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                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

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

                                  FORM 10-KSB
                             --------------------

                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
                    For fiscal year ended October 31, 1998

                        Commission File Number: 0-24846

                         COLORADO CASINO RESORTS, INC.
                         -----------------------------
            (Exact name of Registrant as specified in its Charter)

           Texas                                                84-1303693
           -----                                                ----------
(State or other jurisdiction of                                (IRS Employer
incorporation or organization)                              Identification No.)

                             304 South 8th Street
                                   Suite 201
                          Colorado Springs, CO  80905
                                (719) 635-7047
                                --------------
       (Address, including zip code, and telephone number, including area
             code, of Registrant's principal executive offices)

     SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:
                        Common Stock, $0.001 Par Value
                               (Title of Class)

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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 disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained,  to the best of registrant's
knowledge,  in  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 the registrant's revenues for its most recent fiscal year: $23,225,232.

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant on April 26, 1999 was approximately $7,778,233 based upon the average
reported closing bid and asked price of such shares. As of April 26, 1999, there
were 38,740,632 shares outstanding.

                  DOCUMENTS INCORPORATED BY REFERENCE: None.

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<PAGE>



                               TABLE OF CONTENTS


PART I

      Item 1. Description of Business.................................    3

      Item 2. Description of Property.................................    13

      Item 3. Legal Proceedings.......................................    13

      Item 4. Submission of Matters to a Vote of Security Holders.....    14


PART II

      Item 5. Market for Registrant's Common Equity and Related
              Shareholder Matters.....................................    15

      Item 6. Management's Discussion and Analysis or Plan of Operation   16

      Item 7. Financial Statements....................................    24

      Item 8. Changes In and Disagreements with Accountants
              on Accounting and Financial Disclosure..................    24

PART III

      Item 9. Directors, Executive Officers, Promoters, and Control
              Persons; Compliance with Section 16(a) of the
              Exchange Act............................................    25

      Item 10.Executive Compensation..................................    28

      Item 11.Security Ownership of Certain Beneficial Owners and
              Management..............................................    29

      Item 12.Certain Relationships and Related Transactions..........    30

      Item 13.Exhibits and Reports on Form 8-K........................    31


                                     -2-

<PAGE>



                                    PART I

Item 1.    Description of Business

General

Colorado Casino Resorts, Inc. owns, develops and operates gaming properties. The
Company  currently  owns and operates two casino  properties  in Cripple  Creek,
Colorado -- The Double Eagle Hotel & Casino ("The Double  Eagle") and  Creeker's
Casino  ("Creeker's  Casino").  The Double Eagle is the largest  casino/hotel in
Cripple Creek. This five-story  casino/hotel is prominently  located at the main
entrance  to  Cripple  Creek and  offers  customers  158 guest  rooms,  a 45,000
square-foot  casino with over 600 slot machines and five blackjack  tables,  two
bars,  an 85-seat  restaurant,  an  entertainment  stage,  and a gift shop.  The
Company's  second  casino,  Creeker's  Casino,  is a 19,000  square-foot  casino
located in the center of Cripple Creek's gaming district with  approximately 200
slot machines, two bars, and a restaurant.

Corporate Background

The Company developed and opened The Double Eagle in 1996 and acquired and began
operating  Creeker's  in  1995.  Prior  to the  acquisition  of  Creeker's,  the
Company's  operations  were  primarily  devoted  to  acquiring  land for  future
development, identifying potential acquisition candidates and obtaining required
gaming and other  licenses  and  financings.  Management  of the  Company  began
efforts to develop  casino  operations  in Cripple  Creek a year after  Colorado
gaming was  legalized  in 1991.  Through  Lyric  Development  Company,  Inc. and
certain related predecessor companies ("Lyric"), management began acquiring land
in Cripple Creek, one of three cities permitted to have limited stakes gaming in
Colorado.  In 1992 and 1993,  Lyric  acquired  nine lots in Cripple  Creek for a
total $4.35 million, including the land where The Double Eagle now stands.

In January 1994, Lyric entered into a reverse merger transaction with Airline of
the Virgin  Islands,  Inc.  ("AVI"),  a reporting  company under the  Securities
Exchange  Act of 1934  ("Exchange  Act") with no assets or  operations.  AVI was
originally  incorporated  under  the  laws of the  Virgin  Islands  in 1982  and
reincorporated  in the State of Texas in March 1993. In the merger  transaction,
Lyric  contributed  its land holdings in exchange for  approximately  77% of the
then issued and  outstanding  voting stock of AVI, the  surviving  entity.  Upon
completion of the merger,  the Company  changed its  corporate  name from AVI to
Colorado Casino Resorts, Inc.

In March 1995, the Company  acquired  Creeker's  Casino in a merger  transaction
with Creeker's,  Inc. which was accounted for as a pooling of interests, and the
Company's  common stock began  trading on the NASDAQ  SmallCap  Market under the
symbol "CCRI." In 1996, the Company  developed and opened The Double Eagle,  the
largest  casino/hotel in Cripple Creek and one of the largest  casinos/hotels in
the State of Colorado.  In August 1996, the Company  transferred  the assets and
liabilities  of The Double  Eagle to a  wholly-owned  subsidiary,  Double  Eagle
Resorts, Inc., a Colorado corporation.

The Company's principal executive offices are currently located at 304 South 8th
Street, Suite 201, Colorado Springs,  Colorado 80905. In 1999, the Company plans
to relocate its principal  executive  offices to One North Nevada Avenue,  Suite
200, Colorado Springs, Colorado 80905. The telephone number is (719) 635-7047.




                                     -3-

<PAGE>



The Double Eagle

The Double Eagle is the largest  casino/hotel  in Cripple Creek.  Located at the
start  of  Bennett  Avenue,  The  Double  Eagle  provides  superior  access  and
visibility to gaming patrons and tourists arriving in the city of Cripple Creek.
The Company believes that The Double Eagle is the premier gaming facility in the
Cripple Creek. Unlike most casinos in Cripple Creek, that are converted historic
structures with little or no hotel accommodations and few non-gaming  amenities,
The  Double  Eagle is a modern  casino/hotel,  newly  constructed  in 1996.  The
five-story  Double Eagle has 45,000  square-foot of gaming space  featuring over
600 slot machines and five  blackjack  tables.  The Double Eagle also offers 158
hotel rooms and suites,  a total of 400 parking  spaces with free valet  parking
and shuttle  transportation,  an 85-seat restaurant,  Lombard's Bar & Grill, two
bars,  an  entertainment  stage,  and a gift shop  offering  a variety  of items
bearing The Double Eagle name.  The Double Eagle has been  designed as a modern,
state-of-the-art hotel and casino inspired by the grandeur of Las Vegas casinos.
The  exterior  design of The Double  Eagle is based on the  historic  structures
which  existed in the city of Cripple Creek at the turn of the century while the
interior is  fashioned  on a "Roaring  20's" theme,  including  elegant  winding
staircases, a stained glass-like barrel ceiling, and colorful  three-dimensional
casino signs. It currently employs 276 people and is open seven days a week. The
casino is open from 8:00 a.m. to 2:00 a.m., while the hotel is open 24 hours.

Creeker's Casino

Creeker's  Casino is located at the corner of 3rd Street and  Bennett  Avenue in
the center of Cripple Creek in a three-story  building that has been designed to
resemble a  Victorian-style  historic  structure  of the late 1800s.  Within its
19,000 square-foot casino,  Creeker's Casino offers 200 slot machines, two bars,
a restaurant featuring buffet-style meals, and entertainment areas, including an
arcade area for the children of gaming patrons. Creeker's currently employees 73
people and is open seven days a week from 8:00 a.m. to 2:00 a.m.,  as limited by
Colorado gaming regulations.

Business and Marketing Strategy

The Company controls approximately 15% of the slot machines in the Cripple Creek
market.  Commencing in May 1998, the Company launched an aggressive  campaign to
increase its market share of the total amount wagered in Cripple Creek (commonly
referred to as the "handle" in the gaming  industry) and its market share of the
total "win" in Cripple  Creek  (generally  determined  by  subtracting  from the
handle the amount paid out to gaming patrons).  This aggressive  growth strategy
commenced with the optimization of the casino floor, which included:

     o    Increasing payout percentages on all slot machines; and

     o    Increasing  utilization factors by reducing the number of machines
          to optimal levels; and

     o    Increasing the variety of game types.

The Company  continues to monitor  payout  percentages  of its slot  machines to
ensure that they remain competitive.

Furthermore, statistical analysis was also employed to monitor the handle of the
Company's casinos,  to profile game performance by denomination,  to adjust mix,
location,  and number of machines, and to establish a customer database with the
ultimate goal of maximizing "play." As a result, during the following six months
The Double Eagle proceeded to gain market share,  first exceeding its fair share
in July - just three months after implementing the strategy. During the last six
months of fiscal 1998, win market share approached fair share at 14.16% share of
total  revenues  with 14.35% of the city's slot  machines.  This  represents  an
improvement when compared to 14.27% share of total revenues

                                     -4-

<PAGE>



with 15.72% of total slot machines  reported during the same six-month period in
fiscal year 1997. In fiscal 1999 the trend continues,  however with a slight dip
in December due to higher number of jackpots (low hold percentage).

Increased  slot play is also  encouraged  through  the use of "slot  clubs." The
"Gold Premier Club" at the Double Eagle and "Winner's  Circle" at Creeker's slot
clubs and the use of a computerized  player tracking  system,  that monitors the
wagering of its members,  provides the Company with  information  which  assists
management in planning and directing its marketing efforts to its customers.  As
members  of the Gold  Premier  Club,  patrons  are  encouraged  to insert  their
frequent player card into slot,  keno, and video poker machines while playing in
the  casino  to earn  points.  Using  the  tracking  system  to track  wagering,
management  rewards members of the Gold Premier Club based on their point totals
with various cash and gift prizes.  During fiscal year 1998, Creeker's signed up
nearly 8,000  members to the Gold  Premier Club while The Double Eagle  welcomed
20,000 new members to the club. Currently, Creeker's and The Double Eagle have a
combined total of 95,000 members in their database.

The Company also seeks to increase its share of the Cripple  Creek casino market
through  increased  and  better  targeted  marketing  programs  and  promotional
activities.  The objective of the Company's  marketing  programs and promotional
activities  is to develop and expand a loyal  customer  base at its casinos.  In
order to promote this strategy and enhance its perceived image, The Double Eagle
retained the  marketing and  advertising  services of  Zimmerman,  Laurent,  and
Richardson & Associates  ("ZLR") in mid-May,  1998.  ZLR launched an  aggressive
marketing  campaign,  complete  with  the  creation  of a  new  image,  new  and
innovative print advertising  collateral,  comprehensive  direct-mail  marketing
programs,  and creative radio and billboard advertising concepts.  The objective
was to maximize the exposure of the "new" Double Eagle, with emphasis on the new
"looser"  slot  machines  and the  frequency  and  magnitude  of jackpots  paid.
Furthermore,  a new  Director of Marketing  was  recently  hired to continue the
momentum started by ZLR.

The  Company's  marketing  strategy  has been to  aggressively  promote  its two
properties to customers in the identified  market  segments.  Through the use of
radio and print advertising,  promotional  coupons,  and special events designed
uniquely to address  each market  segment,  management  attracts  players to its
respective  properties.  Promotional  allowances,  such as complimentary  rooms,
food, beverage,  and entertainment are used at both casinos to reward and retain
its customers. Specifically,  Creeker's promotes coupons for discounts on buffet
meals,  cash and prize give-aways  while The Double Eagle offers  discounted and
complimentary hotel rooms,  complimentary  dinners at Lombard's Bar & Grill, and
cash sweepstakes to attract respective customers.

Management  of The Double Eagle  continues to reinforce  its growth  strategy by
improving  its  overall  image  and  effectiveness  through  new and  innovative
marketing  programs,  a  redesigned  casino  floor  layout with  higher  payback
percentages,  and the  introduction  of a VIP lounge for qualified  players.  In
addition to free weekday slot  tournaments and special events,  The Double Eagle
hosts live entertainment and music acts at its piano bar and lounge.  Responding
to the needs of its customers, management recently changed the menu at Lombard's
Bar & Grill. The new menu features a greater selection of popular items served a
la carte and a buffet was added with service offered throughout the day.

The Cripple Creek Market

A small  mountain  town  located  approximately  45 miles  southwest of Colorado
Springs on the  western  boundary  of Pikes  Peak,  Cripple  Creek is a historic
mining town originally founded in the late

                                     -5-

<PAGE>



1800s  following  a large gold  strike.  It is  accessible  via US Highway 24, a
four-lane divided highway, which connects with the two-lane State Highway 67.

Primarily a tourist town, with its Victorian-style architecture,  scenic vistas,
few  active  gold  mines,  and many  abandoned  mines  shafts  and caves left by
prospectors,  Cripple  Creek is presently  one of three venues for gaming in the
State of Colorado.  The other two are Black Hawk and Central City. Cripple Creek
operated  approximately  28.7% of the gaming devices and generated  23.6% of the
gaming  revenues  reported by these three cities  during the calendar year ended
December 31, 1998.

Cripple Creek is the second largest gaming  jurisdiction  with over $113 million
in revenues in calendar year 1998. In 1997,  gaming revenues  amounted to nearly
$108 million, growing by $5.27 million, or 5.12%, from the $103 million reported
in 1996. This increase was fostered by a 7.48% increase in positions, from 4,249
in 1996 to 4,567 in 1997, while win per position decreased by 1.78%, from $66.33
in 1996 to $65.17 in 1997.  In 1998,  revenues  increased by $5.27  million,  or
4.88%, to over $113 million from $108 million.  However, this increase came with
a 11.25% reduction in positions,  from 4,567 in 1997 to 4,053 in 1998, while win
per position revenues increased by 22.0%, from $65.17 in 1997 to $79.51 in 1998.

The table below set forth  information  obtained  from the Colorado  Division of
Gaming regarding gaming revenue by market from calendar year 1995 through 1998:

                           GAMING REVENUE BY MARKET

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($ in Thousands) 1995      1996   %Change   1997    %Change   1998  % Change
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Cripple Creek  $ 94,029  $102,873   9.4%  $107,959   5.0%   $113,230   4.88%
Central City   $ 94,468  $ 88,870  (5.9)% $ 87,714   (1.3)% $ 93,980   7.14%
Black Hawk     $195,856  $219,911  12.3%  $235,768   7.2%   $272,008  15.37%
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Gaming in Colorado  is "limited  stakes,"  which  restricts  any single bet to a
maximum  of $5.00.  While this  limits the  revenue  potential  of table  games,
management believes that slot machine play, which accounts for over 94% of total
gaming revenues,  is currently impacted only marginally by the $5.00 limitation.
The slot  machines  at  Creeker's  and The Double  Eagle are all  equipped  with
embedded bill validators which accept dollar bill denominations of up to $100.

Although there are currently 17 casinos in Cripple Creek, 11 are small,  with an
average of 128 gaming  devices.  As of December  31,  1998,  the total number of
gaming devices in Cripple Creek was 3,951.  Many of the casinos are located in a
single  storefront  and offer no  amenities;  five of the casinos  have 100 slot
machines or less. There are only nine casinos,  including both Creeker's and The
Double Eagle, that have more than 200 slot machines.  These five casinos contain
nearly 72.6% of the total  positions in Cripple  Creek.  In addition,  until the
opening of The Double Eagle,  there were only limited  overnight  accommodations
available in Cripple Creek.

Based on these and other  factors,  the  services and  amenities  offered by The
Double Eagle  represent  management's  belief that the casinos that will be more
successful  and best able to take  advantage of the market  potential of Cripple
Creek will be the larger  casinos that have  reached a "critical  mass" and that
can offer quality hotel accommodations.

The Company  faces  competition  from other casinos in Cripple  Creek.  Although
there can be no assurance that other casinos in Cripple Creek will not undertake
expansion  efforts  similar to those  initiated by the  Company,  or that large,
established gaming operators will not enter the market,

                                     -6-

<PAGE>



management  believes  that the timely  opening of The Double Eagle has secured a
competitive position for the Company in the Cripple Creek gaming market.

Competition

Intense competition  characterizes the Cripple Creek and Black Hawk/Central City
markets.  A number of Colorado  casinos have ceased  operations  and others have
filed for protection under Chapter 11 of the Bankruptcy Code. Other casinos have
closed  temporarily  or reduced their number of employees,  and many casinos may
not be operating profitably.

The Company competes with several established casino operators in Colorado, some
of which have greater financial  resources,  experience,  and expertise than the
Company.  Because of the  intense  nature of this  competition,  there can be no
assurance that the Company's present operations will not be adversely  affected,
or that its proposed expansion activities will be undertaken or will prove to be
economically successful.

Management of the Company believes The Double Eagle will successfully compete in
its  market  primarily  due to the fact that it was  designed  to be a hotel and
casino from the ground up unlike most other  operations  that were  converted to
casinos from saloons and general stores.  In addition,  management of the casino
has developed  internal  programs to ensure  customers are provided a congenial,
friendly,  and  service-driven  environment in which gaming becomes an exciting,
fun, energetic  activity.  Although,  one new license was issued during the year
for the  addition  of 100 new slot  machines,  the  closure of the four  casinos
represents  a  reduction  of 600 slot  machines  from the  city-wide  total.  In
management's  opinion,  these factors,  coupled with unique  marketing  programs
specifically  directed at active customer  participation,  provides the basis on
which The Double Eagle competes in its market area.

From time to time,  casino  companies  have  publicly  expressed  an interest in
pursuing  development or expansion in the Cripple Creek market.  It appears that
national, regional, state, and local competition for the casino gaming market in
general will be extremely high during the foreseeable  future,  as casino gaming
activities  expand in  traditional  gaming  states and in new  jurisdictions,  a
number of which have adopted or are considering gaming legislation.

In  addition,  passage of the Indian  Gaming  Regulatory  Act in 1988 has led to
increases in Native  American gaming  operations,  and the Company's two casinos
may  compete  for  customers  with  casinos  located on Indian  reservations  in
southwestern  Colorado.  The  Company  expects  competitors  to  enter  such new
jurisdictions that authorize gaming, some of whom may have greater financial and
other resources than the Company.  Such proliferation of gaming activities could
significantly and adversely affect the Company's business. Although there are no
current  proposals to expand  gaming into other areas in Colorado,  if gaming is
allowed in or near any metropolitan  area, such as Colorado Springs,  from which
the Company draws customers, such expansion would have a material adverse effect
on the Company's business.

Colorado law requires local voter approval for any expansion of limited  gaming.
State and local  public  initiatives  regarding  limited  gaming in Colorado are
being actively  pursued.  Several cities within  Colorado have active  citizens'
lobbies,  that in the past, were able to place limited gaming initiatives on the
November 1994 and 1996 statewide ballot. These initiatives failed by substantial
margins.  The 1996  initiative to permit limited  gaming in Trinidad,  Colorado,
located approximately 200 miles south of Cripple Creek on the New Mexico border,
was placed on the November 1996 ballot but failed to receive the requisite voter
approval.  Future  initiatives,  if passed,  could  significantly  increase  the
competition for gaming customers, thereby adversely affecting the

                                     -7-

<PAGE>



Company's  current business  activities.  In addition,  the Company's casinos in
Colorado  will  compete  with  casinos in other  parts of the  United  States as
legalized gambling continues to proliferate.

In the future,  the Company  anticipates  expanding its casino  operations  into
jurisdictions  that have  legalized  or are  expected to legalize  gaming in the
future.  There can be no  assurance  that the  Company  will be able to identify
suitable casino projects in which to invest or will be able to complete any such
projects as scheduled or planned.  The Company's ability to complete and operate
new  casino  projects  will be  dependent  on a  number  of  factors,  including
identification of suitable partners (if needed),  the availability of financing,
obtaining  necessary  financing,  negotiation of acceptable terms,  securing the
required local, state, or foreign licenses,  permits,  and approvals,  voter and
other political  approvals,  and any other trends. As a result,  there can be no
assurance that the Company will be able to develop its current casino operations
beyond  the  Colorado  market.  In  addition,  the  Company  may incur  costs in
connection with pursuing new gaming  opportunities that it cannot recover,  that
may  negatively  affect the Company's  reported  operating  performance  for the
periods the costs are expensed.

Employees

As of April  24,  1999,  the  Company  employed  353  persons,  of which 331 are
employed on a full-time basis, including cashiers, dealers,  housekeepers,  food
and beverage service personnel, facilities maintenance staff, and accounting and
marketing  personnel.  Of the total, 73 people work at Creeker's  Casino and 276
people  work  at The  Double  Eagle  Hotel &  Casino.  The  balance  work at the
Company's corporate offices. A standard package of employee benefits is provided
to all full-time  employees in addition to on-the-job  training and  advancement
opportunities.  None of the  Company's  employees  are  covered by a  collective
bargaining agreement and none are represented by labor unions.

Operational Controls

The Colorado Gaming  Commission has established  strict rules with regard to the
supervision and control of all gaming activities in Colorado casinos,  including
security  and cash  control  systems.  The Company  employs  these  controls and
paperwork  systems  to  insure  internal   integrity  and  compliance  with  the
applicable  regulations.  The  Company's  casinos are also required to obtain an
annual audit report from an independent  certified public accounting firm, which
in turn is required to make certain unannounced inspections. There are dozens of
closed circuit  cameras which have been installed in the Company's  casinos with
taping devices in place to record play at all times. These tapes and live action
are  regularly  monitored  by the Company and  reviewed by the  Colorado  Gaming
Commission  to ensure  the  integrity  of  gaming  activities  at the  Company's
casinos.

Colorado Gaming Regulations

The State of Colorado  created the Division of Gaming  within the  Department of
Revenue to license,  implement,  regulate,  and supervise the conduct of limited
stakes gaming.  The Director of the Division of Gaming (the  "Director"),  under
the supervision of the five-member Colorado Gaming Commission,  has been granted
broad power to ensure  compliance with the gaming laws and  regulations  adopted
thereunder  (the  "Colorado  Regulations").  The Director  may inspect,  without
notice,  impound or remove any gaming device.  The Director may examine and copy
any licensee's records,  may investigate the background and conduct of licensees
and their employees,  and may bring  disciplinary  actions against licensees and
their   employees.   The   Director   also  may  conduct   detailed   background
investigations of persons who loan money to licensees.


                                     -8-

<PAGE>



The Colorado  Gaming  Commission  is empowered to issue five types of gaming and
gaming-related  licenses.  The failure or inability  of the Company,  or persons
associated with the Company,  to maintain necessary gaming licenses would have a
material  adverse effect on the operations of the Company.  All persons employed
by the Company,  and involved,  directly or indirectly,  in the Company's gaming
operations  in Colorado also are required to obtain a Colorado  gaming  license.
Casino licenses must be renewed annually,  and key and support employee licenses
must be renewed every two years.

As a general rule, under the Colorado  Regulations,  it is a criminal  violation
for any person to have a legal,  beneficial,  voting, or equitable interest,  or
the right to receive  profits,  in more than three  retail  gaming  licensees in
Colorado.  The Colorado Gaming  Commission has ruled that a person does not have
an  ownership  interest  in a licensee  if:  (i) such  person has less than a 5%
interest  in an  institutional  investor  which has an  ownership  interest in a
publicly traded retail licensee (a "Licensee") or in a publicly traded company's
affiliated with a Licensee; (ii) such person has a 5% or more ownership interest
in an  institutional  investor which has less than a 5% ownership  interest in a
publicly  traded  Licensee or in a publicly  traded  company  affiliated  with a
Licensee;  (iii) such person is an institutional  investor which has less than a
5%  ownership  interest in a publicly  traded  Licensee or in a publicly  traded
company  affiliated  with a  Licensee;  (iv)  such  person  is an  institutional
investor which possesses voting securities of a publicly traded Licensee or in a
company  affiliated with a Licensee in a fiduciary  capacity and not for its own
account (unless such person  exercises  voting rights with respect to 5% or more
of such publicly  traded  company's  outstanding  voting  securities);  (v) such
person is a broker or dealer  registered  under the Exchange Act which possesses
voting  securities of a publicly traded Licensee or of a publicly traded company
affiliated  with a Licensee  for the benefit of its  customers  and not for such
person's own account and which does not exercise  voting  rights with respect to
5% or more of such  publicly  traded  Licensee's  voting  securities;  (vi) such
person is a broker  or  dealer  registered  under  the  Exchange  Act and has an
ownership  interest in voting  securities of a publicly  traded Licensee or of a
publicly  traded  company  affiliated  with a Licensee as a market maker in such
voting securities (unless such person exercises voting rights with respect to 5%
or more  of  such  outstanding  voting  securities);  (vii)  such  person  is an
underwriter of voting  securities of a publicly traded Licensee or of a publicly
traded  company  affiliated  with a Licensee  and has an interest in such voting
securities  during the course of an underwriting  (unless such person  exercises
voting  rights  with  respect to 5% or more of such  publicly  traded  company's
outstanding voting securities); provided, however, that such underwriter may not
possess such an interest in such voting securities longer than 90 days after the
beginning of such underwriting;  or (viii) such person possess voting securities
of a publicly traded Licensee or of a publicly traded company  affiliated with a
Licensee in such person's  capacity as a book-entry  transfer  facility  (unless
such person  exercises voting rights with respect to 5% or more of such publicly
traded  company's  outstanding  voting  securities).  For  purposes of the above
discussion,  a person  is not be  deemed to have an  "ownership  interest"  in a
Licensee if such  person's sole  ownership  interest in such Licensee is through
the ownership of less than 5% of the voting securities of (a) such Licensee,  if
such Licensee's securities are publicly traded, or (b) a publicly traded company
affiliated  with such  Licensee.  The Company's and its  shareholders'  business
opportunities  in Colorado  are limited to such  interests  that comply with the
Colorado Regulations and Colorado Gaming Commission's rules.

In  addition,   pursuant  to  the  Colorado  Regulations,   no  manufacturer  or
distributor of slot machines may have an interest in any casino operator,  allow
any of its officers to have such an  interest,  employ any person if such person
is employed by a casino operator,  or allow any casino operator or person with a
substantial  interest  therein  to  have  an  interest  in a  manufacturer's  or
distributor's  business.  The Colorado Gaming Commission has ruled that a person
does not have a "substantial interest" in a manufacturer, distributor, operator,
or  retailer  Licensee if it  directly  or  indirectly  owns less than 5% of the
voting securities of a Licensee.

                                     -9-

<PAGE>



Under the  Colorado  Regulations,  any  person or entity  having  any  direct or
indirect  interest in a gaming  Licensee or an applicant  for a gaming  license,
including,  but not limited to, the Company and shareholders of the Company, may
be  required  to  supply  the  Colorado  Gaming   Commission  with   substantial
information,  including,  but not limited to,  personal,  criminal and financial
background  information,  date of birth, source of funding information,  a sworn
statement  that such person or entity is not holding his or her interest for any
other party, fingerprints, and a photograph. Such information, investigation and
licensing  as an  "associated  person"  automatically  will be  required of each
person (other than certain institutional investors discussed below) who directly
or indirectly own 10% or more of a legal, beneficial,  or voting interest in the
Company.  Such  persons  must report his or her  interest  and file  appropriate
applications  for a finding of suitability  within 45 days after  acquiring such
interest. Each person directly or indirectly having a 5% or more interest in the
Company must report his or her interest to the Colorado Gaming Commission within
10 days after  acquiring  such interest,  may be required to provide  additional
information,  and must be found  suitable  as  required  by the  Division or the
Colorado Gaming Commission.  If certain institutional  investors provide certain
information to the Colorado Gaming Commission,  such investors,  at the Colorado
Gaming  Commission's  discretion,  may be  permitted  to own up to 14.99% of the
Company  before  being  required  to  be  found  suitable.   All  licensing  and
investigation  fees  must be paid to the  Division  by the  person  or entity in
question.

The Colorado Gaming  Commission also has the right to request  information  from
any person directly or indirectly interested in, or employed by, a Licensee, and
to  investigate  the moral  character,  honesty,  integrity,  prior  activities,
criminal  record,  reputation,  habits,  and  associations  of (i)  all  persons
licensed  pursuant  to the  Colorado  Limited  Gaming  Act,  (ii) all  officers,
directors, and shareholders of a licensed privately held corporation,  (iii) all
officers, directors, and shareholders holding either a 5% or greater interest or
a  controlling  interest in a licensed  publicly  traded  corporation,  (iv) all
general  partners and all limited  partners of a licensed  partnership,  (v) all
persons  who have a  relationship  similar to that of an officer,  director,  or
shareholder  of a  corporation  (such  as  members  and  managers  of a  limited
liability company), (vi) all persons supplying financing or loaning money to any
Licensee  connected  with the  establishment  or operation  of a limited  stakes
gaming  operation,  (vii) all  persons  having a  contract,  lease,  or  ongoing
financial or business arrangement with any Licensee, where such contract, lease,
or arrangement relates to limited stakes gaming operations,  equipment, devices,
or premises, (viii) all persons who may influence the operation of a Licensee in
any material manner, and (ix) all persons who may have access to gaming proceeds
or the accounting or reporting therefor.

In addition,  under the Colorado  Regulations,  every person who is a party to a
"gaming contract" with an applicant for a license, or with a Licensee,  upon the
request of the Colorado Gaming Commission or the Director, promptly must provide
to the Colorado Gaming  Commission or Director all written gaming  contracts and
summaries  of  verbal  gaming  contracts.  Information  which  may be  requested
includes  financial  history,  financial  holdings,  real and personal  property
ownership,  interest in other companies, criminal history, personal history, and
associations,  character, reputation in the community, and all other information
which might be relevant to a determination whether such person would be suitable
to be  licensed  by the  Colorado  Gaming  Commission.  Failure to  provide  all
information  requested  constitutes  sufficient  grounds for the Director or the
Colorado  Gaming  Commission to require a Licensee or applicant to terminate its
"gaming  contract"  with any  person  who  failed  to  provide  the  information
requested.  In  addition,  the Director or the Colorado  Gaming  Commission  may
require  changes in "gaming  contracts"  before an  application  is  approved or
participation in the contract is allowed.  A "gaming  contract" is defined as an
agreement  in  which a person  does  business  with,  or on the  premises  of, a
licensed entity.


                                     -10-

<PAGE>



An application  for licensure or suitability  may be denied for any cause deemed
reasonable by the Colorado  Gaming  Commission or the Director,  as appropriate.
Specifically,  the  Colorado  Gaming  Commission  and the  Director  must deny a
license to any applicant who (i) fails to prove by clear and convincing evidence
that he or she is qualified; (ii) fails to provide information and documentation
required by law or requested by the Director or the Colorado  Gaming  Commission
(iii) has been, or is a director, officer, general partner, shareholder, limited
partner,  or  other  person  who  has a  financial  or  equity  interest  in the
applicant,   and  who  has  been   convicted   of  certain   crimes,   including
gambling-related  offenses,  theft by  deception  or crimes  involving  fraud or
misrepresentation,  is under current  prosecution for such crimes,  has served a
sentence for any felony or certain  misdemeanors  in any  correctional  facility
within the last 10 years,  is a career  offender or a member or  associate  of a
career offender  cartel,  or is a professional  gambler;  or (iv) has refused to
cooperate with any state or federal body investigating organized crime, official
corruption,  or  gaming  offenses.  If the  Colorado  Gaming  Commission  or the
Director  determines  that a person or entity is  unsuitable to own interests in
the Company, the Company may be sanctioned;  such sanctions may include the loss
by the Company of its approvals and licenses.

The  Colorado  Gaming  Commission  does not need to  approve in advance a public
offering  of  voting  securities,  but does  require  a  filing  of  notice  and
additional  documents with regard to such public  offering.  The Colorado Gaming
Commission must receive notice of a public  offering of voting  securities to be
registered with the Securities and Exchange  Commission  ("Commission") no later
than 10 business  days after the initial  filing of the  registration  statement
with the Commission,  or for any other type of public offering, 10 days prior to
the public use or distribution  of any offering  document if (i) the Licensee is
not a publicly  traded  corporation,  or (ii) the Licensee is a publicly  traded
corporation  which  intends to use the proceeds of such  offering to pay for the
construction of Colorado gaming facilities,  to acquire any interest in Colorado
gaming  facilities,  to finance operation of Colorado gaming  facilities,  or to
retire or extend obligations  incurred for one or more purposes set forth above.
Under the Colorado  Regulations,  the  Colorado  Gaming  Commission  may, in its
discretion,  require  additional  information  and prior approval of such public
offering.  In  addition,   the  Colorado  Regulations  prohibit  a  Licensee  or
affiliated  company  thereof,  such  as  the  Company,  from  paying  dividends,
interest,  or other  remuneration to any unsuitable  person,  or recognizing the
exercise of any voting rights by any unsuitable  person.  Further,  the Colorado
Regulations  require  anyone  who has a material  relationship  to or a material
involvement with a Licensee, including a director or officer of a corporation or
any person who exercises significant influence upon the management or affairs of
a  corporation,  such as the Company,  to file for a finding of  suitability  if
required by the Colorado Gaming Commission.

In  addition  to  its  authority  to  deny  an  application  for  a  license  or
suitability,  the Colorado  Gaming  Commission has  jurisdiction to disapprove a
change in corporate ownership,  including  investors,  lenders or anyone who may
have an interest in gaming  proceeds of a Licensee  and may have such  authority
with  respect  to any  entity  which is  required  to be found  suitable  by the
Colorado  Gaming  Commission.  The Colorado  Gaming  Commission has the power to
require the Company to suspend or dismiss  managers,  officers,  directors,  and
other key employees or sever relationships with other persons who refuse to file
appropriate  applications or whom the authorities find unsuitable to act in such
capacities, and may have such power with respect to any entity which is required
to be found suitable. A person or entity may not sell, lease, purchase,  convey,
or acquire a controlling  interest in the Company  without the prior approval of
the Colorado Gaming  Commission.  Except as otherwise provided in the definition
of  "ownership  interest,"  the Company may not sell any interest in the Company
without the prior approval of the Colorado Gaming Commission.  Ongoing reporting
to the Colorado  Gaming  Commission is required.  Each Licensee must report,  at
least  quarterly,  the names and  addresses  of any person,  including a lending
agency,  who may share in the  revenues  of limited  stakes  gaming,  whether as
owner, assignee, landlord, or otherwise. This requirement extends

                                     -11-

<PAGE>



to anyone to whom an interest or share in the profits of limited  stakes  gaming
have been pledged or  hypothecated as security for a debt, the performance of an
act, or a contract of sale.  Licensees  are also required to notify the Director
in writing of any criminal conviction and any pending criminal charge, within 10
days of arrest,  summons,  or conviction.  Licensees are also required to report
any known or suspected  violations  of  Colorado's  gaming laws to the Division.
Failure to report any required  information  may lead to  revocation  or summary
suspension of the Licensee's license.

The Company's casinos must meet certain architectural requirements,  fire safety
standards and standards for access for disabled  persons.  The casinos also must
not exceed certain gaming square footage limits as a total of each floor and the
entire  building.  The casinos may operate only between 8:00 a.m. and 2:00 a.m.,
and may permit only  individuals 21 years or older to gamble in the casinos.  It
must limit all permitted games to a maximum single bet of $5.00. The casinos may
not provide  credit to its gaming  patrons and no Licensee may provide credit to
any person for the purpose of gaming.

Colorado Liquor Regulations

The sale of alcoholic beverages is subject to licensing, control, and regulation
by  certain  Colorado  state  and local  authorities  (the  "Liquor  Agencies").
Alcoholic beverage licenses are revocable and non-transferable.  State and local
licensing  authorities have full power to deny, limit,  condition,  suspend,  or
revoke any such  licenses.  Persons or entities which directly or indirectly own
5% or more of the Company or its  casinos  must file  applications  with and are
subject to investigation  by the Liquor  Agencies.  The Liquor Agencies also may
investigate persons who, directly or indirectly, loan money to liquor licensees.
Violation  of the  state  alcoholic  beverage  laws may  constitute  a  criminal
offense,  and violators may be subject to criminal  prosecution,  incarceration,
and fines.

There are various  classes of  alcoholic  beverage  licenses  under the Colorado
Liquor Code. A retail gaming  tavern  license or a hotel and  restaurant  liquor
license may be issued to persons who are  licensed  pursuant to Colorado  law. A
retail gaming tavern licensee may sell malt,  vinous, or spirituous liquors only
by  individual  drinks  for  consumption  on the  premises  and must  also  make
available sandwiches or light snacks or contract with concessionaires to provide
food  services  within the same building as the licensed  premises.  A hotel and
restaurant  liquor license  requires the service of meals and that meals equal a
fixed  minimum  percent of food and beverage  sales.  In no event may any person
hold more than or have an  interest  in more than  three  retail  gaming  tavern
licenses.  Also,  a person  may not have an  interest  in more  than one type of
liquor license.  The Double Eagle and Creeker's both hold a retail gaming tavern
license for their casino and restaurant operations.  Accordingly, no person with
interest in the Company can have an interest in a liquor  licensee  other than a
gaming tavern  license,  and  specifically  cannot have an interest in an entity
which holds a hotel and restaurant liquor license.

Taxation

Colorado law further  provides that up to a maximum of 40% of AGP may be payable
by a Licensee for the privilege of conducting  gaming.  AGP is generally defined
as the total amounts wagered less all payments to players. With respect to games
of poker,  AGP means those sums  wagered in a hand  retained by the  Licensee as
compensation,  which must be  consistent  with the minimum  and maximum  amounts
established by the Colorado Gaming Commission.  Currently, the gaming tax on AGP
is: 2% on the first $2 million of AGP;  4% on AGP from $2 million to $4 million;
14% on AGP from $4  million  to $5  million;  18% on AGP from $5  million to $10
million; and 20% on AGP over $10 million.  The gaming tax is paid monthly,  with
Licensees required to file returns by the 15th of the

                                     -12-

<PAGE>



following  month.  Each year, the Colorado  Gaming  Commission  establishes  the
gaming tax for the following twelve months.

The Colorado Gaming  Commission  requires all gaming  Licensees to pay an annual
device fee for each slot machine,  blackjack table and poker table.  The current
annual  state  device  fee,  established  October 1, 1996,  is $75.  The city of
Cripple Creek also assesses and collects its own device fees. The current annual
device fee in Cripple Creek is $1,200 per device. There is no statutory limit on
state or city device fees, which may be increased at the discretion of the state
or city.

Item 2.  Description of Property

In addition to the land  underlying The Double Eagle and Creeker's,  the Company
owns the following  properties in Cripple Creek:  (i) 15 lots  comprising a full
city block that lies  immediately  to the south of The  Double  Eagle;  (ii) six
acres  located  within  walking  distance  of The  Double  Eagle  that  are used
primarily  for  valet  parking  purposes;  (iii)  three  lots  located  in close
proximity to Creeker's  Casino that are used for customer  parking;  and (iv) 13
lots  located at the corner of 4th Street and Myers  Avenue  that are  currently
held for investment. Each lot is 25 feet wide by 125 feet deep. In addition, the
Company leases: (a) a total of 15 lots (for $3,000 per month) in close proximity
to The Double Eagle that the Company uses for customer  parking;  (b) a total of
14 lots (for $7,000 per month) in close  proximity  to The Double Eagle that the
Company  uses  for  additional  customer  parking.   Pursuant  to  the  Colorado
Regulations,  individuals  under  the age of 21 are not  permitted  to gamble or
loiter in casinos.

The Company also leases  approximately  2,700 square feet of office space at 304
South Eighth Street, Suite 201, Colorado Springs,  Colorado from an unaffiliated
party.  The lease has rental  payments  totaling  $28,308 through the end of the
term,  which  expired  on July 31,  1998.  The  Company  plans to  relocate  its
corporate offices to One City Centre, One South Nevada Blvd.,  Colorado Springs,
Colorado  80903.  However,  this  location,  also owned and  managed by the same
unaffiliated   party  from  which  the  Company   currently  rents,  is  pending
completion.  The  Company  has  negotiated  an  extension  of  its  lease  on  a
month-by-month  basis at the same rate until  relocating  to its  completed  new
office location.

Item 3.  Legal Proceedings

Except for non-material  litigation incident to our ordinary course of business,
the Company is not a party to any litigation that could have a material  adverse
effect on our business or results of operations, except for the following:

A former employee has filed both a worker's compensation claim and an EEOC claim
(discrimination)  against the  Company.  At this time,  and based upon the facts
known,  it is  undetermined  whether  the  dollar  amount  is  material  and the
likelihood of success.

Also,  during the first  quarter of fiscal year 1999,  two  creditors  indicated
that, absent an agreed upon payment schedule,  they may refer certain matters to
collection.  On February 11, 1999,  the Company was in arrears to Young Electric
Sign Company ("YESCO") by $76,646.  YESCO threatened suit if payment of at least
one-third  of the  arrears  is not  made.  In such  event,  YESCO  may  elect to
accelerate  all  outstanding  amounts  owed--between  $250,000 and $300,000.  At
present,  the Company  intends to cure the  arrearage  within the next thirty to
forty-five calendar days. Absent payment of at least a portion of the arrearage,
the  filing  of a  lawsuit  is  probable.  On  November  19,  1998,  Pikes  Peak
International  Raceway ("PPIR")  asserted that the Company was indebted to it in
the amount of $68,039.  PPIR has not  threatened  suit, nor has it manifested an
intent to file suit. On December

                                     -13-

<PAGE>



15,  1998,  the Company made a payment  proposal to PPIR.  As of April 24, 1999,
PPIR has not responded to the payment proposal.  At present,  the probability of
settlement or the filing of a lawsuit is undetermined.

Item 4.  Submission of Matters to a Vote of Security Holders

None.




                                     -14-

<PAGE>



                                    PART II

Item 5.  Market for Registrant's Common Equity and Related Shareholder Matters

The Common Stock began trading in the NASDAQ  SmallCap  Market on March 29, 1995
under the symbol  "CCRI.".  The following  table sets forth the low and high bid
price per share  quotations  as  reported on the NASDAQ  SmallCap  Market of the
common stock for the periods indicated.  These quotations  reflect  inter-dealer
prices,  without retail mark up, mark down or commission and may not necessarily
represent actual transactions. Actual prices may vary.

Fiscal Year Ending October 31, 1997:
                                                                High      Low

First Quarter.............................................     $2 3/8   $1 1/4
Second Quarter............................................     $2 3/8   $1 1/4
Third Quarter.............................................     $2 1/8   $1 5/32
Fourth Quarter............................................     $1 17/32 $1 1/16

Fiscal Year Ending October 31, 1998:
                                                                High      Low

First Quarter.............................................     $2       $15/16
Second Quarter............................................     $3 1/8   $1 9/16
Third Quarter.............................................     $2 15/16 $1 1/8
Fourth Quarter............................................     $1 7/16  $ 13/16

As a result of the Company's restatements and reclassifications of its financial
results for the fiscal  years ended  October 31, 1997 and 1996,  the Company was
delayed in filing this Annual Report on Form 10-KSB and its Quarterly  Report on
Form 10-QSB for the period ended  January 31, 1999.  Due to these late  filings,
the  Company has  received  notice  from the NASDAQ  Stock  Market to delist the
Company's  Common Stock from its SmallCap  market,  the Company has  requested a
hearing  with NASDAQ to, among other  things,  explain the cause of the delay in
filing these financial  reports and to seek the continued  listing of its common
stock. The hearing is set for April 29, 1999. There can be no assurance that the
Company will be successful in this endeavor.

At October 31, 1998, the Company had  approximately 207 holders of record of our
voting common stock;  management  estimates  that the Company has  approximately
1,250 additional beneficial holders of our common stock held in names of brokers
and securities depositories. Of the current holders of its common stock, Messrs.
Saenz and Sisneros together beneficially own approximately 56% of the Company.

The Company has not paid or declared  cash  distributions  or  dividends  on our
common  stock  and does not  intend  to pay cash  dividends  in the  foreseeable
future.  Future  payment of cash  dividends  rests within the  discretion of the
Board of Directors and is based on our earnings,  financial  condition,  capital
requirements, and other factors.

During fiscal year 1998, the Company issued options to purchase 20,000 shares of
Common Stock of the Company to each of Messrs. Beck, Farruggio,  and Norton. The
Company has granted Mr. DiMascio 75,000 restricted shares of Common Stock and an
option to purchase  75,000 shares of Common Stock at an exercise  price of $1.67
per share,  which restricted  stock and option vest over a three-year  period in
consideration of his service as a director of the Company until February 1999.

                                     -15-

<PAGE>



Item 6.  Management's Discussion and Analysis or Plan of Operation

The Company has made several restatements and reclassifications to the Company's
1997  and  1996  fiscal  year  financial  statements.  The  restatements  relate
principally from: (i) the reclassification and accounting for the Company's slot
machines, other leased assets and its licensed software; (ii) interest and other
expenses related to the Company's  convertible  preferred stock, stock warrants,
convertible  debentures,  tokens and chips and computer player tracking  system;
and  (iii)  the   reclassification   of  certain   one-time  casino  revenue  to
extraordinary  gain. A detailed  description of the restatements is discussed in
"NOTE 3 TO CONSOLIDATED FINANCIAL STATEMENTS" on page F-12 hereof.

The results described herein reflect the consolidated  operations of the Company
and its  wholly-owned  operating  subsidiaries,  Double Eagle Resorts,  Inc. and
Creeker's,  Inc.,  for the fiscal year ended  October 31, 1998 compared with the
same period in fiscal year 1997, as restated.

Results of Operations

The Company reported  revenues,  net of promotional  allowances,  for the fiscal
year ended  October  31, 1998 of  $23,225,232,  an increase of $302,096 or 1.32%
from the  Company's net operating  revenues of  $22,923,136  for the fiscal year
ended October 31, 1997. Total operating expenses were $26,937,766 for the twelve
months  ended  October  31,  1998,  increasing  by  $3,291,544,  or 13.92%  from
$23,646,222  reported  in 1997.  Approximately  $1,255,000  of the  increase  is
attributable to a one-time  expense related to an asset  impairment loss on land
held for future  development.  Total operating expenses as a percentage of total
revenues increased to 116% from 103% reported in the comparable period of 1997.

Casino.  Casino revenues  accounted for  approximately  83% of the net operating
revenues  in fiscal  year 1998.  For the twelve  months  ended  October 31, 1998
casino revenues were  $19,379,052,  representing a decrease of $175,734 from the
$19,554,786  reported  in  1997.  Management  attributes  this  decrease  to its
decision in the third  quarter of fiscal 1998 to increase the payout  percentage
of all slot  machines  at the Double  Eagle.  Slot  machine  revenues  generally
consist of the total amount wagered (i.e., the handle) less the amounts paid out
to customers.  Historically, the Company's slot machines have had a lower payout
percentage  than  the  slot  machines  of  its  competitors  in  Cripple  Creek.
Management  believes that its decision to increase the payout  percentage of its
slot machines will result in an increased handle that, as customers become aware
of the change,  will offset the increased payout percentage and thereby increase
overall casino  revenues over time.  Management  continues to monitor the payout
percentage of its gaming devices and may further adjust such  percentages in the
future in order to maximize casino revenues.

Costs and expenses of casino  operations  were  $10,875,905  for the fiscal year
ended October 31, 1998, an increase of $1,058,524 or 10.78% from the  $9,817,381
reported in 1997. The net increase in costs and expenses of casino operations is
attributable  to  higher  payroll  expenses.  Casino  costs  and  expenses  as a
percentage of casino  revenues  increased to 56.12% for the 1998 period compared
to 50.20% from the comparable period in 1997.

Rooms.  Room  revenues  accounted for  approximately  10.1% of the net operating
revenues in the 1998 period.  During this period, room revenues were $2,344,092,
representing  a decrease  of 11.75%  from the  $2,656,258  reported  in the 1997
period.  The  reduction  in such  revenues  during the 1998 period is  primarily
attributable to the Company's  decision made at the beginning of the 1998 period
to improve the hotel operating results by decreasing room rates and, at the same
time, hotel expenses. Costs and expenses of hotel operations remained relatively
flat at  $1,764,548  compared  to  $1,746,804  from the 1997  period.  Costs and
expenses as a percentage of room revenues increased

                                     -16-

<PAGE>



to 75.3% in the twelve months ended October 31, 1998 as compared to 65.8% during
the comparable period in 1997.

Food and Beverage.  Food and beverage revenues accounted for approximately 11.2%
of total  revenues in the 1998  period.  During this  period,  food and beverage
revenues were $2,608,486,  representing an increase of $257,376,  or 10.9%, from
the  $2,351,110  reported in the 1997 period.  The increase in food and beverage
revenues is attributable in part to management's  decision to introduce a buffet
concept as well as revising the restaurant and bar menus to include lower priced
items during the third  quarter.  Costs and  expenses of food and beverage  were
$3,211,008 for the 1998 period, up $306,709 from $2,904,299 recorded in the 1997
period.  Costs  and  expenses  as a  percentage  of food and  beverage  revenues
decreased  to  123.1%  in the  1998  period  from  123.5%  in the  1997  period,
reflecting the cost savings derived from the newly introduced buffet format. The
Company is in the process of implementing a review of its restaurant  operations
with the goal to improve  profitability.  Among  other  things,  the  Company is
considering  converting Lombard's Bar & Grill to less formal dining in an effort
to reduce labor,  cost of goods, and other expenses while increasing  margins on
restaurant items.

Other.  Other  consists of revenues  generated  from the Company's gift shop and
parking lot  operations.  During  fiscal year 1998,  the Company  implemented  a
policy of  charging a $5.00  parking fee at its  parking  lots  located in close
proximity to its  properties.  This fee is then  refundable from its casino once
the customer has demonstrated patronage.  Other revenues were $643,168 in fiscal
1998,  up $448,622,  or 230.6% from $194,546  reported in the 1997 period.  This
increase is mainly  attributable  to the parking  fees  collected in fiscal year
1998. Refunded parking fees are recognized as a marketing expense.

Marketing.  Marketing expenses were $2,769,879 for the fiscal year ended October
31, 1998, up significantly by $1,155,397 or 71.56% from the $1,614,482  reported
in the 1997 period.  In the third  quarter of 1998,  the Company  increased  its
marketing  and  advertising  expenditures  to promote the  recently  implemented
growth strategy, including the payment of a retainer and related expenses to its
new marketing  firm - ZLR.  Marketing  expense also includes cash  disbursements
made to patrons  upon the  redemption  of  promotion  coupons  and Gold  Premier
Club/Winners Circle points. Marketing expenses as a percentage of total revenues
increased  to 11.93% for the twelve  months ended  October 31, 1998  compared to
7.04% reported in 1997.

General and Administrative.  General and administrative expenses were $3,555,697
for the twelve months ended  October 31, 1998,  down $512,443 or 12.60% from the
$4,068,140   reported  in  the  1997  period.   The  reduction  in  general  and
administrative  expense was  primarily due to  management's  effort to trim down
corporate overhead expenses. General and administrative expenses as a percentage
of total revenues decreased to 15.31% for the fiscal year ended October 31, 1998
from 17.75% for the comparable period in 1997.

Depreciation and Amortization. Depreciation and amortization remained relatively
flat at  $3,505,759  for the fiscal  year ended  October 31,  1998,  compared to
$3,495,116 reported in 1997.
See Effect of New Depreciation Method and Change in Lives below.

Impairment of Land Held for Future Development.  During fiscal 1998,  management
reviewed the carrying value of its land held for future  development to evaluate
its fair value. Based on comparable sales of land in the near vicinity, the fair
value  of the land  was  computed  at  $3,250,000  for the 13 lots  owned by the
Company.  As a result,  the Company realized an impairment loss of approximately
$1,255,000.


                                     -17-

<PAGE>



Loss from  Operations.  As a result of the factors  discussed above, the Company
recognized  a loss from  operations  of  $3,712,534  for the  fiscal  year ended
October 31, 1998 as compared to a loss of $723,086  recorded in the 1997 period.
Approximately $1,255,000 of the loss is a one-time,  non-cash expense related to
the  impairment  loss   recognized   primarily  on  the  land  held  for  future
development.

Interest  Expense.  Interest  expense was $6,171,032 for the twelve months ended
October 31, 1998, an increase of $417,022, or 7.25% from the $5,754,010 reported
for the comparable period in 1997. The increase in interest expense is primarily
attributable to additional  draw down on the revolving  credit  facility.  Total
interest expense includes  $1,744,216 and $1,783,002 to related parties for 1998
and 1997, respectively.

Effect of New  Depreciation  Method and  Change in Lives.  During  fiscal  1998,
management  reevaluated the periods of amortization of its long-lived assets and
revised its  estimates of useful  lives.  Also,  prior to fiscal year 1998,  the
Company  had  used   accelerated   methods  of   depreciation  as  well  as  the
straight-line  method.  The effect of the change in the  estimated  lives of its
long-lived  assets and the change from accelerated  methods to the straight-line
method of  depreciation  resulted in an  increase of $520,439  and a decrease of
$457,016, respectively, in depreciation from the year ended October 31, 1998.

Net Loss.  The net loss for the Company was $9,408,330 for the fiscal year ended
October  31,  1998,  an increase  of  $4,095,388  or 77.08% from the net loss of
$5,312,942 reported in the 1997 period.

Liquidity and Capital Resources

The Company has financed its  operations  and capital  expenditures  principally
with borrowings from private investors, the sale of equity securities in private
transactions, and bank borrowings.

At  October  31,  1998,  the  Company  had cash and  cash  equivalents  totaling
$1,573,519  and  $1,344,705 of additional  liquidity  under the Foothill  Credit
Facility,  which is described below.  Net cash used by operating  activities was
$1,074,766 for the twelve-months  ended October 31, 1998. Cash used by investing
activities  totaled  $291,600 for the year ended  October 31, 1998 with property
and equipment  additions  amounting to $313,592.  Net cash provided by financing
activities  was  $977,398 for the  twelve-months  ended  October 31,  1998.  Net
borrowings amounted to $13,655,296 of which  approximately  $12,267,509 was used
to repay long-term debt and certain capital lease obligations.

In July 1998, the Company's  subsidiary,  Double Eagle Resorts,  Inc., secured a
credit facility  ("Foothill Credit Facility") from Foothill Capital  Corporation
("Foothill")  which  permits  The  Double  Eagle to borrow  up to a  maximum  of
$15,000,000.  At  October  31,  1998,  availability  under the  Foothill  Credit
Facility  was  $15,000,000,  of which the Company had used  $13,655,296:  (i) to
repay three mortgage note payables  totaling  approximately  $10,199,000,  which
accrued  interest  between  11.5  and 12% per  year;  (ii) for  working  capital
(approximately  $500,000);  and  (iii)  for a  cash  payment  of  $1,850,000  in
connection with the purchase of gaming devices that were previously  leased from
International  Game  Technology  ("IGT").  The Foothill  Credit  Facility  bears
interest  at the  greater of 8% or the prime rate plus 2% (10.0% at October  31,
1998),  and is secured by a first  mortgage lien on The Double Eagle  (including
the  adjacent  parking  lot)  and a lien on the  equipment  and  other  personal
property of Double Eagle  Resorts,  Inc. As of April 14, 1999, the interest rate
was  increased  to the prime rate plus 3%. The  Company  has  guaranteed  Double
Eagle's  obligations  under the Foothill  Credit  Facility,  which  guarantee is
secured by a pledge of the Company's equity interest in The Double Eagle.


                                     -18-

<PAGE>



At October 31,  1998,  the Company was in technical  default  under the Foothill
Credit  Facility,  which requires Double Eagle Resorts,  Inc. to maintain EBITDA
(Earnings Before Interest, Taxes, Depreciation and Amortization,  as defined) of
at least  four  million  ($4,000,000),  measured  on a  rolling  12 month  basis
(annualized  to the extent  required),  tested at the end of each fiscal  month.
Double Eagle Resorts,  Inc.'s EBITDA for the fiscal year ending October 31, 1998
did not satisfy this covenant. The Company has obtained a one-time waiver of the
October 31, 1998 default from Foothill.  Unless the Company meets its forecasts,
it is unlikely  the Company will satisfy its  obligations  under this  agreement
during  the  next  fiscal  year.  See  NOTE  19 TO  THE  CONSOLIDATED  FINANCIAL
STATEMENTS contained herein.

Effective May 1, 1998, the Company  purchased the slot machines and other gaming
devices that it  previously  leased from IGT. The purchase  price for the gaming
devices was $5,172,721,  including approximately $2,000,000 in past due payments
under the previous  leases.  The Company used  approximately  $1,850,000  of the
availability  under the Foothill  Credit Facility to purchase the gaming devices
and  issued  IGT a 12%  note  in the  principal  amount  of  $3,406,238  for the
remainder of the purchase price.  Monthly payments of $50,000 are required under
this note,  with the balance due in July 1999. The note to IGT is secured by the
purchased gaming devices.

At October 31, 1998, the Company had  $44,022,355 of liabilities  due within one
year, but only  $2,145,172 in current  assets,  resulting in a negative  current
ratio of 0.04:1.0.  The Company's  outstanding  indebtedness imposes significant
debt  service  obligations  on the  Company and poses  significant  risks to the
Company.   See   "Forward-Looking   Statements  and  Risk   Factors--Substantial
Leverage."  Moreover,  the Company is in payment  default on several of its debt
obligations.  Management will seek to negotiate payment plans or otherwise reach
a satisfactory  resolution  with each of its creditors with whom the Company has
defaulted in its obligations. No assurance can be given that the Company will be
successful in restructuring its various debt obligations.

In addition to its current debt levels,  the Company's growth strategy  includes
the  acquisition  and  development  of new  casinos  or  hotel/casinos  and  the
construction of a 400 space parking garage and conference center adjacent to The
Double  Eagle.  There is a shortage  of  convenient  parking  in Cripple  Creek.
According  to a 1998 study  prepared by the City of Cripple  Creek,  visitors to
Cripple Creek viewed the shortage of parking as the area's biggest drawback. The
Company believes that access to convenient  parking is one of the most important
competitive  factors  in the  market.  Based upon the  experience  of casinos in
Blackhawk,  Colorado,  the Company  believes that a new parking garage  offering
patrons  convenient covered access to The Double Eagle would result in increased
business at The Double Eagle. If constructed and as presently contemplated,  the
mezzanine of the new parking facility is intended to include a 5,000 square-foot
conference center complete with meeting rooms,  current  audio-video  equipment,
bar and kitchen facilities,  health spa and outdoor patio. The conference center
would be  connected  by an enclosed  walkway to The Double  Eagle's  main casino
floor and hotel reception  desk.  With these new  facilities,  the Company would
market The Double Eagle to conventions  and other groups seeking quality meeting
space.  The Company  expects that such  facilities  would increase the occupancy
rate of The Double Eagle, especially mid-week and in the winter months. The cost
of  the  parking  garage  and  conference  center  is  currently   estimated  at
$6,500,000.

The  implementation  of this growth  strategy will require the Company to obtain
significant  additional  debt or equity  financing.  The  Company  is  currently
evaluating a debt refinancing to replace a significant  portion of the Company's
current debt as well as to provide the funds to construct the parking garage and
conference  center.  There can be no assurance  that the Company will be able to
obtain this or any other  financing  in the amounts it requires,  especially  in
light of the Company's current financial condition.

                                     -19-

<PAGE>



If the Company is unsuccessful in raising  additional  financing or unsuccessful
in  satisfactorily  renegotiating its debt obligations with its current lenders,
the Company is not expected to have  sufficient  cash to fund operations for the
next twelve  months and would be  required to take some or all of the  following
actions in order to conserve its cash resources: (i) postpone the implementation
of its growth  strategy,  including the  construction  of the parking garage and
conference center; (ii) implement  significant cost controls or otherwise reduce
operations;  (iii) sell one or more of its assets; or (iv) engage in a merger or
other form of  corporate  reorganization.  If such  actions  are  inadequate  to
generate   sufficient  cash  to  meet  its  debt  obligations  and  support  its
operations,  the Company would be required to seek protection  under  applicable
bankruptcy laws.

Year 2000 Compliance

The   inability   of   computers,   software  and  other   equipment   utilizing
microprocessors  to  recognize  and properly  process  data fields  containing a
two-digit year is commonly referred to as the Year 2000 compliance issue. As the
Year 2000 approaches,  such systems may be unable to accurately  process certain
date-based information.

The Company is in the  process of  identifying  and  modifying  all  significant
hardware and software applications that will require modification to ensure Year
2000  compliance.  Relying  primarily  on  internal  resources,  the Company has
completed  a  preliminary  audit  of  its  significant   hardware  and  software
applications.  This audit  revealed that the player  tracking  software that the
Company licenses from IGT and certain  personal  computers used in the Company's
casino operations may not presently be Year 2000 compliant. The Company has been
advised by IGT and personal computer manufacturer that such systems will be Year
2000  compliant by August 1999. The estimated cost to address the Company's Year
2000 issues is not expected to have a material impact on the Company's business,
operations or financial condition. If the modification of the Company's hardware
and software  compliance is not timely completed or is not fully effective,  the
Year 2000 problem may have a serious  negative  impact on the  operations of the
Company.

Although the Company has communicated  with its external  service  providers and
vendors to ensure that the  providers  and  vendors  are taking the  appropriate
action to address  Year 2000  issues and has not  received  any notice from such
persons that their  operations will not be Year 2000 compliant,  there can be no
assurance that the systems of third parties on which the Company's  systems rely
will be timely converted.


                  FORWARD-LOOKING STATEMENTS AND RISK FACTORS

In  connection  with  the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform  Act of 1995  (the  "Reform  Act"),  the  Company  is  hereby
providing cautionary  statements  identifying important factors that could cause
the  Company's  actual  results to differ  materially  from those  projected  in
forward-looking  statements  (as such term is defined in the Reform Act) made by
or on behalf of the  Company  herein or  orally,  whether in  presentations,  in
response to questions or otherwise.  Any  statements  that  express,  or involve
discussions as to,  expectations,  beliefs,  plans,  objectives,  assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as  "intends,"  "plans,"  "will  result,"  "are expected to," "will
continue," "is  anticipated,"  "estimated,"  "projection" and "outlook") are not
historical facts and may be forward-looking  and,  accordingly,  such statements
involve  estimates,  assumptions,  and  uncertainties  which could cause  actual
results  to  differ  materially  from  those  expressed  in the  forward-looking
statements.  Such  uncertainties  include the risk factors set forth below. They
also include the following conditions or uncertainties: (i) risk associated with
real estate ownership, operations and development, including

                                     -20-

<PAGE>



environmental  liabilities,  worker's strikes,  construction  delays,  obtaining
building permits and necessary  zoning changes;  (ii) illiquidity of real estate
holdings; (iii) imposition of new regulatory requirements affecting the Company;
(iv) the delay or failure to properly  manage  growth;  (v) effect of  uninsured
loss; and (vi) breakdown of water, sewage or other municipal services in Cripple
Creek and other  conditions  beyond the  control  of the  Company.  The  Company
cautions  that actual  results or outcomes  could differ  materially  from those
expressed in any forward-looking statements made by or on behalf of the Company.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any  forward-looking
statement or statements  to reflect  events or  circumstances  after the date on
which such  statement  is made or to reflect  the  occurrence  of  unanticipated
events.  New  factors  emerge  from  time to time,  and it is not  possible  for
management to predict all of such factors. Further, management cannot assess the
impact of each such factor on the business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.

Independent  Auditor's  Report  Contains  Going Concern  Explanatory  Paragraph;
Losses from Operations

The report of the Company's  independent public auditors contains an explanatory
paragraph which states that the Company's current working capital deficiency and
net losses raise  substantial doubt about the Company's ability to continue as a
going concern. At October 31, 1998, the Company's current  liabilities  exceeded
its current assets by $41,877,183. The Company incurred a net loss of $9,408,330
for the year ended  October 31,  1998.  Pursuant to its business  strategy,  the
Company intends to restructure its debt, seek additional  financing,  and reduce
operating  expenses  while  increasing  revenues  through an expanded  marketing
campaign.  See "Item 1.  Business - Business  and  Marketing  Strategy."  If the
Company  is  unsuccessful  in  these  endeavors,  it is  not  expected  to  have
sufficient  cash to fund  operations for the next twelve  months.  The Company's
recent operations have been financed and are expected to continue to be financed
primarily through sales by the Company of its equity and debt securities.

Substantial Leverage

The Company has a significant amount of indebtedness.  The following chart shows
certain important credit statistics at October 31, 1998.

                                                At October 31, 1998

Total indebtedness..........................    $41,977,596

Shareholders' deficiency....................    $(2,163,277)

Ratio of earnings to fixed charges..........            (*)

The Company's substantial  indebtedness could have important consequences to the
Company, including:

         o    make it more difficult for the Company to satisfy its  obligations
              to its  creditors;  o  increase  the  Company's  vulnerability  to
              general adverse economic and industry conditions;

         o    limit  the  Company's  ability  to fund  future  working  capital,
              capital  expenditures,  research and development  costs, and other
              general corporate requirements;

                                     -21-

<PAGE>



         o    limit the Company's  flexibility  in planning for, or reacting to,
              changes in the  Company's  business  and the industry in which the
              Company operates;

         o    place the Company at a  competitive  disadvantage  compared to its
              competitors that have less debt; and

         o    limit the Company's ability to borrow additional funds.

(*)  Earnings  did not cover  fixed  charges  by  $3,712,534  for the year ended
October 31, 1998.

Seasonality

Cripple  Creek is a mountain  tourist  town and its gaming  market is subject to
seasonal fluctuations. This seasonality will cause quarterly fluctuations in the
Company's revenues and net earnings.  Typically,  gaming revenues are greater in
the summer tourist season and are lower from October to April. In addition, snow
and ice can  render  the  mountain  roads  leading  to and  from  Cripple  Creek
extremely hazardous.  Consequently,  seasonal fluctuations may increase in years
with above-average snowfall or other inclement weather conditions.

Competition

The Company's casino operations face intense competition.  In Cripple Creek, the
Company's two casinos compete against 16 other casinos.  Statewide,  there are a
total of approximately 50 gaming establishments,  including two Indian tribes in
Southwest  Colorado  that offer  limited  stakes,  casino- style gaming on their
reservations.   Some  of  the  Company's   competitors  have  greater  financial
resources,  experience,  and expertise than does the Company. Due in part to the
intense competition, a number of casinos in Cripple Creek have ceased operations
and others have filed for  bankruptcy  protection.  The Company  also  generally
competes with other forms of legalized gaming, casinos located outside Colorado,
state-sponsored  lotteries,  video poker in restaurants,  bars and hotels, pari-
mutuel betting on horse racing, dog racing and jai-alai, sports bookmaking,  and
bingo.

The  legalization  of gaming in or near  Colorado  Springs or Denver,  Colorado,
would adversely impact the Company's operations. Colorado law requires statewide
voter approval to expand gaming into any location other than the three permitted
locals of Cripple Creek, Black Hawk, and Central City. Six initiatives to expand
gaming to other  locations have been placed on Colorado  ballots since 1992. All
six  initiatives  have failed by at least a two to one margin,  including a 1994
vote to  permit  gaming in  Manitou  Springs  (located  near  Colorado  Springs,
approximately  40 miles from Cripple Creek),  which failed by a margin of 93% to
7%.  Although  the  initiatives  to expand  gaming have failed in the past,  the
possibility exists that voters will expand limited stakes gaming in Colorado. In
addition,  the legalization of other types of gaming in Colorado,  such as video
lottery terminals in dog and horse tracks,  could adversely impact the Company's
operations.


Colorado Gaming Regulations

The  ownership  and  operation of casinos in Colorado is subject to strict state
regulation.  Colorado gaming law permits  legalized limited stakes gaming in the
cities of Central City, Black Hawk, and Cripple Creek, Colorado. "Limited stakes
gaming" is defined as the use of slot  machines  and the card games of blackjack
and poker,  each with a maximum  single bet of $5.00.  As  compared to gaming in
jurisdictions  with unlimited stakes gaming, the $5.00 per bet limit in Colorado
restricts revenues that the Company (and its in-state  competitors)  derive from
card games. In addition,  no more than 35% of the square footage of any building
and no more than 50% of any one floor of such building may be used for gaming.

                                     -22-

<PAGE>



Colorado gaming laws also make it a criminal  violation for any person to have a
legal,  beneficial,  voting, or equitable interest, or right to receive profits,
in more than three  retail/operator  gaming  licenses in  Colorado.  The Company
currently  has an  interest in two such  licenses.  Accordingly,  our  expansion
opportunities in Colorado are limited to one additional license. Gaming licenses
and related  approvals  are deemed to be privileges  under  Colorado law, and no
assurance  can be given  that it will  receive  any new  licenses,  permits,  or
approvals  that it may  require  in the  future  or that  existing  ones will be
renewed   or   will   not   be   revoked.    See   "Item   1   Description    of
Business--Governmental Regulations."

Lack of Geographic Diversity

Currently,  all of the  Company's  hotel and casino  operations  are  located in
Cripple Creek, Colorado. The Company is therefore exposed to conditions that are
specific to Colorado and the Cripple Creek market.  These include  complications
caused by weather or road closure,  road  construction on primary access routes,
changes in local and state governmental laws and regulations  (including changes
in laws and regulations  affecting gaming  operations and taxes) and natural and
other disasters.  If there is a downturn in gaming  operations in Cripple Creek,
the Company will be more adversely  affected than if it had  significant  gaming
operations in other gaming markets. Furthermore,  since the Company obtains most
of its  revenues  from slot  machines,  a  decrease  in the  popularity  of slot
machines could adversely impact the Company's operations.

Growth Strategy

The  Company's  long-term  growth  strategy  focuses on  developing or acquiring
additional casinos located outside the State of Colorado.  The Company's ability
to expand to additional locations will depend on a number of factors, including:

       o      identifying  suitable  sites  in  jurisdictions  where  gaming  is
              legalized;

       o      obtaining  the  necessary  gaming  and liquor  licenses  and other
              permits required to operate a casino;

       o      resolving  risks typically  associated with any new  construction;
              and o obtaining additional financing on acceptable terms.

Any expansion to locations outside the United States will further involve all of
the risks of foreign  operations.  These include currency  controls,  unforeseen
local regulations,  shortages of skilled workers and political instability. Many
of these  factors are beyond the  Company's  control.  No assurance can be given
that the Company will be able to expand  successfully  to additional  locations.
Even if such plans are  successfully  completed,  the  Company  must  manage its
growth.  This will require the Company to add and train new personnel,  evaluate
our management structure,  expand its management information systems and control
its  operating  expenses.  All of these  risks  should be viewed in light of the
Company's limited staff and limited capital.

Gaming Taxes

The State of Colorado  imposes a gaming tax based on our adjusted gross proceeds
from gaming  operations.  (Adjusted  gross proceeds is generally  defined as the
total amounts wagered less all payments to players). The Casinos in Colorado are
currently subject to the following tax rates:

         o 2% on the first $2  million of AGP;

         o 4% on AGP  from $2  million  to $4  million;

         o 14% on AGP from $4 million to $5 million;

                                     -23-

<PAGE>



         o 18% on AGP from $5 million to $10 million; and
         o 20% on AGP over $10 million.

Effective July 1 of each year, the Colorado  Gaming  Commission  establishes the
gaming  tax for the next 12  months.  In  addition,  the State of  Colorado  has
imposed an annual device fee of $75 and the city of Cripple Creek has imposed an
annual  device  fee of  $1,200,  for each  gaming  device  installed  on  gaming
premises.  Tax rates or fees  applicable  to our casinos may be increased in the
future, either by the Colorado electorate, legislation or action by the Colorado
Gaming Commission or the city of Cripple Creek. Additionally, from time to time,
certain  federal  legislators  have proposed the  imposition of a federal tax on
gaming  revenues.  Any such  increase  in  taxes  could  be  detrimental  to the
Company's operations.

Pending Report from the National Gambling Impact Study Commission

The U.S. Congress has created the National Gambling Impact and Policy Commission
to conduct a  comprehensive  study of all matters  relating to the  economic and
social  impact of gaming in the U.S.  The  National  Gambling  Impact and Policy
Commission  must issue a report by June 20, 1999  containing  its  findings  and
conclusions,  together with  recommendations  for legislation and administrative
action.  Any such  recommendations,  if enacted into law, could adversely affect
the gaming industry, including the Company's operations.

Potential Liability for Serving Liquor to our Patrons

The Company may be subject to "dram shop" laws. Generally, dram shop laws impose
liability on licensed  alcoholic beverage servers for injuries or damages caused
by negligent service of alcohol to visibly  intoxicated persons or to minors, if
such service is the  proximate  cause of the injury or damage and such injury or
damage  is  reasonably  foreseeable.  The  Company  maintains  liquor  liability
insurance as part of comprehensive general liability insurance, which management
believes is adequate to protect against  potential "dram shop" liability claims.
Nonetheless,  it is possible  that the Company could be subject to a judgment in
excess of our  insurance  coverage  in the  future or that it may not be able to
continue to maintain such insurance coverage at reasonable costs, or at all.

Item 7.  Financial Statements

The consolidated financial statements and supplementary data are as set forth in
"INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" on page F-1 hereof.


Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure

During fiscal year ended October 31, 1998, the Company  changed its  independent
accountants from Richey, May & Co., P.C. to the firm of Moore Stephens,  P.C. as
the Company's new independent  accountants.  The decision to change  accountants
was recommended and approved by the Company's audit committee.



                                     -24-

<PAGE>




                                   PART III

Item 9.  Directors, Executive Officers, Promoters, and Control Persons; 
         Compliance with Section 16(a) of the Exchange Act

The following table sets forth information  regarding the officers and directors
of the Company as of April 25, 1999:

Name                 Age              Positions Held                 Since
----                 ---              --------------                 -----
Michael S. Smith     40   Interim President and Chief Executive
                           Officer, Secretary, General Counsel,
                           and Director                          January, 1992
Gilbert M. Sisneros  60   Vice President and Director              March, 1995
Farid E. Tannous     32   Treasurer and Chief Financial Officer February, 1996
Michael Beck         43   Director                              February, 1998
Salvatore DiMascio   59   Director                                  June, 1998
Sam Halpern          57   Director                               January, 1997
Steve Norton         64   Director                              February, 1998
Rudy S. Saenz        44   Director                               January, 1992
Joseph M. Farruggio  47   Vice President and General Manager     February 1998
                            of The Double Eagle

Michael S. Smith has served as Secretary, General Counsel, and a Director of the
Company since January 1992 and Interim President and Chief Executive Officer. In
March 1999,  Mr. Smith was  appointed  the  Company's  Interim  Chief  Executive
Officer  and  President.  Mr.  Smith has also been a  self-employed  attorney in
Denver,  Colorado since 1992.  Prior to joining the Company,  he was an attorney
with the law firm of McKenna & Cueno in Denver,  Colorado.  Mr. Smith received a
bachelor of arts degree from  Marquette  University  in 1981 and a juris  doctor
degree in 1984.

Gilbert M.  Sisneros has served as Vice  President and a Director of the Company
and its  subsidiary,  Double Eagle Resorts,  Inc. since March 1995. Mr. Sisneros
was one of the original  founders of Creeker's in 1991. He also acted as General
Manager  for The Double  Eagle  during its first  year of  operations.  Prior to
founding  Creeker's,  Mr.  Sisneros was owner and President of Metro  Wholesale,
Inc., a food supply company in Colorado  Springs.  Mr. Sisneros studied business
law at  Weatherford  College in Texas and later studied  business and finance at
Colorado Mountain College.

Farid E.  Tannous has served as  Treasurer  and Chief  Financial  Officer of the
Company since February 1996. From September 1994 until joining the Company,  Mr.
Tannous was Vice President and Chief  Financial  Officer of Phoenix  Micro-Lite,
Inc., a privately-held start-up company in Los Angeles,  California. Mr. Tannous
was also owner and  President of F.E.  Tannous & Company  Investment  Management
Group in Beverly Hills,  California from July 1994 to February 1996. Previously,
he was a business  analyst with Hughes Power Products,  Inc. and a member of the
technical  staff in various  divisions  of Hughes.  In June  1994,  Mr.  Tannous
received a masters of business  administration  degree in finance and accounting
from the  University  of Chicago  Graduate  School of Business.  He also holds a
masters degree and a bachelor of science degree in electrical  engineering  from
the University of Southern California.

Michael Beck has served as a Director of the Company since  February  1998.  Mr.
Beck has over 19 years experience in hotel/casino management, including previous
management-level  positions  with the  Company.  Since March 1998,  Mr. Beck has
served as the Vice  President  of Gaming  Operations  for Sodak  Gaming.  Before
joining Sodak Gaming, Mr. Beck was a Vice President of Double Eagle

                                     -25-

<PAGE>



Resorts,  Inc., and the general  manager of The Double Eagle Hotel from May 1997
to February 1998. Mr. Beck served as Vice President of casino  operations at the
Flamingo  Hilton,  Reno,  Nevada from 1996 to 1997 and as the Director of casino
operations at the Flamingo Casino, New Orleans, Louisiana from 1993 to 1996.

Salvatore T.  DiMascio has served as a Director of the Company  since June 1998.
Since 1986,  Mr.  DiMascio has been  President of DiMascio  Venture  Management,
Inc., a management  and  investment  firm.  From June 1994 until June 1997,  Mr.
DiMascio was  Executive  Vice  President and Chief  Financial  Officer of Anchor
Gaming,  a  publicly-held  diversified  gaming  company.  From 1978 to 1986, Mr.
DiMascio  was  Senior  Vice  President  and Chief  Financial  Officer  of Conair
Corporation,  a manufacturer  and marketer of personal and health care products.
Mr.  DiMascio is also a Director of Fotoball  U.S.A.,  a  publicly-held  company
which  develops  and  manufactures  custom  sports-related  products,   H.E.R.C.
Products,  Inc., a publicly-held  company in the water treatment  business,  and
U.S.  Communications Inc., a publicly-held  communications company. Mr. DiMascio
is a certified public accountant.

Sam  Halpern has served as a Director of the Company  since  January  1997.  Mr.
Halpern is President of Indela  Holdings,  Inc. and a managing  member of Indela
CamelSquare,  LLC and  CamelSquare  Executive  Suites,  which  are  real  estate
development and leasing companies. He is also a principal trustee of the Gregory
Halpern  Charitable  Trust.  Since  1990,  he has served as  Director  and Chief
Financial Officer of a diversified family investment portfolio. Mr. Halpern is a
graduate of the United States Military Academy at West Point.

Steve Norton has served as a Director of the Company since  February  1998.  Mr.
Norton has served as the president and chief operating  officer of Argosy Gaming
Company from January 1993 through April 1997 and Executive  Vice  President from
April 1997 through  February  1998.  From 1991 through 1992 he was the president
and  Chief  Executive  Officer  of the Gold  River  Gambling  Hall &  Resort  in
Laughlin,  Nevada.  He has also  served as the  President  and  Chief  Operating
Officer of the Sands Hotel & Casino,  Las Vegas,  Nevada, and the Executive Vice
President of both Resorts International,  Inc., and Resorts International Casino
Hotel.  He  currently  is a  founding  member of the Board of  Directors  of the
American Gaming  Association,  past chairman of the Indiana Gaming  Association,
past officer and director of the Missouri Gaming Association,  and past director
of the Illinois Gaming Association.  He is a Fellow of the Educational Institute
of the American Hotel  Association,  a member of the Indiana Tourism  Commission
and a member of the Marketing Advisory Committee of the St. Louis Convention and
Visitors Commission. He has been a guest lecturer at both the Cornell University
School of Hotel Administration and at the University of Nevada, Las Vegas School
of Hotel & Casino Administration.  He received a bachelor of science in Business
Administration from Davidson College in 1956.

Rudy S.  Saenz  has  served as  Director  and  founder  of the  Company  and its
subsidiary Double Eagle Resorts,  Inc., and its predecessors since January 1992.
In March 1999, Mr. Saenz resigned as the Chief  Executive  Officer and President
of the Company, positions he had held since inception. From 1992 to 1994, he was
the chief  executive  officer and director of Lyric,  the company that  acquired
land in  Cripple  Creek  and  merged  with  the  Company  in 1994.  See  "Item 1
Description  of  Business--Background."  From 1989 through  1992,  Mr. Saenz was
employed as a Director of Marketing  and New Business  Development  at GM Hughes
Electronics  ("Hughes").  Prior  thereto,  he was  employed  by  Ball  Aerospace
Corporation as a Technical  Program Manager.  Prior thereto,  he was employed by
Hughes as a member of the technical staff where he functioned as design engineer
at the Hughes Technology Center. Mr. Saenz received a bachelor of science degree
in  engineering  physics from the  University of California at San Diego in 1982
and later pursued graduate studies in

                                     -26-

<PAGE>



electrical  engineering.  He also attended graduate school to study business and
economics at the University of Colorado at Boulder.

Joseph M. Farruggio has served as Vice  President and General  Manager of Double
Eagle Resorts,  Inc. and Creeker's Casino Inc. since February 1998. Mr. Farrugio
has over 20 years of experience in the casino  industry.  From 1991 to 1997, Mr.
Farrugio  was  associated  with Casino  America,  where he served as Director of
Casino Operations and General Manager for the Par-a-dice  Riverboat Casino.  Mr.
Farrugio  opened three casinos for Casino  America and was named Vice  President
and General Manager of the Isle of Capri Casino. From 1982 to 1991, Mr. Farrugio
served as Director of Casino  Marketing at the  Tropicana  Hotel.  Mr.  Farrugio
currently  serves as a board member of The Cripple Creek Casino  Association and
the Teller County Economic Development Foundation.

Directors' Terms

All directors serve one year terms, until the next annual meeting or until their
replacements are elected and qualified.

Family Relationships

There are no family  relationships  between any director or executive officer of
the Company.

Compliance with Section 16(a) of the Securities Exchange Act

Section 16(a) of the Securities  Exchange Act of 1934 requires our directors and
executive  officers,  and  persons  who  beneficially  own more  than 10% of its
outstanding  common stock, to file with the SEC initial reports of ownership and
reports of changes in ownership of common stock and other equity  securities  of
the Company. Officers and shareholders who own more than 10% are required by SEC
regulation  to furnish the Company with copies of all Section 16(a) reports they
file.

To our knowledge, based solely on review of the copies of such reports furnished
to the Company and written  representations that no other reports were required,
during  the fiscal  year ended  October  31,  1998,  all  Section  16(a)  filing
requirements  applicable  to its  officers,  directors,  and  greater  than  10%
shareholders were satisfied.



                                     -27-

<PAGE>




Item 10. Executive Compensation

The  following  table sets forth,  for the fiscal years ended  October 31, 1998,
1997,  and 1996, the  compensation  paid or accrued by the Company to its former
Chief Executive Officer and below named officers:
<TABLE>

                          SUMMARY COMPENSATION TABLE

                    Annual Compensation                              Awards
Name and                                                     Restricted  Securities
Principal                                     Other Annual    Stock      Underlying     All Other
Position           Year    Salary($) Bonus($) Compensation   Awards($)   Options/SARs  Compensation
---------------------------------------------------------------------------------------------------

<S>              <C>       <C>      <C>              <C>        <C>            <C>         <C>
Rudy S. Saenz    10/31/98   27,714     --            --         --             --          --
President & CEO  10/31/97  113,160     --            --         --             --          --
                 10/31/96  148,000  220,000          --         --         250,000(1)      --

Farid E. Tannous 10/31/98   90,192   15,000          --         --             --          --
Treasurer & CFO  10/31/97   77,658   15,000          --         --             --          --
                 10/31/96   48,462     --            --         --         100,000         --
</TABLE>

(1) Such options were cancelled by the Board of Directors in 1997.

Directors of the Company who are full-time employees receive no compensation for
their  services as directors.  The  Company's  non-employee  directors,  Messrs.
Halpern,  Beck,  Norton,  and DiMascio,  receive no cash  compensation for their
services as directors  of the  Company.  The Company has granted each of Messrs.
Beck and Norton  immediately  exerciseable  options to purchase 20,000 shares of
the  Company's  Common Stock per share at an exercise  price of $2.00 per share.
The Company has granted Mr.  DiMascio 75,000  restricted  shares of Common Stock
and an option to purchase  75,000 shares of Common Stock at an exercise price of
$1.67 per  share,  which  restricted  stock and  option  vest over a  three-year
period.  See "Item 11.  Security  Ownership  of  Certain  Beneficial  Owners and
Management."

The table below sets forth information concerning the exercise of options during
1998 along with the aggregate 1998 year-end  option holdings of the former Chief
Executive Officer and below named officers of the Company:

<TABLE>

        AGGREGATED OPTION EXERCISES IN 1998 AND YEAR-END OPTION VALUES
                                 COMMON STOCK

                                               Number of securities    Value of unexercised
                                              underlying options at       in-the-money
                 Shares Acquired    Value      October 31, 1998            options at
Name               on Exercise    Realized Exercisable/Unexercisable   October 31, 1998
---------------------------------------------------------------------------------------

<S>                   <C>          <C>           <C>                         <C>
Rudy S. Saenz         none          none           210,000/0                 n/a / n/a
Farid E. Tannous      none          none         40,000/60,000               n/a / n/a
---------------------------------------------------------------------------------------
</TABLE>



                                     -28-

<PAGE>



Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information  concerning common stock ownership by
beneficial  owners of five  percent or more of our common stock and the officers
and directors of the Company:
                                                   Amount of
                  Name and Address                 Beneficial     Percent of
Title of Class    of Beneficial Owner             Ownership(1)      Class
------------------------------------------------------------------------------

Common            Rudy S. Saenz
$0.001 par value  304 S. 8th Street, Suite 201   21,747,219(2)     55.83%
                  Colorado Springs, CO 80905
-------------------------------------------------------------------------------

Common            Gilbert M. Sisneros
$0.001 par value  304 S. 8th Street, Suite 201   21,482,219(2)     55.45%
                  Colorado Springs, CO 80905
-------------------------------------------------------------------------------

Common            Sam Halpern                     3,650,000(3)      9.09%
$0.001 par value  P.O. Box 1117
                  Whitefish, MT 59937
-------------------------------------------------------------------------------

Common            Michael S. Smith                   77,500(4)
$0.001 par value  304 S. 8th Street, Suite 201                       *
                  Colorado Springs, CO 80905
-------------------------------------------------------------------------------

Common            Farid E. Tannous                   60,000(5)       *
$0.001 par value  304 S. 8th Street, Suite 201
                  Colorado Springs, CO 80905
-------------------------------------------------------------------------------

Common            Salvatore T. DiMascio              50,000(6)       *
$0.001 par value  304 S. 8th Street, Suite 201
                  Colorado Springs, CO 80905
-------------------------------------------------------------------------------

Common            Michael Beck                       20,000(7)       *
$0.001 par value  304 S. 8th Street, Suite 201
                  Colorado Springs, CO 80905
-------------------------------------------------------------------------------

Common            Steve Norton                       20,000(8)       *
$0.001 par value  304 S. 8th Street, Suite 201
                  Colorado Springs, CO 80905
-------------------------------------------------------------------------------

Common            All Officers and Directors      25,674,719       63.32%
$0.001 par value  as a group (eight persons)(9)
-------------------------------------------------------------------------------

Common            Total shares issued/outstanding 38,740,632      100.00%
-------------------------------------------------------------------------------


*Less than 1%.
(1) Unless otherwise  indicated,  the Company believes that all persons named in
    the table have sole voting and  investment  power with respect to all shares
    beneficially owned by them. Each beneficial owner's percentage  ownership is
    determined by assuming that convertible securities, options or warrants that
    are held by such person  (but not those held by any other  person) and which
    are  exercisable  within  60 days  of the  date of  this  report  have  been
    exercised.  Calculation  of  percentage  ownership  was based on  38,740,632
    shares of Common Stock outstanding as of April 21, 1999.
(2) Messrs.  Saenz and Sisneros share voting and dispositive powers with respect
    to a total of 21,407,219  shares held by Double Eagle  Investments,  Ltd., a
    Colorado  limited  partnership,   and  its  general  partner,  Double  Eagle
    Consolidated,  Inc., a Colorado  corporation.  Mr. Saenz has sole voting and
    dispositive  power with respect to an additional  340,000 shares,  including
    210,000  shares  subject  to  options.  Mr.  Sisneros  has sole  voting  and
    dispositive power with respect to an additional 75,000 shares.
(3) Includes  1,400,000 shares underlying a common stock purchase  warrant.
(4) Includes  75,000 shares  underlying  stock options.
(5) Includes  60,000 shares underlying stock options.
(6) Includes  25,000  shares  underlying  stock  options  and  25,000  shares of
    restricted stock. Does not include 50,000 shares underlying stock options or
    50,000 shares of restricted stock which vest more than 60 days from the date
    hereof.
(7) Includes 20,000 shares underlying stock options.
(8) Includes 20,000 shares underlying  stock  options.
(9) Includes all shares  described in footnotes 2-8 above.


                                     -29-

<PAGE>




Item 12. Certain Relationships and Related Transactions

Michael S. Smith,  Interim  President and Chief Executive Officer of the Company
served as the Secretary  and General  Counsel of the Company in 1998 but did not
receive a salary from the Company for that period. However, in consideration for
legal  services  rendered to the Company,  Mr. Smith received a flat fee monthly
retainer  of $6,000 and $20,000 in cash  bonuses  for a total of $92,000  during
fiscal  year 1998.  Mr.  Smith  received  no  compensation  for his  services as
director.

In May 1997, the Company  modified the conversion  feature of the 250,000 shares
of Series One Convertible Preferred Stock ("Series One Preferred Stock") held by
Gemini Ventures, LLC ("Gemini"), a company controlled by Sam Halpern, a director
of the Company. As modified, such shares of Series One Preferred Stock were made
convertible  into an  aggregate  of  1,400,000  shares  of  Common  Stock  and a
five-year warrant to purchase an additional  1,400,000 shares of Common Stock at
an exercise price of $2.50 per share. Prior to such modification,  the shares of
Series One Preferred  Stock were  convertible  into  1,000,000  shares of Common
Stock and a three-year  warrant to purchase an  additional  1,000,000  shares of
Common Stock at a exercise  price of $4.00 per share.  The Series One  Preferred
Stock was converted by Gemini in June 1997.

Contemporaneously  with the  modification of the Series One Preferred Stock held
by Gemini,  Gemini  extended the maturity date of the promissory  note issued by
Gilbert M.  Sisneros,  a director and Vice  President of the Company,  to Gemini
from May 30, 1997 to January 28, 1999. Mr. Sisneros,  in turn,  extended the due
date on this loan to the Company to January 28, 1999, and then further  extended
the due date to April  30,  1999,  to  coincide  with a  similar  extension  Mr.
Sisneros  received from Gemini.  The $2,087,500 note from Mr. Sisneros to Gemini
bears  interest  at a rate of 14% per year and is  secured by a note in the like
amount issued by the Company to Mr. Sisneros.  The note issued by the Company is
unsecured,  bears  interest  at a rate of 14.10% per year and matures on January
28, 1999. The proceeds from this loan from Mr. Sisneros to the Company were used
in the  construction  and  development  of The Double Eagle.  See NOTE 3F TO THE
CONSOLIDATED FINANCIAL STATEMENTS.

In August 1996, the Company did not pursue the renewal of a required license for
a former officer and  shareholder of CCRI. To assure the continued  operation of
the  Company's  casinos,  Messrs.  Saenz and  Sisneros  agreed to  acquire  such
person's interest in the Company (including a one-third interest in Double Eagle
Investments, Ltd. and TSC Enterprises) in exchange for a $3,000,000 note bearing
interest  at a rate of 7% per year.  To assist  Messrs.  Saenz and  Sisneros  in
making the  $55,443  per month  payment  due under this  note,  CCRI has,  since
November 1, 1996, advanced a total of approximately  $1,057,000 to Messrs. Saenz
and Sisneros. See NOTE 6 TO THE CONSOLIDATED FINANCIAL STATEMENTS.

TSC  Enterprises  ("TSC") is a Colorado  general  partnership  that is presently
controlled by Messrs.  Saenz,  Sisneros and a third person. Prior to there being
any related party relationship between the Company and TSC, the Company acquired
13 undeveloped lots from TSC in exchange for the issuance of a 7.05% convertible
promissory note ("TSC Convertible  Note") in the principal amount of $4,500,000.
Principal and interest  under this  unsecured  promissory  note may be converted
into shares of Common Stock after November 1, 1999 at a conversion  rate of $.50
per share. In addition,  there remains outstanding  approximately  $470,083 (and
accrued interest of $222,293 at January 31, 1999) on a September 1992 promissory
note  ("TSC  Note")  issued  by  the  Company  to  TSC in  connection  with  the
acquisition of four of the nine lots where The Double Eagle now stands.  The TSC
Note bears interest at a rate of 16% per year and is unsecured.


                                     -30-

<PAGE>



Item 13. Exhibits and Reports on Form 8-K

    (a)  Exhibits

         Exhibit     18 Letter  regarding  Change of Accounting  Principles from
                     Moore Stephens dated February 15, 1999.

    (b) Reports on Form 8-K Filed During the Company's Fourth Fiscal Quarter:

         (1)  On September 17, 1998,  the Company filed a current report on Form
              8-K  with the  Commission  dated  September  17,  1998,  reporting
              information  under  Item 4,  Changes  in  Registrant's  Certifying
              Accountant and Item 7, Financial Statements and Exhibits.

         (2)  On October 1, 1998, the Company filed a current report on Form 8-K
              with the Commission dated October 1, 1998,  reporting  information
              under Item 7, Financial Statements and Exhibits.

                                     -31-

<PAGE>



                                  SIGNATURES

Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities  Act of
1934, as amended, the registrant has duly caused this report to be signed on our
behalf by the  undersigned,  thereunto duly  authorized  this 27th day of April,
1999.

                                         COLORADO CASINO RESORTS, INC.

                                    By:  /s/ Michael S. Smith
                                         Michael S. Smith
                                         Interim President and Chief Executive
                                         Officer, Secretary & General Counsel,
                                         Director

                                         /s/ Farid E. Tannous
                                         Farid E. Tannous
                                         Treasurer and Chief Financial Officer
                                         (Principal Financial Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the registrant
in the capacities and on the dates indicated.

April 27, 1999                           /s/ Michael S. Smith
                                         ----------------------------------
                                         Michael S. Smith
                                         Interim President and Chief Executive
                                         Officer, Secretary & General Counsel,
                                         Director

April 27, 1999                           /s/ Gilbert M. Sisneros
                                         ----------------------------------
                                         Gilbert M. Sisneros
                                         Vice President, Director

April 27, 1999                           /s/ Farid E. Tannous
                                         ----------------------------------
                                         Farid E. Tannous
                                         Treasurer and Chief Financial Officer

April 27, 1999                           /s/ Michael Beck
                                         ----------------------------------
                                         Michael Beck
                                         Director

April 27, 1999                           /s/ Salvatore DiMascio
                                         ----------------------------------
                                         Salvatore DiMascio
                                         Director

April 27, 1999                           /s/ Sam Halpern
                                         ----------------------------------
                                         Sam Halpern
                                         Director

April 27, 1999                           /s/ Steve Norton
                                         ----------------------------------
                                         Steve Norton
                                         Director

April 27, 1999                           /s/ Rudy S. Saenz
                                         ----------------------------------
                                         Rudy S. Saenz
                                         Director


                                     -32-

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------




Independent Auditor's Report............................................   F-2

Consolidated Balance Sheets.............................................   F-3

Consolidated Statements of Operations...................................   F-5

Consolidated Statements of Shareholders' Equity [Deficiency]............   F-6

Consolidated Statements of Cash Flows...................................   F-7

Notes to Consolidated Financial Statements..............................   F-9



                        .   .   .   .   .   .   .   .   .

                                       F-1

<PAGE>



                          REPORT OF INDEPENDENT AUDITOR



To the Shareholders and Board of Directors
  Colorado Casino Resorts, Inc.
  Colorado Springs, Colorado


            We have  audited the  accompanying  consolidated  balance  sheets of
Colorado  Casino Resorts,  Inc. and its  subsidiaries as of October 31, 1998 and
1997,  and  the  related  consolidated  statements  of  operations,  changes  in
stockholders'  equity  [deficiency],  and cash flows for the  fiscal  years then
ended.  These  consolidated  financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated  financial  statements based on our audits. As more fully discussed
in Note 3 to the accompanying consolidated financial statements, Colorado Casino
Resorts,  Inc. has made  several  restatements  to its fiscal 1997  consolidated
financial statements.  The consolidated  financial statements of Colorado Casino
Resorts,  Inc. as of and for the fiscal  year ended  October  31,  1997,  before
restatements,  were audited by other  auditors  whose report dated  December 17,
1997, expressed an unqualified opinion on those statements.

            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  consolidated   financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and  significant  estimates made by  management,  as well as evaluating the
overall  consolidated  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 Colorado Casino Resorts, Inc. and its subsidiaries as of October 31,
1998 and 1997, and the  consolidated  results of their operations and their cash
flows for the fiscal  years then ended in  conformity  with  generally  accepted
accounting principles.

            As discussed  in Note 18 to the  financial  statements,  the Company
changed its method of computing depreciation in 1998.

            The accompanying  financial  statements have been prepared  assuming
that Colorado Casino Resorts, Inc. will continue as a going concern. As shown in
the accompanying  statements of operations,  the Company has incurred a net loss
of  approximately  $9.4 million for the year ended October 31, 1998,  and, as of
that date,  has an  accumulated  deficit  from  inception of  approximately  $21
million, a stockholders'  equity deficiency of approximately $2.1 million, and a
negative  working capital of over $40 million.  As discussed more fully in Notes
11 and 19 to the  financial  statements,  Colorado  Casino  Resorts,  Inc. is in
technical  default of its revolving  credit  facility,  and several of its lease
obligations.  The Company's  business plan,  which is discussed in Note 4 to the
financial statements,  contemplates reduced operating losses, and refinancing or
restructuring its debt obligations.  Colorado Casino Resorts,  Inc.'s ability to
achieve the foregoing  elements of its business plan,  which may be necessary to
permit the realization of its assets and  satisfaction of its liabilities in the
ordinary course of business,  is uncertain.  Those conditions raise  substantial
doubt  about  Colorado  Casino  Resorts,  Inc.'s  ability to continue as a going
concern.  The  financial  statements do not include any  adjustments  that might
result from the outcome of these uncertainties.


                                          MOORE STEPHENS, P. C.
                                          Certified Public Accountants.
Cranford, New Jersey
February 15, 1999,
Except as to Notes 22 and 16, for which
the dates are March 22, 1999,  and
March 31, 1999, Respectively

                                       F-2

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------


                                                             October 31,
                                                        1 9 9 8       1 9 9 7
                                                                   [As Restated]
Assets:
Current Assets:
  Cash and Cash Equivalents                           $ 1,573,519   $ 1,962,487
  Inventory                                                96,429        64,396
  Advances to Officers                                    125,443       137,255
  Prepaid Device Fees                                     201,400       209,381
  Miscellaneous Receivables                                    --       153,954
  Other Current Assets                                    148,381         4,348
                                                      -----------   -----------

  Total Current Assets                                  2,145,172     2,531,821
                                                      -----------   -----------

Real Estate Held for Future Development                 3,250,000     4,504,970
                                                      -----------   -----------

Land, Building and Equipment - Net                     40,459,018    42,492,581
                                                      -----------   -----------

Other Assets:
  Debt Issue Cost                                         359,819       593,678
  Debt Extension Cost                                     158,100       790,500
  Deposits                                                 63,108        64,288
                                                      -----------   -----------

  Total Other Assets                                      581,027     1,448,466
                                                      -----------   -----------

  Total Assets                                        $46,435,217   $50,977,838
                                                      ===========   ===========



The  Accompanying  Notes Are an Integral  Part of These  Consolidated  Financial
Statements.

                                        F-3

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED BALANCE SHEETS
------------------------------------------------------------------------------


<TABLE>
                                                                 October 31,
                                                            1 9 9 8       1 9 9 7
                                                                        [As Restated]
Liabilities and Shareholders' Equity [Deficiency]:
Current Liabilities:
<S>                                                       <C>           <C>
  Revolving Credit Facility                               $13,655,296   $        --
  Accounts Payable                                            349,320       530,192
  Accrued Expenses                                          1,303,328       731,324
  Slot Club Liability                                         348,949       225,581
  Incremental Progressive Slot Liability                      374,264       353,396
  Current Maturities of Long-Term Debt                     10,819,963     1,179,388
  Current Maturities of Long-Term Debt - Related Party      7,796,411            --
  Convertible Debenture - Related Party                     4,500,000            --
  Current Maturities of Capital Lease Obligations             629,787     2,732,394
  Interest Payable                                          1,252,825       385,892
  Interest Payable - Related Party                          1,953,240       633,051
  Interest Payable - Convertible Debenture - Related
   Party                                                      909,261            --
  Due to Officers                                              30,000            --
  Other Current Liabilities                                    99,711       121,927
                                                          -----------   -----------

  Total Current Liabilities                                44,022,355     6,893,145

Long-Term Debt - Less Current Maturities                    3,908,702    20,684,629

Long-Term Debt - Related Party                                     --     7,874,638

Convertible Debenture - Related Party                              --     4,500,000

Capital Lease Obligations - Less Current Maturities           667,437     2,965,179

Interest Payable - Convertible Debenture - Related Party           --     1,016,989
                                                          -----------   -----------

  Total Liabilities                                        48,598,494    43,934,580
                                                          -----------   -----------

Commitments and Contingencies [16]

Stockholders' Equity [Deficiency]:
  Preferred Stock, $10 Par Value, 5,000,000 Shares
   Authorized, No Shares Issued or Outstanding                     --            --

  Common Stock, $.001 Par Value, 100,000,000 Shares
   Authorized, 38,740,632 and 38,665,632 Shares Issued
   and Outstanding, Respectively                               38,741        38,666

  Paid-in Capital                                          19,025,188    18,741,968

  Deferred Compensation                                       (81,500)           --

  Accumulated Deficit                                     (21,145,706)  (11,737,376)
                                                          -----------   -----------

  Total Stockholders' Equity [Deficiency]                  (2,163,277)    7,043,258
                                                          -----------   -----------

  Total Liabilities and Stockholders' Equity [Deficiency] $46,435,217   $50,977,838
                                                          ===========   ===========
</TABLE>

The  Accompanying  Notes Are an Integral  Part of These  Consolidated  Financial
Statements.

                                        F-4

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF OPERATIONS
------------------------------------------------------------------------------
<TABLE>

                                                                 Years ended
                                                                 October 31,
                                                            1 9 9 8       1 9 9 7
                                                            -------       -------
                                                                       [As Restated]
Revenues:
<S>                                                       <C>           <C>
  Casino                                                  $19,379,052   $19,554,786
  Rooms                                                     2,344,092     2,656,258
  Food and Beverage                                         2,608,486     2,351,110
  Other                                                       643,168       194,546
                                                          -----------   -----------

  Total Revenues Before Promotional Allowances             24,974,798    24,756,700
  Less: Promotional Allowances                             (1,749,566)   (1,833,564)
                                                          -----------   -----------

  Net Revenues                                             23,225,232    22,923,136
                                                          -----------   -----------

Expenses:
  Casino                                                   10,875,905     9,817,381
  Rooms                                                     1,764,548     1,746,804
  Food and Beverage                                         3,211,008     2,904,299
  Marketing                                                 2,769,879     1,614,482
  General and Administrative                                3,555,697     4,068,140
  Depreciation and Amortization                             3,505,759     3,495,116
  Impairment of Land Held for Future Development            1,254,970           --
                                                          -----------   ----------

  Total Expenses                                           26,937,766    23,646,222
                                                          -----------   -----------

  [Loss] from Operations                                   (3,712,534)     (723,086)
                                                          -----------   -----------

Nonoperating Income [Expenses]:
  Interest Income                                              18,220        11,371
  Interest Expense                                         (4,426,816)   (3,971,008)
  Interest Expense - Related Party                         (1,744,216)   (1,783,002)
                                                          -----------   -----------

  Net Nonoperating [Expense]                               (6,152,812)   (5,742,639)
                                                          -----------   -----------

  Loss Before Income Tax [Benefit], Extraordinary Gain and
   Cumulative Effect on Prior Years of Retroactive Application
   of New Depreciation Method                              (9,865,346)   (6,465,725)

Income Tax [Benefit]                                               --      (391,946)
                                                          -----------   -----------

  Loss Before Extraordinary Gain and Cumulative Effect
   on Prior Years of Retroactive Application of New
   Depreciation Method                                     (9,865,346)   (6,073,779)

Extraordinary Gain, Less Applicable Income Tax of $391,946         --       760,837

Cumulative Effect on Prior Years of Retroactive
  Application of New Depreciation Method, No Tax
  Effect [See Note 18 for Pro Forma Disclosures]              457,016            --
                                                          -----------   -----------

  Net Loss                                                $(9,408,330)  $(5,312,942)
                                                          ===========   ===========

  Basic Loss Per Common Share:
   Loss Before Extraordinary Item and Accounting Change   $       .25   $       .17
   Extraordinary Item                                     $        --   $       .02
   Accounting Change                                      $       .01   $        --
   Net Loss                                               $       .24   $       .15

  Weighted Average Common Shares Outstanding               38,667,715    36,603,232
                                                           ==========    ==========
</TABLE>

The  Accompanying  Notes Are an Integral  Part of These  Consolidated  Financial
Statements.

                                        F-5

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [DEFICIENCY]
------------------------------------------------------------------------------
<TABLE>

                                                                                                                           Total
                                                                                                                      Stockholders'
                                            Preferred Stock Common Stock          Paid-in    Deferred   Accumulated      Equity
                                         Shares     Amount  Shares      Amount    Capital  Compensation   Deficit    [Deficiency]

<S>                                 <C>         <C>         <C>        <C>      <C>         <C>        <C>           <C>
  Balance - October 31, 1996            250,000 $2,500,000  34,537,711 $34,537  $12,067,270 $      --  $ (6,424,434) $ 8,177,373

  Conversion of Series One, Preferred
   Stock into Common Stock [3F]        (250,000)(2,500,000)  1,400,000   1,400    2,498,600        --            --           --

  Conversion of Convertible Debentures
   into Common Stock [3G]                    --         --  2,627,921    2,629    2,661,355        --            --    2,663,984

  Common Stock Issued as Partial
   Payment of Land Purchase                  --         --    100,000      100      149,900        --            --      150,000

  Granting of 200,000 Stock Warrants
   for Professional Services [3C]            --         --         --       --       84,912        --            --       84,912

  Capitalized Cost on Induced Conversion
   of Debentures [3G]                        --         --         --       --      225,931        --            --      225,931

  Capitalized Cost Associated with
   Issuance of Warrants and Common
   Stock [3F]                                --         --         --       --    1,054,000        --            --    1,054,000

  Net Loss                                   --         --         --       --           --        --    (5,312,942)  (5,312,942)
                                    ----------- ---------- ----------  -------  -----------  --------  ------------  -----------

Balance - October 31, 1997 [As
  Restated] [3]                              --         -- 38,665,632   38,666   18,741,968        --   (11,737,376)   7,043,258

  Waived Officers' Salaries                  --         --         --       --      161,045        --            --      161,045

  Issuance of 75,000 Common Shares
   to Board Member                           --         --     75,000       75      122,175        --            --      122,250

  Deferred Compensation to
   Board Member                              --         --         --       --           --   (81,500)           --      (81,500)

  Net Loss                                   --         --         --       --           --        --    (9,408,330)  (9,408,330)
                                    ----------- ---------- ----------  -------  ----------- ---------  ------------  -----------

  Balance - October 31, 1998                 -- $       -- 38,740,632  $38,741  $19,025,188 $(81,500) $(21,145,706)  $(2,163,277)
                                    =========== ========== ==========  =======  =========== ========  ============   ===========

</TABLE>

The  Accompanying  Notes Are an Integral  Part of These  Consolidated  Financial
Statements.

                                              F-6

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------

<TABLE>
                                                                 Years ended
                                                                 October 31,
                                                            1 9 9 8       1 9 9 7
                                                            -------       -------
                                                                        [As Restated]
Cash Flows From Operating Activities:
<S>                                                       <C>           <C>
  Net Loss                                                $(9,408,330)  $(5,312,942)
                                                          -----------   -----------
  Noncash Items:
   Depreciation and Amortization [including
     cumulative effect adjustment in 1998]                  3,048,741     3,495,116
   Amortization of Debt Issue Costs                         1,264,828       875,017
   [Gain] Loss on Sale of Fixed Assets                         (9,000)       18,693
   Waived Officers' Salaries                                  161,045            --
   Amortization of Director's Deferred Compensation            40,750            --
   Induced Conversion Expenses on Debentures                       --       225,931
   Warrants Issued for Professional Services                       --        84,912
   Impairment of Land Held for Development                  1,254,970            --

  Changes in Assets and Liabilities:
   [Increase] Decrease in:
     Inventory                                                (32,033)      187,266
     Other Current Assets                                      17,902       186,309

   [Decrease] Increase in:
     Accounts Payable                                        (180,872)     (119,703)
     Incremental Progressive Slot Liability                    20,868    (1,641,992)
     Slot Club Liability                                      123,368       225,581
     Interest Payable                                       2,079,394       667,232
     Accrued Expenses                                         572,004      (500,837)
     Other Current Liabilities                                (28,401)      121,927
                                                          -----------   -----------

     Total Adjustments                                      8,333,564     3,825,452
                                                          -----------   -----------

  Net Cash Used by Operating Activities                    (1,074,766)   (1,487,490)
                                                          -----------   -----------

Cash Flows from Investing Activities:
  Purchase/Construction of Land, Building, and Equipment     (313,592)   (1,445,187)
  Proceeds from Sale of Fixed Assets                            9,000            --
  Decrease in Deposits                                          1,180        25,000
  Advances to Officers                                         11,812       379,617
                                                          -----------   -----------

  Net Cash Used by Investing Activities                      (291,600)   (1,040,570)
                                                          -----------   -----------

Cash Flows From Financing Activities:
  Borrowings/Repayments of Advances from Officers              30,000      (137,255)
  Net Borrowings under Revolving Credit Facility           13,655,296            --
  Payments for Debt Issue Costs                              (398,569)     (981,000)
  Repayments of Long-Term Debt - Related Party                (78,227)     (213,696)
  Repayments of Long-Term Debt                            (10,660,482)     (326,385)
  Borrowings under Long-Term Debt Agreements                       --     4,223,000
  Repayments of Capital Lease Obligations                  (1,570,620)     (903,111)
                                                          -----------   -----------

  Net Cash Provided by Financing Activities                   977,398     1,661,553
                                                          -----------   -----------

  [Decrease] in Cash and Cash Equivalents - Forward       $  (388,968)  $  (866,507)
</TABLE>

The  Accompanying  Notes Are an Integral  Part of These  Consolidated  Financial
Statements.

                                        F-7

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
------------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------

<TABLE>

                                                                Years ended
                                                                October 31,
                                                            1 9 9 8       1 9 9 7
                                                            -------       -------
                                                                        [As Restated]

<S>                                                       <C>           <C>
  [Decrease] in Cash and Cash Equivalents - Forwarded     $  (388,968)  $  (866,507)

Cash and Cash Equivalents - Beginning of Years              1,962,487     2,828,994
                                                          -----------   -----------

  Cash and Cash Equivalents - End of Years                $ 1,573,519   $ 1,962,487
                                                          ===========   ===========

Supplemental Cash Flow Information:
  Cash Paid for Interest and Income Taxes are as follow:
   Interest                                               $ 3,225,379   $ 6,967,843
   Income Taxes                                           $        --   $        --

Noncash Investing and Financing Activities:
  Common Stock Issued for Debt                            $        --   $ 2,663,984
                                                          ===========   ===========

  Common Stock Issued for Property and Services           $   122,250   $   150,000
                                                          ===========   ===========

  Preferred Stock Converted to Common Stock               $        --   $ 2,500,000
                                                          ===========   ===========

  Land, Building and Equipment Financed Through Debt      $ 2,372,278   $ 3,763,424
                                                          ===========   ===========

  Capital Lease Renegotiated to Long-Term Debt            $   653,581   $        --
                                                          ===========   ===========

</TABLE>

The  Accompanying  Notes Are an Integral  Part of These  Consolidated  Financial
Statements.

                                        F-8

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------------------------------------------


[1] Nature of Operations and Business Risk Factors

Colorado Casino Resorts,  Inc.  ["CCRI"] is an owner,  developer and operator of
gaming  properties.  At October 31, 1998 and 1997,  CCRI owned and  operated two
casino properties in Cripple Creek,  Colorado -- The Double Eagle Hotel & Casino
["The Double Eagle"] and Creeker's Casino  ["Creeker's"].  CCRI began efforts to
develop casino operations in Cripple Creek, Colorado in 1991.

Cripple Creek is one of three cities in the State of Colorado  permitted to have
limited stakes gaming.  Gaming in Colorado is controlled by the Colorado Limited
Gaming Control Commission [the "Commission]. Limited stakes gaming is defined as
the use of slot  machines  and card games of  blackjack  and poker,  each with a
maximum single bet of five dollars.  As compared to gaming in jurisdictions with
unlimited  stakes  gaming,  the five dollar per bet limit in Colorado  restricts
revenues that CCRI derives, however, management believes that slot machine play,
which accounts for over 94% of total gaming revenues, is currently impacted only
marginally by the five dollar limitation.

Colorado  casinos may operate  only between 8:00 am to 2:00 am, and have certain
square  footage  limitations  placed  on them  related  to how  much  space in a
location  may be used for gaming  purposes.  Colorado  casinos  may not  provide
credit to its gaming  patrons and no licensee  may provide  credit to any person
for the purpose of gaming. CCRI obtains most of its revenues from slot machines,
and a decrease in the  popularity  of slot  machines  [including  keno and video
power  machines]  could  adversely  impact  CCRI's   operations.   Violation  of
Commission  gaming  regulations could adversely affect CCRI's ability to conduct
gaming operations in the State of Colorado.

Casinos in Cripple Creek draw patrons primarily from Colorado Springs, Colorado,
and, to a lesser extent,  from the greater Denver,  Colorado area. Cripple Creek
is a  mountain  tourist  town and its  gaming  market  is  subject  to  seasonal
fluctuations.  Typically,  CCRI's  gaming  revenues  are  greater  in the summer
tourist season and are lower from October  through April.  Because all of CCRI's
hotel and casino  operations  are located in Cripple  Creek,  Colorado,  CCRI is
therefore  exposed to  conditions  that are specific to Colorado and the Cripple
Creek market.  These include  complications  caused by weather or road closures.
The  legalization of gaming in or near Colorado  Springs,  or Denver,  Colorado,
would  adversely  impact  CCRI's  operations,  however,  Colorado  law  requires
statewide voter approval to expand gaming into any location other than the three
aforementioned cities. In addition,  passage of the Indian Gaming Regulatory Act
in 1988 has led to increases in Native  American gaming  operations,  and CCRI's
two  casinos  may  compete  for  customers   with  casinos   located  on  Indian
reservations.

In 1992 and 1993, CCRI, through certain predecessor companies [principally Lyric
Development  Company,  Inc. or "Lyric" - See Note 8, Related Parties and Related
Party  Transactions],  acquired land in Cripple Creek,  including the land where
The Double Eagle now stands for $4.35 million.  In January 1994, CCRI,  formerly
known as Airline of the Virgin Islands,  Inc., ["AVI," a reporting company under
the Securities  Exchange Act of 1934 with no assets or  operations]  completed a
reverse merger transaction in which the predecessor  companies transferred their
land holdings in exchange for a controlling  interest in AVI.  Specifically,  in
this merger  transaction,  Lyric  contributed  its land holdings in exchange for
approximately  80% of the then issued and  outstanding  voting stock of AVI, the
surviving  entity for accounting  purposes.  Upon completion of the merger,  the
corporate  name was  changed  from AVI to CCRI.  In March  1995,  CCRI  acquired
Creeker's Casino in a merger transaction with Creeker's, Inc. that was accounted
for as a pooling of interest. In August 1996, CCRI completed the development and
construction of The Double Eagle and opened it to the public.

The Double Eagle is the largest casino/hotel in Cripple Creek offering 158 guest
rooms,  a 45,000  square- foot casino with  approximately  600 slot machines and
five  blackjack  tables,  two bars,  an  approximately  85 seat  restaurant,  an
entertainment  stage, and a gift shop.  Creeker's Casino is a 19,000 square-foot
casino with  approximately 200 slot machines,  two bars and a restaurant.  While
there have been unsuccessful  attempts to unionize gaming employees during 1998,
none of CCRI's employees are currently  represented by a union or any other form
of collective bargaining unit.

                                       F-9

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
------------------------------------------------------------------------------



[2] Summary of Significant Accounting Policies

[A]  Principles  of  Consolidation  - The  accompanying  consolidated  financial
statements  include the accounts of the CCRI and its  wholly-owned  subsidiaries
[the "Company"].  All material  intercompany balances and transactions have been
eliminated.

[B] Use of Estimates - The  preparation  of financial  statements  in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reporting period.
Actual results could differ from those estimates.

[C] Inventory - Inventory consists of food, beverages and gift shop items and is
recorded at the lower of cost [first-in, first-out method] or market.

[D]  Casino  Revenues  -  Casino  revenues  are the  net  winnings  from  gaming
activities, which is the difference between gaming wins and losses.

[E]  Tokens  and Chips - The cost of tokens  and chips  used in casino  play are
expensed as incurred [See Note 3I].

[F] Slot Club  Liability  - The  Company has  established  slot  "Clubs" for its
preferred players who may insert a special card into slot, keno, and video poker
machines while playing in the Company's casinos to earn "points." Based on their
point totals,  members receive various cash and gift prizes. The Company accrues
the cost of points as such points are earned through slot play by members of the
Company's slot clubs [See Note 3H].

[G] Outstanding  Gaming Chip Liability - When customers exchange cash for gaming
chips,  the Company has a liability  as long as those chips are not  redeemed or
won by the house.  That liability is  established by determining  the difference
between the total chips  placed in service and the actual  inventory of chips in
custody or under the  control of the  casino.  The chip  liability  is  adjusted
periodically  to reflect an estimate  of chips that will never be redeemed  [for
example, chips that have been lost or taken as souvenirs].

[H] Promotional  Allowances - Gross revenues include the retail amount of rooms,
food,  and  beverage  provided  gratuitously  to  customers,  which  amounted to
$1,749,566  and  $1,833,564  for the  years  ended  October  31,  1998 and 1997,
respectively.  When  computing  net  revenues,  the  retail  amount  of food and
beverage  gratuitously  provided  to  customers  is  deducted  from  revenues as
Promotional Allowances.

[I] Cash  and  Cash  Equivalents  - The  Company  considers  all  highly  liquid
investments  with a maturity of three  months or less when  purchased to be cash
equivalents.

[J]  Concentrations  of Credit Risk - Financial  instruments  which  potentially
subject the Company to concentrations of credit risk consist principally of cash
and cash equivalents and trade accounts receivable. The Company's trade accounts
receivable consist of amounts due related to its hotel operations.  The State of
Colorado does not permit the extension of credit for gaming purposes.

The  Company  places  its cash and cash  equivalents  with high  credit  quality
institutions,  primarily  with banks located in the State of Colorado,  to limit
its credit  exposure.  Cash  balances are insured by the FDIC up to $100,000 per
depositor.  The Company's  cash balances with financial  institutions  typically
exceed FDIC insured  limits.  The  Company's  cash  balances on deposit with two
Colorado banks at October 31, 1998,  exceeded the balance insured by the FDIC by
approximately  $540,000.  The  Company  does  not  require  collateral  for  its
financial instruments.


                                      F-10

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
------------------------------------------------------------------------------



[2] Summary of Significant Accounting Policies [Continued]

[K]  Advertising   Expense  -  Advertising   costs  are  expensed  as  incurred.
Advertising  expense was  $1,438,867  and $1,138,868 for the years ended October
31, 1998 and 1997, respectively.

[L] Debt Issue and Extension  Costs - Debt issue and  extension  costs are being
amortized over the life of the related loans.

[M] Income  Taxes - Pursuant to  Statement  of  Financial  Accounting  Standards
["SFAS'] No. 109, "Accounting for Income Taxes," income tax expense [or benefit]
for the year is the sum of deferred  tax expense [or  benefit]  and income taxes
currently  payable [or  refundable].  Deferred  tax expense [or  benefit] is the
change  during the year in a  company's  deferred  tax  liabilities  and assets.
Deferred tax liabilities and assets are determined based on differences  between
financial  reporting and tax basis of assets and  liabilities,  and are measured
using the enacted tax rates and laws that will be in effect when the differences
are  expected to reverse.  A valuation  allowance  is provided  for deferred tax
assets not  expected  to be  realized.  The Company  and its  subsidiaries  file
consolidated tax returns.

[N] Stock-Based  Compensation - The Company follows Accounting  Principles Board
Opinion No. 25.  "Accounting  for Stock Issued to  Employees"  ["APB Opinion No.
25"] with regard to the accounting  for its employee  stock  options.  Under APB
Opinion No. 25, compensation  expense is recognized only when the exercise price
of  options  is below the market  price of the  underlying  stock on the date of
grant.  The Company  applies the  provisions  of SFAS No. 123,  "Accounting  for
Stock-Based  Compensation" to non-employee  stock-based compensation and the pro
forma   disclosure   provisions   of  SFAS  No.  123  to  employee   stock-based
compensation.

[O] Impairment - Long-lived assets of the Company are reviewed at least annually
as to whether their carrying value has become impaired pursuant to SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed  Of." SFAS No 121 requires  long-lived  assets,  if impaired,  to be
remeasured at fair value,  whenever events or changes in circumstances  indicate
that the carrying  amount of the asset may not be  recoverable.  Management also
reevaluates  the  periods of  amortization  of  long-lived  assets to  determine
whether events and circumstances warrant revised estimates of useful lives.

[P] Land,  Building,  and Equipment - Land, building and equipment are stated at
cost.  Furniture and equipment are being depreciated over their estimated useful
lives of 3-7 years using the straight-line method. Building and improvements are
being  depreciated  over  their  estimated  useful  lives of 40 years  using the
straight-line basis.

In fiscal year 1998,  management  reevaluated the periods of amortization of its
long-lived  assets,   including  capitalized  leased  assets,  and  revised  its
estimates  of useful  lives.  Also,  prior to fiscal  year  1998,  CCRI had used
accelerated  methods of depreciation as well as the  straight-line  method.  The
effect of the change in the  estimated  lives of its  long-lived  assets and the
change from  accelerated  methods to the  straight-line  method of  depreciation
resulted in an increase of $520,439 and a decrease of $457,016, respectively, in
depreciation  for the year ended  October 31, 1998.  The effect of the change in
depreciation  method is reflected as a cumulative effect of an accounting change
in the  statement  of  operations  [See Note 18].  The  effect of the  change in
estimated lives of depreciable  assets increased the net loss for the year ended
October 31, 1998, by $520,439.

Routine  maintenance  and repair  costs are charged to expense as  incurred  and
renewals  and  improvements  that  extend  the  useful  life of the  assets  are
capitalized.   Upon  sale  or  retirement,  the  cost  and  related  accumulated
depreciation are eliminated from the respective  accounts and any resulting gain
or loss is reported as income or expense.



                                      F-11

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
------------------------------------------------------------------------------


[2] Summary of Significant Accounting Policies [Continued]

[Q] Net Loss Per Share - The  Financial  Accounting  Standards  Board has issued
SFAS No. 128,  Earnings per Share,  which is effective for financial  statements
issued for periods ending after December 15, 1997. Accordingly,  earnings [loss]
per share data in the financial  statements for the year ended October 31, 1998,
have been  calculated  in  accordance  with SFAS No. 128.  SFAS No. 128 requires
restatement  of all prior  period  earnings  [loss]  per share  data  presented,
however,  because of the Company's net loss position,  earnings [loss] per share
results would be the same.

SFAS No. 128 supersedes Accounting Principles Board Opinion No. 15, Earnings per
Share, and replaces its primary earnings per share with a new basic earnings per
share representing the amount of earnings for the period available to each share
of common stock outstanding  during the reporting period.  Basic earnings [loss]
per share is computed by dividing income [loss] available to common stockholders
by the weighted average number of common shares  outstanding  during the period.
SFAS No. 128 also requires a dual presentation of basic and diluted earnings per
share on the face of the statement of operations  for all companies with complex
capital  structures.  Diluted earnings per share reflects the amount of earnings
for the period  available to each share of common stock  outstanding  during the
reporting  period,  while giving effect to all dilutive  potential common shares
that were outstanding during the period, such as common shares that could result
from the potential exercise or conversion of securities into common stock.

The  computation  of diluted  earnings  per share  does not  assume  conversion,
exercise,  or contingent  issuance of securities that would have an antidilutive
effect on per share  amounts  [i.e.,  increasing  earnings per share or reducing
loss per share].  The dilutive  effect of  outstanding  options and warrants and
their   equivalents  are  reflected  in  dilutive  earnings  per  share  by  the
application  of the treasury  stock method which  recognizes the use of proceeds
that could be  obtained  upon  exercise of options  and  warrants  in  computing
diluted  earnings  per share.  It  assumes  that any  proceeds  would be used to
purchase common stock at the average market price during the period. Options and
warrants will have a dilutive  effect only when the average  market price of the
common  stock  during the period  exceeds the  exercise  price of the options or
warrants.   The  Company's  options  and  warrants  were  not  included  in  the
computation of loss per share because to do so would have been  antidilutive for
the periods  presented,  however,  such options and warrants  could  potentially
dilute basic earnings per share in the future.

The dilutive  effect of convertible  debt is reflected in dilutive  earnings per
share by the application of the if-converted method.  Convertible debt will have
a dilutive  effect only when the amount of interest  [net of tax] on a per share
basis is less than basic earnings per share. The Company's convertible debt does
not affect the loss per share calculations  because it would be antidilutive for
the years presented,  however,  such convertible debt could  potentially  dilute
basic earnings per share in the future.

[R]  Reclassifications  - Certain  prior year items  have been  reclassified  to
conform   with   the   current   year's    presentation.    Other    significant
reclassifications are described in Note 3.

[3] Restatements  and  Reclassifications  to 1997 and 1996 Financial  Statements
Previously Filed

Management has made several restatements and  reclassifications to the Company's
1997 and 1996  fiscal  year  financial  statements.  The 1997  restatements  and
reclassifications are discussed in the following paragraphs.

[A] Effective August 1, 1996, the Company entered into an agreement to lease 694
gaming devices  [principally  slot machines] for a period of three (3) years. At
the origination of the lease, management estimated that the economic life of the
gaming devices was four (4) years.  Based on the above,  the Company  classified
this lease as a capital lease and originally recorded an asset and corresponding
liability  of  $4,892,735  for the  present  value of the future  minimum  lease
payments  [including the lease  purchase  option].  However,  since the purchase
option was not a "bargain  purchase option," as such term in defined is SFAS No.
13, "Accounting for Leases," the present value of the purchase option should not
have been capitalized as part of the capital lease and corresponding  liability.
The amount  that  should have been  recorded  at the  inception  of the lease at
August 1, 1996, is $4,121,532 [excluding the non-bargain lease purchase option].

                                      F-12

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
------------------------------------------------------------------------------


[3] Restatements  and  Reclassifications  to 1997 and 1996 Financial  Statements
Previously Filed [Continued]

[A] [Continued] At October 31, 1997,  management  changed the estimated economic
life of the gaming devices to seven (7) years and changed the  classification of
this lease from a capital lease to an operating lease based on an  understanding
that this change in  estimated  economic  life  required a  reevaluation  of the
original  criterion  for  lease  capitalization.  Based  on the  foregoing,  the
remaining balances [after the adjustment  described in the preceding  paragraph]
of the unamortized net capitalized leased asset  [approximately  $2,500,000] and
the related liability [approximately $4,000,000] were removed from the Company's
balance sheet.

During the reaudit of its 1997 financial statements, management was advised that
pursuant  to SFAS No. 13,  "Accounting  for  Leases," a change in the  estimated
economic life of a leased asset does not change the  classification of the lease
from a capital lease to an operating  lease.  Also pursuant to SFAS No. 13, when
the  criterion  for  capitalizing  a leased  asset is based on the length of the
lease  term  in  relation  to  the  economic  life  of  the  leased  asset,  the
amortization  period should be the lease term not the estimated  economic  life.
The Company's  balance  sheet at October 31, 1997,  has been restated to reflect
the  lease as a  continuing  capital  lease,  and the  amortization  period  was
restored to three (3) years.

[B] The Company also leases  various other assets [See Note 7] and had amortized
their capitalized lease cost over their estimated  economic life. Similar to the
situation  described in [A],  however,  because the criterion  for  capitalizing
these  leased  assets was based on the lease term in relation  to the  estimated
economic life of the leased asset, the amortization  period should have been the
lease  term  not  the  estimated   economic  life.  The  effect  of  recomputing
amortization  expense  for these  leased  assets  was to  increase  amortization
expense by approximately $241,000 for the year ended October 31, 1997.

[C] During its 1997 fiscal year,  management granted 200,000 stock warrants to a
corporation that provided the Company with  professional  services.  The Company
did not record an expense  associated with the issuance of these warrants in its
1997  fiscal  year  financial  statements.  Based on the Black-  Scholes  option
pricing model, and using a risk-free interest rate of 5.4% and an estimated life
for the warrants of 3 years, with an estimated  volatility of 75%, results in an
estimated  expense  related to the  issuance of the  aforementioned  warrants of
approximately  $85,000. The Company's 1997 fiscal year financial statements have
been restated accordingly.

[D] During the Company's 1997 fiscal year,  management entered into two software
license  agreements  which were treated as the  equivalent of capital leases for
financial reporting purposes. In this regard, assets and liabilities of $310,000
were  originally  recorded  on  the  balance  sheet  related  to  these  license
agreements.  No  assets,  however,  were  acquired  as  part  of  these  license
agreements,  as the  licensed  software  will  revert  back  to  the  respective
licensors  at the  end of the  license  agreements  and no  other  criteria  for
capitalization existed.  Accordingly,  the asset and liability amounts have been
reversed and the license payments  originally recorded as reductions of debt and
interest expense of approximately $116,000 have been reclassified to general and
administrative expense in the statement of operations for the year ended October
31, 1997. Additionally,  the amount of depreciation recorded that was related to
the  allocation of the cost of the improperly  recorded  asset of  approximately
$34,000 has been reversed.

[E] Gaming in the State of Colorado is controlled by the Colorado Limited Gaming
Control Commission [the "Commission"].  In their capacity as regulator of gaming
in the State of Colorado,  the Commission  issues various  regulations,  some of
which have  internal  control and related  accounting  and  financial  reporting
implications.  In one of their  originally  issued  regulations,  the Commission
required that a liability for both base and  progressive  jackpots be maintained
for  applicable  slot machines [a  progressive  jackpot is a slot machine payoff
indicator, in which the payoff increases as the machine is played]. During 1997,
the Commission  changed its  requirements  for  maintaining the base jackpots on
slot machines; and, accordingly, the Company derecognized its recorded liability
for base jackpots by increasing its casino  revenues by $1,152,783.  Because the
extinguishment  of the base jackpot  liability was mandated by a regulator,  the
derecognition of this liability has been  reclassified  from casino revenues and
presented as an extraordinary gain of $760,837,  net of applicable income tax of
$391,946 [$.02 per share].

                                      F-13

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
------------------------------------------------------------------------------



[3] Restatements  and  Reclassifications  to 1997 and 1996 Financial  Statements
Previously Filed [Continued]

[F] On various dates  between July 18, 1995 and September 30, 1995,  CCRI issued
to Gemini  Ventures,  LLC ["Gemini"]  250,000  shares of Series One  Convertible
Preferred stock ["Series One Preferred  Stock"].  Gemini is a company controlled
by Mr. Sam Halpern, a Director of CCRI. Also, as more fully described in Note 8,
Related Parties and Related Party Transactions,  Gemini has loaned $2,087,500 to
Mr. Gilbert Sisneros,  a Vice President and Director of CCRI, who in turn loaned
the same amount of $2,087,500  to CCRI.  In June 1997,  the Series One Preferred
Stock was converted into 1,400,000 shares of CCRI Common Stock. Initially,  each
share of the Series  One  Preferred  Convertible  Stock was  convertible  into 4
shares of Common Stock [total of 1,000,000  shares] and 4 common stock  purchase
warrants  [total of 1,000,000  warrants] at $4 per warrant  with  expiration  in
three years. A modification  to the conversion  feature  increased the number of
shares of Common Stock  issuable  upon  conversion  of the Series One  Preferred
Convertible  Stock from 1,000,000 to 1,400,000 shares.  Another  modification to
the  conversion  feature  increased  the  number of  warrants  exercisable  from
1,000,000 to  1,400,000,  decreased  the  conversion  price from $4 to $2.50 per
warrant,  and increased the expiration period from three years to five years. In
consideration for these  modifications to the conversion terms of the Series One
Preferred  Stock,  Gemini extended the maturity date of its loan to Mr. Sisneros
from May 30, 1997 to January 28, 1999. Mr. Sisneros,  in turn,  extended the due
date on this loan to CCRI to January 28, 1999, and then further extended the due
date to April 30,  1999,  to  coincide  with a similar  extension  Mr.  Sisneros
received from Gemini. A cost associated with the issuance of the above described
additional  400,000  shares of CCRI Common  Stock and 400,000  warrants  was not
recorded in the Company's  financial  statements  filed in its Form 10-K for the
year ended October 31, 1997. The cost of the issuance of the additional  400,000
shares of CCRI Common Stock and 400,000  warrants is estimated to be $1,054,000,
which  cost is being  amortized  over a 20 month  period.  For the  years  ended
October  31,  1998 and 1997,  $632,400  and  $263,500,  respectively,  have been
recorded as interest  expense  representing  the allocation of the cost of these
additional issuances.

[G] On January 29, 1996, CCRI issued $1,000,000 of convertible debentures to AJG
Investments  Hong  Kong,  Ltd.,  and on March 26,  1996,  issued  $1,500,000  of
convertible  debentures to Cameron Capital Management Ltd. These debentures were
converted into a total of 2,627,921  shares of CCRI Common Stock during the 1997
fiscal  year.  While  this  convertible  debt  was  being  converted  to  equity
securities of CCRI, CCRI and these debt holders modified the conversion  formula
from a conversion  price which was discounted to the market price of CCRI common
shares  to a fixed  conversion  price  per  share,  thus  placing a floor on the
conversion price. Presuming the market price would not have been reduced by debt
conversion,  this  modification to the conversion terms resulted in the issuance
of an  additional  180,745  shares of CCRI common stock to the debt holders than
the amount  provided under the original  conversion  formula.  A cost associated
with the issuance of these  additional  180,745  shares of CCRI Common Stock was
not recorded in the Company's  financial  statements  for the year ended October
31, 1997.  The cost of the  issuance of the  additional  180,745  shares of CCRI
Common Stock is estimated to be  approximately  $226,000,  which amount has been
recorded as interest expense for the year ended October 31, 1997.

[H] CCRI established the use of a computerized player tracking system to monitor
the wagering of selected  patrons and to provide the Company with information to
assist  management  in  planning  and  directing  its  marketing  efforts to its
customers.  Selected patrons are encouraged to insert their frequent player card
into slot, keno, and video poker machines while playing in the Company's casinos
to earn points. Using the tracking system to track wagering,  management rewards
these patrons based on their point total with various cash and gift prizes.  The
cost of these  points as such points were earned  through slot play had not been
accrued in the Company's financial statements.  Management estimates the cost of
these points to be $225,581 for the year ended October 31, 1997.





                                      F-14

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
------------------------------------------------------------------------------




[3] Restatements  and  Reclassifications  to 1997 and 1996 Financial  Statements
Previously Filed [Continued]

[I] It had been the Company's  policy to  capitalize  the cost of its tokens and
chips. The total cost of capitalized tokens and chips since the inception of the
Company's casino  operations  amounted to approximately  $118,000.  The Company,
however,  has not amortized or otherwise  expensed any of the cost of its tokens
and chips during the years of their use in the  operation of the  Company's  two
casinos. The Company has restated casino expense to include the write off of its
tokens  and chips in 1997 and has  adopted a policy of  expensing  such costs as
incurred.

[J] On April 28, 1997, the El Paso County District Court approved  settlement of
a lawsuit which was brought by the Company to enforce an agreement  which placed
a time restriction on when certain parties could sell unrestricted  common stock
of the Company.  As part of the  settlement,  the Company agreed to issue 25,000
shares  of its  common  stock to these  parties  in  April,  1999.  On the court
approved  settlement  date,  the fair value of the  Company's  common  stock was
approximately $2 per share, and, accordingly, the Company is recording a $50,000
settlement cost in its 1997 financial statements.

The  Company  intends to amend its Form  10-KSB for the year ended  October  31,
1997, and its three quarterly  reports on Form 10-QSB for the year ended October
31, 1997 to reflect the above restatements and reclassifications.

The net  effect of the  above  restatements  on  operations  for the year  ended
October 31, 1997, was an increase in the loss before  extraordinary item and net
loss  for the  year of  $2,416,274  [$.07  per  share],  reflecting  retroactive
application  of the prior period  adjustments  to the  following  components  of
operations:

                                                            Effect on Net Loss
                                                            Increase/[Decrease]
                                                                to Amounts
                                                            Previously Reported

Casino Operations [3I]                                           $    118,245
Marketing [3H]                                                        225,581
General and Administrative Expenses [3C], [3D], [3J]                  218,294
Depreciation and Amortization [3A], [3B], [3D]                        878,238
Interest Expense [3D], [3F], [3G]                                     975,916
                                                                 ------------

Increase to Loss Before Extraordinary Item and
  Net Loss for the Year Ended October 31, 1997                      2,416,274
                                                                 ------------

Accumulated Deficit - October 31, 1997, As Previously Reported      8,000,495
Effect of 1996 Restatements                                         1,320,607

Accumulated Deficit - October 31, 1997, As Previously Reported,
  Adjusted for Effect of 1996 Restatements                          9,321,102

  Accumulated Deficit - October 31, 1997, As Restated            $ 11,737,376
  ---------------------------------------------------            ============





                                      F-15

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
------------------------------------------------------------------------------



[4] Going Concern Issues and Management's Plans

The  accompanying  financial  statements  have been prepared in conformity  with
generally accepted accounting principles, which contemplates continuation of the
Company  as a  going  concern  and  realization  of  assets  and  settlement  of
liabilities and commitments in the normal course of business.

As shown in the accompanying financial statements,  CCRI has incurred net losses
of  $9,408,330  and  $5,312,942  for the years ended  October 31, 1998 and 1997,
respectively,  and has accumulated a deficit since inception of $21,145,706.  In
addition,  CCRI has  $44,022,355  of  liabilities  due within one year, but only
$2,145,172 in current assets. Management's plans to address these conditions are
discussed in the following paragraphs.

As  a  key  element  of  its  strategy  to  enhance  revenues,  cash  flow,  and
profitability, CCRI is evaluating plans to build a four level, 400 space parking
garage  adjacent  to The Double  Eagle.  The  parking  garage  would be directly
accessible to The Double Eagle by way of covered  walkways across the alley that
would separate The Double Eagle from the planned garage.  As currently  planned,
the  mezzanine  level  of  the  new  parking  facility  would  include  a  5,000
square-foot conference facility complete with meeting rooms, current audio-video
equipment,  bar and  kitchen  facilities,  a small  health spa and  possibly  an
outdoor patio. As currently designed,  the conference center would connect by an
enclosed bridge walkway to the main casino floor of The Double Eagle. With these
new  facilities,  CCRI would  market The Double Eagle to  conventions  and other
groups seeking quality meeting facilities in a gaming environment.  CCRI expects
that these  facilities  could  increase the occupancy  rate of The Double Eagle,
especially mid-week and in the winter months.

The cost of this  parking  garage  and  conference  center  is  estimated  to be
$6,500,000;  funding for which is expected to come from a debt refinancing.  The
Company is currently  evaluating  a debt  refinancing  to replace a  significant
portion of the  Company's  debt as well as provide  additional  capital  for the
construction of the parking garage and conference center.

CCRI also  plans to  increase  its share of the  Cripple  Creek  market  through
increased  and better  targeted  marketing  programs.  In this regard,  CCRI has
implemented  a new  media  and  marketing  campaign  and  has  also  compiled  a
significant database of its customers from its slot clubs and intends to utilize
this database to develop various promotional activities and special events aimed
at its core customers.

While the Company's  technical  default of its negative  covenant  obligation to
maintain a minimum  trailing  twelve  month EBITDA  under its  revolving  credit
facility  [$13,655,296  at October  31,  1998] has been  waived by the lender at
October 31, 1998,  unless the Company  meets its  forecasts,  it is unlikely the
Company will satisfy its obligations under this agreement during the next fiscal
year [See Note 19]. Also, over $20,000,000 [including $12,296,411 due to related
parties]  of the  Company's  long-term  debt is due  during  fiscal  1999,  plus
interest of over $4,000,000;  and the Company is negotiating extensions of these
obligations.  Also, the Company is in payment  default on several of its leases.
In this regard,  management is negotiating  payment plans with these  creditors,
although no assurance  can be given that such  extensions  can or will be worked
out.

If management is unable to effectuate its operational  plan discussed above, and
refinance its debt, the Company may seek protection under applicable  bankruptcy
laws,  and/or  the  Company  may lose its gaming  license,  or the  Company  may
discontinue  operations.  Factors  which  may  mitigate  these  occurrences,  in
addition  to the  successful  completion  of  management's  operational  plan as
discussed above, are an increase in the gaming market in Colorado generally, and
more  specifically  in Cripple  Creek,  a reduction of competition in the gaming
market in Cripple  Creek,  the  Company's  continued  increased  market share in
Cripple Creek, and effective cost controls.




                                      F-16

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #9
------------------------------------------------------------------------------




[4] Going Concern Issues and Management's Plans [Continued]

There can be no assurance that management's plans to reduce operating losses and
obtain additional financing to fund operations will be successful. The financial
statements do not include any  adjustments  relating to the  recoverability  and
classification  of  recorded  assets,  or  the  amounts  and  classification  of
liabilities  that might be necessary in the event the Company cannot continue in
existence.

CCRI's long-term  strategy focuses on developing or acquiring  additional gaming
properties.  CCRI intends to pursue opportunities  primarily outside of Colorado
[including  locations  outside of the United  States] in order to diversify  its
geographic  base of  operations.  CCRI does not presently  have any agreement to
acquire or develop any additional gaming properties.

[5] Capital Stock

CCRI's  authorized  capital consists of 100,000,000  shares of common stock, par
value $.001 per share  ["Common  Stock"] and 5,000,000 of preferred  stock,  par
value $10.00 per share.

The  holders  of shares of Common  Stock of CCRI do not have  cumulative  voting
rights,  which  means  that the  holders  of more  than 50% of such  outstanding
shares, voting for the election of directors,  can elect all of the directors of
CCRI. Mr. Rudy S. Saenz,  the former  President and Chief  Executive  Officer of
CCRI [See  Note 22],  and Mr.  Gilbert  M.  Sisneros,  a Vice  President  of the
Company,  share voting and dispositive  powers with respect to approximately 56%
of the CCRI Common Stock through Double Eagle Investments, Ltd., and its general
partner,  Double Eagle  Consolidated,  Inc. The Common Stock does not convey any
preemptive,  subscription or conversion rights to its holders. The rights of the
holders of Common  Stock will be subject to, and may be  adversely  affected by,
the rights of the holders of any series of preferred stock that may be issued in
the future, including voting, dividend, and liquidation rights.

The Company is  authorized to issue  5,000,000  shares of preferred  stock.  The
Board of Directors  is  authorized  to fix, in one or more series,  the terms of
preference  and  conversion of any preferred  stock.  The Board of Directors has
authorized the issuance of two series of preferred  stock.  All shares of Series
One Preferred  Stock and Series Two  Preferred  Stock have been  converted  into
Common Stock in fiscal 1997 and 1996,  respectively,  and no such shares  remain
outstanding or authorized for issuance.

The Series One Preferred Stock was issued to Gemini Ventures,  LLC ["Gemini"] on
various dates between July 18, 1995 and September 30, 1995.  Gemini is a company
controlled by Mr. Sam Halpern, a Director of CCRI. In addition to its conversion
features,  the Series One Preferred Stock included  warrants granting Gemini the
right to purchase an additional  1,000,000  shares of CCRI Common  Stock.  These
features  associated  with the Series  One  Preferred  Stock  were  subsequently
modified.  The  modifications,  which are more fully described in Notes 3 and 8,
resulted in the issuance of an  additional  400,000  shares of CCRI Common Stock
and the issuance of additional 400,000 warrants. The cost of these modifications
was  $1,054,000,  of which $632,400 and $263,500 has been expensed for the years
ended October 31, 1998 and 1997,  respectively.  The Series One Preferred  Stock
issued to Gemini was ultimately  converted into 1,400,000  shares of CCRI Common
Stock in June 1997.

[6] Advances to Officers

Officers advanced funds to the Company in the amounts of $546,247 and $1,025,000
for the years  ended  October  31,  1998 and  1997,  respectively.  The  Company
advanced funds to officers in the amounts of $534,435 and $782,638 for the years
ended October 31, 1998 and 1997, respectively.  Outstanding advances to officers
amounted to $125,443  and  $137,255 at October 31, 1998 and 1997,  respectively.
Advances to officers are unsecured, due on demand and non-interest bearing.



                                      F-17

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #10
------------------------------------------------------------------------------



[7] Land, Building and Equipment

Land, building, and equipment consist of the following [At Cost]:

                                                            October 31,
                                                       1 9 9 8      1 9 9 7
                                                                 [As Restated]

Land and Improvements                               $11,610,580  $11,610,580
Building                                             23,164,270   23,164,270
Building Improvements                                   445,646      434,476
Furniture and Fixtures                                2,730,758    2,726,401
Machinery and Equipment                               7,896,873    2,873,678
Computer and Office Equipment                           252,225      187,777
Leasehold Improvements                                   13,881       13,881
Equipment under Capital Lease                         2,425,730    6,547,262
Other                                                    32,300           --
                                                    -----------  -----------

Totals                                               48,572,263   47,558,325
Less: Accumulated Depreciation                        8,113,245    5,065,744
                                                    -----------  -----------

  Land, Building, and Equipment - Net               $40,459,018  $42,492,581
  -----------------------------------               ===========  ===========

Substantially  all  assets of CCRI,  including  those of its  subsidiaries,  are
either mortgaged,  pledged, subject to lien, or otherwise used as collateral for
indebtedness.

The following is a summary of equipment held under capital lease [See Note 11]:

Gaming Equipment                                    $   542,049  $ 4,663,581
Computer Equipment                                      405,066      405,066
Transportation Equipment                                 96,292       96,292
Signs                                                   594,403      594,403
Hotel Furniture and Fixtures                            105,354      105,354
Communications Equipment                                271,361      271,361
Surveillance Equipment                                  411,205      411,205
                                                    -----------  -----------

Total Equipment Held under Capital Leases             2,425,730    6,547,262
Less: Accumulated Depreciation                        1,388,619    2,326,804
                                                    -----------  -----------

  Net Equipment Held under Capital Leases           $ 1,037,111  $ 4,220,458
  ---------------------------------------           ===========  ===========

 Depreciation  on assets under capital  leases  charged to expense for the years
ended October 31, 1998 and 1997, was $1,324,023 and $2,001,826, respectively.

[8] Related Parties and Related Party Transactions

Mr. Rudy S. Saenz, the former President and Chief Executive  Officer of CCRI and
a Director of the Company [See Note 22],  and Mr.  Gilbert M.  Sisneros,  a Vice
President and Director of the Company,  share voting and dispositive powers with
respect  to  approximately  56%  of  CCRI  Common  Stock  through  Double  Eagle
Investments, Ltd., and its general partner, Double Eagle Consolidated,  Inc. The
limited  partners  of  Double  Eagle  Investments,  Ltd.  are Mr.  Saenz and Mr.
Sisneros. The sole shareholders of Double Eagle Consolidated, Inc. are Mr. Saenz
and Mr. Sisneros.



                                      F-18

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #11
------------------------------------------------------------------------------



[8] Related Parties and Related Party Transactions [Continued]

In addition,  Mr. Saenz and Mr.  Sisneros,  and Mr. Peter  Tedesco are the three
general partners of TSC Enterprises  ["TSC"],  a Colorado  general  partnership.
CCRI acquired thirteen undeveloped lots from TSC in exchange for the issuance of
a 7.05%  convertible  promissory note in the principal amount of $4,500,000 [See
Note 12].  Accrued  interest  related to the  convertible  debt is  $909,261  at
October 31, 1998. Also, at October 31, 1998, there remains outstanding  $441,411
related to a 1992 unsecured  promissory note, bearing interest at 16%, issued by
CCRI to TSC in connection  with the  acquisition  of four of the nine lots where
The Double Eagle now stands.  Accrued interest on this unsecured note is $47,084
at October 31, 1998 [See Note 9].

In  1992,  CCRI,  through  certain  predecessor  companies,   principally  Lyric
Development  Company,  Inc. ["Lyric"] acquired land in Cripple Creek,  including
the land where The Double  Eagle now stands for $4.35  million.  In 1994,  Lyric
contributed  its land  holdings in exchange  for  approximately  80% of the then
issued and  outstanding  voting  stock of Airline  of the Virgin  Islands,  Inc.
["AVI"],  a reporting company under the Securities  Exchange Act of 1934, having
no assets or operations, in a transaction accounted for as a reverse acquisition
with AVI being the surviving company for accounting  purposes [See Note 1]. Upon
completion of the merger,  the Company  changed its  corporate  name from AVI to
CCRI. From 1992 to 1994, Mr. Saenz was the chief executive  officer and director
of Lyric.

In 1995, CCRI acquired  Creeker's Casino in a merger transaction with Creeker's,
Inc. that was accounted  for as a pooling of interest.  Mr.  Sisneros was one of
the original founders of Creeker's, Inc.

Funding for the construction and development of The Double Eagle was indirectly,
but  substantively,  provided by Euro Investments  ["Euro"] and Gemini Ventures,
LLC  ["Gemini"]  in the amounts of  $5,267,500,  and  $2,087,500,  respectively.
Gemini is a company  controlled  by Mr. Sam  Halpern,  a Director  of CCRI.  Mr.
Sisneros  acted as the  conduit  of these  funds from Euro and Gemini to CCRI in
that Euro loaned Mr.  Sisneros  $5,267,500 at 20% interest and then Mr. Sisneros
loaned  CCRI  $5,267,500  at 20.1%  interest,  and Gemini  loaned  Mr.  Sisneros
$2,087,500 at 14% interest and then Mr. Sisneros loaned CCRI $2,087,500 at 14.1%
interest.  Mr.  Sisneros' notes with Euro and Gemini are  collateralized  by the
notes,  in like amount between CCRI and Mr. Sisneros [See Note 9]. CCRI is not a
guarantor of Mr. Sisneros' notes to Euro and Gemini.

On various dates between July 18, 1995 and September 30, 1995,  CCRI also issued
to Gemini 250,000 shares of Series One Convertible  Preferred Stock ["Series One
Preferred  Stock"].  In June 1997, the Series One Preferred  Stock was converted
into  1,400,000  shares  of CCRI  Common  Stock.  Prior to the  conversion,  the
conversion  features  were  modified.  Initially,  each  share of the Series One
Preferred  Stock was  convertible  into 4 shares  of Common  Stock [a total of 1
million  shares]  and 4 common  stock  purchase  warrants  [a total of 1 million
warrants] at $4 per warrant with expiration in three years.  One modification to
the  conversion  terms  increased the number of shares of Common Stock  issuable
upon  conversion of the Series One Preferred  Stock from 1,000,000 to 1,400,000.
Another  modification  to the conversion  terms increased the number of warrants
exercisable from 1,000,000 to 1,400,000;  decreased the conversion price from $4
to $2.50 per warrant;  and increased the  expiration  period from three years to
five years.  The cost  associated  with  modifying the  conversion  terms of the
Series One Preferred  Stock is  $1,054,000,  of which  $632,400 and $263,500 has
been  expensed for the years ended October 31, 1998 and 1997,  respectively.  In
consideration for these  modifications to the conversion terms of the Series One
Preferred  Stock,  Gemini extended the maturity date of its loan to Mr. Sisneros
from May 30, 1997 to January 28, 1999. Mr. Sisneros,  in turn,  extended the due
date on his loan to CCRI to January 28, 1999, and then further  extended the due
date to April 30, 1999, to coincide with a similar extension Mr.
Sisneros received from Gemini.



                                      F-19

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #12
------------------------------------------------------------------------------



[8] Related Parties and Related Party Transactions [Continued]

In August  1996,  CCRI ceased  pursuing  the renewal of a required  license of a
former officer and shareholder of CCRI before the Colorado Gaming Commission. To
assure the continued  operation of CCRI's  casinos,  Mr. Saenz and Mr.  Sisneros
agreed to acquire such person's interest in CCRI [including a one-third interest
in Double  Eagle  Investments.  Ltd.  and TSC  Enterprises]  in  exchange  for a
$3,000,000  note bearing  interest at a rate of 7% per year. To assist Mr. Saenz
and Mr.  Sisneros in making the  $55,443 per month  payment due under this note,
CCRI has, since November 1, 1996,  advanced a total of approximately  $1,057,000
to Mr. Saenz and Mr. Sisneros [Also, See Note 6].

Prospectors RV Park leases storage space to Creeker's  Casino.  During the years
ended October 31, 1998 and 1997, $24,705 and $56,400,  respectively, was paid to
Prospectors  RV Park.  Mr. Peter Tedesco is the owner operator of Prospectors RV
Park. Mr. Tedesco is one of three general partners in TSC Enterprises.

The Company's General Counsel,  who is also a director of the Company,  does not
receive a salary from the Company.  In  consideration  for his legal services to
the Company, however, the Company has paid him $92,000 and $72,000 for the years
ended October 31, 1998 and 1997, respectively [See Note 22].

[9] Long-Term Debt - Related Parties

Long-term debt,  related parties  consists of the following [this note should be
read in conjunction with Note 8]:

                                                               October 31,
                                                          1 9 9 8       1 9 9 7

Notes payable, stockholder, dated November 1995,
 interest at 14.10% per annum, principal due
 April 30, 1999, collateralized by Creeker's, Inc.
 common stock                                           $2,087,500   $ 2,087,500

Notes payable, stockholder, dated November 1995,
 interest at 20.10% per annum, principal due
 April 30, 1999, collateralized by Creeker's, Inc.
 common stock                                            5,267,500     5,267,500

Note payable,  related  limited  partnership,
 unsecured,  dated September 1992, payable  in monthly
 installments  of $17,777  including  interest  at 16% per
  annum, with a final payment due
  November 1, 1999                                         441,411       519,638
                                                        ----------   -----------

Total Long-Term Debt - Related Parties                   7,796,411     7,874,638
Less: Current Portion                                    7,796,411            --
                                                        ----------   -----------

  Totals                                                $       --   $ 7,874,638
  ------                                                ==========   ===========

Total related party interest expense under all debt arrangements  [including the
convertible debenture See Note 12] amounted to $1,744,216 and $1,783,002 for the
years ended October 31, 1998 and 1997, respectively.



                                      F-20

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #13
------------------------------------------------------------------------------


[10] Long-Term Debt

Long-Term debt consists of the following:
                                                                October 31,
                                                            1 9 9 8      1 9 9 7
Note payable, corporation,  dated April 1996, amended
  September 1997, payable in monthly  installments,
  interest  payable at 12% per annum,  due  November 15,
  1998,  but was paid off in July  1998  with  line of
  credit  [See  Note  19], collateralized by deed of trusts
  and personal property                                    $      -- $ 7,588,889

Note payable, corporation, dated July 1996, interest
  payable at 18% per annum, principal due July 1999        4,000,000   4,000,000

Notes payable, corporation, unsecured, dated January-
 July 1997, interest payable at 18% per annum, principal
 due April 1999                                            2,350,000   2,350,000

Mortgage payable, individual, dated October 1995,
  currently payable in monthly installments of $14,764
  including interest at 8% per annum, interest rate
  adjustable to prime plus 2% on March 30, 1999, and every
  3.5 years thereafter, not to exceed 12% or be less
  than 4%, due November 2025, collateralized by deed of
  trust on the land where Creeker's Casino is situated as
  well as the fixtures and improvements situated thereon   2,027,962   2,042,272

Note payable, corporation, dated September 1997, interest
  only payable quarterly at 9% per annum, with the
  principal balance due January 2003, but was paid off
  in July 1998 with line of  credit  [See Note 19],
  collateralized  by deeds of trust and personal property         --   1,730,853

Mortgage  payable,   individual,   dated  September  1995,
  payable  in  monthly installments of $7,875, including
  interest at 9% per annum, due August 31, 2000,
  collateralized by deed of trust                          1,050,000   1,050,000

Note payable, financial institution, assumed June 1997,
  payable in monthly installments of $9,369, including
  interest at prime plus 1.5%, [10% total rate at
  October 31, 1997], due September 1999, but was paid off
  in July 1998 with line of credit [See Note 19],
  collateralized by deed of trust                                 --     879,147

Note payable, corporation,  dated December 1995, payable
 in monthly installments of  $31,092,  including  interest
 at 11% per annum,  with a final  payment due
 October  19,  1998,  extended to October 19,  1999,
 collateralized  by gaming equipment                         698,583     769,943

Note payable,  corporation,  dated May 1996, payable in
 monthly  installments of $4,444,  including  interest
 at 11% per  annum,  due June 1998,  extended  to
  October 6, 1999, collateralized by gaming equipment         57,123      66,007

Note payable, corporation, dated July 1998, payable in
 monthly installments of $50,000, including interest at
 12% per annum, with a final payment due July 31, 1999,
 collateralized by gaming equipment                        3,349,468          --
                                                         ----------- -----------

  Totals - Forward                                       $13,533,136 $20,477,111

                                      F-21

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #14
------------------------------------------------------------------------------




[10] Long-Term Debt [Continued]
                                                               October 31,
                                                           1 9 9 8      1 9 9 7

  Totals - Forwarded                                     $13,533,136 $20,477,111

Note payable,  financial  institution,  dated
 September  26,  1997,  payable in monthly  installments
 of  $7,052  including  interest  at  prime  plus  1.5%,
 remaining  principal  due  October  1, 2002,
 collateralized  by deed of trust                            631,388     650,000

Mortgage payable,  individual,  dated October 1992
 modified August 1995, payable in monthly installments
 of $3,400,  including interest at 8% per annum, with a
 final principal payment due November 2006,
 collateralized by deed of trust                             242,191     262,715

Notes payable, various corporations, dated April 1996
 through July 1998, payable in aggregate monthly
 installments of $30,570 including interest at 8% to
 12.0%per annum, due April 1999 through February 2000,
 collateralized by various equipment                         321,950     474,191
                                                         ----------- -----------

Total Long-Term Debt                                      14,728,665  21,864,017
Less: Current Maturities                                  10,819,963   1,179,388
                                                         ----------- -----------

  Totals                                                 $ 3,908,702 $20,684,629
  ------                                                 =========== ===========

Future maturities of long-term debt and convertible debentures are as follows at
October 31, 1998 [Also See Notes 9 and 12:

     Years Ended October 31,    Unrelated      Related Party        Total

            1999              $10,819,963      $12,296,411      $23,116,374
            2000                1,328,824              --         1,328,824
            2001                   45,650              --            45,650
            2002                  574,834              --           574,834
            2003                   21,188              --            21,188
            Thereafter          1,938,206              --         1,938,206
                              -----------      ----------       -----------

            Totals            $14,728,665      $12,296,411      $27,025,076
            ------            ===========      ===========      ===========

Creeker's  Casino,  Inc. had a $300,000 prime plus 1.5% per annum revolving line
of credit  agreement  with a financial  institution  dated  September  26, 1997,
collateralized  by a deed of trust and maturing in October 1, 1998. This line of
credit expired and was not renewed.



                                      F-22

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #15
------------------------------------------------------------------------------


[11] Capital Leases

Capital lease obligations consist of the following:

                                                               October 31,
                                                          1 9 9 8       1 9 9 7

Gaming equipment  lease payable in monthly  installments
  of $136,894  including interest  imputed at 12.0% per
  annum with balance due November 1999 [equipment
  was purchased in 1998 - See Note 10 for note payable
  in the amount of $3,349,468].                         $       --   $ 3,829,038

Equipment lease payable in monthly  installments of
 $23,404  including  interest imputed  at  14.39%  per
 annum.  The lease  expires  in  August,  2001 and is
 collateralized by various equipment and furniture.        650,335       823,853

Equipment  leases payable in aggregate  monthly
 installments  totaling  $21,053 including  interest
 imputed  at 8% and 12% per annum.  The  leases  expire
 in August to October, 1999 and are collateralized by
 various equipment.                                        331,695       541,983

Equipment lease payable in monthly  installments  of
 $7,369  including  interest imputed  at  8.87%  per
 annum.   The  lease  expires  August,   1999  and  is
 collateralized by computer equipment.                      70,782       142,557

Equipment leases payable in aggregate monthly installments
  totaling $5,289 including interest imputed at 12% per
  annum. The leases expire July to September, 2001 and are
  collateralized by telephone and audio equipment.         150,790       193,777

Various equipment leases payable in aggregate monthly
  installments of $7,333 including interest imputed at
  8.16% to 13.85% per annum. The leases expire May 1999
  to July 2000 and are collateralized by equipment.         93,622       166,365
                                                        ----------   -----------

Present Value of Net Minimum Lease Payments              1,297,224     5,697,573
Less: Current Maturities                                   629,787     2,732,394
                                                        ----------   -----------

  Long-Term Lease Obligations                           $  667,437   $ 2,965,179
  ---------------------------                           ==========   ===========

The  Company  is in  violation  of  several  of its lease  agreements  for being
delinquent in its lease  payments.  The Company is working with these lessors to
cure  these  violations.  If  the  Company  is not  successful  in  working  out
satisfactory  arrangements with these lessors,  the lessors have the legal right
to take repossession of the equipment which is subject to the lease.



                                      F-23

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #16
------------------------------------------------------------------------------



[11] Capital Leases [Continued]

Future  minimum  lease  payments  under the leases are as follows at October 31,
1998:

Years Ended
October 31,                                            Amount

   1999                                             $   750,515
   2000                                                 465,214
   2001                                                 284,959
   2002                                                      --
   2003                                                      --
                                                    -----------

   Total Minimum Lease Payments                       1,500,688
   Less Amount Representing Interest                    203,464
                                                    -----------

     Present Value of Net Minimum Lease Payments    $ 1,297,224
                                                    ===========

[12] Convertible Debenture - Related Party

On August 18, 1994, the Company  purchased real property,  currently  being held
for future  development,  from a related  party [See Note 8] in  exchange  for a
convertible  debenture in the amount of $4,500,000.  The  convertible  debenture
bears  interest at 7.05% per annum,  with the principal  balance and any accrued
interest due August 20, 1999. This debt was collateralized by a deed of trust on
this  property,  however,  a release of deed of trust was  executed on April 11,
1996. The debenture is convertible into 9,000,000 shares of Company common stock
at the election of the holder.  The  conversion of this debt to equity cannot be
exercised prior to November 1, 1999.  Accrued  interest  related to this debt is
$909,261 at October 31, 1998.

[13] Stock Option and Stock Purchase Plans

A summary of the changes in outstanding  Common Stock options and warrants is as
follows:

                                                                Weighted-Average
                                                      Shares     Exercise Price

Balance - October 31, 1996                          1,087,500        $  1.81
  Granted                                           1,790,000        $  2.41
  Canceled/Forfeited                                 (585,000)       $  2.00
                                                   ----------        -------

Balance - October 31, 1997                          2,292,500        $  2.23
  Granted                                             115,000        $  1.63
  Canceled/Forfeited                                 (140,000)       $  2.00
                                                   ----------        -------

  Balance - October 31, 1998                        2,267,500        $  2.19
  --------------------------                       ==========        =======

The exercise price of all options and warrants granted during 1997 was above the
stock price on the grant date.  A total of 1,790,000  options and warrants  were
granted, with a weighted-average  exercise price of $2.41 and a weighted-average
fair value of $.69.



                                      F-24

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #17
------------------------------------------------------------------------------



[13] Stock Option and Stock Purchase Plans [Continued]

Of the 1,790,000 of options and warrants granted during fiscal 1997,  management
granted  200,000 stock  warrants at an exercise  price of $2.00 to a corporation
that provided the Company with professional services. Based on the Black-Scholes
option  pricing  model,  and  using a  risk-free  interest  rate of 5.4%  and an
estimated life for the warrants of 3 years, with an estimated volatility of 75%,
results in an estimated  expense  related to the issuance of the  aforementioned
warrants of  approximately  $85,000 [the weighted average fair value of warrants
granted is approximately $.425].

A total of 115,000  options were  granted  during  1998.  Of these,  75,000 were
granted  at an  exercise  price  equal to the stock  price on the date of grant.
Accordingly,  no  compensation  expense was  recorded for these  options.  These
options  have a  weighted-average  exercise  price of $1.63 and a fair  value of
$.87.  The  exercise  price for the  remaining  40,000  options  granted will be
established at the next  shareholders'  meeting.  Accordingly,  the compensation
amount,  if any, for the issuance of these stock  options will be  determined at
that time.

The following table  summarizes  information  about stock options at October 31,
1998:

                                                                   Exercisable
                            Outstanding Stock Options             Stock Options
                         Weighted-Average
   Range of                  Remaining     Weighted-Average     Weighted-Average
Exercise Prices  Shares  Contractual Life   Exercise Price Shares Exercise Price
---------------  ------  ----------------   ------------------------------------

         N/A      40,000      3.4 Years        $   N/A
   $    1.00     240,000      3.8 Years        $  1.00     240,000     $  1.00
   $    1.63      75,000      3.6 Years        $  1.63      25,000     $  1.63
   $    2.00     452,500      4.1 Years        $  2.00     312,500     $  2.00
   $    2.50   1,400,000      3.6 Years        $  2.50   1,400,000     $  2.50
   $    3.00      60,000        .9 Years       $  3.00      60,000     $  3.00
               ---------      ----------       -------   ---------     -------

               2,267,500      3.6 Years        $  2.19   2,037,500     $  2.25
               =========      =========        =======   =========     =======

Pro  forma  information  regarding  net loss and net  loss  per  share  has been
determined as if the Company had accounted for its employee  stock options under
the fair value method prescribed under SFAS No. 123, "Accounting for Stock Based
Compensation."  The fair value of these  options  was  estimated  at the date of
grant using the  Black-Scholes  option-pricing  model for the pro forma  amounts
with the following weighted average assumptions:

                                     October 31,
                                 1 9 9 8     1 9 9 7
                                 -------     -------

Risk-Free Interest Rate           5.5%        5.4%
Expected Life                     3 Years     3 Years
Expected Volatility               77%         75%
Expected Dividends                None        None

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

                                      F-25

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #18
------------------------------------------------------------------------------


[13] Stock Option and Stock Purchase Plans [Continued]

The pro forma  amounts  are  indicated  below [in  thousands,  except  per share
amounts]:

                                         Years ended
                                         October 31,
                                     1 9 9 8       1 9 9 7
                                     -------       -------

Net Loss as Reported               $9,408,330   $5,312,942
Pro Forma Net Loss                 $9,403,417   $5,796,258
Loss Per Share as Reported         $      .24   $      .15
Pro Forma Loss Per Share           $      .24   $      .16

[14] Income Taxes

The tax effect of significant  temporary  differences and carrybacks  which gave
rise to the Company's deferred tax assets and liabilities are as follows:
                                                           Years ended
                                                           October 31,
                                                        1 9 9 8     1 9 9 7
                                                        -------     -------
Deferred Tax Assets:
  Net Operating Loss Carryforwards                    $5,500,000  $  2,400,000
  Cash Basis Tax Assets                                  433,000       482,000
  Slot Club Liability                                    130,000        85,000
  Depreciation and Amortization                         (380,000)     (350,000)
  Other                                                  243,000       280,000
                                                      ----------  ------------

  Totals                                               5,926,000     2,897,000
  Valuation Allowance                                 (5,926,000)   (2,897,000)
                                                      ----------  ------------

  Net Deferred Tax Asset                              $       --  $         --
  ----------------------                              ==========  ============

The increase in the  valuation  allowance for the year ended October 31, 1998 is
$3,029,000.

The provision  [benefit]  for income taxes  differs from the amount  computed by
applying the statutory federal income tax rate as follows:

                                                           Years ended
                                                           October 31,
                                                        1 9 9 8     1 9 9 7
                                                        -------     -------

Computed Federal Statutory Tax [Benefit]              $(3,400,000) $(2,600,000)
Valuation Allowance to Reduce Deferred Tax Asset        3,400,000    2,600,000
                                                      -----------  -----------

  Actual Income Tax Provision [Benefit]               $        --  $        --
  -------------------------------------               ===========  ===========

At  October  31,  1997,  the  Company  has  estimated  net  operating  tax  loss
carryforwards  of  approximately  $6,400,000  available to offset taxable income
through  2012.  Effective  for tax years  beginning  after  August 5, 1997,  the
Taxpayer Relief Act of 1997 generally extends the number of tax years that a net
operating loss for a tax year can be carried  forward from 15 years to 20 years.
Accordingly, the estimated tax loss of $9,000,000 for the year ended October 31,
1998,  will be available to offset future  taxable income through the year 2018.
The utilization of any net operating tax loss  carryforward is predicated on the
Company   having   future   taxable   income  [See  Note  4  for  Going  Concern
considerations]. The Tax Reform Act of 1986 enacted a complex set of rules which
limit a company's  ability to utilize net operating loss  carryforwards  and tax
credit carryforwards in periods following an ownership change.  Accordingly,  if
the  Company  should  generate  taxable  income in future  years,  but undergo a
greater than 50 percent  point  change in stock  ownership,  generally  within a
three year period,  the Company's  ability to utilize the net operating tax loss
carryforwards would be impaired.

                                      F-26

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #19
------------------------------------------------------------------------------



[15] Fair Value of Financial Instruments

SFAS No. 107,  "Disclosures about Fair Value of Financial  Instruments," defines
the fair value of a financial  instrument as the amount at which the  instrument
could be exchanged in a current transaction between willing parties. For certain
instruments,  including cash and cash equivalents,  accounts payable and accrued
expenses,  it was concluded that the carrying amount approximated fair value for
these  instruments  because of their short  maturities.  Due to CCRI's financial
condition  at  October  31,  1998,  [See  Note  4]  management  believes  it  is
impracticable to provide a fair value estimate for debt classified as current at
October 31,  1998,  especially  since such a large amount of such debt is due to
related  parties.  Management  believes that any attempt to estimate fair values
for debt  classified  as current at October  31,  1998,  would be  dependent  on
assumptions  that are so  subjective as to render the estimate  meaningless  and
potentially  misleading.  The fair value of the Company's  long-term debt at any
given date is estimated  based on  discounting  expected cash flows at estimated
rates,  considering  existing  collateral and considering  market conditions and
risks that would be  available  to the Company for debt  instruments  of similar
remaining maturities

                                                                 October 31,
                                                                   1 9 9 7
                                                                   -------
                                                           Carrying
                                                            Amount    Fair Value
                                                            ------    ----------

Convertible Debenture - Related Party                    $ 4,500,000 $ 4,145,236
Long-Term Debt - Related Party                           $ 7,874,638 $ 7,752,138
Long-Term Debt - Less Current Maturities                 $20,684,629 $19,895,370

The fair value of long-term  debt less current  maturities  at October 31, 1998,
[carrying amount $3,908,702] is estimated to be approximately $3,000,000.

[16] Commitments and Contingencies

Litigation  - A  former  employee  of the  Company  has  filed  both a  worker's
compensation  claim and an EEOC  claim  [discrimination]  against  the  Company.
Counsel  for the  Company  has  advised  that at this  stage  in the  litigation
process,  he cannot  determine the  materiality  of the claim amount or offer an
opinion as to its probable outcome.

CCRI is also subject to certain other litigation  arising in the ordinary course
of  business  which,  in the  opinion  of  management,  will not have a material
adverse effect on the financial position, results of operations, or cash flow of
CCRI.  However,  as with all contingencies,  it is at least reasonably  possible
that  management's  estimates  will  change  within  one year due to one or more
confirming events and the effect of such change in estimate could be material.

Leases - The Company leases office space in Colorado Springs,  Colorado,  as its
corporate  headquarters,  under a  non-cancelable  lease agreement which expired
July, 1998. Such lease is currently on a month-to-month basis pending completion
of new office space from the same lessor. Total rent expense amounted to $28,308
and $28,308 for the years ended October 31, 1998 and 1997, respectively. The new
office space lease will be for five years at approximately $62,000 per year.



                                      F-27

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #20
------------------------------------------------------------------------------


[16] Commitments and Contingencies [Continued]

The  Company  is in  violation  of  several  of its lease  agreements  for being
delinquent  in  its  lease   payments.   Management  does  intend  to  cure  the
delinquencies,   however,  absent  payment  of  at  least  a  portion  of  their
delinquencies, the filing of a lawsuit(s) is probable.

[17[ Fourth Quarter Year-End Adjustments

The aggregate effect of year-end  adjustments,  which are material to the fourth
quarter  results,  total  approximately  $2,874,000  and consist  principally of
amortization  of loan  fees  ($632,000),  asset  impairment  loss  ($1,250,000),
recording  of  slot  club  liability   ($123,000),   write-offs  of  receivables
($151,000),  officers  waived  salaries  ($161,000),  issuance of stock to board
members  ($41,000),  and for  various  unrecorded  liabilities  and other  audit
adjustments ($516,000).

[18] Change in Depreciation Method for Building and Equipment

Depreciation of building and equipment has been computed using the straight-line
method for the year  ended  October  31,  1998.  Depreciation  of  building  and
equipment  since the Company's  inception was computed  primarily by accelerated
[declining  balance]  methods.  The  straight-line  method of  depreciation  was
adopted by management because management believes that the straight-line  method
more appropriately  reflects its financial results by better allocating the cost
of building and equipment over their respective  useful lives, and is the method
predominantly  used  in  the  casino  industry.   The  straight-line  method  of
depreciation has been applied retroactively,  and the effect of this retroactive
change in  accounting  principle  is included in statement  of  operations  as a
cumulative  effect of an accounting  change for the year ended October 31, 1998.
The effect of the change in  depreciation  method for the year ended October 31,
1998,  was to  increase  the  loss  before  extraordinary  item  and net loss by
approximately $24,000 [$.0006 per share].

The pro forma amounts shown below for the years ended October 31, 1998 and 1997,
reflect the adjustment for the effect of retroactive application on depreciation
on those years.

Pro forma amounts assuming the new depreciation method is applied retroactively:

                                                           October 31,
                                                           -----------
                                                        1 9 9 8     1 9 9 7
                                                        -------     -------

Loss Before Extraordinary Item                        $9,865,346  $  5,996,002
  Loss Per Common Share                               $      .25  $        .16

Net Loss                                              $9,408,330  $  5,235,165
  Loss Per Common Share                               $      .24  $        .14

[19] Revolving Credit Facility

The Company  has a  revolving  credit  agreement  with a  financial  institution
[Foothill Capital  Corporation  "Foothill"] whereby the Company can borrow up to
$15,000,000,  reducing  approximately  $208,000 per month beginning  November 1,
1998,  and limited to  specified  levels of  earnings  before  interest,  taxes,
depreciation  and  amortization,  as  defined.  The  Agreement  provides  for an
interest rate equal to prime [8% at October 31, 1998] plus 2%, [weighted average
interest rate 10%] and, in addition,  requires the Company to pay an anniversary
fee in the amount of .50% of the maximum amount  available  under the Agreement.
The Agreement  provides for automatic  annual  renewal  under  specified  terms.
Borrowings are  collateralized  by a first secured position on all of the assets
of Double  Eagle  Resorts,  Inc. In  addition,  Foothill  holds a first  secured
position on the land on which the Double Eagle Hotel and Casino is situated,  as
well as the certain other real estate held for future development and the Double
Eagle  Hotel and Casino  parking  lot.  At October  31,  1998,  the  Company had
approximately $1,345,000 of additional available credit under the Agreement.

                                      F-28

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #21
------------------------------------------------------------------------------


[19] Revolving Credit Facility [Continued]

Proceeds from the credit  facility were used (i) to repay three  mortgage  notes
totaling $10,198,889;  (ii) for working capital  [approximately  $500,000];  and
(iii) in  connection  with the  purchase of gaming  devices  from  International
Gaming Technology, Inc. [approximately $1,850,000].

The Agreement requires the Company to maintain specified earnings levels, before
interest,  taxes, depreciation and amortization ["EBITDA"] measured on a rolling
twelve  month basis,  and  restricts or limits  certain  intercompany  and other
payments, including dividends, capital expenditures to $1,000,000,- or taking on
additional  borrowings.  The  agreement  also  precludes  The Double  Eagle from
disposing of any of its assets  other than in the  ordinary  course of business,
and restricts the percentage  increase in  compensation  to directors and senior
management.  At October 31,  1998,  the Company is in  technical  default of its
revolving credit agreement with Foothill regarding the EBITDA requirements, more
specifically,  Article 7.20 thereof, which requires The Double Eagle to maintain
EBITDA of at least $4,000,000,  measured on a rolling 12 month basis [annualized
to the extent  required),  tested at the end of each  fiscal  month.  The Double
Eagle's EBITDA did not satisfy this covenant at October 31, 1998.  Foothill did,
however, issue to CCRI a one-time waiver to the minimum EBITDA clause at October
31, 1998. Although the Company has not made any subsequent EBITDA  calculations,
the  Company  is in  the  low  end of  its  seasonal  business  and  unless  its
operational  performance  significantly improves, will not be in compliance with
its EBITDA requirements for fiscal 1999. According to the Agreement,  failure to
comply  with the EBITDA  requirement  would  allow  Foothill to declare its loan
agreement in default,  to accelerate  all amounts due under the loan  agreement,
and to foreclose on all pledged collateral,  which includes, among other things,
the land and building where the Double Eagle Hotel & Casino operates.

[20] Real Estate Held For Future Development

In August 1994, the Company acquired  property  consisting of 40,705 square feet
of land located 80 yards west of the Double Eagle from a real estate partnership
[a related  party  effective  with the  acquisition  of  Creeker's] at a cost of
$4,504,970.  The property is being held for future development [See Notes 12 and
8]. In  applying  the  accounting  policy  described  in Note  2[O],  management
believes that the carrying amount of this property has become  impaired  because
of a lack of new casino  development  in the Cripple  Creek  market.  While this
property is zoned for  gaming,  most gaming  business  activity  has been in the
purchase of existing gaming establishments rather than in the development of new
casinos on undeveloped land. Based on management's  assessment of the market for
similar  real  estate in  Cripple  Creek at October  31,  1998,  management  has
recorded an asset impairment loss of $1,254,970 related to this property for the
year ended October 31, 1998.

[21] New Authoritative Accounting Pronouncements

In June 1997, the Financial  Accounting Standards Board ["FASB"] issued SFAS No.
130,  "Reporting  Comprehensive  Income,"  which is  effective  for fiscal years
beginning after December 15, 1997.  Reclassification of financial statements for
earlier periods provided for comparative purposes is required. SFAS No. 130 will
have no impact on the Company's  consolidated  results of operations,  financial
position or cash flows as it is a standard  for  reporting  and display  only of
comprehensive income and its components in financial statements.  The Company is
in the process of determining its preferred format.

In June 1997, the FASB has issued SFAS No. 131,  "Disclosures  About Segments of
an Enterprise and Related  Information." SFAS No. 131 establishes  standards for
the way that public  business  enterprises  report  information  about operating
segments in annual  financial  statements  and requires  that those  enterprises
report  selected  information  about  operating  segments  in interim  financial
reports  issued to  shareholders.  It also  established  standards  for  related
disclosures about products and services,  geographic areas, and major customers.
SFAS No. 131 is effective for financial  statements  for fiscal years  beginning
after December 15, 1997.  Financial statement  disclosures for prior periods are
required to be restated  for  comparative  purposes to comply with SFAS 131. The
Company will adopt SFAS No. 131 in the year ended  October 31, 1999.  Management
has not finalized its analysis of which operating  segments it will report on to
comply with SFAS No. 131.

                                      F-29

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #22
------------------------------------------------------------------------------


[21] New Authoritative Accounting Pronouncements [Continued]

In June  1998,  The  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging  Activities."  SFAS No. 133  establishes  accounting and
reporting  standards for derivative  instruments,  including certain  derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires  that  an  entity   recognize  all  derivatives  as  either  assets  or
liabilities in the statement of financial position and measure those instruments
at fair value.  The  accounting  for  changes in the fair value of a  derivative
depends on the intended use of the  derivative  and how it its  designated,  for
example,  gain or loss related to changes in the fair value of a derivative  not
designated  as a hedging  instrument  is recognized in earnings in the period of
the  change,  while  certain  types of hedges  may be  initially  reported  as a
component  of  other   comprehensive   income   [outside   earnings]  until  the
consummation of the underlying transaction.

SFAS No. 133 is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15,  1999.  Initial  application  of SFAS No. 133 should be as of the
beginning  of a fiscal  quarter;  on that date,  hedging  relationships  must be
designated  anew and  documented  pursuant  to the  provisions  of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged,  but
it is permitted only as of the beginning of any fiscal quarter.  SFAS No. 133 is
not to be applied  retroactively to financial  statements of prior periods.  The
Company does not currently have any derivative  instruments and is not currently
engaged in any hedging activities.

In April 1998, the American  Institute of Certified  Public  Accountants  issued
Statement  of  Position  ["SOP"]  98-5,  "Reporting  on the  Costs  of  Start-Up
Activities." SOP 98-5 provides  guidance on the financial  reporting of start-up
costs and  organization  costs,  and requires  that such costs to be expensed as
incurred.  SOP 98-5  applies to all  nongovernmental  entities  and is generally
effective  for  fiscal  years  beginning   after  December  15,  1998.   Earlier
application is encouraged in fiscal years for which annual financial  statements
previously  have not been  issued.  The  adoption of SOP 98-5 is not expected to
have a material  impact on results of operations,  financial  position,  or cash
flows of the  Company  as the  Company's  current  policy  is  substantially  in
accordance with SOP 98-5.

On March 31, 1999,  the FASB  released a proposal for public  comment that would
resolve certain practice issues raised when accounting for stock options.  Since
the  issuance of APB Opinion 25,  "Accounting  for Stock  Issued to  Employees,"
questions  have surfaced  about its  application  and differing  practices  have
developed.  The FASB's broad  reconsideration  of the stock  compensation  issue
culminated  in the  issuance  of  SFAS  No.  123,  "Accounting  for  Stock-Based
Compensation,"  in 1995.  SFAS No. 123 permits the continued  application of APB
Opinion 25 for employees. However, questions remain about the proper application
of  APB  Opinion  25  in  a  number  of   circumstances.   The  FASB's  proposed
Interpretation would clarify how to apply APB Opinion 25 in certain situations.

The proposed Interpretation includes the following conclusions:

o Once an option is repriced,  that option must be  accounted  for as a variable
  plan from the time it is repriced to the time it is  exercised.  Consequently,
  the final  measurement  of  compensation  expense  would  occur at the date of
  exercise.

o Employees  would be defined  as they are under  common  law for  purposes  of
  applying APB Opinion 25.

o APB Opinion 25 does not apply to outside directors because, by definition,  an
  outside director cannot be an employee. Accordingly, the cost of issuing stock
  options to outside  board  members will have to be  determined on a fair value
  basis in  accordance  with SFAS No.  123,  and  recorded  as an expense in the
  period of the grant [the service period could be prospective, however].

                                      F-30

<PAGE>



COLORADO CASINO RESORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #23
------------------------------------------------------------------------------



[21] New Authoritative Accounting Pronouncements [Continued]

o Since APB Opinion 25 was issued in 1972,  the terms of many  "Section 423" tax
  plans have changed  from those in  existence at the time.  Many of those plans
  now provide that  employees can purchase an employer's  stock at the lesser of
  85 percent of the stock  price at the date of grant or 85 percent of the price
  at the date of  exercise.  This  provision  is  referred  to as a  "look-back"
  option.  The FASB decided that plans with a look-back option do not, in and of
  themselves, create a compensatory plan.

o A subsidiary  may account for parent  company  stock  issued to its  employees
  under APB Opinion 25 in their separately issued financial statements, provided
  the subsidiary is part of the parent's consolidated financial statements.

The FASB's proposed  Interpretation  would be effective upon issuance,  which is
expected  in  September   1999,  but  generally  would  cover  plan  grants  and
modifications that occur after December 15, 1998.

[22] Subsequent Event

Mr. Saenz informed the Company's  Board of Directors on March 22, 1999,  that he
was  tendering  his  resignation  as President  and CEO of CCRI.  Mr. Saenz will
continue  as a Director  of the  Company.  Mr.  Michael  Smith,  CCRI's  current
Secretary and General Counsel, was named as CCRI's interim CEO and President.


                        .   .   .   .   .   .   .   .   .

                                      F-31