<PAGE>
                                      
                                  FORM 10-K/A
                                AMENDMENT NO. 2      

                      SECURITIES AND EXCHANGE COMMISSION

                            WASHINGTON, D.C. 20549

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the fiscal year ended December 31, 1996

                                       OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ............... to ...............

COMMISSION FILE NUMBER 333-13413

                          READING ENTERTAINMENT, INC.
             (Exact name of registrant as specified in its charter)

           DELAWARE                           23-2859312
     (State of incorporation)     (I.R.S. Employer Identification No.)

     30 SOUTH FIFTEENTH STREET
          13TH FLOOR
     PHILADELPHIA, PENNSYLVANIA                  19102
(Address of principal executive offices)       (Zip Code)

REGISTRANT'S TELEPHONE NUMBER:  215-569-3344

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

         Title of each class         Name of each exchange on which registered
  COMMON STOCK, $.001 PAR VALUE            PHILADELPHIA STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  NONE

     Indicate by check mark 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 [_]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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-K or any amendment to this
Form 10-K.  [_]

     As of April 8, 1997, 7,449,364 shares of Common Stock were outstanding and
the aggregate market value of voting stock held by nonaffiliates of the
Registrant was approximately $22,935,287.
<PAGE>
 
PART III, ITEMS 10-13 ARE AMENDED IN THEIR ENTIRETY AS SET FORTH HEREIN.


PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

<TABLE>    
<CAPTION>
Name                              Age     Position
----                              ---     --------
<S>                               <C>     <C>
James J. Cotter(1)                 59     Chairman of the Board, Chairman of the Executive Committee
                                            of the Board and a Director
Robert F. Smerling                 62     President
Gregory R. Brundage(2)(4)          53     Director
Edward L. Kane(1)(2)(3)            59     Chairman of the Audit and Finance Committee of the Board
                                            and a Director
John W. Sullivan(1)(3)(4)          62     Chairman of the Compensation Committee of the Board and
                                            a Director
Albert J. Tahmoush(3)(4)           75     Chairman of the Conflicts Committee of the Board and a
                                            Director
S. Craig Tompkins                  46     Vice Chairman of the Board and a Director
John Foley                         46     Vice President-Marketing
Charles S. Groshon                 43     Vice President
Eileen M. Mahady                   31     Controller
B. John Rochester                  53     Chief Executive Officer, Australian Cinema Operations and
                                            Reading Australia Pty Ltd.
James A. Wunderle                  45     Executive Vice President, Chief Financial Officer and
                                            Treasurer
</TABLE>     
__________________________



(1)  Member of the Executive Committee.  The Executive Committee is appointed
     annually by the Board of Directors and exercises the authority of the Board
     of Directors in the management of the business and affairs of the Company
     between meetings of the Board of Directors.  The Executive Committee is
     also responsible for recommending to the Board of Directors nominees to be
     elected to the Board of Directors by the shareholders or by the Board of
     Directors in the case of vacancies which occur between meetings of the
     shareholders.

(2)  Member of the Audit and Finance Committee.  The Audit and Finance Committee
     is appointed annually by the Board of Directors to recommend the selection
     of independent auditors, review the scope and results of the annual audit,
     review financial results and status, review and assess the adequacy of the
     Company's accounting practices, financial controls and reporting systems
     and assess the financial planning functions of the Company.  During 1996
     the Audit and Finance Committee held one meeting.

(3)  Member of the Compensation Committee.  The Compensation Committee is
     responsible for recommending to the Board of Directors remuneration for
     senior management and officers of the Company, recommending adoption of
     compensation plans and the granting of options under the Company's stock
     option plan.  The Compensation Committee held one meeting during 1996.

(4)  Member of the Conflicts Committee.  The Conflicts Committee was formed in
     October 1996 in order to evaluate and make recommendations to the Board of
     Directors concerning matters in which the Board of Directors or management
     may have a conflict of interest.  No meetings were held in 1996.
 

                                      -1-
<PAGE>
 
     During 1996, the Company's Board of Directors held six meetings.  No
Director attended fewer than 80% of the total number of meetings of the Board of
Directors and of the committees of the Board of Directors on which such Director
served.

     Mr. Cotter has been Chairman of the Board of Directors since December 1991,
Chairman of the Company's Executive Committee since March 1992 and a director
since September 1990. Mr. Cotter is the principal executive officer of the
Company and also serves as the Chairman of Reading Australia. Mr. Cotter has
been Chairman of the Board of Craig since 1988, and a director since 1985. Mr.
Cotter has been a director and the Chairman of the Board of CHC since 1991. Mr.
Cotter has been a director and Chief Executive Officer of Townhouse Cinemas
Corporation (motion picture exhibition) since 1987, Executive Vice President and
a director of The Decurion Corporation (motion picture exhibition) since 1969
and a director of Stater and its predecessors (retail grocery chain) since 1987.
Townhouse Cinemas Corporation is the parent of City Cinemas. From 1988 through
January 1992, Mr. Cotter also served as the President and a director of Cecelia
Packing Corporation (a citrus grower and packer), a company wholly owned by Mr.
Cotter. Mr. Cotter is also a director and Executive Vice President of Pacific
Theatres, Inc., a wholly-owned subsidiary of The Decurion Corporation.

     Mr. Smerling was appointed President of the Company in January 1997.  Mr.
Smerling was retained in November 1993 to serve as the Chief Executive Officer
of the Company's cinema operations.  Mr. Smerling served as President of Loews
Theatre Management Corporation (now SONY Theatres), a subsidiary of Sony
Corporation, from May 1990 until November 1993. Mr. Smerling also serves as
President and Chief Executive Officer of City Cinemas. Mr. Smerling has over 35
years experience in the motion picture exhibition industry.

     Mr. Brundage has been a director of the Company since May 1996. Mr.
Brundage has been a Managing Director of Furman Selz Incorporated since May
1996. Prior thereto, Mr. Brundage was the Managing Director and Office Manager
of the Investment Banking Division of PaineWebber Incorporated's Los Angeles
office since 1987. Mr. Brundage has served as the principal outside financial
advisor to Stater for more than the past five years. While a Managing Director
of PaineWebber Incorporated, Mr. Brundage advised Citadel in connection with its
1993 rights offering and advised Craig in connection with its 1990 public
offering of its Class A Common Preference Stock.
 
     Mr. Kane has been a director of the Company since 1989 and has been
Chairman of the Company's Audit and Finance Committee since October 1995. Mr.
Kane currently serves as a consultant. Mr. Kane served as Vice President of
SunSurgery Corporation from February through November 1995. Prior to its
acquisition by Sun Healthcare Group, Inc. in February 1995, Mr. Kane served as
Chairman, Chief Executive Officer and a director of Altis Outpatient Services,
Inc., which owned and operated ambulatory surgical centers, from February 1993
through February 1995.  Mr. Kane served as President of the Company from
December 1991 through January 1993 and was President of Craig from January 1988
through January 1993. Mr. Kane is a director of BDI Investment Corporation and
until June 1996 served as a director of Craig.

     Mr. Sullivan has been a director of the Company since January 1981. Mr.
Sullivan was Chairman of the Board of the Company from April 1986 through
December 1991. He was Chief Executive Officer of the Company from January 1981
to October 1986 and was President from January 1981 until April 1986.   Mr.
Sullivan is engaged in real estate development.

     Mr. Tahmoush has been a director of the Company since January 1981. From
March 1977 until his retirement in August 1985, he was Chairman, President and
Chief Executive Officer of Frank B. Hall & Co., Inc., an insurance broker. He is
also a director and Deputy Chairman of UBAF Arab American Bank.
 
     Mr. Tompkins has served as a director of the Company since March 1993 and
has served as Vice Chairman of the Board of Directors of the Company since
January 1997.  Mr. Tompkins served as President of the Company from March 1993
through January 1997. He serves as the Vice Chairman and Vice President of
Cine Vista and as Vice Chairman of Reading Australia. Mr. Tompkins is President
and a director of Craig and has served in such position since March 1993. Prior
thereto, Mr. Tompkins was a partner in the law firm of Gibson, Dunn & Crutcher
for more than five years. Mr. Tompkins has been a director of CHC since May
1993, became Vice Chairman in August 1994, and Secretary, Treasurer and
Principal Accounting Officer

                                      -2-
<PAGE>
 
in September 1994. Mr. Tompkins has served as a director of G&L Realty Corp., a
New York Stock Exchange listed REIT, since December 1993.

     Mr. Foley has served as Vice President-Marketing since April 1997 and in
this capacity provides booking and site identification services to the Company.
Prior to joining the Company, Mr. Foley was the President of Distribution for
Miramax Films, where he, among other things, developed and implemented the
distribution plan for "The English Patient," the winner of nine Academy Awards
and one of the most profitable art films of all time. Prior to joining Miramax
in 1994, Mr. Foley was the President of Distribution of MGM/UA form 1989 through
1993. Mr. Foley also serves as a Vice President of City Cinemas.

     Mr. Groshon has been a Vice President of the Company since December 1988.
Prior thereto he served the Company in various accounting positions.

     Ms. Mahady has been the Controller of the Company since April 1990. Prior
to joining the Company, she was a senior auditor with Ernst & Young.

     Mr. Rochester has been the Chief Executive Officer of the Company's
Australian cinema operations since November 1995. From 1990 through 1995, Mr.
Rochester was the Managing Director of Television & Media Services Ltd.
(formerly Hoyts Entertainment Ltd.). He also served in several other executive
offices for that organization since 1987. Mr. Rochester has more than 21 years
of experience in the motion picture exhibition industry.

     Mr. Wunderle has been Chief Financial Officer of the Company since January
1987 and Executive Vice President, Treasurer and Chief Financial Officer since
December 1988.  Mr. Wunderle was the Chief Operating Officer of the Company from
February 1990 through December 1996. He has been Treasurer since March 1986.

     In March 1996, in connection with the Company's acquisition of the Citadel
common stock from Craig and a capital funding agreement between the Company and
Craig pursuant to which the Company and Craig each contributed $12.5 million to
Reading International and each agreed to commit to contribute an additional
$37.5 million on an as needed basis to Reading International, the Board of
Directors established an independent committee of the Board of Directors
comprised of Albert J. Tahmoush and John W. Sullivan to review and negotiate the
terms of the purchase of the Citadel common stock and the capital funding
transaction.  In addition, in May 1996 in connection with the development  of
the Stock Transactions, it was determined that it would be in the best interests
of the Company and Craig, and their respective stockholders, if each were
represented by an independent committee comprised entirely of independent
directors. An independent committee was appointed by the Board to study and
review, negotiate, evaluate the fairness of, and recommend to the entire Board
whether terms of the Stock Transactions were fair and in the best interest of
Reading Company and its shareholders.  Messrs. Sullivan, Tahmoush and Brundage
served on the independent committee which was established to develop the Stock
Transactions.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's officers, directors and persons who own more than 10% of the
Company's Common Stock to file reports to ownership and changes in ownership
with the Securities Exchange Commission (the "SEC").  The SEC rules also require
such reporting persons to furnish the Company with a copy of all Section 16(a)
forms they file.

     Based solely on a review of the copies of the forms which the Company
received and written representations from certain reporting persons, the Company
believes that, during the fiscal year ended December 31, 1996, all filing
requirements applicable to its reporting persons were complied with except as
follows:  Mr. John W. Sullivan failed to report changes in the nature of his
beneficial ownership in 1994,  Mr. Sullivan failed to report on Form 3 initial
statements of beneficial ownership of securities for two trusts with which he is
affiliated and Mr. Robert F. Smerling failed to file a report on a timely basis
of one transaction regarding the disposition of shares he sold in 1996.  Both
Mr. Sullivan and Mr. Smerling have since filed the appropriate reports with the
SEC.

                                      -3-
<PAGE>
 
ITEM 11.  EXECUTIVE COMPENSATION

     I.   Summary Compensation Table

     The following table shows, for the years ending December 31, 1996, 1995 and
1994, the cash compensation paid by the Company, as well as certain other
compensation paid or accrued for those years, to each of the most highly
compensated executive officers of the Company whose compensation exceeded
$100,000 in all capacities in which they served:

<TABLE>
<CAPTION>
                                                                                    LONG TERM
                                                       ANNUAL COMPENSATION           AWARDS
                                              -----------------------------------   ----------
                                                                     OTHER ANNUAL
                                                 SALARY     BONUS    COMPENSATION     OPTIONS
   NAME AND PRINCIPAL POSITION           YEAR     ($)       ($)          ($)           (#)
   -----------------------------       --------  -------   -------   ------------   ----------
   <S>                                 <C>       <C>       <C>       <C>            <C>
   James J. Cotter /(1)(2)/               1996                          $150,000
    Chairman of the Board of Directors
                                          1995                           150,000
                                          1994                           150,000
 
   S. Craig Tompkins /(2)(3)/             1996   $180,000
    President
                                          1995    180,000
                                          1994    180,000
 
   Robert F. Smerling /(4)/               1996    175,000   $60,000
    President, Reading Cinemas of
    Puerto Rico, Inc.                     1995    175,000
                                          1994    175,000
                                       
  B. John Rochester/(5)/                  1996    156,620
   President and Chief Executive
   Officer, Reading Australia Pty Ltd.    1995     39,155
                                       
  James A. Wunderle                       1996    130,000    70,000
   Executive Vice President, Chief        1995    130,000    52,500
   Operating Officer, Chief Financial
   Officer and Treasurer                
                                          1994    120,000    50,000
</TABLE>

  (1) Mr. Cotter receives a fee for his services as Chairman of the Board of
      Directors of $150,000 per annum.

  (2) Does not include $45,000 paid to Mr. Cotter or $30,000 paid to Mr.
      Tompkins by Citadel for services provided to Citadel.

  (3) Mr. Tompkins was appointed Vice Chairman of the Board of Directors
      effective January 17, 1997.

  (4) Mr. Smerling was appointed President of the Company effective January 17,
      1997.

  (5) Mr. Rochester was retained effective November 1995.  Amount set forth
      reflects salary for 1995.

     Directors who are not employees of the Company receive an annual retainer
of $24,000, except for the Chairmen of the Audit and Finance Committee, the
Compensation Committee and the Conflicts Committee, each

                                      -4-
<PAGE>
 
of whom receives an annual retainer of $26,000. The Chairman of the Board
receives an annual retainer of $150,000. No separate fees are paid for meetings
of the Board or committee meetings.  Messrs. Tahmoush and Sullivan each received
$23,000 in addition to payments for their services as directors for their
services on independent committees of the Board of Directors. Mr. Brundage
received $20,000 for his service on an independent committee in addition to
payment for his services as a director of the Company. Edward L. Kane received
$20,000 during 1996 for consulting services provided to the Company.

     Mr. Tompkins is entitled to a severance payment equal to his annual base
salary and continuation of medical and insurance benefits in the event that his
employment is involuntarily terminated and no change in control of the Company
has occurred.  Mr. Tompkins is entitled to a severance payment equal to two
years annual salary in the event that a change in control of the Company occurs.

     Mr. Rochester is employed under the terms of an employment contract with an
initial term of two years beginning January 1, 1996, with automatic renewal
terms of one year each. The agreement provides for an incentive payment to Mr.
Rochester after the fourth anniversary of the agreement, based on a multiple of
cash flow of the Company's Australian theater operations. Under the agreement,
in the event Mr. Rochester's employment is terminated by the Company without
cause, he will be entitled to receive such incentive payment plus 17 payments,
each equal to his monthly remuneration, if such termination is during the
initial term, or 11 such monthly payments if such termination is after the
initial term.  Mr. Rochester is entitled to receive a lump sum distribution of
such amounts, as applicable, if the Company and Craig both withdraw from any
material investment or involvement in the Australian operations and he is not
granted employment under comparable terms.

     Messrs. Smerling, Wunderle and Groshon and Ms. Mahady are entitled to
receive payment equal to twelve, twelve, nine and four months, respectively, of
annual base salary in the event their individual employment with the Company is
involuntarily terminated.

     II.  Option Grant Table

     No options were granted under the Company's 1992 Non-Qualified Stock Option
Plan during the year ended December 31, 1996 to any of the persons named in the
Summary Compensation Table above.
    
     In April 1997, James J. Cotter was granted non-qualified options to acquire
up to 450,000 shares of Common Stock at an exercise price of $12.80 per share.
The closing price of the Company's Common Stock on the date of grant was $11.50
per share and the grant is subject to the ratification by the Company's
Compensation Committee of the form of the option. Exercise of options for
260,000 shares is permitted only if the holders of the Convertible Preferred
Stock convert the Convertible Preferred Stock into Common Stock; the exercise of
options for 90,000 shares is permitted only if Citadel exercises the Asset Put
Option (see Item I - The Reorganization and Stock Transactions); and the
exercise of the options for the remaining 110,000 shares is not subject to any
similar restrictions. The options in each of the three classes vest in equal
amounts over a four year period.    

     III. Option Exercises and Year-End Table

     The following sets forth information with respect to the options held by
the persons named in the Summary Compensation Table above as of December 31,
1996.  No options were exercised by such persons during the fiscal year ended
December 31, 1996 and none of the options held by such persons at December 31,
1996 had exercise prices which were below the market price of the Company's
common stock as of that date.  All of such options have an exercise price of
$14.00 per share, except those held by Mr. Wunderle which have an exercise price
of $12.50 per share.

<TABLE>                                     
<CAPTION>                                   
                         FISCAL YEAR-END OPTION VALUES 
                                       NUMBER OF       
                                      UNEXERCISED      
                                 OPTIONS AT 12/31/96   
                               ----------------------- 
                                    # EXERCISABLE /    
           NAME                     UNEXERCISABLE      
           -----------------   ----------------------- 
           <S>                   <C>             <C>   
           James J. Cotter         265,232  /        0 
           S. Craig Tompkins        17,500  /        0 
           Robert F. Smerling        9,000  /    6,000 
           James A. Wunderle         5,000  /        0  
</TABLE>

                                      -5-
<PAGE>
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Mr. Sullivan, Chairman of the Compensation Committee, served as the
President and Chief Executive Officer of the Company from 1981 through 1986.
Mr. Kane also a member of the Compensation Committee, served as President of the
Company from December 1991 through January 1993. Messrs. Sullivan, Kane and
James J. Cotter, the Company's Chairman, are members of the Executive Committee
of the Board of Directors, which committee was responsible for compensation
matters prior to the establishment of the Compensation Committee in October
1996. No action concerning compensation matters was taken by the Executive
Committee in 1996.


                                      -6-
<PAGE>
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

BENEFICIAL OWNERSHIP OF COMMON STOCK

     The following tables set forth certain information regarding the Common
Stock and total voting stock (including the Series A Preferred Stock and the
Series B Preferred Stock) of the Company owned on April 22, 1997 by (i) each
person or group who is known by the Company to own beneficially more than 5
percent of the Company's Common Stock, (ii) each of the Company's directors and
most highly compensated executive officers and (iii) all directors and officers
of the Company as a group.

5% BENEFICIAL OWNERS

<TABLE>
<CAPTION>
                                                                -------------------------------------------------------
                                                                     Voting Cumulative Convertible Preferred Stock
                                            ---------------------------------------------------------------------------
                                            Common Stock                  Series A                     Series B
------------------------------------------------------------------------------------------------------------------------------------
                                      Amount and                Amount and                     Amount and                   Percent
Name and Address of                   Nature of    Percent of   Nature of      Percent of      Nature of     Percent of    of Voting
Beneficial Owner                      Beneficial     Class      Beneficial       Class         Beneficial      Class       Stock (1)
                                      Ownership                 Ownership                      Ownership    
====================================================================================================================================
<S>                                   <C>          <C>          <C>            <C>             <C>            <C>          <C>
Craig Corporation
550 South Hope Street                   5,165,516       69.34         0            0             550,000         100         77.96
Los Angeles, CA 90071
------------------------------------------------------------------------------------------------------------------------------------

Citadel Holding Corporation
550 South Hope Street
Los Angeles, CA 90071                       0             0         70,000         100               0            0           5.03
------------------------------------------------------------------------------------------------------------------------------------
</TABLE> 
 
SECURITY OWNERSHIP OF MANAGEMENT

<TABLE> 
<CAPTION> 
                                         Amount and                                                                    
                                          Nature of                                                                    
                                         Beneficial                Percentage of             Percentage of            
Name of Beneficial Owner                 Ownership     (3)         Common Stock    (3)       Voting Stock   (1)
------------------------                 ----------                -------------             -------------            
<S>                                      <C>                       <C>                       <C> 
James J. Cotter.....................        265,232    (2)(4)             3.52                     1.98   
Gregory R. Brundage.................              0                          0                        0  
Edward L. Kane......................          9,000    (5)(6)                *                        * 
B. John Rochester...................              0                          0                        0  
Robert F. Smerling..................          9,000     (7)                  *                        * 
John W. Sullivan....................        172,359    (5)(8)             2.31                     1.28 
Albert J. Tahmoush..................          7,500     (5)                  *                        * 
S. Craig Tompkins...................         18,900    (2)(9)                *                        * 
James A. Wunderle...................          5,000     (10)                 *                        * 
All Directors and Officers As a             
 Group (12 Persons).................        492,991     (11)              6.35                     3.59  
</TABLE>

*    Percentages of less than one percent have not been indicated.

(1)  Gives effect to the voting rights of 70,000 shares of Series A Preferred
     Stock and 550,000 shares of Series B Preferred Stock, all of which are
     owned by Citadel and Craig, respectively, both of which are entitled to
     cast 9.64 votes per

                                      -7-
<PAGE>
 
     share,voting together with the holders of the Common Stock and the other
     series of Convertible Preferred Stock, on any matters presented to
     shareholders of the Company.

(2)  Craig filed a Schedule 13D dated June 19, 1989, stating that the shares
     have been purchased for investment purposes.  Share information is
     presented as of a report filed on Form 4 with the SEC dated February 4,
     1997.  James J. Cotter is Chairman of the Board of the Company and Craig.
     S. Craig Tompkins is Vice Chairman of the Board of the Company and
     President of Craig.  James J. Cotter is also a principal shareholder of
     Craig.  Messrs. Cotter and Tompkins disclaim beneficial ownership of the
     Company's shares held by Craig.

(3)  Includes outstanding shares of Common Stock and Common Stock issuable
     within 60 days of April 22, 1997 upon the exercise of outstanding stock
     options.

(4)  Includes 265,232 shares which may be acquired through the exercise of stock
     options.

(5)  Includes 7,500 shares which may be acquired through the exercise of stock
     options.

(6)  Includes 1,500 shares held in a retirement account.

(7)  Includes 9,000 shares which may be acquired through the exercise of stock
     options.

(8)  Includes 55,520 shares owned by a family trust for which Mr. Sullivan
     serves as a trustee, 32,785 shares held in a trust for the benefit of Mr.
     Sullivan's daughter for which Mr. Sullivan serves as a trustee and 29,636
     shares held in custodial accounts for Mr. Sullivan's son for which Mr.
     Sullivan serves as custodian.  Excludes 100,920 shares held in a charitable
     foundation of which Mr. Sullivan serves as a director, as well as 66,100
     shares held by other trusts (of which Mr. Sullivan is not a trustee) for
     the benefit of Mr. Sullivan's children as to which Mr. Sullivan disclaims
     beneficial ownership.

(9)  Includes 17,500 shares which may be acquired through the exercise of stock
     options.  Excludes 200 shares held in Mr. Tompkins' wife's retirement plan
     and 500 shares held in the trust of Mr. Tompkins' minor child as to which
     Mr. Tompkins disclaims beneficial ownership.

(10) Includes 5,000 shares which may be acquired through the exercise of stock
     options.

(11) Includes 319,232 shares which may be acquired through the exercise of stock
     options.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In 1996 and 1997 the Company's Board of Directors voted to
waive the transfer restrictions imposed by the provisions of the Company's
capital stock to the extent necessary to permit Craig to acquire additional
shares of the Company's capital stock. The transfer provisions prohibit a party
from acquiring more than 4.75% of the Company's outstanding capital stock
without the permission of the Company's Board of Directors and are intended to
assure the continuing availability of the Company's federal tax loss
carryforwards by precluding a change in control which could limit the value of
the carryforwards. Prior to granting the waiver of the restrictions, the Board
of Directors had determined that acquisition of the shares by Craig would not
affect the continuing availability of the Company's federal tax loss
carryforwards.
 
     Mr. Smerling serves as President of the Company and City Cinemas, a New
York motion picture theater exhibitor.  City Cinemas is an affiliate of Mr.
Cotter, the Company's Chairman. The Company, AFC, Cine Vista and City Cinemas
entered into an Executive Sharing Agreement pursuant to which Mr. Smerling
provides services to both the Company and City Cinemas entities and the cost of
such services is shared by the parties, if such costs cannot be allocated
directly to such parties. John Foley, Vice President-Marketing of the Company,
also serves as Vice President of City Cinemas.

     The Company acquired the Angelika on August 27, 1996.  The theater is owned
jointly by the Company and Sutton Hill, a partnership affiliated with City
Cinemas, a Manhattan-based theater operator and owned in equal parts by James J.
Cotter and Mr. Michael Forman. City Cinemas (also owned indirectly in equal
parts by Messrs. Cotter and Forman) operates the theater pursuant to a
management agreement.  For more detailed information concerning the ownership
and management of AFC please see Item 1 - Description of Business - Angelika
Film Centers. A company controlled by Mr. Forman and his family beneficially own
over 12% of Craig's outstanding common stock.

     In November 1995, the Company and Craig formed Reading International to
develop and operate multiplex cinemas in Australia.  On March 29, 1996, the
Company and Craig and a subsidiary of Craig entered into a capital funding
agreement (the "Capital Funding Agreement") pursuant to which they agreed to
increase the capital committed by the Company and Craig to Reading International
from $10 million to approximately $103 million through a combination of cash
contributions and secured capital funding undertakings.  Under the terms of the
Capital Funding Agreement, the Company and Craig each agreed to immediately
contribute to Reading International an additional $12,500,000 in cash, for an
aggregate $25,000,000.  These amounts were fully funded by the parties.  In
addition, the Company and Craig undertook to contribute up to an additional
$37,500,000 each, for an aggregate future commitment of $75,000,000 on an as
needed basis. The Capital Funding Agreement was terminated at the closing of the
Stock Transactions.

     On March 29, 1996, the Company purchased from Craig 1,564,473 shares of the
common stock of Citadel for an aggregate purchase price of $3,324,505,
representing slightly less than $2.125 per share.  The closing price of the
Citadel Common Stock on the American Stock Exchange on March 28, 1996 was $2.25
per share.  The Company paid Craig for the Citadel Common Stock with a five-year
unsecured promissory note in the principal amount of $3,324,505 which provided
for the payment of interest at a rate equal to the London Interbank Offered Rate
plus 2.25%. The note was retired in July 1996. The Company also acquired from
Craig a one year option to acquire 1,329,114 shares of preferred stock of
Citadel held by Craig and an option to acquire, under certain circumstances, a
warrant held by Craig to acquire 666,000 shares of Citadel's Common Stock. The
options were canceled at the closing of the Stock Transactions.
 
     On October 15, 1996, the Company completed the Stock Transactions, in
which, among other things, the Company issued to Craig, Citadel, and certain of
their subsidiaries 70,000 shares of Series A Preferred Stock, 550,000 shares of
Series B Preferred Stock, and 2,476,190 shares of Common Stock.  See Item 1-
Business -General - The Reorganization and Stock Transactions for a description
of the Stock Transactions and the redemption by Citadel of shares of its
preferred stock acquired by the Company in the Stock Transactions.

     The Company utilizes the services of certain Citadel employees, including
the President and Chief Executive Officer of Citadel, for real estate advisory
services.  The Company pays Citadel for such services at a rate which is
believed to approximate the fair market value of such services.

     In 1996 and January 1997 the Company loaned Robert F. Smerling, President
of the Company, a total of $70,000 pursuant to a prommissory note payable upon
demand. The note is interest free.

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                         READING ENTERTAINMENT, INC.
                                         BY: /s/ James A. Wunderle
                                             ---------------------------------
                                             James A. Wunderle
                                             Executive Vice President and
                                             Chief Financial Officer
    
May 19, 1997      

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