UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C., 20549
                                   FORM 10-KSB
(Mark One)
  X      Annual  report  pursuant  to  Section  13 or  15(d)  of the  Securities
         Exchange  Act of 1934 for the fiscal  year ended  December  31, 1998 or
         Transition  report  pursuant  to Section 13 or 15(d) of the  Securities
         Exchange Act of 1934 for the transition period from to .

Commission File No. 1-4385

                          DUNES HOTELS AND CASINOS INC.                       
             (Exact name of registrant as specified in its charter)


                      NEW YORK                         11-1687244              
(State or other jurisdiction of            (I.R.S. Employer Identification No.)
  incorporation or organization)   
                 
4600 Northgate Boulevard, Suite 130, Sacramento, California            95834
      (Address of principal executive offices)                      (Zip Code)

Registrant's telephone number, including area code             (916) 929 2295

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

      Title of each class                        Name of each exchange
          NONE                                   on which registered
                                                  NONE         

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


       Common Stock, $.50 par value           Series B, $7.50 Cumulative
       (Title of class)                       Preferred Stock, $.50 par value
                                              (Title of class)

     Check whether the registrant (1) has filed all reports required to be filed
by  Section  13 or 15(d)  of the  Securities  Exchange  Act of 1934  during  the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports),  and (2) has been subject to such filing requirements for
the past 90 days.             YES X         NO


     Check if there is no disclosure of delinquent  filers  pursuant to Item 405
of  Regulation  S-B is not  contained in this form,  and no  disclosure  will be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.         (X)


State issuer's revenues for its most recent fiscal year:  $1,033,000

         The aggregate  market value of the voting and non-voting  common equity
held by non-affiliates  of the Registrant  (2,094,340 common shares) computed by
reference  to the price at March 11, 1999  ($.2600 per share) was  approximately
$544,528. No market value is assigned to the Series B preferred stock. See "Item
5. Market for Registrant's Common Equity and Related Matters".

The  number  of  shares of common  stock  outstanding  as of March 11,  1999 was
6,375,096.
               Documents Incorporated by Reference Not Applicable

This document consists of -- pages with exhibits, -- pages without exhibits.


<PAGE>2


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         Dunes Hotels and Casinos Inc. was  incorporated in New York in 1956. In
this report the term "the  Company"  refers to Dunes  Hotels and  Casinos  Inc.,
individually,  or with its  wholly-owned  subsidiaries,  Continental  California
Corporation  (Continental),  M & R Corporation  (MRC) and MRC's subsidiary M & R
Investment   Company,   Inc.  (MRI)  and  MRI's   subsidiaries  SHF  Acquisition
Corporation (SHF) and Southlake Acquisition Corporation (Southlake).

         The  Company,  through  its  subsidiaries,  operates  in two  principal
business  segments:  real estate  (development  and sale of residential lots and
rental of agricultural  land), and agriculture  (drying and storing grain).  See
Note 13 of Notes to Consolidated  Financial  Statements for information relating
to industry segments and class of services.

         The  Company's  real  estate  segment   develops  and  sells  completed
residential lots primarily to builders of custom homes and to the general public
located in and around the greater Sacramento, California area.

         The agricultural  segment dries harvested grain over a two-month period
(approximately  September  15 to November  15) and stores,  for a fee, the dried
grain  until it is removed  by the owner.  The  Company  dries and stores  grain
principally for one customer under a five-year contract which commenced in 1998.
This  contract  accounts for  approximately  98% of the grain drying and storage
revenue.  If the Company  were to lose this  customer,  it would have a material
adverse effect on the Company's  agricultural  segment.  In September  1997, the
Company  completed  construction of a new grain drying facility  adjacent to its
grain storage  facility.  See "Item 1. Business -  Agricultural  Segment - Grain
Storage and Drying Facilities."

REAL ESTATE SEGMENT:

THE FAIRWAYS

         The Company,  through  SHF,  developed  approximately  50 acres of real
property as a residential  planned unit  development  known as "The Fairways" in
Rancho Murieta, California.  Rancho Murieta is a 3,500- acre master planned unit
development located approximately 25 miles from Sacramento,  California.  Rancho
Murieta  consists  primarily of single  family  homes,  town houses,  commercial
property  and two 18-hole  championship  golf  courses,  including  country club
facilities.  The  Fairways,  located  within the  boundaries  of one of the golf
courses at Rancho Murieta, was subdivided into 110 single family estate lots. As
of March 11, 1999, 45 lots remain unsold.

         In connection with its development of The Fairways, SHF was required to
construct certain  improvements that benefited not only The Fairways,  but other
properties  that lay outside of the  boundaries of The Fairways  (the  Benefited
Properties).  The net cost of the  improvements to the Benefited  Properties was
$1,140,900  and  SHF  will  be  reimbursed  for  these  costs  as the  Benefited
Properties are developed.  SHF's right to reimbursement will expire in September
2115. The Company is unable to predict what amount,  if any, will be received as
reimbursement.  The rights to  reimbursement  are personal to SHF and do not run

<PAGE>3


with The Fairway's property unless assigned by SHF.

         In 1995, the Company, along with Continental,  MRI and SHF entered into
a  Settlement  Agreement  with  the  Resolution  Trust  Corporation  ("RTC")  in
connection  with an  obligation  due to San Antonio  Savings  Association  (SASA
Obligation").  As part of the  Settlement  Agreement  with the RTC,  the Company
agreed  to pay the RTC  $2,710,000  in the form of a  promissory  note (the "RTC
Promissory  Note").  The RTC Promissory Note bears interest at an annual rate of
1% over prime rate,  adjustable on a semi-annual  basis. The RTC Promissory Note
requires monthly payments of interest only and is due December 6, 2000. Further,
as part of the Settlement  Agreement with the RTC, all of the unsold lots in The
Fairways  are  encumbered  by a deed of trust  in favor of the RTC.  The deed of
trust requires a $40,000 payment for the release of each encumbered lot. The RTC
Promissory Note was subsequently sold by the RTC to Beal Bank in 1996.

         In October 1996, the Company and Murieta Investors,  LLC, (MI) signed a
Purchase and Option  Agreement  which  provides  that MI will  purchase from the
Company 6 lots at The  Fairways at $40,000 per lot plus payment of the park fees
applicable  to  the  lots  purchased.  In  addition,  the  Company  may  receive
contingent  consideration  equal  to  20% of  the  gross  sales  price  of  each
residential dwelling sold less $40,000 (a "Success Payment").

         The  agreement  also  provided  for MI to have an option to  acquire 36
additional lots at various prices.  Due to delays in obtaining plans and permits
MI did  not  exercise  any of its  options.  In 1998  the  Purchase  and  Option
Agreement was amended  whereby the Company  granted to MI new options to acquire
34 lots.  The options  are  exercisable  starting  December 1, 1998 (6 lots) and
every six months  thereafter (4 lots each). If two  consecutive  options are not
exercised then the remaining  options are terminated.  The sales price under the
option is $50,000 per lot plus reimbursement of park fees paid to Rancho Murieta
Association  and 20% of the  lesser  of (i) gross  sale  price or (ii) the basic
sales price as defined in the purchase  and option  agreement  dated  October 7,
1996,  less $50,000.  To date, MI did not exercise the first option due December
1, 1998.

SAM HAMBURG FARM

         MRI owns  approximately  150 acres of agricultural  property called Sam
Hamburg Farm (Hamburg Farm) in Fresno and Merced Counties, California. MRI's 150
acres are operated by SHF. Of the 150 acres,  40 acres  contain the airstrip and
the shop areas which are the focus of continuing  attempts at chemical clean-up.
The  remaining  110 acres are leased to various  tenants at an annual  aggregate
rental of approximately $20,000.

         The Company has been  advised  that the farm  contains  approximately
5,000 cubic yards of contaminated  earth. The Company,  through its chemical and
toxic  clean-up   consultant,   has  been  working  with  the  California  State
Environmental  Protection  Agency, in seeking alternate means to the disposal in
toxic dump sites of chemical and toxics-laden soil.

         Because of the  ongoing  testing,  the State has not imposed a disposal
date upon the  Company.  Cost of disposal is estimated at $100 per cubic yard or
approximately  $500,000.  However, if on-site remediation can be achieved, it is
estimated  that the cost will be between  $90,000 and  $115,000.  The Company is
unable to predict when the ongoing testing will be completed or what the outcome
of these tests will be.  Accordingly,  the estimates could materially  change as
the testing and remediation work continues, which could be as early as 1999.


<PAGE>4

         SOLANO COUNTY OPTION

         The  Company  has an option  (the  Solano  County  Option)  to  acquire
approximately 1,690 acres of farm land located in Solano County, California. The
Company  acquired the Solano  County  Option as part of a  settlement  agreement
between Baby Grand Corp. (BGC), an Anderson Entity, a financial  institution and
MRI. The purchase price of the Solano County Option was  $1,043,902.  The Solano
County Option  provides that the Company can purchase the 1,690 acres at a price
of $3,000,000 (the Option Purchase Price).  The Company will receive a credit of
$1,000,000 against the Option Purchase Price. The option expires on May 1, 2003.

         In December 1998, the Company entered into an agreement with the option
grantor  to sell its  rights  under  the  option  agreement  for  $533,333.  The
agreement  provides  for a 120 day escrow and the  reacquisition  price is to be
paid $500,000 in cash at closing and a $33,333 note.  Closing  occurred on March
2, 1999 and the Company has received its consideration.

AGRICULTURAL SEGMENT:

GRAIN STORAGE AND DRYING FACILITIES

         Since 1990 SHF owns a grain storage  facility (the "Storage  Facility")
located in Yolo County, California. The Storage Facility generally stores, for a
fee, grains owned principally by Adam's Grain Company.
The Storage Facility can store approximately 34,000 tons of grain.

         In 1997 the Company  entered into a financing  lease  agreement for its
drying facility which is adjacent to the Storage Facility. The lease is for five
years  commencing  March 1998, the monthly rental is $25,122 and the Company can
buy  the  drying  facility  for  $1 at  the  end  of the  lease.  The  lease  is
collateralized  by the drying  facility,  a deed of trust on certain  parcels of
property  including the parcel on which the Storage  Facility is located and the
guarantees  of MRI and the  Company.  Before the  Guarantors  are liable for any
deficiency,  the leasing  company must first proceed against the drying facility
and the additional collateral.

OTHER ACTIVITIES:

CERTAIN LOANS

         From time to time the Company has entered into certain transactions and
has  made  loans  to  various  Anderson  Entities,  Anderson  Related  Entities,
Directors  and  Executive  Officers  of the Company  and other  unrelated  third
parties.  All loans to related  parties  were  approved by the  Company's  Audit
Committee.  See Item 3. Legal Proceedings and Item 12. Certain Relationships and
Related Transactions.


<PAGE>5

COMPETITION

REAL ESTATE SEGMENT:

         The  real  estate   investment  and  development   business  is  highly
competitive.  The Company competes for real estate investments with investors of
all types, including domestic and foreign corporations,  financial institutions,
other real  estate  investment  companies  and  individuals,  many of which have
substantially  greater  resources than the Company.  In addition,  the Company's
properties are subject to local  competitors  from the  surrounding  areas.  The
Company does not consider its real estate business to be seasonal in nature.

         With respect to the residential real estate,  the Company competes with
numerous other developers and residential  properties in the greater  Sacramento
area of California, ranging from regional and national firms to local companies,
many of which have  substantially  greater  resources  than the Company.  In the
greater Sacramento area, the Company's residential lots compete on the basis of,
among other things, location,  price and quality of amenities,  such as the golf
course and country club facilities at Rancho Murieta.

         With respect to the  Company's  agricultural  real estate,  the Company
competes for tenants with other regional or local agricultural properties in the
area of California where the Company's property is located.  Leasing property to
prospective tenants is generally determined on the basis of, among other things,
lease  rates and  quality  of top soil.  The  Company's  leases of  agricultural
property are generally for a short-term period of one year or less.

AGRICULTURAL SEGMENT:

         With respect to the Company's grain drying and storage operations,  the
Company  competes  with other  grain  drying and storage  companies  in Northern
California.  The grain drying operation is seasonal and runs from  approximately
September  15 to November  15.The  storage  facility,  depending on the types of
grain being  stored,  operates on a year  around  basis.  The drying and storage
operations  are  impacted  by the  number  of acres  grown,  the yield per acre,
weather conditions and government programs. Because the Company dries and stores
grain for  principally  one  customer,  the loss of that  customer  could have a
material adverse effect on the grain drying and storage operation.

SALES AND MARKETING

         The Company employs a sales  consultant for the sale of its residential
lots at the Fairways, although sales by independent real estate brokers are also
encouraged.  The  residential  lots  are  marketed  primarily  by means of media
advertising,  customer  referrals and realtor  contacts.  Selling prices are set
based on the local market conditions and competitive  factors.  The agricultural
properties  are  marketed  to  farmers  in  the   surrounding   area  where  the
agricultural  property is located.  The grain  drying and storage  operation  is
marketed to principally one customer.

REGULATION

         The Company must comply with various  federal,  state and local zoning,
building,  pollution,  environmental,  health, and advertising ordinances, rules
and regulations,  including  regulations relating to specific building materials


<PAGE>6


to be used, building design, minimum elevations of properties and emissions from
the grain drying and storage facilities.

EMPLOYEES

         At March 11, 1999,  the Company had 6 employees.  None of the Company's
employees are covered by collective bargaining agreements.  The Company believes
its employee relations to be satisfactory.

ITEM 2.  DESCRIPTION OF PROPERTY

REAL ESTATE SEGMENT:

The Fairways

         The Fairways is comprised of  approximately  50 acres of land which has
been  developed  into 110 single  family  estate  lots.  It is located in Rancho
Murieta, California, adjacent to Highway 16, approximately 25 miles southeast of
Sacramento.  The  land is  encumbered  by  bonds in the  approximate  amount  of
$140,000,  which is the pro rata share of a bonded  indebtedness  incurred  that
enabled the Rancho Murieta Community  Services District to acquire the water and
sewer facilities that serve the community of Rancho Murieta,  which includes the
Fairways.  The bonded indebtedness will be assumed,  pro rata, by the individual
lot buyers. As part of the settlement of the RTC Obligation,  the Company signed
a note in favor of the RTC in the original  principal amount of $2,710,000.  The
note is  collateralized  by, among other things,  a deed of trust on the lots at
The Fairways.  The deed of trust  requires a $40,000  payment for the release of
each of the encumbered lots. See "Item 1. Business -- Real Estate Segment -- The
Fairways."

Sam Hamburg Farm

         Sam Hamburg Farm consists of approximately  150 acres remaining from an
original  4,600  acres of  agricultural  land.  The land is  located in the most
southwesterly  corner of Merced County,  California  and the most  northwesterly
corner of Fresno County, California,  approximately two miles east of Interstate
Highway  5. It is  approximately  ten  miles  south  of the  city of Los  Banos,
California.  The Company  leases the remaining  land to various  tenants,  whose
current crops include  cotton,  small grains,  and certain types of melons.  The
terms of the leases are usually one crop year on a cash rent basis. See "Item 1.
Business - Real Estate Segment - Sam Hamburg Farm".

AGRICULTURAL SEGMENT:

Grain Storage and Drying Facility

         The  storage  and  drying   facilities  are  located  in  Yolo  County,
California,  approximately 15 miles west of the city of Sacramento.  The storage
facility can store  approximately  34,000 tons of grain. The drying facility can
dry  approximately  165,000  pounds  of grain in a 24 hour  period.  The  drying
facility  dries  enough  grain to fill  approximately  one-half  of the  storage
facility.  See "Item 1.  Business --  Agricultural  Segment -- Grain Storage and
Drying Facilities."

<PAGE>7



EXECUTIVE OFFICES:

     The  Company's  executive  office  is  located  in an  office  building  in
Sacramento,  California.  The  executive  offices are 1,353  square feet and are
leased under terms of a lease  agreement  expiring  June 30,  2001.  The Company
believes that the executive office is suitable for its needs.

ITEM 3.  LEGAL PROCEEDINGS

     Federal Deposit Insurance  Corporation,  et al. v. John B. Anderson et al.,
United States District  Court,  District of Nevada,  Case No.  CV-S-95-00679-PMP
(LRL), instituted on July 14, 1995. John B. Anderson (Anderson),  Edith Anderson
(Anderson's  wife),  Cedar  Development  Co.  (Cedar),   J.A  Inc  (JA),  J.B.A.
Investments Inc, (JBA and, collectively with Anderson,  his wife, Cedar, and JA,
the Anderson Parties) are involved in litigation (the Anderson  Litigation) with
the Federal Deposit Insurance  Corporation (the FDIC). This matter is more fully
described in the Company's  Form 10-K for the year ended  December 31, 1997, see
"Item 3. Legal  Proceedings - Federal Deposit Insurance  Corporation,  et al. v.
John B. Anderson, et al."

         In July 1997 the Nevada  District Court approved "a plan of disposition
of  collateral".  A Special  Master was appointed to implement  the plan,  which
includes among other things, the FDIC Pledged Shares and the common stock of BGC
which owns the BGC Pledged  Shares.  The Special Master was to accept bids until
November 13, 1997 and make his recommendation to the court. To date, the Special
Master has not reported his recommendations to the court and the Company has not
been advised of any FDIC sale of security interests it holds in the FDIC Pledged
Shares.

         The Company  submitted a bid for the  3,000,000  FDIC  Pledged  Shares.
Under  certain  circumstances,  the sale of the FDIC Pledged  Shares and the BGC
Pledged Shares within a three year period may result in a change of ownership of
more than fifty percent of the Company which may result in a material  reduction
of the amount of net operating loss carry forward (NOL). (Note 12).

         Until December 11, 1997, Anderson was the President and Chairman of the
Board of the Company and  Chairman of the Board of various  subsidiaries  of the
Company. Prior to the events described herein,  Anderson,  through his ownership
of Cedar,  the parent of Baby Grand  Corp.  (BGC) and JBA,  owned  approximately
4,280,756 shares or 67.2% of the Company's  outstanding common stock (the Common
Stock). Of those shares (i) 3,000,000 shares (the FDIC Pledged Shares) have been
pledged as  collateral  in favor of  entities  of which the FDIC is a  successor
and/or  assign,  and (ii)  1,280,756  shares (the BGC  Pledged  Shares) had been
pledged as collateral in favor of a subsidiary of the Company.  Since 1998,  the
BGC Pledged Shares have been under the  jurisdiction of the US Bankruptcy  Court
in Las Vegas, since BGC filed a petition under Chapter 7.

         On or about  December 16,  1997,  the Nevada  District  Court issued an
order in the Anderson Litigation declaring that the FDIC has the right to act by
written  consent with respect to Cedar,  BGC, JBA and JA.  Because of the Nevada
District  Court's order,  the FDIC has the power to exercise  voting rights with
respect to the FDIC Pledged  Shares,  which  represent  47.1% of the outstanding
Common Stock. Because the FDIC is able to exercise voting rights with respect to
the FDIC Pledged  Shares,  the FDIC could  exercise  substantial  influence with
respect to the  election of the entire Board of Directors of the Company and all
matters submitted to stockholders.  The FDIC is able to significantly  influence
the  direction  and  future  operations  of  the  Company,  including  decisions
regarding  future  financing  (which could  involve the  issuance of  additional
Common  Stock  or other  securities)  and  decisions  regarding  the  day-to-day

<PAGE>8


operations of the Company's real estate and  agricultural  operations.  If it is
ultimately determined that the FDIC has authority to exercise voting rights with
respect to the BGC  Pledged  Shares,  then the FDIC would have the power to vote
67.2% of the outstanding  Common Stock of the Company.  In such event,  the FDIC
would be able to control, rather than only significantly influence, the election
of the entire Board of Directors of the Company and all other matters  submitted
to stockholders.

         In  response  to the  FDIC's  demand to hold a special  meeting  of the
stockholders, the Company indicated that it is willing to discuss the procedures
and  effects  of a  stockholder  meeting  with the  FDIC,  but  pending  further
information  from the FDIC,  the Company was deferring the formal setting of the
meeting date and record date for voting purposes. The FDIC has not yet responded
to the Company as to such further information.

         On March 12,  1998,  the  Nevada  District  Court  approved  the FDIC's
request  for a 120 day  extension  under  it's  Plan of  Liquidation,  as to any
disposition of the FDIC pledged shares. To date the Company has not been advised
that the FDIC has liquidated the collateral nor reported to the court.

         Regardless  of what action,  if any, the FDIC should  determine to take
with  respect  to the  Company,  if there is a  change  of more  than 50% of the
ownership of the outstanding Common Stock, there may be a change of ownership of
the Company for purposes of the Internal  Revenue Code of 1986,  as amended (the
Code).  At December 31, 1998, the Company has a net operating loss carry forward
(NOL) of approximately  $52,542,000.  The Board of Directors  believes that this
NOL  represents a valuable  asset to the Company which may or may not be used in
future  years.  It is unclear  whether or not the events  described  herein have
resulted in a change of ownership  under the Code.  If the FDIC or a third-party
purchaser  obtains the power to vote the BGC  Pledged  Shares in addition to the
FDIC Pledged Shares,  there would be a change in ownership under the Code. It is
possible  that the Internal  Revenue  Service  will take the  position  that the
events within a three-year  period,  taken  together  with the events  described
above,  have already  resulted in a change in ownership under the Code. If there
is a change of ownership under the Code, the value of the Company's NOL would be
materially  adversely  reduced or  eliminated.  There can be no assurance that a
change of ownership will not occur or has not already occurred.

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         No matter was  submitted  during the fourth  quarter of the fiscal year
covered by this report to a vote of security  holders,  through the solicitation
of proxies or  otherwise.  No matter has been  submitted  to a vote of  security
holders since December 19, 1984.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The principal  United States market in which the Company's common stock
is traded is the over-the-counter market. There is no established public trading
market for the Company's Series B preferred stock.  Neither the Company's common
stock nor the Company's preferred stock is listed for trading on an exchange.


<PAGE>9


         The following  table sets forth for the periods  indicated the range of
the high and low bid quotations for the Company's  common stock as quoted on the
OTC Bulletin Board.  The reported bid quotations  reflect  inter-dealer  prices,
without  retail  markup,  markdown  or  commissions,  and  may  not  necessarily
represent actual transactions.

         1998                       HIGH                               LOW
         ----                       ----                               ---
         1st Quarter                .44                                .25
         2nd Quarter                .37                                .28
         3rd Quarter                .32                                .15
         4th Quarter                .19                                .14


         1997                       HIGH                               LOW
         ----                       ----                               ---
         1st Quarter                .19                                .16
         2nd Quarter                .25                                .16
         3rd Quarter                .34                                .25
         4th Quarter                .50                                .25

         At December 31, 1998, the Company's  transfer agent reported that there
were  approximately  1,810 holders of record of the Company's  common stock, and
approximately  754 holders of record of the Company's Series B $7.50 cumulative,
voting and non-convertible  Preferred Stock with a liquidating value of $125 per
share.

         Dividends  on the  Company's  common stock have not been paid since the
second quarter of 1979. Dividends on the Company's Series B preferred stock have
not been paid since the first quarter of 1982. The Company is in arrears on such
dividends in the amount of approximately $1,245,000 as of December 31, 1998. The
Company  has no  present  intention  to pay  dividends  on either  its common or
preferred shares.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION

         The Consolidated Financial Statements and Notes thereto are an integral
part of this report,  including this Item 6, and are incorporated herein by this
reference and should be read in conjunction herewith.

         Certain  information  included  herein  contains  statements  that  are
forward-looking,  such as  anticipated  liquidity  requirements  for the  coming
fiscal year,  anticipated  sources of liquidity for the coming fiscal year,  the
impact of  anticipated  asset  sales,  and  potential  changes in control of the
Company.   Such   forward-looking   information  involves  important  risks  and
uncertainties that could significantly  affect the Company's financial condition
and future  results of  operations,  and,  accordingly,  such  future  financial
condition  and  results of  operations  may differ from those  expressed  in any
forward-looking  statements made herein. These risks and uncertainties  include,
but are not  limited to,  those risks  relating  to actual  costs  necessary  to
clean-up  certain  real  property  chemical  contamination,  real estate  market
conditions  and general  economic  conditions,  the  abilities of certain  third
parties to obtain  financing  and otherwise  perform under real estate  purchase
agreements,  and the outcome of certain  litigation and other risks. The Company
cautions  readers  not to  place  undue  reliance  on any  such  forward-looking
statements, and, such statements speak only as of the date made.

<PAGE>10



YEAR 2000 ISSUE

         The Company has addressed the possible  exposures related to the impact
on its  computer  systems  of the  Year  2000.  Key  financial  information  and
operational  systems have been assessed.  It has been determined that accounting
software and computer  controlled  systems at the grain drying facility built in
1997 are Year 2000 compliant.

OVERVIEW

REAL ESTATE

FAIRWAYS

Pursuant to a 1998  amendment to the Purchase and Option  Agreement  between the
Company and Murieta Investors,  LLC (MI) the Company has granted to MI an option
to purchase 34 of the remaining 45 lots at the Fairways. The lots covered by the
option are subject to prior sale by the  Company.  The  options are  exercisable
starting  December  1, 1998 (6 lots) and every six  months  thereafter  ( 4 lots
each).  In  addition,  if 2  consecutive  options  are not  exercised  then  the
remaining  options are  terminated.  MI did not  exercise  the  December 1, 1998
option.  The sales  price  under the option is the greater of $50,000 per lot or
20% of the gross sales price of residential dwelling sold.

In December  1996 the  Company  sold 6 lots to MI for the greater of $40,000 per
lot or 20% of the gross sales price of the residential  dwelling. To date MI has
constructed  4  dwelling  units  (1  is in  escrow)  and  has  not  started  any
construction on the remaining 2 lots.

SOLANO COUNTY OPTION

In December  1998,  the Company  entered  into an  agreement to sell the option.
Escrow closed in March 1999.

OTHER

In July 1997 the Company  sold the  remaining 57  residential  lots in North Las
Vegas, Nevada and the White Ranch located in the Tulare County, California.

AGRICULTURAL

The Company operates a grain drying and storage facility. The drying facility is
financed by a 5 year lease  which  commenced  in March  1998.  At the end of the
lease the Company will obtain title to the drying facility.

PRINCIPAL SHAREHOLDER

         Until December 11, 1997, Anderson was the President and Chairman of the
Board of the Company and  Chairman of the Board of various  subsidiaries  of the
Company.  Anderson,  through his ownership of Cedar,  the parent of BGC and JBA,
owns  approximately  4,280,756 shares or 67.2% of the Company's common stock. Of
those shares (i) 3,000,000 shares (the FDIC Pledged Shares) have been pledged as

<PAGE>11


collateral in favor of entities of which the FDIC is a successor  and/or assign,
and (ii)  1,280,756  shares  (the  BGC  Pledged  Shares)  had  been  pledged  as
collateral  in favor of a  subsidiary  of the  Company.  Refer to Item 3.  Legal
Proceedings - Federal Deposit  Insurance  Corporation et al. v. John B. Anderson
et al. Re: (i) the  rights of the FDIC to vote the FDIC  Pledged  Shares and the
possible  right of the  FDIC to vote the BGC  Pledged  Shares;  (ii) a  possible
change in control of the Company and (iii) a demand made by the FDIC to have the
Company hold a shareholder meeting.

         The Company has no present  intentions  to pay  dividends on either its
common or preferred stock.

OPERATING RESULTS

Net loss  for the year  ended  December  31,  1998  increased  by  approximately
$352,000 when compared with the year ended December  31,1997.  This was due to a
number of factors including:

         (1) A decrease in profit from the sale of real estate  primarily due to
the sale of the White Ranch and the sale of the 57 residential lots in North Las
Vegas, Nevada and
         (2) A decrease in rental income-agricultural properties due to the sale
          of the White Ranch. (3) A decrease in drying and storage revenues.
         (4) An increase in bad debt expense  relating to the  rescinding of the
note sale agreement with the John J. Anderson Family Trust.

1998 vs. 1997

Real estate

         The major decrease in real estate  revenues and profits in 1998 was due
to the 1997 sale of the White  Ranch  and the 57  residential  lots in North Las
Vegas, Nevada. Sales at The Fairways continue to be slow.

     Net rental  income  from  agricultural  properties  decreased  in 1998 when
compared with 1997 due primarily to the sale of the White Ranch.

Agricultural

         Grain drying and storage  profits in 1998  decreased  by  approximately
$330,000 when compared with 1997. The decrease is primarily due to a decrease in
drying  revenue.  An abnormally wet spring due to El Nino during 1998 delayed or
cancelled  planting the rice crop which reduced the  availability  of rice to be
dried at the  Company's  facility.  Because there was no rice for the Company to
dry,  the Company  agreed to dry white taco corn for which the Company  receives
less per pound revenues than rice.  Drying revenue in 1998 was $77,100  compared
to $277,300 in 1997.

General

         Selling,   administrative  and  general  expenses  in  total  decreased
approximately  $290,000.  This was due primarily to the  following  decreases in
salaried and related cost of $143,000 due to the decrease in personnel; in legal
fees $56,000 due to the  decrease in  litigation  during  1998,  during 1997 the
Company was involved in substantial  litigation  relating to litigation  between
John B.  Anderson and the FDIC; in officers  travel of $57,000;  in officers and

<PAGE>12

directors liability  insurance of $20,000;  and in office expense of $12,000 due
to the relocation to Sacramento, CA.

         Interest income decreased  because of principal  collections on various
notes  receivable.  Interest  expense  decreased  because of principal  payments
through the sale of the lots at The Fairways made to Beal Bank, the purchaser of
the RTC Settlement  Note. The decrease in interest  expense was partially offset
by interest expense applicable to the drying facility financing.

LIQUIDITY AND CAPITAL RESOURCES

         During the year ended December 31, 1998,  cash,  cash  equivalents  and
marketable  securities  decreased by $1,024,000  from $4,972,000 at December 31,
1997 to $3,948,000 at December 31, 1998.  The most  significant  uses of cash in
1998 consisted of operation  ($578,000),  payments on long-term debt ($397,000),
loans made to others  ($145,000),  payments on short-term debt  ($101,000),  and
cash paid for other  investments.  The most significant  sources of cash in 1998
were the  collection  of loans  made to  others  ($224,000)  and  proceeds  from
short-term debt,

         The Company believes that its primary requirements for liquidity in the
coming  fiscal  year will be to fund  ongoing  expenses at The  Fairways,  which
include, among other things, association dues, water and sewer fees and property
taxes;  to fund the required  payments due on the note to Beal Bank; to fund the
required  payments due on the grain dryer  financing;  to fund costs that may be
incurred  relating to the toxic  clean-up at Sam Hamburg  Farm;  to fund any tax
payments  that may be due to the  California  Franchise  Tax Board;  and to fund
general and administrative  expenses. In addition the Company may be required to
fund certain costs relating to a possible stockholder meeting.

         The Company  believes that sources of required  liquidity  will be cash
generated from the grain drying and storage facilities, anticipated lot sales at
The  Fairways,  collection  of  notes  receivable  resulting  from  sales at The
Fairways,  Success  Payments  related  to the  venture  with MI.  Based on known
commitments,  the Company  believes  that the sources of cash  described and the
cash  available at December 31, 1998,  will be adequate to fund known  liquidity
requirements.  However,  if the  sources  of  required  liquidity  and the  cash
available at December 31, 1998 prove to be  insufficient  to cover the Company's
primary  liquidity  requirements,  it will  be  necessary  to  sell  some of the
Company's non-income producing assets.

ITEM 7.  FINANCIAL STATEMENTS 

     The Consolidated  Financial Statements of Dunes Hotels and Casinos Inc. are
located at pages F-1 to F-22 attached to the end of this annual report.

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

         None



<PAGE>13



                                    PART III

ITEM 9.  DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS,  AND CONTROL  PERSONS; 
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         The  By-laws  of the  Company  provide  that the  number  of  directors
constituting  the entire  board shall be twelve.  Directors  are elected at each
annual meeting of  shareholders to hold office until the next annual meeting and
until a successor  has been elected and  qualified.  The Company has not held an
annual meeting of stockholders  since December 19, 1984.  However,  see "Item 3.
Legal  Proceedings - Federal  Deposit  Insurance  Corporation  et al. v. John B.
Anderson  et  al."  regarding  a  possible  stockholders  meeting.  Of the  nine
directors elected at the December 19, 1984 annual meeting of shareholders, three
have resigned,  and only two of such vacancies thereby created have been filled;
however, one such appointee died. As a result, the number of directors currently
serving is seven.

         Pursuant to a Securities and Exchange  Commission  consent decree,  the
Company has been  required to have an Audit  Committee of the Board of Directors
(Audit Committee) since 1978, a majority of which must be independent directors.

         Identified  herein are all  directors  and  executive  officers  of the
Company. The information set forth as to each Director and Executive Officer has
been furnished by such person.

         John B. Anderson, 56, is and has been since May 1984, a director of the
Company and until  December 11, 1997,  served as the  Company's  chairman of the
board and  president.  On March  10,  1992,  BGC (an  Anderson  Entity)  filed a
voluntary  petition for relief under  Chapter 11 of the  Bankruptcy  Code in the
United States Bankruptcy Court for the District of Nevada. On November 10, 1992,
the  United  States  Bankruptcy  Court  confirmed  and  approved  BGC's  plan of
reorganization  which became  effective  December 1, 1992. On December 20, 1994,
the  Chapter 11 case was closed.  On April 6, 1992,  Maxim  Development  Co. (an
Anderson  Entity) filed a voluntary  petition for relief under Chapter 11 of the
Bankruptcy Code in the United States  Bankruptcy  Court for the Eastern District
of California, which bankruptcy was subsequently dismissed on March 12, 1993.

     Brent L. Bowen,  70, is and has been a director,  officer and member of the
audit  committee  of the  Company;  and a director and officer of certain of the
Company's  subsidiaries  since December 1984. Mr. Bowen was employed by Anderson
Farms  (an  Anderson  Entity)  from  1981 to 1995 as a  business  and  financial
analyst.  Mr. Bowen became an employee of MRI in 1995.  Mr. Bowen has experience
in the hotel/casino, farming, real estate, home-building, rice mill, commodities
and banking industries. Mr. Bowen retired from the Company in 1998.

             Andrew  Marincovich,  77,  is and has been  since  August  1978,  a
director and member of the Audit  Committee of the Company.  He is, and has been
since July 1983, Chairman of the Audit Committee.  He is President and Executive
Officer of Marincovich & Company,  a certified public  accounting firm in Rancho
Palos  Verdes,  California.  He is a Certified  Public  Accountant,  licensed to
practice in California.

         Donald J. O'Leary,  68, was elected to the Company's Board of Directors
and appointed to the Company's  Audit  Committee on May 19, 1994. Mr. O'Leary is
an attorney and is a member of the California, Virginia and District of Columbia

<PAGE>14


Bars.  He is  currently  in private  practice in  California.  Prior to entering
private  practice,  Mr. O'Leary was a trial attorney for the U.S.  Department of
Justice and resident counsel for several large real estate companies.

         Edward  Pasquale,  55, is and has been a  director  and  officer of the
Company since  December  1984;  and was a director and officer of certain of the
Company's  subsidiaries  from December 1984 until September 1988. On January 27,
1998,  he was  elected  president  and a director  of  certain of the  Company's
subsidiaries.  On December 11, 1997, Mr.  Pasquale was elected  president of the
Company.  Mr.  Pasquale has been a member of the Company's audit committee since
May 19, 1994. He is presently,  and has been since September 1983, self-employed
as a  financial  consultant,  with  emphasis  in  litigation  support  services,
bankruptcy proceedings,  and corporate reorganization.  He is a Certified Public
Accountant, licensed to practice in the States of California and Nevada.

         Wayne O. Pearson, 68, is and has been since August 1978, a director and
member of the Audit  Committee of the Company.  From March 1975 to May 1993,  he
was a marketing analyst for R&R Advertising Agency, Las Vegas, Nevada; and since
January 1970, sole proprietor,  Wayne Pearson Consulting,  Las Vegas,  Nevada, a
business and public opinion research company.

         Erik J. Tallstrom,  52, is and has been a director of the Company since
December  1984.  Prior to  1985,  he was  self-employed  as a  certified  public
accountant,  and was a financial  consultant to Anderson.  From November 1985 to
December,  1996 he was a business  partner with  Anderson in several real estate
developments,  including Rancho Murieta in California.  Currently, Mr. Tallstrom
acts as a consultant  to various real estate  companies and is a part owner of a
tile manufacturing company.

             There is no family relationship  between any directors or executive
officers of the Company.  No director holds a directorship  in any other company
with a class of securities registered pursuant to Section 12 of the Exchange Act
or  subject to the  requirements  of  Section  15(d) of such Act or any  company
registered as an investment company under the Investment Company Act of 1940, as
amended.

         Compliance  with Section 16(a) of the Exchange Act. Based solely upon a
review of the Commission's Forms 3 and 4 received by the Company during the last
fiscal  year and upon  written  representations  solicited  by the  Company,  no
Officer,  Director,  beneficial  owner  of more  than  10% of any  class  of the
Company's  equity  securities  or any other person  subject to Section 16 of the
Exchange  Act failed to file on a timely  basis as disclosed in the above forms,
reports  required  by Section  16(a) of the  Exchange  Act during the year ended
December 31, 1998.

ITEM 10.  EXECUTIVE COMPENSATION

         The following table sets forth the annual  compensation  paid to Edward
Pasquale,  the Company's  President.  No other executive  officer of the Company
received  compensation  in excess of $100,000  for the year ended  December  31,
1998.

<PAGE>15



                           SUMMARY COMPENSATION TABLE
                               ANNUAL COMPENSATION
<TABLE>
<S>                           <C>         <C>              <C>              <C>                 <C>   


        (a)                    (b)           (c)            (d)                  (e)                 (i)
                                                                             Other annual        All other
Name and prin-                                                               compensation        compensation
cipal position                Year        Salary($)         Bonus($)             ($)                 ($)      
------------------            ----        ---------         --------         ----------------    ----------------

Edward Pasquale,              1998            --                --                  --             $36,862    (1)
President


</TABLE>

          (1)  All  other  compensation  to  Edward  Pasquale  consists  of  the
following for 1998:

    Annual Directors fees                                         $   15,000
    Audit Committee fees                                              12,000
    Consulting fees                                                    9,862
                                                                 ------------
                                                                     $36,862

Compensation of Directors

         The  Company  pays each  director  an  annual  fee of  $15,000  payable
monthly. Directors fees due Mr. Anderson are retained by the Company and applied
against  amounts  due the  Company  from  entities  owned or  controlled  by Mr.
Anderson.  The assignment of Mr. Anderson's directors fees will remain in effect
until changed by the Board of Directors.  In addition to their regular directors
fees and audit  committee fees,  board members and audit  committee  members are
paid up to $150 per hour for special projects considered to be outside the scope
of their duties as board and audit committee members. In addition,  they receive
a travel allowance of $300 for each meeting attended.

         Messrs.  Marincovich,  Pearson,  Bowen,  Pasquale  and  O'Leary are all
members of the  Company's  Audit  Committee.  Audit  Committee  members  receive
compensation  of  $1,000  per  month  plus a travel  allowance  of $300 for each
meeting  attended.   For  services  rendered  as  Audit  Committee  members  and
consultants during the fiscal year 1998, Messrs. Marincovich,  Pearson, O'Leary,
Bowen and Pasquale were paid $13,200,  $12,000,  $13,350,  $12,000,  and $21,862
respectively.

         The  Company  does not have a plan,  pursuant to which cash or non-cash
compensation is paid or distributed, or is proposed to be paid or distributed in
the future. The Company does not have any pension or other benefit plans.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The table shown below (1) contains certain  information with respect to
any person  (including  any "group" as that term is used in Section  13(d)(3) of
the Exchange Act),  who is known to the Company to be beneficial  owner (as that
term is defined in rules and  regulations  of the  Commission  under the federal
securities  laws) of more than 5% of the Company's  common  stock.  No person is
known to the Company to be the beneficial owner of more than 5% of the Company's
Series B preferred stock.


<PAGE>16

<TABLE>
<S>                                         <C>                                      <C>   

Name and Address of                         Amount and Nature of                       Percent of Common
Beneficial Owner                            Beneficial Ownership (1)                   Stock Outstanding  
-------------------------------            -------------------------                  -------------------

John B. Anderson(2)                                4,280,756                                   67.2%
P.O. Box 1410
Davis, CA  95617

Federal Deposit Insurance                          4,280,756                                   67.2%
Corporation(2)
550-17th N.W.
Washington, D.C.
</TABLE>

         The table shown below (1) contains certain  information with respect to
the Company's common stock  beneficially owned (as that term is defined in rules
and  regulations of the  Commission  under the federal  securities  laws) by all
directors,  and directors and executive  officers of the Company as a group.  No
director or executive officer is known to the Company to be the beneficial owner
of any of the Company's Series B preferred stock.

<TABLE>
<S>                                         <C>                                        <C>   

Name of Beneficial                          Amount and Nature of                       Percent of Common
Owner    Beneficial Ownership(1)            Stock Outstanding   

John B. Anderson(2)                             4,280,756                                   67.2%

Brent L. Bowen(3)                                   2,000                                    *

Andrew P. Marincovich(3)                              200                                    *

All Directors and Officers
as a Group (3 Persons)                          4,282,956                                   67.2%
</TABLE>

* Less than one percent

         (1) In  furnishing  this  information,  the Company is relying upon the
         contents of statements  filed with the  Commission  pursuant to Section
         13(d) and Section 13(g) of the Exchange Act.

         (2)  Anderson,  through  various  entities  owned or controlled by him,
         claims beneficial ownership of, and shared voting and shared investment
         power with respect to the reported shares (the Anderson Shares).  These
         shares of common  stock are  subject to  litigation.  See Item 3. Legal
         Proceedings.

                  Of the Anderson  Shares,  approximately  3,000,000  shares are
         pledged  in favor of the  FDIC.  On  February  17,  1993,  the  Company
         received a copy of  Securities  and  Exchange  Commission  Schedule 13D
         dated  February 12, 1993 filed with the  Commission on behalf of Eureka
         Bank  (Eureka).  Eureka's  Schedule 13D reports  that Eureka  possesses
         "sole  voting  power"  and "sole  dispositive  power"  with  respect to
         3,000,000 shares of the Company's common stock. The Eureka Schedule 13D
         also  reports  that  Eureka may be deemed to have  acquired  beneficial
         ownership  of  4,367,643  shares of the  Company's  common  stock which
         amounts to 68.5% of the class represented by said shares. In July 1993,
         Eureka representatives advised the Nevada Gaming Control Board that the


<PAGE>17


         FDIC had assumed  management and  supervision of efforts to collect Mr.
         Anderson's obligation under a debtor-creditor  agreement dated November
         30, 1988, by and between John B.  Anderson,  Edith  Anderson and Eureka
         Federal Savings and Loan Association.  On July 14, 1995, the FDIC filed
         an action in the  United  States  District  Court for the  District  of
         Nevada  against  Anderson,  Edith  Anderson,  CDC, J.A. Inc. and J.B.A.
         Investments, Inc. The Company is not a party to the action. See "Item.3
         - Legal Proceedings" for a detailed  discussion of the Anderson Parties
         obligation to the FDIC and the litigation relating thereto.

                  Of the Anderson Shares,  1,280,756 shares are pledged in favor
         of the Company to secure  indebtedness  to the Company.  The balance of
         the  Anderson  Shares  are  pledged  in  favor of  other  creditors  of
         Anderson.

                  The transfer  agent's records  maintained for the Company show
         that  Anderson or entities  owned or  controlled  by him own  4,260,912
         shares.  The difference  between what the transfer agent's records show
         and the  information  provided  to the  Company by  Anderson  is 19,844
         shares. The difference  consists of (i) 106,731 shares purchased by BGC
         and (ii) 86,887 shares owned by CBC given in payment of legal fees owed
         by Mr. Anderson.  None of these  transactions  have been changed on the
         transfer agent's records.

         (3) Messrs.  Marincovich and Bowen claim  beneficial  ownership of, and
         sole  investment  and sole voting  powers with  respect to the reported
         shares.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Anderson and Anderson Entities own approximately 67.2% of the Company's
common stock.  Refer to the Company's report on Form 8-K dated February 12, 1993
regarding  Securities  and Exchange  Commission  Schedule 13D filed on behalf of
Eureka  wherein  Eureka claims "sole voting" and "sole  dispositive  power" with
respect  to  3,000,000  shares of the  Company's  common  stock  and  beneficial
ownership of 4,367,643  shares of the Company's  common stock. In July 1993, the
FDIC  succeeded to the  position of Eureka with  respect to the  Debtor-Creditor
Agreement.

         In November  1997, the Company  entered into a Loan Purchase  Agreement
with John B.  Anderson,  as Trustee for the John J. Anderson  Family Trust.  The
Loan Purchase Agreement provided for the sale of a note (the BGC Note) issued by
Baby Grand Corp.  payable to MRI. The BGC Note, the Loan Purchase  Agreement and
the recession of the  Agreement  are  described in detail in the Company's  Form
10-KSB for the year ended  December 31, 1998 in Note 3 of Notes to  Consolidated
Financial Statements. See also Item 3, Legal Proceedings.

<PAGE>18


                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K


The following documents are filed as part of this report

a.  Financial Statements
PAGE

         Independent Auditors' Report                                      F-1

         Dunes Hotels and Casinos Inc. and Subsidiaries
         Consolidated Financial Statements:

         Balance Sheet as December 31, 1998                                F-2

         Statements of Operations, two years ended
         December 31, 1998                                                 F-4

         Statements of shareholders' equity, two years ended
         December 31, 1998                                                 F-6

         Statements of cash flows, two years ended December 31, 1998       F-7

         Notes to Consolidated Financial Statements, two years ended 
         December 31, 1998                                                 F-9


b.       Exhibits 


               1.00      Restated  Certificate of  Incorporation of Dunes Hotels
                         and Casinos Inc.  dated June 17, 1982, is  incorporated
                         herein by  reference  to Dunes  Hotels and Casinos Inc.
                         Annual  Report on Form 10-K (file no.  1-4385)  for the
                         year ended  December 31, 1994,  Part IV, Item 14(a)(3),
                         Exhibit 3.01.

               2.00      Certificate  of  Amendment of Restated  Certificate  of
                         Incorporation  of Dunes Hotels and Casinos  Inc.  dated
                         December 19, 1984, is incorporated  herein by reference
                         to Dunes Hotels and Casinos Inc.  Annual Report on Form
                         10-K (file no.  1-4385) for the year ended December 31,
                         1994, Part IV, Item 14(a)(3), Exhibit 3.02.

               3.00      Revised  By-laws of Dunes Hotels and Casinos Inc. dated
                         December 1984, is  incorporated  herein by reference to
                         Dunes  Hotels and Casinos  Inc.  Annual  Report on Form
                         10-K (file no.  1-4385) for the year ended December 31,
                         1994, Part IV, Item 14(a)(3), Exhibit 3.03.

               4.01      Specimen  Certificate  for the  Common  Stock  of Dunes
                         Hotels and  Casinos  Inc.,  is  incorporated  herein by
                         reference  to Dunes  Hotels  and  Casinos  Inc.  Annual
                         Report on Form  10-K  (file  no.  1-4385)  for the year
                         ended  December  31,  1994,  Part  IV,  Item  14(a)(3),
                         Exhibit 4.01.


<PAGE>19


               4.02      Specimen  Certificate  for the Preferred Stock of Dunes
                         Hotels and  Casinos  Inc.,  is  incorporated  herein by
                         reference  to Dunes  Hotels  and  Casinos  Inc.  Annual
                         Report on Form  10-K  (file  no.  1-4385)  for the year
                         ended  December  31,  1994,  Part  IV,  Item  14(a)(3),
                         Exhibit 4.02.

               10.04     Settlement  Agreement  dated  June  28,  1988,  by  and
                         between  San  Antonio  Savings  Association  and  Dunes
                         Hotels and Casinos Inc.;  First Amendment to Settlement
                         Agreement  dated  December 5, 1989,  by and between San
                         Antonio  Savings  Association,  F.A.  (assignee  of San
                         Antonio  Savings  Association)  and  Dunes  Hotels  and
                         Casinos  Inc., is  incorporated  herein by reference to
                         Dunes  Hotels and Casinos  Inc.  Annual  Report on Form
                         10-K (file no.  1-4385) for the year ended December 31,
                         1994, Part IV, Item 14(a)(3), Exhibit 10.04. Settlement
                         Release and Loan  Modification  Agreement dated October
                         24,   1995,   by  and   among  the   Resolution   Trust
                         Corporation, Dunes Hotels and Casinos Inc., Continental
                         California Corporation,  M & R Investment Company, Inc.
                         and SHF Acquisition Corporation, is incorporated herein
                         by reference to Dunes Hotels and Casinos Inc. Quarterly
                         Report on Form 10-Q for the nine months ended September
                         30, 1995, Item 6, Exhibit 10.01.

               10.05     Promissory   Note  dated   November  2,  1992,  in  the
                         principal amount of $2,650,000 made by Baby Grand Corp.
                         and M&R Investment Company,  Inc.; Amended and Restated
                         Pledge Agreement dated November 2, 1992, by and between
                         Baby Grand Corp. and M&R Investment Company,  Inc.; and
                         Release of  Assignment  of Leases,  Rents and  Revenues
                         dated  November  2, 1992,  by M&R  Investment  Company,
                         Inc.,  are  incorporated  herein by  reference to Dunes
                         Hotels  and  Casinos  Inc.  Annual  report on Form 10-K
                         (file no.  1-43855)  for the year  ended  December  31,
                         1992,  Part IV, Item 14(a)(3),  Exhibit  10.05.  Second
                         Settlement and Forbearance  Agreement dated February 5,
                         1995,  by and among Baby Grand  Corp.,  M&R  Investment
                         Company,  Inc. and Bank One, Arizona, NA.; and Purchase
                         Agreement  (including  Option Agreement) dated February
                         9,  1995,  by and  between  Baby  Grand  Corp.  and M&R
                         Investment  Company,  Inc.  Current  Report on Form 8-K
                         (file no.  1-4385)  dated  February  9,  1995,  Item 7,
                         Exhibit Nos.
                         10.01 and 10.02.

               10.24     Reimbursement  Agreement  dated  September 20, 1995, by
                         and between Rancho Murieta Community  Services District
                         and SHF Acquisition Corporation regarding the amount of
                         the  reimbursement  due SHF for excess work done at The
                         Fairways  at Rancho  Murieta  that will  benefit  other
                         properties  within the  boundaries of Rancho Murieta is
                         incorporated  herein by  reference  to Dunes Hotels and
                         Casinos  Inc.  Annual  Report  on Form  10-K  (file no.
                         1-4385) for the year ended December 31, 1995,  Part IV,
                         Item 14(a)(3), Exhibit 10.24.

               10.36     Real Estate Option  Agreement dated September 27, 1996,
                         wherein M&R Investment Company,  Inc. granted an Option
                         to MARCOR PARTNERSHIP, a general partnership, an Option
                         to  acquire  M&R  Investment  Company,  Inc.'s  66.667%
                         interest  in 2.16 acres of  industrial  property in Las
                         Vegas, Nevada;  Memorandum Of Option for the purpose of
                         recordation  is  incorporated  by  reference  to  Dunes
                         Hotels  and  Casinos  Inc.  Annual  Report on Form 10-K
                         (file no 1-4385) for the year ended  December 31, 1996,
                         Part IV, Item 14 (a) (3), Exhibit 10.36.



<PAGE>20



               10.37     Purchase  Agreement  dated  February  27,  1997  by and
                         between   Dana  C.   Hair   ("Buyer")   and   Southlake
                         Acquisition Corporation, a Nevada Corporation,  and Jim
                         Joseph,  as Trustee of The Joseph Revocable Trust, each
                         as to an undivided 2 interest  wherein  Buyer agrees to
                         buy the  property,  more  commonly  known as The  White
                         Ranch for  $6,000,000 is  incorporated  by reference to
                         Dunes  Hotels and Casinos  Inc.  Annual  Report on Form
                         10-K (file no.  1-4385) for the year ended December 31,
                         1996, Part IV, Item 14 (a) (3), Exhibit 10.37.

               10.38     Agreement  For The Purchase  and Sale of Real  Property
                         dated  February   21,1997,   wherein  SHF   Acquisition
                         Corporation  agrees to sell to Celebrate,  LLC,  and/or
                         assignee,  Arroyo Grande Unit 3 consisting of 4 lots is
                         incorporated  by  reference to Dunes Hotels and Casinos
                         Inc.  Annual Report on Form 10-K (file no.  1-4385) for
                         the year ended December 31, 1996,  Part IV, Item 14 (a)
                         (3), Exhibit 10.38.

               10.39     Agreement  For The Purchase  and Sale of Real  Property
                         dated  February   21,1997,   wherein  SHF   Acquisition
                         Corporation  agrees to sell to Celebrate,  LLC,  and/or
                         assignee,  Arroyo Grande Unit 2A and 2B is incorporated
                         herein by  reference  to Dunes  Hotels and Casinos Inc.
                         Annual  Report on Form 10-K (file no.  1-4385)  for the
                         year ended December 31, 1996, Part IV, Item 14 (a) (3),
                         Exhibit 10.39.

               10.40     Purchase  and  Option  Agreement  by  and  between  SHF
                         Acquisition  Corporation  and Murieta  Investors,  LLC,
                         dated October 7, 1996.  This Agreement is  incorporated
                         herein by  reference  to Dunes  Hotels and Casinos Inc.
                         Annual  Report on Form 10-K (file no.  1-4385)  for the
                         year ended December 31, 1996, Part IV, Item 14 (a) (3),
                         Exhibit 10.40.

               10.41     Construction Contract dated March 24, 1997, between SHF
                         Acquisition Corporation and Tolson Construction Co. for
                         the  construction  of a new rice dryer is  incorporated
                         herein by  reference  to Dunes  Hotels and Casinos Inc.
                         Quarterly  Report  on Form 10-Q for the  quarter  ended
                         June 30, 1997, Part II, Item 6, Exhibit 10.01

               10.42     Master  Equipment  Lease dated  April 3, 1997,  between
                         ICON Financial Corp. and SHF Acquisition Corporation is
                         incorporated  herein by  reference  to Dunes Hotels and
                         Casinos  Inc.  Quarterly  Report  on Form  10-Q for the
                         quarter  ended June 30, 1997,  Part II, Item 6, Exhibit
                         10.02.

               10.49     Loan  Purchase   Agreement  dated  November  19,  1997,
                         between  M&R  Investment  Company,  Inc.  and  John  B.
                         Anderson,  as  Trustee of the John J.  Anderson  Family
                         Trust is  incorporated  herein  by  reference  to Dunes
                         Hotels and  Casinos  Inc.  Current  Report on Form 8-K,
                         dated December 16, 1997, Item 5. Other Events.

<PAGE>21


               10.50     Agreement to provide  storage and drying dated May 28,
                         1998  between  Adams Grain Co. and SHF  Acquisition
                         Corporation.

               10.51     Amendment  to  Purchase  and  Option  Agreement  by and
                         between  SHF   Acquisition   Corporation   and  Murieta
                         Investors, LLC.

               10.52     Agreement to purchase  certain real property located in
                         Solano County, California (the Option Property) between
                         Los Rios Farms, Inc. and M&R Investment  Company,  Inc.
                         Dated December 8, 1998.

               21.01     Subsidiaries of Registrant.

               27.01     Financial Data Schedule

         (b)   Reports on Form 8-K

                         None


<PAGE>22



                                   SIGNATURES

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

DUNES HOTELS AND CASINOS INC.                   DUNES HOTELS AND CASINOS INC.


By    /s/Edward Pasquale                            By /s/Marvin P. Johnson 
      ------------------------------                   ------------------------
       Edward Pasquale                                 Marvin P. Johnson
       President                                       Principal Financial and 
       (Principal Executive Officer)                   Accounting Officer

Dated  March 24, 1999
       ----------------                            

       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 date indicated.

<TABLE>
<S>                                      <C>                                     <C>   

Signature                               Title                                            Date                          
-------------------------          ----------------                             ------------------                  


/s/EDWARD PASQUALE                     President                              
-------------------------                                                   
   Edward Pasquale


-------------------------            
John B. Anderson                          Director                                        March   , 1999
                                                                                       

/s/ BRENT L. BOWEN
-------------------------                                     
Brent L. Bowen                            Director                                        March 24, 1999

/s/ ANDREW P. MARINCOVICH
-------------------------                       
Andrew P. Marincovich                     Director                                        March 24, 1999

/s/ DONALD J. O'LEARY    
-------------------------                         
Donald J. O'Leary                         Director                                        March 24, 1999 

/s/ EDWARD PASQUALE
------------------------                              
Edward Pasquale                           Director                                        March 24, 1999

/s/ WAYNE O. PEARSON
-----------------------                            
Wayne O. Pearson                          Director                                        March 24, 1999

/s/ ERIK J. TALLSTROM
----------------------                               
Erik J. Tallstrom                         Director                                        March 24, 1999
</TABLE>
                                      


<PAGE>F-1



                          INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Dunes Hotels and Casinos Inc.
Sacramento, California

We have audited the accompanying  consolidated balance sheet of Dunes Hotels and
Casinos  Inc.  and  Subsidiaries  as of  December  31,  1998,  and  the  related
consolidated  statements of operations,  shareholders' equity and cash flows for
each of the two years in the period ended  December 31,  1998.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Dunes
Hotels and Casinos  Inc.  and  Subsidiaries  as of December  31,  1998,  and the
consolidated  results  of their  operations  and cash  flows for each of the two
years in the period ended  December  31,  1998,  in  conformity  with  generally
accepted accounting principles.

As discussed in Note 3a(1), there is a substantial  possibility that a change of
control of the Company has occurred or may occur in the near future.  The effect
of such a change on the Company's future  operations or other activities  cannot
be assessed at this time.

The Company has engaged in significant business activities and transactions with
related  parties,  including  real estate  investments  and lending,  which have
resulted in losses.

/s/ Piercy, Bowler, Taylor & Kern

Las Vegas, Nevada

January 29, 1999, except for Note 7 as to which the date is March 2, 1999.

<PAGE>F-2

     

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                DECEMBER 31, 1998
                             (Dollars in thousands)

                                     ASSETS


Cash and cash equivalents                                     $        3,120

Marketable securities                                                    828

Receivables
      Trade                                                                9
      Related party, less allowance                                       37
      Real estate sales                                                  369

Inventory of real estate held for sale                                 3,950

Prepaid expenses                                                         115

Property and equipment, less accumulated depreciation
      and amortization of $598                                         3,228

Real estate investment                                                   544

Other assets                                                               3
                                                              ---------------

                                                              $        12,203
                                                              ================


<PAGE>F-3
                                
                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEET (CONTINUED)

                                DECEMBER 31, 1998
                             (Dollars in thousands)

                       LIABILITIES AND SHAREHOLDERS EQUITY





Accounts payable                                         $             25

Accrued expenses                                                      185

Due to former minority interest                                       320

Income taxes                                                          307

Short-term debt                                                        49

Long-term debt and capital lease obligations                        1,875

Accrued preferred stock dividends in arrears                        1,245
                                                          -----------------

                                                                    4,006
                                                          -----------------

Shareholders' equity
      Preferred stock - authorized  10,750,000 
       shares ($.50 par); issued 10,512
       shares Series B $7.50 cumulative preferred stock, 
       outstanding 9,610 shares, aggregate liquidation
       value $2,446, including dividends in arrears                     5

      Common stock - authorized  25,000,000 shares 
       ($.50 par); issued 7,799,780
        shares, outstanding 6,375,096
        shares                                                      3,900
 
      Capital in excess of par                                     25,881

      Deficit                                                     (19,589)
                                                          -----------------
                                                                   10,197
      Treasury stock, at cost; Preferred - Series B, 
       902 shares Common 1,424,684 shares                         (2,000)
                                                          ------------------

          Total shareholders' equity                               8,197
                                                          ------------------

                                                          $       12,203
                                                          ==================

<PAGE>F-4
                                  



                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997
                    (Dollars in thousands, except per share)


<TABLE>
<S>                                                                         <C>                     <C>    


                                                                                     1998                     1997
                                                                              -------------------      -------------------
Revenues
  Sales of real estate                                                      $                571    $               7,146
  Rental income, agricultural properties                                                      57                      529
  Drying and storage revenues                                                                370                      806
  Miscellaneous income (expense), net                                                         35                      (83)
                                                                              -------------------      -------------------
                                                                                           1,033                    8,398
                                                                              -------------------      -------------------

Cost and expenses
  Cost of real estate sold                                                                   552                    6,658
  Cost and expenses of rental income                                                           4                       97
  Cost of drying and storage revenues                                                        413                      519
  Selling, administrative and general
    Corporate                                                                                763                    1,053
    Real estate operations                                                                   193                      218
  Bad debts (recoveries), net                                                                151                      (94)
  Depreciation                                                                               129                       83
  Provision for loss on real estate investment                                               100                      400
                                                                              -------------------      -------------------
                                                                                           2,305                    8,934
                                                                              -------------------      -------------------

Loss before other credits (charges), income taxes and
  minority interest                                                                       (1,272)                    (536)
                                                                              -------------------      -------------------

Other credits (charges):
  Interest and dividend income                                                               260                      323
  Interest expense                                                                          (184)                    (201)
  Loss on marketable securities, net                                                         (20)                      (4)
                                                                              -------------------      -------------------
                                                                                              56                      118
                                                                              -------------------      -------------------
</TABLE>

<PAGE>F-5


                                   

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997
                    (Dollars in thousands, except per share)


<TABLE>
<S>                                                                         <C>                      <C>    

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

Loss before income taxes and minority interest                                            (1,216)                    (418)

Income taxes                                                                                  11                       53
                                                                              -------------------      -------------------

Loss before minority interest                                                             (1,227)                    (471)

Minority interest in income of subsidiary, White Ranch                                                                404
                                                                              -------------------      -------------------


Net loss                                                                    $             (1,227)   $                (875)
                                                                              ===================      ===================


Weighted average number of shares outstanding                                          6,375,096                6,375,096
                                                                              ===================      ===================


Loss per common share                                                       $              (0.19)   $               (0.14)
                                                                              ===================      ===================


</TABLE>

<PAGE>F-6




                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

                             (Dollars in thousands)
<TABLE>
<S>                 <C>        <C> <C>      <C>         <C>      <C>      <C>     <C>           <C>        <C>          <C>
  


                     Preferred stock      Common stock                                    
                        issued (1)           issued      Capital             Preferred             Common               Total     
                     -----------------   ------------      in              treasury stock       treasury stock          share-
                               Par              Par      excess            --------------      -----------------        holders'
                      Shares  value  Shares    value     of par   Deficit    Shares  Cost       Shares       Cost       equity
                      ------  -----  -------   ------    ------   --------   ------  -----     ----------   -------      --------  
Balance, 
 January 1, 1997      10,512   $5    7,799,780  $3,900   $25,881 ($17,343)    902   ($70)      1,424,684   ($1,930)     $10,443   

Accrued 
 dividends, preferred                                                 (72)                                                  (72)  
Net loss                                                             (875)                                                 (875)  
                      ------  -----  ---------- -------- ------- ----------  ------  -----     ----------   -------      --------  
  
Balance, 
 December 31, 1997   10,512    5     7,799,780   3,900    25,881  (18,290)    902   ($70)  1,424,684     (1,930)          9,496   

Accrued
 dividends, preferred                                                 (72)                                                  (72)  
Net loss                                                           (1,227)                                               (1,227)
                     ------  -----  ---------- --------  ------- ----------  ------  ----- ----------   --------      ----------  
                    
Balance,
 December 31, 1998  10,512    $5     7,799,780   $3,900    $25,881 ($19,589)  902   ($70)  1,424,684     ($1,930)        $8,197   
                    =======  ====   ==========  =======  ========= ========= ====== ====== ==========    ========     ========== 

</TABLE>

  (1)    Series B,  $7.50  dividend,  voting  and  non-convertible  (liquidation
         value, $125 per share)





See notes to consolidated financial statements.

<PAGE>F-7

    

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997
                             (Dollars in thousands)


<TABLE>
<S>                                                                <C>                  <C>   

                                                                            1998                1997
                                                                       ---------------     ----------------
Cash flows from operating activities:
   Net loss                                                         $          (1,227)   $            (875)
 Adjustments to reconcile net loss to net cash
 provided by (used in)operating activities:
   Depreciation                                                                   129                   83
   Loss on marketable securities                                                   20                    4
   Provision for losses on receivables                                             76                  240
   (Gain) loss on disposition of assets                                            (8)                  58
   Provision for loss on real estate investment                                   100                  400
   Allocation of income to minority interest                                                           404
   (Increase) decrease in operating assets:
       Trade receivables                                                           (6)                 130
       Inventory, real estate held for sale                                       409                6,560
       Inventory, other                                                                                 38
       Prepaid expenses                                                             7                   (6)
       Other                                                                      121                 (113)
    Increase (decrease) in operating liabilities:
       Accounts payable                                                             3                  (74)
       Accrued expenses                                                           (24)                 (39)
       Deferred credits and other                                                (178)                 108
       Income taxes                                                                                     60
                                                                       ---------------     ----------------
  Net cash provided by (used in) operating activities                            (578)               6,978
                                                                       ---------------     ----------------

Cash flows from investing activities:
   Investment in marketable securities                                           (250)                (150)
   Proceeds from sale of marketable securities                                     75
   Real estate loans                                                             (145)                (189)
   Payments received on receivables                                               224                  760
   Proceeds from disposition of assets                                             13                  111
   Purchase of property and equipment                                            (110)              (1,826)
   Proceeds from investments                                                                             5
   Payments made to minority interest                                                               (2,981)
                                                                       ---------------     ----------------
  Net cash used in investing activities                                          (193)              (4,270)
                                                                       ---------------     ----------------
</TABLE>

<PAGE>F-8

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997
                             (Dollars in thousands)


<TABLE>
<S>                                                                <C>                  <C>   

                                                                            1998                1997
                                                                       ---------------     ----------------
Cash flows from financing activities:
   Proceeds from short-term debt                                    $              90    $             110
   Payments on short-term debt                                                   (101)                (119)
   Proceeds from long-term debt                                                                      1,150
   Payments on long-term debt                                                    (397)                (833)
                                                                       ---------------     ----------------
  Net cash provided by (used in) financing activities                            (408)                 308
                                                                       ---------------     ----------------

Increase (decrease) in cash and cash equivalents                               (1,179)               3,016

Cash and cash equivalents, beginning of year                                    4,299                1,283
                                                                       ---------------     ----------------

Cash and cash equivalents, end of year                              $           3,120    $           4,299
                                                                       ===============     ================


Supplemental  disclosures  of cash flow  information:  
 Cash paid during the year for:

    Income taxes                                                    $              11
                                                                       ===============
    Interest                                                        $             204    $             185
                                                                       ===============     ================

Supplemental schedules of non-cash investing and
 financing activities:
   Dividends accrued but unpaid                                     $              72    $              72
                                                                       ===============     ================

</TABLE>

<PAGE>F-9



                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

   

1.   Summary of significant accounting policies:

     Consolidation:

     The accompanying  consolidated financial statements include the accounts of
         the Company and its wholly-owned  subsidiaries  Continental  California
         Corporation   (Continental),   M  &  R  Corporation   (MRC)  and  MRC's
         subsidiary, M & R Investment Company, Inc. (MRI) and MRI's subsidiaries
         SHF Acquisition Corporation (SHF) and Southlake Acquisition Corporation
         (Southlake),  after elimination of all material  intercompany  balances
         and transactions.

     Description of business:

     The Company  operates  in two  principal  business  segments:  real  estate
         (development  and sale of residential  lots and rental of  agricultural
         land) and agricultural (grain drying and storage).

     The Company's  real  estate  segment  sells  completed   residential   lots
         primarily to builders of custom homes and to the general  public in and
         around the  greater  Sacramento,  California,  area.  The  agricultural
         properties  are leased to  farmers  in the area where the  agricultural
         properties are located.  Accordingly,  the Company's operations in this
         segment  could be  affected  by  material  adverse  changes in economic
         conditions in the area.

     The agricultural  segment dries and stores harvested grain over a two-month
         period  (approximately  September  15 to  November  15).  In 1998,  the
         Company  dried and  stored  white  taco corn for one  customer  under a
         five-year  agreement.  If the Company's  five-year  contract were to be
         cancelled,  it would have a material  adverse  effect on the  Company's
         drying and storage  operation.  In 1997,  the Company  dried and stored
         rice principally for another customer.

     Property and equipment and depreciation and amortization:

     Property and equipment are stated at cost.  Depreciation  and  amortization
         are  provided by the  straight-line  method over the  estimated  useful
         lives of the assets.

     Loss per share:

     Lossper common share has been computed  using the weighted  average  number
         of shares outstanding during the year:  6,375,096 and 6,375,096 for the
         years ended  December  31, 1998 and 1997,  respectively.  Dividends  on
         nonconvertible  preferred  stock - Series  B have  been  deducted  from
         income or added to the loss applicable to common shares.

<PAGE>F-10



                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997

                                 


     Cash equivalents:

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

     Marketable securities:

     The Company's  investments  in marketable  securities  are accounted for as
         trading  securities.  Accordingly,  gains  or  losses  related  to  the
         Company's  investments  in marketable  securities,  which have not been
         material, are included in operations.

     Environmental expenditures:

     Expenditures that relate to current  operations are expensed or capitalized
         as  appropriate.  Expenditures  that  relate to an  existing  condition
         caused  by past  operations  and  which  do not  contribute  to  future
         revenues are expensed.  Liabilities are recorded when remedial  efforts
         are probable and the costs can be reasonably estimated.

     Inventory of real estate held for development and sale:

     Realestate held for  development and sale is stated at the lower of cost or
         net realizable  value.  Costs include  primarily  acquisition costs and
         improvements costs. Costs are allocated to individual  properties using
         the  method  appropriate  in the  circumstances.  For  purposes  of the
         statement  of cash flows,  sales and  purchases of real estate held for
         development  and sale are classified as operating  activities,  because
         the real estate is, in substance, inventory.

     Use of estimates:

     Timely  preparation  of financial  statements in accordance  with generally
         accepted accounting principles requires management  estimates,  some of
         which may require revision in future periods. (See Note 11(c) ).

Capitalized interest:

      Forthe  year  ended   December   31,   1997,   the   Company   capitalized
         approximately  $15,000 of interest in connection with the  construction
         of the rice drying  facility (the Drying  Facility).The  capitalization
         rate  that was used was 12%  which is the rate  applicable  to the debt
         related to the construction of the Drying Facility.

<PAGE>F-11

2. Fair value of financial instruments:
     The following   methods  and  assumptions  were  used  by  the  Company  in
         estimating its fair value and disclosures for financial instruments.

     Cash, cash  equivalents  and  marketable  securities:  The carrying  amount
         approximates  fair  value  of cash,  cash  equivalents  and  marketable
         securities. For marketable securities,  fair values are estimated based
         on quoted market prices as of December 31, 1998.

     Notes receivable: These notes are collateralized by the real property sold.
         Management  believes  the fair value of real  estate  notes  receivable
         approximates  their carrying value based on their outstanding  balances
         (net of allowances),  their respective interest rates and the estimated
         fair  value,  based  on  comparable  sales  in the  area,  of the  real
         property.

         In the event  these  notes were not  collected,  and the  Company  were
         unable to recover or sell the  collateral  property the maximum  losses
         sustained would be equal to the aggregate value of the notes.

     Realestate  investment:  The fair  value of the  investment  in the  Solano
         County  Option,  is based on the sales price the Company  will  receive
         when the sale of the option closes escrow. (See Note 7).

     Long-term debt and capital  lease  obligation:  The fair value of long-term
         debt is not  subject to  reasonable  estimation  because the debt arose
         principally as a result of the settlement of a dispute.  The fair value
         of the capital lease  obligation is based on current rates at which the
         Company could borrow funds.

     The carrying amounts and fair values of the Company's significant financial
         instruments at December 31, 1998, is as follows (Dollars in thousands):

                                                          Carrying        Fair
                                                           Amount        Value
                                                          --------      -------
Cash, cash equivalents and marketable securities           $3,948        $3,948
Notes receivable, real estate sales                           369           369
Real estate investment                                        544           544
Long-term debt and capital lease obligation                (1,875)       (1,000)

3.   Related party transactions:

              a.  John  B.  Anderson  (Anderson),   the  Company's   controlling
              stockholder  and former  Chairman of the Board of Directors of the
              Company,  and  entities  owned  or  controlled  by  him  (Anderson
              Entities) own approximately 67.2% of the Company's common stock as
              of January 29, 1999. See Note 11(b) regarding  litigation  between
              Anderson and the Federal Deposit Insurance  Corporation (the FDIC)
              and a possible  change in ownership  of the  Company.  Each entity
              related or controlled by Anderson will  hereinafter  be identified
              as an Anderson Entity.



<PAGE>F-12

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997


              (1) In November  1997,  the Company  entered into a Loan  Purchase
              Agreement with Anderson, as Trustee of the John J. Anderson Family
              Trust (Trust).  At such date,  Anderson was President and Chairman
              of the Board of the  Company,  and through his  ownership of Cedar
              Development  Co., was the sole  shareholder  and President of Baby
              Grand Corp.  (BGC). The Loan Purchase  Agreement  provided for the
              sale  of a note  issued  by BGC  (BGC  Note)  payable  to MRI  for
              $320,000.  The BGC Note was in the  original  principal  amount of
              $2,650,000 with interest at 9% per annum and was collateralized by
              1,280,756  shares of the Company's  outstanding  common stock. The
              BGC Note  was  carried  on the  Company's  books at  approximately
              $100,000 and the Company reported a gain of approximately $162,500
              in 1997.

              The Loan Purchase Agreement was unanimously  approved by the Audit
              Committee of the  Company's  Board of  Directors  and seven of the
              Directors of the  Company.  Anderson  did not  participate  in the
              Board's  deliberation  or vote with  respect to the Loan  Purchase
              Agreement and provided  written  representation  to the Board that
              (i) he was aware of his fiduciary  obligation to the Company,  and
              (ii) he was not aware of any  transaction  pending or in  prospect
              which would enhance the value of the BGC Note above the sale price
              to the Trust. The Loan Purchase Agreement was approved in order to
              prevent a change of ownership for purposes of the Internal Revenue
              Code  of  1986,  as  amended.  Such a  change  would  result  in a
              significant  reduction,  or the complete loss of the Company's net
              operating  loss  carryforward,  which  as of  December  31,  1997,
              approximated $51,375,000.

              On December 2, 1997,  subsequent to  completing  the Loan Purchase
              Agreement,  it  came  to the  Company's  attention  that  BGC  had
              transferred to the Trust,  in other  satisfaction of the BGC Note,
              assets having an estimated value,  determined by BGC, ranging from
              approximately $1,192,443 to approximately $1,612,632.

              On December 8, 1997, the Company demanded that Anderson confirm to
              the Company  that the transfer of the assets from BGC to the Trust
              did in fact occur.  In  addition,  the Company  demanded  that all
              assets received by the Trust from BGC, less the amount paid to MRI
              for the purchase of the BGC Note, be turned over to the Company.

              On December 15, 1997,  Larry L. Bertsch,  the special  liquidating
              master (the  Special  Master)  previously  appointed by the United
              States  District  Court,  District of Nevada (the Nevada  District
              Court),  to sell  the  assets  that  serve as  collateral  for the
              obligation due the FDIC by the Anderson  Parties,  filed with that
              court an emergency  motion seeking among other things a rescission
              of the transaction.

              On March 31, 1998, the Nevada District Court ordered that the Loan
              Purchase  Agreement be rescinded and all parties return any of the
              assets  transferred.  As a result, the Company has recorded a loss
              of approximately $162,500 in 1998.

         (2)  For the year ended  December 31, 1997,  $45,400 was paid on behalf
              of Anderson for certain of Anderson's expenses, in lieu of salary,
              which  payments  were  considered   compensation  to  Anderson  as
              President of the Company and were approved by the Company's  Audit
              Committee. No payments have been made to Anderson during 1998.


<PAGE>F-13

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997


(3)  In August 1997, the Company  entered into a oral agreement with an Anderson
     related entity to lease the West Sacramento Drying Facility for the purpose
     of drying  short-grain rice during the 1997 rice drying season.  Rental for
     the West Sacramento Drying Facility was $20,000 plus 50% of the rice drying
     and storage profit after  deduction for the $20,000 rent payment.  The rent
     payment was made by transferring to the Anderson  related entity a piece of
     equipment,  valued at $20,000,  that was  previously  used in the Steadfast
     Cattle operation.
              
4.  Inventory  of  real  estate  held  for  development  and  sale  (Dollars  in
thousands):

         The Fairways (a)                                 $    3,764
         Sam Hamburg Farm (b)                                    146
         Other                                                    40
                                                         ------------
                                                             $ 3,950

     (a) The  Company,  through  SHF,  developed  50 acres of  residential  land
         located at Rancho  Murieta,  California as a  residential  planned unit
         development  known as "The  Fairways".  Rancho Murieta is a 3,500- acre
         master planned unit  development  located  approximately  25 miles from
         Sacramento,  California.  The  land  is  encumbered  by  bonds  in  the
         approximate  amount of $140,000,  see page 6. Rancho  Murieta  consists
         primarily of single family homes, town houses,  commercial property and
         two  18-hole   championship   golf  courses,   including  country  club
         facilities.  The Fairways,  located within the boundaries of one of the
         golf  courses  located  at  Rancho  Murieta,  was  subdivided  into 110
         single-family  estate  lots.  As of January  29,  1999,  45 lots remain
         unsold.

         In connection with its development of The Fairways, SHF was required to
         construct  certain  improvements  that benefited not only The Fairways,
         but other properties that lay outside of the boundaries of The Fairways
         (the Benefited  Properties).  The net cost of the  improvements  to the
         Benefited  Properties was $1,140,900.  SHF will be reimbursed for these
         costs  as the  Benefited  Properties  are  developed.  SHF's  right  to
         reimbursement  will expire in September  2115 and the Company is unable
         to predict what amount, if any, will be received as reimbursement.  The
         rights to  reimbursement  are  personal  to SHF and do not run with The
         Fairway's property unless assigned by SHF.

         As part of the Settlement  Agreement with the Resolution  Trust  
         Corporation (the RTC), all of the unsold lots in The Fairways are  
         encumbered  by a deed of trust in favor of the RTC. The deed of trust 
         requires a $40,000 payment for the release of each of the encumbered 
         lots. (See Note 8).

         In July  1996,  the  Company  signed a Purchase  and  Option  Agreement
         (Agreement) with Murieta  Investors,  LLC (MI). The Agreement  provides
         that MI will  purchase  from  the  Company  6 lots at The  Fairways  at
         $40,000 per lot and MI will have an option to acquire  additional lots.
         In addition, the Company may receive contingent  consideration equal to
         20% of the gross sales  price of each  residential  dwelling  sold less
         $40,000 (the Success Payments).

<PAGE>F-14

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997


         In 1998, the Agreement was amended to provide for options on 34 lots at
         a purchase price of $50,000 plus the 20% Success Payments.  The options
         are exercisable starting December 1, 1998 (6 lots) and every six months
         thereafter (4 lots each). In addition, if 2 consecutive options are not
         exercised,  then the remaining options are terminated.  To date, MI did
         not exercise the first option due December 1, 1998.

     (b) Sam Hamburg Farm consists of  approximately  150 acres of  agricultural
         property.  Of the 150 acres,  40 acres  contain  the air strip and shop
         areas which are the focus of continuing  attempts at chemical clean-up.
         See Note 11 (c) for a detailed discussion concerning the removal of the
         toxic waste.  The remaining 110 acres are leased to various  tenants at
         an annual aggregate rental of approximately $20,000.

     (c) On July 15, 1997, the Company  closed the sale of the White Ranch.  Net
         proceeds  from  the  sale  were   approximately   $5,965,000  of  which
         approximately  $2,982,500  was paid to the Company.  The balance of the
         proceeds were paid to the other 50% owner of the White Ranch. (See Note
         10).

         On July 3, 1997, the Company closed the sale of the 57 residential lots
         located in North Las Vegas,  Nevada.  Net  proceeds to the Company were
         approximately  $645,600 which included a reimbursement of approximately
         $72,600 for water fees  previously  paid. Out of the net proceeds,  the
         Company paid approximately  $318,000 to Beal Bank, the purchaser of the
         SASA Obligation.

5. Property and equipment and accumulated depreciation and amortization (Dollars
in thousands):

         Land and land improvements                  $   159
         Building and improvements                     3,591
         Machinery and equipment                          76
                                                    --------
                                                       3,826
         Less accumulated depreciation 
          and amortization                             ( 598)
                                                    ---------
                                                     $ 3,228

     In September  1997,  the Company  commenced the operation of its new drying
facility which cost $1,806,250.



<PAGE>F-15


                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997



6.       Long-term notes receivable (Dollars in thousands):
         Related Party
           BGC, including interest                                       1936
           Less allowance                                                1899
                                                                           37
     Real estate
         Various real estate notes, collateralized by deeds of trust
          with interest ranging from 8% to 10% (a)                        369
                                                                     --------
                                                                     $    406
                                                                     ========
     (a) Approximately $63,000 of the various real estate notes are subject to a
         collateral assignment in favor of the RTC. (See Note 8).

7. Real estate investment (Dollars in thousands):

     Real estate investment consists of:
         Solano County Option, at cost                                $ 1,044
         Less allowance                                                  (500)
                                                                      --------
                                                                     $    544
                                                                      =========

         The  Company  has an option  (the  Solano  County  Option)  to  acquire
         approximately  1,690  acres of farm  land  located  in  Solano  County,
         California.  The Company acquired the Solano County Option as part of a
         settlement  agreement  between  BGC,  an Anderson  Entity,  a financial
         institution and MRI. The purchase price of the Solano County Option was
         $1,043,902.  The Solano County  Option  provides that the Company would
         purchase the 1,690 acres at a price of  $3,000,000.  The Company  would
         receive a credit of $1,000,000  against the Option Purchase Price.  The
         option  expires on May 1, 2003.  The owner of the property under option
         had informed  the Company  that it is current on all payments  that are
         required on the first mortgage lien.

         In  December  1998,  the Company  entered  into an  agreement  with the
grantor  of the option to sell back its rights  under the option  agreement  for
$533,333.  The agreement  provides for a 120 day escrow,  and the  reacquisition
price is to be paid  $500,000  in cash at closing  and a $33,333  note.  Closing
occurred on March 2, 1999 and the Company received its
          consideration.

8. Long-term debt and capital lease obligations:

Long-term debt and capital lease  obligations at December 31, 1998,  consists of
the following (Dollars in thousands):

         RTC Settlement Note (a)                                     $    856
         Capital lease obligation (b)                                   1,000
         Other (c)                                                         19
                                                                    ----------
                                                                    $   1,875
                                                                    ==========

<PAGE>F-16



                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997



Five year maturities of long-term debt are as follows:

                                       (Dollars in thousands)
                                       ----------------------
                      Long term           Capital
                        debt          Lease Obligation      Total
                   ------------       -----------------  --------

         1999          $   3               $  182         $   185
         2000            858                  221           1,079
         2001              3                  247             250
         2002              3                  276             279
         2003              3                   74              77
         Thereafter        5                                    5    
                     --------             -------         -------         
                     $   875              $ 1,000         $ 1,875
                     ========            ========         =======



     (a) The RTC Settlement  Note is dated December 6, 1995, and is due December
         6, 2000.  The note bears interest at the rate of 1% over the prime rate
         as  published  in  the  Wall  Street  Journal.  The  rate  is  adjusted
         semi-annually (the Interest Adjustment Date),  provided,  however, that
         under no circumstances  shall the rate be less than 8% or more than 12%
         per annum.  Payment terms are interest only,  payable monthly.  Monthly
         payments are adjusted  semi-annually  on the Interest  Adjustment Date.
         The  entire  remaining  principal  amount  and all  accrued  and unpaid
         interest  is due and  payable  in full on  December  6,  2000.  The RTC
         Settlement Note was sold to Beal Bank in 1996.

         The note is collateralized by the following:

              A deed of trust with an assignment  of rents (Rancho  Murieta Deed
              of Trust) with SHF.  The Rancho  Murieta  Deed of Trust  encumbers
              approximately  45 finished  residential  lots at December 31, 1998
              located at The  Fairways.  SHF is entitled to the release of a lot
              upon the  payment of  $40,000 to Beal Bank for each lot  released.
              Beal Bank will apply such  payments to the  outstanding  principal
              due on the note.

              A  collateral  assignment  of purchase  money  promissory  notes (
              Notes) secured by deeds of trust with SHF as pledgor and Beal Bank
              as pledgee.  As of December 31, 1998,  Notes with a face amount of
              $63,000 have been pledged to Beal Bank.  Principal  collections on
              the Notes will be  remitted  to Beal Bank for  application  to the
              outstanding principal due on the note.

     (b)      The  Company  has a  financing  lease  agreement  for  its  drying
              facility for five years  commencing March 1998. The monthly rental
              is $25,122,  and the Company can buy the drying facility for $1 at
              the end of the lease.  The lease is  collateralized  by the drying
              facility,  a  deed  on  trust  on  certain  parcels  of  property,
              including the parcel on which the storage  facility is located and
              the  guarantees of MRI and the Company.  Before the guarantors are
              liable for any deficiency,  the leasing company must first proceed
              against the drying facility and the additional collateral.


<PAGE>F-17

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997


     (c)      Other  long-term  debt  consists of an  unsecured  note payable in
              annual installments of $5,000, including interest

9.   Preferred Stock:

         The  Company  is  authorized  to issue  10,750,000  shares of $0.50 par
              value preferred shares. The Company gave authority to its Board of
              Directors  to issue such  preferred  shares in one or more series,
              and  to  fix  the  number  of  shares  in  each  series,  and  all
              designations,  relative rights  preferences and limitations of the
              shares issued in each series.  As of December 31, 1998,  the Board
              of Directors has not exercised the authority granted,  and no such
              preferred  shares have been issued except for the 10,512 shares of
              Series B, $7.50 cumulative  preferred of which 902 shares are held
              as treasury stock.  Dividends on the Company's  Series B preferred
              stock  have not been paid  since the first  quarter  of 1982.  The
              Company is in arrears on such  dividends  as of December 31, 1998,
              in the amount of approximately $1,245,000.

10. Due to former minority interest:

         The  due to former minority  interest consists of the other 50% owner's
              share  of the  accumulated  profits  from  the  operations  of the
              subsidiary, White Ranch, which was sold in 1997.

11.  Contingencies:

         (a)  As of December 31, 1998, there were no material legal  proceedings
              pending  against  the  Company.  See Note  3(a) and item (b) below
              regarding  legal  proceedings  not  involving the Company that may
              have a material adverse effect on the Company.

         (b)  Anderson,  Edith Anderson (Anderson's wife), Cedar Development Co.
             (Cedar), J.A.  Inc.,  and  J.B.A.  Investments,  Inc.  (JBA  and 
             collectively  with Anderson, his wife, Cedar, and J.A. Inc. the
             Anderson Parties) are involved in litigation (the Anderson
             Litigation)  with the FDIC. Until December 11, 1997,  Anderson was 
             the  President and Chairman of the Board of the Company
             and Chairman of the Board of various subsidiaries of the Company. 
             Prior to the events described herein, Anderson,  through his
             ownership of Cedar, the parent of BGC and JBA, owned approximately
             4,280,756 shares or 67.2% of the Company's outstanding common stock
             (the Common Stock). Of those shares (i) 3,000,000  shares (the FDIC
             Pledged Shares) have been pledged as collateral in favor of 
             entities of which the FDIC is a successor  and/or  assign,  and
             (ii)  1,280,756  shares  (the BGC  Pledged  Shares)  have been  
              pledged  as collateral in favor of a subsidiary of the Company.

              In  July  1997  the  Nevada  District  Court  approved  "a plan of
              disposition  of  collateral".  A Special  Master was  appointed to
              implement the plan,  which includes  among other things,  the FDIC
              Pledged  Shares  and the  common  stock of BGC which  owns the BGC
              Pledged  Shares.  The  Special  Master  was to accept  bids  until
              November  13, 1997 and make his  recommendation  to the court.  To
              date the Special Master has not reported his


<PAGE>F-18

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997


              recommendations  to the Court and the Company has not been advised
              of any  FDIC  sale of  security  interests  it  holds  in the FDIC
              Pledged shares.

              The Company submitted a bid for the 3,000,000 FDIC Pledged Shares.
              Under certain  circumstances,  the sale of the FDIC Pledged Shares
              and the BGC Pledged  Shares  within a three year period may result
              in a change in ownership of more than fifty percent of the Company
              which may  result in a  material  reduction  of the  amount of net
              operating loss carry forward (NOL). (Note 12).

              On or about December 16, 1997, the Nevada District Court issued an
              order  declaring  that the FDIC  has the  right to act by  written
              consent  with respect to Cedar,  BGC,  JBA and JA.  Because of the
              Nevada District  Court's order, the FDIC has the power to exercise
              voting  rights  with  respect to the FDIC  Pledged  Shares,  which
              represent 47.1% of the outstanding common stock.  Because the FDIC
              is able to exercise voting rights with respect to the FDIC Pledged
              Shares,  the FDIC is able to exercise  substantial  influence with
              respect to the  election of the entire  Board of  Directors of the
              Company and all matters  submitted  to  stockholders.  The FDIC is
              able  to   significantly   influence   the  direction  and  future
              operations of the Company,  including  decisions  regarding future
              financings  (which could involve the issuance of additional Common
              Stock or other securities) and decisions  regarding the day-to-day
              operations   of  the  Company's   real  estate  and   agricultural
              operations.  If it is ultimately  determined that the FDIC has the
              authority  to  exercise  voting  rights  with  respect  to the BGC
              Pledged  Shares,  then the FDIC would have the power to vote 67.2%
              of the outstanding Common Stock of the Company. In such event, the
              FDIC  would be able to  control,  rather  than only  significantly
              influence,  the  election of the entire  Board of Directors of the
              Company and all matters submitted to stockholders.

              In  response  to the FDIC's  January  15,  1998,  demand to hold a
              special meeting of shareholders,  the Company indicated that it is
              willing to discuss the  procedures  and  effects of a  stockholder
              meeting with the FDIC, but pending more  information from the FDIC
              the Company is deferring the formal  setting of a meeting date and
              record  date for voting  purposes.  To date,  the FDIC has not yet
              responded to the Company as to such further information.

(c)           SHF was advised in 1991 of possible  contamination  at Sam Hamburg
              Farm of approximately 5,000 cubic yards of contaminated earth. The
              Company,  through its chemical and toxic clean-up consultant,  has
              been working with the California  State  Environmental  Protection
              Agency,  in seeking  alternate means to the disposal in toxic dump
              sites of chemical and toxics-laden soil.

              Because  of the  ongoing  testing,  the  State  has not  imposed a
              disposal  date upon the Company.  Cost of disposal is estimated at
              $100 per cubic yard or approximately $500,000. However, if on-site
              remediation can be achieved, it is estimated that the cost will be
              between  $90,000  and  $115,000.  The Company is unable to predict
              when the ongoing  testing  will be complete or what the outcome of
              these tests will be. Accordingly, the estimates could  materially
              change  as  the  testing  and emediation work continues, which
              could be as early as 1999.



<PAGE>F19
                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997




              
              
(d)  The Company has  received a notice from the State of  California  Franchise
     Tax  Board  (FTB)  wherein  the  FTB  alleges  that  one of  the  Company's
     subsidiaries owes California franchise tax of approximately  $316,000, plus
     approximately  $350,000  in  penalties  and  interest  resulting  from  the
     foreclosure  sale of certain real  property  owned by the  subsidiary.  The
     Company  appealed this matter to the California State Board of Equalization
     (SBE)  which  ruled in favor or the Company on one point and ruled in favor
     of the FTB on another. Both sides appealed and the SBE has agreed to rehear
     the case in 1999.  Provision has been made in the financial  statements for
     management's  minimum  estimate  of the  costs  of this  matter,  including
     penalties and interest accrued.


12.  Taxes:

         The Company and its subsidiaries file a consolidated federal income tax
          return.  Deferred  tax  assets  (liabilities)  are  comprised  of  the
          following at December 31, 1998
         (Dollars in thousands);
<TABLE>
<S>                                                                              <C>   
     Investment allowances                                                                   $170
Real estate allowances                                                                        480
         Loss carryforwards                                                                17,858
         Other                                                                                  2
              Gross deferred tax assets                                                    18,510
              Deferred tax asset valuation allowance                                      (18,508)
                                                                                                2
         Marketable securities valuation allowance                                             (2)
              Gross deferred tax liabilities                                                   (2)
         Net deferred tax assets                                                     $          0
                                                                                     ============


         A reconciliation  of the  changes in deferred  tax assets  valuation
          allowance is as follows: (Dollars in thousands);

         Valuation allowance for idle equipment                                               (11)
         Valuation allowance for unrealized loss on marketable securities                       7
         Current year loss carryforwards                                                      551
         (Decrease) in valuation allowance for loan receivables.                               (2)
Valuation allowance for other investments                                                      34                   
                                                                                      -----------                  -
         Change in deferred tax asset valuation allowance                                     579
         Deferred tax assets valuation allowance, beginning of year                        17,929
                                                                                        ---------
         Deferred tax assets valuation allowance, end of year                           $  18,508
                                                                                        =========
</TABLE>



<PAGE>F-20

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997


                            

A reconciliation of the federal statutory tax rate to the effective tax rate for
1998 and 1997, is as follows:

                                                 Percentage of pre-tax income
                                                       1998           1997
                                                      -----          ------
Federal statutory rate                              (34.00%)         (34.00%)
Debt discharges and other                            (1.08%)         (84.69%)
Non-deductible items:
     Valuation adjustments                           34.65%          121.46%
     Other                                             .43%           (2.77%)  
                                                   --------        --------   
                                                      0.00%            0.00%
                                                   ========        =========

The Company has the following net operating loss carryovers available for income
tax reporting purposes:
                      Year of expiration                (Dollars in thousands)
                      ------------------                -----------------------
                              2000                                2,386
                              2001                                9,890
                              2003                               20,156
                              2004                                1,889
                              2005                                1,891
                              2006                                3,542
                              2007                                  803
                              2008                                2,408
                              2009                                  595
                              2010                                3,298
                              2011                                1,791
                              2012                                2,726
                              2018                                1,167

         As   more fully  described  in Note 3a (1) a change in ownership of the
              Company  may  have  or  could  take  place.  If such a  change  in
              ownership  were to take  place,  it would  materially  reduce  the
              amount  of net  operating  losses  that the  Company  could use to
              offset  future  taxable  income in any  given  year.  This  annual
              limitation,  to the extent not used in any given taxable year, may
              be  carried  forward  and added to the  limitation  of  subsequent
              years.



<PAGE>F-21

                 DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 1998 AND 1997


13.  Segment information:

         Effective January 1, 1998, the Company  adopted  Statement of Financial
              Accounting  Standards (SFAS) No. 131,  "Disclosures about Segments
              of an Enterprise  and Related  Information",  without any material
              effect.

         As   discussed  in  Note  1,  the  Company  operates  in two  principal
              business segments:  real estate investments  (development and sale
              of  residential  lots  and  rental  of  agricultural   land),  and
              agricultural (drying and storing grain).

         Following is a summary of segment information for 1998 and 1997:
<TABLE>
<S>                                                                         <C>             <C>  

                                                                                  1998           1997
                                                                                  ----           ----
         Net revenues from unaffiliated customers:
              Real estate:
                      Sale of real estate                                      $   571       $  7,146
                      Land rent                                                     57            529
              Grain drying and storage revenue                                     370            806
                                                                             ---------      ---------
                                                                               $   998        $ 8,481
                                                                               =======        =======

         Income (loss) from operations:


              Real estate                                                   $     (122)     $     626
              Grain drying and storage                                            (165)           211
                                                                          -------------     ---------
                                                                                  (287)           837
              Corporate operating expense                                       (1,020)        (1,290)
              Other income (expense)                                                91             35
              Income taxes                                                         (11)           (53)
              Minority interest                                                                  (404)  
                                                                         -------------   ---------------
         Net loss, as reported in the
         accompanying consolidated statements of operations                    ($1,227)        ($ 875)
                                                                               =======         ======


                                                                                  1998 
         Identifiable assets
              Real estate                                                      $ 3,950
              Grain drying and storage                                           3,203
              General corporate assets                                           5,050
                                                                             ---------
         Total assets, as reported in the accompanying
          consolidated balance sheet                                         $  12,203
                                                                             =========
</TABLE>