcy court and there can be no guarantee that such approval will be
made on terms satisfactory to the Company, if at all. Notwithstanding this fact,
management  believes that  sufficient  grounds exist to terminate the Management
Agreement without additional liability to the Company.

                                     - 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 phase of racing.  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 $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.

                                     - 33 -

<PAGE>

         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  passageof 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.
    

                                     - 34 -

<PAGE>

         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 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 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 does
permit  prepayment  by the  Company  without  interest  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
will become effective as of October 31, 1996.

    
                                    - 35 -

<PAGE>
   
         By Amendment of the Construction Loan Agreement (the "Amendment") dated
September 19, 1996 among the Company, Mountaineer 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 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 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 pursuant to a Deed
    
                                     - 36 -

<PAGE>

   
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  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.

         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 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 the
Company  retires  the  Bennett  Loan.  In no event  will such price be less than
$1.125 per share.
    
                                     - 37 -
<PAGE>

   
         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
when deemed  effective,  will terminate the Management  Agreement and settle the
accounts of the parties as of June 30, 1995.
    

     Pending final Bankruptcy  Court approval of the Amendment,  the Company has
continued to remit interest and principal payments to Bennett under the terms of
the Bennett Loan agreement. See "Description of Certain Indebtedness."

         $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  divided by 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."
    
                                     - 38 -
<PAGE>

         $11.1 Million First Mortgage Commitment

   
         As part of the Term Loan  transaction,  the lender  also  provided  the
one-year  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 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 such  Common  Stock  issued 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 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 Saloon. Lodge

                                     - 40 -

<PAGE>

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,
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  simulcast  wagers is generally  allocated
proportionately between the

                                     - 42 -

<PAGE>

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 play is the first quarter of 1997, although there can be no
    
                                     - 43 -

<PAGE>

   
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 a June 2, 1994  management  agreement  (the
"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,   American  Newco  entered  into  a
Consulting Agreement with Mountaineer

                                     - 44 -

<PAGE>

   
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 which 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.  Such agreement may, however,
be subject to approval by the  bankruptcy  court of the Amendment to the Bennett
Loan Agreement dated September 19, 1996.  Nonetheless,  management believes that
even without such  bankruptcy  court approval,  the Management  Agreement may be
terminated without any liability to the Company.

         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.
    
                                     - 45 -

<PAGE>

         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.

   
         The Lodge  customers  principally  include local residents and business
travelers visiting nearby steel plants and other businesses on week days, 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.  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

                                     - 48 -

<PAGE>

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 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

                                     - 49 -

<PAGE>

   
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,  offtrack  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
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
    
                                     - 50 -

<PAGE>

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 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.  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.

                                     - 51 -

<PAGE>

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
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.


                                     - 52 -

<PAGE>

   
         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.

         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
    

                                     - 53 -

<PAGE>

   
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 election 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  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.
    

                                     - 54 -

<PAGE>

   
         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 a
letter  opinion  dated May 9, 1996 to the effect  that  because  Bennett had the
right to vote less 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.

                                     - 55 -

<PAGE>

   
         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  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

                                     - 56 -

<PAGE>

   
Field in Southeastern Ohio from Biscayne Petroleum Corporation,  an affiliate of
Edson R. Arneault,  the 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  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 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 who 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  reestablish  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
    

                                     - 57 -

<PAGE>

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 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"),
    

                                     - 58 -

<PAGE>

   
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  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  LLC,  collateralizing  indebtedness  aggregating $5
million in principal.
    

                                     - 59 -

<PAGE>

         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.
    

         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  and 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
    

                                     - 60 -

<PAGE>

   
effective,  would  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  September  30, 1996,  the
Company has issued  207,500  shares  (excluding  the 30,000  shares  referred to
above) of its Common Stock in  accordance  with terms of the  agreement.  All of
such shares are covered by this Registration Statement.

         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  and such  Warrants  are
covered by this  Registration  Statement.  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
    

                                     - 61 -

<PAGE>

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 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


                                     - 62 -

<PAGE>

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 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

                                     - 63 -

<PAGE>

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 had been chairman and majority owner
of CRC Group, 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, NASD and New York Stock Exchange,
Inc.

                                     - 64 -

<PAGE>

                             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>    
Edson R. Arneault(5)                   1995     213,652       23,000          -               -       618,415      -        -
      President and CEO, and                
      Chairman 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, CFO,
      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 CEO of
      Winners Entertainment, Inc.
                                       1994     204,437         -           12,500            -                    -        -
                                       1993     161,436       36,250          -               -          -         -        -


Compensation paid to all officers      1995     399,599       23,000          -               -       975,731      -        -
and directors as a group during 1995

</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 the Company's 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.


                                     - 65 -
<PAGE>

(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.

(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.


                             OPTIONS GRANTS IN 1995

         The following table contains information  concerning the grant of stock
options  during fiscal 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
                     Options          Granted in           Exercise             Expiration
          Name       Granted          Fiscal Year            Price                 Date          5%                   10%
          ----       -------          -----------           -------                ----          --                   ---

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

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

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

</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.
    


                          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

                                     - 66 -

<PAGE>

   
officers names in the Summary Compensation Table during as of December 31, 1995.
None of the named executives  officers exercised any stock options during fiscal
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  options  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 - footnote (1), above.


                                     - 67 -

<PAGE>

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

<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


</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  with  the  Commission  of  their  transactions  in the  Company's
securities. 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
    

                                     - 68 -

<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 of 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
Securities Exchange Act of 1934, as amended, (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

                                     - 69 -

<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 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 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 of this  acquisition,  Mr. Arneault was not
affiliated with the
    
                                     - 70 -

<PAGE>

   
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 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  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 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, 1995 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, 1996. 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 DAVE, a corporation  that is controlled by David T. Arneault,  the brother of
Edson R. Arneault. The buyer
    
                                     - 71 -

<PAGE>

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
subsequently  converted into an additional  note.  The $240,000 note  receivable
bears interest at 8% per annum, is due on demand, and is
    

                                     - 72 -
<PAGE>

   
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
    

                                     - 73 -
<PAGE>


   
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 this
Registration  Statement.  In addition, in April 1996, the Company issued 116,739
redeemable shares with a guaranteed  selling price of $1.50,  until such time as
such shares are included in a registration  statement filed with the Commission.
All of such shares are included in this Registration Statement. At September 30,
1996, 438,593 shares of redeemable Common Stock were outstanding.
    


           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.
    


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

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


                                     - 74 -

<PAGE>

   
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

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)



   
(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  held  directly  by  Mr.  Saunders  and
         indirectly by a trust of 625,869 shares  exercisable  within 60 days of
         September 13, 1996.
    

(3)      Includes  183,206  shares and  warrants  exercisable  within 60 days of
         August 29, 1996 held by Madeleine LLC  ("Madeleine").  This information
         is based on  information  supplied to the  Commission on a Schedule 13D
         filed by Madeleine on July 2,

                                     - 75 -

<PAGE>

   
         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  five year  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 of such 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 West Virginia  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  West  Virginia
         Lottery Commission.

   
(5)      Includes  103,810  shares  and  options  and other  rights 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

   
         The  shares  of  Common  Stock  offered  hereby  are  either  currently
outstanding  and held by the Selling  Stockholders  or issuable upon exercise of
the  Options and  Warrants  held by the  Selling  Stockholders.  The Company has
issued  such  shares of Common  Stock and the  Options  and  Warrants in various
private  placement  transactions  from time to time  since its  inception.  Such
shares of Common Stock are entitled to certain  registration rights. See "Shares
Eligible  for  Future  Sale -  Registration  Rights."  Of the  4,836,340  shares
included  herein,  3,272,221 are currently  issued and outstanding and 1,564,119
shares are issuable upon the exercise of the Options and Warrants by the Selling
Stockholders.
    
                                     - 76 -

<PAGE>

         In connection with the  registration of the securities  offered hereby,
the Company will supply prospectuses to the Selling Stockholders.

Stock Ownership

   
         The table  below sets  forth the  number of shares of Common  Stock (i)
owned  beneficially by each of the Selling  Stockholders;  (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 Options and 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 of
Common Stock  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 Options or 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 Stockholders which are exercisable as of September
13, 1996 or which will become  exercisable within 60 days of 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.
    

                                     - 77 -
<PAGE>

<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 Stockholder           Owned                Offered                Offering               Offering(1)
            -------------------           -----                -------                --------               -----------

   
<S>                                   <C>                  <C>                             <C>            <C>
Arie From (2)                         150,000              150,000                         0              0

AstraFund Ltd. (3)                    357,500              357,500                         0              0
                      
    

Manitou Brownstreet                     8,502                6,087                     2,415              0
Development Drilling LP
1984-I (4)

Manitou Brownstreet                       717                  717                         0              0
Development Drilling LP
1984-IV (4)

Manitou Brownstreet                    59,391               42,237                    17,154              0
Development Drilling LP-VI
(4)

Manitou Brownstreet                    69,534               49,055                    20,479              0
Development Drilling LP-
1985-1 (4)

Manitou Brownstreet Energy             29,043               18,411                    10,632              0
Reserve LP 1984-II (4)

 Manitou Brownstreet Energy             3,954                3,029                       925              0
Reserve LP 1984-IV (4)

Manitou Energy LP 1986-III             23,989               16,060                     7,929              0
(4)

Manitou Energy Passive                 19,209               19,209                         0              0
Income LP (4)

 Manitou Energy Working               181,990              131,586                    50,404              0
Interest Program 1987-I (4)

Manitou Energy Working                    621                  621                         0              0
Interest Program 1987-II
(4)

Manitou Energy Working                 53,243               37,902                    15,341              0
Interest Conversion Program
1987-II (4)

Summit-Manitou Energy LP -             15,066                9,212                     5,854              0
Series I (4)

John C. Davis (4)                       3,320                3,320                         0              0

   
Edson R. Arneault                      27,408               27,408                         0              0
                          
(4)
    

Albert A. Forte (4)                    13,746               13,746                         0              0


                                     - 78 -

<PAGE>

   
Bennett Management &                1,530,000            1,170,000                   360,000             1.9%
Development Corp. and
affiliates (5)

Crystal Asset Management              145,000              145,000                                      0 0
(6)

Dorothy van Haaften (7)               166,739              116,739                    50,000             .3%

Dublin Energy Corp. (8)                60,850               10,850                    50,000             .3%
    

 Eli Dragasich                         36,000               36,000                         0              0

   
Donald G. Saunders (9)              1,717,685              625,869                 1,091,816             5.5%
                           
    

Glenn Hall (10)                       251,750              231,750                    20,000             .1%

 Mary M. Adams (11)                    61,600               61,600                         0              0

John Anderson (11)                        800                  800                         0              0

Michael Baghdoian (11)                 19,200               19,200                         0              0

James Belisle (11)                     16,667               16,667                         0              0

John Brown, Sr. (11)                    1,700                1,700                         0              0

 Raymond Cesmat (11)                      400                  400                         0              0

Mark Dewitz (11)                        2,800                2,800                         0              0

Martha Huett (11)                       2,800                2,800                         0              0

Katherine Jardine (11)                  1,600                1,600                         0              0

Charles Krueger (11)                    1,200                1,200                         0              0

Brad Lingle (11)                        1,000                1,000                         0              0

Peter D. Mathews (11)                  88,678               88,678                         0              0

Brad Ober (11)                            400                  400                         0              0

 William Pallack (11)                  54,439               54,439                         0              0

Alex Raft (11)                          6,400                6,400                         0              0

Robert Ramseth (11)                     2,000                2,000                         0              0

Donald Stellmaker (11)                  3,200                3,200                         0              0

Roland Stinski (11)                    16,666               16,666                         0              0


                                     - 79 -

<PAGE>

Dennis VanAuken (11)                    1,700                1,700                         0              0

   
Jackpot Enterprises, Inc.             250,000              250,000                         0              0
(12)
    

Ladenburg, Thalmann & Co.             300,000              300,000                         0              0
   
(13)

Lawrence L. Manypenny (14)             77,449               77,449                         0              0
    

Louis Haskell                         120,000              120,000                         0              0

   
Michael Mapes                          95,000               75,000                    20,000             .1%
      (15)

Michael R. Dunn  (16)                 605,204              100,000                   505,204                   
    
       
   
                                                                                                         2.6%
    

Thomas Farida and Regina               50,000               50,000                         0              0
  Farida as Joint Tenants

John Farida and Thomas                 50,000               50,000                         0              0
  Farida as Joint Tenants

Larry Farida and Denise                50,000               50,000                         0              0
  Farida as Joint Tenants

Ronald Farida and Ban                  50,000               50,000                         0              0
  Farida as Joint Tenants

Terry Farida and Karen                 50,000               50,000                         0              0
  Farida as Joint Tenants

Pattah Investments, Inc.              100,000              100,000                         0              0

   
 Lease Equities, Inc. (17)             58,333               58,333                         0              0

Totals                              7,064,493            4,836,340
    
</TABLE>

===========================================================================

(1)  Based on the number of outstanding shares as of September 13, 1996.

   
(2)  Pursuant to a Consulting  agreement dated December 1, 1994, Mr. From agreed
     to provide  professional  services primarily related to capital raising for
     the Company for which he received warrants to purchase Common Stock.

(3)  In connection with a series of five $150,000 loans and one $250,000 loan to
     the Company originated between March 1996 and July 1996, the Company issued
     125,000 shares of Common Stock. All of such loans have been repaid.

(4)  Pursuant to an  acquisition  agreement  between  the  Company and  Biscayne
     Petroleum  Corporation  ("Biscayne"),   of  which  Edson  R.  Arneault  the
     Company's   President  and  Chief  Executive   Officer  was  President  and
     controlling  shareholder  prior to his  affiliation  with the Company,  and
     certain limited partnerships controlled by Biscayne as general partner, the
     Company  issued  stock and cash to Biscayne  and the limited  partnerships.
     Edson R. Arneault and Albert A. Forte  acquired such shares from various of
     the limited  partnerships in a distribution from such limited  partnerships
     based on general partnership interests in such limited partnerships held by
     Mr. Arneault and Mr. Forte. See "Certain Transactions".
    
                                     - 80 -
<PAGE>

   
(5)  Shares received pursuant to the Bennett Loan as amended.  See "Management's
     Discussion  and  Analysis of  Financial  Condition - Liquidity  and Capital
     Resources" and "Description of Certain Indebtedness".

(6)  Consultant  who was  retained  to  provide  financial  consulting  services
     received   shares   pursuant  to  a   settlement   agreement.   See  "Legal
     Proceedings-Settled Litigation".

(7)  Former shareholder of Golden Palace Casinos,  Inc. Ms. van Haaften received
     shares of Common Stock and options to purchase  Common Stock of the Company
     in the  Company's  October 1992 stock  exchange  with Golden Palace and was
     issued additional shares pursuant to a settlement agreement in July 1996.

(8)  Served as a finder in the Company's  acquisition of Mountaineer in December
     1992.  Dublin was to be paid a cash fee,  a portion of which was paid.  The
     balance was renegotiated in December 1995 and converted to 60,850 shares of
     Common  Stock of the Company,  10,860 of which are subject to  registration
     rights.

(9)  A shareholder  and consultant who has provided a variety of services to the
     Company,  some of which  have  been  related  to fund  raising  activities.
     Pursuant to a consulting agreement, dated November 1, 1994, Mr. Saunders is
     entitled to a salary and other benefits from the Company.

(10) Former  shareholder  and insider of Golden  Palace  Casinos,  Inc. Mr. Hall
     received shares of Common Stock and options to purchase Common Stock of the
     Company in the Company's October 1992 stock exchange with Golden Palace and
     issued additional shares pursuant to a settlement agreement in June 1996.

(11) Stockbroker employed by Mathews Holmquist, a former stock brokerage firm in
     Minneapolis,  Minnesota.  Mathews  Holmquist was primarily  responsible for
     selling a  private  placement  by Golden  Palace  Casinos  in 1991,  and in
     connection  therewith  received  underwriter  warrants to purchase  283,250
     shares of Golden Palace Casinos  Common Stock at $2.40 per share.  Pursuant
     to the October 1992 stock  exchange  between  Golden Palace Casinos and the
     Company,  the Golden Palace Casinos warrants were exchanged for warrants to
     purchase Common Stock of the Company.

(12) Jackpot and the Company  entered into a joint venture  agreement in January
     1993,  which  contained a clause for payment of  liquidated  damages by the
     Company if the agreement  was not  consummated  in accordance  with certain
     contingencies.  The  parties  subsequently  entered  which  was  ultimately
     resolved  by  a  settlement   agreement  in  February   1995.   See  "Legal
     Proceedings-Settled Litigation".
    
                                     - 81 -

<PAGE>

   
(13) Pursuant  to a  financial  consulting  arrangement  with the  Company,  the
     Company agreed to paid cash fees and issued warrants to purchase its Common
     Stock.

(14) Former legal counsel to  Mountaineer.  The shares of Common Stock  included
     herein were received  pursuant to an August 1995  settlement  agreement for
     past due legal services to the Company.

(15) Former  shareholder  and insider of Golden Palace  Casinos,  Inc. Mr. Mapes
     received shares of Common Stock and options to purchase Common Stock of the
     Company in the Company's October 1992 stock exchange with Golden Palace and
     issued additional shares pursuant to a settlement agreement in June 1996.

(16) Former president,  Chief Executive Officer, and director of the Company. In
     September  1996,  Mr. Dunn settled a dispute in connection  with a May 1995
     settlement  agreement  between him and the Company which terminated his May
     1994 employment agreement with the Company.

(17) Pursuant to a financial  consulting  agreement,  the shares included herein
     were issued for services rendered.
    


                              PLAN OF DISTRIBUTION

         Shares of Common Stock currently outstanding and shares of Common Stock
issuable  upon exercise of the Options and 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 been advised by the Selling Stockholders that they have not 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

                                     - 82 -

<PAGE>

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.

   
         The Company has notified 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").

         The  Selling  Stockholders  have also been  notified  that  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,

                                     - 83 -

<PAGE>

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 warrants 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 the 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  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 the  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

                                     - 84 -

<PAGE>

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;

     (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;

                                     - 85 -

<PAGE>

         (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  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)   (such   securities   being  defined  as  the  "Repurchase
Securities")  shall be subject to  repurchase  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

                                     - 86 -

<PAGE>

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;

         (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.  * 1 moved from here;  text not shown * 2 moved from here; text not
shown
    

         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  General  Corporation  Law of  Delaware  (the
"GCL")  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
    

                                     - 87 -

<PAGE>

   
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 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 of the GCL.  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 GCL, 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  "Indemnified   Party"  or
"Indemnified  Parties").  With  respect to third party  actions,  the  Indemnity
Provisions represent the Company's commitment to
    
                                     - 88 -

<PAGE>

   
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  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
    
                                     - 89 -

<PAGE>

   
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  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.

Warrants

     At  September  13,  1996,  there  were  outstanding  warrants  to  purchase
2,441,110 shares of Common Stock with exercise prices ranging from $.80 to $4.00
and expiration dates ranging from November 21, 1996 to January 1, 2004.

Options

     At September 13, 1996, there were outstanding options to purchase 3,866,380
shares of Common  Stock  with  exercise  prices  ranging  from $.01 to $2.00 and
expiration dates ranging from January 5, 1997 to October 2, 2001.
    

                                     - 90 -

<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,
3,272,221  shares are covered by this  Registration  Statement  and were sold in
various  private  placements  by the Company to the Selling  Stockholders.  Such
3,272,221 shares will, if sold pursuant to this Registration Statement,  and the
1,564,119  shares of Common Stock  included in this  Registration  Statement and
underlying the Options and Warrants will, if 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 878,250 shares of Common Stock
and the Options to purchase  685,869  shares of Common Stock,  as of October 15,
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,  the Company has registered  (i) 183,206 shares of Common Stock,  (ii)
1,542,860  shares of Common Stock  issuable  upon the exercise of warrants,  and
(iii) 1,542,860  warrants on another  registration  statement which it has filed
with the  Commission.  Certain  of the  outstanding  shares of Common  Stock and
shares underlying outstanding options and warrants have registration rights, and
are covered by this  Registration  Statement,  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.
    
                                     - 91 -

<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.  This
Registration Statement covers 1,120,000 of such shares.

         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.  All of these shares are included in this
Registration Statement.

         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  Shares")   (collectively  the
"Registrable  Securities").  The  Registration  Rights  Agreement  required  the
Company to effect the registration of any such Registrable Securities within 120
days
    
                                     - 92 -

<PAGE>

   
of the date of 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.  The Company registered such shares of Common
Stock on a registration statement filed with the Commission.

         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  warrant  certificates  issued  to  Madeleine,  Brownstone
Holding  and Bridge  Capital in  connection  with the Term Loan  Agreement,  the
Company agreed to use its best efforts to effect the  registration of the resale
of warrants issued to them, and the issuance,  or if not  permissible  under the
Securities  Act, the resale of the shares issuable on exercise of such 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 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

                                     - 93 -

<PAGE>

   
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
if not effective within seven months, or nine months respectively, subsequent to
the  request  of the  warrant  holder.  The  Company  has  filed a  registration
statement with the Commission  covering all of the warrants and shares  issuable
upon exercise of the warrants.

         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 is eliminated.  As of October 15, 1996, the
Company had redeemed 16,677 shares.  This Registration  Statement covers 116,739
shares held by Ms. van Haaften.

         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
    
                                     - 94 -

<PAGE>

   
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,  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. All of these shares are included in this Registration
Statement.

         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.  All of these shares
are included in this Registration Statement.

         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  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. All of these shares are included in this Registration Statement.
    

         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

                                     - 95-

<PAGE>

   
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. All of the 75,000 shares currently held by Mr. Mapes are included herein.

         Pursuant to a  Settlement  Agreement  dated June 30,  1995  between the
Company and Glenn Hall,  the  Company  agreed to use its best  efforts to have 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 declared
effective.  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 Mr. Hall's shares but did not. Based on the
Company's  failure to register  such shares  before June 30,  1996,  the Company
issued a promissory  note for $235,125.  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. This  Registration  Statement covers
231,450 of such shares of Common Stock.

         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.
    
                                     - 96 -

<PAGE>

   
         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,  one of the Selling  Stockholders,  and
that such shares  will be subject to the same  registration  rights.  All of the
150,000  shares  currently  held by Mr. From are  included in this  Registration
Statement.

         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  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 herein.

         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
    
                                     - 97 -

<PAGE>

   
closing bid price of the  Company's  Common Stock for the 14 days  subsequent to
April 15, 1996 multiplied by 98,333. This Registration  Statement covers 378,600
shares held by these Partnerships.

         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. All of these shares are included in this Registration Statement.

         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. All of such shares are included in this  Registration
Statement.

         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.  All of such shares are  included in this  Registration
Statement.
    

     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

                                     - 98 -
<PAGE>

   
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. All of such shares
are included in this Registration Statement.

         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 which are issuable  upon exercise of such options
are included in this Registration Statement.
    


                       DESCRIPTION OF CERTAIN INDEBTEDNESS

   
         On June 27, 1994, the Company as Guarantor and its subsidiary entered a
Construction  Loan  Agreement (the "Bennett  Loan") with Bennett  Management and
Development  Corp. 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
    
                                     - 99 -

<PAGE>

   
was approved by the Bankruptcy Court. 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 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
    
                                     - 100-

<PAGE>

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
will terminate the  Management  Agreement and settle the accounts of the parties
as of June 30, 1995.
    

       
   
         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  and  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 loan
is subject, on each anniversary date,
    
                                     - 101 -

<PAGE>

to additional  fees of cash equal to 8% of the  outstanding  principal  balance,
stock equal to 5% of the outstanding principal balance multiplied 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 a  registration  statement  previously  filed with the
Commission 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  issued to
the lender and its  affiliates  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
such warrants.

   
         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  such warrants are covered by a  registration
statement previously filed with the Commission.
    

                                  LEGAL MATTERS

         The  validity  of 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.
    
                                    - 102 -

<PAGE>

       
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

<S>                                                                                                     <C>
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                                                                                       F-33
    

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

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

Notes to Condensed and Consolidated Financial Statements                                              F-37
    

</TABLE>

                                       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                            1,7022,645         $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:
  Loss from continuing
<S>                                               <C>                 <C>                  <C>         
    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

                                      F-11

<PAGE>

         to be in  operation  on at least 400 video  lottery  terminals  by June
         1996. In 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.

                                      F-12

<PAGE>

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.

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.

                                      F-13

<PAGE>

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).

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

                                      F-14

<PAGE>

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
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

                                      F-15

<PAGE>

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).


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.

                                      F-16

<PAGE>

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 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.

                                      F-17

<PAGE>

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.

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).

                                      F-18

<PAGE>

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 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.

                                      F-19

<PAGE>

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 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:

                                      F-20

<PAGE>

         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 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.

                                      F-21

<PAGE>

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.

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.
                                      F-22

<PAGE>

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,  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

                                      F-23

<PAGE>

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.

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:

                                      F-24

<PAGE>
                                       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  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

                                      F-25

<PAGE>

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 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

                                      F-26
<PAGE>

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.

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

                                                   1995          1994
                                                   ----          ----
Assets:
  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
                                                  ----------     ----------

                                      F-27

<PAGE>

Less liabilities:                   
  Accrued liabilities                            (252,000)        (350,000)
  Payables to related parties                    (100,000)         (42,000)
                                                ----------        ----------
Net assets                                     $2,616,000        $2,616,000
                                                ==========        ==========


                                         Results of its operations for the
                                   years ended December 31, 1995, 1994 and 1993
                                   --------------------------------------------

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

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)
                                          ======        ========    =========

Reserve Quantity Information

                                                Oil                Gas
                                              (in BBLs)          (in MCF)
                                            ---------------------------

Proved developed:
  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                  ---
                                             =========            =========

(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

                                      F-28

<PAGE>

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).

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

                                      F-29

<PAGE>

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>


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

                                      F-30

<PAGE>

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.


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

                                      F-31

<PAGE>

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.

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>


       
                                      F-33

<PAGE>

   
              CONDENSED AND CONSOLIDATED BALANCE SHEETS, Continued
    
<TABLE>
<CAPTION>

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

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
<S>                                                                              <C>                <C>         
  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
                                                                                 ============       ============

</TABLE>


                       See accompanying notes to financial statements.

                                      F-34

<PAGE>

               CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                  Three Months Ended                    Six Months Ended
                                                                        June 30                              June 30
                                                                        -------                              -------
<S>                                                            <C>                <C>              <C>                <C> 
                                                               1996               1995             1996               1995
                                                               ----               ----             ----               ----

Revenues:
  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

CASH FLOW FROM OPERATING ACTIVITIES
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
                                               ===========          ===========


                See accompanying notes to consolidated financial statements.

                                      F-36

<PAGE>

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,  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
                                              ==========         ==========

                                      F-37

<PAGE>

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 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.

                                      F-38

<PAGE>

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 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.

                                      F-39

<PAGE>

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 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

                                      F-40

<PAGE>

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 (valued at the average closing bid price for the
30 days prior to 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 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.

                                      F-41

<PAGE>

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-42

<PAGE>

PART II.  INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14.  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............................................    $ 2,402.00
 Accountants' Fees and Expenses...............................    $ 5,000.00
 Legal Fees and Expenses......................................    $10,000.00
 Printing Expenses............................................    $10,000.00
 Miscellaneous................................................    $ 5,000.00
         Total................................................    $32,402.00


Item 15.   Indemnification of Directors and Officers

         Under  Section 145 of the  General  Corporation  Law of  Delaware  (the
"GCL")  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 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

                                      II-1

<PAGE>

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 of the GCL.  The  Certificate
provides that no director shall be personally  liable to the  corporation or its
shareholders  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  shareholders,  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 GCL, 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  individually  as an  "Indemnified
Party" or collectively as  "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  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

                                      II-2

<PAGE>

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 shareholders 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  shareholders,   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 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

                                      II-3

<PAGE>

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 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:


                                                                Exhibit No.
                                                                or
    Exhibit                                                     Incorporation
      No.          Item Title                                   by Reference
     -----         ----------                                   ------------
          5.1      Opinion of Ross & Hardies                          E-1
         23.1      Consent of Ross & Hardies (included in             E-2
                   Exhibit 5.1)
   
         23.2      Consent of Corbin and Wertz                        E-3
         99.1      Schedule II - Valuation and Qualifying             E-4
    
                   Account
===============================================================================


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

                                      II-4

<PAGE>

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.

         (4)  That,  for  purposes  of  determining   any  liability  under  the
Securities Act of 1933,  each filing of the Company's  annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and where applicable, each filing of
an employee  benefit  plan's  annual  report  pursuant  to Section  15(d) of the
Exchange Act) that is incorporated by reference in this  Registration  Statement
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.

         (5)  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

                                      II-5

<PAGE>

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-6

<PAGE>




                                   SIGNATURES


   
         Pursuant  to the  requirements  of the  Securities  Act  of  1933,  the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and 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 October 30,
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.




   
/s/EDSON R. ARNEAULT     Director, President and               October 30, 1996
Edson R. Arneault       Chief Executive Officer
    
                        (Principal Executive Officer)


   
/s/THOMAS K. RUSSELL       Director, Secretary,                October 30, 1996
Thomas K. Russell         Chief Financial Officer
    
                          and Treasurer
                         (Principal Financial and
                         Accounting Officer)


   
/s/ROBERT L. RUBEN       Director, Assistant                   October 30, 1996
Robert L. Ruben           Secretary



/s/ROBERT A. BLATT        Director                             October 30, 1996
Robert A. Blatt
    



<PAGE>



                                  EXHIBIT INDEX

Exhibit
Numbers
-------


5.1                           Opinion of Ross & Hardies
23.1                          Consent of Ross & Hardies
                              (Incorporated in Exhibit 5.1)
23.2                          Consent of Corbin & Wertz
   
99.1                          Schedule II - Valuation and Qualifying Account