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

                                   FORM 10-KSB
(Mark One)

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

                  For the fiscal year ended September 30, 1998

                                       OR

[  ]  TRANSITION  REPORT  UNDER  SECTION 13 OR 15(d) OF THE  SECURITIES  AND
       EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                         Commission file number 0-22242

                           CASINO RESOURCE CORPORATION
               (Name of the small business issuer in its charter)

         MINNESOTA                                     41-0950482
  (State or jurisdiction of                           (I.R.S. Employer
   incorporation or organization)                      Identification No.)

                             707 Bienville Boulevard
                        Ocean Springs, Mississippi 39564
                    (Address of principal executive offices)

                    Issuer's telephone number (228) 872-5558

Securities registered pursuant to Section 12(b) of the Exchange Act: None
Name of each exchange on which registered: N/A
Securities  registered  pursuant to Section  12(g) of the Exchange  Act:  Common
Stock and Class A Warrants

         Check  whether the  company  (1) has filed all  reports  required to be
filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12
months (or for such  shorter  period that the Company was  required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes X No__.

         Check  if  disclosure  of  delinquent  filers  pursuant  to Item 405 of
Regulation S-B is not contained herein,  and will not be contained,  to the best
of Registrant's  knowledge,  in the definitive  proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. /X/

         The  Company's  revenues for the fiscal year ended  September  30, 1998
were $3,305,396.

         As of  December  29,  1998,  9,482,349  shares  of  Common  Stock  were
outstanding, and the aggregate market value of such Common Stock (based upon the
last reported sale price on the NASDAQ National Market),  excluding  outstanding
shares beneficially owned by affiliates was approximately $4,551,573.

         Transitional Small Business Disclosure Format (Check one): 
Yes ____; No _X_ 


<PAGE>
                                     PART I


ITEM 1.  BUSINESS

Recent Developments

         During fiscal 1998,  the Company in a continuing  effort to fulfill its
long term strategy to increase  shareholder value,  determined that the best way
to meet this goal was to change the focus of the Company's business.  As part of
this effort,  the Company took a number of actions.  First, the Company sold the
Grand  Hinckley Inn in June 1998, to the Mille Lacs Band of the Ojibwe  Indians.
The selling price was $5.4 million.

         Second,  the Company  entered  into an asset  purchase  agreement  (the
"Agreement")  with  On  Stage   Entertainment,   Inc.  ("On  Stage"),   to  sell
substantially all of the Company's assets relating to the Country Tonite Theater
in Branson,  Missouri,  and the production  show,  Country Tonite.  The purchase
price is $13.8  million,  of which  $12.5  million  is  payable  in cash and the
balance  payable by 9.5%  subordinated  note. The Agreement is subject to, among
other things, On Stage's obtaining  financing of the purchase price and approval
of the sales  transaction by a majority of the  shareholders of On Stage and the
Company.

         Third, the Company and Burkhart Venture, LLC entered into an agreement,
whereby  Burkhart  Venture,  LLC would  acquire the  Company's  60% ownership in
Country  Tonite  Theatre,  LLC for $20,000.  Because of these  transactions  the
entertainment segment and hospitality segment have been considered  discontinued
operations in the  consolidated  financial  statements.  See "Item 7.  Financial
Statements and Supplementary Data."

         Fourth, and finally, the Company entered into a Letter of Intent with a
standstill  component,  with Mark McKenny,  an Arkansas business man, to build a
state of the art spring water bottling  plant.  If the transaction is completed,
the  Company  will  receive  60% of the  equity for a minimum  investment  of $5
million. The parties expect to spend $27 million on the facility.  The agreement
is contingent upon, among other things,  (i) completion by the Company of a full
legal and business due diligence  examination;  and (ii) the Company's obtaining
debt and equity financing in the amount of not less than $25 million.

         Upon the sale of the  entertainment  division assets,  the Company will
still have its casino in Tunisia, North Africa, however the Company will have no
other  entertainment   assets.  The  following   information  provides  historic
background  information  on the  Company's  businesses  prior to the sale of the
Grand Hinckley Inn and the proposed sale of the entertainment segment.


General

         The Company was organized in 1969. In 1987,  the Company merged into an
inactive public corporation, and in 1993, it changed its name to Casino Resource
Corporation.  Prior to 1987, the Company engaged in various business  activities
unrelated  to its current or proposed  businesses.  Between  1987 and 1991,  the
Company's primary business was owning and managing recreational 

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vehicle resorts,  and providing related direct marketing  services.  The Company
sold its  capital-intensive  camp resort  properties from 1988 through 1991, and
began  offering  direct  marketing  services  to the  recreational  real  estate
industry.   The  marketing  services  provided  were  primarily  focused  toward
timeshare and camp resort developments and, eventually,  to the casino industry.
The Company sold its timeshare and camp resort direct marketing  business in May
1994, and directed its focus to the  hospitality and  entertainment  industry in
both gaming and high tourist areas, and to the emerging gaming industry.

         The Company  entered the hospitality  and  entertainment  industries by
acquiring or developing five businesses.  In March 1994, the Company purchased a
musical  production  company,  which staged an award-winning show at the Aladdin
Hotel in Las Vegas,  Nevada,  but which closed on November  15,  1997,  with the
closing of the Aladdin  Hotel.  Also in March 1994,  the Company  purchased  its
"Country  Tonite  Theatre"  in  Branson,  Missouri.  In May  1994,  the  Company
completed  construction of and opened its 154 room hotel,  "Grand Hinckley Inn,"
on 7.5 acres of leased land in northern  Minnesota  adjacent to the Grand Casino
Hinckley,  an Indian gaming facility currently  operated by Grand Casinos,  Inc.
("Grand  Casinos").  This facility was sold to the Mille Lacs Band of the Ojibwe
Indians in June 1998.  Also,  in May 1994,  the  Company  opened the Biloxi Star
Theatre,  a  1,900  seat  deluxe  theater  in  Biloxi,  Mississippi,  which  was
subsequently  sold to Grand  Casinos in September  1994.  In March 1997, a third
venue for the Country Tonite Show opened in Pigeon Forge, Tennessee. The Country
Tonite  Theatre,  LLC (CTT),  a joint  venture  between the Company and Burkhart
Ventures,   LLC,   presents   the   Country   Tonite   Show  in  a   1,500-seat,
state-of-the-art  theatre in Pigeon Forge,  Tennessee.  The Company's  operating
manager was the 60% owner of the joint  venture.  The Company's 60% interest was
sold to Burkhart Ventures,  LLC, effective December 31, 1998. In April 1997, the
Branson  Theatre added a second show "The Golden Girls," in a joint venture with
Greg Thompson Productions, and on October 18, 1997, the Company, through its 85%
owned subsidiary,  CRC of Tunisie, Inc., opened its casino (Casino Caraibe) in a
leased  facility in Sousse,  Tunisia,  North Africa.  Additionally,  the Country
Tonite  Show  appeared  for three weeks at the Sahara  Hotel and Casino,  in Las
Vegas, Nevada, in December 1997.

         The Company had  previously  entered  into a Technical  Assistance  and
Consulting  Agreement  with  Harrah's  Entertainment,  Inc.  ("Harrah's")  which
provided that, upon the receipt of a compact and regulatory  approval,  Harrah's
was to develop and manage one or more  casinos to be funded by Harrah's  for the
Pokagon  Band  of  Potawatomi  Indians  in  northern  Indiana  and  southwestern
Michigan. The Company would have received, upon commencement of operations 21.6%
of Harrah's  management  fee,  but was not  required to provide any  development
capital.  The Management  Agreement  between  Harrah's and the Band was canceled
during fiscal year 1998. The Company  asserts that it maintains a Right of First
Refusal to  develop a casino or  casinos  with the  Pokagon  Band of  Potawatomi
Indians  (the  "Band"),  even though the Band  announced  that the  agreement to
develop  and manage one or more  casinos,  to be funded by  Harrah's in northern
Indiana and southwestern Michigan was terminated.

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<PAGE>

Hospitality & Entertainment Operations

Grand Hinckley Inn (Hinckley, MN)

         In May 1994,  the Company opened its Grand Hinckley Inn on 7.5 acres of
leased land located adjacent to the Grand Casino Hinckley,  a 46,000 square-foot
casino owned by the Mille Lacs Band of Ojibwe Indians (the "tribe") and operated
by Grand Casinos near  Hinckley,  Minnesota.  Grand Hinckley Inn was sold to the
Mille Lacs Band of Ojibwe Indians, who was lessor of the hotel site, on June 29,
1998, for $5.4 million.

Country Tonite Theatre  (Branson, MO)

         The Company  purchased the former Ray Stevens Theatre,  now the Country
Tonite Theatre (the "Theatre") located at 4080 W. Highway 76, Branson,  Missouri
65616 in March  1994,  for a purchase  price of $10  million.  In May 1994,  the
2,000-seat theatre began running two shows daily,  featuring  dancers,  singers,
comics  and other  variety  acts.  The show is  produced  by the  Company's  Las
Vegas-based  subsidiary,  Country Tonite Enterprises,  Inc. ("CTE"). The Theatre
features  38,000  square  feet on two floors with an  auditorium,  a stage area,
control booths,  dressing rooms,  offices,  a lounge, a gift shop which offers a
wide variety of souvenirs  with the Country  Tonite  theme,  and two  concession
stands. In addition, the Theatre parking lot accommodates 600 cars and 30 buses.

         Branson,  Missouri is a popular  resort  destination  for country music
lovers from across the nation.  Branson is located at the  intersection of U. S.
Highway 76 and Interstate  Highway 65, which connects  Branson and  Springfield,
Missouri. Branson is located approximately 250 miles from St. Louis and 40 miles
from Springfield.  Its population is approximately 3,000. The city includes over
40 theaters  featuring  music stars such as Andy Williams,  Bobby Vinton and the
Osmond family and provides a wide range of family entertainment for all ages. In
addition to  approximately  20,000 hotel rooms,  Branson offers diverse  eating,
shopping and  recreational  activities  to its  approximately  6 million  annual
visitors (according to Branson Chamber of Commerce),  most of whom visit between
the  months of March and  December.  Typical  visitors  to  Branson  are  senior
citizens  participating in bus tours through Missouri.  Families also comprise a
large part of Branson's  visitors during the summer months and they are drawn to
Branson not only by the country  music,  but also by the  additional  activities
offered  in the  summer  months by the many  lakes in the  Branson  area and the
Arkansas  Ozarks,  another popular tourist  destination  area only 50 miles from
Branson.

         The  Company  purchased  the  Theatre  for $2  million  in  cash  and a
promissory note  collateralized by the Theatre for $8 million in principal.  The
note,  with a principal  balance of  $7,225,037  at September  30,  1998,  bears
interest  at the  prime  rate plus 1%,  with a floor of 7% and a ceiling  of 10%
(9.5% at  September  30,  1998),  and  matures on  October 1, 1999.  The note is
payable in monthly  installments  of principal  and interest of $74,002,  with a
final payment of approximately  $7 million.  If the Company retires the mortgage
on or before May 1, 1999, the Company will be given a $300,000 discount.

         The Theatre  attracts  "walk-up"  patrons  (approximately  85% of total
sales), both through local media advertising and "word-of-mouth," and markets to
pre-arranged  bus  tours  (approximately  15% of total  sales).  The  number  of
competing theaters and number of shows could attract ticket buyers away from the
Company's theatre.  Also, other area tourist  attractions could limit the growth
or even 

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<PAGE>

decrease  ticket  sales.  In  addition,  other  geographic  areas are  currently
actively  seeking to increase their tourist bases,  which could,  at some point,
negatively  impact the number of annual visitors to Branson.  The Country Tonite
Show playing at the  Company's  theatre,  while having won major awards could be
duplicated by a competing  theatre with  possible  adverse  consequences  to the
Company.

         The Company entered into the Agreement to sell substantially all of the
Company's  assets  relating to the Country Tonite Theatre in Branson,  Missouri,
and the production show Country Tonite to On Stage Entertainment, Inc., a Nevada
corporation  (NASDAQ:  ONST),  ("On Stage"),  for $13.8 million,  of which $12.5
million is payable in cash, and the balance of which is payable by delivery of a
two year subordinated  9.5% note in the amount of $1.3 million.  Included in the
assets  subject  to the  Agreement  is the  Branson  Theatre.  A portion  of the
proceeds  from the  proposed  sale will be used to retire  the  mortgage  on the
Theatre.  Consummation of the sale is subject to, among other things, On Stage's
obtaining  acceptable  financing of the purchase price and approval of the sales
transaction by a majority of the shareholders of On Stage and the Company.

Country Tonite Production Show (Las Vegas, NV)

         CTE, the Company's  musical  production  subsidiary based in Las Vegas,
Nevada,  was acquired in March 1994. The production  show involves a country and
western  theme (the  "Show"),  and played at the 1,100  room  Aladdin  Hotel and
Casino ("Aladdin")  located on the "strip" in Las Vegas from 1992 until November
15, 1997, when the Aladdin Hotel closed for renovations. CTE, which produces the
Show,  received the CMAA award as well as "Best  Television  Program in Nevada,"
"Electronic  Media Award 1994," and  "Recording of the Year." In 1997,  the Show
was awarded the  "International  Country  Music Live Show of the Year," and Jack
Pilger,  the  Company's  Chief  Executive  Officer,  was awarded  "International
Producer of the Year," and  inducted  into the Country  Music  Organizations  of
America  Hall of Fame.  Casts of the Country  Tonite show perform at the Country
Tonite Theatre in Branson, Missouri and Pigeon Forge, Tennessee.

         While the  Company  has been  provided  opportunities  to  present  the
Country  Tonite  Show in Las Vegas,  it has been  unsuccessful  in  securing  an
attractive financial arrangement to offset the cost to produce show in Las Vegas
since January 1998. The production  show is included in assets which are subject
to the Agreement.

Country Tonite Theatre (Pigeon Forge)

         CRCT, a wholly owned  subsidiary of the Company and Burkhart  Ventures,
LLC formed a joint  venture to present the Country  Tonite Show in a  1,500-seat
state-of-the-art  theatre  located in Pigeon Forge,  Tennessee,  which opened on
March 21,  1997.  CRCT owns 60% of the joint  venture and  manages the  theater.
Under the terms of the Operating Agreement,  the members contributed $500,000 of
operating capital and have advanced  $1,416,710 to CTT (the Company's portion of
which was $850,000). Theatre revenues increased 52% for fiscal 1998, over fiscal
1997,  as 1997  reflects  only a  six-month  seasonal  period of  operations  as
compared to a full season's operation during 1998.

         This was a new market for the Company's  award-winning  Country  Tonite
Show,  and CTT has  sustained  operating  losses its first and  second  years of
operation.  There  is  no  assurance  that  CTT  

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<PAGE>

will ever become  profitable.  Currently,  there are  approximately  nine family
oriented musical show theaters  operating in the Pigeon Forge area. It is likely
that additional  theaters will open in the future, and although the Pigeon Forge
area draws approximately 12 million tourists annually (according to Pigeon Forge
Department of Tourism),  there are no assurances that the Pigeon Forge show will
ultimately  duplicate the success of the Branson show. The theatre  competes for
the  tourist  dollar  against  other  theatre  venues and other  forms of family
entertainment in the Pigeon Forge area.

         The  Company  and  Burkhart  Venture,  LLC  entered  into an  agreement
executed  November 4, 1998,  which terminates the Company's 60% ownership of CTT
effective December 31, 1998. Under the terms of the agreement, CRC will continue
to manage CTT for a fee of $2,000 per week in season and $1,000 per week  during
the  off-season  beginning  January 1, 1999,  but will have no vested  ownership
interest in or financial  obligation  to CTT after  December 31, 1998.  Burkhart
Venture,  LLC, representing 100% of the interest of CTT, has contracted with CTE
to produce shows for the 1999 calendar season for a fee of $36,000 per week.

Gaming Operations

Tunisia Casino

         The Company,  through its 85% owned subsidiary,  CRC of Tunisie,  S.A.,
leases and operates a casino in Sousse,  Tunisia.  The 42,000 square foot casino
resort,  which opened  October 18, 1997,  has over 10,000  square feet of gaming
space  with  approximately  281  slot  machines  and  21  table  games.  Capital
expenditures   and  pre-opening   costs  to  open  the  Tunisia  Casino  totaled
approximately $4,500,000 through September 1998.

         The entertainment  complex/casino is a freestanding building,  which is
located on a triangular piece of property in front of the 425-room Hotel Samara,
one of three hotels that Samara Casinos Company  ("Samara")  controls in Sousse.
The two other hotels  contain 400 total  rooms.  The site is located on the main
street of Sousse in the heart of the tourist  center and directly off the beach.
The site is approximately 1.5 acres in size. The casino is the first of its kind
in the  city  of  Sousse.  Three  other  casinos  are  open  in  other  Tunisian
municipalities  at distances of approximately  fifty to three hundred miles from
Sousse.

         CRC of  Tunisie  also  operates  a  gourmet  restaurant,  gift shop and
additional  food and bar service on the  property.  The  remaining 15% ownership
interest in CRC of Tunisie,  S.A. is held by Samara who  acquired it for nominal
consideration as part of the development transaction.

         The Republic of Tunisia is a small country in the northern most part of
North Africa and is bordered on the north and east by the Mediterranean  Sea, on
the southeast by Libya, and on the west by Algeria.  It is approximately  62,608
square  miles in size or  relatively  the same size as  Illinois.  Tunisia  is a
destination  resort  known  for its  beaches.  The city of  Sousse  borders  the
Mediterranean. Casinos are a new attraction for the tourist trade in Tunisia.

         According to the Ministry of Tourism,  the number of tourists  visiting
Tunisia is estimated to be 4.5 million per year,  and the average length of stay
for tourists is approximately 6 days. There are approximately 20,000 hotel rooms
to rent in the city of Sousse with many more in the outlying areas.  The tourist
season is May 15 through October.  According to the Ministry of Tourism,  during
this 

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time, the hotel rooms are historically, on average, 80% occupied and the average
occupancy rate year-round is 53%. The closest airport to Sousse is approximately
30 minutes away.  Tourists are typically  bused from the airport to Sousse.  The
Casino  sustained  an  operating  loss its  first  year of  operation  which was
exacerbated by amortization of pre-opening and start-up expenses. Due to minimal
spending  per  casino  patron,  gaming  revenues  were  significantly  below the
Company's expectations.

Pokagon Consulting Agreement

         The Pokagon Band of Potawatomi  Indians  domiciled in northern  Indiana
and  southwestern  Michigan do not have a designated  reservation  but have been
assigned certain service areas in northern  Indiana and  southwestern  Michigan.
The Pokagon Band has the right to construct  one or more casinos  subject to the
approval  of various  regulatory  authorities.  In May 1996,  the  Pokagon  Band
announced  the  selection  of a site in New Buffalo  Township  for its  proposed
Michigan  service area.  Although the Governor of Michigan signed a compact with
the Pokagon Tribe in September 1995, the Michigan  legislature failed to approve
the compact until December 1998.

         Although  13 million  people  reside  within  150 miles of the  service
areas,  the planned  casino(s)  could  encounter  significant  competition  from
existing  riverboat  casinos now  operating in Illinois  and Indiana.  Likewise,
there is a possibility  that other Native American  land-based  casinos could be
developed, which could provide substantial competition to the Pokagon casino(s).

         In January  1995,  the Company and Monarch  Casinos,  Inc.  ("Monarch")
executed a Memorandum  of  Understanding  (which was modified in December  1995)
whereby  the  Company  acquired  Monarch's  rights to  potential  Indian  gaming
contracts  in  exchange  for  shares  of the  Company's  Common  Stock,  certain
financial  assistance and a consulting  agreement,  all as described  below. The
Company thus acquired  Monarch's rights with respect to the potential award of a
gaming management contract by the Pokagon Band of Potawatomi Indians,  domiciled
in northern Indiana and southwestern  Michigan,  which included a Right of First
Refusal on any Pokagon Gaming opportunity.

         Also  in  January   1995,   the  Company   executed  a  Memorandum   of
Understanding  with the Promus  Companies  Incorporated,  now known as  Harrah's
Entertainment, Inc. ("Harrah's"), whereby Harrah's would act on behalf of itself
and the Company in seeking the  Pokagon  award.  A  Management  and  Development
Agreement  was  awarded by the  Pokagon  band to a  subsidiary  of  Harrah's  in
September 1995, and final agreements  between Harrah's and the Pokagon band were
entered into in November and December 1995.  The agreements  called for Harrah's
to provide or cause to be provided loans to finance the  construction  of one or
more casinos in the Pokagon  band's service area. The Band was to be responsible
for  repaying the loans and paying  Harrah's a management  fee, for each Pokagon
casino.  On October 18, 1998,  the Pokagon Band announced that it had terminated
its contract  with  Harrah's.  The Company has  asserted  that it has a Right of
First  Refusal in regards to a gaming  management  contract,  separate and apart
from the gaming  management  contract  which was the  subject  of the  agreement
between the Company and Harrah's, and in turn Harrah's and the Pokagon Band. The
Company  maintains  that  while  the  Harrah's-Pokagon  contract  may have  been
terminated,  the Right of First Refusal that the Company  maintained  separately
from the agreement  with  Harrah's  reverted back to the Company and with it the
right to participate in a gaming management contract with the Pokagon Band.

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         Under the Technical  Assistance and Consulting Agreement with Harrah's,
the Company would have received  21.6% of Harrah's  management fee as consulting
fees over the term of Harrah's  management  contract with the Pokagon Band.  The
Company  would have had no  obligation  to provide  Harrah's or the Pokagon Band
with any  funding.  However,  to the extent not  recouped by  Harrah's  from the
Pokagon Band,  the Company  would  reimburse  Harrah's for the  Company's  share
(21.6%) of specified development and licensing costs incurred by Harrah's. Under
the Technical Assistance and Consulting  Agreement,  Harrah's paid the Company a
one-time fee of $250,000  (recorded in fiscal 1995 and collected in fiscal 1996)
in connection with the signing of the Management and Development  Agreement with
the  Pokagon  Band,  and a one-time  fee of $600,000  as  consideration  for the
relinquishment of any rights or claims to any other business venture of Harrah's
and its  affiliates,  which was  payable  over five years,  commencing  with the
opening  of the  first  Pokagon  casino.  In turn,  the  Company  agreed  to pay
Harrah's,  $5,000 per month for a period of 40 months for the  administration of
the Pokagon contract, commencing with the opening of the first Pokagon casino.

         The Company  must,  in any event,  reconfirm its Right of First Refusal
with the Tribe  relative to the Company  securing its right to  participate in a
gaming  management  contract.  There are no assurances  that the National Indian
Gaming  Commission  ("NIGC") will approve the agreement  which is the subject of
the Company's  asserted Right of First Refusal,  nor is there any guarantee that
even if NIGC  approves the  agreement  that the Company will be able to find the
appropriate  partner to help  finance  the  endeavor,  although  the Company has
opened a dialog with a casino operator in an effort to do so.

         The Company filed suit against Harrah's on September 4, 1998,  alleging
that Harrah's breached its agreements with the Company and tortuously interfered
with the Company's  contractual and prospective  economic  advantage  associated
with the Pokagon  Band of  Potawatomi  Indians.  The suit  further  alleges that
Harrah's  withheld vital  business  information  from the Company.  Harrah's has
moved the court for Summary Judgment against the Company.  The Company responded
to the motion  and plans to  vigorously  pursue  its  claim.  See "Item 3. Legal
Proceedings."

Bottled Water Business

         The  Company  has  entered  into a Letter of Intent  with a  standstill
component with Mark McKinney, a Bentonville,  Arkansas,  businessman, to build a
state of the art spring water bottling plant in  Bentonville,  Arkansas.  If the
transaction  is  completed,  the Company  will  receive 60% of the equity in the
Bottling Venture in  consideration  for investing a minimum of $5 million in the
bottling  plant.  The parties  expect to spend $27 million on the facility.  The
agreement is  contingent  on (i)  completion  by the Company of a full legal and
business due diligence examination; and (ii) obtaining debt and equity financing
of not less than $25 million. While the Company is actively attempting to secure
the financing needed, no commitment has been obtained at this time.

         The  business  will lend $1.3 million to Mark  McKinney,  which will be
returned  over a 5-year  period  commencing  one year after the first  month the
Bottling  Venture  produces water for sale. The principal and interest  payments
shall not exceed more than 20% of Mark  McKinney's  cash flow from the  Bottling
Venture  with any  deficits  being  added  back to  principal.  The loan will be
secured  by Mark  McKinney's  interest  in the  venture.  During  the two  years
following the closing, Mark 

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<PAGE>

McKinney  will only be  required  to  contribute  cash to the extent that he has
received  distributions  from the  business.  The  agreement has been amended to
reflect an extension of the closing date to April 1999.

         The bottled  water  management  team is  comprised of  individuals  who
possess  extensive  experience in the bottling  industry.  Mark McKinney,  is an
entrepreneur with extensive  experience dealing in the retail industry with such
retailers  as Wal-Mart and  Certified  Grocers.  Kevin  Talbot  slated to be the
President  of the  company  came from the Pierre  Group of America  and has just
finished  running the largest bottled water plant in the U.S. He was responsible
for executing $63 million in capital investments for the Pierre Group. Tom Smith
slated to be the Vice  President of Operations,  has 13 years  experience in the
bottling  industry and was  formerly  with the Pierre Group of America as a head
plant engineer and was  responsible for the  installation  and start up of seven
production facilities during his career.

         According to Beverage Industry  Statistics,  the bottled water business
has experienced  explosive growth over the last three years; however there is no
assurance  that this kind of growth can be  sustained.  Entry into the market at
this time with a private label as well as a brand name strategy  would allow the
business to capitalize on what management  believes are bottled water shortages,
higher  pricing,  and an  increasing  demand by the public for  bottled  natural
spring  water.  Nevertheless,  there are many  competitors  in the bottled water
market,  almost all of which have established  brand names, and which are better
capitalized  than the  proposed  bottling  venture.  The top ten brands  make up
approximately  40% of the US market and include  Poland  Spring,  Arrowhead  and
Evian.

         The  water  source  is from a  natural  spring,  which  is  located  in
Bentonville,  Arkansas.  Water testing to date exceeds EPA and FDA requirements.
The water source is protected by impermeable  clay. The spring water  extraction
method is by use of a borehole,  which  protects the purity of the spring water.
Monthly  testing has been done on the spring for the past four years and to date
there are no indication of contaminates  infiltrating  the spring source.  While
consultants  have done substantial due diligence on the quality,  capacity,  and
purity of the water source, there are no assurances that the source will provide
the volume needed or quality desired.

Employees

         At September 30, 1998, the Company had 13 employees at its headquarters
in Ocean  Springs,  Mississippi;  105 employees at the Country Tonite Theatre in
Branson,  Missouri (reduced to approximately 6 employees during the off season);
94  employees  at the  Country  Tonite  Theatre  in  Pigeon  Forge  (reduced  to
approximately  6  employees  during  the  off  season).   The  entertainers  are
contracted for the subsequent  season between December and February each year as
well as 115 employees at Casino Caraibe in Tunisia. The Company has entered into
an  employment  agreement  with its CEO,  which  expires in 1999.  See "Item 11.
Security  Ownership of certain Beneficial Owners and Management." The total cost
of the agreement is approximately  $375,000.  None of the Company's employees is
represented by a union, and management considers its labor relations to be good.

                                       9

<PAGE>

Regulation

Regulation and Licensing of Gaming Activity

         The ownership  and operation of casinos in the U.S.,  Tunisia and other
gaming jurisdictions is highly regulated. The Company obtained its operating and
gaming license in Tunisia and opened the casino on October 18, 1997.

         By the Company's pursuing a management  agreement with the Pokagon Band
or entering a  partnership  with  another  gaming  operator to build one or more
casinos,  the Company  will be required to apply for and obtain  gaming  license
applications  with the National Gaming Indian Commission  ("NIGC").  To date the
Company's  Chief  Executive  Officer and Chairman,  Mr.  Pilger,  has been found
suitable to hold a gaming  license in the State of  Mississippi  and in Tunisia,
North Africa.

Indian Gaming Regulation

         Indian  Gaming  Regulatory  Act and  Tribal/State  Compacts.  Gaming on
Indian  lands  within  the United  States is  authorized  by the  Indian  Gaming
Regulatory Act (the "IGRA"), a federal statute enacted in 1988. The Pokagon Band
received a signed  compact by the Governor in  September of 1995,  and the state
legislature ratified the compact and certain amendments in December 1998.

         The IGRA  provides that before tribes can engage in Class III gaming (a
residual  category of gaming which includes casino style gaming) in a particular
state,  the tribe must  negotiate a  "tribal/state  compact"  with that state to
regulate such gaming.

         Management Contracts.  The NIGC has adopted regulations pursuant to the
IGRA that  govern the  submission  requirements  for and  content of  management
contracts with Indian tribes. A management contract has no legal effect until it
is approved by the Chairman of the NIGC. The NIGC  regulations  provide detailed
requirements  as to certain  provisions  which must be  included  in  management
contracts,  including a term not to exceed five years,  except that upon request
of a tribe,  a term of seven  years may be allowed by the NIGC  Chairman  if the
Chairman is satisfied that the capital investment and income projections for the
gaming facility  require the additional time.  Further,  the fee received by the
manager of a gaming facility may not exceed 30% of the net revenues, except that
a fee in excess of 30% and up to of 40% of net  revenues  may be approved if the
NIGC Chairman is satisfied that the capital  investment  and income  projections
for the gaming  facility  require the additional  fee. The NIGC has the power to
require contract modifications under certain circumstances or to void a contract
if the Management Company fails to comply with applicable laws and regulations.

         In addition to ensuring  that a management  contract  contains  certain
terms,  the Chairman of the NIGC may  disapprove a management  contract if it is
determined that the management  contractor's prior activities,  criminal record,
if any,  or  reputation,  habits  and  associations  pose a threat to the public
interest or create a danger of illegal  practices,  or that such  contractor has
interfered  with or unduly  influenced the tribal  governmental  decision-making
process.  The NIGC also requires that certain information  pertaining to persons
and entities with a financial  interest in, or having management  responsibility
for, a management  contract be disclosed for purposes of a  

                                       10

<PAGE>

suitability review. The NIGC regulations provide that each of the 10 persons who
have the  greatest  direct or  indirect  financial  interest  in the  management
contract  must be found  suitable  in order for the  management  contract  to be
approved  by the NIGC.  The NIGC  regulations  provide  that any  entity  with a
financial  interest in a contract must be found suitable,  as must the directors
and 10 largest  shareholders  (or owners of 5% or more of issued and outstanding
stock) of such  entities  in the case of a corporate  entity,  or the 10 largest
holders of interest in the case of a trust or  partnership.  The Chairman of the
NIGC may  reduce  the  scope of  information  to be  provided  by  institutional
investors.  Specifically,  the Company,  its directors,  persons with management
responsibilities  and certain of the Company's owners,  must provide  background
information  and  be  investigated  by the  NIGC  and be  found  suitable  to be
affiliated  with a gaming  operation in order for the management  contract to be
approved by the NIGC.  At any time,  the NIGC has the power to  investigate  and
require  the  finding of  suitability  of any person  with a direct or  indirect
interest in a management  contract,  as determined by the NIGC. The Company must
pay  all  fees  associated  with  background  investigations  by the  NIGC.  The
applicable  state gaming agency and tribe are  responsible  for  conducting  the
background  investigation  with respect to Class III gaming  operations and then
providing  its  findings to the NIGC.  Generally,  the  applicable  tribal/state
compact will delineate responsibilities and issues relating to background checks
for Class III operations.

         The NIGC regulations  require that background  information as described
above must be submitted  for approval  within 10 days of any proposed  change in
financial interest in a management contract. The NIGC regulations do not address
any specialized  procedures for investigations  and suitability  findings in the
context of publicly  held  corporations.  If,  subsequent  to the  approval of a
management contract, the NIGC determines that any of its requirements pertaining
to the  management  contract have been  violated,  it may require the management
contract to be modified or voided, subject to rights of appeal. In addition, any
amendments to the management contract must be approved by the NIGC.

         The NIGC  regulations  provide  that the  management  contract  must be
disapproved  if the NIGC  determines  that:  (a) any  person  with a  direct  or
indirect  financial  interest  in, or having  management  responsibility  for, a
management contract (i) has been convicted of a felony or any misdemeanor gaming
offense;  (ii) if the  person's  prior  activities  make them  unsuitable  to be
connected  with gaming;  (iii) is an elected  member of the governing  body of a
tribe that is party to the management  contract;  or (iv) has knowingly provided
materially  false statements to the NIGC or a tribe or has refused to respond to
questions from the NIGC;  (b) the management  contractor has attempted to unduly
interfere with or influence tribal decisions relating to the gaming operation or
has deliberately or substantially  failed to follow the management  contract and
applicable tribal ordinances;  or (c) a trustee would not approve the management
contract.

         In  addition  to  requirements   governing   management  contracts  and
submissions,   the  regulations   require  each  tribe  to  enact  an  ordinance
authorizing  and setting out  standards  for the conduct of gaming on its lands,
which must be  approved by the NIGC.  The  ordinance  must  mandate the tribe to
conduct  background  investigations  and issue  licenses  to key  employees  and
primary management  officials  employed by the gaming enterprise,  submit annual
independent  audits to the NIGC,  and pay a variable  user fee to the NIGC.  The
NIGC  also has  extensive  access,  investigatory,  monitoring,  compliance  and
enforcement powers to ensure that the management  contractor,  the tribe and the
gaming enterprise comply with its regulations.

                                       11

<PAGE>

Tunisia Gaming Regulation

         The Company's  first gaming  venture is carried on in Sousse,  Tunisia,
and is subject to Tunisian  laws and  regulations  affecting  the  ownership and
operation of the casino.  Tunisian  nationalists  are prohibited  from gaming in
Tunisia.   Casino   guests  are   required   to  present  a  passport  or  valid
identification  for entry  into the  Casino.  Operations  outside  the U.S.  are
subject  to  inherent  risks,  including  fluctuations  in the value of the U.S.
dollar relative to foreign currencies,  tariffs,  quotas, taxes and other market
barriers, political and economic instability, currency restrictions,  difficulty
in staffing and managing international operations, language barriers, difficulty
in obtaining working permits for employees, limitations on technology transfers,
potential adverse tax consequences, and difficulties in operating in a different
cultural and legal system.  The Casino opened  October 18, 1997, and to date has
not  generated a profit nor can the  Company  make any  assurances  that it will
generate a profit in the future.

         The  Company  is  required  to pay a gaming  tax,  which  is a  sliding
variable  tax with a minimal  base of 10% on all  revenue  derived  from  tables
games.  Additionally,  the country of Tunisia  imposes  labor  taxes,  including
social securities and benefits tax; a value-added tax; an entertainment  tax; as
well as import taxes.

ITEM 2. PROPERTIES

         The  Company's  owned or leased  properties  include  principally;  the
casino and theatre  complex in Sousse,  Tunisia;  the Country Tonite Theatres in
Branson, Missouri and Pigeon Forge, Tennessee; the Company's executive office in
Ocean  Springs,  Mississippi  and  a  residential  property  in  Ocean  Springs,
Mississippi. The 2,000-seat Country Tonite Theatre in Branson, Missouri is owned
by the  Company,  including  underlying  real estate of 10.7 acres.  The Branson
theatre is  included  in the assets  subject to the  Agreement.  The  1,500-seat
County Tonite  Theatre in Pigeon Forge,  Tennessee is leased by CTT of which the
Company was the majority  partner by virtue of its 60% investment  (although the
interest in CTT and  therefore in the Pigeon Forge  Theatre was  transferred  in
December 1998).  The Company leases,  pursuant to a five-year  lease,  executive
office space in Ocean Springs, Mississippi at a rate of $73,500 per annum.

         The Company owns a residence in Ocean  Springs,  Mississippi,  which is
rented  to a  principal  of  Monarch  at a  below-market  rate.  The lease is in
default. See "Item 3. Legal Proceedings."

         The  Company  leases a 42,000  square  foot  casino  resort in  Tunisia
pursuant to a three-year lease (with two,  three-year renewal options) providing
for an adjusted base rent of 480,000 dinars, which is approximately  $436,360 at
the current  exchange  rate,  plus value added  taxes.  (In  addition,  a scaled
variable rental fee is incurred when gross gaming revenues exceed 125,000 dinars
monthly.)  The Company  also pays rent on the Casino  Theatre at the rate of two
dinars (equivalent to $1.80 US) per paying customer.

         Finally, the Company owns several small lots and real estate parcels in
Wisconsin,  which it is attempting to sell. Proceeds,  if any, from the sale are
not expected to be material.

         All of the  assets of Grand  Hinckley  Inn were sold to the Mille  Lacs
Band of Ojibwe Indians on June 29, 1998 for $5,400,000.

                                       12

<PAGE>

         The Company had guaranteed rent payments to the minority member of CTT,
who is lessor of the Pigeon Forge Theatre facility.  Rent guarantees  terminated
December 31, 1998,  under a sale agreement  entered into between the Company and
Burkhart Ventures, LLC on November 4, 1998.

ITEM 3. LEGAL PROCEEDINGS

         In 1995, a suit was brought against the Company in the Federal District
Court of New Jersey,  which venue was later  transferred to the Federal District
Court for Southern Mississippi.  Plaintiff (Gelb Productions,  Inc, a New Jersey
corporation)  asserted  it had a contract  with the  Company  to  provide  eight
professional  boxing  events at the Company's  former  Biloxi Star Theatre.  The
complaint was thereafter amended by plaintiff to reflect additional  allegations
that defendant tortuously harmed plaintiff's business reputation and maliciously
interfered with existing and prospective economic relationships.  Settlement was
reached with the plaintiff in December 1997, for $100,000 plus  attorney's  fees
and expenses,  totaling $81,726.24 which was satisfied in November 1998, and all
claims were dismissed with prejudice.

         The Company commenced an arbitration  action in November 1994, with the
Arbitration Association in Minneapolis,  Minnesota,  against Cunningham Hamilton
Quiter,  P.A. (CHQ),  the architect the Company  retained in connection with the
construction of the Biloxi theater. On December 30, 1994, the architectural firm
commenced  a suit in a  Mississippi  state  court  seeking  a  foreclosure  on a
mechanics'  lien it had filed on the  Biloxi  theater  project  in the amount of
approximately  $321,000,  which sum the Company escrowed.  On December 26, 1996,
the  Arbitration  Association  announced the Company was entitled to an award of
approximately  $142,000,  which sum was a  portion  of the  previously  escrowed
$321,000.  The  decision  resulted  in a gain to the  Company  of  approximately
$122,000 in fiscal 1997.

         The Company has received  notice that the action of CHQ against John J.
Pilger  (CEO of the  Company)  in  Jackson  County  Circuit  Court,  Mississippi
originally set in abeyance pending completion of arbitration proceeding,  is now
reconstituted.  Cunningham  alleges  that Mr.  Pilger and the  Company  owes CHQ
approximately  $40,000 for services rendered in 1994. The Company and Mr. Pilger
deny these charges and plan to vigorously defend themselves in this matter.

         James Barnes and Prudence  Barnes,  two former officers of a subsidiary
of the Company, have brought suit in State District Court, Clark County, Nevada,
against the Company in  connection  with their  employment  termination  in June
1995. The Barnes have alleged the Company  breached their contracts based on the
termination  of the  Barnes  employment;  intentional  misrepresentation;  and a
breach  of  contract  based on the  untimely  registration  of their  stock.  No
specific  amount of  damages  has been  claimed,  however  the  plaintiffs  have
informally  indicated  that they would  entertain a settlement  offer of between
$250,000 and $350,000.  The Company intends to vigorously  defend itself in this
matter.

         In March 1996, PDC, a Minnesota  limited  liability  company and two of
its officers filed suit against the Company,  Harrah's Entertainment and Monarch
Casinos,  in the Fourth  Judicial  District  Court of Minnesota and in Michigan,
which venue was later dropped, alleging defamation, violation of the Lanham Act,
violation of the Michigan Consumer  Protection Act,  tortuous  interference with
its business  relations and  prospective  economic  advantage,  as well as false
light  invasion of privacy 

                                       13

<PAGE>

in connection with the Pokagon Indian Gaming Award.  The suit was dismissed with
prejudice and a judgment of dismissal entered on September 1, 1998 in the Fourth
District Court, State of Minnesota.

         On December  31,  1997,  the  Company's  former  chairman,  Kevin Kean,
defaulted on repaying the  $1,232,000  (principal)  of notes  receivable due the
Company.  The Company held 150,000  shares of the Company's  stock as collateral
for the notes.  On January 15, 1998,  the Company  signed an agreement  with Mr.
Kean, under which 220,000  additional shares of the Company's stock owned by Mr.
Kean were canceled along with the 150,000  collateral shares held (at the market
price of $1.19 per share) and the notes  could be  reduced  by  $252,570  in the
aggregate.  Additionally,  the  Company  and Mr.  Kean  entered  into a new note
agreement.  The new note of  $1,196,885,  including  approximately  $143,000  of
previously  reserved interest,  bears interest at 7%, and matures on January 15,
2001.  The note is  collateralized  by a  security  interest  in Mr.  Kean's  5%
interest  in the  Company's  Pokagon  management  fee.  Solely at the  Company's
discretion,  at any time prior to maturity,  the Company can take the collateral
as payment in full for the note.  Because Mr. Kean's  ability to pay the note is
not known,  the Company has provided an impairment  reserve for $791,900,  which
represents the remaining principal balance after stock cancellations.

         The Company  initiated a civil suit  against  Harrah's on  September 4,
1998,  in Federal  District  Court for the  District of  Minnesota.  The Company
alleges that Harrah's breached the Technical Assistance and Consulting Agreement
and  tortuously  interfered  with  the  Company's  contractual  and  prospective
economic advantage  associated with the Pokagon Band of Potowatomi Indians.  The
suit further alleges that Harrah's withheld vital business  information from the
Company. Harrah's has filed a motion to dismiss based on denial that Harrah's is
a proper party to the lawsuit and that the Technical  Assistance  and Consulting
Agreements do not create a partnership  or Joint Venture  relationship  with the
Company.  The Company filed its response to Harrah's Motion for Summary Judgment
in late December  1998.  The Company  plans to vigorously  pursue its claims and
seeks a judgment against Harrah's plus interest and legal fees.

         The Company  initiated a civil suit against  Willard  Smith and Monarch
Casino,  Inc.,  (Monarch) on December 19, 1998, in the Circuit Court of Jackson,
Mississippi.  The Company  alleges that Mr. Smith and Monarch have  breached the
terms of the Memorandum of Understanding,  Amendment and Modification Agreement,
and Consulting  Agreement by failing to provide the services  required under the
terms  of the  agreements,  breaching  their  obligations  of good  faith to the
Company,  and by attempting to secure the termination of the Company's  interest
in the Pokagon project. The suit further alleges that Mr. Smith has defaulted on
his  obligations  to  pay  rent  and  maintain  the  up-keep  of  the  Company's
residential property located at 303 LaSalle Street, Ocean Springs,  Mississippi.
The Company seeks a judgment  against  Monarch  Casino,  Inc. and Willard Smith,
plus  interest  and  attorneys'  fees  for  notes  due and  material  breach  of
agreements; removal of Mr. Smith from the rental property and punitive damages.

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

         There were no matters  submitted to a vote of security  holders  during
the fourth quarter of the fiscal year ended September 30, 1998.

                                       14
<PAGE>
                                     PART II



ITEM 5. MARKET PRICE FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

         The  Company's  common  stock is traded on the NASDAQ  National  Market
System under the symbol "CSNR." In addition to the common stock, the Company has
publicly  traded  warrants,  each  entitling the holder to purchase one share of
common stock at an exercise price of $6.75 (the "Warrants"). The Warrants expire
on  September  15,  1999.  The  Warrants  trade  under the symbol  "CSNRW."  The
following table sets forth, for the fiscal periods  indicated,  the high and low
closing prices per share and per warrant as reported by NASDAQ:

                                    Common Stock            Warrants 

                                   High       Low        High       Low 

FISCAL 1998
           First Quarter          $2.00      $1.06      $0.41      $0.09
           Second Quarter          1.38       0.81       0.19       0.06
           Third Quarter           1.19       0.69       0.13       0.06
           Fourth Quarter          1.13       0.50       0.09       0.03

FISCAL 1997
           First Quarter          $2.23      $1.31      $0.28      $0.13
           Second Quarter          2.45       1.38       0.25       0.13
           Third Quarter           1.97       1.25       0.22       0.09
           Fourth Quarter          2.19       1.19       0.44       0.06

         The  Warrants  are  subject to  redemption  by the Company for $.05 per
Warrant if the closing  price of the common stock exceeds $8.50 per share for 20
consecutive trading days, subject to adjustment.

         The Company has  received  two letters  from NASD  warning  that if the
Company does not achieve minimum  maintenance  requirements under NASD rules the
Company's  common stock will be delisted from the National Market System.  Among
other things,  the rules require that the publicly held shares have an aggregate
market  capitalization of at least $5 million, and a minimum bid price per share
of $1. The Company satisfies neither requirement. The Company intends to request
a NASD  hearing,  and is  actively  planning  and  working to attain the minimum
maintenance  standards.  If the Company's  Common Stock is delisted the Warrants
will also be delisted.  Delisting of securities  could have an adverse effect on
the common stock or the Warrants. If the Company's common stock is delisted from
the NASDAQ  National  Market System,  the Company can seek listing 

                                       15

<PAGE>

on the NASDAQ "Small Cap" market;  however, the Company's common stock must also
maintain a minimum bid price of $1 to satisfy the listing  requirements  for the
Small Cap  market.  If the $1  minimum  bid  price  cannot  be  maintained,  the
Company's  common stock can trade on the OTC Bulletin Board.  Such an occurrence
could significantly  affect the marketability of the Company's common stock, and
subject  it to  additional  requirements  under the "Penny  Stock"  rules of the
Securities Exchange Act of 1934.

Holders

         On November 1, 1998, there were approximately 308 record holders of the
common stock, and 83 record holders of the warrants.  The Company estimates that
there are an  additional  2,750  shareholders  and 400  Warrant  holders who own
shares or Warrants, respectively, in nominee or street name, at that date.

Sale of Unregistered Securities

         On September 9, 1997, the Company sold $800,000 principal amount of 13%
convertible  subordinated  debentures.  The Company redeemed $400,000  principal
($497,000  cash) on December 12, 1997, and $171,674  principal  ($250,000  cash)
August 11, 1998.  The balance of $228,326  will be paid in cash or stock in four
equal installments in January through April 1999.

Dividends

         The  Company  has not  declared  or paid any cash  dividend  during the
reporting period and is unlikely to do so in foreseeable future.


ITEM 6. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Results of Operations

         Following  is  management's  discussion  and  analysis  of  significant
factors  which have  affected the  Company's  financial  position and  operating
results during the periods reflected in the accompanying  consolidated financial
statements.

CONSOLIDATED

         The Company's  revenues from  operations were  $3,305,396.  Because the
Company  carries  its  hospitality  and  entertainment  assets  as  discontinued
operations,  all of these  revenues are  attributable  to the  Company's  gaming
operations;  and because the Tunisia  casino was not in operation in fiscal year
1997, there were no comparable revenues in that fiscal year.

                                       16

<PAGE>

Continuing Operations

GAMING, TUNISIA

         Revenue  generated  from  October  18,  1997,  the  date of the  Casino
opening,  was $3,305,396 while operating expenses totaled $7,299,695 including a
corporate charge of $424,977,  resulting in an operating loss of $3,994,299. The
loss was  predominantly  related to  extensive  write downs of  pre-opening  and
start-up expenses,  which approximated $1.5 million,  and significant  operating
overhead  expense   incurred  during  post  casino  grand  opening   operations.
Management has implemented  cost  containment  measures to decrease  general and
administrative  expenses  as an overall  percent of  revenue.  As a result,  the
Company has reduced its labor expense by 23% from the first quarter  compared to
the fourth  quarter of fiscal 1998 and obtained a 20%  reduction in rent expense
beginning November 1998.

GENERAL AND ADMINISTRATIVE

         The Company's general and administrative expenses aggregated $2,606,544
in fiscal  1998 (not  including  a  corporate  charge to the  gaming  segment of
$424,977)  compared to $2,158,811 in fiscal 1997. There were no such allocations
in 1997 as the two  operating  segments  have  been  reflected  as  discontinued
operations.  In total general and administrative expenses increased by $872,710.
The increase is primarily related to increased professional expenses relating to
the casino opening; consulting expenses and higher legal and accounting charges.

INTEREST EXPENSE

         Interest expense totaled $703,677 for fiscal 1998, compared to $242,290
for fiscal 1997.  The increase of $461,387 is  primarily  due to the  following:
$144,110  of  interest  expense on the  $800,000  debenture  repaid in June 1998
issued in  September  1997;  $215,872  of interest  expense  relating to the 13%
subordinated  convertible  debentures  issued in  September  1997 and $48,595 of
interest  expense on the Palace Note as the debt was outstanding for all of 1998
as compared to 8 months in 1997.

OTHER

         Interest  income as of  September  30,  1997 was  $195,886  compared to
$206,195 for the same period in 1998.

         The Company  accumulated  $1.9  million  dollars in  deferred  expenses
associated  with its consulting  relationship  with Harrah's under its Technical
Assistance Agreement.  Harrah's had entered into a Management Agreement with the
Pokagon Band of  Potawatomi to build one or more casinos and under the Technical
Assistance  Agreement,  the Company would have received,  upon  commencement  of
operations,  approximately  21.6% of Harrah's  management fee for its consulting
services.  The Band announced it had  terminated  its Management  Agreement with
Harrah's  and  therefore  the Company has set up an  impairment  reserve for the
entire $1.9 million dollars.

         The loss on gaming  projects  of  $438,321  for  fiscal  1997  consists
principally  of the loss on the sale of the  Company's  interest  in the  Palace
Casino. The $791,900 impairment reserve represents 

                                       17

<PAGE>

the  outstanding  principal on a note receivable due the Company from its former
chairman.  The  individual's  ability to pay is not known and  accordingly,  the
Company provided an impairment reserve on the principal balance.

INCOME TAX BENEFIT

         The Company  recognized a $2,000,000 income tax benefit in fiscal 1998.
The benefit  relates to the  adjustment of the valuation  allowance as it is now
more likely than not,  that the Company will realize the deferred tax asset upon
the sale of its entertainment segment in fiscal 1999.

Discontinued Operations

ENTERTAINMENT

Country Tonite Theatre LLC

         The  Country  Tonite  Show in Pigeon  Forge  opened on March 21,  1997.
Revenues  for fiscal  1998  totaled  $3,330,777.  Operating  expenses  including
project,  general and administrative  costs and depreciation  totaled $4,033,185
(including  $1,762,971  eliminated in  consolidation)  resulting in an operating
loss of $702,408  before the  minority  interest  share of the loss  ($280,963).
While CTT ticket  sales  increased  from 21.9% of capacity in 1997,  to 22.4% of
capacity in 1998,  the average  ticket  price  decreased  from $16.67 in 1997 to
$15.57 in 1998, as a result of strong  promotional  sales at  discounted  ticket
prices.  The Company is the operating manager and owns 60% of the CTT, LLC Joint
Venture, which has been sold to Burkhart Ventures effective December 31, 1998.

Country Tonite Production Show

         Country Tonite  Production show revenues  totaled  $2,037,669 in fiscal
1998,  (including  $1,762,971  eliminated in  consolidation).  Operating  income
decreased to $238,184 in fiscal 1998,  from  $936,099 in fiscal l997.  Operating
expenses (including project,  general and administrative costs and depreciation)
decreased  from  $2,934,785  in fiscal 1997,  to  $1,799,485  in fiscal 1998, or
38.7%,  principally  as a result of the closing of the Aladdin Hotel in November
1997.

Country Tonite Theatre

         Fiscal 1998 revenue of  $6,129,966  decreased  $712,983 or 10.4%,  from
fiscal 1997, revenues of $6,842,949. Paid attendance for the Country Tonite show
totaled  31% of capacity  in 1998,  compared to 38% of capacity in fiscal  1997.
Average  ticket  prices  totaled  $17.52 in fiscal  1998,  compared to $15.43 in
fiscal  1997.  While the  average  increased  $2.09,  the  decrease  in  overall
occupancy resulted in a decline in revenues for Country Tonite Theatre.  Through
cost containment  efforts by Company  management,  operating expenses (including
project,  general and  administrative  costs and depreciation)  fell $231,203 or
5.2% to $4,195,850 in fiscal 1998, from $4,427,053 in fiscal 1997, which was the
result of cut backs in the Golden Girls  schedule.  Operating  income  decreased
$481,780 or 19.9% to $1,934,116 in fiscal 1998, from $2,415,896 in fiscal 1997.

         The  Company   entered  into  an  Asset  Purchase   Agreement  to  sell
substantially  all of the assets used in  connection  with the  operation of the
Country Tonite Show to On Stage  Entertainment,  Inc. 

                                       18

<PAGE>

The closing is subject to, among other things, On Stage's  obtaining  acceptable
financing  of the  purchase  price and  approval of the sales  transaction  by a
majority of the shareholders of On Stage and the Company.  See "Item I. BUSINESS
- Recent Developments"

HOSPITALITY

Grand Hinckley Inn

         Revenues for fiscal 1998 total  $2,255,037.  Operating income decreased
to $809,601 in fiscal 1998 from $1,432,662 in fiscal 1997. The Company  reported
a 12-month business operation in fiscal 1997 versus a 9-month business operation
in 1998 due to sale of the hotel on June 29, 1998 for $5.4 million.

LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash  equivalents  decreased from  $2,254,295 at September 30,
1997 to $1,151,925 at September 30, 1998.  During fiscal 1998,  the Company sold
its Grand Hinckley Inn for $5.4 million.  In addition to funds used for expenses
incurred during business  operations  during fiscal 1998, the Company  satisfied
$1.7 million in debt  payments,  paid for  retirement  of 184,050  shares of its
common stock and  incurred one time  pre-opening  and start-up  expenditures  to
complete the Casino Caraibe project.  Cash and cash equivalents does not reflect
any funds from the anticipated sale of the entertainment division.

         On January 2, 1998, the Company's Board of Directors authorized a stock
buyback program providing for purchase by the Company of up to 400,000 shares of
its  common  stock.  The  Company  subsequently  revised  its  January  2,  1998
resolution to reflect the purchase of up to 1.4 million  shares of the Company's
common stock after the closing of the Grand  Hinckley Inn purchase,  of which it
has purchased 188,050 shares through October 30, 1998, for $190,859.48.

         In the 13-month  period  ending  October 31, 1999,  the Company will be
required to repay or refinance obligations aggregating  approximately $8,894,786
in principal  amount  (plus  interest and  premium).  Three of the  obligations,
aggregating  approximately  $1,669,749 in principal  amount may be repaid by the
Company in cash or common  stock.  The largest  obligation,  approximating  $7.2
million in principal amount, is secured by a mortgage on the Company's  property
in Branson,  Missouri. If the Company closes its sale transaction for certain of
its entertainment division assets with On Stage, it will have the cash resources
to repay from the cash  proceeds of the sale,  the mortgage  loan on the Branson
property.  However, if the sale is not consummated,  the Company will be obliged
to try to refinance the mortgage obligation. If the Company retires the mortgage
on or before May 1, 1999, the Company will be given a $300,000 discount.

         Subject to the foregoing,  the Company expects that available cash from
future  operations  will be  sufficient to meet the capital  expenditures,  debt
service and working capital requirements of its existing businesses for the next
fiscal year.

                                       19

<PAGE>

         Capital  expenditures by the Company were $1,026,081 for the year ended
September  30, 1998  compared to  $2,106,353  for the 1997 fiscal year.  Capital
expenditures  for 1998 consisted  principally of purchases and  expenditures for
the casino operations.

         The Company has entered a Letter of Intent  Agreement with a standstill
component  to  build  a  state  of  the  art  spring  water  bottling  plant  in
Bentonville,  Arkansas.  The  agreement  is  comprised  of the  Company and Mark
McKinney,  an entrepreneur.  The Company retains a 60% interest in consideration
for  investing $5 million in the  bottling  plant.  The  business  will spend an
estimated   $27  million  on  the   facility,   which  will  be  equipped   with
state-of-the-art  bottle blow  molding  equipment,  to be  competitive  with the
larger bottled water  companies.  The Company  intends to produce and distribute
premium  natural  spring water taking  advantage  of location,  efficiency,  and
capacity of a natural  spring  source.  At the same time the Company  expects to
fill a void by meeting the demand for bottled  water and at the lowest  price in
the market today.  Completion of the water bottling plant is contingent upon the
Company procuring $25 million in acceptable debt and equity financing.

SEASONALITY

         The casino in Tunisia  will be  affected by  seasonal  factors,  as the
primary tourist season in Tunisia ranges from May through October each year.

IMPACT OF INFLATION

         Management  of the Company does not believe that  inflation has had any
significant  adverse impact on the Company's  financial  condition or results of
operations  for the  periods  presented.  However,  an  increase  in the rate of
inflation could adversely affect the Company's  future  operations and expansion
plans.

FOREIGN CURRENCY TRANSACTIONS

         The  Company's  transactions  with  respect  to its  casino  venture in
Tunisia  will be in dinars.  As such,  there are all the risks  that  pertain to
fluctuations  in foreign  exchange  rates and  potential  restrictions  or costs
associated  with the  transfer  of  funds  to the  United  States.  The  Company
currently does not hedge,  nor has it purchased any foreign currency as a hedge,
and therefore is subject to currency exchange fluctuation risk.

YEAR 2000 UPDATE

         The "Year 2000 Issue" is whether the  Company's  computer  systems will
properly recognize date sensitive  information when the year changes to 2000, or
"00".  Systems that do not properly  recognize such  information  could generate
erroneous data or cause a system to fail. The Company has conducted  preliminary
reviews of its computer systems and its purchased  software programs  (including
accounting  software)  and does not  believe  the Year 2000  Issue will pose any
significant operational problems for its systems or software.

         In addition, the Company intends to make similar reviews of the systems
of potential acquisition  candidates for any financial or operational impact the
Year 2000 Issue may pose.

                                       20

<PAGE>

         Management  does  not  believe  that any of its  Company's  information
systems will be impacted by transition  Year 2000.  The Company has reviewed its
accounting  software;  project  information  systems;  including its Easy Ticket
Reservation System software (a system for automated ticket  reservation);  Point
of Sale system; and telecommunication system. All software that is not Year 2000
compliant,  where  available from supplier,  will be replaced.  Vendor  software
replacement and upgrades are scheduled to be complete by September 30, 1999. The
Company has  completed  a thorough  inspection  of its  systems at the  Branson,
Missouri Theatre  conducted by Easy Computer Systems,  Inc.  (provider of ticket
reservations  software and support to theatres)  and has  determined 15 personal
computers  will  require  upgrade  for  Year  2000  compliant  components.   The
approximate  cost for the upgrade is  estimated to be  $6,800.00.  Additionally,
Shopline Computer Services  evaluated the Pigeon Forge Theatre and determined 24
personal computers will require upgrade for Year 2000 compliant components.  The
approximately cost for the upgrade is estimated to be $5,760.00.

         The Company is in the process of identifying and prioritizing  critical
suppliers   and  customers  at  the  direct   interface   level  with  plans  of
communication about their progress in addressing Year 2000 problems.

         The total cost  associated with required  modifications  to become Year
2000  compliant  is not  expected  to be  material  to the  Company's  financial
position.

         The failure to correct a material  Year 2000 problem could result in an
interruption  in,  or a  failure  of,  certain  normal  business  activities  or
operations.  Due to the general  uncertainty  inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third party
suppliers and customers, the Company is unable to determine at this time whether
the  consequences of Year 2000 failures will have a material impact on Company's
operation.  The Company  believes,  at this time,  that there  should be minimal
interruptions  in its  normal  operations  due to  Year  2000.  The  Company  is
currently  reviewing  Year 2000 problems  that may arise with its  operations in
Tunisia. At this time a contingency plan to handle the Year 2000 problem has not
been established, however the Company does intend to establish one, prior to the
end of 1999.

         Readers are cautioned that forward looking statements  contained in the
Year 2000 update should be read in conjunction with Company's  disclosures under
the heading.

NEW ACCOUNTING PRONOUNCEMENTS

         In June 1997, the Financial  Accounting Standards Board issued SFAS No.
130, "Reporting  Comprehensive Income." The new Standard discusses how to report
and display  comprehensive  income and its components.  Comprehensive  income is
defined to include all changes in equity except those resulting from investments
by owners and  distributions  to owners.  The  standard is  effective  for years
beginning after December 15, 1997. When the Company adopts this statement, it is
not expected to have a material impact on the Company's financial statements.

         In June 1997, the Financial  Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." This
standard  requires  enterprises to report certain  information  about  operating
segments,  their products and services,  geographic  areas, 

                                       21

<PAGE>

and major  customers.  This  standard is  effective  for years  beginning  after
December 15, 1997. When the Company adopts this statement, it is not expected to
have a material impact on the Company's financial statements.

         In April 1998,  the  Accounting  Standard  Executive  Committee  issued
Statement  of  Position  ("SOP")  98-5  "Reporting  on  the  Costs  of  Start-up
Activities."  The SOP requires that all costs of start-up  activities  should be
expensed as incurred.  The SOP is effective for years  beginning  after December
15,  1998.  When the  Company  adopts  this SOP,  it is not  expected  to have a
material impact on the Company's financial statements.

         In June 1998, the Financial  Accounting  Standard Board issued SFAS No.
133  "Accounting  for  Derivative  Instruments  and  Hedging  Activities."  This
standard established  accounting and reporting standards for derivatives and for
hedging  contracts.  This standard is effective  for all fiscal  quarters of all
fiscal  years  beginning  after June 15,  1999.  When the  Company  adopts  this
statement,  it is not  expected  to  have a  material  impact  on the  Company's
financial statements or their presentation.

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         All statements contained herein that are not historical facts are based
on current  expectations.  These  statements  are forward  looking in nature and
involve  a  number  of  risks  and  uncertainties.  Actual  results  may  differ
materially.  Among  the  factors  that  could  cause  actual  results  to differ
materially are the following:  the availability of sufficient capital to finance
the Company's  business plan on terms satisfactory to the Company as it pertains
to development and start up of the Bottled Water  business;  failure by On Stage
to obtain  satisfactory  financing  underlying  the  purchase  of CTE and CRC of
Branson;  changes in travel patterns which could affect demand for the Company's
theatres or casinos;  changes in  development  and  operating  costs,  including
labor,  construction,  land, equipment,  and capital costs; general business and
economic  conditions;  political unrest in Tunisia or the region; and other risk
factors  described  from time to time in the  Company's  reports  filed with the
Securities and Exchange Commission. The Company wishes to caution readers not to
place undue reliance on any such forward looking  statements,  which  statements
are made pursuant to the Private  Securities  Litigation Reform Act of 1995, and
as such, speak only as to the date made.

ITEM 7.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Index to  Financial  Statements  appears  at page F-1  hereof,  the
Report of Registrant's  Independent  Accountants appears at page F-2 hereof, and
the  Consolidated  Financial  Statements  and  Notes to  Consolidated  Financial
Statements of the Registrant appear beginning at page F-3 hereof.

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


         "Not applicable"

                                       22
<PAGE>
                                    PART III


ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Set forth below is information as of September 30, 1998,  regarding the
directors and executive  officers of the Company,  including  information  as to
their principal occupations for the last five years, certain other directorships
held by them, and their ages as of the date hereof.

         John J.  Pilger,  age 52, has been the Chief  Executive  Officer  and a
director of the Company since 1984,  and served as President  from 1984 to 1993.
Mr.  Pilger was  previously  Chairman of the Board until July 1994,  and resumed
such role in April 1995. Mr. Pilger  oversees all Company  activities  including
operations, acquisitions, development and construction.

         John W.  Steiner,  age 56, has been a  director  of the  Company  since
January  1994.  Since  1990,  he has served as  Chairman of the Board of the Ace
Worldwide  Group  of  Companies,   a  leading  provider  of  moving,   trucking,
warehousing and overall logistics services. Mr. Steiner also serves on the Board
of Directors and Executive  Committee of Atlas World Group,  Inc. Mr. Steiner is
President of the Associate Board of the Milwaukee County Zoological  Society,  a
Board  member of the  Metropolitan  Milwaukee  Association  of Commerce  and the
Better Business Bureau of Wisconsin.

         Dr. Timothy Murphy, age 38, was elected to serve as a director on March
17, 1997.  Dr. Murphy  resides on the  Mississippi  coast and is a  Chiropractic
doctor maintaining his own practice. Dr. Murphy serves as a trustee on the Board
of Parker  College,  as well as being its finance  chairman.  Additionally,  Dr.
Murphy is a member of the American  Chiropractic  Association  and serves on the
Council of Diagnostic Imaging and Council on Sports Injury. Dr. Murphy serves as
team  Chiropractor  to Mercy  Cross High  School,  D'Iberville  High  School and
Mississippi Sea Wolves Professional Hockey Team.

         Dennis  Evans,  age 52, was elected to serve as a director on March 17,
1997.  Mr. Evans brings 30 years of sales and marketing  business  experience to
the Board.  Mr. Evans is an  entrepreneur  who has acted as President of several
large sales and marketing  firms,  as well as consultant to several  mid-western
development  companies.  Mr.  Evans has acted as a marketing  consultant  to the
Country  Tonite  Theatres  in Branson,  Pigeon  Forge and the  Company's  casino
development in Tunisia, North Africa.

         Noreen  Pollman,  age 50, has served as Secretary to the Company  since
March  1995,  and as a director  since March  1995,  and from 1987 to 1993.  Ms.
Pollman was Vice  President of Operations  for each of the  Company's  operating
businesses  with  responsibility  for  the  development  and  implementation  of
operating  budgets  to  February  1998,  and now serves as a  consultant  to the
Company.

         Robert J. Allen,  age 38, was named Vice President of  Entertainment of
the Company on August 1, 1994.  He has served as a director of the Company since
March 1995,  and from 1987 to 1993. Mr. Allen served as Executive Vice President
and Chief  Marketing  Officer of the Company's  former  subsidiary  Recreational
Property  Management,  Inc. from 1986 to 1987. He also previously served as Vice
President of Telecommunications.

                                       23
<PAGE>

         Officers serve at the discretion of the Board of Directors.

ITEM 10. EXECUTIVE COMPENSATION

Summary Compensation Table

         The following  table sets forth  information  concerning the annual and
long-term  compensation earned by John J. Pilger,  Noreen Pollman, and Robert J.
Allen,  the Named Executive  Officers (as defined) for services  rendered in all
capacities to the Company for the fiscal years ended  September  30, 1998,  1997
and 1996.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                                                        Other    Restricted    Securities
                                                                        Annual      Stock      Underlying      All Other
                                     Fiscal     Salary         Bonus     Comp.      Awards       Options       Compensation
Name and Principal Position (1)      Year         ($)           ($)       ($)         ($)          (#)             ($)
-------------------------------      ----         ---           ---       ---         ---          ---             ---
<S>                                 <C>        <C>           <C>       <C>         <C>          <C>             <C>
John J.  Pilger (5) . . . . . . . .  1998       464,747(2)      -0-       -0-         -0-          -0-             -0-
 Chief Executive Officer             1997       255,763(4)      -0-       -0-         -0-        195,000           -0-
                                     1996       203,435(3)      -0-       -0-         -0-         20,000           -0-

Noreen  Pollman . . . . . . . . . .  1998       126,233       81,530      -0-         -0-          -0-             -0-
 Executive Vice President,           1997       128,583       20,000      -0-         -0-         90,000           -0-
  Operations                         1996       129,055(6)      -0-       -0-         -0-         20,000           -0-

Robert  J.  Allen . . . . . . . . .  1998       119,412         -0-       -0-         -0-          -0-             -0-
 Executive Vice President,           1997       116,583         -0-       -0-         -0-         90,000           -0-
  Entertainment                      1996       116,507(7)      -0-       -0-         -0-         20,000           -0-
<FN>
-------------------------

1)   Under  Securities  and  Exchange  Commission  rules,  the "Named  Executive
     Officers"  include  (i) each person who served as Chief  Executive  Officer
     during fiscal 1998, (ii) each person who (a) served as an executive officer
     at September  30, 1998,  (b) was among the four most highly paid  executive
     officers of the Company, not including the Chief Executive Officer,  during
     fiscal 1998, and (c) earned total annual salary and bonus  compensation  in
     fiscal 1998,  in excess of $100,000,  and (iii) up to two persons who would
     be included under clause (ii) above had they served as an executive officer
     at September 30, 1998.

2)   Includes  contractual  compensation  and  $125,000  fee paid  for  services
     rendered for CRC Tunisia.

3)   Includes  $17,308 in unused vacation time and $16,636 in wages earned prior
     to fiscal 1996, not paid until fiscal 1996.

4)   Includes $12,942 in unused vacation time.

5)   During fiscal 1998, 1997 and 1996, Mr. Pilger received  personal  benefits,
     the aggregate  amounts of which did not exceed the lesser of $50,000 or 10%
     of the total of the annual salary and bonus reported for Mr. Pilger in such
     years.

                                       24

<PAGE>

6)   Includes $5,499 of wages earned in 1995 paid in 1996.

7)   Includes $5,001 of wages earned in 1995 paid in 1996.

</FN>
</TABLE>

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table sets forth,  as of September  30,  1998,  certain
information  with  respect to each  shareholder  known to the  Company to be the
beneficial owner of more than 5% of its Common Stock, each director,  each Named
Executive  Officer,  and all  directors  and officers of the Company as a group.
Unless otherwise  indicated,  each person named in the table has sole voting and
investment  power as to the Common Stock shown.  All Officers and Directors have
an address of 707 Bienville Boulevard, Ocean Springs, Mississippi 39564.

<TABLE>
<CAPTION>
                                                                    Number of Shares           Percentage of
Name and Address of Beneficial Owner                           Beneficially Owned (1) (10)   Outstanding Shares
------------------------------------                           ---------------------------   ------------------
<S>                                                                  <C>                         <C>   
John J. Pilger ............................................          1,026,768(2)                10.60%
Noreen Pollman ............................................            125,000(3)                 1.30%
John W. Steiner ...........................................             76,000(4)                 0.80%
Dr. Timothy Murphy ........................................             15,781(5)                 0.17%
Dennis Evans ..............................................             50,100(6)                 0.53%
Robert J. Allen ...........................................            125,000(7)                 1.30%
John Ferrucci .............................................             40,000(8)                 0.42%
Kevin M. Kean .............................................          1,400,944(9)                14.65%
All Directors and Executive Officers as a group (8 Persons)          1,458,649                   14.53%
<FN>
-------------------------

1)   Shares not outstanding but deemed beneficially owned by virtue of the right
     of a person  or  member  of a group to  acquire  them  within  60 days upon
     exercise  of options or  warrants  are  treated  as  outstanding  only when
     determining the amount and percent owned by such person or group.

2)   Includes  170,000  shares deemed  beneficially  owned  pursuant to options,
     which are immediately exercisable. In addition, Mr. Pilger holds proxies to
     vote  1,330,944  shares owned by Kevin M. Kean and 175,000  shares owned by
     Richard A. Howarth, Jr., a former officer of the Company. See Note 9 below.
     With such  shares,  Mr.  Pilger has the right to vote a total of  2,362,712
     outstanding  shares  or  24.9% of the  shares  outstanding.  Of the  shares
     reflected above 11,000 are owned by Mr. Pilger's wife and 11,000 shares are
     owned by minor children of Mr. Pilger.  The above table does not reflect an
     additional 65,000 options which were originally  granted April 5, 1997, but
     do not vest until April 7, 1999.

3)   Includes  119,000  shares deemed  beneficially  owned  pursuant to options,
     which are  immediately  exercisable.  The above  table does not  reflect an
     additional 30,000 options which were originally  granted April 3, 1997, but
     do not best until April 7, 1999.

                                       25

<PAGE>

4)   Includes 70,000 shares deemed beneficially owned pursuant to options, which
     are immediately exercisable.

5)   Includes 10,000 shares deemed beneficially owned pursuant to options, which
     are immediately exercisable.

6)   Includes 20,000 shares deemed beneficially owned pursuant to options, which
     are immediately exercisable.

7)   Includes  119,000  shares deemed  beneficially  owned  pursuant to options,
     which are  immediately  exercisable.  The above  table does not  reflect an
     additional 30,000 options which were originally  granted April 3, 1997, but
     do not vest until April 7, 1999.

8)   Includes 40,000 shares deemed beneficially owned pursuant to options, which
     is immediately exercisable.

9)   Includes 70,000 shares of Common Stock deemed  beneficially  owned pursuant
     to an option  which is  immediately  exercisable.  Mr.  Kean has granted an
     irrevocable  proxy with respect to 1,330,944 shares of the Company's common
     stock to John J. Pilger.  Mr. Kean's  address is 2644 E.  Lakeshore  Drive,
     Baton Rouge, Louisiana 70808.

10)  The stock  table does not reflect  shares of stock  owned by  Officers  who
     participated in the Company 401(k) plan which began July 1, 1997.  Matching
     contributions  of Company stock issued by the Company under the plan to its
     Officers through September 30, 1998, total 6,093 shares.
</FN>
</TABLE>

OPTION GRANTS AND EXERCISES

         The  following  table  sets  forth  information  with  respect to stock
options originally granted to the Named Executive Officers during fiscal 1998.
<TABLE>
<CAPTION>
                         OPTION GRANTS IN FISCAL 1998(1)

                                       NUMBER OF                 % OF TOTAL
                                      SECURITIES               OPTIONS GRANTED           EXERCISE
                                      UNDERLYING                TO EMPLOYEES              PRICE            EXPIRATION
NAME                              OPTIONS GRANTED (#)          IN FISCAL 1998           ($/SHARE)             DATE
----------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                           <C>                    <C>              <C>
John J. Pilger                        195,000(1)                    46.4%                  1.03             4/7/2008
Noreen Pollman                         90,000(1)                    21.4%                 .9375             4/7/2008
Robert J. Allen                        90,000(1)                    21.4%                 .9375             4/7/2008
<FN>
1)   The Executives'  options were  originally  granted under the Company's 1997
     Long-Term Incentive and Stock Option Plan and implemented on April 3, 1997,
     but options were cancelled and reissued this April 7, 1998 with 2/3 options
     vesting immediately and the balance to vest April 7, 1999.
</FN>
</TABLE>

                                       26

<PAGE>

     The following Table sets forth with respect to the Named Executive Officers
Information  concerning  the exercise of stock options  during fiscal 1998,  and
unexercised  options  held as of the end of fiscal  1998.  The Company has never
granted stock appreciation rights.

                           AGGREGATED OPTION EXERCISES
                     AND FISCAL 1998 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                           NUMBER OF SECURITIES                     VALUE OF UNEXERCISED
                      SHARES                              UNDERLYING UNEXERCISED                        IN-THE-MONEY
                    ACQUIRED                              OPTIONS AT 9/30/98 (#)                   OPTIONS AT 9/30/98 ($)
                        ON            VALUE       -----------------------------------------------------------------------------
                     EXERCISE       REALIZED
NAME                    (#)           ($)           UNEXERCISABLE         EXERCISABLE          UNEXERCISABLE        EXERCISABLE
-------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>           <C>              <C>                 <C>                      <C>                 <C>
John J. Pilger          -0-           -0-               65,000              170,000                 -0-                 -0-
Noreen Pollman          -0-           -0-               30,000              119,000                 -0-                 -0-
Robert J. Allen         -0-           -0-               30,000              119,000                 -0-                 -0-
</TABLE>

EMPLOYMENT AGREEMENTS

         The Company entered into an Employment Agreement with John J. Pilger on
May 20, 1996, providing for an annual salary of $225,000, subject to annual cost
of living adjustments.  The agreement also provides for use of an automobile and
payment  of  insurance  premiums,  the value of which does not exceed 10% of his
annual  salary.  The agreement  also  provides for bonuses if certain  financial
performance  guidelines  are met.  This  agreement was amended April 3, 1998, to
extend the  expiration  date from July 19,  1999,  to  September  30,  1999,  to
correspond to the Company's fiscal year.  Additionally,  the agreement  provides
that if either  party  wishes to  terminate  the  agreement a written  notice of
intent must be  delivered  to the other  party one year prior to the  employment
expiration  date  and in  the  absence  of  such  notice  the  agreement  renews
automatically from year to year.

         The Company entered into a Supplementary Employment Agreement with John
J. Pilger which  provides Mr. Pilger  certain  benefits upon a Change of Control
Event,  which is defined therein as: (a) the acquisition  after the date of this
agreement by an individual, entity or group (within the meaning of Section 13(d)
or 14(d)(2) of the Securities  Exchange Act of 1934, as amended, (a "Person") of
beneficial  ownership  of 20% or more of either (i) the  issued and  outstanding
shares of common stock of the Company or (ii) the  combined  voting power of the
then outstanding  voting securities of the Company entitled to vote generally in
the election of directors;  or (b) if any two or more members  within a class of
the  staggered  Board of seven or more  directors,  as  constituted  on the date
hereof,  are  removed  without  the  express  approval or consent of the CEO and
Chairman  of the Board,  of if two or more  members of the Board  assume  office
within any period of eighteen months after one or more contested  elections;  or
(c) A hostile reorganization,  merger or consolidation which results from either
an actual or threatened election contest or actual or threatened solicitation of
proxies;  or (d) A complete  liquidation or  dissolution of the Company,  or the
sale or other  disposition  of all or  substantially  all of the  assets  of the
Company,  which  liquidation,  sale or dissolution  occurs as a result of either
actual or  threatened  solicitation  of proxies or  consents  by or on behalf of
persons other than the incumbent  Board.  The benefits which inure to Mr. Pilger
upon a voluntary  termination under a Change of Control include:  2.99 times his
annual average salary and bonuses plus all taxes, including income taxes and any
excise tax which may be imposed.

                                       27

<PAGE>

         The Company entered into an agreement with Robert J. Allen where upon a
Change of Control Event,  which is substantially  similar to that defined in Mr.
Pilger's Supplementary Employment Agreement and set out above, Mr. Allen has the
right to receive upon termination 2.99 times his average annual salary including
bonuses payable within 30 days plus other benefits.

Other

         On October 16, 1997,  John J. Pilger  received a $150,000  payment from
the  Company  for  services  rendered to CRC Tunisia  during  fiscal  1998,  and
$125,000 in October  1998,  for services to be rendered in Fiscal 1999.  Under a
Board  approved  resolution  Mr.  Pilger  will  receive an  additional  $125,000
compensation  for fiscal 2000. Under Tunisian law, John J. Pilger is required to
sign,  in his personal  capacity,  all  documents  necessary  for the Company to
conduct  operations  in Tunisia.  These  payments are in  consideration  for the
additional risk of personal liability assumed by Mr. Pilger under Tunisian law.

         Section  16(a) of the  Securities  Exchange  Act of 1934,  as  amended,
requires the Company's  officers,  directors,  and certain  shareholders to file
reports of  ownership  and  changes in  ownership  of the Common  Stock with the
Securities  and Exchange  Commission.  To the  Company's  knowledge,  based on a
review of the  copies of such  reports  furnished  to the  Company  and  written
representations that no other reports were required, during the Company's fiscal
year ended  September  30,  1998,  all Section  16(a) filing  requirements  were
complied with and filed in a timely fashion.

         The Company issued a convertible  debenture for $1.5 million,  which is
due January 31, 1999, payable in cash or common stock, at Company's  discretion.
If the Company  elects to satisfy the  debenture  with common  stock at the then
current fair market  value,  such  issuance may  constitute,  if over 20% of the
Company's  total shares  outstanding,  a change of control  which would  require
shareholder consent.  Additionally, the Company may elect, at its discretion, to
satisfy the balance of  outstanding  debenture,  in cash or common stock,  which
totals $228,326 in four equal installment  January through April 1999. Using the
five day trailing  average  closing bid price for the Company common stock as of
January 4, 1999, with a 17% discount would result in a stock issuance of 611,067
shares.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         At September  30,  1998,  John J. Pilger was indebted to the Company in
the amount of $449,461 including principal and interest. Such obligations accrue
interest at rates  between 7% and 9.5% per year,  mature from December 31, 1998,
to December 31, 2001.  Mr. Pilger is current on his  obligations to the Company.
The original loans include $150,000 advanced for the purchase by Mr. Pilger of a
Mississippi  residence in 1994 and $299,461 in other advances made to Mr. Pilger
from 1994 to present.  These notes receivable will be retired ratably over three
years beginning January 1, 1999.

         As of September 30, 1998,  Noreen  Pollman has paid the Company in full
for a loan which had an  outstanding  balance  of $83,278 by  applying a prorata
share of money earned under terms of a Consulting  Agreement during fiscal 1998,
to satisfy the debt in full.

                                       28
<PAGE>

         Through  September 30, 1998, the Company has advanced $10,677 including
interest to Robert J. Allen,  which note  maintains  an  outstanding  balance of
$7,500 plus interest as of September 30, 1998.

         On December  31,  1997,  the  Company's  former  chairman  (Kevin Kean)
defaulted on repaying  $1,232,000  plus  interest  due the Company.  The Company
filed suit against Mr. Kean which resulted in a settlement agreement.  Under the
agreement, 220,000 shares of the Company's common stock has been cancelled along
with the 150,000 shares currently pledged to the Company, at the market price of
$1.19 per share. The Company and Mr. Kean entered into a new note agreement. The
new note in the amount of $1,196,885  bears interest at 7% per annum and matures
on January 15, 2001. The note is collateralized by Mr. Kean's 5% interest in the
Company's  Pokagon  management fee. Solely at the Company's  discretion,  at any
time prior to maturity,  the Company can take the  collateral as payment in full
for the  note.  Mr.  Kean  has also  granted  the  Chairman  of the  Company  an
irrevocable  proxy for 1,330,944  shares of the Company's  common stock owned by
Mr. Kean, but pledged to a commercial bank.

         In April 1994,  the Company  purchased a residential  property in Ocean
Springs from Mr.  Pilger,  paying him $137,000 in cash.  This residence has been
leased at a below market rate since June 1995 to a principal of Monarch Casinos,
Inc.  The Company  has  provided  the tenant the  opportunity  to purchase  this
residence contingent upon the tenant, Mr. Smith,  fulfilling certain obligations
due the Company.  The Company has initiated a legal action against Mr. Smith for
non-performance  of his obligations and breaches of his contractual  obligations
as  set  out  in  under  agreements  with  the  Company.   See  "Item  3.  Legal
Proceedings."

         The Board of  Directors  authorized  the  Company to  acquire  from Mr.
Pilger two lots which are  contiguous to residence at 303 LaSalle  Court,  Ocean
Springs,  Mississippi,  an  asset  of  the  Company,  on  August  11,  1998.  In
consideration for Mr. Pilger's transfer of ownership, he was given consideration
equal  to the land  value of  $86,000,  of  which  $43,000  was paid in cash and
$43,000 was applied to Mr. Pilger's loans due to the Company.

Preferred Stock Conversion

         By resolution  dated  December 24, 1992, the Company agreed to purchase
all of the 300,000 then outstanding shares of its 8% Cumulative  Preferred Stock
from Mr. Pilger.  In  consideration  for the Preferred Stock, the Company issued
909,091 shares of Common Stock using a conversion  value for the Common Stock of
$1.32 per share.  (The last five trades of the Common Stock  recorded on the OTC
Bulletin  Board prior to  December  24,  1992,  averaged  $1.50 per  share).  In
connection  with the  conversion,  the Company  assumed from Mr. Pilger  certain
opportunities to develop casino-related  entertainment and hotel facilities. Mr.
Pilger  also waived  rights to an  aggregate  of $240,000 in accrued  dividends.
Prior to the time of conversion,  the Company was not in either the  hospitality
or the entertainment  business. No registration rights were granted with respect
to the Common Stock issued in this transaction.

                                       29
<PAGE>

         A total of 150,000 of such shares of Common Stock were personally owned
by Mr. Howarth,  who in connection with the conversion,  transferred them to Mr.
Pilger  in  consideration  for  Mr.  Pilger's   assignment  of  the  development
opportunities,  and  also to  effect  a  repositioning  of the  stock  ownership
interests  between  Messrs.  Pilger and Howarth,  reflecting a new allocation of
responsibilities  between them. In consideration  therefor, Mr. Pilger agreed to
pay Mr.  Howarth $1.50 per share,  payable at such time as Mr. Pilger sells such
stock to an unrelated third party. The agreement was amended, effective November
30, 1994,  to provide for the transfer by Mr.  Pilger to Mr.  Howarth of 175,000
shares of Common Stock and the release of Mr. Pilger from the  obligation to pay
to Mr.  Howarth the $1.50 per share after Mr. Pilger sells and/or  transfers 18%
of his Common Stock of the  Company.  In other  words,  if Mr.  Pilger sells 100
shares  Mr.  Howarth  is paid (18% x 100) or $1.50 on 18  shares.  In  addition,
pursuant to such  agreement,  Mr.  Howarth  granted to Mr. Pilger an irrevocable
proxy to vote such 175,000 shares until such Common Stock is sold or transferred
to an unrelated third party by Mr. Howarth.

         All of the share and share  price  numbers  referred to above have been
adjusted to reflect a June 1993 one-for-two  reverse split of the Company's then
outstanding capital stock.

Relationship with Consultants

         The  Company  has agreed to pay two  consultants  to the  Company,  who
assisted in the acquisition of certain  development  rights  (including Kevin M.
Kean,  a principal  shareholder  of the  Company),  an  aggregate  of 10% of any
consulting fee income (less related  direct  operating  costs),  received by the
Company from its agreements relating to the Pokagon Indians,  subject to certain
limits in the case of Mr. Kean. Similar fees may also be payable to Mr. Kean out
of  revenues,  if any,  received by the Company  from other  Indian  businesses,
including gaming.  Mr. Kean has partially  collateralized his $1,196,885 note to
the Company with his right to 5% of such consulting fee income.

         The Company has executed a Consulting  Agreement with Monarch  Casinos,
Inc. ("Monarch") which was subsequently assigned to Willard E. Smith,  requiring
the Company to: (i) pay monthly fees commencing (retroactively) January 1995, at
various  rates from  $3,000 to  $14,250  per month;  (ii) loan an  aggregate  of
$250,000 (all of which has been advanced as of September 30, 1997), which may be
forgiven  in part or in whole  upon the  occurrence  of  certain  events;  (iii)
reimburse  pre-approved  travel  expenses;  and  (iv)  lease  to Mr.  Smith  the
Company's Ocean Springs, Mississippi residence at a below market lease rate. The
Consulting  Agreement extends for the duration of the Management and Development
Agreement  between the Pokagon  Indians and an  affiliate  of Harrah's  Casinos,
unless  canceled  earlier  based  on  certain  non-performance   provisions.  In
addition, the Company issued an aggregate of 100,000 registered shares of Common
Stock during fiscal 1995, which were  subsequently  sold. An additional  400,000
shares of Common  Stock may be  granted  upon the  groundbreaking  for the first
Pokagon casino,  subject to certain  conditions,  and 1,500,000 shares of Common
Stock may be granted upon the opening of a Pokagon  casino.  Monarch has granted
John J. Pilger an irrevocable  proxy with regard to all shares owned by Monarch.
Pilger has assigned this proxy to the Company's Board of Directors.  The Company
cancelled  Willard Smith's  Consulting  Agreement as per contract due to certain
criteria set out in contract not being met by September 1997. No additional fees
were paid to Mr. Smith during Fiscal 1998. The Company  initiated a suit against
Mr. Smith in December  1998,  for breach of contract,  

                                       30
<PAGE>

default of rental  payment and for  collection of note due to the Company by Mr.
Smith and Monarch Casinos, Inc. See "Item 3. Legal Proceedings."

         Ms. Pollman  terminated her employment  relationship  in February 1998,
and entered into a Consulting  Agreement for a two-year term to provide business
and  consulting  services to the Company.  Ms.  Pollman will  continue to act as
Secretary of Company with responsibility for maintaining the Company's books and
records.   The   Consulting   Agreement   anticipates   Ms.  Pollman  will  work
approximately  25 hours per week at an hourly rate of $67.00,  thus reducing the
Company's long term out-of-pocket expenses associated with Ms. Pollman's salary.
The Board approved  agreement  features Change of Control  provisions where upon
termination  of this  agreement Ms.  Pollman will receive 2.99 times her average
annual  compensation which moneys will be payable in thirty days.  Additionally,
this agreement  provides for a one-time bonus of up to $156,000 in stock or cash
payable in full no later than December 31, 1999.

         The Company has a consulting relationship with Dennis Evans, who serves
on the Board of  Directors.  Mr. Evans acts as a marketing  consultant to Casino
Caraibe,  and he has agreed to live in Tunisia from August 1997,  through  April
1999,  in order to develop and  initiate  marketing  programs  and group  junket
business for the benefit of Casino Caraibe.  Mr. Evans receives  $10,000 monthly
and 2,973  Tunisian  dinars  ($2,703 US dollar  equivalent)  monthly  during his
consulting  term. Mr. Evans is provided  housing  accommodations  by the Company
while in Tunisia.

Indemnification of Directors and Officers

         Under  Section  302A.521  of the  Minnesota  Statues,  the  Company  is
required to indemnify its  directors,  officers,  employees,  and agents against
liability under certain circumstances,  including liability under the Securities
Act of 1933, as amended.

         As permitted  under the  Minnesota  Statues,  the Restated  Articles of
Incorporation  of the  Company  provide  that  directors  shall have no personal
liability to the Company or to its  shareholders  for monetary  damages  arising
from breach of the Directors'  duty of loyalty to the Company or with respect to
certain enumerated matters,  excluding payment of illegal dividends, acts not in
good faith, and acts resulting in an improper personal benefit to the director.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

         The Exhibits to this Report are listed on pages 33 through 40 hereof.

         (b) Current  Reports on Form 8-K for the quarter  ended  September  30,
1998:

               1)   Form  8-K  filed  on July 16,  1998,  Financial  Statements.
                    Reference sale of Grand Hinckley Inn on June 30, 1998.

                                       31
<PAGE>

               2)   Form 8-K filed on August 24, 1998, 1998,  Other Events.  The
                    Company  accepted  the  resignation  of the Chief  Financial
                    Officer, effective August 17, 1998.


SIGNATURES

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


DATE                                    SIGNATURE AND TITLE

January 13, 1999                        s/ John J. Pilger
--------------------------              ----------------------------------------
                                        John J. Pilger, Chief Executive Officer,
                                        President and Chairman of the Board of
                                        Directors and Chief Accounting Officer


January 13, 1999                        s/ Noreen Pollman
--------------------------              ----------------------------------------
                                        Noreen Pollman, Secretary


January 13, 1999                        s/ Robert J. Allen
--------------------------              ----------------------------------------
                                        Robert J. Allen, Vice President of
                                        Entertainment and Director


January 13, 1999                        s/ Dr. Timothy Murphy
--------------------------              ----------------------------------------
                                        Dr. Timothy Murphy, Director


January 13, 1999                        s/ Dennis Evans
--------------------------              ----------------------------------------
                                        Dennis Evans, Director


January 13, 1999                        s/ John W. Steiner
--------------------------              ----------------------------------------
                                        John W. Steiner, Director


January 13, 1999                        s/ John Ferrucci
--------------------------              ----------------------------------------
                                        John Ferrucci, Director


                                       32
<PAGE>

                                                              Sequentially
Exhibit No.         Description of Exhibit                    Numbered Pages
--------------------------------------------------------------------------------

2.1     Palace Casino Asset Acquisition Agreement (6)

3.1     Restated Articles of Incorporation of the Company, as amended (2)

3.2     Bylaws of the Company, as amended (3)

4.1     Form of $300,000 Convertible Debenture between the Company and G.P.S.
        Fund, Ltd., due September 10, 1998 (7)

4.2     Form of $500,000 Convertible Debenture, between the Company and Gifford
        Fund, Ltd., due September 9, 1998 (7)

4.3     Form of Registration Rights Agreement, between the Company and Investor,
        dated August 29, 1997 (7)

4.4     Form of Debenture Subscription Agreement, between the Company and
        Subscriber, dated August 29, 1997 (7)

4.5     Common Stock Purchase Warrant (The Gifford Fund, Ltd.), between the
        Company and Gifford Fund, Ltd., dated September 1997 (7)

4.6     Common Stock Purchase Warrant (G.P.S. Fund, Ltd.), between the Company
        and G.P.S. Fund, Ltd. (7)

4.7     Common Stock Purchase Warrant (Joseph B. LaRocco), between the Company
        and Joseph B. LaRocca, dated September, 1997 (7)

4.8     Common Stock Purchase Warrant (International Holding Company, Ltd.),
        between the Company and International Holding Company, Ltd., dated
        September 1997 (7)

4.9     $1,500,000 6% Cumulative Convertible Debenture, between the Company and
        Maritime Group, Ltd., dated January 31, 1997 (8)

4.10    Amendment to 13% Convertible Debentures Due September 9, 1998, and
        September 10, 1998, between the Company, G.P.S. Fund, Ltd., and Gifford
        Fund, Ltd. (8)

10.1    Employment Agreement dated May 20,1996 between the Company and John J.
        Pilger (6)

10.2    Ground Lease dated as of August 11,1993, as amended by the Amendment to
        Ground Lease dated as of April 5, 1995, between Casino Building
        Corporation and Grand Casinos, Inc. relating to the site for the Grand
        Hinckley Inn (5)

                                       33
<PAGE>

10.3    Hotel Development Agreement dated July 23,1993, between the Company and
        Grand Casinos, Inc. relating to the development of the Grand Hinckley
        Inn (1)

10.4    Marketing Enhancement and Purchase/Put Option Agreement dated as of
        August 11, 1993, between the Company, the Corporate Commission and Grand
        Casinos, Inc. relating to the Grand Hinckley Inn (1)

10.5    Form of Warrant Agreement between the Company and Norwest Bank
        Minnesota, N. A., as Warrant Agent, dated September 15, 1993 (1)

10.6    Promissory Note dated as of September 15,1993, made by John J. Pilger in
        favor of the Company (3)

10.7    Contract to Produce Show dated December 28, 1995, between JMJ, Inc.,
        d/b/a Aladdin Hotel & Casino and Country Tonite Enterprises, Inc.
        relating to the Las Vegas production show (2)

10.8    Agreement for Purchase and Sale of Theatre dated March11, 1994, among
        the Company, CRC of Branson, Inc. and Ahab of the Ozarks, Inc. relating
        to the acquisition of the Country Tonite Theatre (2)

10.9    Construction and Term Loan Agreement dated as of April 1,1994, as
        amended by the Amendment to Construction and Term Loan Agreement dated
        as of May 1,1994, between Casino Building Corporation and Miller &
        Schroeder Investments Corporation relating to the construction and
        financing of the Grand Hinckley Inn (5)

10.10   Promissory Note dated April 5, 1994, made by Casino Building Corporation
        in favor of Miller & Schroeder Investments Corporation in the amount of
        $3,300,000 (5)

10.11   Mortgage, Security Agreement and Financing Statement dated as of April
        1, 1994, between Casino Building Corporation and Miller & Schroeder
        Investments Corporation (5)

10.12   Guaranty Agreement dated April 1, 1994, by the Company in favor of
        Miller & Schroeder Investments Corporation (5)

10.13   Assignment of Rents and Leases dated as of April 1,1994, as amended by
        the Amendment to of Rents and Leases dated as of May 1,1994, between
        Casino Building Corporation and Miller & Schroeder Investments
        Corporation (5)

10.14   Subordination Agreement dated as of April 1,1994, among the Company,
        Casino Building Corporation and Miller & Schroeder Investments

                                       34
<PAGE>

        Corporation (5)

10.15   Loan Purchase Agreement dated April 1, 1994, among the Company, Casino
        Building Corporation and Miller & Schroeder Investments Corporation (5)

10.16   Assignment dated as of April 1,1994, between Casino Building Corporation
        and Miller & Schroeder Investments Corporation relating to the
        assignment of the Marketing Enhancement and Purchase/Put Option
        Agreement (5)

10.17   Common Stock Purchase Warrant dated April 5, 1994, granted to Grand
        Casino, Inc. by the Company with respect to 98,130 shares (5)

10.18   Common Stock Purchase Warrant dated April 19, 1994, granted to Grand
        Casino Inc. by the Company with respect to 151,870 shares (5)

10.19   Promissory Note dated March 29, 1994, made by Casino Building
        Corporation for $939,739.50 in favor of PDS Financial Corporation
        relating to the financing of furniture, fixtures and equipment for the
        Grand Hinckley Hotel (5)

10.20   Security Agreement dated March 29, 1994, between Casino Building
        Corporation and PDS Financial Corporation (5)

10.21   Guaranty dated March 29, 1994, made by the Company in favor of PDS
        Financial Corporation (5)

10.22   Debt Subordination Agreement dated March 29,1994, among Casino Building
        Corporation, the Company and PDS Financial Corporation (5)

10.23   Assignment dated March 29, 1994, among Casino Building Corporation, the
        Company and PDS Financial Corporation (5)

10.24   Biloxi Star Theater Asset Purchase Agreement dated August 18, 1994,
        among Grand Casinos, Inc., Grand Casinos of Mississippi, Inc.-Biloxi,
        the Company and Casino Building Corporation of Mississippi, Inc. (2)

10.25   Assignment and Assumption of Ground Sublease and Related Documents dated
        September 30, 1994, between Casino Building Corporation of Mississippi,
        Inc. and Grand Casinos Biloxi Theater, Inc. (2)

10.26   Bill of Sale date September 30,1994, between Casino Building Corporation
        of Mississippi, Inc. and Grand Casinos Biloxi Theater, Inc. (2)

10.27   Assignment of Warranties, Permits, Licenses, Contracts, Service

                                       35
<PAGE>

        Agreements and other Intangible Rights dated September 30, 1994, between
        Casino Building Corporation of Mississippi, Inc, and Grand Casinos
        Biloxi Theater, Inc. (2)

10.28   Indemnification Agreement dated September 30, 1994, among the Company,
        Casino Building Corporation of Mississippi, Inc., Grand Casinos, Inc.,
        Grand Casinos, of Mississippi, Inc.-Biloxi, and Grand Casinos Biloxi
        Theater, Inc. (2)

10.29   Non-Compete Agreement dated September 30, 1994, among the Company,
        Casino Building Corporation of Mississippi, Inc., Grand Casinos, Inc.,
        Grand Casinos Biloxi Theater, Inc. and John J. Pilger (2)

10.30   Termination Agreement dated as of September 30, 1994, among the Company,
        Casino Building Corporation of Mississippi, Inc., Grand Casinos, Inc.,
        Grand Casinos of Mississippi, Inc.-Biloxi (2)

10.31   Registration Rights Agreement dated as of September 30, 1994, between
        the Company and Grand Casinos, Inc. (2)

10.32   Term Loan Agreement dated as of August 18, 1994, between Casino Building
        Corporation and Grand Casinos, Inc. relating to the line of credit (2)

10.33   Term Note dated as of September 23, 1994, between Casino Building
        Corporation and Grand Casinos, Inc. (2)

10.34   Mortgage, Security Agreement, Fixture Financing Statement and Assignment
        of Leases and Rents, dated as of September 23, 1994, made by Casino
        Building Corporation to Grand Casinos, Inc., securing $1,750,000 Term
        Note (2)

10.35   Continuing Guaranty (Unlimited) made by the Company in favor of Grand
        Casinos, Inc. dated as of September 23, 1994, relating to the $1,750,000
        Term Note (2)

10.36   Third Party Pledge Agreement dated as of September 23, 1994, made by the
        Company in favor of Grand Casinos, Inc. and relating to the Term Loan
        (2)

10.37   Warrant to Purchase Common Stock dated as of September 27, 1994, granted
        to Grand Casinos, Inc. (2)

10.38   Rights of First Refusal Agreement dated as of September 23,1994, between
        the Company and Grand Casinos, Inc., with respect to the sale of the
        Grand Hinckley Inn. (2)

                                       36
<PAGE>

10.39   Stock Purchase Agreement, dated as of December 18, 1992, between Mr.
        Pilger and Mr. Howarth(1) as amended by First Amendment dated June 2,
        1993(5), Second Amendment dated July 2,1993(5), and Third Amendment
        dated November 30, 1994 (4)

10.40   Settlement Agreement dated as of September, 1994, between the Company
        and Gerald North (2)

10.41   Settlement Agreement dated December 8, 1994 between the Company and
        Resource Financial Services (2)

10.42   Agreement dated as of October 15, 1993, between the Company and Kevin
        Kean Company, Inc.(3) as amended by the Amendment dated as of December
        15, 1994, relating to Cherokee gaming project (5)

10.43   Management Agreement dated February 1995 between CRC West, Inc. and Hoh
        Indian Tribe (5)

10.44   Mutual Release dated August 31, 1995, between CRC West, Inc. and Hoh
        Indian Tribe (5)

10.45   Memorandum of Understanding dated January 10, 1995, between The Promus
        Companies Incorporated and the Company with respect to the development
        of certain gaming projects (3)

10.46   Memorandum of Understanding dated January 18, 1995, between Monarch
        Casinos, Inc. and the Company with respect to the development of certain
        gaming projects (3)

10.47   Memorandum of Understanding dated March 10, 1995, between the Company,
        the Kevin Kean Company, Inc. and James E. Barnes with respect to the
        development of certain gaming projects (5)

10.48   Agreement dated May 8, 1995, between Monarch Casinos, Inc. an the
        Company with respect to the January 18, 1995, Memorandum of
        Understanding (5)

10.49   Lease Modification Agreement dated August 7, 1995, with respect to the
        Elkhorn Wisconsin Lease (3)

10.50   Settlement Agreement dated August 7, 1995, between the Company, John J.
        Pilger and Richard A. Howarth, Jr. (3)

10.51   Letter Agreement dated August 22, 1995, relating to extension of
        maturity date for September 23, 1994 Term Note (3)

10.52   Agreement dated December 1, 1995, between the Company and Kevin M. Kean
        (5)
                                       37
<PAGE>

10.53   Warrant Purchase Agreement and Cherokee Dispute Resolution dated
        December 1, 1995, between the Company and Kevin M. Kean (5)

10.54   Promissory Notes dated December 1, 1995, made to Kevin M. Kean in favor
        of the Company (5)

10.55   Promissory Note dated December 31, 1994, between the Company and John J.
        Pilger (6)

10.56   Promissory Note dated October 25, 1995, between the Company and John J.
        Pilger (6)

10.57   Promissory Note dated April 8, 1996 between the Company and John J.
        Pilger (6)

10.58   Non-Circumvention and Non-Disclosure Agreement dated July 26, 1996,
        between the Company and Huong "Henry" Le (6)

10.59   Consulting Agreement dated December 6, 1995, between the Company and
        Monarch Casinos (6)

10.60   Technical Assistance and Consulting Agreement dated June 10,1996,
        between the Company and Harrah's Southwest Michigan Casino Corporation
        (6)

10.61   Lease Agreement dated September 4, 1996, between J. MacDonald Burkhart,
        M.D. and Country Tonite Theatre L.L.C (6)

10.62   Operating Agreement of Country Tonite Theatre, L.L.C. dated September
        24, 1996 (6)

10.63   Limited Liability Company Operating Agreement of New Palace Casino,
        L.L.C. (6)

10.64   Lease Contract dated June, 1996 between the Company and Samara Casino
        Company (6)

10.65   Consulting Agreement between the Company and Mondhor Ben Hamida (6)

10.66   $800,000 Lyle Berman Family General Partnership Loan Agreement (7)

10.67   $800,000 Promissory Note, between the Company and Lyle Berman Family
        General Partnership, dated August 29, 1997 (7)

10.68   Stock Pledge Agreement, between the Company and the Lyle Berman Family
        General Partnership, dated August 29, 1997 (7)

                                       38
<PAGE>

10.69   Mutual Release Agreement, between the Company, Casino Building
        Corporation, and the Lyle Berman Family General Partnership, dated
        August 29, 1997 (7)

10.70   $1,000,000 SeaMar Ventures, LLC Loan Agreement, between the Company and
        SeaMar Ventures LLC, dated August 29, 1997 (7)

10.71   $1,000,000 Term Note, between the Company and SeaMar Ventures LLC, dated
        August 29, 1997 (7)

10.72   Guaranty Agreement, between the Company and SeaMar Ventures LLC, dated
        August 29, 1997 (7)

10.73   Matt Walker Consulting Agreement, between the Company and Matt Walker,
        dated September 29, 1997 (7)

10.74   Tunisia Casino License (7)

10.75   Agreement with Robert and Lawana Low (8)

10.76   Lease for 707 Bienville (8)

10.77   Kevin Kean Settlement Agreement (8)

10.91   Employment Agreement (9)

10.92   Amendment to Employment Agreement (9)

10.93   Asset Purchase Agreement by and among On Stage Entertainment, Inc.,
        Casino Resource Corporation, Country Tonite Enterprises, Inc., and CRC
        of Branson, Inc., dated September 21, 1998, relating to the sale of
        certain of the assets of the entertainment division of Casino Resource
        Corporation, including the theatre in Branson Missouri, and the Country
        Tonite Show. (10)

10.94   Asset Purchase Agreement by and among Corporate Commission of the Mille
        Lacs Band of Ojibwe Indians and Casino Resource Corporation and Casino
        Building Corporation, dated June 29, 1998 relating to the sale of Grand
        Hinckley Inn hotel property to the Mille Lacs Band of Ojibwe Indians for
        $5.4 million dollars. (10)

10.95   Burkhart Agreement by and among Burkhart Ventures, LLC and Casino
        Resource Corporation and Casino Resource Corporation of Tennessee
        executed this agreement November 4, 1998, which terminated the Company's
        60% Joint Venture ownership interest in CTT, LLC December 31, 1998. (10)

10.96   Extension of Promissory Note Maturity Date between Ahab of the Ozarks,
        Inc. and Casino Resource Corporation and CRC of Branson, Inc. dated
        December 22, 1998 extending maturity date of note with outstanding
        principal balance of approximately $7.1 million dollars from April 1,
        1999 to October 1, 1999. (10)

                                       39
<PAGE>

10.97   Consulting Agreement, between the Company and Noreen Pollman, dated
        February 15, 1998 (10)

10.98   Robert J. Allen Agreement, between the Company and Robert J. Allen,
        dated April 3, 1998 (10)

10.99   John J. Pilger Executive Employment Agreement Golden Parachute, between
        the Company and John J. Pilger, dated March 9, 1998 (10)

10.100  Amendment to Employment Agreement, between the Company and John J.
        Pilger, dated April 3, 1998 (10)

21.1    List of Subsidiaries of Registrant (8)

27.1    Financial Data Schedule (10)

1)   Incorporated by reference to the Company's Registration Statement on Form
     SB-2, File No. 33-66504, declared effective September 15, 1993.

2)   Incorporated by reference to the Company's Form 10-KSB for the fiscal year
     ended September 30, 1994, filed on January 12, 1995.

3)   Incorporated by reference to the Company's Registration Statement on Form
     SB-2, File No. 33-90114, originally declared effective May 5,1995.

4)   Incorporated  by reference to the Company's Form 10-KSB for the fiscal year
     ended September 30, 1995, filed on January 16, 1996.

5)   Incorporated by reference to the Company's  Registration Form S-3, File No.
     33-31534, originally declared effective February 29,1996.

6)   Incorporated by reference to the Company's Form 10-KSB,  as amended for the
     fiscal year ended September 30, 1996, filed on June 9, 1997.

7)   Incorporated by reference to the Company's  Registration  Statement on Form
     S-3, as amended, File 333-37267, filed on November 19, 1997.

8)   Incorporated by reference to the Company's 10-KSB, as amended for fiscal
     year ended September 30, 1997, filed on January 20, 1998.

9)   Incorporated by reference to the Company's 10-QSB, filed on May 15, 1998.

10)  Filed Herewith



                                       40
<PAGE>

                  CASINO RESOURCE CORPORATION AND SUBSIDIARIES

                          Index to Financial Statements



     Independent Auditors' Report                                  F-2


     Consolidated Financial Statements
     Balance Sheets                                          F-3 - F-4
     Statements of Operations                                      F-5
     Statements of Stockholders' Equity                            F-6
     Statements of Cash Flows                                F-7 - F-8
     Notes to Consolidated Financial Statements             F-9 - F-26



                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT




Casino Resource Corporation
    and Subsidiaries
Ocean Springs, Mississippi

We have audited the accompanying  consolidated balance sheets of Casino Resource
Corporation and  Subsidiaries as of September 30, 1998 and 1997, and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years then ended.  These 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, an 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.

As more fully  discussed in Note 2, during 1998,  the Company  discontinued  its
hospitality and entertainment  segments and has sold or plans to sell the assets
related  thereto.  Historically,  assets and operations of the  hospitality  and
entertainment  segments have represented a substantial  portion of the Company's
total assets and results of operations.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Casino
Resource  Corporation  and  Subsidiaries at September 30, 1998 and 1997, and the
results of their  operations  and their cash flows for the years then ended,  in
conformity with generally accepted accounting principles.


                                               BDO SEIDMAN, LLP



Chicago, Illinois
December 17, 1998


                                      F-2
<PAGE>
                  Casino Resource Corporation and Subsidiaries
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30,                                                                                1998                 1997
----------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                  <C>        

Assets

Current Assets
    Cash and cash equivalents                                                         $ 1,151,925          $ 2,254,295
    Accounts receivable - trade and other                                                 108,183               73,228
    Inventory                                                                              36,431               12,152
    Prepaid expenses (Note 3)                                                              59,013              804,899
    Deferred tax asset (Note 12)                                                        2,000,000                   --
    Net assets held for sale - entertainment (Note 2)                                   2,384,615            3,812,250
    Net assets held for sale - hospitality (Note 2)                                            --            3,070,662
----------------------------------------------------------------------------------------------------------------------

Total Current Assets                                                                    5,740,167           10,027,486
----------------------------------------------------------------------------------------------------------------------

Property and Equipment, less accumulated depreciation and                               2,663,107            2,279,716
    amortization (Note 5)
----------------------------------------------------------------------------------------------------------------------

Noncurrent Assets
    Deferred development costs (Note 6)                                                        --            1,229,959
    Notes and advances receivable - related parties, net of allowance                     473,891              753,988
        for uncollectibles of $239,414 in 1998 and $189,121 in 1997 (Note 4)
    Note receivable, Palace Casino                                                        242,766              221,073
    Preopening costs, less accumulated amortization of $1,568,954 in                           --            1,164,458
        1998 and $0 in 1997 (Note 1)
    Other assets - net (Note 7)                                                            24,201              831,162
----------------------------------------------------------------------------------------------------------------------

Total Noncurrent Assets                                                                   740,858            4,200,640
----------------------------------------------------------------------------------------------------------------------





                                                                                      $ 9,144,132          $16,507,842
======================================================================================================================
</TABLE>

                                      F-3
<PAGE>
                  Casino Resource Corporation and Subsidiaries
                           Consolidated Balance Sheets
<TABLE>
<CAPTION>

September 30,                                                                                    1998                   1997
----------------------------------------------------------------------------------------------------------------------------
<S>                                                                                      <C>                    <C>         
Liabilities and Stockholders' Equity

Current Liabilities
    Accounts payable                                                                     $    732,984           $  1,125,534
    Subordinated convertible debentures (Note 9)                                                   --                321,735
    Current maturities of long-term debt (Note 10)                                            188,344                374,329
    Accrued expenses and other liabilities (Note 8)                                         1,412,407              1,220,155
----------------------------------------------------------------------------------------------------------------------------

Total Current Liabilities                                                                   2,333,735              3,041,753
----------------------------------------------------------------------------------------------------------------------------

Long-Term Liabilities
    Long-term debt, less current maturities (Note 10)                                       2,481,405              3,379,204
    Subordinated convertible debentures (Note 9)                                              228,326                321,735
    Deferred rent (Note 11)                                                                        --                178,620
----------------------------------------------------------------------------------------------------------------------------

Total Long-Term Liabilities                                                                 2,709,731              3,879,559
----------------------------------------------------------------------------------------------------------------------------

Total Liabilities                                                                           5,043,466              6,921,312
----------------------------------------------------------------------------------------------------------------------------

Commitments and Contingencies (Notes 1, 11, 16, 17, 18 and 19)

Stockholders' Equity (Notes 13, 14 and 15)
    Preferred stock, 8% cumulative; $.01 par value; authorized                                     --                     --
        5,000,000 shares; none issued
    Common stock, $.01 par value; authorized 30,000,000 shares;                                94,893                 96,734
        9,489,314 and 9,673,364 shares issued and outstanding in 1998 and 1997,
        respectively
    Additional paid-in capital                                                             22,630,909             22,793,110
    Cumulative translation adjustment                                                        (310,000)                    --
    Deficit                                                                               (18,315,136)           (13,303,314)
----------------------------------------------------------------------------------------------------------------------------

Total Stockholders' Equity                                                                  4,100,666              9,586,530
----------------------------------------------------------------------------------------------------------------------------

                                                                                         $  9,144,132           $ 16,507,842
============================================================================================================================
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-4
<PAGE>
                  Casino Resource Corporation and Subsidiaries
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>

Year ended September 30,                                                                1998                   1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                    <C>         

Revenue
    Gaming                                                                      $  3,305,396           $         --
-------------------------------------------------------------------------------------------------------------------

Costs and Expenses
    Operating costs - gaming                                                       7,299,695                     --
    General and administrative                                                     2,606,544              2,158,811
    Other income                                                                          --               (156,196)
    Interest expense - net of interest income of $206,195 and $195,886               497,482                 46,404
        in 1998 and 1997, respectively
    Allowance for impaired asset (Note 6)                                          1,909,959                     --
    Loss on abandonment of gaming projects - net (Note 1)                                 --                438,321
    Allowance for impaired receivable (Note 19)                                           --                791,900
-------------------------------------------------------------------------------------------------------------------

Total costs and expenses                                                          12,313,680              3,279,240
-------------------------------------------------------------------------------------------------------------------

Loss from continuing operations before income tax benefit                         (9,008,284)            (3,279,240)

Income tax benefit (Note 12)                                                       2,000,000                     --
-------------------------------------------------------------------------------------------------------------------

Loss from continuing operations                                                   (7,008,284)            (3,279,240)

Income from discontinued operations - entertainment (Note 2)                         824,794              2,132,876

Income from discontinued operations - hospitality (Note 2)                           623,493              1,155,296

Gain on sale of discontinued operations - hospitality (Note 2)                       548,175                     --
-------------------------------------------------------------------------------------------------------------------

Net (Loss) Income                                                               $ (5,011,822)          $      8,932
===================================================================================================================

Basic and Fully Diluted Income (Loss) Per Common and Common
    Share
    Continuing operations                                                       $      (0.73)          $      (0.33)
    Discontinued operations                                                             0.21                   0.33
-------------------------------------------------------------------------------------------------------------------

Net (Loss) Income                                                               $      (0.52)          $       0.00
===================================================================================================================

Weighted Average Number of Common Shares Outstanding                               9,616,155             10,015,873
===================================================================================================================
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-5
<PAGE>
                  Casino Resource Corporation and Subsidiaries
                 Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
                                                                          Additional      Cumulative           Notes
                                                       Common Stock          Paid-in     Translation    Receivable -
                                                    Shares      Amount       Capital      Adjustment     Common Stock     Deficit
------------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>        <C>           <C>             <C>           <C>          
Balance, September 30, 1996                        9,761,803    $97,618    $22,671,175   $         --    $(1,232,000)  $(13,312,246)

Issuance of common stock - conversion
    of debentures and payment of accrued interest    281,561      2,816        352,299             --             --             --


Cancellation of common stock and receivable
    impairment reserve (Note 19)                    (370,000)    (3,700)      (436,400)            --      1,232,000             --


Debt discount relating to 13% convertible
    debentures                                            --         --        206,036             --             --             --

Net income                                                --         --             --             --             --          8,932
------------------------------------------------------------------------------------------------------------------------------------


Balance, September 30, 1997                        9,673,364     96,734     22,793,110             --             --    (13,303,314)

Repurchase and cancellation of common stock         (184,050)    (1,841)      (166,701)            --             --             --

Cumulative translation adjustment                         --         --             --       (310,000)            --             --

Other                                                     --         --          4,500             --             --             --

Net loss                                                  --         --             --             --             --     (5,011,822)
------------------------------------------------------------------------------------------------------------------------------------

Balance, September 30, 1998                        9,489,314    $94,893    $22,630,909      $(310,000)  $         --   $(18,315,136)
====================================================================================================================================
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      F-6
<PAGE>
                  Casino Resource Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>

Year ended September 30,                                                         1998                 1997
----------------------------------------------------------------------------------------------------------
<S>                                                                       <C>                 <C>         

Cash Flows From Operating Activities
    Net loss                                                              $(7,008,284)        $(3,279,240)
    Adjustments to reconcile net loss to net cash used in
        operating activities
        Depreciation                                                          642,690              44,774
        Amortization                                                        1,771,678               5,351
        Minority interest in net loss of a consolidated subsidiary           (280,963)           (341,206)
        Deferred tax asset                                                 (2,000,000)                 --
        Abandonment cost - gaming ventures                                         --             438,321
        Discount upon conversion of convertible debentures                    212,315             243,226
        Reserve for impaired asset                                          1,909,959             791,900
        Gain on sale of The Hinckley Hotel                                   (548,175)                 --
        Accretion of note receivable interest                                 (21,693)            (14,461)
        Changes in assets and liabilities
           Accounts receivable - trade and other                              (34,955)             52,617
           Inventory                                                          (24,279)            (12,152)
           Prepaid expenses                                                   745,886            (268,883)
           Other assets                                                         4,237              11,030
           Accounts payable                                                  (392,550)            (47,915)
           Accrued expenses and other liabilities                             192,252             278,253
           Deferred rent                                                     (178,620)            178,620
---------------------------------------------------------------------------------------------------------

Net cash used in operating activities                                      (5,010,502)         (1,919,765)
---------------------------------------------------------------------------------------------------------

Cash Flows From Investing Activities
    Proceeds from sale of the Hinckley Hotel                                2,029,241                  --
    Proceeds from sale of Palace Casino                                            --             829,381
    Decrease in restricted cash                                                    --             338,602
    Increase in deferred development costs                                         --            (202,722)
    Refund of deferred development costs                                           --             405,655
    Purchase of property and equipment                                     (1,026,081)         (2,106,353)
    Decrease (increase) in due from related parties                           200,097            (197,093)
    Increase in preopening costs and other                                   (404,496)         (1,077,128)
    Proceeds from minority interest in a consolidated subsidiary                   --             280,000
---------------------------------------------------------------------------------------------------------

Net cash provided by (used in) investing activities                           798,761          (1,729,658)
---------------------------------------------------------------------------------------------------------
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-7
<PAGE>
                  Casino Resource Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows

<TABLE>
<S>                                                                          <C>                 <C>         
Cash Flows From Financing Activities
    Payments on line-of-credit borrowings                                    $        --         $  (589,410)
    Proceeds from long-term debt                                                      --           2,959,470
    Payments on long-term debt                                                (1,711,243)            (95,714)
    Payment of loan costs                                                             --             (93,000)
    Repurchase of common stock                                                  (168,542)                 --
    Warrant expense                                                                4,500                  --
------------------------------------------------------------------------------------------------------------

Net cash (used in) provided by financing activities                           (1,875,285)          2,181,346
------------------------------------------------------------------------------------------------------------

Effect of Exchange Rate Changes on Cash                                          (29,037)                 --

Cash Provided by Discontinued Operations - Entertainment                       2,252,429           1,785,196

Cash Provided by Discontinued Operations - Hospitality                         2,761,264           1,206,798
------------------------------------------------------------------------------------------------------------

Net (Decrease) Increase in Cash and Cash Equivalents                          (1,102,370)          1,523,917

Cash and Cash Equivalents, at beginning of year                                2,254,295             730,378
------------------------------------------------------------------------------------------------------------

Cash and Cash Equivalents, at end of year                                    $ 1,151,925         $ 2,254,295
============================================================================================================

Supplemental Disclosures of Cash Flow Information
    Cash paid (received) during the year for
        Interest                                                             $   632,783         $   172,769
        Income taxes                                                              (8,047)             25,908

Supplemental Disclosures of Noncash Investing and Financing
    Activities
    Conversion of subordinated convertible debentures and payment of         $        --         $   355,115
        accrued interest
    Note received from sale of interest in the Palace Casino                          --             206,612
    Debenture issued in connection with the Company's interest in the                 --
        Palace Casino                                                                              1,388,430
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      F-8

<PAGE>
                  Casino Resource Corporation and Subsidiaries

                   Notes to Consolidated Financial Statements


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     BUSINESS

               Casino Resource  Corporation and Subsidiaries  (the "Company") is
               primarily engaged in the gaming business.  The Company leases and
               operates a casino in Tunisia,  which  opened on October 18, 1997,
               through its 85% owned subsidiary (CRC of Tunisia S.A.).

               Prior  to  1998,  the  Company  operated  in two  other  business
               segments:  hospitality  and  entertainment.  During  1998,  these
               operations were discontinued as described below and in Note 2.

               Plans were adopted to discontinue the entertainment  segment. The
               Company  entered  into  an  asset  purchase   agreement  to  sell
               substantially   all  the  assets  used  in  connection  with  the
               operations  and  production  of the  Country  Tonite  Theater  in
               Branson,   Missouri  and  the  production  show,  Country  Tonite
               Enterprises.

               Also the  Company  sold its 60%  interest  in the joint  venture,
               Country  Tonite  Theater,  LLC in  Pigeon  Forge,  Tennessee  for
               $20,000 to the 40% owner.  The sale is  effective  as of December
               31, 1998.

               In addition to the gaming  operations,  the Company made plans to
               enter the  spring  water  bottling  business.  To that  end,  the
               Company  entered  into a  Letter  of  Intent  with  a  standstill
               component  with an  individual to build a state of the art spring
               water  bottling  plant.  If the  transaction  is  completed,  the
               Company  will  receive  60%  of the  equity  in  the  venture  in
               consideration for investing a minimum of $5 million.  The parties
               expect to spend $27 million on the  facility.  The  agreement  is
               contingent  on (i)  completion by the Company of a full legal and
               business  due  diligence  examination  and  (ii)  obtaining  debt
               financing in the amount of not less than $25 million.

     BASIS OF
     PRESENTATION
               The accompanying  consolidated  financial  statements include the
               accounts of Casino  Resource  Corporation  and its  majority  and
               wholly owned subsidiaries.  All significant intercompany balances
               and transactions have been eliminated.

     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  reporting
               period. Actual results could differ from those estimates.

     CASH AND CASH
     EQUIVALENTS
               For purposes of the consolidated  statements of cash flows,  cash
               equivalents consist of short-term  investments having an original
               maturity of three months or less.  Carrying  amounts  approximate
               fair value because of the short-term maturity of the investments.

                                      F-9

<PAGE>

     CONCENTRATIONS
     OF CREDIT RISK
               Financial  instruments  that  potentially  subject the Company to
               significant  concentrations of credit risk consist principally of
               cash instruments and accounts  receivable.  The Company maintains
               cash and cash  equivalents with various  financial  institutions.
               The Company provides credit in the normal course of business. The
               Company performs ongoing credit  evaluations of its customers and
               maintains allowances for potential credit losses, if necessary.

     ADVERTISING
               Advertising  expenditures are generally  charged to operations in
               the year incurred and totaled $88,134 in 1998 and $1,106 in 1997.

     INVENTORY
               Inventory, consisting principally of merchandise and concessions,
               is stated at the lower of cost (first-in, first-out) or market.

     PROPERTY AND
     EQUIPMENT
               Property  and  equipment  are  stated  at  cost.   For  financial
               reporting  purposes  depreciation  and  amortization are computed
               over the estimated useful lives of the assets (or the lease term,
               if shorter) by the straight-line method over the following lives:

               Land improvements                     20 - 25 years
               Buildings                             35 - 40 years
               Leasehold improvements                 3 - 15 years
               Office equipment                       5 -  6 years
               Other                                       5 years

     COST IN EXCESS
     OF FAIR VALUE OF
     ASSETS ACQUIRED
               Cost in excess  of fair  value of assets  acquired  is  amortized
               using the straight-line method over fifteen years.

     DEFERRED
     DEVELOPMENT
     COSTS
               Deferred  development costs consist of external costs incurred in
               the evaluation of potential ventures. The costs are expensed if a
               determination  is made to abandon the project.  Losses related to
               impairment and abandonment totaled $1,909,959 and $438,321 in the
               years ended September 30, 1998 and 1997, respectively.

     PREOPENING
     COSTS
               Preopening costs consist primarily of costs incurred to establish
               operations at the casino in Tunisia.  The preopening costs of the
               casino were amortized over a one-year period beginning in October
               1997 and are fully amortized at September 30, 1998.

     DEFERRED
     CHARGES 
               Deferred charges consist of loan and convertible debt origination
               fees  and  organization   expenses.   The  deferred  charges  are
               amortized on the  straight-line  method over the estimated useful
               lives and are fully amortized at September 30, 1998.

                                      F-10
<PAGE>
     LONG-LIVED
     ASSETS
               The Company assesses the  realizability of its long-lived  assets
               in accordance  with Statement of Financial  Accounting  Standards
               ("SFAS")  No. 121,  "Accounting  for  Impairments  of  Long-Lived
               Assets and for Long-Lived Assets to be Disposed of."

     TAXES ON INCOME
               Income  taxes are  accounted  for  under the asset and  liability
               method.   Deferred  income  taxes  are  recognized  for  the  tax
               consequences in future years of differences between the tax basis
               of assets and liabilities and their financial  reporting  amounts
               at each  year end based on  enacted  tax laws and  statutory  tax
               rates  applicable  to the  periods in which the  differences  are
               expected to affect  taxable  earnings.  Valuation  allowances are
               established  when necessary to reduce  deferred tax assets to the
               amount more likely than not to be realized. Income tax expense is
               the total of tax payable for the period and the change during the
               period in deferred tax assets and liabilities.

     NET LOSS PER
     SHARE
               In fiscal 1998,  the Company  adopted the provisions of Statement
               of Financial  Accounting  Standards No. 128 "Earnings Per Share".
               Statement No. 128 replaces the  previously  reported  primary and
               fully-diluted  earnings per share with basic and diluted earnings
               per share.  Unlike primary earnings per share, basic earnings per
               share  excludes any dilutive  effects of options and  convertible
               securities.  Diluted earnings per share is computed  similarly to
               fully diluted earnings per share.

               Basis and diluted net loss per share is computed by dividing  net
               loss by the weighted average number of common shares outstanding.
               Outstanding  common stock options,  warrants and shares of common
               stock  issuable  upon the  conversion  of debt have been excluded
               from the computation as their effect would be anti-dilutive.

     TRANSLATION
     OF FOREIGN
     CURRENCIES 
               The  Company  follows  the  translation  policy  as  provided  by
               Statement of Financial Accounting Standards Board No. 52 "Foreign
               Currency  Translation."  The functional  currency is the Tunisian
               dinar. Accordingly,  assets and liabilities are translated at the
               exchange rate at the balance sheet date. Income and expense items
               are translated at the average exchange rate prevailing throughout
               the year.  Gains and losses from  foreign  currency  transactions
               included in operations are not material.

     RECENT
     ACCOUNTING
     PRONOUNCEMENTS 
               In June 1997,  the Financial  Accounting  Standards  Board issued
               SFAS No. 130, "Reporting  Comprehensive Income." The new standard
               discusses how to report and display  comprehensive income and its
               components.  Comprehensive  income  is  defined  to  include  all
               changes in equity  except those  resulting  from  investments  by
               owners and  distributions  to owners.  This standard is effective
               for years  beginning  after  December 15, 1997.  When the Company
               adopts  this  statement,  it is not  expected  to have a material
               impact on the presentation of the Company's financial statements.

               In June 1997,  the Financial  Accounting  Standards  Board issued
               SFAS No. 131,  "Disclosures  About  Segments of an Enterprise and
               Related  Information."  This  standard  requires  enterprises  to
               report information about operating  segments,  their products and
               services, geographic areas, and major customers. This standard is
               effective for years beginning after December 15,

                                      F-11
<PAGE>

               1997. When the Company adopts this statement,  it not expected to
               have a  material  impact  on the  presentation  of the  Company's
               financial statements.

               In April  1998,  the  Accounting  Standards  Executive  Committee
               issued Statement of Position ("SOP") 98-5 "Reporting on the Costs
               of  Start-up  Activities."  The SOP  requires  that all  costs of
               start-up  activities  should be expensed as incurred.  The SOP is
               effective for years  beginning  after December 15, 1998. When the
               Company  adopts this SOP,  it is not  expected to have a material
               impact on the Company's financial statements.

               In June 1998,  the Financial  Accounting  Standards  Board issued
               SFAS No. 133, "Accounting for Derivative  Instruments and Hedging
               Activities." This standard  establishes  accounting and reporting
               standards for derivative  instruments and for hedging  contracts.
               This standard is effective for all fiscal  quarters of all fiscal
               years beginning after June 15, 1999. When the Company adopts this
               statement,  it is not  expected to have a material  impact on the
               Company's financial statements or their presentation.

     RECLASSIFICATIONS
               Certain  reclassifications  have  been  made  to  the  previously
               reported  1997  financial  statements  to  conform  with the 1998
               presentation.


2.   DISCONTINUED
     OPERATIONS 
               The Company  has sold or plans to sell the assets  related to the
               (a) hospitality segment and (b) entertainment segment.

               (a)  On June 29, 1998,  the Company sold the Hinckley  Hotel (The
                    Grand Hinckley Inn) for $5.4 million. Accordingly, operating
                    results have been  reclassified and reported as discontinued
                    operations -  hospitality.  Management  used the proceeds to
                    the hotel debt and the note  payable  collateralized  by the
                    stock of the subsidiary that owns the Grand Hinckley Inn.

                    Operating results of the discontinued  operations  exclusive
                    of corporate charges are as follows:

                                                    1998               1997
---------------------------------------------------------------------------

Revenues                                  $    2,255,037     $    3,965,710
===========================================================================

Net income                                $      623,493     $    1,155,296
===========================================================================

                    Interest on the  mortgage  payable  charged to  discontinued
                    operations totaled $186,108 and $277,366 for the years ended
                    September 30, 1998 and 1997, respectively.

                    Assets and liabilities of the discontinued operations are as
                    follows at September 30:

                                      F-12

<PAGE>

                                                                       1997
---------------------------------------------------------------------------

Current assets
    Cash and cash equivalents                                $      219,304
    Accounts receivable - trade and other                           175,467
    Inventory                                                        11,725
    Prepaid expenses                                                 88,819
---------------------------------------------------------------------------

                                                             $      495,315
===========================================================================

Noncurrent assets
    Property and equipment, at cost                          $    6,370,478
    Less accumulated depreciation and amortization               (1,299,441)
    Other assets                                                     22,333
---------------------------------------------------------------------------

                                                             $    5,093,370
===========================================================================

Long-term debt                                               $    2,518,023
===========================================================================

Net assets held for sale                                     $    3,070,662
===========================================================================


               (b)  The Company entered into an Asset Purchase Agreement to sell
                    substantially  all of the  assets  used in  connection  with
                    operations  of the  Country  Tonite  Theater and the Country
                    Tonite Enterprises to On Stage Entertainment, Inc., a Nevada
                    corporation ("On Stage"),  for $13.8 million, of which $12.5
                    million  is  payable  in cash,  and the  balance of which is
                    payable by delivery of a two year  subordinated 9.5% note in
                    the amount of $1.3  million.  A portion of the proceeds from
                    the proposed sale will be used to retire the mortgage on the
                    Theater. Consummation of the sale is subject to, among other
                    things,  On Stage's  obtaining  acceptable  financing of the
                    purchase  price and approval of the sales  transaction  by a
                    majority of the shareholders of On Stage and the Company. It
                    is anticipated  that the gain on sale will be  approximately
                    $5,000,000.

                    The  Company  and  Burkhart  Venture,  LLC  entered  into an
                    agreement  dated  November  3, 1998,  which  terminates  the
                    Company's 60% ownership of the Country Tonite  Theater,  LLC
                    in Pigeon Forge,  Tennessee ("CTT,  LLC") effective December
                    31, 1998. Under the terms of the agreement, the Company will
                    continue to manage CTT,  LLC for a fee of $2,000 per week in
                    season and $1,000 per week during the  off-season  beginning
                    January 1, 1999, but will have no vested ownership  interest
                    in or financial  obligation  to CTT, LLC after  December 31,
                    1998.  Burkhart  Venture,  LLC,  representing  100%  of  the
                    interest  of CTT,  LLC has  contracted  with the  Company to
                    produce  shows  for the 1999  calendar  season  for a fee of
                    $36,000 per week.

                    Operating results of the discontinued  operations  exclusive
                    of corporate charges are as follows:

                                      F-13
<PAGE>

                                                        1998              1997
 ------------------------------------------------------------------------------

 Revenues                                     $    9,735,443   $    11,734,554
==============================================================================

 Net income                                   $      824,794   $     2,132,876
==============================================================================


                    Interest on the  mortgage  payable  charged to  discontinued
                    operations totaled $687,324 and $696,998 for the years ended
                    September 30, 1998 and 1997, respectively.

                                                         1998             1997
-------------------------------------------------------------------------------

Current assets
    Cash and cash equivalents                $        361,107   $      623,568
    Accounts receivable - trade and                   208,253          282,320
        other
    Inventory                                         224,466          274,028
    Prepaid expenses                                  104,724          229,887
-------------------------------------------------------------------------------

                                             $        898,550   $    1,409,803
==============================================================================

Noncurrent assets
    Property and equipment at cost           $     11,150,546   $   11,150,546
    Less accumulated depreciation                  (2,947,245)      (2,270,416)
        and amortization
    Cost in excess of fair market                     723,742          723,742
        value
    Less accumulated amortizated                     (221,144)        (172,894)
    Preopening costs                                  548,309          548,309
    Less accumulated amortization                    (548,309)        (211,842)
    Other assets                                       35,453           57,414
    Less accumulated amortization                     (30,250)          (3,216)
-------------------------------------------------------------------------------

                                             $      8,711,102   $    9,821,643
==============================================================================

Long-term debt                               $      7,225,037   $    7,419,196
==============================================================================

Net assets held for sale                     $      2,384,615   $    3,812,250
==============================================================================

                                      F-14

<PAGE>

3. PREPAID EXPENSES Prepaid expenses consist of the following:

September 30,                                        1998                   1997
--------------------------------------------------------------------------------

Insurance                                        $ 34,798               $ 32,523
Rent                                                   --                560,030
Consulting fees                                        --                206,848
Miscellaneous                                      24,215                  5,498
--------------------------------------------------------------------------------

                                                 $ 59,013               $804,899
================================================================================

                    Included in  consulting  fees is $200,000  advanced  under a
                    consulting  agreement to the  managing  member of the entity
                    that lent the Company $1,000,000 in September 1997 (see Note
                    10).  These  fees  were  expensed   during  the  year  ended
                    September 30, 1998.

4.   RELATED PARTIES

                    Notes and  advances  receivable  include  notes and  related
                    interest  due  from  officers  and   stockholders   totaling
                    $473,891  and  $753,988  at  September  30,  1998 and  1997,
                    respectively,  at interest rates ranging from 6% to 11%. The
                    notes  mature  from  October 1, 1998 to December  31,  2001.
                    Interest  income from these notes was  $136,924 and $130,307
                    in 1998 and 1997, respectively.

                    Notes  receivable of $449,461  will be retired  ratably over
                    three years beginning January 1, 1999.

5.   PROPERTY AND
     EQUIPMENT 
                    Property and equipment consist of the following:

September 30,                                         1998                 1997
--------------------------------------------------------------------------------

Land and improvements                          $    83,000          $        --
Buildings                                          137,000              137,000
Leasehold improvements                           1,106,802              688,541
Furniture, fixtures and equipment                2,079,407            1,554,587
--------------------------------------------------------------------------------

                                                 3,406,209            2,380,128

Less accumulated depreciation                     (743,102)            (100,412)
    and amortization
--------------------------------------------------------------------------------

Net property and equipment                     $ 2,663,107          $ 2,279,716
================================================================================


6.   DEFERRED
     EVELOPMENT
     COSTS
                    The Company purchased in 1995 from Monarch Casino,  Inc. the
                    rights to the Pokagon Indian gaming  contract.  The Company,
                    in  turn,   entered   into  an   agreement   with   Harrah's
                    Entertainment,  Inc.,  ("Harrah's")  whereby  the  Company's
                    rights to the Pokagon  contract were assigned to Harrah's in
                    return for a share of Harrah's  future  management  fee from
                    operations of 

                                      F-15

<PAGE>

                    planned   Pokagon  Tribal   casinos.   In  addition  to  the
                    agreement, Harrah's agreed to reimburse the Company $600,000
                    for costs associated with the venture related to the Eastern
                    Band of Cherokee Indians.

                    On October 18, 1998,  the Pokagon Band announced that it had
                    terminated  its  development  and  management  contract with
                    Harrah's.  The  Company  believes  that  the  right of first
                    refusal  reverts to the Company with the  termination of the
                    agreement.  Due  to the  uncertainty  of  the  project,  the
                    Company has  provided an  impairment  reserve of  $1,909,959
                    against the deferred  project costs,  the $600,000  Harrah's
                    reimbursement  and  the  advance  to  the  Company's  former
                    chairman.  The Company has also initiated  lawsuits  against
                    Harrah's and Monarch Casinos, Inc. (see Note 18).

7.   OTHER ASSETS Other assets consist of the following:

September 30,                                               1998            1997
--------------------------------------------------------------------------------

Deposits and miscellaneous                              $ 24,201        $ 28,438

Due from Harrah's (Note 6)                                    --         600,000

Organization costs, less amortization of                      --         115,075
    $115,075 and $0

Loan origination costs, less amortization of                  --          87,649
    $93,000 and $5,351
--------------------------------------------------------------------------------

                                                        $ 24,201        $831,162
================================================================================

8.   ACCRUED EXPENSES AND OTHER LIABILITIES

                    Accrued  expenses  and  other  liabilities  consist  of  the
                    following:

September 30,                                         1998                  1997
--------------------------------------------------------------------------------

Professional fees                               $  308,813            $   83,188
Payroll and payroll taxes                          261,291               297,455
Interest                                           207,633               159,102
Gaming taxes                                       158,736                    --
Deferred income                                    120,239                55,123
Sales tax                                           94,888                89,098
Insurance                                           67,275               112,497
Other                                              193,532               423,692
--------------------------------------------------------------------------------

                                                $1,412,407            $1,220,155
================================================================================

                                      F-16
<PAGE>


9.   SUBORDINATED
     CONVERTIBLE
     DEBENTURES
                    In  September  1997,  the Company  completed a placement  of
                    $800,000, 13% subordinated  convertible debentures (with net
                    proceeds  of  $707,000).  The  debentures  have  a  one-year
                    maturity with  conversion  into shares of common stock on or
                    before the  anniversary  date at a price equal to 83% market
                    value  based  on the then  current  trading  prices.  At the
                    issuance  date,  the  Company  recorded a debt  discount  of
                    $206,036 with a corresponding  credit to additional  paid-in
                    capital. The discount is being amortized over 90 days, which
                    represents the required holding period of the debentures. On
                    December 12, 1997,  $400,000  principal amount of debentures
                    plus interest was redeemed in cash. In August 1998, $171,674
                    principal amount of debentures plus interest was redeemed in
                    cash.  The  remaining  $228,326 of debenture  principal  was
                    restructured   to  permit  the  conversion  of  25%  of  the
                    debentures into common stock each month beginning on January
                    1, 1999 with a final conversion date of April 1, 1999.

                    In February 1996, the Company  completed a private placement
                    of $1,650,000,  8% subordinated convertible debentures (with
                    net proceeds of $1,493,000).  The debentures have a one-year
                    maturity with  conversion  into shares of common stock on or
                    prior  to the  anniversary  date at a price  equal to 75% of
                    market value based on the then current  trading  prices.  At
                    the issuance date,  the Company  recorded a debt discount of
                    $550,000 with a corresponding  credit to additional  paid-in
                    capital.  The discount  was  amortized  over 90 days,  which
                    represents the required  holding  period of the  debentures.
                    During 1997, the remaining  $350,000 of the principal amount
                    of the debentures were converted into 281,561 common shares,
                    respectively.

10.  LONG-TERM
     DEBT 

                    Long-term debt consists of the following:

September 30,                                                1998           1997
--------------------------------------------------------------------------------

Debenture, interest at 6%, $1,500,000 principal
   amount, discounted to an effective interest
   rate of 10%. Principal and accrued interest are
   due on January 31, 1999, payable in cash or at
   the Company's discretion, in common stock (a).       $1,481,405    $1,425,620

Notepayable with interest at 10% of operating
   income, as defined, of the subsidiary that
   operates the Tunisian casino, due August 2022.
   The note is convertible solely at the lender's
   discretion into the Company's subsidiary's
   common stock, subject to regulatory approvals.        1,000,000     1,000,000

                       F-17
<PAGE>



Notepayable, interest at prime plus 3%,
   collateralized by gaming equipment, payable in
   monthly installments of $30,800 including
   interest through December 1998.                         $96,872     $431,713

Note payable, interest at 9.5%, collateralized by
   real estate, payable in monthly installments of
   $1,139 through April 1999 with a final payment
   of $88,497 due in May 1999.                              91,472       96,200

Note payable, interest at the greater of 20% per
   annum or 5% of the gross gaming win of the
   casino in Tunisia for its first year of
   operations, collateralized by the stock of the
   Company's subsidiary that owns the Grand
   Hinckley Inn, paid off on June 29, 1998. (See
   Note 2.)                                                     --      800,000

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

                                                         2,669,749    3,753,533
Less current maturities                                   (188,344)    (374,329)
--------------------------------------------------------------------------------

Total long-term debt                                    $2,481,405    $3,379,204
================================================================================

                    Maturities  of  long-term  debt  exclusive of the debt to be
                    repaid through the issuance of common stock are as follows:

Year ending September 30,
--------------------------------------------------------------------------------

1999                                                                 $   188,344
2000                                                                          --
2001                                                                          --
2002                                                                          --
2003                                                                          --
Thereafter                                                             1,000,000
--------------------------------------------------------------------------------

                                                                     $ 1,188,344
================================================================================

(a)  The Company  intends to satisfy the  liability  by the issuance of stock at
     the  maturity  date,  January  31,  1999.  Accordingly,  the  debt has been
     excluded from current maturities.

                                      F-18
<PAGE>

11.  LEASE
     COMMITMENTS

                    The Company  leases various  equipment and facilities  under
                    operating leases from related and unrelated  parties.  These
                    leases require that the Company pay maintenance,  utilities,
                    insurance and taxes.

                    Total  rent  expense  under  operating  leases  included  in
                    continuing operations was $885,229 and $89,549 for the years
                    ended September 30, 1998 and 1997, respectively.

                    Minimum annual rental  commitments of continuing  operations
                    of noncancelable  operating  leases covering  facilities and
                    equipment at September 30, 1998 are approximately:

Year ending September 30,
--------------------------------------------------------------------------------

1999                                                                 $   625,000
2000                                                                     620,000
2001                                                                     606,000
2002                                                                     581,000
2003                                                                     531,000
--------------------------------------------------------------------------------

                                                                     $ 2,963,000
--------------------------------------------------------------------------------


                    The Company's  lease  agreement in Tennessee is with the 40%
                    joint  venture  partner  of  Country  Tonite  Theater,  LLC.
                    Subsequent  to year end, the Company sold their  interest in
                    the  joint  venture  and  amended  the  lease  agreement  to
                    month-to-month  terms. The previously recorded deferred rent
                    was reversed.

                    The annual rent for the  Tunisian  casino is 600,000  dinars
                    which is  approximately  $486,000  at the  current  exchange
                    rate.  The rent is payable in semi-annual  installments.  In
                    addition,  the  agreement  requires  the  Company  to  pay a
                    variable   percentage  of  the  casino's  gross  income,  as
                    defined,  as additional rent. The variable rent was $147,126
                    for the year ended September 30, 1998.

                                      F-19
<PAGE>
12.  TAXES ON
     INCOME (BENEFIT)

                    The composition of taxes on income (benefit) is as follows:

                                                       1998                1997
--------------------------------------------------------------------------------

Current
    Federal                                     $        --         $   360,000
    Utilization of net operating loss                    --            (360,000)
        carryforward
    Adjustment of valuation allowance            (2,000,000)                 --
--------------------------------------------------------------------------------

Total taxes on income (benefit)                 $(2,000,000)        $        --
================================================================================


                    The Company and its subsidiaries file a consolidated federal
                    income tax return.

                    Deferred income taxes consist of the following:

September 30,                                          1998                1997
--------------------------------------------------------------------------------

Total deferred tax assets, relating             $ 4,926,000         $ 4,200,000
    principally to net operating loss
    carryforwards

Deferred tax liabilities                                 --                  --
--------------------------------------------------------------------------------

                                                  4,926,000           4,200,000
Less valuation allowance                         (2,926,000)         (4,200,000)
--------------------------------------------------------------------------------

Total net deferred tax asset                    $ 2,000,000         $        --
================================================================================

                    The  Company  has  realized  a net  deferred  tax  asset  of
                    $2,000,000  as it is more  likely  than not that this amount
                    will  be   realized   upon   the   sale  of  the   Company's
                    entertainment  segment. The Company has recorded a valuation
                    allowance  equaling the remaining  deferred tax asset due to
                    the  uncertainty  of  its  realization  in  the  future.  At
                    September  30,  1998,  the  Company  has  U.S.  federal  net
                    operating  loss  carryforwards  available  to offset  future
                    taxable income of approximately $10,365,000, which expire in
                    various years through 2018.

13. CAPITAL STOCK 
                    In November 1995, the Company's former Chairman of the Board
                    exercised  warrants  to acquire  1,143,444  shares of common
                    stock.  For  financial  reporting   purposes,   the  Company
                    recorded   proceeds  of   $2,150,000  or  $1.88  per  share,
                    consisting  of a payment of $650,000  cash and  execution of
                    promissory   notes  due  January  31,  1996  ($500,000)  and
                    December 31, 1996 ($1.0 million). The notes were extended at
                    their  initial  due  dates  and  were  scheduled  to  mature
                    December 31, 1997. (See Note 19).

                    Through September 30, 1998,  281,561 shares were issued upon
                    conversion of subordinated convertible debentures. (See Note
                    9.)

                                      F-20
<PAGE>

14.  WARRANTS 
                    As part of the public  offering  in  September  and  October
                    1993, the Company issued Class A Warrants, the IPO Warrants,
                    expiring, after a one-year extension, on September 15, 1999,
                    for the  purchase of  2,760,000  common  shares at $6.75 per
                    share. None of these warrants have been exercised to date.

                    The managing  underwriter  of the public  offering  received
                    warrants  to  acquire  240,000  shares  at $8.25  per  share
                    expiring on September 18, 1998. The warrants are exercisable
                    at $6.75 per share.  These  warrants have not been exercised
                    to date.

                    In connection with the 13% convertible  debentures issued in
                    September  1997, the Company  issued 25,000  warrants to the
                    broker. The warrants are exercisable  through September 2000
                    at an exercise  price of 120% of the September  1997 closing
                    price as defined by the  agreement.  The value  assigned  to
                    these  warrants  increased  deferred costs and was amortized
                    over one year. The warrants have not been exercised to date.

15.  OPTIONS AND
     AWARDS
                    Certain  financial   consultants  to  the  Company  received
                    options  in  December  1992 and in  January  1993 to acquire
                    87,500 shares of common stock as consideration  for services
                    rendered. These options are fully vested and are exercisable
                    at $2.375 per share  (17,500  shares)  and at $.75 per share
                    (70,000  shares).  None of these options have been exercised
                    to date.

                    A former company  executive was granted options in September
                    1995, as part of an employment termination  arrangement,  to
                    acquire  50,000  shares of common stock at $2.50 each (as to
                    25,000  shares)  and $6.80 each (as to 25,000  shares).  The
                    aggregate  options  expire in September 2003 and none of the
                    options have been exercised to date.

                    During 1997, certain individuals  received 30,500 options as
                    a condition of employment and a consultant  received  20,000
                    options.

                    The Company has two stock incentive plans, both of which are
                    active.  In July 1993,  the Company  adopted a stock  option
                    plan (the "1993  Plan")  which was  amended in 1995,  and in
                    April 1997 the  Company's  stockholders  approved a separate
                    stock option plan (the "1997 Plan").  Both plans provide for
                    the issuance of incentive  stock options at a purchase price
                    approximating  the fair market value of the Company's common
                    shares at the date of the grant (or 110% of such fair market
                    value in the case of substantial stockholders). The 1993 and
                    1997 Plans also authorize the Company to grant  nonqualified
                    options,  stock  appreciation  rights,  restricted stock and
                    deferred  stock awards.  A total of 1,000,000  shares of the
                    Company's  common  stock has been  reserved  pursuant to the
                    1993 and 1997 Plans.  As of September  30, 1998,  there were
                    395,300  options  with  respect  to shares  of common  stock
                    outstanding  under the 1993 Plan and there were options with
                    respect  to 65,700  shares  available  for grant  under such
                    plan;  there were 478,833  options with respect to shares of
                    common stock  outstanding under the 1997 Plan and there were
                    options with respect to 21,167  shares  available  for grant
                    under such plan.

                    The  following   table   summarizes  the  options   granted,
                    exercised and outstanding under the plans.

                                      F-21

<PAGE>
<TABLE>
<CAPTION>
                                               Shares          Exercise     Weighted
                                                                  Price      Average
                                                              Per Share     Exercise
                                                                               Price
------------------------------------------------------------------------------------
<S>                                          <C>        <C>                   <C>  
Outstanding, September 30, 1996               391,400    $  1.60 - 3.75        $2.15
    Granted                                   512,000       1.34 - 1.56         1.43
    Exercised                                       -                 -            -
    Canceled and expired                       (6,600)      1.56 - 3.13         1.94
------------------------------------------------------------------------------------

Outstanding, September 30, 1997               896,800       1.34 - 3.75         1.71
    Granted                                   420,000       0.94 - 1.88         1.00
    Exercised                                  10,000              3.31         3.31
    Canceled and expired                     (432,667)      1.34 - 3.13         1.45
------------------------------------------------------------------------------------

Outstanding, September 30, 1998               874,133    $  0.94 - 3.75        $1.48
====================================================================================


Options exercisable at
    September 30, 1998                        716,633    $  0.94 - 3.75        $1.55
------------------------------------------------------------------------------------

Options available for future grant             86,867
====================================================================================
</TABLE>


                    The Company applies APB No. 25, "Accounting for Stock Issued
                    to Employees",  and related  interpretations,  in accounting
                    for  options.  Under APB  Opinion 25,  because the  exercise
                    price  of  the  options  equals  the  market  price  of  the
                    underlying  stock on the  measurement  date, no compensation
                    expense is recognized.

                    The weighted-average, grant-date fair value of stock options
                    granted   to   employees    during   the   year,   and   the
                    weighted-average  significant  assumptions used to determine
                    those  fair  values,  using a modified  Black-Sholes  option
                    pricing  model,  and the pro forma effect on earnings of the
                    fair value  accounting for stock options under  Statement of
                    Financial Accounting Standards No. 123, are as follows:

                                      F-22

<PAGE>

                                                     1998             1997
-------------------------------------------------------------------------------

Weighted average fair value per
    options granted                           $      0.68      $     1.16
Significant assumptions (weighted-
    average)
    Risk-free interest rate at grant
        date                                         5.55%           6.76%
    Expected stock price volatility                  0.56            0.85
    Expected dividend payout                           --              --
    Expected option life (years) (a)                 10.0            9.51
Loss from continuing operations
    As reported                               $(7,008,284)    $(3,279,240)
    Pro forma                                  (7,293,334)     (3,875,030)
Loss per share from continuing
  operations
    As reported                               $     (0.73)    $     (0.33)
    Pro forma                                       (0.76)          (0.39)


(a)  The expected option life considers  historical option exercise patterns and
     future changes to those exercise patterns anticipated at the date of grant.

                    The  following  table  summarizes  information  about  stock
                    options outstanding at September 30, 1998:
<TABLE>
<CAPTION>
                           Options Outstanding                 Options Exercisable
                 -----------------------------------------    -----------------------
Range of               Number    Weighted-      Weighted-         Number   Weighted-
Exercise          Outstanding      Average        Average     Exercisable    Average
Prices             at 9/30/98    Remaining       Exercise             at    Exercise
                               Contractual          Price        9/30/98       Price
                                      Life
-------------------------------------------------------------------------------------
<S>                   <C>         <C>               <C>          <C>           <C>  
$0.94 - 1.94          709,833     8.7 yrs.          $1.29        557,333       $1.34
$2.00 - 2.13          127,000     6.2 yrs.           2.03        127,000        2.03
$3.13 - 3.75           37,300     6.2 yrs.           3.18         32,300        3.18
                 --------------------------------------------------------------------

                      874,133     8.2 yrs.          $1.48        716,633       $1.55
                 ===================================================================
</TABLE>


16.  DEFINED
     CONTRIBUTION
     PLAN
                    Effective  July 1,  1997,  the  Company  adopted  a  defined
                    contribution 401(k) plan (the "Plan") covering substantially
                    all of its U.S. employees. Eligible employees may contribute
                    up to 15% of  compensation,  as  defined  in the  Plan.  The
                    Company has an optional matching program (approved  annually
                    by the  Board of  Directors)  where  the  Company  matches a
                    percentage of the employee's  contribution (currently 50% of
                    the    first    6%   of    contribution).    Company-matched
                    contributions,   currently  made  in  common  stock  of  the

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<PAGE>

                    Company,  vest in full after  seven  years of an  employee's
                    credited  service to the  Company.  The Company  also has an
                    option to make additional profit sharing plan  contributions
                    (none in fiscal 1997).  Defined contribution expense totaled
                    $20,528 in the year ended September 30, 1998.

17.  FOREIGN
     OPERATIONS

                    The Company leases and operates a casino in Tunisia.

                    Specified financial  information of the foreign operation is
                    as follows:

Year ended September 30,               1998                    1997
-------------------------------------------------------------------

Revenue                         $ 3,305,396         $            --
===================================================================

Operating loss                  $(3,994,299)        $            --
===================================================================

Identifiable assets             $ 2,842,005         $     4,164,685
===================================================================


18.  COMMITMENTS AND
     CONTINGENCIES

               (a)  In 1995,  a suit was brought  against the Company in Federal
                    District  Court  of  New  Jersey,   which  venue  was  later
                    transferred  to the  Federal  District  Court  for  Southern
                    Mississippi. Plaintiff (Gelb Productions, Inc., a New Jersey
                    corporation)  asserts it had a contract  with the Company to
                    provide  eight  professional  boxing events at the Company's
                    former  Biloxi Star Theater.  The  complaint was  thereafter
                    amended by plaintiff to reflect additional  allegations that
                    defendant  tortuously harmed plaintiff's business reputation
                    and  maliciously  interfered  with existing and  prospective
                    economic relationships.  Settlement was reached with Gelb in
                    December 1997 for $100,000, plus attorney fees and expenses.
                    All claims were dismissed with prejudice in November 1998.

               (b)  The Company commenced an arbitration action in November 1994
                    with the Arbitration Association in Minneapolis,  Minnesota,
                    against  Cunningham,  Hamilton,  Quiter,  P.A. ("CHQ"),  the
                    architect it retained in connection with the construction of
                    the Biloxi theater.  On December 30, 1994, the architectural
                    firm commenced a suit in a Mississippi state court seeking a
                    foreclosure on a mechanics'  lien it had filed on the Biloxi
                    theater  project  in the amount of  approximately  $321,000,
                    which sum the Company  escrowed.  On December 26, 1996,  the
                    Arbitration  Association  announced the Company was entitled
                    to an  award  of  approximately  $142,000,  which  sum was a
                    portion  of  previously  escrowed  $321,000.   The  decision
                    resulted in a gain to the Company of approximately $122,000.

                    The  Company  has   received   notice  that  the  action  of
                    Cunningham,  Hamilton,  Quiter,  P.A. against John J. Pilger
                    (CEO  of the  Company)  in  Jackson  County  Circuit  Court,
                    Mississippi originally set in abeyance 

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<PAGE>

                    pending  completion  of  arbitration   proceeding,   is  now
                    reconstituted.  Cunningham alleges that the Company owes CHQ
                    approximately  $40,000 for  services  rendered in 1994.  The
                    Company denies these charges and plans to vigorously  defend
                    itself in this matter.

               (c)  James Barnes and Prudence  Barnes,  two former officers of a
                    subsidiary  of the  Company,  have brought suit in the State
                    District Court, Clark County, Nevada, against the Company in
                    connection with their  employment  termination in June 1995.
                    No specific amount of damages has been claimed; however, the
                    plaintiffs  have   informally   indicated  that  they  would
                    entertain  a  settlement   offer  of  between  $250,000  and
                    $350,000. The Company intends to vigorously defend itself in
                    this matter.

               (d)  In March 1996, PDC, a Minnesota limited  liability  company,
                    and two of its  officers  filed suit against the Company and
                    Harrah's  Entertainment  and Monarch Casinos,  in the Fourth
                    Judicial District Court of Minnesota, and in Michigan, which
                    venue was later dropped,  alleging defamation,  violation of
                    the  Lanham  Act,   violation  of  the   Michigan   Consumer
                    Protection  Act,  tortuous  interference  with its  business
                    relations and  prospective  economic  advantage,  as well as
                    false  light  invasion  of  privacy in  connection  with the
                    Pokagon  Indian  Gaming  Award.  Under the Lanham  Act,  the
                    plaintiffs  are  claiming  a right to  treble  damages.  The
                    plaintiff seeks  compensatory  damages and has not claimed a
                    specific  amount of damages,  but claims such damages exceed
                    $50,000.   The  plaintiff   also  seeks  recovery  of  their
                    attorneys' fees. The suit was dismissed with prejudice and a
                    judgment of  dismissal  was entered on  September 1, 1998 in
                    the fourth District Court, State of Minnesota.

               (e)  The  Company  initiated  a civil suit  against  Harrah's  on
                    September  4,  1998,  in  Federal  District  Court  for  the
                    District of  Minnesota.  The Company  alleges that  Harrah's
                    breached the Technical  Assistance and Consulting  Agreement
                    and tortuously interfered with the Company's contractual and
                    prospective  economic advantage  associated with the Pokagon
                    Band of Potowatomi  Indians.  The suit further  alleges that
                    Harrah's  withheld  vital  business   information  from  the
                    Company.  Harrah's  has filed a motion to  dismiss  based on
                    denial that  Harrah's  is a proper  party to the lawsuit and
                    that the Technical  Assistance and Consulting  Agreements do
                    not create a partnership or Joint Venture  relationship with
                    the  Company.  The  Company  filed its  response to Harrah's
                    Motion for  Summary  Judgment  in late  December  1998.  The
                    Company  plans to  vigorously  pursue its claims and seeks a
                    judgment against Harrah's plus interest and legal fees.

               (f)  The Company initiated a civil suit against Willard Smith and
                    Monarch Casino,  Inc.,  ("Monarch") on December 19, 1998, in
                    the  Circuit  Court of  Jackson,  Mississippi.  The  Company
                    alleges that Mr.  Smith and Monarch have  breached the terms
                    of  the   Memorandum   of   Understanding,   Amendment   and
                    Modification Agreement,  and Consulting Agreement by failing
                    to  provide  the  services  required  under 

                                      F-25

<PAGE>

                    the terms of the agreements,  breaching their obligations of
                    good faith to the Company,  and by  attempting to secure the
                    termination  of  the  Company's   interest  in  the  Pokagon
                    project.  The  suit  further  alleges  that  Mr.  Smith  has
                    defaulted  on his  obligations  to pay rent and maintain the
                    upkeep of the Company's  residential property located at 303
                    LaSalle Street, Ocean Springs, Mississippi.  Company seeks a
                    judgment of and against  Monarch  Casino,  Inc.  and Willard
                    Smith,  plus interest and  attorneys  fees for notes due and
                    material breach of agreements; removal of Mr. Smith from the
                    rental property and punitive damages.

19.  ALLOWANCE FOR
     IMPAIRED
     RECEIVABLE

                    On  December  31,  1997,  the  Company's   former   chairman
                    defaulted on repaying the  $1,232,000  (principal)  of notes
                    receivable  due the Company.  The Company filed suit against
                    the individual on January 2, 1998. The Company holds 150,000
                    shares of the Company's stock as collateral.  On January 15,
                    1998, the Company  signed an agreement with the  individual.
                    Under  the  agreement,  220,000  additional  shares  of  the
                    Company's  stock will be  canceled  along  with the  150,000
                    shares  held  at  the  market  price  of  $1.19  per  share.
                    Additionally,  the Company and the individual entered into a
                    new note  agreement.  The new note of $1,196,885,  including
                    approximately  $143,000  of  previously  reserved  interest,
                    bears  interest  at 7%,  payable on  maturity on January 15,
                    2001.  The note is  collateralized  by the  individual's  5%
                    interest in the Company's Pokagon  management fee. Solely at
                    the Company's discretion, at any time prior to maturity, the
                    Company can take the  collateral  as payment in full for the
                    note. Since the individual's  ability to pay the note is not
                    known,  the Company has provided an  impairment  reserve for
                    $791,900 which  represents the remaining  principal  balance
                    after stock cancellations.


                                      F-26