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

                                    FORM 10-K

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

For the Fiscal Year Ended June 30, 1997        Commission File Number 0-21566

                             LS CAPITAL CORPORATION
             (Exact name of registrant as specified in its charter)

                                    Delaware
         (State or other jurisdiction of incorporation or organization)

                                   84-1219819
                      (I.R.S. Employer Identification No.)

              15915 Katy Freeway, Suite 250, Houston, Texas 77094,
                (281) 398-5588 (Address, including zip code, and
                           telephone number, including
             area code, of registrant's principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:  NONE

Securities registered pursuant to Section 12(g) of the Act:

                               Title of Each Class
                          Common Stock, $.01 Par Value

Indicate by check mark whether  registrant (1) has filed all reports 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. [ ]

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant  on  September  30,  1997  was  $5,150,000.   The  number  of  shares
outstanding of the  registrant's  Common Stock,  $.01 par value, as of September
30, 1997 was 12,207,776.

Portions of the  registrant's  definitive  Proxy  Statement  for its 1997 annual
meeting of stockholders (which has not been filed as of the date of this filing)
are incorporated by reference into Part III.

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                                      INDEX                       Page Number

<S>                          <C>                                      <C>   
                                     PART I.

Items 1. & 2.    Business and Properties.                              3

Item 3.          Legal Proceedings.                                   25

Item 4.          Submission of Matters to a Vote of Security Holders. 28

                                    PART II.

Item 5.          Market for the Registrant's Common Equity and Related
                    Stockholder Matters.                                     28

Item 6.          Selected Financial Data.                                    29

Item 7.          Management's Discussion and Analysis of Financial
                    Condition and Results of Operations.                     29

Item 8.          Financial Statements and Supplementary Data.                34

Item 9.          Changes in and Disagreements with Accountants on
                    Accounting and Financial Disclosure.                     34

                                    PART III.

Item 10.         Directors and Executive Officers of the Registrant.         35

Item 11.         Executive Compensation.                                     35

Item 12.         Security Ownership of Certain Beneficial Owners and
                    Management.                                              35

Item 13.         Certain Relationships and Related Transactions.             35

                                    PART IV.

Item 14.         Exhibits, Financial Statement Schedules, and Reports
                    on Form 8-K.                                             36


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                     ITEMS 1 and 2. BUSINESS AND PROPERTIES.

                                  INTRODUCTION

      LS Capital  Corporation f/k/a "Lone Star Casino  Corporation"  ("Company")
was  organized in 1992 to develop,  own and operate  casinos and related  resort
facilities.  During fiscal 1997, the Company adopted a significant change in its
corporate  direction.  It decided to focus its  efforts on  developing  precious
metals mining prospects,  with each project  undertaken in a separate  corporate
subsidiary.   Currently,   the  Company  has  three   partially-owned   precious
metals/mining  subsidiaries  in which the Company holds a  significant  interest
(separately,   a  "Subsidiary"  and  collectively,   the   Subsidiaries").   The
Subsidiaries are Griffin Gold Group,  Inc.  ("Griffin"),  Desert Minerals,  Inc.
("DMI")  and  Shoshone  Mining  Co.  ("Shoshone"),  each of which is a  Delaware
corporation having received rights in certain mining claims and having available
to it the ability to use certain proprietary mineral extraction technology.  The
Subsidiaries are in the developmental  stage and are expected to require minimal
capital.   To  implement   the   Company's  new  strategy  and  to  finance  the
Subsidiaries'  respective  projects,  the Company  intends to establish a public
trading market in the shares of each Subsidiary,  via an initial public offering
and/or a "spin-off" of the Subsidiaries' shares to the Company's stockholders in
fiscal 1998.  If and as this strategy is  implemented,  the Company may become a
holding company owning large shareholdings in each Subsidiary.

         From its  inception  and until  shortly after the start of fiscal 1996,
the Company was exclusively in the gaming industry and had generally  adhered to
an  aggressive  policy  of  pursuing  attractive  gaming  opportunities.   As  a
consequence of this policy,  the Company acquired interests in or control over a
number of gaming opportunities.  Early in fiscal 1996, the Company modified this
policy,  and adopted a policy of focusing more exclusively on the development of
the  operations of "Papone's  Palace" (a limited stakes gaming casino located in
Central City,  Colorado),  while pursuing other gaming  opportunities  to a much
lesser extent. As a result of this new policy, the Company sold, relinquished or
divested all of the gaming  opportunities  in which it owned an interest or over
which it had control, other than Papone's Palace (currently,  the Company's only
gaming  operation).  On April 23, 1997, the indirect  majority-owned  subsidiary
that owns and operates  Papone's Palace filed for bankruptcy under Chapter 11 of
the federal bankruptcy laws. This subsidiary has filed a plan of reorganization,
and approval of the plan is currently  pending.  The Company's  largest creditor
has filed a motion to dismiss the bankruptcy proceeding, and the outcome of this
proceeding can not now be determined. Depending on the results of the bankruptcy
proceeding,  the Company is currently considering  establishing a public trading
market in the shares of this  subsidiary  via a "spin-off"  of the  subsidiary's
shares to the Company's stockholders.

         The  Company  was  formed  under the laws of the State of  Delaware  on
December 30, 1992 under the name "Lone Star Casino Corporation." Prior to May 3,
1993,  the  Company  was a  wholly-owned  subsidiary  of Viral  Testing  Systems
Corporation ("VTS"), a publicly traded company. The Company became publicly-held
through the  distribution of its common stock to the  stockholders of VTS on May
3, 1993. The Company adopted its current corporate name in June 1996 as a result
of the change in its corporate direction as described above.

         The  principal  executive  offices of the  Company are located at 15915
Katy Freeway, Suite 250, Houston, Texas 77094, and its telephone number is (281)
398-5588. The Company has three employees

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at  its  corporate   headquarters,   in  addition  to  those   employed  by  the
Subsidiaries. The term "Company" as used herein refers to LS Capital Corporation
and all of its subsidiaries unless the context otherwise requires.




                                  RISK FACTORS

         In  addition  to the  other  information  in this  Annual  Report,  the
following  risk  factors,  among  others,  should  be  considered  carefully  in
evaluating the Company and its business.

History of Losses; Uncertainty of Future Financial Results

         The Company has  incurred  net losses  since its  inception  and had an
accumulated  deficit of approximately $25.6 million as of June 30, 1997. Most of
these  losses  are  attributable  to the  Company's  effort  to  become  a major
competitor  in the  gaming  industry,  an  industry  in which  the  Company  has
abandoned future efforts. There can be no assurance that the Company will become
profitable or that the Company will be able to raise  additional  capital if its
capital resources become exhausted by losses or expenditures.

Limited Operating History

         The  Company  has only a  limited  operating  history  in the  precious
mineral exploration and extraction  business,  the industry in which the Company
intends  to focus its  future  business  efforts.  Accordingly,  the  Company is
subject  to  all  risks  inherent  in  a  developing  business  enterprise.  The
likelihood  of  success  of the  Company  must be  considered  in  light  of the
problems,   expenses,   difficulties,   complications,   and  delays  frequently
encountered  in connection  with a new business in general and those specific to
the mineral  exploration  and  extraction  businesses  and the  competitive  and
regulatory environment in which the Company will operate.

Lack of Mineral Extraction Experience by Management

         No  members  of the  Company's  management  have  ever  had any  direct
experience in the management or operation of any business engaged in the mineral
extraction  or  exploration  industry,   although  members  of  management  have
extensive  prior  experience  in the  natural  resource  industry.  This lack of
experience  may make the Company more  vulnerable  than others to certain risks,
and it may also  cause the  Company  to be more  vulnerable  to  business  risks
associated  with  errors in  judgement  that could have been  prevented  by more
experienced management.  Management's lack of previous experience in the mineral
extraction or exploration  industry could have a material  adverse effect on the
future operations and prospects of the Company.

Industry Risks


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         Mineral  exploration and extraction  (particularly  for gold) is highly
speculative  in nature,  frequently is  nonproductive,  and involves many risks,
including,  without  limitation,  unforeseen  geological  formations,  cave-ins,
environmental  concerns and personal injury.  Such risks can be considerable and
may add unexpected  expenditures or delays to the Company's plans.  Moreover, an
extended  period  of  time  may be  needed  to  develop  the  Company's  mineral
properties.  Because the market  prices of any minerals  produced are subject to
fluctuation,  the economic  feasibility  of  production  may change  during this
period of time of  development.  Another factor is that the Company will use the
evaluation work of  professional  geologists,  geophysicists,  and engineers for
estimates in determining  whether to commence or continue extraction work. These
estimates generally rely on scientific estimates and economic assumptions, which
in some  instances may not be correct,  and could result in the  expenditure  of
substantial  amounts of money on a property before it can be determined  whether
or not  the  property  contains  economically  recoverable  mineralization.  The
Company is not able to  determine  at present  whether or not,  or the extent to
which,  such risks may  adversely  affect the  Company's  strategy  and business
plans.  There  can  be  no  assurance  that  the  Company's  mineral  extraction
activities will be successful or profitable.

Lack of Proven or Probable Mineral Reserves

         The economic viability of a mineral property cannot be determined until
extensive  exploration and  development  have been conducted and a comprehensive
feasibility study performed. Although the Company has conducted surface sampling
on its mineral  properties  indicating  that  precious  minerals  exist on these
properties,  the  Company  has not  confirmed  the  level of  existing  precious
minerals,  and the Company has not had any  independent  testing  undertaken  to
confirm the results of the Company's internal sampling. As a result, the Company
has not completed sufficient  geological testing to establish proven or probable
mineral reserves for its mineral properties.  Consequently, the Company has been
unable to ascertain with certainty whether adequate minerals reserves sufficient
for profitable  operations  exist.  Nonetheless,  the Company is continuing with
on-going internal testing and is planning on obtaining  independent  third-party
testing as soon as funds are available therefor.  Notwithstanding the preceding,
management  believes that the Company's surface sampling indicates the existence
of sufficient  mineralization to warrant continued  development of the Company's
mineral properties.  However,  there can be no assurance that proven or probable
ore reserves will ultimately be established.

Technological Risk Factor

         The ultimate  realization  of the  Company's  investment in its mineral
properties depends upon the commercial feasibility of the proprietary technology
that the Company  intends to use in the Company's  mineral  extraction  process.
This  technology  is new and has been  determined  to be capable  of  extracting
precious minerals in a laboratory  setting.  However,  the technology must prove
capable of  producing  precious  minerals on a larger  scale at cost levels that
will enable production to occur  profitably.  There can be no assurance that the
technology will prove capable of producing  precious  minerals at this scale and
at these cost levels. The failure of the technology to produce precious minerals
at the  foregoing  scale  and cost  levels  would  most  likely  materially  and
adversely affect the Company's ability to pursue its business objectives.

Title Matters

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         Title to  mining  properties  in the  western  United  States  involves
certain  inherent risks due to the  impossibility of determining the validity of
unpatented  claims  from  real  estate  records,  as well as the  potential  for
problems   arising   from  the   frequently   ambiguous   conveyancing   history
characteristic  of many mining  properties.  Although  the  Company  believes it
conducted reasonable investigations (in accordance with standard mining industry
practice) of the validity of ownership of and the ability of certain  holders of
certain  mining  claims to  transfer  to the  Company  certain  rights and other
interests  therein,  there can be no assurance that it holds good and marketable
title to all of its U.S.  properties.  The Company has conducted limited reviews
of title and  obtained  representations  regarding  ownership  from  holders  of
mineral  rights.  The Company's  practice will be, if possible,  to obtain title
insurance with respect to its major mineral  properties  when a decision is made
to proceed with large scale mining. This insurance however may not be sufficient
to cover loss of investment or of future profits.

Competition

         The precious minerals  exploration and extraction business is intensely
competitive  for  resources,  equipment  and  personnel.  Many of the  Company's
principal  competitors are  substantially  larger,  have  substantially  greater
resources,  and expend  considerably larger sums of capital than the Company for
exploration, rehabilitation and development. In addition, the gaming industry is
intensely  competitive.  In particular,  Papone's Palace (the Company's  limited
gaming facility located in Central City,  Colorado) is engaged in intense direct
competition  with other limited  gaming  facilities in  neighboring  Black Hawk,
Cripple  Creek and on Native  American  Reservations  in the  Southwest  part of
Colorado.

Limited Diversification

         The Company currently has rights,  and for the foreseeable  future will
have  rights,  in only a limited  number of  mineral  properties,  although  the
Company intends to acquire  additional  mineral properties in the future. At the
present,  the success of the Company depends entirely upon the Company's ability
to extract  minerals  from its current  properties on a profitable  basis.  This
limited  diversification  may make the results of the Company's  operations more
volatile  than they would be if the Company  owned or  controlled  more  mineral
properties.  In addition,  the Company  currently  owns, and for the foreseeable
future will own, an interest in only one gaming  facility.  Again,  this limited
diversification  in the gaming  industry  may make the results of the  Company's
operations  more  volatile  than they would be if the Company owned and operated
more gaming facilities.

Volatile Market Prices for Gold

         The  price  of  gold  will  have a  material  effect  on the  Company's
financial operations. Following deregulation, the market price for gold has been
highly  speculative  and  volatile.  Since the end of 1987 the price of gold has
declined from a high of approximately  $500 per ounce to approximately  $320 per
ounce in  September,  1997.  Instability  in the  price of gold may  affect  the
profitability of the Company's  operations.  No assurances can be given that the
Company has or will discover gold mineralization in commercial quantities or, if
such   mineralization  in  commercial   quantities  has  been  or  is  hereafter
discovered,  that gold could be  produced  at a profit  given the recent  market
price range for gold.



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Proposed Changes to Mining Laws

         Legislation has been introduced in prior sessions of the U.S.  Congress
to make  significant  revisions to the U.S.  General  Mining Law of 1872,  which
would affect the Company's  unpatented  mining claims on federal lands.  Part of
the proposed legislation would impose a royalty on gold production. It cannot be
predicted  if these  proposals  will become  law,  However,  if a gross  royalty
becomes law, it would affect the profitability of the Company's precious mineral
extraction activities.  The current estimates are that a five-percent net profit
interest  could be the rate of royalty if and when the  related  legislation  is
passed.

Insurance Coverage and Uninsured Losses

         The Company has procured insurance  covering personal injury,  workers'
compensation  and damage to property  and  equipment.  There can be no assurance
that the Company  will be  successful  in  maintaining  such  insurance at rates
acceptable to the Company or that such insurance will prove adequate.  Moreover,
in view of recent trends in damage awards in personal injury lawsuits, insurance
apparently  adequate at the time of its  procurement  may prove  insufficient to
satisfy  large losses or judgments  against  that may  subsequently  be obtained
against the Company. Furthermore, certain types of insurance coverage (generally
against  losses  caused  by  natural  disasters  and  Acts  of God)  are  either
unattainable or prohibitively  expensive.  Substantial damage awards against the
Company or  substantial  damages  not  covered  by  insurance  could  affect the
Company's  ability to continue  as a going  concern and may force the Company to
seek protection under the federal bankruptcy laws.

Liquidity

         As of June 30, 1997,  the Company had a working  capital  deficiency of
approximately  $2.4 million and cash and cash  equivalents of $5,000,  and funds
held in attorneys' trust accounts available for immediate withdrawal of $73,000.
The Company has no constant  and  continual  flow of  revenues.  During the past
several years, the Company has been able to continue  meeting cash  requirements
by  renegotiating  its  existing  debt  obligations,  issuing new debt,  selling
certain non-revenue  producing assets,  reducing overhead expenses,  and issuing
equity  securities.  While the Company's need for additional capital can not now
be precisely  ascertained because of the indefiniteness of the ultimate size and
scope of the Company's mineral extraction activity, management believes that the
Company's  future  capital  needs will exceed the  Company's  current  financial
position.  The Company expects to finance its operations for fiscal 1998 through
cash flow from  operations,  the  possible  placement  of the  Company's  equity
securities,  and joint venture arrangements  (including project financing),  The
Company  is  looking  for  sources of  additional  capital,  but there can be no
assurance  that such sources can be found or that,  if found,  the terms of such
capital will be commercially acceptable to the Company. Because of the Company's
need for additional capital, the lack of consistent revenues or the inability to
obtain  necessary  capital or both could prove to be detrimental  factors in the
development of the Company's business.

Leverage and Debt Service

          As of June 30,  1997,  the Company  had claims  subject to comprise of
$2.3  million,  including  $1.2  million due on the Secured  Convertible  Senior
Debenture and $410,000 due on a note. Such claims were

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attributable to the Company's  casino  operations  which were in Chapter 11. The
Company has filed a Plan of  Reorganization  with the bankruptcy  court whereby,
subject to court  approval,  the  Debenture  will be paid down,  partially or in
total by the transfer of certain assets, with the remaining balance of the above
two  obligations  to be amortized  over twenty years at 7.5%  interest  with the
entire amount due in seven years.  The Company has significant  interest expense
in relation to its revenues. The Company's ability to satisfy its obligations is
dependent  upon it future  performance,  which  will be  subject  to  prevailing
economic  conditions  and to financial,  business and other  factors,  including
factors beyond the control of the Company,  affecting the business operations of
the Company.

Litigation

         The Company is a plaintiff in two major  lawsuits and has been named as
a defendant in a number of lawsuits.  For further  information  regarding  these
lawsuits,  see "ITEM 3. LEGAL  PROCEEDINGS."  The Company  generally  intends to
vigorously  defend  itself in the  lawsuits  where it is a  defendant.  A single
lawsuit seeking the return of a $100,000 deposit,  in the opinion of management,
may have a possible adverse effect on the Company.

Bankruptcy of Papone's and Default on Debenture

     The  Company's  indirect   subsidiary,   Papone's  Palace  LLC,  filed  for
bankruptcy  under Chapter 11 of the federal  bankruptcy  laws on April 23, 1997.
Such filing was  necessitated by a judgment and imminent  foreclosure  resulting
from a default under a settlement agreement  restructuring Papone's indebtedness
of approximately $1.1 million to a private investor.  Such default was, in turn,
brought about by the minority owner's contention that such settlement  agreement
was executed  without  authority and Papone's failure to meet a 120 day deadline
for  resolution  of this  issue  by the  courts.  Papone's  has  filed a Plan of
Reorganization  with the  bankruptcy  court  proposing,  among other  things,  a
transfer  of assets to the  investor  in partial or full  payment of the related
debt and a  restructuring  of the  remaining  debt, if any, as well as the other
principal  creditor's  note.  There  can be no  assurance  that the Plan will be
approved  with  terms and  conditions  satisfactory  to the  Company.  Moreover,
Papone's  largest  creditor  has  filed  a  motion  to  dismiss  the  bankruptcy
proceeding. If this creditor's motion is granted, such creditor would presumably
be able to proceed to foreclose on Papone's Palace,  the casino that constitutes
Papone's principal asset. As a result of the foregoing  matters,  the outcome of
the bankruptcy  proceeding can not now be  determined.  For further  information
regarding the bankruptcy and default, see "Gaming Operations".
Regulatory Matters - Precious Minerals Extraction

         The  Company's   mining   facilities  and  operations  are  subject  to
substantial  government  regulation,  including  federal,  state and local  laws
concerning mine safety, land use and environmental protection.  The Company must
comply  with  local,  state  and  federal  requirements   regarding  exploration
operations,  public safety,  employee health and safety, use of explosives,  air
quality,  water pollution,  noxious odor, noise and dust controls,  reclamation,
solid waste,  hazardous waste and wildlife as well as laws protecting the rights
of other property owners and the public.  Although the Company  believes that it
is in substantial  compliance with such regulations,  laws and requirements with
respect  to its  mineral  properties,  failure  to comply  could have a material
adverse  effect  on the  Company,  including  substantial  penalties,  fees  and
expenses,  significant  delays in the  Company's  operations  and the  potential
shutdown of the Company's

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operations.  The  Company  must also  obtain and comply  with  local,  state and
federal permits,  including waste discharge  requirements,  other  environmental
permits,  use permits,  plans of operation and other  authorizations.  Obtaining
these permits can be very costly and take significant  amounts of time. Although
the Company foresees no material  problems or delays, no assurances can be given
that the Company can obtain the necessary permits or commence mining operations,
or that,  if  permits  are  obtained,  there  will be no  delay  in the  Company
operations or the Company can maintain  economic  production in compliance  with
the necessary permits.

Regulatory Matters - Gaming

         The  Company's  gaming  business  is subject to  extensive  regulation,
principally  by state and  local  authorities.  This  regulation  may  result in
increases in the cost of the Company's business, interference with the Company's
operations,  or other  adverse  effects on the  Company.  Although  the  Company
believes that it materially  complies with all  applicable  gaming  regulations,
material  non-compliance by the Company could have a material detrimental effect
upon the  Company's  operations.  In addition,  the Company is unable to predict
what additional  regulations (if any) may be adopted in the future effecting the
Company's  gaming  business or what effect  such  regulations  would have on the
Company.

Dependence on Key Personnel and Limited Management Resources

         The Company is  substantially  dependent upon the efforts and skills of
Paul Montle,  the Company's  Chairman of the Board and Chief Executive  Officer,
and Richard W. Lancaster,  the President of the Company's  mining  Subsidiaries.
The loss of the services of either Mr. Montle or Mr. Lancaster, or the inability
of  either of them to  devote  sufficient  attention  to the  operations  of the
Company, would have a materially adverse effect on the Company's operations. The
Company  does not maintain key man life  insurance  on Mr.  Lancaster,  but does
maintain  key man  insurance  in the  amount of $3  million  on Mr.  Montle.  In
addition,  there can be no assurance  that the current  level of  management  is
sufficient  to  perform  all   responsibilities   necessary  or  beneficial  for
management  to perform,  or that the Company  would be able to hire  additional,
qualified management personnel to perform such responsibilities in view of tight
employment market and financial constraints.  Mr. Montle has not entered into an
employment agreement,  and neither Mr. Lancaster nor Mr. Montle has entered into
a covenant not to compete agreement with the Company.  The Company's success may
depend,  in large part,  on its ability to retain and attract  highly  qualified
personnel.  The Company's success in attracting  additional  qualified personnel
will  depend  on many  factors,  including  its  ability  to  provide  them with
competitive compensation arrangements,  equity participation and other benefits.
There is no assurance  that the Company will be successful in attracting  highly
qualified individuals in key management positions.

Control

         Management and directors of the Company currently own approximately 55%
of the outstanding  shares of the Company's common stock.  Cumulative  voting in
the election of Directors is not  provided  for.  Accordingly,  the holders of a
majority of the shares of the Company's  common  stock,  present in person or by
proxy, are able to elect all of the Company's Board of Directors.

Problems Resulting from Partially-Owned Subsidiaries

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         The  Company  does not own all of the  outstanding  stock in its mining
Subsidiaries,  but instead has one or more venture  partners in each Subsidiary.
For each  Subsidiary,  the one or more venture  partners own as much or slightly
more stock in such Subsidiary than the Company does. The Company has not entered
into  customary  agreements  with such venture  partners to resolve  disputes or
terminate the Company's and such venture partners'  relationship with each other
with respect to the  Subsidiaries.  If any deadlock or dissension  were to arise
between the Company and one or more of its venture partners in the Subsidiaries,
the business of the related Subsidiary could be materially  adversely  affected.
Management  believes  that  no  contractual  arrangement  could  assure  that  a
Subsidiary would not be materially  adversely affected by deadlock or dissension
and that customary  agreements  might themselves  materially  adversely affect a
Subsidiary in certain  circumstances.  However,  additional  protection might be
afforded by greater contractual protection than the Company now has.

Dilution

         Future sales of  substantial  amounts of the Company's  common stock in
the public  market  could  adversely  affect the market  price of the  Company's
common  stock and could  result in material  dilution of existing  stockholders.
Particularly,  the Company has relied  heavily on the issuance of the  Company's
common  stock to meet  liquidity  requirements  and to  outside  consultants  to
procure needed services. Unless cash flows from the Company's limited operations
increase or  alternative  sources of  financing  are  secured,  the Company will
likely be required to seek  additional  cash through the issuance of  additional
shares of the Company's  common stock or preferred  stock or both.  There are no
preemptive  rights in connection with the Company's common stock. As a result of
the foregoing  matters,  there is a risk of a material increase in the number of
shares of the Company's  common stock  outstanding  which may result in material
dilution of existing stockholders.

Possible Lack of Liquidity; Volatile Price

         Shares of the Company's  common stock are currently  traded only on the
OTC Bulletin Board. Occasionally trading volume in the Company's common stock is
fairly low. As a  consequence,  investors may have a more difficult time selling
their shares than they would, and the prices for such shares may be more erratic
than it would be, if the shares of the  Company's  common stock were listed on a
stock  exchange or included  for  quotation  in NASDAQ and were traded in a more
active market. Shares of the Company's common stock were previously included for
quotation in NASDAQ,  and the Company  intends to seek such inclusion as soon as
the Company's  common stock and the Company meet the requirements for inclusion.
There can be no assurance  that the Company's  common stock and the Company will
ever meet these  requirements.  In any event,  the price of the Company's common
stock  (like any  publicly  traded  stock)  could be subject  to general  market
volatility and declines, which in many cases would be unrelated to the operating
performance of, or announcements relating to, the Company.

Achievement of Corporate Strategy

         As  discussed  herein,   the  Company  is  currently   considering  the
declaration  of dividends  consisting  of portions of the  outstanding  stock in
certain of its subsidiaries,  including certain of its mining Subsidiaries.  The
shares of stock  comprising  the  dividends  would be  registered  with the U.S.
Securities  and  Exchange  Commission  (the  "Commission").  The  result  of the
dividends would be that the

                                       10

<PAGE>



subsidiaries  whose stock comprised the dividends would become separate publicly
traded  entities,  and the Company would  essentially  become a holding  company
owning  large  blocks  of stock in each  subsidiary.  The  Company  has  hired a
consultant  to evaluate the best  structure to manage such activity and maximize
value for its  stockholders.  The Company has not  received  the report from the
consultant  but the  Company  has been  advised  that such  report may include a
recommendation that the Company convert to closed-end non-diversified investment
holding  company  status.  There  can be no  assurance  that  the  Company  will
undertake  this strategy,  or that if such strategy is  undertaken,  the Company
will be  successful  in achieving  this  strategy or such  strategy will enhance
stockholder values.



            Cautionary Statement Regarding Forward-Looking Statements

         Certain  statements  contained in this Annual Report under the captions
"ITEMS  1  and  2.  BUSINESS  AND  PROPERTIES"   regarding  beliefs  as  to  the
mineralization  present on the Company's mineral  properties,  the capability of
the  technology  to be used by the Company,  the ability to market the Company's
production,  the Company's regulatory compliance, the adequacy of insurance, the
availability  of  trucking  services,  the ability of the Company to attract and
retain  competent  personnel,  proposed  changes to laws,  the Company's plan to
declare in-kind dividends of stock in certain of the Company's subsidiaries, the
outcome and future  developments  with regard to the Company's gaming subsidiary
currently in  bankruptcy  (including,  without  limitation,  the ability of such
subsidiary to reobtain required permits and to reopen, and the possible increase
in business  resulting  from the  completion of a new road to such  subsidiary's
casino),  the  outcome of certain  litigation,  and other  statements  contained
herein  regarding  matters that are not historical  facts,  are  forward-looking
statements (as such term is defined in the Private Securities  Litigation Reform
Act of 1995).  Because such statements include risks and  uncertainties,  actual
results  may  differ   materially  from  those  expressed  or  implied  by  such
forwardlooking  statements.  Factors that could cause  actual  results to differ
materially  include,  but  are not  limited  to,  those  discussed  under  "Risk
Factors." As a result, these forward-looking  statements represent the Company's
judgment as of the date of this filing.  The Company does not express any intent
or obligation to update these forward-looking statements.

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<PAGE>



                      PRECIOUS METALS EXTRACTION OPERATIONS

                                  Introduction

         During fiscal 1997, the Company formed the Subsidiaries for the purpose
of engaging in efforts to extract (by means of proprietary  technology) precious
minerals  believed  to be  located  on  certain  tracts of land  over  which the
Subsidiaries  separately  acquired  control in fiscal  1997.  The  Subsidiaries'
proposed  principal  products  are a  condensate  and dore bars both  containing
precious  minerals.  Both of these  products  will be sold to third  parties for
further refining.  The Subsidiaries  have only limited  operating  histories and
involve  all  the  risks  associated  with  companies  with  limited   operating
histories.

                                   Operations

Extraction.

         The base material for the Subsidiaries' extraction process will consist
of ore procured from the Subsidiaries'  respective  mineral  properties  through
standard  open-cast  mining  operations.  Open-cast  mining  resembles  open-pit
mining, except that in the case of open-cast mining unused portions of the mined
materials are not  transported  to waste piles for disposal but instead are cast
or hauled directly into adjacent mined-out panel. Thus, reclamation  immediately
follows mining.

         A large  component  of the mined ore will be  zeolites.  Zeolites are a
large family of complex hydrous sodium,  calcium,  and aluminum  silicates whose
structures  allow them to trap  other  ions and atoms.  Because of the nature of
zeolites,  microscopic  precious metal  particles can become  ionically bound in
metal salt complexes trapped in the zeolite.

         To extract the minerals  believed to be  contained in the zeolite,  the
Subsidiaries  intend  to  use  a  certain  proprietary,  low-toxicity  microfine
precious metals extraction technology (the "Technology").  (For a description of
the  Subsidiaries'  rights  with  respect  to  the  Technology,   see  "BUSINESS
Intellectual Property.") Using the Technology,  ore mined from the Subsidiaries'
respective  mineral  properties  will be  treated  such  that  trapped  precious
minerals will be separated from the zeolite. The result of the treatment will be
a condensate.  The  Subsidiaries can then either sell the condensate or treat it
further. If a Subsidiary elects to treat the condensate further,  the Subsidiary
will  electroplate  the  condensate to produce dore.  (Dore is a molten  mixture
containing  unseparated precious metals.) The dore is then further treated in an
induction  furnace.  After this  treatment,  the dore is poured to produced dore
bars,  which are then  sold to metal  refiners  and  smelters  for the  ultimate
production of precious metals.

         Of the  Subsidiaries,  only  DMI has  facilities  to  extract  precious
minerals from mined ore. Griffin and Shoshone intend to rely upon DMI to extract
their precious minerals.  DMI has entered into two-year  agreements with Griffin
and Shoshone to process  their  respective  ore on a limited basis in connection
with the testing of DMI's "pilot" plant and technology, both discussed below. In
consideration  of DMI's  processing such ore, Griffin and Shoshone agreed to pay
to DMI the amount of DMI's  direct  costs  involved  in the  processing  plus an
additional  amount  equal to 10% of such direct  costs.  In the event that DMI's
technology  proves  successful,  DMI has agreed to  negotiate in good faith with
each of Griffin and

                                       12

<PAGE>



Shoshone with a view to the execution and delivery of an agreement pertaining to
the proposed larger processing plant discussed below.

         DMI  currently  has in operation  only a "pilot"  plant for testing the
extraction  process  described  above.  The pilot  plant is a 50'x100'  facility
consisting of a processing  area, a laboratory  building and two mobile homes to
serve as living  quarters for personnel.  The pilot plant is located in Amargosa
Valley,  Nevada, near Griffin's Tecopa mineral property.  The Company intends to
commence its extraction  business by trucking ore from Griffin's  Tecopa mineral
property to the pilot plant. Trucking will initially be done by outside trucking
firms providing  service and rates that management  believe will be adequate and
acceptable.

         Construction  of DMI's pilot plant  commenced in the summer of 1997 and
was completed in September,  1997. The pilot plant is currently testing ore at a
rate of one to three tons per day  ("TPD").  Thus far,  the pilot plant has been
able to produce gold in a small-scale  laboratory setting.  The ultimate goal of
the pilot plant is to produce gold on a larger scale at a commercially  feasible
cost.  DMI has been  conducting  on-going  tests to determine  whether the pilot
plant will be able to produce  gold on this scale and at this cost level.  While
such tests have heretofore been encouraging,  such tests have not yet determined
that the pilot plant will be able or unable to produce gold on a larger scale at
a commercially feasible cost.

         Griffin has invested  approximately  $250,000 in the pilot  plant,  and
previous   thereto  Zeotech   Industries,   Inc.,  one  of  the  major  minority
shareholders,  had invested  approximately  $100,000. The pilot plant's facility
and equipment are new and are in good operating  condition and repair. It has an
ample supply of on-site well water for  undertaking  its extraction  processing.
Waste water is  recycled  on-site  and will be used for  irrigation.  Electrical
power  for the  pilot  plant  comes  from an  on-site,  35-kilowatt  three-phase
generator  owned by DMI and  three-phase  power  generated  off-site  by  Valley
Electric, the local utility company.

         If production  and  operations at the pilot plant satisfy  management's
expectations, the Company will exercise its right to receive a sublicense on the
Technology.  The Company will then attempt to proceed with the construction of a
larger  processing  plant at a site to be selected in the future and to be owned
by one of the Subsidiaries or a newly-formed  subsidiary.  The Company currently
expects that this larger plant would be capable of  processing  ore at a minimum
rate of 1,000 TPD.  The Company  currently  expects  that this larger  plant (if
undertaken)  will be finished in 1998 at a cost of between $2.5 and $5.0 million
dollars.  The  construction  of the larger plant is  contingent on procuring the
necessary financing.

Mining Claims

         Each  Subsidiary has rights in separate mining claims (these claims are
referred to hereinafter as the "Claims").  (For additional information about the
land  covered by the  Claims,  see "ITEMS 1 and 2.  BUSINESS  AND  PROPERTIES  -
Precious Metals  Extraction  Operations - Properties.") To acquire its rights to
its Claims, each Subsidiary entered into an Exploration  Agreement and Option to
Lease (a  "Exploration/Option  Agreement")  with a group of individuals who hold
the Claims. For minimal cash payments, each Exploration/Option Agreement permits
the related Subsidiary to enter onto the land

                                       13

<PAGE>



covered  by the Claims  for  purposes  of  exploring,  investigating,  sampling,
examining and testing for any precious  metals located on such land. The initial
term of each Exploration/Option Agreement is for five years, and each Subsidiary
has the right to extend  its  Exploration/Option  Agreement  for two  additional
five-year   extension  terms.   Depending  on  the  results  of  a  Subsidiary's
exploration  effort and for a minimal  cash  payment,  each  Subsidiary  has the
option  under  its  Exploration/Option  Agreement  to enter  into a lease of the
related  Claims  pursuant to the terms,  provisions  and  conditions of a mining
lease agreement attached as an exhibit to each  Exploration/Option  Agreement (a
"Mining Lease").

         Each  Mining  Lease  permits  the  related  Subsidiary  to exploit  the
minerals covered by the related Claims.  The term of each Mining Lease is for 20
years and for so long as the related  Subsidiary is processing ore on properties
located  within a  five-mile  radius of any of the Claims  covered by the Mining
Lease.  Each Mining Lease  obligates the related  Subsidiary to pay a production
royalty for all minerals mined,  removed and sold from the Claims covered by the
Mining Lease equal to 2.5% of the Smelter  Returns.  Each Mining  Lease  defines
"Smelter  Returns"  as the  gross  amount  received  from the  sale of  valuable
minerals after recovery of all  exploration,  development  and capital costs and
less all taxes levied,  incurred or imposed on the sale, severance or production
of such  minerals  and less  costs of  extraction,  mining,  milling,  treating,
transportation to the smelter and/or refinery, smelting and refining charges and
costs of sale. Each Mining Lease obligates the related Subsidiary to pay minimal
advanced  royalties,  which are  credited to the  production  royalty  described
immediately above. Each Mining Lease can be terminated by the lessors thereunder
upon the occurrence of certain  customary events of default,  and by the related
Subsidiary  upon  three-months  notice.  Under each  Mining  Lease,  the related
Subsidiary  has a right of first  refusal to purchase the Claims  covered by the
Mining  Lease if the lessors  under the Mining  Lease  propose to transfer  such
Claims.

Intellectual Property.

         The technology that the Subsidiaries propose to use in their respective
precious mineral  extraction efforts (the "Technology") has been and is still in
the process of being  developed by Douglas Schmitt  ("Schmitt"),  an independent
consultant to the Subsidiaries.  DMI and Schmitt entered into a letter agreement
dated March 27, 1997 (the "Technology Agreement") regarding the Technology.  The
Technology  Agreement  stipulated  certain  criteria  that  Schmitt must meet to
perform  satisfactorily  under the  Technology  Agreement.  First,  Schmitt must
deliver to DMI all formulae,  process designs and systems engineering  necessary
to implement  and repeat the recovery  process  comprising  the  Technology on a
consistent,  large-scale  basis.  Second,  either  (a)  the  Technology  must be
demonstrated  to and audited by an  independent  third party mining  engineering
firm of international  repute that is willing (after the demonstration) to allow
its name to used publicly to verify that the Technology can consistently extract
gold and other  precious  metals from desert sands on a  large-scale  commercial
basis,  or (b)  commercially  salable  quantities  of  precious  metals  must be
produced  from  Griffin's  Tecopa  mineral  property in a form  acceptable  to a
reputable refiner and at production costs not greater than 75% of sale proceeds.
Once Schmitt is determined to have satisfactorily performed, DMI is obligated to
pay to him the amount of $90,000, and the Company and DMI, on the one hand, will
be equal owners of the Technology  with Schmitt,  on the other hand. The Company
and DMI will then have the right to assign and license the  Technology  to their
subsidiaries  and affiliates.  In addition,  the Company and DMI have a right of
first  refusal  regarding  all  projects  in which  Schmitt  proposes to use the
Technology, and if the Company and

                                       14

<PAGE>



DMI  decline to pursue  any  proposed  project,  Schmitt  is  obligated  to take
appropriate measures to maintain the integrity and security of the Technology.

         In  consideration  of the creation of the Company's and DMI's interests
in the  Technology,  the  Technology  Agreement  provides  in favor of Schmitt a
five-percent  royalty of gross  proceeds  from the related  refiner minus direct
production  costs (but not  including  any general  overhead  or  administrative
costs) on all  precious  minerals  extracted  or  produced  in  marketable  form
utilizing  the  Technology.  The  royalty  can be paid in cash or in  kind.  The
Company and DMI have the right to  discontinue  the use of the Technology at any
time (a) in favor of either  technology  provided  by  another  source  that the
Company and DMI believe is more  attractive  or cost  effective  or (b) upon the
abandonment  of  DMI's  desert  sands  project.  In  either  case,  all  royalty
obligations  to Schmitt  cease so long as the  Company and DMI are not using the
Technology.  The Company and DMI will forfeit their  interests in the Technology
if they fail to construct an operating  plant  capable of  processing  sand at a
rate of 1,000 TPD within three years from the date of the Technology  Agreement;
provided,  however,  that if  negotiations  or  design  work on such a plant are
underway at the time that the Company's and DMI's  interests  would otherwise be
forfeited,  the  Company  and DMI may  extend the  forfeiture  date for up to 12
months by the payment of $25,000.


         In addition to the preceding,  the Technology  Agreement  provides that
Schmitt will receive weekly payments of $1,500 for on-going  consulting services
and a $10,000  sign-on  bonus,  which has already been paid.  Moreover,  Schmitt
received  125,000  shares of common  stock in  Griffin  in  connection  with the
execution and delivery of the Technology Agreement.

Market and Marketing.

         Precious metals have two main categories of use -- product  fabrication
and bullion  investment.  Fabricated  precious metals have a wide variety of end
uses, including industrial and technology uses. Purchasers of official coins and
high-karat  jewelry  frequently are motivated by investment  considerations,  so
that net private bullion purchases alone do not necessarily  represent the total
investment activity in precious metals.

         The profitability of the Subsidiaries'  respective current and proposed
operations are significantly affected by changes in the market price of precious
metals.  The  market  prices of  precious  metals can  fluctuate  widely and are
affected  by  numerous  factors  beyond  the  Subsidiaries'  control,  including
industrial  and  jewelry  demand,  expectations  with  respect  to the  rate  of
inflation,  the strength of the U.S.  dollar and of other  currencies,  interest
rates,  central  bank  sales,  forward  sales by  producers,  global or regional
political  or  economic  events,   and  production  and  cost  levels  in  major
mineral-producing  regions  such as South  Africa.  In  addition,  the prices of
precious  metals  sometimes are subject to rapid  short-term  changes because of
speculative  activities.  The current  demand for and supply of precious  metals
affect precious metals prices, but not necessarily in the same manner as current
supply and demand affect the prices of other commodities. The supply of precious
metals  consists of a combination of new mine  production and existing stocks of
bullion and fabricated  precious metals held by governments,  public and private
financial institutions, industrial organizations and private individuals. As the
amounts produced in any single year constitute a very small portion of the total
potential supply of precious metals,  normal variations in current production do
not necessarily have a significant impact on the supply of precious

                                       15

<PAGE>



metals or on their prices. If a Subsidiary's  revenue from precious metals sales
falls for a substantial period below its cost of production at any or all of its
operations,  the Subsidiary could determine that it is not economically feasible
to continue commercial production at any or all of its operations or to continue
the  development  of some or all of its  projects.  In summary,  the markets for
precious metals generally are characterized by volatile prices.

         Because of the  availability  of a  sufficient  number of refiners  and
smelters and the competitive nature of the gold market, management believes that
the  Subsidiaries  will be able to sell all gold produced by them  separately at
then current  market rates.  Due to the more  restrictive  and less  competitive
nature of the platinum market, management believes that the Subsidiaries will be
less able to sell all platinum and related minerals produced by them separately.
Management  does not foresee that other  minerals that are likely to be produced
on the Subsidiaries'  respective  mineral  properties will be of any significant
consequence.  The  Subsidiaries'  current  policies  is to sell  their  separate
production  at current  prices and not enter into hedging or other  arrangements
which would establish a price for the sale of their separate future production.

Competition.

     The  mining  industry  is  very  competitive.  There  is a high  degree  of
competition to obtain favorable mining  properties and suitable mining prospects
for drilling,  exploration,  development and mining operations. The Subsidiaries
will  encounter  significant  competition  from firms  currently  engaged in the
mining industry.  In general,  all of these companies are  substantially  larger
than the Subsidiaries,  and have  substantially  greater resources and operating
histories.  Accordingly, there can be no assurance that the Subsidiaries will be
successful  in competing  with  existing  and  emerging  companies in the mining
industry.

Government Regulation and Environmental Concerns.

         The mining and mineral  extraction  operations  of the Company  will be
subject to extensive  federal,  state and local laws and  regulations  governing
exploration  development  and production.  In addition,  such operations will be
subject  to  inspection  and  regulation  by  the  Mining,   Safety  and  Health
Administration  of the Department of Labor under  provisions of the Federal Mine
Safety and Health Act of 1977,  which is designed to ensure  operational  safety
and employee health and safety.  The United States government also regulates the
environmental impact of the mining industry through the Clean Air Act, the Clean
Water Act, the Toxic  Substances  Control Act,  the  Resource  Conservation  and
Recovery Act of 1976 and the Federal Land Policy and  Management Act of 1976. In
addition to imposing air quality  standards and other  pollution  controls,  the
most  significant  provisions  of the above  legislation  deal with mineral land
reclamation  and waste  discharges  from  mines,  mills and  further  processing
operations.  The  Company  is  also  subject  to  extensive  health  and  safety
regulations  at the state level,  as well as  legislation  and  regulation  with
respect to the  environmental  impact of its mining  operations  in the State of
California.  Due to the nature of the Company's mineral extraction process,  the
Company believes that its processing operations will have a modest effect on the
environment.

         The  Company   generally   will  be  required  to  mitigate   long-term
environmental  impacts by stabilizing,  contouring,  reshaping and  revegetating
various portions of a site once mining and processing

                                       16

<PAGE>



are completed. Reclamation efforts will be conducted in accordance with detailed
plans which will have been reviewed and approved by the  appropriate  regulatory
agencies.  The Company plans for reclamation to be conducted  concurrently  with
mining.  Management believes that reclamation expenditures will not be material,
although there can be no certainty in this regard.

         Compliance with the foregoing laws and regulations  increases the costs
of  planning,  designing,  drilling,  developing,  constructing,  operating  and
closing mining  operations.  It is possible that the costs and delays associated
with  compliance  with  such laws and  regulations  could  become  such that the
Company  would not  proceed  with the  development  of a project or  continue to
operate a mine.

         Though  the  Company  believes  that  its  mining  operations  will  be
conducted in compliance with all present health,  safety and environmental rules
and regulations,  there is always some  uncertainty  associated with such due to
the complexity and application of such rules and  regulations.  The Company does
not anticipate that compliance with existing  environmental laws and regulations
will have a material impact on its earnings in the foreseeable future;  however,
possible future health,  safety and environmental  legislation,  regulations and
actions could cause additional expense,  capital expenditures,  restrictions and
delays  in the  activities  of the  Company,  the  extent  of  which  cannot  be
predicted.

         The Company's  unpatented  mining claims on federal lands are currently
subject  to  procedures  established  by the U.S.  General  Mining  Law of 1872.
Legislation  has been  introduced  in prior  and  current  sessions  of the U.S.
Congress to make significant  revisions to the U.S. Mining Laws including strict
new environmental  protection standards and conditions,  additional  reclamation
requirements  and  extensive new  procedural  steps which would likely result in
delays in  permitting  and which  could  have a material  adverse  effect on the
Company's  ability to develop minerals on federal lands. The proposed  revisions
would also impose  royalties on gold production  from unpatented  mining claims.
Although  legislation has not been enacted,  attempts to amend these laws can be
expected to continue.  The extent of the changes that  actually  will be enacted
and their potential impact on the Company cannot be predicted.

Seasonability.

     The  Subsidiaries'  separate  businesses  are not generally  expected to be
seasonal in nature.

Employees.

     The  mining  subsidiaries  have a total  of six  employees.  None of  these
employees are covered by a collective  bargaining  agreement and relations  with
them are considered to be good. The Company expects that the mining subsidiaries
may have as many as 25-30  employees  within the next year. The Company does not
now foresee problems in hiring additional  qualified employees to meet its labor
needs.



                                       17

<PAGE>



                                   Properties

General.

         Except as noted herein,  the  Subsidiaries'  respective  properties are
located in the Lake Tecopa and Amargosa River Valley.

         Lake Tecopa is a dried-up  lake bed  located  near  Tecopa,  California
about 60 miles west of Las Vegas.  The lake deposits in the Lake Tecopa  consist
chiefly of mudstone and  interbedded  rhyolotic  vitric  tuffs that  interfinger
marginward  with coarser clastic  sediments.  The deposits of Lake Tecopa extend
about 14 miles in a  north-south  direction  and about 11 miles in an  east-west
direction.  The towns of  Shoshone  and Tecopa lie near the north and south ends
respectively of the lake deposits.

         The ash beds  (tuff)  within the lake  deposits  of Lake  Tecopa on the
western half of the area are delineated by mapping. During diagenesis, zeolites,
potassium feldspar and other authigenic  silicate minerals formed the tuffs. The
zeolites are mainly phillipsite,  clinoptilolite,  erionite and minor amounts of
analcime and chabazite.  A study of the Lake Tecopa deposits  indicates that the
fresh-glass  facies is along the lake margin and is  succeeded  basinward by the
zeolite  facies and then by the  potassium  feldspar in the central  part of the
basin.  During the study two marker tuffs were used to delineate  the extent and
general  configuration  of the tuff beds.  These marker tuffs contain  unaltered
tuff zeolite facies, and potassium feldspar facies.

         The general configuration of the zeolite-bearing tuff beds is that of a
horseshoe  with the  closed end to the north and  located  about a mile south of
Shoshone.  According to a previous study,  tuffs of the  fresh-glass  facies are
typically pale gray and friable; shards have a distinct vitreous luster. Altered
tuffs generally are white or pastel shades of green,  yellow,  orange, or brown,
relatively  hard, and dull or earthy.  Unlike tuffs of the  fresh-glass  facies,
altered  tuffs are  resistant  and  ledge-forming.  Samples of altered tuff were
collected  from a number of sites  including  the  Pfizer  zeolite  pit near the
southwestern end of the lake deposits.  Phillipsite and clinoptilolite  were the
only zeolite minerals identified in the samples.

         The tuff beds are nearly  flat-lying  or dip at a low angle  toward the
center of the basin.  Contortion of the beds by slumping during consolidation of
the ash is common.  Swirls of green zeolitized tuff in unaltered tuff were noted
at several locations.

         Across  the entire  southern  end of  Amargosa  Range and  Basins,  the
Garlock Fault separates them from the Broad Mojave Desert.  Along this east-west
fault between the El Paso's and Avawitz  mountains,  is a broken sequence of low
peaks and ridges that have  provided a most  effective  barrier to any escape of
precipitation  from the Basin and  Range  area.  The  Amargosa  River,  which is
underground and does not surface at any point,  is the most dramatic  example of
this.  Rising  northeast of Death Valley in the Bullfrog  Hills,  it flows south
through the  Amargosa  Desert east of the  Greenwater  Range,  past Death Valley
Junction,  Shoshone and Tecopa, then,  encountering the highlands of the Avawitz
Mountains it turns west and north to enter Death Valley below Saratoga Springs.


                                       18

<PAGE>



         Volcanic  activity  is  evident in nearly  all  portions  of this area.
Numerous  lava flow  formations  are found in the lower Owens Valley near Little
Lake.  Explosive  type volcanic  action has left cinder cones,  obsidian  domes,
craters,  and ridges such as those in the Mammoth  Mountain-Mono  Crater  region
south of Mono Lake. In Death Valley, Ubenhebe Crater provides an unusual example
of explosive action.

         The  inter-connecting  depressions  between the ranges were, during the
Ice Age,  filled to great  depths with fresh water  lakes.  Then as the glaciers
receded, the lowest places became the collection basins for the salts, nitrates,
and borates in depths of more than a 1000 feet.

         The  Subsidiaries  have conducted  surface sampling on their respective
mineral properties. The sampling indicates that land underlying these properties
may contain gold, platinum, iridium, palladium, rhodium and ruthenium.  However,
the Subsidiaries have not confirmed the level of existing precious minerals, and
the Subsidiaries have has not had any independent  testing undertaken to confirm
the results of their internal  sampling.  As a result, the Subsidiaries have not
completed sufficient  geological testing to establish proven or probable mineral
reserves for their respective  mineral  properties.  The Subsidiaries  currently
intend to undertake only some subsurface  exploration at some unspecified  point
in time  during the next two year.  Notwithstanding  the  preceding,  management
believes  that the  Subsidiaries'  surface  sampling  indicates the existence of
sufficient  mineralization to warrant continued  development of their respective
mineral properties.  However,  there can be no assurance that proven or probable
ore reserves will ultimately be established.

Griffin.

         The  Company  owns 50% of the  outstanding  stock of  Griffin.  Griffin
currently holds rights to Claims covering two properties located in the Armagosa
Valley  in the  upper  Mojave  Desert  in  California.  One of these  properties
comprising  1,600  acres is located  near  Tecopa,  California,  while the other
comprising 1,920 acres is located about 25 miles east of Barstow,  California in
the dried-up  Mojave River bed.  These two  properties  have a combined total of
about 5.5  square  miles in  surface  land.  Sands  from a small  portion of the
1,600-acre  tract will be used in  connection  with the  testing of DMI's  pilot
plant.  Access to the general  vicinity of Griffin's  mineral  properties  is by
means of state highways. Once in the general vicinity of the claims, easy access
to the claims is possible over dry, stable sands.

DMI

         The Company owns 47% of the  outstanding  stock of DMI.  DMI  currently
holds rights to Claims covering a property comprised of 2,560 acres located near
Tecopa,  California.  This  property  has a total of four  square  miles.  Since
production on this property will require the  construction  of both a processing
plant and a 2.5 mile long road, this property will be held for future  expansion
after the year 2000.


Shoshone

         The Company owns 50% of the  outstanding  stock of  Shoshone.  Shoshone
currently  holds  rights  to  Claims  covering  three  properties.  Two of these
properties,  one comprising  3,840 acres and the other comprising 800 acres, are
located near Tecopa, California. The third property comprising 2,560 acres

                                       19

<PAGE>



is located about 25 miles east of Barstow,  California.  These three  properties
have a combined total of about 11.25 square miles in surface land.


                                GAMING OPERATIONS

                                   Background

         In  November  1990,  the  State of  Colorado  passed  a  constitutional
amendment  allowing the three Colorado  cities of Central City,  Black Hawk, and
Cripple  Creek to permit  "limited  stakes  gaming"  within  their city  limits,
subjects to the restrictions of the constitutional  amendment.  In October 1991,
the city of Central City approved limited stakes gaming subject to the foregoing
restrictions. Central City is a historic mining town located on the eastern edge
of the Rocky Mountains,  approximately 40 miles west of the Denver  metropolitan
area.  Limited  stakes gaming became the primary  industry of Central City after
the city  legalized  gaming in October  1991. By law,  limited  stakes gaming is
restricted  to a $5.00  maximum bet and to  facilities  located in  commercially
zoned  districts of a city at which no more than  specified  percentages  of the
total square  footage of the facility and the square footage of any single floor
are used for gaming purposes.

         The Company owns a 75.5% indirect interest in Papone's Palace. Papone's
Palace is a limited  stakes  gaming  casino  situated  in a 6,000  square  foot,
two-story  Victorian  building  located in Central City.  Papone's Palace is not
currently operating nor did its stockholders apply to renew it for 1997.

         Papone's  Palace  Ltd.   Liability  Company  (the  "Limited   Liability
Company")  directly owns and operates  Papone's  Palace.  The Limited  Liability
Company was formed by the Hill Family Trust in January,  1992.  In January 1992,
the Hill Family  Trust sold a 49% interest in the Limited  Liability  Company to
Earl Neudecker ("Neudecker") and Randall Gose ("Gose").  Neudecker and Gose paid
some cash to the Hill Family Trust and executed a promissory note payable to the
Hill  Family  Trust in the  principal  amount of  $1,450,000  due and payable on
January 14, 1997 (the  "Neudecker  Note").  The Neudecker  Note was secured by a
deed of trust on their 49%  interest in the building in and real estate on which
Papone's  Palace was operated  (collectively  the  "Property").  Papone's Palace
opened for business on July 1, 1992.

         On or about November 30, 1992, a number of events transpired:

         1.       The Hill Family  Trust  granted an option in favor of American
                  Pacific Management Corporation,  a Texas corporation ("APMC"),
                  to acquire its 51% interest in the Limited  Liability  Company
                  as well as the Neudecker Note;

         2.       Gose  granted an option in favor of APMC to acquire  his 24.5%
                  interest in the Limited  Liability  Company in exchange  for a
                  $500,000 note from Papone's Palace Acquisition Corporation,  a
                  Colorado  corporation  ("PPAC")  wholly-owned  by the Company,
                  secured by a deed of trust  against  the  Property  (the "Gose
                  Option Note") and a release from his obligations  with respect
                  to the Neudecker Note; and


                                       20

<PAGE>



         3.       APMC  assigned to VTS its options to acquire the  interests in
                  the Limited Liability Company and the Neudecker Note.

         On or about  December  31,  1992,  VTS  assigned to PPAC its options to
acquire the interests in the Limited  Liability Company described above (subject
to the approval of Colorado gaming  authorities) and the Neudecker Note. On June
10, 1993, the Colorado gaming authorities approved the transfer of the foregoing
interests to PPAC, and the consummation of the acquisition of such interests and
the Neudecker Note occurred shortly thereafter.

         Since its  acquisition  in June  1993,  Papone's  Palace  had failed to
operate at a profit and had experienced  continuing losses.  Management believes
that the  continuing  losses of Papone's  Palace were due in a large part to the
intense  competition from the neighboring  community of Black Hawk through which
potential  patrons must drive to reach Central City.  Because of the  continuing
losses, the deferred payments on the Neudecker Note due to the Hill Family Trust
were reduced on at least two  occasions.  Eventually,  a dispute  arose  between
Neudecker  and the Hill family over the note  payments,  construction  costs and
profitability  of Papone's  Palace,  which resulted in Neudecker  filing a civil
action  against  certain Hill family  members in the Jefferson  County  District
Court,  Division  TW, in Colorado  (case no.  93CV775).  The  Limited  Liability
Company was named as a defendant in an Amended  Complaint filed in January 1994.
That Amended  Complaint was dismissed,  and the case was refiled a third time by
Neudecker  by means of a Second  Amended  Complaint.  The  Company and the other
defendants have yet to file an Answer to the Second Amended  Complaint,  and the
Court continues to consider various motions to dismiss the case at this time.

     To meet a serious cash flow deficiency,  in October 1994 the Company,  PPAC
and the Limited  Liability  Company  received a loan of $1 million  (the "Loan")
from a private  investor  ("Investor"),  assigned the first deed of trust on the
Property to the  Investor,  and granted a third deed of trust on the Property as
well.  The proceeds of the Loan were used to pay operating  deficiencies  and to
repay the Company for operating  loans it had  previously  funded to the Limited
Liability Company. Over time, Alexander made additional advances with respect to
Papone's Palace,  obtained a personal guaranty for $50,000 of the Loan from Paul
J. Montle,  CEO of the Company and President of PPAC, and obtained an assignment
of the Company's 7% Membership interest in Manning Real Estate Associates,  LLC,
a California limited liability company ("Manning"). Manning owned a card club in
Fowler,  California,  which  essentially  operated a casino with  non-bank  card
games.

         In late 1995,  the Company  took steps to reduce the costs and expenses
relating to Papone's Palace.  As a result of these steps, the losses of Papone's
Palace were curtailed,  and the facility began to operate on a break-even basis.
However,  the  weather in  Central  City,  Colorado  and  surrounding  areas was
especially severe during the 1995-1996 winter season,  and the volume of patrons
to Papone's Palace declined  significantly in January 1996.  Management believed
that this decline  resulted from the  perception  created by the severe  weather
that travel to Central City had become precarious. In view of the decline in the
number of patrons,  management decided to close Papone's Palace from February 1,
1996 until such time as more  favorable  weather  could be expected to alleviate
the circumstances believed responsible for the decline in patronage.


                                       21

<PAGE>



         As of May 16, 1996,  certain  payments of principal and interest on the
Loan had not  been  timely  made,  and the Loan was  thereby  in  default.  As a
consequence of this default, the Investor commenced a public trustee foreclosure
proceeding  with respect to the Property in the Gilpin  County  District  Court,
Division G, in Colorado (case no. 96CV73) (the "Foreclosure Proceeding").  While
the  Foreclosure  Proceeding was pending,  Papone's  Palace was reopened for the
summer of 1996  during  which it  achieved a slight  positive  cash flow  though
failing  to achieve  profits.  Eventually,  the  Company,  PPAC and the  Limited
Liability Company, on the one hand, and the Investor, on the other hand, entered
into a  settlement  agreement  with respect to the  aforementioned  default (the
"Settlement Agreement").

         The Settlement  Agreement was expressly  subject to PPAC'S  obtaining a
court determination  within 120 days after the date of the Settlement  Agreement
that  PPAC had the  authority  to  enter  into the  Settlement  Agreement  since
Neudecker had alleged otherwise.  An action was commenced to obtain the required
declaratory  relief in  September  1996 in Gilpin  County  District  Court  (the
"Declaratory  Relief  Action").  Neudecker  responded to the Declaratory  Relief
Action alleging that the Loan was improperly incurred and that amounts due under
the Neudecker Note to PPAC were in dispute.  Neudecker requested and was granted
authority to file a third party  complaint  against Paul J. Montle,  the Limited
Liability Company,  the Company,  PPAC and the Investor.  The Declaratory Relief
Action is currently pending.


         After operating for the summer of 1996,  Papone's Palace closed for the
1996-1997 winter season with the expectation that it would reopen for the summer
of 1997. At the time that it ceased operations at the end of the summer of 1996,
Papone's Palace had 53 gaming devices and one blackjack table game, limited food
and beverage  service was  available,  Papone's  Palace had no separate  parking
facilities, and access to both Papone's Palace and Central City was limited.

         On January 14, 1997, the Neudecker Note (acquired by PPAC in June 1993)
matured.  The  balance  then due on the  Neudecker  Note,  including  principal,
interest  and  Neudecker's  member share of operating  losses,  was  $1,752,881.
Neudecker  did not pay such note when it came due, and PPAC  commenced an action
in the Denver  County  District  Court (case no.  97CV1021) in January,  1997 to
collect the note.  Neudecker filed an answer and Third Party Complaint  against,
among others,  Papone's Palace and the Investor.  The Investor has intervened in
the case, and has asserted claims against Neudecker, PPAC and George and Delores
Hill based on the Neudecker Note, which was conditionally  assigned from PPAC as
collateral  security  for the loan.  As a result of the  effort to  collect  the
Neudecker Note, Neudecker refused to sign the application to renew the Company's
gaming license,  which was issued on a year-by-year  basis.  Consequently,  such
license  expired in June 1997,  and the Company was not able to reopen  Papone's
Palace for the summer of 1997 as was originally expected.

                                Bankruptcy Filing

         Because of Neudecker's  actions with respect to the Declaratory  Relief
Action, PPAC was not able to obtain timely the judicial  determination  required
by the Settlement  Agreement.  Such failure constituted an event of default with
respect to the Loan under the terms of the Settlement Agreement. As a result, on
February 21, 1997, a judgment was entered in the Foreclosure Proceeding awarding
to the Investor the principal  amount of $1,101,337,  together with interest and
costs, and decreeing a foreclosure on the Property.  This  development  required
the Limited Liability Company to file for bankruptcy under Chapter

                                       22

<PAGE>



11 of the federal  bankruptcy  laws on April 23, 1997. In  connection  with this
bankruptcy  proceeding,  the  Limited  Liability  Company  has  filed  a plan of
reorganization  (the  "Plan"),  and approval of the Plan is  currently  pending.
There  can be no  assurance  that the  Plan  will be  approved  with  terms  and
conditions  satisfactory  to the  Company.  Moreover,  the  Investor has filed a
motion to dismiss the  bankruptcy  proceeding.  If this  motion is granted,  the
Investor  would  presumably be able to proceed and would proceed to foreclose on
Papone's  Palace.  As a result of the  foregoing  matters,  the  outcome  of the
bankruptcy proceeding can not now be determined.

         Under  the terms of the Plan as  initially  filed  (if  approved),  the
following events will occur:

     1. The amount of the Loan would be allowed in an amount  determined  by the
bankruptcy  court.  On the effective date of the Plan,  PPAC would assign to the
Investor  all of its  rights  under  the  Neudecker  Note  and the deed of trust
securing it, and the  outstanding  balance of the Loan would be reduced by value
that such note and deed of trust are determined to have.  Any remaining  balance
on the  Loan  would  bear  interest  at a rate or 7.5% per  annum or such  other
interest rate determined by the bankruptcy  court upon the Investor's  objection
or agreed to by the Investor, and would be payable in equal monthly installments
at a rate  amortized  over a 20-year  period.  Any balance on the Loan remaining
unpaid on the seventh anniversary of the effective date of the Plan would be due
and payable in a final  balloon  payment.  Any  guaranties  of the Loan would be
stayed. As of the bankruptcy filing of the Limited Liability Company,  PPAC owed
the Limited Liability Company approximately $211,000.

     2 The  amount  of the Gose  Option  Note  would  be  allowed  in an  amount
determined by the  bankruptcy  court.  The balance on the Gose Option Note would
bear interest at a rate or 7.5% per annum, and would be payable in equal monthly
installments at a rate amortized over a 20-year period.  Any balance on the Gose
Option Note remaining unpaid on the seventh anniversary of the effective date of
the Plan would be due and payable in a final  balloon  payment.  Gose would also
retain all liens  securing  the Gose Option  Note.  Any  guaranties  of the Gose
Option  Note  would be stayed.  3. As of the  bankruptcy  filing of the  Limited
Liability Company, the Limited Liability Company owed the Company  approximately
$750,000. In connection with such bankruptcy filing, the Company advanced to the
Limited  Liability  Company  $10,000,  and a  request  to  advance  the  Limited
Liability Company an additional $20,000 is pending.  Under the Plan, the Company
would  release  all claims for the  foregoing  amounts,  and the  Company  would
guarantee up to $200,000 of the Limited Liability  Company's  payments under the
Plan. 4. Unsecured  creditors with allowed claims (other than the Company) would
receive a pro rata distribution of the $50,000 to be provided by the Company.

                                       23

<PAGE>



     5. All outstanding  membership  interests in the Limited  Liability Company
would  be  extinguished.  However,  new  membership  interests  in  the  Limited
Liability Company constituting 100% of such membership interests would be issued
to PPAC and the  Company.  PPAC  would be  issued  its  membership  interest  in
consideration  of  PPAC's  assigning  the  Neudecker  Note and the deed of trust
securing it as described  above,  and the Company would be issued its membership
interest in  consideration  of the  Company's  release and  guarantee  described
above.  The specific  percentage  of the Limited  Liability  Company  membership
interests  that PPAC and the Company  would receive would depend on the relative
value of PPAC's and the  Company's  respective  consideration  described  in the
preceding sentence, as determined by the bankruptcy court.

                               Future Expectations

         Although the operating history of Papone's Palace has involved at worst
continuing losses and at best a break-even performance, management is cautiously
optimistic  about the future of Papone's  Palace,  if the Plan is approved  with
terms and conditions satisfactory to the Company.  Central City has historically
been  accessible  only by means of a narrow,  winding  mountain  road that first
passed through Black Hawk. Because of this limited access, inclement weather and
competition  from Black Hawk are  believed to have caused a  materially  adverse
affect on revenues from Papone's Palace.  Recently,  bonds have been approved to
finance,  and preliminary  work has begun on, the  construction of a new road to
Central  City (the "New  Road").  The New Road  will be  approximately  five and
one-half miles long, will have three lanes featuring one lane going each way and
an additional  passing/turning lane, and will connect Central City to Interstate
40. The New Road will be  superior  to the  current  road to Central  City,  and
management believes that the New Road should become the preferred road to casino
patrons  because it will  one-half the distance and will be perceived to be much
safer.  Casino  patrons  driving on the New Road will pass through  Central City
before Black Hawk,  which is the  opposite  from what they now do on the current
road. Management believes that the New Road will alleviate if not solve the main
problems affecting the profitability of Papone's Palace. If the Plan is approved
with  terms  and  conditions  satisfactory  to the  Company  and the new road is
completed on schedule,  management expects that it will be able to reactivate in
a timely manner the gaming license for Papone's  Palace and that Papone's Palace
will be  opened  for the  summers  of 1998,  1999 and 2000,  will  close for the
winters  of  1998-1999,  1999-  2000 and  2000-2001,  and will  open  year-round
starting in the summer of 2001.

         Management  believes that the  Company's  precious  mineral  extraction
business and its gaming business are very distinct  businesses.  Management also
believes that the Company does not realize any economies or other  benefits from
conducting these distinct business under common ownership and control. Moreover,
management  believes  that  conducting  these  distinct  business  under  common
ownership  and  control  may have  adverse  effects  on the  Company,  including
diminished  market valuation of and appreciation for the Company's common stock.
As a result,  management  presently  intends (if and  shortly  after the Plan is
approved with terms and conditions satisfactory to the Company) to register with
the Commission  approximately  80% of the  outstanding  equity  interests in the
Limited  Liability Company or a newly-created  successor entity.  The registered
equity interests would then be distributed to the Company's stockholders so that
the  Limited  Liability  Company  (or its  successor)  would  become a  separate
publicly traded entity as a result thereof.  Such distribution would enable each
of the Company with its

                                                            24

<PAGE>



remaining precious metals extraction business,  on the one hand, and the Limited
Liability Company (or its successor), on the other hand, to (i) adopt strategies
and pursue objectives  appropriate to its specific  business and industry,  (ii)
better  enable  itself  to  make   acquisitions   using  its  capital  stock  as
consideration,  (iii) better enable itself to obtain  financing  with respect to
its particular  business and projects from lenders possibly unwilling to lend to
companies in the other's business, (iv) be recognized by the financial community
as a distinct  business,  with the expectation  that  stockholder  value will be
enhanced,  and (v) implement more focused  incentive  compensation  arrangements
that are tied more directly to results of its  operations.  Because there can be
no  assurance  that  the  Plan  will  be  approved  with  terms  and  conditions
satisfactory to the Company,  there can be no assurance that the distribution of
the  outstanding  equity  interests  in the  Limited  Liability  Company (or its
successor) will occur.

ITEM 3. LEGAL PROCEEDINGS

The Company  currently is a party  plaintiff in litigation in the 281st Judicial
District of Harris  County,  Texas  entitled  Lone Star Casino  Corporation  and
Hallmark  Trading  Co.  Ltd.  v.  Cambridge  Financial  Corporation,  Leslie  S.
Greyling,  Daniel M. Boyar,  Claude Kirk,  Jose Esquivel,  Thomas Mahood,  Jorge
Galvez,  Gregory  Martini,  Aspen Marine Group,  Inc.,  Ella Boutwell  Chestnut,
Steven T.  Dorrough,  George D. Fowler,  Paul A. Herman,  C.  Randolph  Coleman,
Robert J. Baker,  Joseph C.F. Chow, and Corporate Stock Transfer,  Inc.,  (Civil
Action No.  93-041789),  which seeks damages for the  non-payment  of a $500,000
promissory  note and for the loss of profits  arising out of the non- payment of
other  consideration  and for  damages  caused by fraud and  other  claims.  All
defendants have been served.  Aspen Marine Group,  Inc., Ella Boutwell Chestnut,
Steven T. Dorrough,  George D. Fowler,  Paul A. Herman, C. Randolph  Coleman,  R
obert J. Baker, Joseph C.F. Chow, and Corporate Stock Transfer,  Inc. have filed
special  appearances to contest personal  jurisdiction and were all non- suited.
No other  defendant  has  answered.  On January 10, 1994,  the court  entered an
interlocutory  default  judgment in the amount of $2,307,500 plus  post-judgment
interest against Cambridge Financial Corporation, Leslie S. Greyling, and Daniel
M. Boyar. The court severed the lawsuit against Cambridge Financial Corporation,
Leslie S.  Greyling  and Daniel M.  Boyar,  and final  judgment  in favor of the
Company was entered  against these  defendants  in January  1994.  The remaining
defendants  are Claude Kirk,  Jose Esquivel and Jorge  Galvez,  against whom the
Company is trying to obtain a summary judgment.

     The  Company  is a  defendant  in  litigation  filed in fiscal  1994 in the
Supreme  Court of the  State of New  York,  County  of New  York,  styled  Nemsa
Establishment,  S.A. v. Viral  Testing  Systems  Corporation  et al.  (Index No.
94112917).  The  plaintiff has sued to collect  principal  and interest  under a
promissory  note  issued to it and has  alleged  that it is  entitled to recover
damages based on various torts alleged to have been committed by the defendants.
The  plaintiff  seeks  damages  in excess of  $1,000,000  (including  the amount
allegedly owed under the promissory  note), plus attorney's fees and prejudgment
interest.  The litigation had been in the discovery  stage at the time VTS filed
for  bankruptcy  protection.  This  lawsuit has been stayed  since that  filing.
Should  this  lawsuit  continue,  the  Company  intends to defend it  vigorously
because  the  Company  believes  the  lawsuit is without  merit and the  Company
believes that is was named as a defendant for harassment purposes.

     In fiscal 1995, TPM  Financial,  Inc.  ("TPM") filed a lawsuit  against the
Company, regarding a lease for a hotel property in Las Vegas, Nevada and a lease
for an adjacent casino property,  both entered into in 1994 with TPM as landlord
and the Company as tenant. The Company had entered into a short-term

                                                            25

<PAGE>



sublease  of the hotel  property  effective  April 1, 1995.  In June  1995,  the
subtenant  defaulted on its payments to the Company,  which in turn defaulted on
its payments to TPM. TPM is seeking a judgment against the Company for allegedly
delinquent  rents in the  approximate  amount of $125,000,  while the Company is
seeking damages from its subtenant.  The Company filed a  counter-claim  against
TPM,  claiming that TPM conspired  with the subtenant to reduce,  and eventually
stop, payments under the sublease,  thereby causing the Company to default under
the leases with TPM.  The  subtenant  filed a  counterclaim  against the Company
citing misrepresentation of certain facts concerning the property, the Company's
inability to perform as sublandlord,  breach of the sublease,  breach of implied
covenant of good faith and fair dealing, and fraud. This lawsuit had been in the
discovery  phase,  and TPM had offered to settle.  However,  in fiscal 1997, TPM
filed for  bankruptcy  protection,  and this  lawsuit has been stayed since that
filing.  The Company has not yet decided  whether it will continue to pursue its
claims in view of TPM's bankruptcy filing, and thus the ultimate outcome of this
matter can not now be determined.

     The Company is a defendant in a lawsuit  filed by  Mississippi  Ventures II
("MVII")  on August 7, 1995,  regarding  a proposed  joint  venture  between the
Company  and MVII.  The  Company  had a lease on  certain  property  located  in
Mississippi  and had intended on  developing  a casino site with MVII.  MVII had
required  that the lease be amended in order to provide for a joint  venture and
MVII agreed to place  $100,000  in an escrow  account to be used for rents owed.
Before the lease was amended and the escrow  deposit  released to the  landlord,
the  Mississippi  Supreme Court  declared the original  leased site could not be
used as a legal casino site. The $100,000 had been released to the Company,  and
the Company  retained  the $100,000 on the basis that MVII  interfered  with the
negotiation of the amended lease and its timely  execution.  MVII alleged breach
of the implied covenant of good faith and fair dealing,  and breach of fiduciary
duty,  and  the  Company  denied  all  causes  actions.  Due  to  an  unexpected
resignation of the Company's  counsel,  the Company defaulted on this lawsuit in
fiscal 1997.  However,  the plaintiff has never had a default  judgment  entered
against the Company. As a consequence, the Company can not now perfect an appeal
of the judgment,  which the Company intends to do if and when a default judgment
is entered.  The Company  intends to continue to vigorously  defend against this
judgment if it is entered. However, the ultimate outcome of this lawsuit can not
now be determined.

     On December 14, 1994, the Company filed a lawsuit in Harris  County,  Texas
against Full House Resorts,  Inc. ("Full House"),  Allen E. Paulson,  Donaldson,
Lufkin & Jenrette  Securities  Corporation and My Dang to enforce the terms of a
preliminary agreement executed on September 8, 1994 between the Company and Full
House to jointly acquire and relocate the Palace Casino to the Company's site in
Biloxi,  Mississippi.  On  December  16,  1994,  Full  House  filed a lawsuit in
Mississippi  seeking a declaratory  judgment  against the Company  regarding the
same preliminary  agreement.  On January 24, 1995, the Company counterclaimed in
the  Mississippi  suit  restating  essentially  all of the  claims  against  the
defendants in the Texas suit. By agreement of the parties, the suit in Texas was
non-suited  so that the  litigation  would  continue  in  Mississippi  C.A.  No.
A-2402-95-0142 in the Second Judicial District,  Circuit Court, Harrison County,
Mississippi.  Discovery was taken in late 1995, and the defendants filed various
motions for summary judgement. In February 1996, the Company allowed both of its
counsel to withdraw  without  substituting  new counsel,  pending entry of a new
scheduling order to accommodate the Company's new counsel.  The judge refused to
issue a new scheduling order to allow the Company's new counsel to prepare, thus
leaving the  Company  without  the  benefit of  counsel.  The judge  scheduled a
hearing on the defendants' motions for summary judgement on March 15, 1996, at a
time when the

                                                            26

<PAGE>



Company's  only  corporate  officer  who  could  appear  pro se on behalf of the
Company  was to be in  Delaware  attending  another  trial.  Despite  affidavits
submitted to the judge  affirming the foregoing  absence,  the judge granted the
defendants'  motion because the Company was not represented at the hearing.  The
Company's new counsel  immediately  filed an  appearance  and an appeal with the
Mississippi Supreme Court, No. 96-T.S.-1360.  The plaintiff's brief of appellant
was filed on October 17, 1996. In February, 1997, the Supreme Court referred the
appeal to the Mississippi  Intermediate  Court of Appeals,  which by the statute
which  created it, is supposed to render a decision  within 270 days.  On August
20, 1997, oral arguments were heard. The Company  presently  intends to continue
to vigorously  pursue this  litigation,  although it is not now in a position to
determine the likelihood of its prevailing on appeal or in any subsequent  trial
on the merits.

         In fiscal 1997, Oriental Crystal (Holding) Ltd.  ("Oriental") brought a
lawsuit against the Company and the subsidiary  formerly  pursuing the Company's
Tinian  gaming  business.  The lawsuit was brought in the Superior  Court of the
Commonwealth  of  the  Northern   Marianas  Islands  (C.A.   96-173)  seeking  a
declaratory  judgment  that an  agreement  previously  made by  Oriental  not to
compete  with the Company on Tinian was a restraint  of trade and was  therefore
unenforceable. The attorney representing Oriental attempted to serve the Company
at its 1994  business  address in Houston and when it was not possible to obtain
service  on the  Company  at that  address,  a  default  judgment  granting  the
declaratory  judgment  was entered in June 1996.  The Company is seeking to have
this  judgment set aside on the basis that service was not properly made and the
default  judgment was  improperly  entered.  If the Company is successful in its
appeal to overturn the default judgment, it intends to file an action to enforce
its non-circumvention and non-compete agreement with Oriental by seeking damages
and/or an  ownership  interest  in a 300 room  hotel  casino  that  Oriental  is
building  on Tinian,  construction  of which is  supposed to be complete in late
1997 or early 1998. The ultimate outcome of this lawsuit cannot be determined at
this time.

         On June 30, 1997, the Company  settled that certain  lawsuit styled GFL
Ultra Fund, Ltd. v. Lone Star Casino Corporation,  cause no. H-96-1423,  pending
in the United States District Court for the Southern District of Texas,  Houston
Division.  GFL Ultra Fund originally instituted this lawsuit against the Company
on February 14, 1996 in a court in the state of Washington, but this lawsuit was
subsequently  transferred  to  Houston.  The  lawsuit  alleged  that the Company
refused to convert certain shares of preferred stock in the Company owned by GFL
Ultra Fund into shares of the  Company's  common  stock in  accordance  with the
terms of the preferred stock. Under the terms of the settlement,  the Company is
to pay to GFL  Ultra  Fund a total of  $100,000,  $25,000  which  was paid on or
before July 15, 1997,  $25,000 which is due on or before September 30, 1997, and
$50,000  which is due on or before  December 31, 1997.  In  connection  with the
settlement, the Company also issued into escrow a total of 600,000 shares of the
Company's  common stock,  represented by 25 stock  certificates  in 24,000-share
denominations.  For each of the 25 months after the  settlement,  GFL Ultra Fund
will be entitled to sell out of escrow 24,000  shares issued in connection  with
the settlement.  Notwithstanding  the preceding,  GFL Ultra Fund has agreed that
once GFL Ultra Fund has realized $600,000 in net proceeds from the sale of these
shares,  the escrow agent will return any remaining  shares to the Company.  The
Company  and GFL Ultra Fund also gave to each other  mutual  releases  of claims
that they have or might have against the other pertaining to the lawsuit.

         During September, 1996, the Company settled that certain lawsuit style
Glenville Properties Incorporated v. RMS Titanic, Inc. et. al., cause no. 
127087/94, pending in the Supreme Court of the

                                       27

<PAGE>



State of New York,  County of New York. The Company was not an original party to
this proceeding, but was named as a third party defendant. This lawsuit involved
a dispute  over the  payment of a secured  promissory  note made  payable by RMS
Titanic to Glenville  Properties,  an affiliate of the Company. The terms of the
settlement  require  RMS Titanic to pay to the Company a total of $154,272 in 12
equal  installments;  provided,  however,  that this  payment  schedule  will be
accelerated if RMS Titanic's  revenues  achieve certain  levels.  The settlement
also required RMS Titanic to issue to an escrow agent 15,000  restricted  shares
of  common  stock in RMS  Titanic.  All or a  portion  of these  shares  will be
delivered  to the  Company if RMS  Titanic's  revenues  fail to achieve  certain
levels,  and all or a portion of these shares will be returned to RMS Titanic if
RMS Titanic's  revenues  achieve  certain levels.  In addition,  RMS Titanic was
required to issue to the Company  outright  40,000  restricted  shares of common
stock in RMS Titanic.  In connection  with the  settlement,  the parties gave to
each other  mutual  releases of claims that they have or might have  against the
other  pertaining to the lawsuit,  the  promissory  note  comprising the subject
matter of the  lawsuit  was  return  fully  paid and  marked  canceled,  and the
collateral securing the promissory note was released.

     In fiscal 1995, Truman L. Susman filed a lawsuit against the Company in the
U.S.  District Court for the District of Delaware,  (C.A. No. 94-210),  alleging
that the Company  participated  in or induced VTS'  management to commit acts of
mismanagement  and breach of fiduciary  duties against VTS, its subsidiary,  and
its  shareholders,  in  addition  to  inducing  VTS to  breach  its  contractual
obligations  to the  plaintiff.  The court in this lawsuit has entered a summary
judgment  against the plaintiff for failure to state a claim.  The plaintiff has
filed a motion for leave to amend his complaint.  However, the court has not yet
ruled on this motion.  The Company  believes this lawsuit is without merit,  and
the Company intends to vigorously  defend against this lawsuit if the motion for
leave to amend is granted.

         For a discussion of the Limited Liability Company's bankruptcy 
proceeding and the proceedings involving Earl Neudecker, on the one hand and the
Company or one of its subsidiaries, on the other hand, see "ITEMS 1 and 2.  
BUSINESS AND PROPERTIES."

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

     None.

                                                         PART II.

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.

     The  Company's  common stock is traded on the OTC Bulletin  Board under the
symbol  "CHIP".  As of June 30, 1997,  the Company had 1,736  holders of record.
Presented below are the high and low closing bid prices of the Company's  common
stock for the two years ended June 30, 1997.
<TABLE>
<CAPTION>

                                                              High (1)          Low (1)
                                                              ----              ---
<S>                                                            <C>               <C>  
Fiscal year ended June 30, 1996:
         First Quarter                                        $0.563            $0.250
         Second Quarter                                        0.250             0.100

                                       28

<PAGE>



         Third Quarter                                         0.150             0.015
         Fourth Quarter                                        0.040             0.015

Fiscal year ended June 30, 1997:
         First Quarter                                        $1.310            $0.125
         Second Quarter                                        1.380             0.070
         Third Quarter                                         2.090             0.720
         Fourth Quarter                                        1.875             0.530
</TABLE>

     (1) Prices after July 1, 1996 reflect the 1-for-25 reverse stock split.

     The Company has never paid cash dividends,  and has no intentions of paying
cash dividends in the foreseeable future.

ITEM 6.   SELECTED FINANCIAL DATA

         The following  consolidated  selected  financial data should be read in
conjunction  with  the  consolidated  financial  statements  and  related  notes
appearing  elsewhere  herein (amounts shown for 1993 are for the period from May
4, 1993 to June 30, 1993) - in thousands, except per share data:
<TABLE>
<CAPTION>

                                                                   Years (period) ended June 30
                                                                   ----------------------------
                                                      1997            1996         1995        1994       1993
                                                      ----            ----         -----       ----       -----
<S>                                                    <C>            <C>          <C>          <C>       <C>    

     Revenues                                       $  238          $1,340       $  2,816    $ 1,831     $    0
     Net loss                                          (72)         (4,727)       (12,084)    (8,143)       (567)
     Net loss per share                              (0.01)          (4.00)        (17.16)    (17.73)         0
     Total assets                                    3,105           2,809          7,239      16,501     10,534
     Long-term obligations                              0               0             230         526      2,703
     Redeemable preferred stock                         0               0             759       1,970         0
     Cash dividends declared per
         common share                               $   0            $  0         $    0       $   0      $   0

</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

         The  following   discussion  provides  information  to  assist  in  the
understanding  of the Company's  financial  condition and results of operations,
and should be read in  conjunction  with the selected  financial  data in Item 6
above and the  consolidated  financial  statements  and related notes  appearing
elsewhere herein

Significant Events

         During fiscal 1997,  the Company  adopted a  significant  change in its
corporate  direction.  It decided to focus its  efforts on  developing  precious
metals mining prospects,  with each project  undertaken in a separate  corporate
entity.  Currently,  the Company has an  ownership  share of three  corporations
(Griffin

                                       29

<PAGE>



Gold Group,  Inc.,  Desert  Minerals,  Inc. and Shoshone Mining Co.),  formed to
exploit  certain  adjacent  mining claims in eastern  California.  Each of these
corporations  has  received  assignments  of  mining  claims  and  non-exclusive
licenses to use proprietary mineral extraction technology.  These operations are
in the developmental  stage and will require minimal capital.  To implement this
strategy and finance these  projects,  the Company intends to establish a public
trading  market in the shares of each gold  mining  corporation,  via an initial
public   offering   and/or  a  "spin-off"  of  their  shares  to  the  Company's
shareholders  in fiscal year 1998 so they can do their own financing  with their
own shares. As this strategy is implemented, the Company will essentially become
a holding  company owning large share holdings in each gold mining  corporation.
The Company has retained a consultant  to evaluate the best  structure to manage
such  activity  and  maximize  value for its  shareholders.  The Company has not
received the report from the consultant but such report may recommend conversion
to closed-end non-diversified investment holding company status.


         As a result of the above decision,  the Company also decided to dispose
of all its non-essential  assets and sold the Clutch Games business for $260,000
in November, 1996.

                              RESULTS OF OPERATIONS

                       Years ended June 30, 1997 and 1996

Overview

         Operations  for fiscal 1997 are not  comparable to the  operations  for
fiscal  1996  because  the Tinian  casino was closed in  December,  1995 and the
Papone's  Palace  casino was open for three  months in fiscal  1997  compared to
eight  months in fiscal  1996.  The  Company  incurred a net loss of $72,000 for
fiscal  1997 on revenues of  $238,000  compared to a net loss of  $4,727,000  on
revenues of  $1,340,000  for fiscal  1996.  The  decrease in net loss is largely
attributable  to a lower costs and expenses in the casino  operations  in fiscal
1997 compared to fiscal 1996,  non-recurring  write-downs  and losses on sale of
property in fiscal  1996,  release of  liability  from the sale of two  inactive
subsidiaries  and a gain on the transfer of ownership in a card club to Papone's
principal creditor.

Operating Revenues

         Gaming  revenues  decreased  by  approximately  $990,000 in fiscal 1997
compared to fiscal 1996 due  primarily to the closing of Tinian casino in fiscal
1996 and the shorter opening months of the Papone's Palace casino in fiscal 1997
compared to fiscal 1996. Food and beverage  revenues  decreased by approximately
$112,000 attributable to the same factors.

Operating Expenses

         The  decrease  in gaming  expenses in fiscal 1997 as compared to fiscal
1996 of approximately  $1,873,000 is directly attributable to the closing of the
Tinian  casino  ($1,475,000)  and the shorter  season at Papone's  Palace casino
($398,000).  Likewise, the decrease in the cost of food and beverage is directly
attributable to the same factors.  In addition,  losses of $929,000  principally
from asset  writedowns  at the Tinian  casino and losses from asset sales at the
Papone's Palace casino of $320,000, both in fiscal 1996 were

                                       30

<PAGE>



non-recurring in fiscal 1997. General and administrative expenses in fiscal 1997
decreased approximately $660,000 compared with fiscal 1996, due primarily to the
closing of the Tinian casino and lower consulting and  professional  expenses in
fiscal 1997 compared to fiscal 1996.  Depreciation  expense declined $353,000 in
fiscal 1997 compared to fiscal 1996 due principally to the closing of the Tinian
casino in fiscal 1996 and a shorter  season at Papone's in fiscal 1997  compared
to fiscal 1996.

Other Income (Expense)

            Other income  (expense)  improved in fiscal 1997  compared to fiscal
1996  primarily  due to  the  following:  (1)  gain  on  sale  of  two  inactive
subsidiaries  (Pacific  American  Casinos,  Inc.  [Tinian]  and Lone Star Casino
Corporation of Nevada) of $1,013,000 in fiscal 1997, (2) non-recurring  minority
interest in net loss of subsidiary of $203,000 in fiscal 1996, (3) non-recurring
gains from debt  forgiveness  and other of  $239,000 in fiscal  1996,  (4) lower
interest  expense in fiscal 1997 of $175,000  compared to fiscal 1996 due to the
non-default  periods on its Secured  Convertible Senior Debenture and (5) a gain
of $590,000 on the transfer of card club  partnership  interest to the holder of
Papone's Secured  Convertible  Senior  Debenture.  The partnership  interest was
valued at  $590,000  (carried on the books at $0) and was applied as a reduction
in accrued interest.
                                      .

Discontinued Business

         The Company discontinued its board game project, Clutch Games, Inc., in
fiscal 1997 realizing a gain of $203,000, while incurring a loss from operations
of $68,000.


                       Years ended June 30, 1996 and 1995

Overview

Operations for fiscal 1996 are not entirely  comparable to operations for fiscal
1995 because several projects were discontinued in fiscal 1995 which created (or
caused) charges for discontinued or abandoned  projects.  The Company incurred a
net loss of $4,727,000  for fiscal 1996 on revenues of $1,340,000  compared to a
net loss of $12,084,000 on revenues of $2,816,000 for fiscal 1995. This decrease
in the net loss is largely attributable to a substantial decrease in write-downs
and write-offs and general and  administrative  expenses in fiscal 1996 compared
to fiscal 1995.

Operating Revenues

Gaming revenues decreased by approximately $300,000 in fiscal 1996 compared with
fiscal 1995. Food and beverage revenues  decreased by approximately  $284,000 or
about 69% due primarily to the closing of the Tinian  casino in December,  1995.
Hotel and other revenues  declined $891,000 due to the closing of the Desert Inn
Road Hotel Property in fiscal 1995.

Operating Expenses


                                       31

<PAGE>



Gaming expenses  increased  approximately  $593,000 or about 30% with the Tinian
casino  experiencing an increase of approximately  $852,000 offset by a decrease
of  approximately  $259,000 in the Papone's Palace casino gaming  expenses.  The
decreases  in the cost of food and  beverage  and  other  expenses  is  directly
attributable to the closing of the Desert Inn Road Hotel Property and the Tinian
casino.   General  and   administrative   expenses  in  fiscal  1996   decreased
approximately  $3,460,000 or about 65% compared to fiscal 1995.  The decrease is
mainly  due to the  closing  of the  Las  Vegas  administrative  office  and the
termination  of a number of management  positions in fiscal 1996,  together with
decreases in legal and  professional  fees related to acquisition  transactions,
legal and professional fees associated with project financing,  and decreases in
corporate  travel  costs.  In fiscal 1995,  the Company  incurred  non-recurring
expenses of approximately  $5,009,000,  as a result of site  development  costs,
loss on the sale of certain of the Company's  properties  and the  write-down of
certain receivables. In fiscal 1996, the Company incurred non-recurring expenses
approximating  $1,249,000 as a result of closing the Tinian casino, sale of slot
machines by Papone's  Palace  casino and  write-offs  of other  assets.  Also in
fiscal 1995, the Tinian casino incurred  non-recurring  pre-opening  expenses of
approximately $599,000. Also included in operating expenses in fiscal 1995, is a
write-off of approximately  $349,000  representing the remaining  balance of the
goodwill from the purchase of the Papone's Palace casino.
Other Income (Expense)

         Interest  expense in fiscal 1996 reflects an increase of  approximately
$238,000  due to the accrual of interest at the default  rate of 46% on Papone's
Secured  Convertible  Senior Debenture.  Other income for fiscal 1995 included a
one-time fee from proposed joint venture partner.


                         LIQUIDITY AND CAPITAL RESOURCES

Overview

         As of June 30, 1997, the Company had a working capital  deficiency of 
$2,360,000. This amount was approximately  equal to the amount of claims subject
to comprise of $2,313,000  related to Papone's  Palace,  which is in bankruptcy.
See "Business - Gaming Operations - Bankruptcy Filing".  Throughout fiscal 1997,
the Company  has been able to  continue  meeting  cash  requirements  by selling
assets,  renegotiating  existing debt obligations,  issuing new debt, paying for
services with stock, issuing common stock through private placements and capital
contributions by subsidiary minority shareholders. The ability of the Company to
continue to pursue its  business  objectives  throughout  fiscal 1998 and beyond
will depend on the Company's  ability to continue to meet its cash  requirements
by the means  mentioned  above and  ultimately  to  achieve  profitability  with
respect to its business  operations.  There can be no assurance that the Company
will sustain this ability or achieve this goal.

Current Assets and Current Liabilities

         During fiscal 1997, current assets increased  approximately $35,000 due
primarily a reduction in receivables from  unaffiliated  parties of $146,000 and
lower cash  balances of  $134,000,  offset by an increase  in  receivables  from
affiliated parties of $308,000.  Current liabilities  decreased by $1,992,000 in
fiscal 1997 compared to fiscal 1996.  Four factors  contributed to the decrease:
(1) claims subject to

                                       32

<PAGE>



compromise  decreased  $116,000,  (2)  notes and  advances  to  related  parties
decreased by $361,000  during  fiscal 1997 as a result of  conversion of debt to
common  stock  and  retirements,  (3)  accounts  payable  and  accrued  expenses
decreased by $1,107,000 in fiscal 1997 compared to fiscal 1996, primarily due to
the sale of two  inactive  subsidiaries  and (4) the  redemption  payable on the
redeemable  preferred stock decreased by $440,000 due to a settlement reached in
fiscal 1997.

         Claims  subject to comprise of $2,313,000 at June 30, 1997 consisted of
the  following  indebtedness  of  Papone's  Palace  casino  now in  Chapter  11:
$1,196,000 due on the  $1,000,000  Secured  Convertible  Senior  Debenture,  (2)
$410,000 due in connection with Papone's  acquisition  and (3) accounts  payable
and accrued  expenses of $707,000.  The $1,000,000  Secured  Convertible  Senior
Debenture was  restructured  in August,  1996 whereby the Company  transferred a
partnership  interest to the holder  valued at $590,000  (carried on the books a
$0) and recorded a gain in fiscal 1997 with a corresponding reduction in accrued
interest. The holder notified the Company in December, 1996 that foreclosure had
been posted on Papone's  Palace  casino due to a default  under the terms of the
restructuring.  The  default  arose in that the  Company  was unable to secure a
declaratory  judgment  within  120 days of August 5, 1996 in the  lawsuit by the
minority partner of Papone's Palace who was challenging the Company's  authority
to execute the  restructuring  agreement.  As a result,  a sheriff's sale of the
related  collateral  was  scheduled  to be held on April 25,  1997.  In order to
forestall the sale, Papone's Palace filed for protection under Chapter 11 of the
United States  Bankruptcy Code on April 23, 1997 in the Bankruptcy  Court of the
District of Colorado.  Papone's Palace filed a Disclosure  Statement and Plan of
Reorganization  with the court in July, 1997. The Company anticipates being able
to implement a Reorganization  Plan to allow Papone's Palace (which is presently
closed) to reopen for the summer of 1998.  Presently,  the Company,  through its
attorneys, has begun early discussions of its Plan with the two debt holders and
is attempting to subpoena information  regarding the valuation of certain assets
which may be a part of any settlement.  The Company  anticipates no writedown in
the value of the  gaming  industry  assets in  connection  with the  Chapter  11
filing.


In January,  1995, certain stockholders and an officer of the Company loaned the
Company  $250,000  to be used for  payment of the  Tinian  Gaming  License.  The
promissory  notes evidencing the loans bear interest at 10% per annum and became
due on July 19,  1995.  During  fiscal 1996, a note of $150,000 was paid in full
and an  additional  $100,000 was  advanced.  During  fiscal 1996,  the remaining
balance of $200,000  was retired by cash payment and through the issuance of the
Company's common stock.

Stock Sales

During fiscal 1997 and 1996, the Company issued 543,000 and 2,494,500 shares,
respectively,  of its common stock outside the United States at gross prices per
share of between  $.10  and$1.00  during  fiscal 1997 and $.05 and $0.32  during
fiscal year 1996.  The Company  received net proceeds of $128,000  during fiscal
1997 and $597,000 during fiscal 1996.

Also during fiscal 1997, the Company issued 1,578,000 shares of its common stock
in  connection  with the  acquisition  of gold mining  ventures.  The  Company's
interest in such ventures have
                                       33

<PAGE>



been  value  in  the  consolidated  balance  sheet  at  $321,000,  net  of  cash
reimbursements  of $109,000.  In addition,  the Company  issued 50,000 shares in
fiscal 1997 in  connection  with the  purchase of an  investment  in gold mining
securities.

During  fiscal  1997,  the  Company  issued an  additional  6,069,000  shares in
retirement of debt to officers and directors of $285,000 (including loans to the
Company and its subsidiaries, accrued interest and salaries) at a price of $.045
per share.  The Company has issued 735,000 and 600,000 shares in fiscal 1997 and
1996, respectively,  to certain consultants in payment of approximately $578,000
and $1,038,000 in services rendered.

         The Company issued 800,000 shares to an affiliate under warrants issued
in fiscal  1997 to  purchase  common  stock of the  Company  at $.375 per share.
Proceeds were substantially  collected in July , August and September,  1997. In
addition, the Company issued 600,000 shares of common stock in the settlement of
litigation in June,  1997 regarding the  redemption  payable under the Company's
redeemable preferred stock of $505,000. All of the 600,000 shares were placed in
escrow and the  remaining  shares are  subject to return and  cancellation  when
proceeds of  $600,000  have been  realized  from the sale of some of the shares.
Also,  the Company  issued 54,400 shares of common stock in settlement of claims
regarding a land lease under a proposed casino.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The reports of Company's  Independent  Auditors  appear at Page F-1 hereof,
and the  Consolidated  Financial  Statements  of the Company  appear at Page F-2
through F-16 hereof.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.

     Not applicable.



                                       34

<PAGE>



                                    PART III.


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The  information  required  by this  Item is set forth  under the  captions
"Election of Directors -- Information Concerning the Nominees" and "-- Directors
and Executive Officers" in the Company's  definitive Proxy Statement to be filed
with the Securities and Exchange  Commission and is incorporated  herein by this
reference as if set forth in full.

ITEM 11.  EXECUTIVE COMPENSATION.

     The  information  required  by this Item is set forth  under the  caption "
Executive  Compensation" in the Company's definitive Proxy Statement to be filed
with the Securities and Exchange  Commission and is incorporated  herein by this
reference as if set forth in full.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.

     The  information  required  by this  Item is set forth  under the  captions
"Election of Directors -- Security  Ownership of Certain  Beneficial  Owners and
Management"  in the Company's  definitive  Proxy  Statement to be filed with the
Securities and Exchange  Commission and is incorporated herein by this reference
as if set forth in full.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The  information  required  by this  Item is set forth  under  the  caption
"Certain  Transactions" in the Company's  definitive Proxy Statement to be filed
with the Securities and Exchange  Commission and is incorporated  herein by this
reference as if set forth in full.




                                       35

<PAGE>



                                    PART IV.

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
      FORM 8-K.

(a)  Documents filed as part of this report:

1.   Consolidated Financial Statements:
<TABLE>
<S>                                                                    <C>    

        Reports of Independent Auditors ...........................   F-1 & F-2

        Consolidated Balance Sheets as of June 30, 1997 and 1996...         F-3

        Consolidated Statements of Income for the
           years ended June 30, 1997, 1996, and 1995 ...............        F-4

        Consolidated Statements of Stockholders' Equity for the
           years ended June 30, 1997, 1996, and 1995 ...............        F-5

        Consolidated Statements of Cash Flows for the
           years ended June 30, 1997, 1996, and 1995 ..............         F-6

        Notes to Consolidated Financial Statements.................         F-7
</TABLE>

2.   Financial Statement Schedules:

        Schedule II - Valuation and Qualifying Accounts

3.   Exhibits:

     The following  exhibits are filed with this Annual Report or are
incorporated herein by reference:
<TABLE>
<CAPTION>

           Exhibit
           Number        Description
<S>         <C>            <C>        

           4.01             Certificate of Incorporation of the Company filed December 30, 1992 is
                              incorporated herein by reference from the Company's (SEC File
                              No.33-57998-D) Form SB-2 Registration Statement filed April 29, 1993,
                              Item 27(a), Exhibit 3.1.
           4.02             Bylaws of the Company are incorporated herein by reference from the
                              Company's (SEC File No. 33-57998-D) Form SB-2 Registration Statement
                              filed April 29, 1993, Item 27(a), Exhibit 3.2.
           4.03             Certificate   of  Amendment  of   Certificate  of
                               Incorporation  of  the  Company  is  incorporated
                               herein by reference  from the Company's (SEC File
                               No.

                                       36

<PAGE>



                               33-57998-D)  Form  SB-2  Registration   Statement
                               filed April 29, 1993, Item 27(a), Exhibit 3.5.
           4.04             Amendment to Certificate of Incorporation filed February 2, 1995 is
                              incorporated herein by reference from the Company's (SEC File No.
                              0-21566) Report on Form 10-Q for the period ended December 31, 1994,
                             Item 6, Exhibit 3.01
           4.05            Certificate of Designation, Preferences, Rights and Limitations of 12%
                              Senior Convertible Preferred Stock of the Company filed January 25, 1993,
                              is incorporated herein by reference from the Company's (SEC File No.
                              33-57998-D)  Form SB-2 Registration Statement filed April 29,  Item 27(a),
                              Exhibit 4.1.
           4.06             Certificate of Amendment of Certificate of Incorporation of the Company
                              filed June 26, 1996 is incorporated herein by reference from the Company's
                              (SEC File No. 0-21566) Annual Report on Form 10-K for the year ended
                              June 30, 1996, Part IV, Item 14(c), Exhibit 4.06.
           10.01           Assignment Agreement dated as of December 31, 1992 between Papone's
                              Palace Acquisition Corporation and the Company is incorporated herein by
                              reference from the Company's (SEC File No. 33-57998-D) Form SB-2
                              Registration Statement filed April 29, 1993, Item 27(a), Exhibit 10.1.
           10.02           Purchase Agreement dated effective November 30, 1992 between American
                              Pacific Management Corporation and George B. Hill and Dolores J. Hill,
                              Trustees of the Hill Family Trust and Papone's Palace Ltd. Liability
                              Company is incorporated herein by reference from the Company's (SEC
                              File No. 33-57998-D) Form SB-2 Registration Statement filed April 29,
                              1993, Item 27(a), Exhibit 10.4.
           10.03           Letter Agreement dated November 30, 1992 between American Pacific
                              Management Corporation and Randall Gose is incorporated herein by
                              reference from the Company's (SEC File No. 33-57998-D) Form SB-2
                              Registration Statement filed April 29, 1993, Item 27(a), Exhibit 10.5.
           10.04           Lease and Option dated November 30, 1992 between George B. Hill and
                              Dolores J. Hill and American Pacific Management Corporation is
                              incorporated herein by reference from the Company's (SEC File No.
                              33-57998-D) Form SB-2 Registration Statement filed April 29, 1993, Item
                              27(a), Exhibit 10.6.
           10.05           The Company's 1993 Stock Option Plan is incorporated herein by reference
                              from the Company's (SEC File No. 33-57998-D ) Form SB-2 Registration
                              Statement filed April 29, 1993, Item 27(a), Exhibit 10.8.
           10.06           Amendment to the Company 1993 Stock Option Plan is incorporated herein
                              by reference from the Company's (SEC File No. 0-21566) Report on Form
                              10-Q for the period ended September 30, 1994, Item 6, Exhibit 10.8.
           10.07           Operating Agreement of Papone's Palace is incorporated herein by reference
                              from the Company's (SEC File No. 33-57998-D ) Form SB-2 Registration
                              Statement filed April 29, 1993, Item 27(a), Exhibit 10.9.
           10.08           Settlement Agreement dated March 15, 1993 by and among the Hill Family
                             Trust, George B. Hill and Dolores J. Hill, Co-Trustees, George B. Hill,

                                       37

<PAGE>



                              individually,   Timothy  B.  Hill,   individually,
                              American Pacific Management Corporation,  Papone's
                              Palace  Acquisition  Corporation,   Viral  Testing
                              Systems Corporation,  the Company,  Paul J. Montle
                              and Paul V.  Culotta  is  incorporated  herein  by
                              reference   from  the  Company's   (SEC  File  No.
                              33-57998-D) Form SB-2 Registration Statement filed
                              April 29, 1993, Item 27(a), Exhibit 10.10.
           10.09           Assignment Agreement dated as of December 31, 1992 between Papone's
                              Palace Acquisition Corporation and the Company is incorporated herein by
                              reference from the Company's (SEC File No. 33-57998-D ) Form SB-2
                              Registration Statement filed April 29, 1993, Item 27(a), Exhibit 10.12.
           10.10           Letter from the State of Colorado regarding the transfer of ownership to
                              Papone's Palace Acquisition Corporation is incorporated herein by reference
                              from the Company's (SEC File No. 0-21566) Current Report on Form 8-K
                              dated June 10, 1993, Item 7, Exhibit (a).
           10.11           Promissory Note in the principal amount of $500,000 dated as of June 10,
                              1993 in favor of Randal Gose is incorporated herein by reference from the
                              Company's (SEC File No. 0-21566) Annual Report on Form 10-K for the
                              year ended June 30, 1993, Part IV, Item 14(c), Exhibit 10.16.
           10.12           Promissory Note in the principal amount $500,000 executed by First
                              Response Medical, Inc. in favor of the Company is incorporated herein by
                              reference from the Company's (SEC File No. 0-21566) Current Report on
                              Form 8-K dated June 3, 1993, Item 7, Exhibit 10.1.
           10.13           Pledge Agreement made and entered into as of May 4, 1993 between First
                              Response Medical, Inc. and the Company is incorporated herein by
                              reference from the Company's (SEC File No. 0-21566) Current Report on
                              Form 8-K dated June 3, 1993, Item 7, Exhibit 10.2.
           10.14           Bailment and Agency Agreement entered into as of May 4, 1993 between
                              First Response Medical, Inc., the Company, Pullman & Comley & Allan H.
                              Carlin is incorporated herein by reference from the Company's (SEC File
                              No. 0-21566) Current Report on Form 8-K dated June 3, 1993, Item 7,
                              Exhibit 10.3.
           10.15           Restructuring and Amendment Agreement dated September 9, 1993 by and
                              among the Hill Family Trust, George B. Hill, Trustee, American Pacific
                              Management Corporation and the Company is incorporated herein by
                              reference from the Company's (SEC File No. 0-21566) Annual Report on
                              Form 10-K for year ended June 30, 1993, Part IV, Item 14(c), Exhibit
                              10.22.
           10.16           Agreement dated November 24, 1993 by Coronet Company, Inc. to the
                              Company is incorporated herein by reference from the Company's (SEC
                              File No. 0-21566) Annual Report on Form 10-K for the year ended June 30,
                             1994, Part IV, Item 14(c), Exhibit 10.30.
           10.17           Lease dated October 20, 1994 between Lone Star Casino Corporation of
                              Nevada, a Nevada corporation, and TPM Financial, Inc. is incorporated
                              herein by reference from the Company's (SEC File No. 0-21566) Report on

                                       38

<PAGE>



                              Form 10-Q for the period ended September 30, 1994,
                              Item 6, Exhibit 10.34.
           10.18           Amendment Number One to Casino Lease dated February 3, 1995, between
                              TPM Financial, Inc. and Lone Star Corporation of Nevada is incorporated
                              herein by reference from the Company's (SEC File No. 0-21566) Report on
                              Form 10-Q for the period ended December 31, 1994, Item 6, Exhibit 10.01.
           10.19           Amendment No. 2 to the Company 1993 Stock Option Plan is incorporated
                              herein by reference from the Company's (SEC File No. 0-21566) Report on
                              Form 10-Q for the period ended December 31, 1994, Item 6, Exhibit 10.02.
           10.20           Amendment No. 3 to the Company 1993 Stock Option Plan is incorporated
                              herein by reference from the Company's (SEC File No. 0-21566) Report on
                              Form 10-Q for the period ended December 31, 1994, Item 6, Exhibit 10.03.
           10.21           Amendment Number One to Lease Agreement dated February 3, 1995,
                              between TPM Financial, Inc. and Lone Star Casino Corporation of Nevada
                              is incorporated herein by reference from the Company's (SEC File No.
                              0-21566) Report on Form 10-Q for the period ended December 31, 1994,
                              Item 6, Exhibit 10.04.
           10.22           The Company, Papone's Palace Acquisition Corporation and Papone's
                              Palace Ltd. Liability Company Secured Convertible Senior Debenture Due
                              January 1, 1995 Debenture No. 1 dated October 5, 1994 in the original
                              principal amount of $1,000,000 is incorporated herein by reference from the
                              Company's (SEC File No. 0-21566) Report on Form 10-Q for the period
                              ended December 3, 1994, Item 6, Exhibit 10.05.
           10.23           The Company's 1994 Employee Stock Purchase Plan is incorporated herein
                              by reference from the Company's (SEC File No. 0-21566) Report on Form
                              10-Q for the period ended December 3, 1994, Item 6, Exhibit 10.06.
           10.24           The Company's Capital Accumulation Plan is incorporated herein by
                              reference from the Company's (SEC File No. 0-21566) Report on Form
                              10-Q for the period ended December 31, 1994, Item 6, Exhibit 10.07.
           10.25           The Company's 1994 Stock Option Plan for Non-Employee Directors is
                              incorporated herein by reference from the Company's (SEC File No.
                              0-21566) Report on Form 10-Q for the period ended December 31, 1994,
                              Item 6, Exhibit 10.08.
           10.26           Amendment Number Two to Lease Agreement dated December 29, 1994
                              between Lone Star Casino Corporation of Nevada and TPM Financial, Inc.
                              is incorporated herein by reference from the Company's (SEC File No.
                              0-21566) Report on Form 10-Q for the period ended March 31, 1995, Item
                              6, Exhibit 10.01.
           10.27           Amendment Number One to the Company Papone's Palace Acquisition
                              Corporation and Papone's Palace Ltd. Liability Company Secured
                              Convertible Senior Debenture Due January 1, 1995 Debenture No. 1 is
                              incorporated herein by reference from the Company's (SEC File No.
                              0-21566) Report on Form 10-Q for the period ended March 31, 1995, Item
                              6, Exhibit 10.02.

                                                           39

<PAGE>



           10.28           Sub-Lease Agreement dated March 21, 1995 between the Company and
                              AirTel, Ltd. is incorporated herein by reference from the Company's (SEC
                              File No. 0-21566) Report on Form 10-Q for the period ended March 31,
                              1995, Item 6, Exhibit 10.03.
           10.29           The Company's 1996 Consultant Compensation Plan is incorporated herein
                              by reference from the Company's (SEC File No. 333-01158) Registration
                             Statement on Form S-8 filed February 8, 1996, Exhibit 4.2.
           10.30           Settlement Agreement dated August 5, 1996 by and among the Company,
                              Leslie  Alexander,   Papone's  Palace  Acquisition
                              Corporation  and Papone's  Palace Ltd.,  Liability
                              Co. is  incorporated  herein by reference from the
                              Company's (SEC File No.  0-21566) Annual Report on
                              Form 10-K for the year ended June 30,  1996,  Part
                              IV, Item 14(c), Exhibit 10.31.
           10.31           Absolute Assignment of Membership Interest dated August 20, 1996
                              executed by the Company in favor of Les Alexander is incorporated herein
                              by reference from the Company's (SEC File No. 0-21566) Annual Report
                              on Form 10-K for the year ended June 30, 1996, Part IV, Item 14(c),
                              Exhibit 10.32.
           10.32           Agreement dated October 30, 1996 among Zeotech Industries, Inc., Ed
                              Hemsted, W.D. Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
                              Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
           10.33           The Company's 1997 Consultant Compensation Plan is incorporated herein
                              by reference from the Company's (SEC File No. 333-17373) Registration
                              Statement on Form S-8 filed December 6, 1996, Exhibit 4.2.
           10.34           Warrant Purchase Agreement dated June 30, 1997 between Keith J.
                              McKenzie and the Company
           10.35           Agreement dated February 28, 1997 among Tanye Capital Group, Shoshone
                              Mining Co., and the Company.
           10.36           Services Agreement dated March 1, 1997 between Griffin Gold Group, Inc.
                              and Desert Minerals, Inc.
           10.37           Services Agreement dated March 1, 1997 between Shoshone Mining Co.
                              and Desert Minerals, Inc.
           10.38           Release and Partial Termination Agreement among W.D. Groves, Zeotech
                              Industries, Inc., Ed Hemsted, KJM Capital Corp., Keith J. McKenzie, Kent
                              E. Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
           10.39           First Amendment to Agreement dated October 30, 1996 among Zeotech
                              Industries, Inc., Ed Hemsted, W.D. Groves, KJM Capital Corp., Keith J.
                              McKenzie, Kent E. Lovelace, Jr., Griffin Gold Group, Inc. and the
                              Company.
           10.40           Second Amendment to Agreement dated October 30, 1996 among
                              Zeotech Industries, Inc., Ed Hemsted, W.D. Groves, KJM Capital Corp.,
                              Keith J. McKenzie, Kent E. Lovelace, Jr., Griffin Gold Group, Inc. and the
                              Company.
           10.41           Letter Employment Agreement dated March 27, 1997 between Griffin Gold
                              Group, Inc. and Richard W. Lancaster

                                       40

<PAGE>



           10.42           Letter Agreement dated March 27, 1997 among the Company, Griffin Gold
                              Group, Inc., Desert Minerals, Inc., Douglas Schmitt, Zeotech Industries,
                              Inc. and Ed Hemsted.
           10.43           Bankruptcy petition filed by Papone's Palace Ltd. Liability Company in the
                              United States Bankruptcy Court for the District of Colorado, No. 97-15695-
                              SBB.
           10.44           Stipulation filed in the Supreme Court of the State of New York, County of
                              New York (Index No. 127087-94, by Glenville Properties Incorporated,
                              RMS Titanic, Inc., Arnie Geller, Allan H. Carlin, William S. Gasparrini,
                              the Company, Paul J. Montle, Paul V. Culotta, and Roger W. Cope.
           10.45           Amendment to Stipulation filed in the Supreme Court of the State of New
                             York, County of New York (Index No. 127087-94, by Glenville Properties
                              Incorporated, RMS Titanic, Inc., Arnie Geller, Allan H. Carlin, William S.
                              Gasparrini, the Company, Paul J. Montle, Paul V. Culotta, and Roger W.
                              Cope.
           10.46           Settlement Agreement dated June 30, 1997 between GFL Ultra Fund, Ltd.
                              and the Company.
           10.47           Exploration Agreement and Option to Lease dated June 5, 1997 among
                              Charles Jackson, Marie Unruh, James Hopkins, Sr., Tracy Hopkins, Rick
                              Jackson, Mara Jackson, Paul Jackson, Jared Jackson, and Griffin Gold
                              Group, Inc.
           10.48           Exploration Agreement and Option to Lease dated June 13, 1997 among
                              Charles Jackson, Marie Unruh, James Hopkins, Sr., Tracy Hopkins, Rick
                              Jackson, Mara Jackson, Paul Jackson, Jared Jackson, and Desert Minerals,
                              Inc.
           10.49           Exploration Agreement and Option to Lease dated June 10, 1997 among
                              Charles Jackson, Marie Unruh, James Hopkins, Sr., Tracy Hopkins, Rick
                              Jackson, Mara Jackson, Paul Jackson, Jared Jackson, and Shoshone Mining
                              Co.
           10.50           The Company's 1998 Consultant Compensation Plan is incorporated herein
                              by reference from the Company's (SEC File No. 333-31963) Registration
                              Statement on Form S-8 filed July 24, 1997, Exhibit 4.2.
           21.01           Subsidiaries of Registrant.
           23.02           Consent of KPMG Peat Marwick, LLP
           25.01           Power of Attorney (included on the signature page hereto).
           27              Financial Data Schedule
           99.1            Plan of Reorganization filed by Papone's Palace Ltd. Liability Company in the 
                             in the United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB
           99.2            Disclosure Statement filed by Papone's Palace Ltd. Liability Company in the 
                             in the United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB  
</TABLE>

           (b)  Reports on Form 8-K

                The  Registrant  filed a report on Form 8-K dated April 1, 1996,
           reporting on the  Registrant's  1-for-25  reverse stock split and the
           change in the  Registrant's  corporate  name, the  abandonment of the
           Registrant's  Tinian  casino,  the  restructuring  of  certain of the
           Registrant's  debt, the bankruptcy  filing of one of the Registrant's
           subsidiaries, and the engagement of the Registrant's new auditors.


                                       41

<PAGE>



                The  Registrant  filed a report on Form 8-K dated  December  17,
           1996,  reporting on the  issuance and sales of 800,000  shares of the
           Registrant's  common stock pursuant to the exemption  provided for by
           Regulation S under the Securities Act of 1933, as amended.

                The Registrant  filed a report on Form 8-K dated March 27, 1997,
           reporting  on  the  issuance  and  sales  of  150,000  shares  of the
           Registrant's  common stock pursuant to the exemption  provided for by
           Regulation S under the Securities Act of 1933, as amended.







































                                       42

<PAGE>






September 8, 1997

                          Independent Auditors' Report

To the Board of Directors and Stockholders
         LS Capital Corporation
         Houston, Texas

We have  audited  the  accompanying  consolidated  balance  sheets of LS Capital
Corporation  as of  June  30,  1997  and  1996,  and  the  related  consolidated
statements of income,  stockholders'  equity,  and cash flows for the years then
ended. In connection with our audits of the financial  statements,  we have also
audited  the  financial  statement  schedule  as  listed  in the  Index  at Item
14(a)(2).  These financial  statements and financial  statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material  respects,  the  financial  position  of  LS  Capital
Corporation  as of June 30, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended, in conformity  with generally  accepted
accounting  principles.  Also, in our opinion,  the related financial  statement
schedule, when considered in relation to the basic financial statements taken as
a whole,  presents  fairly in all material  respects the  information  set forth
therein.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described  in Note 2. The  consolidated  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.


MALONE & BAILEY, PLLC

                                       F-1


<PAGE>


                          Independents Auditors' Report


The Board of Directors and Stockholders
LS Capital Corporation and Subsidiaries

We  have   audited  the   accompanying   consolidated   statements   of  income,
stockholders'  equity and cash flows of LS Capital  Corporation and Subsidiaries
for the  year  ended  June  30,  1995.  In  connection  with  our  audit  of the
consolidated financial statements,  we have also audited the financial statement
schedule  for the year ended June 30, 1995 as listed in the Index at Item 14(a).
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedule  based on our  audits. 

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of LS
Capital  Corporation  and  Subsidiaries  for the year  ended June 30,  1995,  in
conformity with generally accepted accounting principles.  Also, in our opinion,
the related financial  statement schedule for the year ended June 30, 1995, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly in all  material  respects  the  information  set forth
therein.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from  operations and has a working capital  deficiency  that raises  substantial
doubt about its ability to continue as a going  concern.  Management's  plans in
regard to these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.


KPMG PEAT MARWICK LLP

New Orleans, Louisiana
October 6, 1995
                                      F-2

<PAGE>



                             LS CAPITAL CORPORATION
                                 Balance Sheets
<TABLE>
<CAPTION>

                                                                                         - -  As of June 30,  - -
            (in thousands)                                                                  1997              1996
------------------------------------------------------------------------------------------------------------------------
                               ASSETS
Current Assets
<S>                                                                                         <C>               <C>                  
   Cash - Notes 3 and 4                                                              $         5         $     139
   Funds held in law firm trust accounts                                                      73               102
   Marketable equity securities                                                               15
   Receivable from affiliated parties, less allowance
         for losses of $800,000 - Note 3                                                     561               253
   Receivables from unaffiliated parties - Note 4                                            181               289
   Other                                                                                       8                25
                                                                                    ------------       -----------
                  Total Current Assets                                                       843               808
Property and equipment, net of depreciation                                                1,877             1,929
Equity investment in gold mining ventures                                                    371              -
Other assets                                                                                  14                72
                                                                                     -----------       -----------
         TOTAL ASSETS                                                                   $  3,105          $  2,809
                                                                                        ========          ========

                           LIABILITIES
Current Liabilities
   Claims subject to compromise                                                         $  2,313          $  2,429
   Notes and advances payable to related parties - Note 9                                     36               397
   Accounts payable and accrued expenses                                                     754             1,806
   Redemption payable - redeemable preferred stock                                           100               540
                                                                                      ----------        ----------
                  Total Current Liabilities                                                3,203             5,172
                                                                                       ---------         ---------

Series 1994-1 redeemable  convertible preferred stock, par value $.01 per share;
   authorized 220 shares, no shares issued and outstanding
Stockholders' Equity
   12%senior cumulative  convertible  preferred stock, par value $.01 per share,
      authorized 500,000 shares, no shares issued and outstanding
   Preferred stock, par value $.01 per share, authorized
      10,000,000 shares, no shares issued and outstanding
   Common stock, par value $.01 per share, authorized
      50,000,000 shares, issued and outstanding 12,150,000
      shares (1997) and 1,721,000 shares (1996)                                              121                17
   Additional paid-in capital                                                                               25,374
                                                                                          23,141
   Accumulated deficit                                                                   (25,593)          (25,521)
                                                                                        --------          --------
                  Total Stockholders' Equity                                          (       98)         (  2,363)
                                                                                     -----------         ---------
         TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $  3,105          $  2,809
                                                                                        ========          ========
</TABLE>

                             See accompanying notes.
                                       F-3


<PAGE>



                             LS CAPITAL CORPORATION
                                Income Statements
<TABLE>
<CAPTION>

                                                                            - - - -  Year Ended June 30,  - - - -
     (in thousands, except per share data)                                1997             1996              1995
------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>              <C>             <C>

REVENUES
   Gaming                                                             $     225         $  1,215          $  1,516
   Hotel                                                                                                       891
   Food and beverage                                                         13              125               409
                                                                    -----------       ----------        ----------
                                                                            238            1,340             2,816
                                                                     ----------        ---------         ---------
OPERATING EXPENSES
   Gaming                                                                   139            2,012             1,419
   Hotel                                                                                                       917
   Food and beverage                                                         29              211               482
   Write-down of mining venture investment                                   20
   General and administrative                                             1,214            1,874             5,334
   Loss on sale of casino equipment                                          18              320
   Loss on sale of property and other
      site development costs                                                                 929             4,259
   Provision for loss on notes receivable                                                                      750
   Adjustment to carrying value of cost
      in excess of net assets acquired                                                                         349
   Pre-opening expenses                                                                                        599
   Depreciation and amortization                                             71              424               463
                                                                    -----------       ----------        ----------
                                                                          1,491            5,770            14,572
                                                                      ---------        ---------          --------
         OPERATING LOSS                                                 ( 1,253)          (4,505)          (11,756)
                                                                      ---------         --------          --------
OTHER INCOME (EXPENSE)
   Gain on sale of two inactive subsidiaries                              1,013
   Gain on sale of card club interest                                       590
   Minority interest in net loss of subsidiary                                               203
   Other, net                                                         (      68)             239                98
   Interest expense                                                    (    489)         (   664)        (     426)
                                                                     ----------        ---------        ----------
         LOSS FROM CONTINUING OPERATIONS                               (    207)          (4,727)          (12,084)
                                                                     ----------         --------          --------
DISCONTINUED BUSINESS - Clutch Games, Inc.
   Loss from operations                                               (      68)
   Gain on sale                                                             203
                                                                     ----------         --------          --------

         NET LOSS                                                    $(      72)        $( 4,727)         $(12,084)
                                                                     ==========         ========          ========

NET INCOME (LOSS) PER COMMON SHARE
         Continuing operations                                           $(0.03)          $(4.00)          $(17.02)
         Discontinued operations                                           0.02
Weighted average common shares outstanding                            7,177,000        1,183,000           710,000
</TABLE>


                             See accompanying notes.
                                       F-4


<PAGE>



                                              LS CAPITAL CORPORATION
                                        Statements of Stockholders' Equity
<TABLE>
<CAPTION>

                                                           Common Stock       Paid in       Accum.
     (in thousands)                                       Shares     Amount    Capital      Deficit     Totals
<S>                                                         <C>       <C>       <C>          <C>          <C>    

Balances, July 1, 1994                                    564      $   141      $15,940    $(  8,710)     $  7,371

Shares issued for cash                                    289           72        3,437                      3,509
Shares issued for services                                 40           10          589                        599
Shares issued in connection with
   - conversion of preferred stock                         67           17        1,272                      1,289
   - renegotiation of property lease                        4            1           44                         45
Dividends on preferred stock                                                    (    88)                   (    88)
Net (loss)                                                                                  (12,084)      (12,084)
                                                  -----------  ----------- -------------   ---------      --------

         Balances, June 30, 1995                          964          241       21,194      (20,794)          641

Shares issued for cash                                    100           25          379                        404
Shares issued for services                                441          110          614                        724
Shares issued in connection with
   - prepaid legal expenses                               159           40          274                        314
   - conversion of preferred stock                         44           11          238                        249
   - sale of rights to repurchase note                     13            3            6                          9
Reverse split of common stock                                         (413)         413
Dividends on preferred stock                                                    (    32)                   (    32)
Preferred dividend adjustment                                                        55                         55
Net (loss)                                                                                  (  4,727)     (  4,727)
                                                  -----------  ----------- -------------  ----------     ---------

         Balances, June 30, 1996                        1,721           17       23,141      (25,521)     (  2,363)

Shares issued for cash                                    543            5          122                        127
Shares issued for services                                735            7          571                        578
Shares issued in connection with
   - debt forgiveness by related parties                6,069           61          224                        285
   - acquisition of gold mining ventures                1,578           15          436                        451
   - purchase of investment in gold
        mining company securities                          50            1           49                         50
   - share subscriptions                                  800            8          300                        308
   - redeemable preferred stock payable                   600            6          499                        505
   - lawsuit settlement                                    54            1           32                         33
Net income                                                                                 (       72)  (       72)
                                                  -----------  ----------- ------------- ------------ ------------

         Balances, June 30, 1997                       12,150      $   121      $25,374     $(25,593)  $(       98)
                                                       ======      =======      =======     ========   ===========

</TABLE>

                             See accompanying notes.
                                       F-5


<PAGE>



                                              LS CAPITAL CORPORATION
                                             Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                             - - - -  Year Ended June 30,  - - - -
     (in thousands)                                                         1997           1996              1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>           <C>               <C>
Cash Flows from Operating Activities
   Net loss                                                         $(       72)       $(  4,727)         $(12,084)
   Adjustments to reconcile net income (loss)
      to net cash used in operating activities
         Depreciation and amortization                                       71              424               463
         (Gain) loss on sale of Tinian                                (     732)             656
         (Gain) on sale of Chaparral                                  (     282)
         (Gain) on sale of card club interest                         (     590)
         (Gain) on sale of Clutch Games                               (     203)
         Writedown of mining venture investment                              21
         Loss on marketable securities                                                       148               125
         Provision for loss on note receivable                                                                 750
         Loss on sale of equipment                                                           320               129
         Loss applicable to minority interest                                          (     203)
         Preferred stock accretion                                                            30
         Net gain from reduction in dividend payable                                          23
         Other current asset writeoffs                                                       171
         Loss on sale of property and site
            development costs                                                                                4,259
         Writedown of goodwill                                                                                 349
         Other asset writeoffs                                                               235
         Stock issued for services                                          479              420
         Stock issued in settlement of litigation                            33
         Changes in
            Accounts receivable                                             209                          (     171)
            Other current assets                                             16              308         (     175)
            Claims subject to compromise                                    234               36
            Payables to related parties                              (       76)             137
            Accounts payable and accrued expenses                           267              223             1,843
                                                                    -----------      -----------        ----------

                                                                      (     625)        (  1,799)         (  4,512)
                                                                    -----------       ----------        ----------

Cash Flows from Investing Activities
   Proceeds from sale of Clutch Games                                       138
   Proceeds from sale of note receivable                                                     500
   Proceeds from sale of Cotton Exchange property                                            906               239
   (Acquisition) sale of property and equipment                              15       (       21)        (     750)
   Deposits on agreements to purchase land                                                               (     325)
   Organization costs and other assets                                                                    (  1,133)
                                                                 --------------   --------------        ----------

                                                                            153            1,385          (  1,969)
                                                                    -----------       ----------        ----------
</TABLE>
                                   (continued)
                                       F-6


<PAGE>



                             LS CAPITAL CORPORATION
                            Statements of Cash Flows
<TABLE>
<CAPTION>

                                                                             - - - -  Year Ended June 30,  - - - -
     (in thousands)                                                          1997             1996              1995
--------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>               <C>

Cash Flows from Financing Activities
   Proceeds from issuance of notes payable                                           $        71         $   1,500
   Repayment of notes payable                                                          (     452)         (  1,131)
   Sales of stock                                                    $      128              597             3,508
   Repayment of notes payable to related parties                                                               250
   Reimbursements by attorneys of excess fees
      paid in S-8 stock                                                     102
   Reimbursements by affiliates of their
      expenses paid in parent S-8 stock                                     108
                                                                    -----------

                                                                            338              216             4,127
                                                                    -----------      -----------        ----------

Net increase (decrease) in cash                                       (     134)       (     198)         (  2,354)
         Cash at beginning of year                                          139              337             2,691
                                                                    -----------      -----------        ----------

         Cash at end of year                                       $          5       $      139        $      337
                                                                   ============       ==========        ==========

Supplemental Cash Flow Information
   Redeemable preferred stock
      Conversion into common stock                                   $      440       $      238         $   1,299
      Reclassified into current liabilities                            (    440)             540
   Common stock issued for
      Services                                                              479
      Prepaid services                                                       98              245
      Reduction of related party payables                                   285
      Reduction of accounts payable                                                          189               643
      Reduction of notes payable                                                              51
      Gold mining ventures                                                  451
      Purchase of investment in securities of
         gold mining company                                                 50
      Stock subscriptions receivable                                        308
      Lawsuit settlement                                                     33
   Accrued dividends on former preferred stock                               65
   Sale of land through retirement of debt                                                                (  3,525)
   Retirement of debt through disposition of
      subsidiaries                                                        1,013
   Gain on transfer of investment securities in
      exchange for debt reduction                                           590
   Interest paid                                                                              54               251
</TABLE>

                             See accompanying notes.
                                       F-7


<PAGE>


                             LS CAPITAL CORPORATION
                          Notes to Financial Statements


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Business.  LS Capital  Corporation  (the "Company"),  is a Delaware  corporation
formed  December  30,  1992 to develop and  operate  casinos and related  resort
facilities.  During the past two years,  the Company  began the  marketing  of a
sports game and casino poker chips, and began acquiring interests in gold mining
claims and exploration and development of those claims.

Basis of Presentation. The consolidated financial statements include (1) a 75.5%
interest  in  Papone's  Palace,  a 6,000  square  foot  casino in Central  City,
Colorado,  (2) unconsolidated 45 - 50% ownership  interests in three gold mining
Nevada corporations, accounted for using the equity method, (3) a 100% ownership
of Clutch Games, Inc., formed to market a sports game, and (4) 100% ownership in
three other inactive subsidiaries as of June 30, 1997. Significant  intercompany
accounts and transactions have been eliminated in consolidation.

Use of Estimates. The financial statements have been prepared in conformity with
generally accepted accounting  principles and, as such, include amounts based on
informed  estimates  and  judgments of management  with  consideration  given to
materiality. Actual results could differ from those estimates.

Cash includes demand deposit bank accounts and casino vault cash. Company policy
includes any highly liquid investments with original  maturities of three months
or less.

Funds held in law firm  trust  accounts  represents  cash held by law firms from
receivables  collections and from excess advance payments for legal fees, all of
which is returned to the Company subsequent to year end.

Marketable Securities are shown at market value.

Receivables are written down, where  appropriate,  to the estimated  collectible
amount in the opinion of management.

Depreciation is calculated using the straight-line  method over the useful lives
of property and equipment.

Equity Investment in Gold Mining Ventures includes the Company's approximate 50%
ownership  share of the net book value of each of three  different  corporations
formed to exploit certain  adjacent mining claims in eastern  California.  Costs
incurred  procuring  mining claims are considered  exploration  and  development
costs and are  capitalized  until the claims are producing or are written off as
unproductive.


                                                        F-8


<PAGE>


                             LS CAPITAL CORPORATION
                          Notes to Financial Statements


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Reverse Stock split of 25 for 1 occurred on June 30, 1996.  All prior year share
and per share amounts have been restated.

Income  taxes are not due since the Company  has had  substantial  losses  since
inception.

Earnings  (Loss) Per Share  calculations  include the dilutive  effect of common
stock equivalents, principally stock options, in years with net income.

Reclassifications  of certain  prior year  amounts were made to conform with the
current year presentation.


NOTE 2 - GOING CONCERN

Since inception, the Company has incurred substantial recurring operating losses
resulting in cash flow problems. In addition,  the Company's principal operating
subsidiary and sole casino operation,  Papone's Casino,  entered federal Chapter
11 bankruptcy proceedings in April, 1997. See Note 7.

The Company sold the sports game concept for net proceeds of $203,000. The poker
chip sales  concept  was shut down.  Because  the  ultimate  success of the gold
mining ventures is unknown at this time, the Company's  ability to continue as a
going concern is still in doubt.

The Company  plans to continue  raising  needed  working  capital  through stock
sales.  There can be no assurance  that the  proceeds  from stock sales and cash
flow from the mining  ventures,  if any, will be  sufficient to support  working
capital  needs in the  future.  The  financial  statements  do not  include  any
adjustments  that might be  necessary  if the Company is unable to continue as a
going concern.


NOTE 3 - RECEIVABLES FROM AFFILIATED PARTIES

These consist of the following:
<TABLE>
<CAPTION>
                                                                                  1997              1996
                                                                                 ------            -----
<S>                                                                                <C>              <C>     
         Stock sale subscription receivable from
                  mining companies stockholder                                   $  308
         Note receivable from 24.5% partner of Papone's
                  Casino, net of $800,000 allowance                                 253            $  253
                                                                                -------            ------
                  Total                                                          $  561            $  253
                                                                                 ======            ======

</TABLE>
                                       F-9


<PAGE>


                             LS CAPITAL CORPORATION
                          Notes to Financial Statements


NOTE 3 - RECEIVABLES FROM AFFILIATED PARTIES (continued)

The stock  sale  subscription  receivable  is for  800,000  shares at $.385,  or
$308,000.  Collections through September 8, 1997 total $208,000, and the balance
is expected in September, 1997. See Note 7 for discussion of the note receivable
from Papone's 24.5% partner.


NOTE 4 - RECEIVABLES FROM UNAFFILIATED PARTIES

These consist of the following:
<TABLE>
<CAPTION>
                                                                                  1997              1996
                                                                                -------           ------
<S>                                                                               <C>               <C>    
         Note receivable - RMS Titanic, Inc.                                    $    90           $   185
         Amount due from sale of sports game                                         65
         Prepaid legal fees                                                                           104
         Other                                                                       25
                                                                              ---------            ------
                                                                                    181               289
         Less:  current portion                                                  (  181)           (  251)
                                                                               --------          --------
         Long-term portion                                                    $       0          $     38
                                                                              =========          ========
</TABLE>

Legal disputes concerning the RMS Titanic, Inc. receivable were resolved in 
January, 1997.  Collections on the RMS Titanic, Inc. note receivable totaled 
$95,000 in fiscal 1997.  Management expects to collect the remaining $90,000 
during fiscal 1998.

The $65,000  receivable  from the sale of the sports game was collected in July,
1997.


NOTE 5 - PROPERTY AND EQUIPMENT

Depreciation  of property and  equipment is calculated  using the  straight-line
method over their estimated useful lives as follows:
<TABLE>
<CAPTION>

                                                               Life               1997              1996
                                                            ----------          -------           ------
<S>               <C>                                          <C>                  <C>             <C>    
        Papone's Casino
            Land                                                $1,200           $1,200
            Buildings                                          30 years             652               652
            Gaming equipment                              5 - 7   "                 137               137
            Furniture and equipment                           5   "                 223               223
         Other                                                5   "                   5                28
                                                                             ----------         ---------
                                                                                  2,217             2,240
         Less:  accumulated depreciation                                         (  340)          (   311)
                                                                               --------          --------
                                                                                 $1,877            $1,929
                                                                                 ======            ======
</TABLE>

                                      F-10


<PAGE>


                             LS CAPITAL CORPORATION
                          Notes to Financial Statements


NOTE 6 - GOLD MINING VENTURES

In late 1996 and early  1997,  the Company  made  investments  in three  related
corporations  formed to pursue the extraction of gold and other precious  metals
from  ore  mined  in  the  desert  in  southeastern   California.   These  three
corporations have substantially the same stockholders,  including one officer of
the Company.  Funds invested in one of the companies by other  stockholders were
used to purchase land and equipment at a cost of $321,000.  The Company used its
common stock to pay for services performed for these ventures of $451,000 during
fiscal 1997. The Company received net cash reimbursements of $109,000, leaving a
net investment  from these ventures of $342,000,  which has been written down by
$21,000 to the net book value of the  ventures  of  $321,000,  which  equals the
gross asset value.

Components of this amount are as follows:
<TABLE>
<S>                                                                                    <C>     

                           Intangible mining claims                                $  59
                           Land and buildings                                         21
                           Equipment                                                 241
                                                                                   -----
                                                                                    $321
</TABLE>


NOTE 7 - CLAIMS SUBJECT TO COMPROMISE - SUBSIDIARY BANKRUPTCY

Papone's Casino was closed on September 30, 1996 and has not reopened because of
a dispute  between the Company and the Papone's 24.5% minority  shareholder.  In
August,  1997, Papone's filed a Plan of Reorganization in which it proposes that
the Company acquire 100% ownership and eventually repay all creditors, including
its largest secured creditor who would have to accept a disputed  receivable due
from the 24.5%  owner.  This  receivable  is carried on the  Company's  books at
$253,000, but is valued at $1,753,000. The Plan proposes this receivable will be
tendered as partial or full  consideration for the disputed  outstanding  amount
owed,  currently recorded at $1,196,000.  The Company,  currently a 75.5% owner,
has proposed a cash  contribution  of $50,000 in exchange for 100%  ownership of
the casino when it emerges from bankruptcy protection.

This bankruptcy followed the failed  restructuring of the repayment terms of the
principal secured creditor of Papone's,  who is currently owed $1,196,000.  This
amount was  restructured  in the fall of 1996,  with an ownership  interest in a
California card club being  transferred at an agreed-upon value of $590,000 as a
reduction in accrued interest due this creditor.  Because this asset was carried
on the  Company's  books at no value,  the Company  recorded a gain of $590,000,
representing the difference between the carried

                                      F-11


<PAGE>


                             LS CAPITAL CORPORATION
                          Notes to Financial Statements


NOTE 7 - CLAIMS SUBJECT TO COMPROMISE - SUBSIDIARY BANKRUPTCY
                  (continued)

amount and the fair  market  value on the date of  transfer.  Shortly  after the
transfer,  the card  club  filed for  bankruptcy  protection,  and the  Papone's
creditor  has sought to reverse the  transfer.  Settlement  of this debt and all
related  matters are within the  jurisdiction  of the Denver federal  bankruptcy
court.

Total  liabilities  whose  payment  terms are  expected  to be  affected  by the
bankruptcy action are grouped under the balance sheet caption "claims subject to
compromise" for both years presented.  All such liabilities are being carried at
their face values. Related costs of the bankruptcy include legal fees of $10,300
in fiscal 1997, and are expensed as incurred.

The Company  expects to resume  operations of Papone's  Casino in May, 1998. The
financial  statements  do  not  include  any  adjustments  from  the  bankruptcy
reorganization, as none have yet occurred.


NOTE 8 - STOCK FOR DEBT SWAP WITH RELATED PARTIES

On October 1, 1996,  under a plan approved by stockholders in the annual meeting
held June 17, 1996, the Company  authorized the issuance of 6,069,000  shares to
the  Company's  three  officers and  directors to satisfy  $289,000 in debts and
accrued salaries owed.


NOTE 9 - NOTES AND ADVANCES PAYABLE TO RELATED PARTIES

These consist of the following:
<TABLE>
<CAPTION>
                                                                                  1997              1996
                                                                                -------           ------
<S>                                                                                <C>               <C>
         Notes payable to officers and directors                                                  $   200
         Accrued officer salaries                                              $     36               137
         Advance payable to 24.5% owner of Papone's                                                    60
                                                                            -----------         ---------
                                                                               $     36           $   397
                                                                               ========           =======
</TABLE>


NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

These consist of the following: 
<TABLE>
<CAPTION>
                                                                                   1997             1996
                                                                                -------           ------
<S>                                                                                 <C>              <C>   
         Accounts payable                                                       $   674            $1,466
         Accrued expenses                                                            57               340
                                                                              ---------          --------
                                                                                $   731            $1,806
                                                                                =======            ======
</TABLE>

                                      F-12


<PAGE>


                             LS CAPITAL CORPORATION
                          Notes to Financial Statements


NOTE 11 - INCOME TAXES

Net operating losses of approximately $350,000 are available as of June 30, 1997
to offset  future  taxable  income,  but about  $260,000 is  restricted to about
$15,000 per year, due to the Internal Revenue Code Section 382 limitation, which
occurred in October, 1996 (see Note 8).


NOTE 12  - REDEEMABLE PREFERRED STOCK

In June,  1994 the  Company  issued  220  shares  of Series  1994-1  Convertible
Preferred Stock for $1,970,000.  During the 1995 and 1996 fiscal years,  140 and
26 shares,  respectively,  were  converted into 67,000 and 18,000 common shares,
valued at $200,000 and  $1,400,000.  On June 30, 1997,  the 54 remaining  shares
were  converted  into 600,000  common shares  valued at $504,800,  plus $100,000
payable in 3  installments  due on or before  December  31,  1997.  The  $25,000
payment due by July 15, 1997 was timely made.


NOTE 13 - SALE OF TWO INACTIVE SUBSIDIARIES

In June, 1997, the Company transferred ownership of Lone Star Casino Corporation
of Nevada  and  Pacific  American  Casinos,  Inc.  (the  Tinian  casino)  to two
individuals for nominal  consideration.  There has been no operating activity in
either entity since 1995. Lone Star Casino  Corporation of Nevada had previously
filed a federal  bankruptcy  Chapter 7  liquidation  petition  in August,  1996.
Management  considers  the chance of eventual  liability  on pending  litigation
related  to the  prior  activities  of these two  entities  as  remote.  Related
continuing legal costs are considered insignificant. Related debts of $1,013,000
are shown as a gain on the sale.


NOTE 14 - SALE OF ASSETS OF CLUTCH GAMES, INC.

In June,  1996,  the Company  entered  into a license  agreement  to produce and
market  various  sports board games.  In November,  1996, the Company sold their
entire  interest  in these  games for a net gain of  $203,000,  after  incurring
$68,000 in development and marketing expenses.






                                      F-13


<PAGE>


                             LS CAPITAL CORPORATION
                          Notes to Financial Statements


NOTE 15 - STOCK OPTIONS AND WARRANTS

Beginning  with the  current  year,  the  Company  has  adopted  the  disclosure
requirements  of FASB  Statement 123,  Accounting  for Stock Based  Compensation
Plans.  The Company's  1993 and 1995 Stock Option Plans provide for the grant of
incentive stock options  qualifying  under the Internal Revenue Code to officers
and other  employees  of the  Company,  the grant of  non-qualified  options  to
directors,  employees and  consultants  of the Company,  and  opportunities  for
directors,  officers, employees and consultants of the Company to make purchases
of stock in the Company.  In addition,  the Company  issues stock  warrants from
time to time to employees, consultants, stockholders and creditors as additional
financial  incentives.  The plans and warrants  issuance are  administered  by a
committee  of the  Board of  Directors  of the  Company,  who  have  substantial
discretion to determine which persons, amounts, time, price, exercise terms, and
restrictions,  if any.  Both options and warrants  carry  certain  anti-dilution
provisions  concerning stock dividends or splits,  mergers and  reorganizations.
Options differ from warrants in that most of the options awards have  employment
termination restrictions, vesting periods and are non-transferable. In contrast,
all warrants issued are immediately exercisable and are assignable.

The Company uses the intrinsic value method of calculating compensation expense,
as described and  recommended  by APB Opinion 25, and allowed by FASB  Statement
123.  During  the years  ended June 30,  1997,  1996 and 1995,  no  compensation
expense was recognized  for the issuance of these options and warrants,  because
no option prices were below market prices at the date of grant. In addition,  no
options or warrants have been  exercised  during these  periods.  As of June 30,
1997,   almost  all  outstanding   warrants  are  payments  for  consulting  and
professional services. Summary information on each are as follows:
<TABLE>
<CAPTION>
                                                                      Weighted                           Weighted
                                                                      average                            average
                                                      Options        Share Price        Warrants        Share Price
<S>                                                    <C>                <C>  
Year ended June 30, 1995:
   Outstanding at June 30, 1994                        52,780           $ 99.99           41,200           $ 98.07
   Granted                                             48,160             15.63           76,800             74.50
   Expired                                          (  21,220)           100.00        (  12,000)            78.13
                                                   ----------           -------       ----------          --------
   Outstanding at June 30, 1995                        79,720             58.22          106,000             83.25
Year ended June 30, 1996:
   Forfeited                                        (  45,320)            45.44
                                                   ----------          --------
   Outstanding at June 30, 1996                        34,400             75.06          106,000             83.25
Year ended June 30, 1997:
   Granted                                            800,000               .63          376,000              1.73
   Expired                                                                            (    9,200)           135.87
   Forfeited                                        (  16,200)            25.00
                                                   ----------          --------
   Outstanding at June 30, 1997                       818,200          $   1.63          472,800           $ 16.15
                                                    =========          ========        =========           =======
</TABLE>
                                      F-14


<PAGE>


                                              LS CAPITAL CORPORATION
                                           Notes to Financial Statements


NOTE 15 - STOCK OPTIONS AND WARRANTS (continued)

Additional disclosures as of June 30, 1997 are:
<TABLE>
<CAPTION>
                                                                       Options          Options         Options at
                                                                       at $0.63         at $2.03        $15 - $122
<S>                                                                       <C>             <C>              <C> 
     Total options
         Number of shares                                               800,000            2,000            16,200
         Weighted average exercise price                                  $0.63            $2.03           $100.26
         Weighted average remaining life                                4 years          8 years           6 years
     Currently exercisable options
         Number of shares                                               160,000              600             7,360
         Weighted average exercise price                                  $0.63            $2.03            $99.69

                                                                     Warrants at      Warrants at       Warrants at
                                                                     $.40 - $.95       $2 - $5           $28 - $150
     Total warrants
         Number of shares                                               146,000          230,000            96,800
         Weighted average exercise price                                  $0.68            $2.39            $78.25
         Weighted average remaining life                                3 years          3 years           2 years
     Currently exercisable warrants
         Number of shares                                               146,000          230,000            96,800
         Weighted average exercise price                                  $0.68            $2.39            $78.25
</TABLE>

The above tables do not include the stock sale  subscriptions  described in Note
3.

Had compensation cost for the Company's two stock-based  compensation plans been
determined  based on the fair value at the grant  dates for awards  under  those
plans consistent with the Black-Scholes  option-pricing  model suggested by FASB
Statement  123,  the  Company's  net losses  and loss per share  would have been
increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                                  1997             1996
                                                               ----------       ---------
<S>                                                             <C>              <C>       
     Net loss              - As reported                     $(       72)       $(  4,727)
                           - Pro forma                         (     343)        (  5,365)
     Net loss per share    - As reported                          $(0.01)          $(4.00)
                           - Pro forma                             (0.05)           (4.54)
</TABLE>

Variables  used  in the  Black-Scholes  option-pricing  model  include  (1) a 6%
risk-free  interest rate, (2) expected option life is the actual  remaining life
of the  options  as of each year end,  (3)  expected  volatility  is the  actual
historical stock price fluctuation volatility and (4) zero expected dividends.



                                      F-15


<PAGE>


                             LS CAPITAL CORPORATION
                          Notes to Financial Statements

NOTE 16 - SITE DEVELOPMENT COSTS

From inception,  the Company has acquired  interests in or control over a number
of  opportunities in the gaming industry.  Due to lack of funding,  zoning,  and
other problems,  investments in the following properties failed, and the related
purchased  properties were sold and options to acquire,  if any, have expired. A
summary of related sale losses and costs written off are as follows:
<TABLE>
<CAPTION>

                                                                1997              1996              1995
                                                             ---------          -------           ------
<S>                                                              <C>               <C> 
         Las Vegas sites:
            Chaparral Hotel                                                                      $    519
            Former Granada Inn and
               Malibu restaurant                                                                      288
         Mississippi sites:
            Biloxi                                                                                  2,618
            Pine Hills and Bay St. Louis                                                              485
         Tinian casino                                         $   656
         Other                                                                      273
                                                           -----------         --------            ------    
                                                             $       0          $   929            $4,259
                                                             =========          =======            ======
</TABLE>


NOTE 17 - COMMITMENTS AND CONTINGENCIES

As a result  of the  casino  development  efforts  described  above,  and  other
business  investment  transactions,  the Company and / or its subsidiaries  have
been sued by a number of  entities  during  the past few  years.  Several of the
lawsuits  have been settled  without  significant  cost to the Company in fiscal
1996 and 1997. The single lawsuit which management  believes may have a possible
adverse  effect on the Company and has not been  settled as of September 8, 1997
is a lawsuit filed by Mississippi Ventures II pertaining to the Mississippi Pine
Hills  site,  and  seeking  the return of a $100,000  deposit.  The  Company has
accrued  no  loss  on  this  lawsuit.  Management  believes  the  likelihood  of
significant losses on any other lawsuits is remote, and that any possible future
losses in aggregate are not significant.


NOTE 18 - FOREIGN OPERATIONS

Revenue  from the  Company's  Tinian  casino  located in the  Marianas  Islands,
totaled   approximately   $784,000   and  $508,000  in  fiscal  1996  and  1995,
respectively.  Net operating losses from this operation  totaled  $2,098,000 and
$1,316,000  in  fiscal  1996 and  1995,  respectively.  The  casino  was  closed
permanently in December,  1995. The Company recognized an additional writeoff in
1996 of $656,000 and a gain on disposal in 1997 of $732,000.
                                      F-16


<PAGE>




                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange  
Act of 1934,  LS Capital  Corporation  has duly caused this annual  report  on  
Form  10-K  to be  signed  on its  behalf  by the undersigned, thereunto duly 
authorized.

Dated:   October 10, 1997                   LS Capital Corporation
                                                 (Registrant)

                                            By:   /s/ Paul J. Montle
                                            Paul J. Montle,
                                            Chief Executive Officer
                                            (Principal Executive Officer,
                                            Principal Financial Officer and
                                            Principal Accounting Officer)

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

       Name                    Title                   Date

/s/ Paul J. Montle          Chairman of          October 10, 1997
---------------------       the Board 
Paul J. Montle                 



/s/ Roger W. Cope           Director             October 10, 1997
-------------------
Roger W. Cope



/s/ C. Thomas Cutter        Director             October 10, 1997
--------------------
C. Thomas Cutter



/s/ Kent E. Lovelace, Jr.   Director              October 10, 1997
-------------------------
Kent E. Lovelace, Jr.



                                       43

<PAGE>

                                                                 SCHEDULE II

LS CAPITAL CORPORATION AND SUBSIDIARIES
Years ended June 30, 1997, 1996 and 1995

Valuation and Qualifying Accounts

<TABLE>
<CAPTION>

                                                              Additions
                                            Balance at        charged to                         Balance
                                            beginning         costs and                          at end of
                                            of period         expenses          Deductions        period
<S>                                           <C>               <C>              <C>               <C>    

1997 Fiscal Year

Note receivable from 24.5%
   minority shareholder of
   Papone's                                $800,000                                             $800,000
                                           ========                                             ========  
1996 Fiscal Year

Note receivable from 24.5%
   minority shareholder of
   Papone's                                $800,000                                              $800,000
Note receivable from landlord
   of proposed site                         750,000                              $750,000 (1)           0
                                          ---------                              --------        --------
                                         $1,550,000                              $750,000        $800,000
                                         ==========                              ========        ========   
1995 Fiscal Year

Note receivable from 24.5%
   minority shareholder of
   Papone's                                $800,000                                            $  800,000
Note receivable from landlord
   of proposed site                              0           $750,000                             750,000
                                        -----------          --------                          ----------    
                                        $   800,000          $750,000                          $1,550,000
                                        ===========          ========                          ==========
</TABLE>

(1) Amounts were written off during year
<PAGE>
                                                     EXHIBITS INDEX
<TABLE>
<CAPTION>

           Exhibit
           Number    Description
<S>          <C>          <C>

           4.01           Certificate  of  Incorporation  of the  Company  filed
                          December 30, 1992 is incorporated  herein by reference
                          from the Company's (SEC File No. 33-57998-D) Form SB-2
                          Registration  Statement  filed  April 29,  1993,  Item
                          27(a), Exhibit 3.1.
           4.02           Bylaws  of the  Company  are  incorporated  herein  by
                          reference from the Company's (SEC File No. 33-57998-D)
                          Form SB-2 Registration Statement filed April 29, 1993,
                          Item 27(a), Exhibit 3.2.
           4.03           Certificate    of   Amendment   of    Certificate   of
                          Incorporation of the Company is incorporated herein by
                          reference from the Company's (SEC File No. 33-57998-D)
                          Form SB-2 Registration Statement filed April 29, 1993,
                          Item 27(a), Exhibit 3.5.
           4.04           Amendment  to  Certificate  of   Incorporation   filed
                          February 2, 1995 is  incorporated  herein by reference
                          from the Company's  (SEC File No.  0-21566)  Report on
                          Form 10-Q for the period ended December 31, 1994, Item
                          6, Exhibit 3.01
           4.05           Certificate of  Designation,  Preferences,  Rights and
                          Limitations of 12% Senior Convertible  Preferred Stock
                          of the Company filed January 25, 1993, is incorporated
                          herein by reference  from the Company's  (SEC File No.
                          33-57998-D)  Form SB-2  Registration  Statement  filed
                          April 29, Item 27(a), Exhibit 4.1.
           4.06           Certificate    of   Amendment   of    Certificate   of
                          Incorporation  of the  Company  filed June 26, 1996 is
                          incorporated  herein by reference  from the  Company's
                          (SEC File No.  0-21566) Annual Report on Form 10-K for
                          the year ended June 30,  1996,  Part IV,  Item  14(c),
                          Exhibit 4.06.
           10.01          Assignment  Agreement  dated as of  December  31, 1992
                          between  Papone's Palace  Acquisition  Corporation and
                          the Company is  incorporated  herein by reference from
                          the  Company's  (SEC  File No.  33-57998-D)  Form SB-2
                          Registration  Statement  filed  April 29,  1993,  Item
                          27(a), Exhibit 10.1.
           10.02          Purchase  Agreement dated effective  November 30, 1992
                          between  American Pacific  Management  Corporation and
                          George B. Hill and  Dolores J. Hill,  Trustees  of the
                          Hill Family Trust and Papone's  Palace Ltd.  Liability
                          Company is  incorporated  herein by reference from the
                          Company's   (SEC  File  No.   33-57998-D)   Form  SB-2
                          Registration  Statement  filed  April 29,  1993,  Item
                          27(a), Exhibit 10.4.
           10.03          Letter  Agreement  dated  November  30,  1992  between
                          American  Pacific  Management  Corporation and Randall
                          Gose is  incorporated  herein  by  reference  from the
                          Company's   (SEC  File  No.   33-57998-D)   Form  SB-2
                          Registration  Statement  filed  April 29,  1993,  Item
                          27(a), Exhibit 10.5.
           10.04       Lease and Option dated November 30, 1992 between George 
                          B. Hill and Dolores J. Hill and American Pacific 
                          Management Corporation is incorporated



<PAGE>



                          herein by reference  from the Company's  (SEC File No.
                          33-57998-D)  Form SB-2  Registration  Statement  filed
                          April 29, 1993, Item 27(a), Exhibit 10.6.
           10.05          The Company's  1993 Stock Option Plan is  incorporated
                          herein by reference  from the Company's  (SEC File No.
                          33-57998-D ) Form SB-2  Registration  Statement  filed
                          April 29, 1993, Item 27(a), Exhibit 10.8.
           10.06          Amendment  to the  Company  1993 Stock  Option Plan is
                          incorporated  herein by reference  from the  Company's
                          (SEC  File No.  0-21566)  Report  on Form 10-Q for the
                          period ended September 30, 1994, Item 6, Exhibit 10.8.
           10.07          Operating Agreement of Papone's Palace is incorporated
                          herein by reference  from the Company's  (SEC File No.
                          33-57998-D ) Form SB-2  Registration  Statement  filed
                          April 29, 1993, Item 27(a), Exhibit 10.9.
           10.08       Settlement Agreement dated March 15, 1993 by and among
                          the Hill Family Trust, George B. Hill and Dolores J.
                          Hill, Co-Trustees, George B. Hill, individually, 
                          Timothy B. Hill, individually, American Pacific 
                          Management Corporation, Papone's Palace Acquisition 
                          Corporation, Viral Testing Systems Corporation, the 
                          Company, Paul J. Montle and Paul V. Culotta is 
                          incorporated herein by reference from the Company's 
                          (SEC File No. 33-57998-D) Form SB-2 Registration 
                          Statement filed April 29, 1993, Item 27(a), Exhibit 
                          10.10.
           10.09          Assignment  Agreement  dated as of  December  31, 1992
                          between  Papone's Palace  Acquisition  Corporation and
                          the Company is  incorporated  herein by reference from
                          the  Company's  (SEC File No.  33-57998-D  ) Form SB-2
                          Registration  Statement  filed  April 29,  1993,  Item
                          27(a), Exhibit 10.12.
           10.10          Letter  from  the  State  of  Colorado  regarding  the
                          transfer of ownership to Papone's  Palace  Acquisition
                          Corporation is  incorporated  herein by reference from
                          the Company's (SEC File No. 0-21566) Current Report on
                          Form 8-K dated June 10, 1993, Item 7, Exhibit (a).
           10.11          Promissory  Note in the  principal  amount of $500,000
                          dated as of June 10,  1993 in favor of Randal  Gose is
                          incorporated  herein by reference  from the  Company's
                          (SEC File No.  0-21566) Annual Report on Form 10-K for
                          the year ended June 30,  1993,  Part IV,  Item  14(c),
                          Exhibit 10.16.
           10.12          Promissory  Note  in  the  principal  amount  $500,000
                          executed by First Response  Medical,  Inc. in favor of
                          the Company is  incorporated  herein by reference from
                          the Company's (SEC File No. 0-21566) Current Report on
                          Form 8-K dated June 3, 1993, Item 7, Exhibit 10.1.
           10.13          Pledge  Agreement  made and entered  into as of May 4,
                          1993  between  First  Response  Medical,  Inc. and the
                          Company is  incorporated  herein by reference from the
                          Company's  (SEC File No.  0-21566)  Current  Report on
                          Form 8-K dated June 3, 1993, Item 7, Exhibit 10.2.
           10.14          Bailment and Agency  Agreement  entered into as of May
                          4, 1993 between  First  Response  Medical,  Inc.,  the
                          Company,  Pullman  &  Comley  &  Allan  H.  Carlin  is
                          incorporated  herein by reference  from the  Company's
                          (SEC  File No.  0-21566)  Current  Report  on Form 8-K
                          dated June 3, 1993, Item 7, Exhibit 10.3.
           10.15       Restructuring and Amendment Agreement dated September 9,
                          1993 by and among the Hill Family Trust, George B. 
                          Hill, Trustee, American Pacific



<PAGE>



                          Management Corporation and the Company is incorporated
                          herein by reference  from the Company's  (SEC File No.
                          0-21566)  Annual  Report on Form  10-K for year  ended
                          June 30, 1993, Part IV, Item 14(c), Exhibit 10.22.
           10.16          Agreement dated November 24, 1993 by Coronet  Company,
                          Inc.  to  the  Company  is   incorporated   herein  by
                          reference  from the Company's  (SEC File No.  0-21566)
                          Annual Report on Form 10-K for the year ended June 30,
                          1994, Part IV, Item 14(c), Exhibit 10.30.
           10.17          Lease dated  October 20, 1994 between Lone Star Casino
                          Corporation of Nevada, a Nevada  corporation,  and TPM
                          Financial,  Inc. is  incorporated  herein by reference
                          from the Company's  (SEC File No.  0-21566)  Report on
                          Form 10-Q for the period  ended  September  30,  1994,
                          Item 6, Exhibit 10.34.
           10.18          Amendment Number One to Casino Lease dated February 3,
                          1995,  between  TPM  Financial,  Inc.  and  Lone  Star
                          Corporation  of  Nevada  is  incorporated   herein  by
                          reference  from the Company's  (SEC File No.  0-21566)
                          Report on Form 10-Q for the period ended  December 31,
                          1994, Item 6, Exhibit 10.01.
           10.19          Amendment  No. 2 to the Company 1993 Stock Option Plan
                          is incorporated herein by reference from the Company's
                          (SEC  File No.  0-21566)  Report  on Form 10-Q for the
                          period ended December 31, 1994, Item 6, Exhibit 10.02.
           10.20          Amendment  No. 3 to the Company 1993 Stock Option Plan
                          is incorporated herein by reference from the Company's
                          (SEC  File No.  0-21566)  Report  on Form 10-Q for the
                          period ended December 31, 1994, Item 6, Exhibit 10.03.
           10.21          Amendment Number One to Lease Agreement dated February
                          3, 1995,  between TPM  Financial,  Inc.  and Lone Star
                          Casino Corporation of Nevada is incorporated herein by
                          reference  from the Company's  (SEC File No.  0-21566)
                          Report on Form 10-Q for the period ended  December 31,
                          1994, Item 6, Exhibit 10.04.
           10.22          The Company,  Papone's Palace Acquisition  Corporation
                          and Papone's  Palace Ltd.  Liability  Company  Secured
                          Convertible  Senior  Debenture  Due  January  1,  1995
                          Debenture  No. 1 dated October 5, 1994 in the original
                          principal amount of $1,000,000 is incorporated  herein
                          by reference from the Company's (SEC File No. 0-21566)
                          Report on Form 10-Q for the period  ended  December 3,
                          1994, Item 6, Exhibit 10.05.
           10.23          The  Company's  1994 Employee  Stock  Purchase Plan is
                          incorporated  herein by reference  from the  Company's
                          (SEC  File No.  0-21566)  Report  on Form 10-Q for the
                          period ended December 3, 1994, Item 6, Exhibit 10.06.
           10.24          The   Company's    Capital    Accumulation   Plan   is
                          incorporated  herein by reference  from the  Company's
                          (SEC  File No.  0-21566)  Report  on Form 10-Q for the
                          period ended December 31, 1994, Item 6, Exhibit 10.07.
           10.25          The Company's 1994 Stock Option Plan for  Non-Employee
                          Directors is incorporated herein by reference from the
                          Company's (SEC File No.  0-21566)  Report on Form 10-Q
                          for  the  period  ended  December  31,  1994,  Item 6,
                          Exhibit 10.08.
           10.26       Amendment Number Two to Lease Agreement dated December 
                          29, 1994 between Lone Star Casino Corporation of 
                          Nevada and TPM Financial, Inc. is incorporated herein 
                          by reference from the Company's (SEC File No. 0-21566)



<PAGE>



                          Report on Form  10-Q for the  period  ended  March 31,
                          1995, Item 6, Exhibit 10.01.
           10.27          Amendment  Number One to the Company  Papone's  Palace
                          Acquisition   Corporation  and  Papone's  Palace  Ltd.
                          Liability Company Secured Convertible Senior Debenture
                          Due January 1, 1995  Debenture  No. 1 is  incorporated
                          herein by reference  from the Company's  (SEC File No.
                          0-21566)  Report  on Form  10-Q for the  period  ended
                          March 31, 1995, Item 6, Exhibit 10.02.
           10.28          Sub-Lease  Agreement  dated March 21, 1995 between the
                          Company and AirTel,  Ltd.  is  incorporated  herein by
                          reference  from the Company's  (SEC File No.  0-21566)
                          Report on Form  10-Q for the  period  ended  March 31,
                          1995, Item 6, Exhibit 10.03.
           10.29          The Company's  1996  Consultant  Compensation  Plan is
                          incorporated  herein by reference  from the  Company's
                          (SEC File No.  333-01158)  Registration  Statement  on
                          Form S-8 filed February 8, 1996, Exhibit 4.2.
           10.30          Settlement Agreement dated August 5, 1996 by and among
                          the   Company,   Les   Alexander,    Papone's   Palace
                          Acquisition  Corporation  and  Papone's  Palace  Ltd.,
                          Liability Co. is incorporated herein by reference from
                          the Company's (SEC File No.  0-21566) Annual Report on
                          Form 10-K for the year ended June 30,  1996,  Part IV,
                          Item 14(c), Exhibit 10.31.
           10.31          Absolute   Assignment  of  Membership  Interest  dated
                          August 20,  1996  executed  by the Company in favor of
                          Les Alexander is incorporated herein by reference from
                          the Company's (SEC File No.  0-21566) Annual Report on
                          Form 10-K for the year ended June 30,  1996,  Part IV,
                          Item 14(c), Exhibit 10.32.
           10.32       Agreement dated October 30, 1996 among Zeotech Industries, Inc., Ed
                          Hemsted, W.D. Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
                          Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
           10.33          The Company's  1997  Consultant  Compensation  Plan is
                          incorporated  herein by reference  from the  Company's
                          (SEC File No.  333-17373)  Registration  Statement  on
                          Form S-8 filed December 6, 1996, Exhibit 4.2.
           10.34       Warrant Purchase Agreement dated June 30, 1997 between Keith J.
                          McKenzie and the Company
           10.35       Agreement dated February 28, 1997 among Tanye Capital Group, Shoshone
                          Mining Co., and the Company.
           10.36       Services Agreement dated March 1, 1997 between Griffin Gold Group, Inc.
                          and Desert Minerals, Inc.
           10.37       Services Agreement dated March 1, 1997 between Shoshone Mining Co. and
                          Desert Minerals, Inc.
           10.38       Release and Partial Termination Agreement among W.D. Groves, Zeotech
                          Industries, Inc., Ed Hemsted, KJM Capital Corp., Keith J. McKenzie, Kent E.
                          Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
           10.39       First Amendment to Agreement dated October 30, 1996 among Zeotech
                          Industries, Inc., Ed Hemsted, W.D. Groves, KJM Capital Corp., Keith J.
                          McKenzie, Kent E. Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
           10.40       Second Amendment to Agreement dated October 30, 1996 among Zeotech
                          Industries, Inc., Ed Hemsted, W.D. Groves, KJM Capital Corp., Keith J.



<PAGE>


                          McKenzie, Kent E. Lovelace, Jr., Griffin Gold Group, Inc. and the Company.
           10.41       Letter Employment Agreement dated March 27, 1997 between Griffin Gold
                          Group, Inc. and Richard W. Lancaster
           10.42          Letter  Agreement  dated  March  27,  1997  among  the
                          Company,  Griffin Gold Group,  Inc.,  Desert Minerals,
                          Inc., Douglas Schmitt, Zeotech Industries, Inc.
                          and Ed Hemsted.
           10.43       Bankruptcy petition filed by Papone's Palace Ltd. Liability Company in the
                          United States Bankruptcy Court for the District of Colorado, No. 97-15695-
                          SBB.
           10.44       Stipulation filed in the Supreme Court of the State of New York, County of
                          New York (Index No. 127087-94, by Glenville Properties Incorporated, RMS
                          Titanic, Inc., Arnie Geller, Allan H. Carlin, William S. Gasparrini, the
                          Company, Paul J. Montle, Paul V. Culotta, and Roger W. Cope.
           10.45      Amendment to Stipulation filed in the Supreme Court of the State of New
                         York, County of New York (Index No. 127087-94, by Glenville Properties
                         Incorporated, RMS Titanic, Inc., Arnie Geller, Allan H. Carlin, William S.
                         Gasparrini, the Company, Paul J. Montle, Paul V. Culotta, and Roger W.
                         Cope.
           10.46       Settlement Agreement dated June 30, 1997 between GFL Ultra Fund, Ltd. and
                          the Company.
           10.47          Exploration  Agreement  and Option to Lease dated June
                          5, 1997 among  Charles  Jackson,  Marie  Unruh,  James
                          Hopkins,   Sr.,  Tracy  Hopkins,  Rick  Jackson,  Mara
                          Jackson, Paul Jackson, Jared Jackson, and Griffin Gold
                          Group, Inc.
           10.48          Exploration  Agreement  and Option to Lease dated June
                          13, 1997 among  Charles  Jackson,  Marie Unruh,  James
                          Hopkins,   Sr.,  Tracy  Hopkins,  Rick  Jackson,  Mara
                          Jackson,  Paul  Jackson,  Jared  Jackson,  and  Desert
                          Minerals, Inc.
           10.49          Exploration  Agreement  and Option to Lease dated June
                          10, 1997 among  Charles  Jackson,  Marie Unruh,  James
                          Hopkins,   Sr.,  Tracy  Hopkins,  Rick  Jackson,  Mara
                          Jackson,  Paul Jackson,  Jared  Jackson,  and Shoshone
                          Mining Co.
           10.50          The Company's  1998  Consultant  Compensation  Plan is
                          incorporated  herein by reference  from the  Company's
                          (SEC File No.  333-31963)  Registration  Statement  on
                          Form S-8 filed July 24, 1997, Exhibit 4.2.
           21.01       Subsidiaries of Registrant.
           23.02       Consent of KPMG Peat Marwick, LLP
           25.01       Power of Attorney (included on the signature page hereto).
           27          Financial Data Schedule
           99.1        Plan of Reorganization filed by Papone's Palace Ltd. Liability Company in the 
                         in the United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB
           99.2        Disclosure Statement filed by Papone's Palace Ltd. Liability Company in the 
                         in the United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB  
</TABLE>