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

                               Amendment No. 1 to
                                   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 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  determined  that  the  best way to
increase  shareholder  value was to change the focus of the Company's  business.
The Company  reached  this  conclusion  because the Company had been engaged for
approximately  a decade in businesses in, or related to, the gaming  industry in
the United States.  The Company's entry into those  industries was effected at a
time when gaming was a relatively  unexploited industry,  except in very limited
geographical  areas,  in the United  States.  By contrast,  by 1998,  the gaming
industry had become  ubiquitous  in the United  States,  and many  jurisdictions
which do not  currently  engage or authorize  gaming,  were  actively  examining
various gaming  possibilities.  Moreover,  other  jurisdictions where gaming was
permitted  were  exploring  new  gaming  opportunities.  In short,  the  Company
concluded  that the  industry  had  become  increasingly  competitive,  and more
difficult in which to make a profit.

         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
spring  water  bottling  plant.  As  conceived,   the  plant  would  incorporate
high-technology  blow mold bottling techniques which management believes are the
most efficient available, and would, therefore,  constitute a "state of the art"
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.

         Before signing the Letter of Intent,  the Company  examined a number of
alternatives to its traditional businesses. In particular,  the Company reviewed

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<PAGE>

opportunities in the telecommunications  and internet businesses,  businesses in
the recreational  manufacturing and air charter business, as well as others. The
Company  decided to pursue  the water  bottling  business  because  the  Company
believes that the demographics in the United States, the aging of the population
and the emphasis on increasing  health  benefits  were likely to keep  long-term
demand for the proposed product high.

         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 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.

                                       3
<PAGE>

         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.


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.

                                       4
<PAGE>

         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 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.

                                       5
<PAGE>

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  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.

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<PAGE>

         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 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


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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 1995,
and final  agreements  between  Harrah's  and the Pokagon Band were entered into
shortly thereafter. 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.  Pursuant to its
obligations  to  Harrah's,   Casino  Resource  facilitated  the  Band's  Federal
recognition  status.  Upon  signing  the  Technical  Assistance  Agreement  with
Harrah's,  Casino  Resource was  required,  upon  Harrah's  request,  to provide
Harrah's  with  consulting  services  which could  include  lobbying,  planning,
developing, and management support.
From time to time, Casino Resource provided such services as requested.

         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,  although 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.

         Under the  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  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 Band  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

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<PAGE>

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 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


                                       9
<PAGE>
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.

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

                                       10
<PAGE>

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  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

                                       11
<PAGE>

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.

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

                                       12
<PAGE>

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.

         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

                                       13
<PAGE>

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 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.

                                       14
<PAGE>

         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.


                                       15
<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 on the NASDAQ
"Small Cap" market;  however,  the  Company's  common stock must also maintain a


                                       16
<PAGE>
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.

                                       17
<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.

         Of this sum,  $454,730 was payable to Karen Nelson Bell, the Manager of
the Country  Tonite  operation  in Branson;  Noreen  Pollman,  a director of the
Company; and Matthew Walker, a third party consultant.  Legal expenses increased
$163,893  in 1998 over the costs in 1997 as a result of legal fees  incurred  in
connection  with the sale of the  Grand  Hinckley  Inn,  costs  incurred  in the
proposed sale of the entertainment  segment to On Stage, and litigation costs in
connection with the Gelb case,  which was settled during the course of the year.
Accounting  fees were $100,390 higher in 1998 than they were in 1997 as a result
of increased services provided in connection with the sale of the Grand Hinckley
Inn and the proposed sale of the entertainment  segment to On Stage.  Directors'
fees  increased  by almost  $17,000 in fiscal  1998 as a result of the change in
policy with respect to the amortization of such fees.

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.

                                       18
<PAGE>
         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 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),   a  decrease  of
$1,833,214 from 1997. Operating income decreased to $238,184 in fiscal 1998 from
$936,099 in fiscal l997  primarily as a result of the  substantial  reduction in
revenues.  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  $1,135,300.  This  reduction  is primarily a result of the
closing of the Aladdin  Hotel in November  1997.  Salaries  and wages  decreased
$917,023 and payroll taxes decreased $86,707. Other expenses decreased $124,793.

                                       19
<PAGE>
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 cutbacks 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. 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

                                       20
<PAGE>

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 its ability to refinance  the Branson  mortgage in the event
the On Stage transaction does not close, 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.

         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.

                                       21
<PAGE>
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).  Although  the  Company  believes  it will be required to
replace its accounting  software and probably its related computer hardware,  it
does not  believe  the Year 2000  Issue  will pose any  significant  operational
problems for its systems, software, or non-information technology operations.

         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.  Management is commencing  the process of reviewing
replacement  systems.  Vendor software replacement and upgrades are scheduled to
be complete by September  30, 1999.  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.

         Although the Company has not yet incurred any Year 2000 Issue costs, it
estimates that replacement of necessary  accounting  hardware and software,  and
the related costs of  conversion  and  transition  will  approximate  $15,000 to
$20,000.

         In addition,  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 at Branson is estimated to be
less than $10,000. As of September 30, 1998 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 approximately $10,000.

         The only  suppliers  which the Company deems to be critical to its Year
2000 Issue are its outside payroll company and its financial  institutions,  all
of which have provided assurances of Year 2000 compliance.  The Company does not
have any online or  electronic  dealings  with any other  vendor.  Consequently,
although other vendors or suppliers could conceivably have difficulty  beginning
in January,  as long as the Company's own systems are satisfactory,  the Company
does not  anticipate  any  material  disruption  in its  business.  The  Company
anticipates  obtaining a printed  statement of Company accounts from each of its
vendors as of December 31, 1999 as a double check on future accounting entries.

         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.  In a  "worst  case  scenario,"  critical  suppliers,  despite  their


                                       22
<PAGE>

assurances to the contrary,  will not be ready for the Year 2000, in which case,
electronic  interfaces  with such critical  suppliers could result in failure of
the Company's systems, or difficulty in achieving accurate  reconciliations with
such suppliers.  Any such difficulties  could be expensive and time consuming to
correct.  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.


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, 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.

                                       23
<PAGE>

PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         All statements contained herein that are not historical facts are based
on current  expectations.  Management  believes  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"




                                       24
<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 in 1997.
Dr. Murphy is a Chiropractic doctor who has maintained his own practice for more
than the past five years.  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 served as President of Evans
Enterprise,  a real estate brokerage business for more than the past five years.
Mr. Evans also acted as a consultant to Silverleaf  Resorts and NACO.  Mr. Evans
was a  marketing  employee of Country  Tonite  Theatre in Branson  during  1995.
Further,  Mr. Evans acted as a marketing  consultant  to Country  Tonite  Pigeon
Forge  in  1996.  From  July  1997 to the  present,  Mr.  Evans  has  acted as a
consultant  to  assist  with the  marketing  and  general  management  of Casino
Caraibe.

         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

                                       25
<PAGE>

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.

         Officers serve at the discretion of the Board of Directors.

         The Company's outside directors (Messrs. Murphy, Ferrucci,  Steiner and
Ms. Pollman)  receive  $10,000 per year for serving as directors.  Additionally,
Messrs.  Steiner,  Evans and Ferrucci  received  $500 for each meeting which was
attended in person, as well as reimbursement of travel costs.  Messrs.  Steiner,
Ferrucci, Evans and Murphy receive an annual grant of Options to purchase 10,000
Shares,  which are fully vested at the prevailing market price as of the date of
grant.  The  directors  who serve as  officers of the Company do not receive any
cash fees.

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.
<TABLE>
<CAPTION>
<S>                                 <C>       <C>             <C>       <C>         <C>          <C>             <C>  
                                            SUMMARY COMPENSATION TABLE

                                                                         Other    Restricted    Securities
                                                                         Annual      Stock      Underlying      All Other
                                     Fiscal        Salary      Bonus     Comp.      Awards       Options       Compensation
Name and Principal Position (1)      Year            ($)        ($)       ($)         ($)          (#)             ($)
-------------------------------      ----            ---        ---       ---         ---          ---             ---
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.

                                       26
<PAGE>
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.

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>
<S>                                                                  <C>                       <C>   
                                                                 Number of Shares           Percentage of
Name and Address of Beneficial Owner                        Beneficially Owned (1) (10)   Outstanding Shares
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

                                       27
<PAGE>
     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.

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

                                       28
<PAGE>

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.
</TABLE>

         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.
<TABLE>
<CAPTION>
                                            AGGREGATED OPTION EXERCISES
                                      AND FISCAL 1998 YEAR-END OPTION VALUES

                                                           NUMBER OF SECURITIES                     VALUE OF UNEXERCISED
                      SHARES                              UNDERLYING UNEXERCISED                        IN-THE-MONEY
                    ACQUIRED ON      VALUE                OPTIONS AT 9/30/98 (#)                   OPTIONS AT 9/30/98 ($)
                                                 ----------------------------------------- ----------------------------------------
                     EXERCISE       REALIZED
NAME                    (#)           ($)           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

                                       29
<PAGE>
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.

         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 transactions were done on terms as favorable to the
Company  as would  have  been  available  in arms'  length  transactions  in the
marketplace.  These notes are  required to be retired  ratably  over three years
beginning January 1, 1999.

                                       30
<PAGE>

         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.  The loan  made to Ms.  Pollman  was on terms as
favorable  to the  Company  as would  have  been  available  in an arms'  length
transaction in the marketplace.

         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. The loan made to Mr. Allen was on
terms as  favorable  to the  Company  as would have been  available  in an arms'
length transaction in the marketplace.

         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.

                                       31
<PAGE>

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.

         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

                                       32
<PAGE>

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,  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 33-40 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.


                                       33
<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

_____________________                   s/ John J. Pilger
                                        John J. Pilger, Chief Executive Officer,
                                        President and Chairman of the Board of 
                                        Directors and Chief Financial and 
                                        Accounting Officer


_____________________                   s/ Noreen Pollman
                                        Noreen Pollman, Secretary


_____________________                   s/ Robert J. Allen
                                        Robert J. Allen, Vice President of 
                                        Entertainment and Director


_____________________                   s/ Dr. Timothy Murphy
                                        Dr. Timothy Murphy, Director


_____________________                   s/ Dennis Evans
                                        Dennis Evans, Director


_____________________                   s/ John W. Steiner
                                        John W. Steiner, Director


_____________________                   s/ John Ferrucci
                                        John Ferrucci, Director


                                       34
<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)

                                       35
<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 Corporation (5)

                                       36
<PAGE>
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 Agreements
and other  Intangible  Rights dated September 30, 1994,  between Casino Building
Corporation of Mississippi, Inc, and Grand Casinos Biloxi Theater, Inc. (2)

                                       37
<PAGE>

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)

                                       38
<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)

                                       39
<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)

                                       40
<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)

                                       41
<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

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

                                       42
<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, on a test basis, evidence supporting
the amount 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>
<TABLE>
<CAPTION>
                                   Casino Resource Corporation and Subsidiaries
                                            Consolidated Balance Sheets
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>
<TABLE>
<CAPTION>
                                   Casino Resource Corporation and Subsidiaries
                                            Consolidated Balance Sheets
<S>                                                                                 <C>               <C>            
September 30,                                                                                  1998              1997
----------------------------------------------------------------------------------------------------------------------

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>
<TABLE>
<CAPTION>
                                   Casino Resource Corporation and Subsidiaries
                                       Consolidated Statements of Operations
<S>                                                                                      <C>             <C>       
Year ended September 30,                                                                      1998             1997
--------------------------------------------------------------------------------------------------------------------

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>
<TABLE>
<CAPTION>
<S>                                                    <C>          <C>          <C>        <C>            <C>                     
                                   Casino Resource Corporation and Subsidiaries
                                  Consolidated Statements of Stockholders' Equity

                                                                              Additional    Cumulative       Notes
                                                          Common Stock          Paid-in     Translation   Receivable -
                                                       Shares       Amount      Capital      Adjustment   Common Stock     Deficit
-----------------------------------------------------------------------------------------------------------------------------------

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     281,561      2,816        352,299          --             --             --
    and payment of accrued interest

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

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>
<TABLE>
<CAPTION>
                                   Casino Resource Corporation and Subsidiaries
                                       Consolidated Statements of Cash Flows

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>
<TABLE>
<CAPTION>
                                   Casino Resource Corporation and Subsidiaries
                                       Consolidated Statements of Cash Flows

<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.  The Company has recognized
                                    100% of the  loss of CRC of  Tunisia,  S.A.,
                                    its 85% owned  subsidiary  for 1998 and 1997
                                    because the loss has  exceeded  the minority
                                    interest's investment in the subsidiary.

         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

                                      F-9
<PAGE>
                                    maturity of three  months or less.  Carrying
                                    amounts  approximate  fair value  because of
                                    the short-term maturity of the investments.

         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                 The Company follows the  translation  policy
         CURRENCIES                 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                 In  June  1997,  the  Financial   Accounting
         PRONOUNCEMENTS             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

                                      F-11
<PAGE>
                                    years  beginning  after  December  15, 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)  In  September,  1998 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.  Because
                         no such  financing has been  obtained,  no closing date
                         has been set.  Assets  held for sale are  stated at net
                         realizable  value and the anticipated 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:
<TABLE>
<CAPTION>
September 30,                                                1998               1997
-------------------------------------------------------------------------------------
<S>                                               <C>                <C>            
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
-------------------------------------------------------------------------------------
</TABLE>


6.       DEFERRED
         DEVELOPMENT
         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")

                                      F-15
<PAGE>
                                    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  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:
<TABLE>
<CAPTION>
September 30,                                                    1998           1997
-------------------------------------------------------------------------------------
<S>                                                       <C>            <C>        
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
-------------------------------------------------------------------------------------
</TABLE>
8.       ACCRUED EXPENSES AND OTHER LIABILITIES

                 Accrued   expenses  and  other   liabilities consist of the 
                 following:
<TABLE>
<CAPTION>
September 30,                                                 1998              1997
-------------------------------------------------------------------------------------
<S>                                                  <C>              <C>           
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
-------------------------------------------------------------------------------------
</TABLE>


                                      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 are as follows:

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

1999                                                            $ 1,669,749
2000                                                                     --
2001                                                                     --
2002                                                                     --
2003                                                                     --
Thereafter                                                        1,000,000
-------------------------------------------------------------------------------

                                                                $ 2,669,749
-------------------------------------------------------------------------------

(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,  in the accompanying consolidated balance
     sheet.

The carrying value of the long-term debt approximates market value.


                                      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:
<TABLE>
<CAPTION>
September 30,                                                1998               1997
-------------------------------------------------------------------------------------
<S>                                               <C>                <C>            
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    $             -
-------------------------------------------------------------------------------------
</TABLE>

                                    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 had U.S.  federal net
                                    operating  loss  carryforwards  available to
                                    offset future taxable income as follows:

                                   Loss Year            Amount   Expiration Date
                                   ---------            ------   ---------------
                                       1994       $  9,574,341         2009
                                       1995            687,001         2010
                                       1996              5,297         2011
                                       1997             22,420         2017
                                       1998            327,053         2018
                                                  ------------
                                                  $10,616,112
                                                  ===========

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

                                      F-20
<PAGE>
                                    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.)

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  exercise  price  per  share is  between
                                    $1.625 and $1.813 for the employment options
                                    and $1.375 for the consultant  options,  and
                                    expire in 2002 and 2000, respectively.

                                    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

                                      F-21
<PAGE>

                                    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.

<TABLE>
<CAPTION>
<S>                                           <C>           <C>                <C> 
                                               Shares          Exercise     Weighted
                                                                  Price      Average
                                                              Per Share     Exercise
                                                                               Price
-------------------------------------------------------------------------------------
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>
<TABLE>
<CAPTION>
                                                    1998               1997
-----------------------------------------------------------------------------------
<S>                                           <C>                   <C>           
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)
</TABLE>

          (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

                                      F-23
<PAGE>
                                    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  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    pending     completion    of

                                      F-24
<PAGE>

                                        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

                                      F-25
<PAGE>
                                        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
                                        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