============================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
Amendment No. 2

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended June 30,
1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from ________ to ________

Commission File No. 0-19128
-----------------------------

CAPITAL GAMING INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

New Jersey 22-3061189
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

Bayport One, Suite 250 08232
8025 Black Horse Pike (Zip Code)
W. Atlantic City, New Jersey
(Address of principal executive offices)

Registrant's telephone number, including area code: (609) 383-3333

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

Common Stock, no par value

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].

The aggregate market value of the Registrant's Common Stock, no par
value, held by non-affiliates, computed by reference to the average of the
closing bid and asked prices of the Common Stock as reported by the "Electronic

Bulletin Board" on September 30, 1996 was $.11.

Number of shares of Common Stock of the Registrant issued and outstanding
as of September 30, 1996 was 19,329,574

DOCUMENTS INCORPORATED BY REFERENCE
NONE
============================================

TABLE OF CONTENTS

Page

Item 6. Selected Financial Data.........................................................................2

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................................................4

Item 8. Financial Statements and Supplementary Data....................................................17

Item 10. Directors and Executive Officers of the Registrant.............................................18

Item 11. Executive Compensation.........................................................................20

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K............................................................................30

Consolidated Financial Statements...............................................................................F-1

ITEM 6. SELECTED FINANCIAL DATA(1)

Years ended June 30
-----------------------------------------------------------------------------------
Statement of Operations Data:(1)(2) 1996 1995 1994 1993 1992
[Restated]

Gross Revenues $ 7,663,059 $ 10,637,133 $ 1,723,819 $ -- $ --
Operating Expenses 15,041,112 111,907,576 16,580,327 3,003,127 --
Other Income [Expense] 3,660,421 (15,605,729) (9,311,522) 254,709 91,722
(Loss) Income from Operations (4,038,277) (116,876,172) (23,684,292) (1,652,412) 52,282
Income from Discontinued Operations(4) -- 2,310,319 1,058,460
Net Income (Loss) (4,038,277) (117,709,018) (23,784,292) 657,907(2) 1,110,742(2)
Earnings Per Share:
(Loss) Before Extraordinary Item (.21) (6.82) (1.68) (.12) --
Income (Loss) from Discontinued Operations -- -- -- .17 .12
------------- ------------- ------------- ------------- -------------
Net Income/(Loss) (.21) (6.82) (1.68) .05 .12
Weighted Average Shares Outstanding 19,329,574 17,256,591 14,135,625 13,860,099 9,020,932

June 30
-----------------------------------------------------------------------------------
Balance Sheet Data(3) 1996 1995 1994 1993 1992

Working Capital (Deficit)(4) $(117,520,919) $(143,893,036) $ 26,545,294 $ 6,009,935 $ 6,993,616
Total Assets 60,048,170 82,977,303 168,906,390 9,265,415 7,345,842
Long-Term Debt(4) -- 20,292,743 150,815,438 -- --
Total Liabilities 160,308,326 179,199,182 158,927,850 341,073 300,833
Stockholders' Equity (Deficit) $(100,260,156) $ (96,221,879) $ 9,978,540 $ 8,924,342 $ 7,045,009
Ratio of Earnings to Fixed Charges (5) (5) (5) (5) 5.35%

- -------------------------
(1) As a result of the sale of the Company's former unrelated business in
1992, and planned disposal of business segment in 1995, the
comparability and informative value of information reflected in the
foregoing selected financial data with respect to June 30, 1995, 1993
and 1992 the fiscal years then ended, may not be meaningful or
precise.
(2) Includes non-recurring income of $4,196,000, $4,048,607 and $1,645,000
at June 30, 1995, 1993 and 1992 respectively, received by the Company
in connection with discontinued operations.
(3) For fiscal year ended June 30, 1994 the balance sheet data is
reflective of $159,711,000 in proceeds from the debt and equity
offering received in January 1994.

(4) As a result of the closure of the riverboat casino in New Orleans in
June 1995, substantial write-downs of assets cost were recorded
contributing to a significant loss from the discontinued operation.
The working capital deficit at June 30, 1996 and 1995 includes the
classification of $124,020,000 and $123,377,000 respectively in Senior
Secured Notes as current and $19,000,000 in unsecured Notes as current
in 1996.
(5) Earnings are inadequate to cover fixed charges.

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

The following discussion and analysis should be read in conjunction
with the Selected Consolidated Financial Data and the Company's Consolidated
Financial Statements and the related notes thereto appearing elsewhere in this
Report.

As a result of the sale of the Company's former unrelated business and
disposal of certain gaming operations, the comparability and informative value
of year-to-year comparisons may not be meaningful or precise.

Liquidity and Capital Resources

General

The Company is experiencing serious liquidity difficulties as a result
of the failure of the New Orleans project and resultant bankruptcy of Crescent
City Capital Development Corp. ("CCCD"). From July 28, 1995 through April 29,
1996, when its Amended Plan of Reorganization was confirmed, CCCD was operating
as a debtor-in-possession. Pursuant to CCCD's Amended Plan of Reorganization,
substantially all of the assets of CCCD were sold to Casino Magic Corp. on May
13, 1996. The Company has defaulted on the Company's 11-1/2% Senior Secured
Notes ("Senior Secured Notes") and the FNBC bank note due to failure to make
required interest payments. In addition, the Company did not make the required
October 26, 1995 interest payment on the $19 million unsecured term note. The
Company's working capital position at June 30, 1996 was negative approximately
$117 million which includes the outstanding balance of the Senior Secured Notes
which are in default and classified as a current liability. Stockholders'
equity is in a deficit position of approximately $100 million as of June 30,
1996. The Company continues to operate based upon the funds received from its
wholly owned subsidiary, Capital Gaming Management, Inc., the subsidiary which
manages three Native American gaming facilities. The Company's cash flows are
dependent upon the management fees earned from three management contracts.

The Company believes it must restructure its remaining debt in order
to continue its operations and pursue new management and development
opportunities. As a result, the Company is focusing all of its efforts on (i)

restructuring the Company's remaining debt, (ii) maintaining its gaming
management contracts with Native American Tribes, (iii) developing the
Narragansett Casino, and (iv) seeking new gaming opportunities. The Company has
and continues to actively negotiate with the Senior Secured Noteholders'
Steering Committee regarding the restructuring of the Senior Secured Notes. The
Company's total liabilities as of September 30, 1996 aggregate approximately
$130 million. Although the Company believes it will successfully restructure
its debt to a level that is adequately serviceable by the cash flow of the
Company and allows the Company the ability to build sufficient cash to pursue
new development opportunities, there can be no assurances that the Company will
reach any agreement with the holders of its Senior Secured Notes or with any
other secured or unsecured creditors regarding the restructuring of the
Company's liabilities.

Planned Restructuring

creditors requires the approval of holders of two-thirds in principal amount
and more than one-half in number of those voting in such class. There is no
assurance that the required conditions of any plan of reorganization filed by
the Company will be met. If the Company does file a voluntary petition for
relief under Chapter 11, it is not possible to predict the length of time the
Company will be able to operate under the protection of Chapter 11, the outcome
of the Chapter 11 proceedings in general, or the effect of such proceedings on
the remaining business of the Company.

While the Company cannot predict the terms of its restructuring, the
Restructuring Case is most likely to take the form of an exchange of all or a
substantial portion of the Company's debt for equity. Given the secured
position of the Company's Senior Secured Noteholders and the substantial amount
by which the Company's liabilities exceeds its assets, it is likely that the
consummation of any plan of reorganization proposed with respect to the Company
will result in substantial dilution to the Company's shareholders which could
result in their retaining little, if any, equity interest in the Company. The
Company believes that any plan of reorganization consummated by the Company
will not require a restructuring of the operations of CGMI or CDGC.

Furthermore, the Company does not believe it will be necessary and does not
intend to file any reorganization proceedings for CGMI or CDGC. The Company
does not believe that the Restructuring Case will adversely affect the existing
management and development contracts of CGMI and CDGC and does not constitute a
default under any such agreements. However, there can be no assurance that the
Company's Native American casino management contracts will not be adversely
affected by the Restructuring Case. The management contract with the
Muckleshoot Indian Tribe provides that any decree or judgment of insolvency
against "Capital" (defined collectively as the Company and CGMI) is an event of
default allowing the tribe to terminate the contract. The management contracts
with the Tonto Apache Tribe and the Umatilla Tribe generally provide that the
tribe may terminate the agreement if CGMI files or consents to the filing of an
involuntary petition in bankruptcy under Chapter 7, which is not dismissed
within ninety days. The Company does not anticipate that the Restructuring Case
will constitute an event of default under any of these provisions.

Sources and Uses of Cash

During the year ended June 30, 1996 cash of approximately $10,782,000
was generated from operating activities primarily attributable to CGMI's net
income from operations of approximately $5,262,000 less an increase in
receivables of $1,330,000, plus a $3,000,000 non-recurring buy-out fee received
from Cow Creek and $5,127,000 from Riverboat Operations which were closed in
June, 1995. Significant non-cash items during the year include interest expense
accruals of approximately $16,794,000 and depreciation and amortization of
$3,013,000. These cash sources are offset by expenses of Capital Gaming
International, Inc., development costs incurred related to the Narragansett
Tribe project and the costs incurred in New Orleans. If the Company held the
liquid resources necessary to meet its interest expense obligations as they
came due, net cash used for operating activities would be negative.

Investment outlays included approximately $1,069,000 for Native
American gaming facility construction costs advanced in July 1995,
approximately $960,000 for pre-petition and court approved debtor-in-possession
advances to the River City Joint Venture and approximately $233,000 for final
costs related to certain management agreements. These uses were funded by
approximately $12,097,000 in loan repayments received from the tribes and
approximately $4,064,000 of restricted cash remaining on hand at June 30, 1996.
Such loan repayments included early prepayment of the Muckleshoot and Cow Creek
loans in the amount of approximately $8,400,000. The Company received proceeds
of approximately $243,000 as a result of the sale of its interest in a
partnership agreement for the development of a riverboat gaming facility in an
emerging gaming jurisdiction. Additionally, approximately $49,000 of the
Company's equity investment in another partnership agreement was returned to
the Company. Total net cash from investing activities was approximately
$14,307,000 and was substantially used to fund payments to the Trustee for the
Senior Secured Noteholders.

Net financing activities required $24,175,000, primarily for
$22,489,000 in funds disbursed to the Trustee for the Senior Secured
Noteholders net of approximately $4,904,000 provided to CCCD for on-going
costs. (See Footnote 6 to the Consolidated Financial Statements). Additionally,
principal repayments on CGMI's

equipment notes payable required approximately $1,686,000. In December 1995 and
January 1996, CCCD utilized a provision in the sale agreement with Mirage to
borrow $2,000,000 in DIP financing and also borrowed $495,000 in March 1996
from Casino Magic pursuant to the DIP Financing Agreement with that purchaser.
Collectively, these funds were used to pay approximately $1,300,000 to the
Trustee for the Senior Secured Noteholders and approximately $1,195,000 was
used for expenses of CCCD in New Orleans.

The Company's source of internal funds for the next twelve months is
expected to be derived only from excess cash generated by CGMI's operations and
Native American loan repayments. In the event conditions arise, for whatever
reasons, that cause a reduction or elimination in such sources of funds, the
Company may not be able to continue operations.

Sale of Assets of Crescent City Capital Development Corp.

Following the voluntary closure of the New Orleans River City Casino
and after the evaluation and negotiation of potential transactions, the Company
entered into an agreement to sell to Mirage Resorts, Inc. ("Mirage"), all of
the capital stock of CCCD and certain related assets pursuant to a plan of
reorganization of CCCD. The purchase price to be paid by Mirage was $55 million
plus the assumption of up to $6.5 million of certain equipment financing. The
sale to Mirage was contingent upon certain waivers and conditions being
achieved on or before January 24, 1996 including, but not limited to, receiving
all requisite regulatory approvals to transfer the operator's license. On
January 24, 1996, Mirage announced that conditions to the closing of the
purchase were not satisfied by the contractual deadline and terminated the MRI
Agreement. Although the Louisiana State Police determined on January 23, 1996
that Mirage was suitable to hold an operator's license, the Louisiana Riverboat
Gaming Commission deferred action on the matter indicating that it needed more
time to rule on the proposed change in berth and transfer of the license from
Orleans Parish to Bossier Parish, Louisiana. As a consequence of the
termination of the MRI Agreement, management believed that it was in the best
interests of the Company, its Senior Secured Noteholders and shareholders, to
immediately pursue other alternatives for the sale of CCCD's assets.

To that end, management was able to successfully enter into a new sale
agreement (the "CMC Agreement") with a wholly-owned subsidiary of Casino Magic
Corp. On February 21, 1996, the Company entered into a stock purchase agreement
with Casino Magic Corp., two of its wholly-owned subsidiaries, and CCCD to
transfer the ownership of CCCD and substantially all of its assets to a
wholly-owned subsidiary of Casino Magic Corp. An Amended Plan of Reorganization
(the "Amended Plan of Reorganization") predicated upon the CMC Agreement was
filed by CCCD. The Amended Plan of Reorganization was confirmed by the Court
and an order of confirmation was entered on April 29, 1996. On May 13, 1996,
the Company completed the sale of CCCD to a wholly-owned subsidiary of Casino
Magic Corp. for an aggregate consideration of $50 million in cash and
Purchaser's Notes and the assumption of up to $6.5 million in certain equipment
liabilities. The purchase price was paid partially in cash ($15 million) and

partially in CMC's wholly-owned subsidiary's 11-1/2% Senior Secured Notes due
1999 ("Purchaser's Notes"). Of the total purchase price, $35 million in
aggregate consideration consisting of $7 million in cash and $28 million in
Purchaser's Notes was distributed to the Indenture Trustee for the Company's
11-1/2% Senior Secured Notes due 2001. On July 29, 1996 the Indenture Trustee
for the Company's 11-1/2% Senior Secured Noteholders distributed $49,986,000 to
the Senior Secured Noteholders on account of principal and accrued interest
(the "Noteholder Distribution"). The Noteholder Distribution included the $28
million in Purchaser's Notes, as well as cash from the sale of CCCD to CMC,
proceeds from the early payment of the development loan to the Muckleshoot
Tribe, proceeds from the buyout of the Cow Creek contract $3.2 million and
other sources. Subsequently, in August 1996, the $28 million in Purchaser's
Notes was redeemed by CMC at 100% of the principal amount plus accrued interest
in accordance with the terms of the CMC indenture. The Amended Plan of
Reorganization also provided for the distribution to CCCD's creditors of the
proceeds of all of CCCD's remaining assets, those not sold to Casino Magic
Corp., including, without limitation, any and all causes of action arising in
favor of CCCD as a consequence of the termination of the MRI Agreement.

Defaults on Indebtedness

Senior Secured Notes. As described above, the Company is in default
under the Indenture as a result of the CCCD Restructuring Case. The Company
also failed to make interest payments on its Senior Secured Notes of $7,302,500
each on August 1, 1995, February 1, 1996 and August 1, 1996, and a $1,350,000
consent fee payment which was due to the holders of the Senior Secured Notes on
August 1, 1995. Such consent fee was previously incurred to allow the
relocation of the Company's New Orleans River City Casino. The Company's
failure to make the August 1, 1995 interest and consent payments and the
February 1, 1996 and August 1, 1996 interest payment are also Events of Default
under the Indenture.

On June 21, 1995, the New Orleans 2000 Partnership, the mortgagee of
real property owned by River City, provided notice of various defaults under
its first mortgage to CCCD, River City Joint Venture and Grand Palais. An event
of default under this mortgage constitutes an Event of Default under the
Indenture.

management agreements between CGMI and the Native American Tribes. Furthermore,
the security agreements entered into by the Company provide remedies to the
holders of Senior Secured Notes including a requirement to transfer any
proceeds received in respect of any dispositions of Collateral from and after
the occurrence of an Event of Default as defined in the Indenture.

In the event that the holders of the Senior Secured Notes exercise all
of their available remedies under the Indenture and related agreements, the
Company and its subsidiaries will not be able to continue their operations.
However, the Company does not believe the holders of the Senior Secured Notes
will exercise their remedies where the exercise of such remedies would prevent
CGMI from continuing its operations as manager of several existing Native
American gaming facilities or CDGC from continuing its development of the
Narragansett Casino project.

Bank Line of Credit. On March 28, 1995, CCCD entered into a loan
agreement with First National Bank of Commerce ("FNBC") which was guaranteed by
the Company. Pursuant to the terms of this agreement, CCCD received a $2
million working capital Line of Credit from FNBC for a period of ninety (90)
days. In April 1995, this credit facility was utilized to provide CCCD with $2
million of working capital. Borrowings against this facility were due June 27,
1995. CCCD was not able to repay the obligation thereby causing a default under
the agreement. In addition, the Line of Credit contains cross-default
provisions with the Indenture. FNBC has filed suit against Capital Gaming
International, Inc. as a guarantor of CCCD's obligation and there is a chance
that its suit may succeed. Any guarantor liability, however, may be partially
offset by amounts recovered by FNBC on this obligation in connection with the
CCCD Reorganization Case. See "Business-Legal Proceedings."

Term Note Payable. In connection with the buy-out of the profit
interest of Republic Corporate Services, Inc. ("Republic") in CCCD, the Company
executed an unsecured promissory note payable to Republic for $19,000,000. The
note bears interest at 11.5% per annum and requires semi-annual interest
payments in April and October until its maturity on April 26, 2002 when all
principal becomes due. In October 1994 and April 1995, the Company made each of
the required interest payments of this term note totalling $2,185,000. As a
result of the cessation of the Company's New Orleans operations on June 9,
1995, and the resultant Chapter 11 petition filed by CCCD, the Company did not
make the required interest payments under the note. As a result, the Company is
in default under the note agreement. See "Business-Legal Proceedings."

Capital Requirements

Capital Gaming International, Inc. Upon the cessation of gaming
operations at the New Orleans River City Casino, the Company implemented a
business strategy of not only reducing operating expenses at the Crescent City
Corp. level but also reducing operating expenses at the Company as well as at
the other operating subsidiaries. In connection therewith, in the fiscal year
ended June 30, 1996, the Company and its subsidiaries (other than Crescent City

Corp.) reduced non-Crescent City Corp. selling general and administrative
expenses by $9.5 million per year. Additionally, the Company and its
subsidiaries have downsized its employees from 56 at fiscal year end June 30,
1995 to 13 employees at September 30, 1996. The capital requirements of the
parent company through June 30, 1997 will approximate $3.2 million not
including estimated attorney and restructuring fees surrounding the anticipated
restructuring.

Capital Gaming Management, Inc. CGMI will continue to operate with the
Muckleshoot, Tonto Apache and Umatilla management agreements. Absent new
development or consideration of the Rhode Island development project, three
contracts will provide the Company with its only source of revenue for the
approximately four years remaining of the contracts. Additionally, the Company
will receive loan repayments from the Tonto Apache and Umatilla Tribes. The
capital requirements of CGMI for the next twelve months will approximate $3.0
million for all overhead costs, as restructured, and equipment financing
repayments. The expected management fees and loan repayments are anticipated to
exceed the capital requirements of CGMI as well as the Company combined. Such
excess, although not assured, if realized will assist in funding capital
requirements of the Rhode Island Project.

Rhode Island Development Project. The Company's Rhode Island
subsidiary, Capital Development Gaming Corp. ("CDGC"), has a management
contract with the Narragansett Indian Tribe of Charlestown, Rhode Island that
requires CDGC to fund the development of the Class III casino facility;
however, a precise estimate of the required investment cannot be determined at
this time. The investment will be in the form of a term loan to the Tribe with
repayment to be required over no longer than the remaining duration of the
Narragansett Contract. The Tribe will own all real and personal property. The
Company will most likely seek to employ the issuance of debt instruments in
order to obtain the initial funding for the project, although it is not known
whether such financing will be obtained through public or private capital
markets. There can be no assurance that such financing will be available or if
available, that the terms thereof will be acceptable to the Company. The
interest in the Narragansett Contract is held through a wholly-owned subsidiary
which is not a guarantor of the Senior Secured Notes.

In order to fund the capital requirements for the project, it is
anticipated that the Company will require significant additional capital.
Depending on the content of a binding gaming compact with the State of Rhode
Island, which the Tribe continues to seek, the potential inability of the
Narragansett casino to offer a full scope of gaming could create a competitive
disadvantage. Such a disadvantage, if it materializes, may negatively impact
the Company's ability to finance the project or to finance the project on terms
acceptable to the Company. There can be no assurance that such financing will
be available, or if available that the terms thereof will be acceptable to the
Company. Given the development phase of the project and the fact that the
Tribe's petition to the Secretary of the Interior for procedures to obtain a
binding compact is pending, no financing commitments for this project have been
obtained as of the date of this report. Once financing is obtained, management
intends to pursue the construction of the casino on an expedited basis. No
assurances can be given, however, that construction delays will not prevent the
Narragansett casino from being established at the earliest possible time.

The estimated timing of capital requirements cannot be estimated at
this time due to the pending legal issues and needed compact as well as
evaluation of the recently completed environmental work. Before construction
commences, the requisite financing will need to be secured.

RESULTS OF OPERATIONS

The following discussion of the results of operations includes Capital
Gaming International, Inc. and its wholly owned subsidiaries, Crescent City
Capital Development Corp., ("CCCD"), and Capital Gaming Management Inc.
("CGMI"). The results of operations of CGMI are included in the accompanying
financial statements from October 1, 1993 and the results of operations of CCCD
are included until May 13, 1996, the date on which all of the shares of stock
of CCCD were sold to Casino Magic Corporation ("CMC"). The Company's other
active subsidiary, Capital Development Gaming Corp. ("CDGC") is continuing to
fund expenses of the Rhode Island Project. The results of operations of CCCD
for the years ended June 30, 1995 and June 30, 1996 include its 50% interest in
losses of River City Joint Venture ("RCJV"), a general partnership whose other
equal partner was Grand Palais Riverboat, Inc. (a wholly owned subsidiary of
Hemmeter Enterprises, Inc.).

Fiscal 1996 Compared to Fiscal 1995

Consolidated

The year ended June 30, 1996 resulted in a net loss from operations of
$4,038,000, ($.21 per share). This compares with losses from the same period
ended June 30, 1995 of $116,876,000 and $833,000 ($6.77 and $.05 per share),
representing results from operations and extraordinary items respectively. The
losses from operations for the year ended June 30, 1996 are substantially
attributable to the interest expense related to the Company's secured and
unsecured debt and to operations of its since sold Riverboat subsidiary.

The net decrease of $112,838,000 in the loss from operations is
attributable to (i) a decrease in losses of approximately $101,000,000 due the
closing and sale of the Company's Riverboat Gaming Subsidiary, (ii) a decrease
in total costs of $9,342,000 due to the Company's downsizing and significant
cost reduction efforts and reduction in general and administrative costs and
development expenses, and (iii) increased management fees at CGMI of $1,222,000
plus a fee of $3,000,000 related to the buy-out of the Cow Creek management
contract, a gain from the sale of an investment of $221,000 offset by reduced
interest income of $660,000 and increased interest expense of $836,000 and
income taxes of $321,000. The year ended June 30, 1995 reflects essentially a
period of accelerated activities in preparation for opening of the New Orleans
riverboat and several Native American gaming facilities under management. The
year ended June 30, 1996 conversely reflects the winding down of New Orleans
operations and scaled back levels due to the cessation of operations and

restructuring and sale of CCCD. Management fees for the comparative year
increased $1,222,000. Revenues of the year ended June 30, 1995 include
approximately $3,699,000 in fees earned from the Cow Creek contract, comprising
57.4% of total revenues for that period, the other revenues were primarily
derived from Class II facilities and approximately $445,000 from one temporary
Class III facility. The fees from Cow Creek in the year ended June 30, 1996
amounted to $618,000 and represented only two months of operations before the
buy-out. During this period, CGMI managed three other Class III facilities for
all twelve months which produced management fees of $7,045,000 for the year
ended June 30, 1996.

The losses attributable to Riverboat operations for the year ended
June 30, 1996 of $4,903,000 include various carrying costs of $1,240,000,
bankruptcy related attorney fees of $2,192,000 and expenses of the joint venture
of $1,262,000. These items were $14,050,000 lower than the loss from the year
ended June 30, 1995 of $18,954,000 which was represented by various pre-opening
costs in preparation of the opening of the riverboat. Additionally, interest
expense of $210,000 was incurred related to DIP financings.

Finally, the gain on the sale of the CCCD subsidiary included in
operations was $17,542,000 for the year ended June 30, 1996 compared to a
writedown of assets of $69,277,000 for the year ended June 30,1995.

Interest income decreased $660,000 to $1,959,000 from the year ended
June 30, 1996 due to large amounts of interest earning funds still on hand at
June 30, 1995 for construction costs. Total interest expense

increased from the year ended June 30, 1995 due to $1,474,000 in interest
capitalized during that period offset by interest saved subsequent to the
extinguishment of $8,000,000 in Senior Secured Notes on March 31, 1995.
Additionally, interest expense on equipment financings at CGMI was not
predominantly present at June 30, 1996.

Capital Gaming Management, Inc. (CGMI)

On March 10, 1995, the Umatilla Tribe opened the 40,000 square foot
Wildhorse Gaming Resort in Pendleton, Oregon. This facility, under management
by the Company offers 300 video slot machines, keno, non-banking table games,
off-track betting (OTB) and high stakes bingo. The first phase of this
development opened on November 5, 1994. During the periods ending June 30, 1996
and 1995 the facility produced approximately $3,210,000 and $1,365,000
respectively in management fees for the Company. The slot win per unit, per day
was $203 during the fiscal year ending June 30, 1996. Slot win represents
approximately 85% of total revenues of this facility compared to over 90% for
the fiscal year ending 1995.

Company, as manager of the casino, collected approximately $1,961,000 and
$305,000 in management fees for the periods ending June 30, 1996 and 1995
respectively. Slot win, which comprised approximately 87% of the facility's
total receivables in 1996 and 88% in 1995, produced win per unit, per day of
$139 in 1996 and $128 in 1995.

The Muckleshoot Tribe opened the first phase of its Muckleshoot Casino
on April 28, 1995, and presently offers 47 table games, 22 poker games, keno
and OTB. The facility is located in the Seattle-Tacoma metropolitan area. The
final phase of this facility opened on September 8, 1995 with gaming space
increased to 40,000 square feet. The Company as manager of the facility
collected approximately $1,874,000 and $615,000 for the years ending June 30,
1996 and 1995 respectively. The facility produced table game win per day of
$3,200 and $3,100 for the years ending June 30, 1996 and 1995 respectively.

During the year ended June 30, 1996, the Cow Creek Management contract
was terminated in exchange for a payment of $3,000,000. The Cow Creek facility
generated an additional $618,000 in management fees during the year ended June
30, 1996.

Total management fees for the years ended June 30, 1996 and 1995 were
approximately $7,663,000 and $6,441,000 respectively. During the year ended
June 30, 1996 all fees were derived from Class III facility operations. During
the year ended June 30, 1996 there were approximately $5,986,000 in fees from
Class III facility operations and approximately $455,000 in fees from two
remaining Class II management agreements which expired before June 30, 1995.

CGMI's management fees of $7,663,000 and $6,441,000 for the years
ended June 30, 1996 and 1995 were sufficient to produce income from operations
of approximately $5,262,000 and $700,000 respectively. Interest income was also
earned from tribal loans of $1,332,000 and $844,000. The income from operations
includes a one time charge in September 1994 of approximately $1,017,000 for
the write down of assets related to a severed Class II management contract.

Salaries and wages for the fiscal year ended June 30, 1996 decreased
by approximately $950,000 based on a decrease in full time equivalent employees
of approximately 70%.

Legal and professional costs decreased by approximately $750,000 from
prior year levels primarily due to a reduction of development and preopening
activities.

General and administrative costs totaled approximately $604,000 for
CGMI's year ended June 30, 1996 and are primarily composed of employee benefits
costs of $112,000, travel costs of $175,000, and office and

other administrative costs of $317,000. All of these costs were reduced
substantially from prior year levels due to the decrease in costs associated
with opening facilities in prior years, among other reasons.

Gaming development activities decreased approximately $82,000 to
approximately $95,000 for the year ended June 30, 1996.

Capital Gaming International, Inc. (CGI)

CGI, the parent and registrant, incurred operating costs and expenses
of approximately $6,571,000 for the year ended June 30, 1996 as compared to
approximately $13,845,000 for the year ended June 30, 1995. Debt restructuring
costs increased by $600,000 and represent fees owed to the Company's financial
advisors. The Company realized significant cost decreases in development
($665,000), administrative costs including advertising ($1,514,000), payroll
costs ($868,000), professional fees ($4,232,000), public company costs
($452,000), travel costs ($570,000), and other operating costs ($336,000). Some
of these cost reductions were absorbed by the CDGC subsidiary (see below). Cost
reductions came as a result of substantial reductions in overhead, significant
reductions in the costs associated with managing the CCCD subsidiary, reduced
development efforts including the Company's termination of its efforts to
acquire certain real estate on Philadelphia's Delaware River Waterfront in
connection with the potential development of a gaming facility, and other
similar matters. Some of these cost reductions were offset by an increase in
costs related to the Company's marketing services agreement with HFS, Inc.
Costs associated with this agreement actually increased by approximately
$628,000 during the year ended June 30, 1996. However, the Company is in
default on this agreement and has not paid approximately $763,000 in connection
thereto and does not anticipate paying these costs going forward.

Payroll and related costs amounted to approximately $2,250,000 for the
year ended June 30, 1996 as compared to approximately $3,120,000 in the prior
fiscal period. The decrease in payroll costs was a result of the reduction in
the number of employees, reduced bonus payments and a reduction in wage related
taxes and benefits.

Native American Development costs incurred by CGI of approximately
$867,000 were primarily for the benefit of the Narragansett Tribe in pursuing
the development of gaming in Rhode Island. In addition, the Company's CDGC
subsidiary incurred cost toward this development of $955,000. These combined
costs of $1,822,000 decreased by $147,000 as compared to approximately
$1,969,000 in the last fiscal period. The decrease is primarily from
engineering costs associated with development. As of June 30, 1996, the
cumulative investment expended on the Rhode Island project exceeds $6.5
million. A substantial amount of this spending will be repaid to the Company if
and when a gaming facility is established by the Narragansett Tribe.

Interest Expense - Consolidated

Interest expense for the year ended June 30, 1996 is comprised of the
following: (i) Senior Secured Notes $14,605,000, (ii) amortization of original
issue discount and deferred finance charges of $2,173,000, (iii) Republic Note
Payable $2,185,000 and (iv) CGMI equipment notes $99,000 for a total of
$19,062,000.

Interest expense for the year ended June 30, 1995 is comprised of the
following: (i) Senior Secured Notes $15,295,000, (ii) amortization of original

issue discount and deferred finance charges -$2,119,000, (iii) Republic Note
payable - $2,185,000 and (iv) CGMI equipment notes - $99,000 for a total of
$19,698,000. The Company capitalized interest of approximately $1,474,000
during the year.

Extraordinary Item

The early extinguishment of debt on March 30, 1995 resulted in a loss
of approximately $833,000 as a result of the value of the common stock issued,
in exchange for 8,000,000 of Senior Secured Notes, exceeding the carrying
amount of notes. The carrying amount was inclusive of $238,000 and $504,000 of
unamortized

amortized original issue discount deferred finance charges, respectively, which
was written-off with the related debt.

Income Taxes

As the Company has continuing net operating losses, there is available
for carryforward, a net operating loss of approximately $72,000,000. A deferred
tax benefit could not be recorded as its realization cannot be assured at this
time and the amount cannot be estimated. In the event of future forgiveness of
indebtedness, the related taxability of such forgiveness could be reduced by
available net operating loss carryforwards.

Crescent City Capital Development Corp. (CCCD)

The CCCD riverboat opened on April 4, 1995, four days after the debut
of the Grand Palais riverboat and the River City terminal and pavilion. On June
9, 1995, the Company's riverboat casino operations in New Orleans was forced to
cease operations due primarily to significant revenue shortfalls which
contributed to operating losses that the Company could not continue to fund.
CCCD reported a loss from operations for the three months ended June 30, 1995
of approximately $10,061,000, including approximately $5,094,000 in losses from
the 50% interest in River City Joint Venture. Subsequent to the closing of the
riverboat, the Board of Directors believed it was necessary to seek an acquiror
for the riverboat vessel and its gaming equipment contents. The operations of
CCCD for the year ended June 30, 1996 consist of the following:

Legal fees (2,192,000)
Equity in Loss of RCJV (1,262,000)
Other reorganization items (1,240,000)
Interest Income 11,000
Interest Expense (220,000)
----------
Net (Loss) (4,903,000)
==========

The assets of CCCD were sold for $50,000,000 which gave rise to a gain

of $17,543,000.

Fiscal 1995 Compared to Fiscal 1994

The last quarter of the June 30, 1995 fiscal year produced the opening
of three Native American facilities under management by CGMI and the opening of
the New Orleans riverboat. In the same fiscal quarter, the Grand Palais and
Crescent City Queen riverboats ceased gaming operations primarily because of
the failure of the gaming operations to generate sufficient revenue to satisfy
operating costs. This shortfall, accompanied by liquidity concerns caused by
cost overruns in excess of $30 million, required management to eliminate
continuing operating losses by halting operations, seek protection from
creditors under Chapter 11 and begin to focus on reorganization.

Crescent City Capital Development Corp.

The CCCD riverboat opened on April 4, 1995, four days after the debut
of the Grand Palais riverboat and the River City terminal and pavilion. On June
9, 1995, the Company's riverboat casino operations in New Orleans was forced to
cease operations due primarily to significant revenue shortfalls which
contributed to operating losses that the Company could not continue to fund.
CCCD reported a loss from operations for the three months ended June 30, 1995
of approximately $10,061,000, including approximately $5,094,000 in losses from
the 50% interest in River City Joint Venture. The subsidiary's operating loss
for the year ended June 30, 1995 excluding amortization of $1,765,000 of
certain assets of CGI approximated $17,627,000 which includes approximately
$7,906,000 in pre-opening charges. (These losses exclude CCCD's share of the
significant

write-down for impaired assets incurred by RCJV.) Subsequent to the closing of
the riverboat, the Board of Directors believed it was necessary to seek an
acquiror for the riverboat vessel and its gaming equipment contents. The
operations of CCCD for the year ended June 30, 1995 are included in operations.
The loss on disposal of Riverboat operations of approximately $69,277,000 is
comprised of a $38,500,000 charge for impaired assets at RCJV, charges for the
reserve of cash held in escrow and prepaid rent of $2.2 million and $4.8
million, respectively, representing funds escrowed for the Port of New Orleans
use and funds already disbursed to the Port of New Orleans and classified as
prepaid rent, and the write-off of acquired gaming assets of $23,725,000
recorded by Capital Gaming International, Inc.

A summary of CCCD's operating results for the year ended June 30, 1995
is as follows:

Revenues $ 4,196,000
Operating Costs (15,682,000)(1) (3)
Pre-opening Expenses (7,906,000)(2)
-------------
(19,392,000)
Interest Income 674,000

Interest Expense (236,000)
-------------
Net Loss from Operations $ 18,954,000
=============

(1) Includes $5,094,000 in losses from 50% interest in River City Joint Venture.
(2) Includes $4,722,000 in losses from 50% interest in River City Joint Venture.
(3) Includes $1,765,000 in amortization of acquired gaming assets.

Capital Gaming Management, Inc.

On March 10, 1995, the Umatilla Tribe opened the 40,000 square foot
Wildhorse Gaming Resort in Pendleton, Oregon. This facility offers 300 video
slot machines, keno, non-banking table games, Off-track betting (OTB) and high
stakes bingo. The first phase of this development opened on November 5, 1995.
During this period ending June 30, 1995, the facility produced approximately
$1,365,000 in management fees for the Company. Since opening, slot win per
unit, per day has approximated $200 to $220. Slot win also represents
approximately 90% of total revenues of the facility.

On April 27, 1995, the Tonto Apache Tribe opened the 32,000 square
foot Mazatzal Casino located north of Phoenix, Arizona. The casino features 314
slot machines, keno, non-banking table games and high stakes bingo. The Company
earned approximately $305,000 in management fees for May and June 1995. Slot
win, which comprises approximately 88% of the facility's total revenues,
produced win per unit, per day of approximately $120 to $135.

The Muckleshoot Tribe opened the first phase of its Muckleshoot Casino
on April 28, 1995, offering 31 table games, keno and OTB. The facility is
located in the Seattle-Tacoma metropolitan area. Management fees earned under
this contract amounted to approximately $615,000 for May and June 1995. The
final phase of this facility opened on September 8, 1995 with gaming space
increased to 40,000 square feet. This facility since opening has produced table
game win per day of approximately $3,000 - $3,100.

The Cow Creek tribal casino, which opened in April 1994, continued to
produce approximately $300,000 per month in management fees for the Company,
earning a total of approximately $3,699,000 for the year ended June 30, 1995.
This contract, however, was purchased from the Company by the Cow Creek Tribe
in September 1995 for $3.0 million and was substantially paid to the Company's
Senior Secured Noteholders. Effective September 1, 1995, the Company has no
further financial relationship with the Cow Creek Tribe. Simultaneous with the
management fee buy-out, the outstanding loan amount of approximately $823,000
was repaid to the Company and subsequently transferred to Senior Secured
Noteholders less expenses of the transaction.

As an operating unit, CGMI earned approximately $6,441,000 in
management fees for the year ended June 30, 1995 and was comprised of the Class
III revenues mentioned above - $5,984,000, and Class II revenues of
approximately $457,000 derived substantially from a contract which expired in
May 1995. Revenues earned in fiscal year 1994 reflected Cow Creek's Class III

earnings of approximately $400,000 and Class II fees of approximately
$1,324,000.

Total CGMI operating costs for the year ended June 30, 1995 were
approximately $5,741,000 as compared to approximately $2,375,000 for the year
ended June 30, 1994. Included in last year's fiscal period is CGMI's operations
for approximately nine months. The overall increase of $3,366,000 is
attributable to a $1,017,000 charge for the write-off of impaired assets
relating to a severed Class II contract, the additional three months of expense
included in the June 30, 1995 period which effects all categories of operating
expenses discussed and certain increases as noted below.

Salaries and wages increased approximately $1,008,000 based on an
increase in full time equivalent employees of approximately 45% required
because of the division's expansion, detailed reporting needs and facility
management needs. CGMI hired a Director of Operations, Director of Finance and
two other management team members at an aggregate annual salary of $430,000
during the June 30, 1995 fiscal year. Additionally an $80,000 bonus was paid in
June 1995 to the Director of Operations. Other increases include related
payroll taxes and the accruals for compensated absences.

Professional fees for the year ended June 30, 1995 at CGMI increased
approximately $811,000 due to increases in legal - $445,000, consulting -
$312,000 and accounting/computer - $54,000. During the current fiscal year,
three of the four management agreements were amended and finalized, including
extensive efforts related to the Muckleshoot agreement, requiring extensive
legal involvement. Additionally, the National Indian Gaming Commission (NIGC)
approvals as well as tribal level gaming commission and State gaming commission
approvals were obtained during the current fiscal year, all of which involved
legal effort and expense. Additionally, certain litigation matters arose
surrounding a severed Class II contract. Consulting expenditures increased due
to required expertise needed in establishing the facilities, including the
areas of security/surveillance and human resource and training. A new
computerized management information system was also installed.

General and administrative costs totaled approximately $1,553,000 for
CGMI's year ended June 30, 1995 and are primarily composed of marketing fees -
$310,000, travel costs - $472,000, employee related insurance and moving,
hiring and interim living expenses - $342,000, office operational costs -
$365,000 and other general and administrative costs of $64,000. These costs
represent an approximate increase of $1,050,000 as compared to the nine months
of expense for the period ending June 30, 1994. Marketing fees earned by
Hospitality Franchise Systems, Inc. were substantially all earned in the June
30, 1995 period. Travel costs increased approximately $335,000 because CGMI's
four managed facilities are geographically located significantly apart and
three of the four facilities became operational in the current year.
Approximately 40% of the travel costs were incurred in the quarter ending June
30, 1995 coinciding with the three openings. CGMI implemented an enhanced
employee benefit package to attract and retain qualified personnel and such
benefits now accommodate 45% more personnel, resulting in benefit cost
increases of approximately $100,000. Interim living expenses - $43,000, moving
costs - $61,000 and placement and hiring fees - $101,000 represent $205,000 of
the employee related cost increase. Together, the benefits and other employee
related costs increased approximately $310,000 to $342,000. Office costs and

other general and administrative costs increased approximately $125,000 due to
additional office space leased and increased consumption of office utilities
and resources from more personnel.

Gaming development expense at CGMI decreased approximately $593,000 to
approximately $177,000 at June 30, 1995 due primarily to the management
contracts attaining the criteria for capitalization of costs associated with
developing such contract. In the year ended June 30, 1995, CGMI expended and
capitalized approximately $3,037,000 in costs in the account "Investment in
Management Agreements." Approximately $2,050,000 was expended in various costs
for the Muckleshoot Tribe. The remainder was spent approximately

equally on the Umatilla and Tonto Apache Tribes. These amounts are amortized
over the life of the management contract once the facility opens.

Income from operations of CGMI before the one-time charge in the first
quarter of $1,017,000 for the year ended June 30, 1995 was approximately
$1,718,000 or 26% of revenues as compared to a loss from operations in the
prior fiscal year of approximately $651,000. The improvement is attributable to
the increased revenues of $4,717,000 offset by increases in operating costs.
Assuming June 30, 1994 costs were annualized, such overall total cost increase
would approximate $1,558,000 or 50% as compared to actual 100% increase. The
fourth quarter ending June 30, 1995 substantially represents management fee
earnings of all four facilities with the exception of two facilities not opened
until the end of April. Revenues for this quarter represented approximately 45%
of total revenues. As of June 30, 1995 CGMI is now fully Class III operational.

Interest income of approximately $845,000 was earned from development
loans to the tribe during the year ended June 30, 1995 as compared to no such
income in the prior fiscal year. Additional interest income of approximately
$499,000 was earned on restricted cash held for development loans. These funds
have been depleted in their entirety as of June 30, 1995. Interest expense of
approximately $99,000 was incurred on equipment financings obtained by CGMI on
behalf of the tribes. Substantially all such notes have a payback period of
twenty-four months. Additional interest expense of approximately $2.2 million
was charged to earnings for the year ended June 30, 1995 as a result of the $22
million promissory note payable to Capital Gaming International, Inc.

Capital Gaming International, Inc.

CGI incurred operating costs and expenses of approximately $13,845,000
for the year ended June 30, 1995 as compared to approximately $14,205,000 for
the prior year. The prior year costs, however, do include non-recurring charges
of $2,847,000 and $1,000,000 for bondholders consent fees and a fee for
modification of a marketing agreement, respectively. Adjusting for these two
items results in a comparable increase in costs of approximately $3,487,000.
The largest increase was in legal expense where approximately $2,195,000 in
additional costs were incurred during year ended June 30, 1995. A significant
part of the increase, approximately $1,458,000, was due to legal/legislative

work related to the Narragansett management contract and development of the
Narragansett's tribal gaming compact with the State of Rhode Island. Other
legal efforts were intensified relative to CGI's offerings and sales of
securities and related preparation and filing of securities disclosure
documents, CGI's participation in efforts to develop, introduce and enact
gaming legislation in Pennsylvania, CGI's option to acquire certain real estate
on Philadelphia's Delaware River waterfront in connection with the potential
development of a gaming facility, and other similar matters.

Native American development costs incurred by CGI of approximately
$1,969,000 were strictly for the benefit of the Narragansett Tribe in pursuing
the development of gaming in Rhode Island. This compares to approximately
$427,000 in costs incurred in the prior year for Narragansett. The costs for
the year ended June 30, 1995 were extensive due to the signing of the gaming
compact by the Governor of Rhode Island on August 29, 1994. The costs were
primarily for engineering/design efforts, media and public relations, project
planning and studies and travel costs. As of June 30, 1995, the cumulative
investment expended on the Rhode Island project exceeds $5 million. A
substantial amount of this spending will be repaid to the Company if and when a
gaming facility is established by the Narragansett Tribe. It is expected a
portion of this loan will be recorded as a receivable during fiscal year ending
June 30, 1996.

Salaries, wages and related costs amounted to approximately $3,000,000
for the year ended June 30, 1995 at CGI as compared to approximately $3,386,000
in the prior fiscal period. The year ended June 30, 1995 includes bonuses paid
to the President and Vice President of Casino Operations totaling approximately
$225,000 and the year ended June 30, 1994 includes bonuses paid to all officers
and directors of the Company of approximately $1,170,000. Aside from bonus
compensation the increase in salaries was approximately $559,000. Such increase
is primarily due to a full year of salaries for the year ended June 30, 1995 as
compared to prior year salaries that were increased in the third quarter of the
year ended June 30, 1994. Additionally, there were four personnel added in the
fourth quarter of June 30, 1994, all of whom were present substantially

all of the subsequent fiscal year. The fiscal 1995 bonuses were paid on
April 4, 1995 as a result of the opening of the New Orleans riverboat.

Gaming development costs amounted to approximately $1,455,000 for the
year ended June 30, 1995 as compared to approximately $1,886,000 incurred in
the prior fiscal year. Both years include approximately $500,000 in travel
related costs. The year ended June 30, 1994 development costs include
approximately $770,000 paid to Republic Corporate Services, Inc. for the
exercise of an option. General increases in this category approximate $340,000
and were primarily the result of costs related to the Rockford project, St.
Charles (Twin Rivers), and other exploratory efforts.

General and administrative (G&A) expenses in total at CGI were
approximately $2,101,000, a decrease of approximately $193,000 over the same

period last year. However, G&A expense for June 30, 1994 included a $1 million
charge for modification to a marketing agreement. This charge not being present
in the current fiscal year indicates increases in other components of G&A of
approximately $807,000. A significant component of G&A for the year ended June
30, 1995 is public company related costs. These costs include services of the
Financial Relations Board, printing costs for equity and debt registrations,
filing fees, quarterly and annual reporting and distribution requirements and
other communication costs. Such costs amounted to approximately $738,000 for
the current year as compared to approximately $250,000 for the year ended June
30, 1994. The increase in costs was most prevalent in outside services
($150,000), printing and distribution costs ($250,000) and filing fees
($75,000). Travel costs included in G&A increased approximately $275,000 to
$510,000 primarily as a result of the inclusion of the fourth quarter travel
costs of New Orleans. Other G&A expenses did not change materially.

CGI's debt and equity proceeds from February 1994 earned interest
income for a greater number of months in the year ended June 30, 1995 although
the average invested balance was declining throughout the year. Interest income
earned the current year on cash balances was approximately $1,275,000
(additional $499,000 earned by CGMI on funds transferred to the subsidiary) as
compared to approximately $1,676,000 earned last year.

Interest Expense - Consolidated

Interest expense for the year ended June 30, 1995 is comprised of the
following: (i) Senior Secured Notes - $15,295,000, (ii) amortization of
original issue discount and deferred finance charges - $2,119,000, (iii)
Republic Note payable - $2,185,000 and (iv) CGMI equipment notes - $99,000 for
a total of $19,698,000. The Company capitalized interest of approximately
$1,474,000 during the year.

Interest expense for fiscal year ended June 30, 1994 of approximately
$11,024,000 was inclusive of a $4,000,000 charge for the termination of a
warrant agreement and approximately $6,556,000 related to the Senior Secured
Notes for approximately 4-1/2 months. Additionally, interest expense on the
Republic Note - $394,000, other expense - $308,000 less capitalized interest of
approximately $234,000 accounts for the remainder of interest expense in the
prior year.

Extraordinary Item

The early extinguishment of debt on March 30, 1995 resulted in a loss
of approximately $833,000 as a result of the fair value of the common stock
issued, in exchange for 8,000,000 of Senior Secured Notes, exceeding the
carrying amount of the notes. The carrying amount was inclusive of $238,000 and
$504,000 of unamortized amortized original issue discount and deferred finance
charges, respectively, which was written-off with the related debt.

Income Taxes

For the year ended June 30, 1994, the Company recorded a federal tax
benefit of approximately $484,000 based on the use of available net operating
losses carried back to prior years. Such benefit was

received by the Company during the year ended June 30, 1995. As the Company has
continuing net operating losses, there is available for carryforward, a net
operating loss of approximately $99,000,000. A deferred tax benefit could not
be recorded as its realization cannot be assured at this time and the amount
cannot be estimated. In the event of future forgiveness of indebtedness, the
related taxability of such forgiveness could be reduced by available net
operating loss carryforwards.

Fiscal 1994 Compared to Fiscal 1993

The results of operations for the year ended June 30, 1994 are
reflective of the changes in the Company's management, business activities,
capitalization structure and future direction. The current year resulted in a
net loss of $23,684,292 or $1.68 per share compared to a net loss from
continuing operations of $1,652,412 or $.12 per share in the prior period. The
current loss is derived primarily from the Company's net loss of $23,025,914.
The more significant components of the parent company's loss are (i)
compensation and related expenses of approximately $3,956,000 resulting from a
new management team, higher compensation expense necessary to attract key
personnel experienced in the gaming industry, and salary increases subsequent
to the completion of the Company's financings, (ii) consulting, legal and
accounting fees of approximately $3,293,000 related to Riverboat and Native
American gaming development and corporate financings and related matters, (iii)
direct Riverboat and Native American Development costs of $3,491,000 and (iv)
interest expense of $11,024,000, which includes a $4,000,000 charge in
connection with the termination of a warrant agreement related to bridge
financing. The Company earned $1,712,272 in interest income for the current
year and recorded an income tax benefit from available loss carrybacks of
$483,738.

The Company was required to record approximately $3,847,000 in
non-recurring charges related to the bondholders' consent to purchase the New
Orleans 2000 Property and relocate the site of the New Orleans riverboat
project ($2,847,000) as well as a fee to modify a marketing agreement
($1,000,000) so as to reduce fees payable in the future.

The current period revenues were derived solely from management fees
earned by CGMI with the operations of CGMI producing a net loss of $414,776,
before corporate allocations of $243,602, from their acquisition date of
October 1, 1993 through June 26, 1994. CGMI's loss was primarily attributable
to significant costs incurred as a result of aggressive new business
development activities.

The year ending June 30, 1993 was reflective of the discontinuance of
the Company's prior business activities. The operations of CGMI were not
included in that period. The $3,003,127 in operating costs primarily consists
of professional fees, wages and general and administrative expenses. As a
result of the discontinuance of the boxing business the Company recorded a net
gain of $2,422,282 during the year ended June 30, 1993.

Impact of Inflation

The Company does not believe that inflation has had a material adverse
effect on sales or income during past periods.

Seasonality

The operations of casino facilities under management by CGMI are not
expected to be materially impacted, as a whole, by seasonality factors.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

This information appears in a separate section of this report
following Part IV.

PART III

MANAGEMENT

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are as follows:

Name Age Position

I.G. Davis, Jr. 71 Chairman of the Board

Edward M. Tracy 43 Chief Executive Officer, President
and Director

Col. Clinton L. Pagano 68 Executive Vice President of
(Retired) Compliance and Director

William S. Papazian 34 Senior Vice President and General
Counsel, Corporate Secretary

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

I.G. Davis, Jr. was appointed Vice Chairman of the Board of Directors
on January 7, 1993 and became the Chairman of the Board of Directors in
February, 1993. Mr. Davis was appointed Chief Executive Officer of the Company
on January 7, 1993 and served in such capacity until his resignation from such
position on May 30, 1995. Mr. Davis has more than 30 years of experience in the
casino gaming industry. From June 1991 until January 1993, Mr. Davis was
Chairman and Chief Executive Officer of Casino Management, Inc., a casino
management consulting company. From August 1990 until May 1991, Mr. Davis was
President of Trump Taj Mahal Casino in Atlantic City, New Jersey. He served as
President of Resorts International Corporation from 1960 through 1986 and as
President and Chief Executive Officer of that organization from 1986 until
1989, where he was instrumental in the opening of the Paradise Island Casino in
the Bahamas as well as the first casino in Atlantic City.

Edward M. Tracy was appointed President and Chief Operating Officer
and a Director of the Company on January 7, 1993, and he became Chief Executive
Officer on May 30, 1995. From April 1991 until January 1993, Mr. Tracy was
President of Casino Management, Inc., a casino management consulting company.
From February 19, 1990 to April 1991, Mr. Tracy was President and Chief
Executive Officer for The Trump Organization which includes Trump Plaza, Trump
Castle, Trump Regency and Trump Taj Mahal Casinos in Atlantic City, New Jersey.
He served as President and Chief Operating Officer for Trump Castle from May
1989 to February 1990. From November 1986 to May 1989, Mr. Tracy was Vice
President and General Manager of the Sands Hotel and Casino in San Juan, Puerto
Rico.

Col. Clinton L. Pagano (retired) was appointed Executive Vice
President of Compliance and a Director of the Company in November 1992. Col.
Pagano was the Superintendent of the New Jersey State Police from 1975 to 1990,

during the tenures of two Governors. During 1990 and 1991, Col. Pagano was
Director of the New Jersey Division of Motor Vehicles, a position he was
appointed to by a third New Jersey Governor. Col. Pagano has over 35 years of
law enforcement experience including the implementation in New Jersey of a
coordinated State and Federal organized crime control program. During his
tenure as Superintendent of the New Jersey State Police, Col. Pagano was the
State Director of Emergency Management, a Federal crisis management program,
and was also responsible for developing and implementing various security
programs for the New Jersey Sports and Exposition Authority. Colonel Pagano is
also presently the Chairman of the Board of Digital Products Corporation of
Florida.

William S. Papazian was appointed Vice President and General Counsel
of the Company on May 23, 1994, became Senior Vice President and General
Counsel on June 17, 1995 and was appointed Corporate Secretary on September 5,
1995. From July 1992 through May 1994, Mr. Papazian represented the Company in
a wide variety of matters as an attorney with the firm of Mason, Briody,
Gallagher & Taylor in Princeton, New Jersey. From February 1990 through June
1992, Mr. Papazian maintained a private law practice concentrating on
transactional corporate and regulatory work, and also served as Associate
General Counsel to Mercy Medical Center in New York, New York. From November
1986 through February 1990, Mr. Papazian practiced corporate law with the firm
of Farrell, Fritz, Caemmerer, Cleary, Barnosky & Armentano in Uniondale, New
York. Mr. Papazian has been practicing corporate and regulatory law since 1986,
and is admitted to the bar in the States of New Jersey, California, New York
and Pennsylvania. Mr. Papazian has an expertise in all aspects of gaming and
regulatory law, and is a recognized expert in Native American gaming.

Until it was sold to Casino Magic Corp. on February 21, 1996, Mr.
Davis, Mr. Tracy and Col. Pagano served as executive officers of the Company's
wholly owned subsidiary, Crescent City Development Corp. As described above, on
July 26, 1995, creditors of Crescent City Capital Development Corp. filed an
involuntary Petition for Bankruptcy under Chapter 11 of the U.S. Bankruptcy
Code. See "Business-Recent Developments."

The Company knows of no family relationships between any director,
executive officer or person nominated or chosen by the Company to become a
director or executive officer.

Cory Morowitz, C.P.A., was appointed the acting Chief Financial
Officer of the Company on October 1, 1996. Prior to that time, Mr. Morowitz
served as an accounting and financial consultant to the Company. Since January
1, 1998, Mr. Morowitz has been a partner in the accounting and consulting firm
of Bernstein, Simpson, Gilbert & Morowitz in Atlantic City, New Jersey. Mr.
Morowitz's practice includes providing accounting, consulting and financial
advice to the gaming industry.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act requires the Company's
officers and directors, and persons who own more than ten percent (10%) of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission ("SEC") and the National Association of Securities Dealers.
Officers, directors and greater than ten percent (10%) beneficial owners are
required by SEC regulation to furnish the Company with copies of all Forms 3, 4
and 5 they file.

Based solely on the Company's review of the copies of such forms it
has received, and written representations from certain reporting persons that
they were not required to file Form 5 for specified fiscal years, the Company
believes that all of its officers, directors and greater than ten percent (10%)
beneficial owners complied with all filing requirements applicable to them with
respect to transactions during the fiscal year ended June 30, 1996.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth compensation to, earned by, or paid to
the Company's Chief Executive Officers, directors and each of the four most
highly compensated executive officers of the Company, other than the Chief
Executive Officers, who was serving as an executive officer at the end of the
fiscal year ended June 30, 1996, and whose annual cash compensation exceeds
$100,000.00.

Summary Compensation Table

- --------------- ----------- ------------ ---------- --------------- ----------- -------------- ---------- --------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- --------------- ----------- ------------ ---------- --------------- ----------- -------------- ---------- --------------
Name and Fiscal Salary Bonus Other Annual Restricted Securities LTIP All Other
Principal Year Ended Compensation Stock Underlying Payouts Compensation
Position Awards Options/SARs
Granted (#)
- --------------- ----------- ------------ ---------- --------------- ----------- -------------- ---------- --------------

I.G. Davis, 6/30/96 $297,000(2) $-0- $-0- -0- 1,200,000(3) -0- -0-
Jr., Chairman 6/30/95 $495,000 $-0- $-0- -0- 1,000,000 -0- -0-
and Former 6/30/94 $346,287 $ 400,000 $-0- -0- 1,000,000 -0- $100,000(4)
Chief
Executive
Officer(1)
- --------------- ----------- ------------ ---------- --------------- ----------- -------------- ---------- --------------
Edward M. 6/30/96 $495,000 $-0- $-0- -0- 1,200,000(7) -0- $41,250(8)
Tracy, 6/30/95 $495,000 $100,000 $76,835(6) -0- 800,000 -0- -0-
President and 6/30/94 $396,698 $400,000 $-0- -0- 400,000 -0- -0-

Chief
Executive
Officer and
Chief
Operating
Officer(5)
- --------------- ----------- ------------ ---------- --------------- ----------- -------------- ---------- --------------
Clinton L. 6/30/96 $260,000(10) $-0- $-0- -0- 350,000(11) -0- -0-
Pagano, 6/30/95 $232,494 $-0- $-0- -0- 50,000 -0- -0-
Executive 6/30/94 $127,975 $40,000 $-0- -0- 50,000 -0- -0-
Vice
President of
Compliance(5)
- --------------- ----------- ------------ ---------- --------------- ----------- -------------- ---------- --------------
William S. 6/30/96 $160,000 $-0- $-0- -0- 200,000(13) -0- $13,333(14)
Papazian, 6/30/95 $140,000 $-0- $-0- -0- 35,000 -0- $20,000(15)
Senior vice 6/30/94 $10,000 $-0- $-0- -0- 35,000 -0- -0-
President and
General
Counsel,
Corporate
Secretary (12)
- --------------- ----------- ------------ ---------- --------------- ----------- -------------- ---------- --------------
James F. 6/30/96 $150,000 $-0- $-0- -0- 100,000(19) -0- -0-
Ahearn, Vice 6/30/95 $125,240 $75,000 $60,824(17) -0- 70,000 -0- -0-
President and 6/30/94 -0- $-0- $12,500(18) -0- -0- -0- -0-
Director of
Operations of
Capital
Gaming
Management
Inc.(16)
- --------------- ----------- ------------ ---------- --------------- ----------- -------------- ---------- --------------

(1) Mr. Davis was appointed Chief Executive Officer of the Company on January
7, 1993, and became the Chairman of the Company's Board of Directors on
February 28, 1993. Mr. Davis resigned as Chief Executive Officer of the Company
on May 30, 1995.

(2) Based upon a salary of $297,000 per year contained in an employment
agreement, dated May 30, 1995. By letter dated November 1, 1995, Mr. Davis
voluntarily agreed to defer all of his compensation until further notice.
Accordingly, based upon a yearly salary of $297,000, Mr. Davis was paid $99,000
during fiscal year ended 6/30/95 and has deferred $198,000. Mr. Davis has
retained his rights to receive such deferred compensation upon demand.

(3) On January 14, 1996, 2,000,000 stock options exercisable at prices ranging
from $1.75 to $5.25 per share were cancelled and replaced with 1,200,000 stock
options exercisable at $.50 per share. See "Executive Compensation - Repricing
of Stock Options" for details. No other stock options were granted to Mr. Davis
during fiscal year ended June 30, 1996.

(4) On February 25, 1994, $100,000 was paid to Mr. Davis as a salary adjustment
in lieu of the Company's unfulfilled contractual commitment to spend up to
$100,000 on directors' and officers' liability insurance.

(5) Mr. Tracy was appointed President and Chief Operating Officer of the
Company on January 7, 1993. Mr. Tracy was appointed Chief Executive Officer of
the Company on May 30, 1995.

(6) Payment to cover contractual benefits in relation to 1995 bonus.

(7) On January 14, 1996, 1,200,000 stock options exercisable at $5.25 per share
were cancelled and replaced with 1,200,000 stock options exercisable at $.3125
per share. See "Executive Compensation - Repricing of Stock Options" for
details. No other stock options were granted to Mr. Tracy during fiscal year
ended June 30, 1996.

(8) During the fiscal year ended June 30, 1996, Mr. Tracy was paid $41,250 for
accrued contractual benefits.

(9) Mr. Pagano was appointed Executive Vice President of Compliance of the
Company on October 17, 1993.

(10) Based on an annual salary of $260,000 earned by Col. Pagano from July 1,
1995 through and including June 30, 1996. By letter agreement, dated November
1, 1995, Col. Pagano agreed to defer $160,000 of his annual salary beginning on
that date. Accordingly, $106,667 of Col. Pagano's salary for fiscal year ended
June 30, 1996 has been deferred. Col. Pagano has retained his right to receive
such deferred compensation upon demand.

(11) On January 14, 1996, the Company cancelled 250,000 stock options with an
exercise price of $5.25 per share and replaced them with an identical amount of
stock options with an exercise price of $.3125 per share. Also, the Company
granted Col. Pagano an additional 100,000 stock options with an exercise price
of $.3125 per share. See "Executive Compensation - Repricing of Stock Options"
for details. No other stock options were granted to Col. Pagano during fiscal
year ended June 30, 1996.

(12) Mr. Papazian was appointed Vice President and General Counsel of the
Company on May 23, 1994; Senior Vice-President and General Counsel on June 17,
1995; and Corporate Secretary on September 5, 1995.

(13) On January 14, 1996, the Company cancelled 35,000 stock options with an
exercise price of $5.25 per share and replaced them with an identical amount of
stock options with an exercise price of $.3125 per share. Also, the Company
granted Mr. Papazian an additional 165,000 stock options with an exercise price
of $.3125 per share. See "Executive Compensation - Repricing of Stock Options"
for details. No other stock options were granted to Mr. Papazian during fiscal
year ended June 30, 1996.

(14) During the fiscal year ended June 30, 1996, Mr. Papazian was paid $13,333

for accrued contractual benefits.

(15) Amount includes retroactive adjustment for Mr. Papazian's salary increase
of $160,000 on January 1, 1995.

(16) Mr. Ahearn was appointed Vice President and Director of Operations of
Capital Gaming Management, Inc. ("CGMI") on August 15, 1994. CGMI is the
Company's wholly-owned subsidiary engaged in the management and operation of
certain Native American gaming facilities.

(17) Mr. Ahearn was paid $18,592 by the Company and $29,732 by CGMI to cover
income taxes applicable to 1995 bonuses. Mr. Ahearn was paid $12,500 in
consulting fees in fiscal 1995 prior to the commencement of his employment
agreement.

(18) Consulting fees.

(19) On January 14, 1996, the Company cancelled 65,000 stock options with an
exercise price of $5.25 per share and replaced them with an identical amount of
stock options with an exercise price of $.3125 per share. Also, the Company
granted Mr. Ahearn an additional 35,000 stock options with an exercise price of
$.3125 per share. See "Executive

Compensation - Repricing of Stock Options" for details. No other stock options
were granted to Mr. Ahearn during fiscal year ended June 30, 1996.

Option/SAR Grants in the Fiscal Year Ended June 30, 1996

The following table sets forth information with respect to stock options
granted during the fiscal year ended June 30, 1996 to each of the executive
officers named in the Summary Compensation Table. No stock options were granted
with an exercise price less than fair market value, as determined under the
Company's 1990 Stock Option Plan, as amended.

(a) (b) (c) (d) (e) (f) (g)
- ------------------------ ------------------- --------------------- --------------------- ------------------ ---------- ---------
Number of Potential Realizable
Value
at Assumed Rates of
Securities % of Total Stock Price
Underlying Options/SARs Appreciation

Options/SARs Granted to Employees Exercise or for Option Term
Name Granted (#) in Fiscal Year (1) Base Price ($/Sh) Expiration Date 5% ($) 10% ($)
- ------------------------ ------------------- --------------------- --------------------- ------------------ ---------------------

I.G. Davis, Jr. 1,200,000(2) 35.0% $0.50 7/14/01 $ - 0 - $ - 0 -
Edward M. Tracy 1,200,000(3) 35.0% $.3125 7/14/01 $ - 0 - $ - 0 -
Col. Clinton L. Pagano 350,000(4) 10.2% $.3125 7/14/01 $ - 0 - $ - 0 -
William S. Papazian 200,000(3) 5.8% $.3125 7/14/01 $ - 0 - $ - 0 -
James F. Ahearn 100,000(4) 2.9% $.3125 7/14/01 $ - 0 - $ - 0 -

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

(1) Based on 3,425,000 stock options granted to employees during the
fiscal year ended June 30, 1996 including (i) 2,970,000 options that
were granted on January 14, 1996 to replace 2,970,000 options that
were cancelled on the same day (see "Executive Compensation -
Repricing of Stock Options" for details) and (ii) 455,000 other
options that were granted in fiscal year ended June 30, 1996.
(2) These stock options were granted to Mr. Davis on January 14, 1996 when
1,200,000 stock options were cancelled at exercise prices ranging from
$1.75 to $5.00, and repriced at $.3125. No other stock options were
granted to Mr. Davis during the fiscal year ended June 30, 1996.
(3) These stock options were granted to Mr. Tracy on January 14, 1996 when
1,200,000 stock options were cancelled at an exercise price of $5.25,
and repriced at $.3125. No other stock options were granted to Mr.
Tracy during the fiscal year ended June 30, 1996.
(4) This amount consists of 100,000 stock options which were granted to
Mr. Pagano on January 14, 1996, and 250,000 stock options which were
cancelled at an exercise price of $5.25, and repriced at $.3125 on
that same date. No other stock options were granted to Mr. Pagano
during fiscal year ended June 30, 1996.

(5) This amount consists of 165,000 stock options which were granted to
Mr. Papazian on January 14, 1996, and 35,000 stock options which were
cancelled at an exercise price of $5.25, and repriced at $.3125 on
that same date. No other stock options were granted to Mr. Papazian
during fiscal year ended June 30, 1996.
(6) This amount consists of 65,000 stock options which were granted to Mr.
Ahearn on January 14, 1996, and 35,000 stock options which were
cancelled at an exercise price of $5.25, and repriced at $.3125 on
that same date. No other stock options were granted to Mr. Ahearn
during fiscal year ended June 30, 1996.

Aggregated Option/SAR Exercises in Fiscal Year Ended June 30, 1996, and June 30, 1996
Option/SAR Values

(a) (b) (c) (d) (e)
- ------------------------- ------------------- --------------- ---------------------------- -----------------------------
Number of Securities

Underlying
Unexercised Value of Unexercised
Options/SARs In-the-Money Options/
Shares Acquired Value at FY-End (#) SARs at FY-End ($)
Name on Exercise(#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------- ------------------- --------------- ---------------------------- -----------------------------

I.G. Davis, Jr. -0- N/A 0/1,200,000(1) $0.00/0.00
Edward M. Tracy -0- N/A 0/1,200,000(2) $0.00/0.00
Clinton L. Pagano -0- N/A 0/350,000(3) $0.00/0.00
William S. Papazian -0- N/A 0/200,000(4) $0.00/0.00
James F. Ahearn -0- N/A 0/100,000(5) $0.00/0.00

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

(1) All of Mr. Davis' options designated in this table as unexercisable as
of June 30, 1996, became exercisable on July 14, 1996 pursuant to the
terms of the repricing of certain stock options on January 14, 1996.
See "Executive Compensation - Repricing of Stock Options" for details.

(2) All of Mr. Tracy's options designated in this table as unexercisable
as of June 30, 1996, became exercisable on July 14, 1996 pursuant to
the terms of the repricing of certain stock options on January 14,
1996. See "Executive Compensation - Repricing of Stock Options" for
details.

(3) All of Mr. Pagano's options designated in this table as unexercisable
as of June 30, 1996, became exercisable on July 14, 1996 pursuant to
the terms of the repricing of certain stock options on January 14,
1996. See "Executive Compensation - Repricing of Stock Options" for
details.

(4) All of Mr. Papazian's options designated in this table as
unexercisable as of June 30, 1996, became exercisable on July 14, 1996
pursuant to the terms of the repricing of certain stock options on
January 14, 1996. See "Executive Compensation - Repricing of Stock
Options" for details.

(5) All of Mr. Ahearn's options designated in this table as unexercisable
as of June 30, 1996, became exercisable on July 14, 1996 pursuant to
the terms of the repricing of certain stock options on January 14,
1996. See "Executive Compensation - Repricing of Stock Options" for
details.

Long-Term Incentive Plan ("LTIP") Awards

The Company does not have, and has made no award under, any
compensation plan constituting a "long-term incentive plan" (as that term is
defined under SEC Regulations). The Company's 1990 Stock Option Plan, as
amended, is not a "long-term incentive plan" as that term is defined under SEC
Regulations. Information pertaining to the Company's 1990 Stock Option Plan, as
amended, is provided elsewhere in this report.

Defined Benefits or Actuarial Plan

The Company does not have, and has made no award under, any defined
benefit plan or actuarial plan.

Compensation of Directors

Directors receive no fees for serving as members of the Company's
Board of Directors, but are reimbursed for their expenses in connection with
their attendance at each Board meeting.

I.G. Davis, Jr., Edward M. Tracy and Col. Clinton L. Pagano are
directors of the Company and also employees of the Company, and are compensated
as employees under the terms of employment agreements discussed in this report
and described in the Summary Compensation Table hereinabove.

Employment Contracts and Termination of Employment and Change-In-Control
Arrangements

The Company entered into an employment agreement with I.G. Davis, Jr.,
Chairman and former Chief Executive Officer on May 30, 1995 (the "1995 Davis
Agreement") which agreement provides for, among other things, a three-year term
commencing May 30, 1995 and automatic one-year extensions; annual salary at the
rate of $297,000 per year; additional incentive compensation equal to 60% of
any incentive compensation awarded to the Company's Chief Executive Officer;
one year's severance pay in the event of termination of the 1995 Davis
Agreement by the Company due to a failure by Mr. Davis to obtain or retain a
necessary regulatory permit, license or approval; upon a termination without
cause by the Company, the Company is obligated to pay Mr. Davis in specified
increments the present value of (x) all salary which would have been earned but
for such termination without cause for a period of three years commencing on
such termination date plus (y) three times Mr. Davis' incentive compensation
for the last full fiscal year preceding such termination. In the event of a
change in control (as defined in the 1995 Davis Agreement) Mr. Davis has the
right to terminate the agreement and become entitled to the payments described
above with respect to a termination without cause, subject to specified
limitations. The 1995 Davis Agreement includes a nine-month noncompetition
covenant and customary confidentiality covenant. In the event the Company does
not obtain specified Director and Officer liability insurance, the Company is
obligated to pay Mr. Davis $100,000 a year. On November 1, 1995, Mr. Davis

voluntarily agreed to defer and accrue payment of his salary until such time as
he notifies the Company otherwise. Mr. Davis reserved his right to receive such
deferred salary provided for by the terms of the 1995 Davis Agreement. All
terms of Mr. Davis' prior employment agreement remain unchanged.

The Company entered into an employment agreement with Edward M. Tracy,
President, Chief Executive Officer and Chief Operating Officer on May 30, 1995
(the "1995 Tracy Agreement") which agreement provides for, among other things,
a three-year term commencing May 30, 1995 and automatic one-year extensions;
annual salary at the rate of $495,000 per year; incentive compensation as
determined by the Executive Compensation Committee of the Company's Board of
Directors; one year's severance pay in the event of termination of the 1995
Tracy Agreement by the Company due to a failure by Mr. Tracy to obtain or
retain a necessary regulatory permit, license or approval. Upon a termination
without cause by the Company, the Company is obligated to pay Mr. Tracy, in
specified increments, the present value of (x) all salary which would have been
earned but for such termination without cause for a period of three years
commencing on such termination date plus (y) three times Mr. Tracy's incentive
compensation for the last full fiscal year preceding such termination. In the
event of a change in control (as defined in the 1995 Tracy Agreement) Mr. Tracy
has the right to terminate the agreement and become entitled to the payments
described above with respect to a termination without cause, subject to
specified limitations. The 1995 Tracy Agreement includes a nine-month
noncompetition covenant and customary confidentiality covenant. In the event
the Company does not obtain specified Director and Officer liability insurance,
the Company is obligated to pay Mr. Tracy $100,000 a year.

Col. Clinton L. Pagano (retired) is a director of the Company and also
acts as the Company's Executive Vice President of Compliance. He is compensated
pursuant to a three-year employment agreement with the Company dated October
17, 1993 providing for an annual salary of $150,000. As of October 1, 1994,
Col.

Pagano's Employment Agreement was amended by resolution of the Board of
Directors to provide for a current annual salary of $260,000. In the event of a
change of control of the Company, Col. Pagano's employment agreement provides
that the Company, and any successors, will continue to honor and be bound by
the agreement. During the duration of the employment agreement, the Company (or
its successor) is obligated to continue to pay a level of compensation not less
than the level applicable on the change of control date, fully perform the
Company's obligations on the change of control date, and continue benefit
programs in effect on the change of control date. Col. Pagano's employment
agreement provides that it may be terminated without cause upon 90 days'
notice, in which event the Company will be obligated to continue his salary and
benefits for the balance of the agreement, or 90 days, whichever is longer. In
the event of the death or disability of Col. Pagano, compensation will continue
for a period of six months following the occurrence of such an event. On
November 1, 1995, Col. Pagano voluntarily agreed to defer and accrue $160,000

per year of his $260,000 per year salary until such time as he notifies the
Company otherwise. Col. Pagano reserved his right to receive the deferred
salary. All terms of Col. Pagano's prior employment agreements remain
unchanged.

The Company entered into an employment agreement with William S.
Papazian, Senior Vice President and General Counsel, Corporate Secretary on May
17, 1996 which agreement provides for, among other things, a three year term
commencing on June 1, 1996 with automatic one-year extensions; annual salary of
$160,000 which is subject to an increase in connection with the Company's
restructuring; incentive compensation as determined by the Executive
Compensation Committee of the Company's Board of Directors; one year's
severance pay in the event of termination of the agreement by the Company due
to a failure by Mr. Papazian to obtain or retain a necessary regulatory permit,
license or approval. Upon a termination without cause by the Company, the
Company is obligated to pay Mr. Papazian, in specified increments, the present
value of (x) all salary which would have been earned but for such termination
without cause for a period of three years commencing on such termination date
plus (y) three times Mr. Papazian's incentive compensation for the last full
fiscal year preceding such termination. In the event of a change in control,
Mr. Papazian has the right to terminate the agreement and become entitled to
the payments described above with respect to a termination without cause,
subject to specified limitations. The agreement includes a customary
confidentiality covenant.

James F. Ahearn, Vice President and Director of Operations of Capital
Gaming Management, Inc. ("CGMI"), entered into a two-year employment agreement
with CGMI effective as of August 15, 1996, providing for an annual salary of
$150,000. Mr. Ahearn's salary is paid entirely by CGMI. In the event of a
change of control of CGMI, Mr. Ahearn's employment agreement provides that
CGMI, and any successors, will continue to honor and be bound by the agreement.
During the duration of the employment agreement, CGMI (or its successor) is
obligated to continue to pay a level of compensation not less than the level
applicable on the change of control date, fully perform CGMI's obligations on
the change of control date, and continue benefit programs in effect on the
change of control date. Mr. Ahearn's employment agreement provides that it may
be terminated without cause upon 60 days' notice in which event CGMI will be
obligated to continue his salary and benefits for the balance of the agreement
or 60 days, whichever is longer. Under certain circumstances, Mr. Ahearn's
employment agreement may be terminated with cause. In the event of disability
or death of Mr. Ahearn, compensation will continue for a period of six months
following the occurrence of such event.

Repricing of Stock Options

On January 14, 1996, the Executive Compensation Committee of the Board
of Directors recommended that the Company reprice certain existing stock
options and grant new stock options to provide incentives to management in the
absence of salary raises, cash bonuses and other incentives. The Executive
Compensation Committee determined that the then existing stock options having
exercise prices significantly above the current market price of the Company's
Common Stock would not provide adequate performance incentives to executives
and, therefore, such stock options needed to be repriced at lower exercise
prices. Accordingly, the Company repriced existing stock options, and granted

new stock options, with exercise prices of 195% of the then fair market value
of the Company's stock. I.G. Davis, Jr.'s stock options, however, were repriced
at approximately 300% of the then fair market value of the Company's stock.
The repriced options and new options are otherwise identical to the cancelled
options.

Ten-Year Option/SAR Repricings

(a) (b) (c) (d) (e) (f) (g)

Length of
Number of Exercise Original
Securities Market Price Price at Option Term
Underlying of Stock at Time of Remaining
Options/ Time of Repricing or New at Date of
SARs Repricing or Amendment Exercise Repricing or
Name Date Repriced or Amendment ($) Price ($) Amendment
---- ---- Amended(#) ($) -------------- --------- ---------
----------- ---------

I.G. Davis, Jr., 4/3/95 1,000,000 $5.25 $7.75 $5.25 43 months
Chairman and Former 1/14/96 500,000 $.16 $1.75 $.50 24 months
Chief Executive 1/14/96 500,000 $.16 $3.50 $.50 24 months
Officer 1/14/96 200,000 $.16 $5.25 $.50 51 months

Edward M. Tracy, 4/3/95 400,000 $5.25 $7.75 $5.25 43 months
President and Chief 1/14/96 100,000 $.16 $1.75 $.3125 24 months
Executive Officer 1/14/96 100,000 $.16 $1.75 $.3125 36 months
1/14/96 200,000 $.16 $3.50 $.3125 48 months
1/14/96 600,000 $.16 $5.25 $.3125 51 months
1/14/96 200,000 $.16 $5.25 $.3125 63 months

Clinton L. Pagano, 4/3/95 25,000 $5.25 $8.1875 $5.25 57 months
Executive Vice 4/3/95 25,000 $5.25 $8.1875 $5.25 69 months
President of 1/14/96 200,000 $.16 $1.50 $.3125 22 months
Compliance 1/14/96 25,000 $.16 $5.25 $.3125 51 months
1/14/96 25,000 $.16 $5.25 $.3125 60 months

Michael W. Barozzi 4/3/95 18,750 $5.25 $6.50 $5.25 37 months
Former Vice President 4/3/95 18,750 $5.25 $6.50 $5.25 49 months
of Casino Operations 4/3/95 37,500 $5.25 $6.50 $5.25 61 months
4/3/95 18,750 $5.25 $8.1875 $5.25 57 months
4/3/95 18,750 $5.25 $8.8175 $5.25 69 months
1/14/96 93,750 $.16 $5.25 $.3125 51 months
1/14/96 6,250 $.16 $5.25 $.3125 60 months

Timothy G. Rose, 4/3/95 18,750 $5.25 $8.1875 $5.25 57 months
Former Vice President 4/3/95 18,750 $5.25 $8.1875 $5.25 69 months

of Development

James F. Ahearn, 4/3/95 17,500 $5.25 $5.875 $5.25 64 months
Vice President and 4/3/95 17,500 $5.25 $5.875 $5.25 76 months
Director of 1/14/96 17,500 $.16 $5.25 $.3125 55 months
Operations of Capital 1/14/96 17,500 $.16 $5.25 $.3125 67 months
Gaming Management,
Inc.

Henry W. Hornbostel, 4/3/95 75,000 $5.25 $7.625 $5.25 40 months
Former Senior Vice 4/3/95 75,000 $5.25 $7.625 $5.25 52 months
President of Finance, 4/3/95 100,000 $5.25 $7.75 $5.25 43 months
Secretary, Treasurer
and Chief Financial
Officer

William S.Papazian, 4/3/95 17,500 $5.25 $6.9375 $5.25 62 months
Senior Vice President, 4/3/95 17,500 $5.25 $6.9375 $5.25 74 months
Secretary and 1/14/96 17,500 $.16 $5.25 $.3125 51 months
General Counsel 1/14/96 17,500 $.16 $5.25 $.3125 65 months

Peter M. Liguori 4/3/95 8,750 $5.25 $8.1875 $5.25 57 months
Former Vice President 4/3/95 8,750 $5.25 $8.1875 $5.25 69 months
of Finance and 4/3/95 17,500 $5.25 $7.8125 $5.25 41 months
Treasurer 4/3/95 17,500 $5.25 $7.8125 $5.25 53 months

Compensation Committee Interlocks and Insider Participation in Compensation
Decisions

The Company's Executive Compensation Committee consists of Robert B.
Runyon and Thomas P. Gallagher. The Executive Compensation Committee is
responsible for setting all Company policies with respect to compensation of
executive officers and directors, as well as for determining changes to the
compensation level of such officers and directors. Following an extensive
review of the Company's existing compensation practices, the Executive
Compensation Committee presented a report to the Board of Directors on January
14, 1996 which recommended the repricing of stock options held by existing
executives to provide incentives for the Company's management. See "Executive
Compensation - Repricing of Stock Options" for details.

Mr. Runyon is a consultant to the Company for all compensation related
matters. During Mr. Runyon's career, he has served as an officer to such

corporations as ITT Corporation, ITT Grinnell, BP Oil Corporation and F. W.
Woolworth in the areas of organization, business planning and administration.
Mr. Runyon presently serves as a member of the Board of Directors and
consultant to several corporations and provides consulting services in the
areas of strategy, business planning, human resources and administrative
systems. Mr. Gallagher is a partner in the law firm of Gallagher, Briody &
Butler, the Company's outside counsel.

The Company is not aware of any relationship whereby (i) an executive
officer of the Company served as a member of the compensation committee (or
other board committee performing equivalent functions or, in the absence of any
such committee, the entire board of directors) of another entity, one of whose
executive officers served on the compensation committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of the Company; (ii) an executive
officer of the Company served as a director of another entity, one of whose
executive officers served on the compensation committee (or other board
committee performing equivalent functions or, in the absence of such committee,
the entire board) of the Company; or (iii) an executive officer of the Company
served as a member of the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such committee, the
entire board of directors) of another entity, one of whose executive officers
served as a director of the Company.

PART IV

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

(a) 1. Financial Statements - See the Index to Financial Statements on
page F-1.

2. Financial Statement Schedules - Schedules begin on page S-1.

3. Exhibits.

2.1 Stock Purchase Agreement dated March 15, 1993 by and among the
Registrant, Bass Leisure Group, Ltd., Bass Leisure Group, Inc.
and British American Bingo, Inc.(4)

2.3 Involuntary Petition for Bankruptcy filed under Chapter 11 of
the U.S. Bankruptcy Code against C Crescent City Capital
Development Corp. dated July 26, 1995.(19)

2.4 Consent to Entry of Order for Relief filed by Crescent City
Capital Development Corp. in Chapter 11 Bankruptcy Case dated
July 28, 1995.(19)

2.5 First Amended Chapter 11 Plan of Reorganization of Crescent City
Capital Development Corp. as confirmed by the Bankruptcy Court
on January 12, 1996.(20)

2.6 Second Amended Chapter 11 Plan of Reorganization of Crescent
City Capital Development Corp. and First Immaterial
Modification, as confirmed by the Bankruptcy Court on April 29,
1996.(21)

2.7 Stock Purchase Agreement by and among Casino Magic Corp.,
Jefferson Casino Corp., C-M of Louisiana, Inc., Capital Gaming
International, Inc. and Crescent City Capital Development Corp.,
dated February 21, 1996.(21)

3.1 Restated Certificate of Incorporation of the Registrant.(15)

3.2 Bylaws of the Registrant, as amended.(6)

4.3 Indenture dated February 17, 1994 by and among the Registrant,
Crescent City Capital Development Corp., British American Bingo,
Inc. and First Trust National Association (without exhibits and
schedules).(9)

4.4 Equity Registration Rights Agreement dated January 20, 1994 by
and among the Registrant and the persons who are signatories
thereto (without exhibits and schedules) (multiple conformed
signatures omitted).(9)

4.5 Senior Secured Notes Registration Rights Agreement dated

February 17, 1994 by and among the Registrant, Crescent City
Capital Development Corp., British American Bingo, Inc. and the
purchasers who are signatories thereto (without exhibits and
schedules) (multiple conformed signatures omitted).(9)

4.6 Security Agreement dated February 17, 1994 by and among the
Registrant, Crescent City Capital Development Corp., British
American Bingo, Inc. and First Trust National Association
(without exhibits and schedules).(9)

4.7 Security Agreement dated February 17, 1994 by and between
Crescent City Capital Development Corp. and First Trust National
Association (without exhibits and schedules).(9)

4.8 Pledge Agreement dated February 17, 1994 by and between the
Registrant and First Trust National Association (without
exhibits and schedules).(9)

4.9 Pledge Agreement dated February 17, 1994 by and between British
American Bingo, Inc. and First Trust National Association
(without exhibits and schedules).(9)

4.10 Warrant Agreement dated January 20, 1994 by and between the
Registrant and First Trust National Association (without
exhibits and schedules).(9)

4.11 Form of Old Note(11)

4.12 Form of New Note(11)

4.13 First Supplemental Indenture dated June 24, 1994 to the
Indenture dated February 17, 1994, by and among the Registrant,
Crescent City Capital Development Corp., Capital Gaming
International Casino Management Division, Inc. (formerly British
American Bingo, Inc.) and First Trust National Association
(without exhibits).(12)

4.14 Form of Term Note distributed to Bondholders in exchange for
their Consent to the First Supplemental Indenture.(12)

10.1 1990 Stock Option Plan, as amended.(15)

10.34 Non-Qualified Stock Option Agreement, dated February 27, 1992 by
and between the Registrant and Michael F. Marino.(1)

10.35 Non-Qualified Stock Option Agreement, dated February 27, 1992 by
and between the Registrant and Thomas E. O'Brien.(1)

10.36 Non-Qualified Stock Option Agreement, dated February 27, 1992 by

and between the Registrant and Robert DeFilippis.(1)

10.38 Non-Qualified Stock Option Agreement, dated June 30, 1992 by and
between the Registrant and Hank Johnson.(1)

10.39 Non-Qualified Stock Option Agreement dated June 30, 1992 by and
between the Registrant and Thomas P. Gallagher.(1)

10.49 Stock Option Agreement dated January 7, 1993 by and between the
Registrant and I.G. Davis, Jr.(2)

10.50 Stock Option Agreement dated January 7, 1993 by and between the
Registrant and Edward Tracy.(2)

10.52 Non-Qualified Stock Option Agreement dated November 23, 1992 by
and between the Registrant and Col. Clinton L. Pagano.(2)

10.53 Non-Qualified Stock Option Agreement dated November 23, 1992 by
and between the Registrant and Percival H.E. Leach.(2)

10.54 Non-Qualified Stock Option Agreement dated January 7, 1993 by
and between the Registrant and Thomas P. Gallagher.(2)

10.55 Non-Qualified Stock Option Agreement dated January 7, 1993 by
and between the Registrant and Joel Sterns.(2)

10.56 Non-Qualified Stock Option Agreement dated January 7, 1993 by
and between the Registrant and Frank Gelb.(2)

10.62 Stock Option Agreement dated January 29, 1993 between the
Registrant and Timothy G. Rose.(3)

10.70 Stock Option Agreement dated May 7, 1993 between the Registrant
and Michael Barozzi.(6)

10.78 Stock Option Agreement dated September 15, 1993 by and between
the Registrant and Peter Liguori.(6)

10.79 Letter of Intent by and between the Registrant and Republic
Corporate Services, Inc. dated April 6, 1993 with Amendments
dated June 11, 1993 and June 28, 1993.(6)

10.80 Escrow Agreement by and between the Registrant and Republic
Corporate Services, Inc. dated April 6, 1993 with Amendment
dated June 11, 1993.(6)

10.81 Non-Qualified Stock Option Agreement by and between the
Registrant and Republic Corporate Services, Inc. dated June 11,
1993.(6)

10.82 Option and Letter of Intent by and between the Registrant and
Republic Corporate Services, Inc. dated August 25, 1993.(6)

10.83 Term Note by and between the Registrant and Joel Sterns dated

June 11, 1993.(6)

10.84 Stock and Option Pledge Agreement by and between the Registrant
and Joel Sterns dated June 11, 1993.(6)

10.86 Interim Agreement by and between the Board of Commissioners of
the Port of New Orleans and Crescent City Capital Development
Corporation dated June 29, 1993.(6)

10.92 Common Stock Purchase Warrant by and between the Registrant and
First National Bank of Commerce dated September 1, 1993.(6)

10.93 Berth Infrastructure Reimbursement Agreement by and between
Crescent City Capital Development Corporation and the Board of
Commissioners of the Port of New Orleans dated September 1,
1993.(6)

10.94 Engagement Letter by and between the Registrant and Stephen
Edwards, Esq. dated July 20, 1993.(6)

10.95 Common Stock Purchase Warrant by and between the Registrant and
Ladenburg, Thalmann & Co. Inc. dated July 22, 1993.(6)

10.96 Common Stock Purchase Warrant by and between the Registrant and
Ronnie Wohl dated July 22, 1993.(6)

10.97 Common Stock Purchase Warrant by and between the Registrant and
Ronald J. Kramer dated July 22, 1993.(6)

10.98 Common Stock Purchase Warrant by and between the Registrant and
Peter M. Graham dated July 22, 1993.(6)

10.99 Common Stock Purchase Warrant by and between the Registrant and
Jay R. Petschek dated July 22, 1993.(6)

10.10 Common Stock Purchase Warrant by and between the Registrant and
Brian M. Gonick dated July 22, 1993.(6)

10.101 Common Stock Purchase Warrant by and between the Registrant and
Thomas M. Ryan dated July 22, 1993.(6)

10.109 Letter Agreement dated December 2, 1993 by and among the
Registrant, Hospitality Franchise Systems, Inc., I. G. Davis,
Jr. and John E. Dell.(7)

10.110 Amended and Restated Agreement dated January 13, 1994 by and
between the Registrant and Bender Shipyard, Inc.(8)

10.111 Purchase Agreement dated January 20, 1994 by and among the

Registrant and the persons who are signatories thereto (without
exhibits and schedules) (multiple conformed signatures
omitted).(10)

10.112 Amendment to Purchase Agreement dated February 3, 1994 by and
among the Registrant and the persons who are signatories thereto
(without exhibits and schedules) (multiple conformed signatures
omitted).(10)

10.113 Purchase Agreement dated January 20, 1994 by and between the
Registrant and Hospitality Franchise Systems, Inc. (without
exhibits and schedules).(10)

10.114 Amendment to Purchase Agreement dated February 17, 1994 by and
among the Registrant, Hospitality Franchise Systems, Inc. and
Samuel Levine (without exhibits and schedules).(10)

10.115 Purchase Agreement dated January 20, 1994 by and between the
Registrant and MJM Partners, L.P. (without exhibits and
schedules).(10)

10.116 Purchase Agreement dated January 20, 1994 by and between the
Registrant and MJM International Limited (without exhibits and
schedules).(10)

10.117 Purchase Agreement dated March 1, 1994 by and between the
Registrant and MJM Partners, L.P. (without exhibits and
schedules).(10)

10.118 Purchase Agreement dated March 1, 1994 by and between the
Registrant and MJM International Limited (without exhibits and
schedules).(10)

10.119 Cash Collateral and Disbursement Agreement dated February 17,
1994 by and among the Registrant, Crescent City Capital
Development Corp., British American Bingo, Inc., First Trust
National Association and First National Bank of Commerce
(without exhibits and schedules).(10)

10.120 Marketing Services Agreement dated February 17, 1994 by and
between the Registrant and HFS Gaming Corp. (without exhibits
and schedules).(10)

10.122 Amendment to Option Letter of Intent dated December 15, 1993 by
and between the Registrant and Republic Corporate Services,
Inc.(11)

10.123 Agreement of Purchase and Sale dated April 26, 1994 by and among
New Orleans 2000 Partnership, Crescent City Capital Development
Corp. and Grand Palais Riverboat, Inc.(11)

10.125 Loan and Security Agreement dated February 17, 1994 by and
between the Registrant and Republic Corporate Services, Inc.(11)

10.126 $5,000,000 Note dated February 17, 1994 from Republic Corporate
Services, Inc. to Registrant(11)

10.127 Letter Agreement dated May 4, 1994 by and between the Registrant
and Republic Corporate Services, Inc.(11)

10.128 $19,000,000 Note from the Registrant to Republic Corporate
Services, Inc.(11)

10.130 First Amendment dated June 24, 1994 to the Cash Collateral and
Disbursement Agreement dated February 17, 1994, by and among the
Registrant, Crescent City Capital Development Corp., Capital
Gaming International Casino Management Division, Inc. (formerly
British American Bingo, Inc.), First Trust National Association
and First National Bank of Commerce.(12)

10.131 Agreement to Purchase and Sell dated June 30, 1994 by and
between River City Joint Venture and The Alabama Great Southern
Railroad.(12)

10.132 Term Note by River City Joint Venture to New Orleans 2000
Partnership dated July 13, 1994.(13)

10.133 Assignment of Agreement and Sale dated July 13, 1994.(13)

10.134 Mortgage and Assignment of Leases and Rentals by River City
Joint Venture in favor of New Orleans 2000 Partnership dated
July 13, 1994.(13)

10.135 Amended and Restated Partnership Agreement between Grand Palais
Riverboat, Inc. and Crescent City Capital Development Corp.
dated July 7, 1994.(13)

10.136 First Amendment dated June 1, 1994 to the Marketing Services
Agreement dated February 17, 1994 by and between the Registrant
and HFS Gaming Corp.(14)

10.137 Amendment effective as of October 1, 1994, to the Executive
Employment Agreement effective as of October 17, 1993, by and
between the Registrant and Clinton L. Pagano.(16)

10.139 Stock Option Agreement dated June 2, 1994, by and between
Registrant and William S. Papazian.

10.143 Stock Option Agreement dated August 24, 1994 by and between
Registrant and James F. Ahearn.

10.144 Letter Amendment to Warrant Agreements by and between
Registrant, Ladenberg, Thalmann & Company, Inc., and certain

affiliates, dated October 11, 1994 (without exhibits).(16)

10.145 Construction Agreement by and between Crescent City Capital
Development Corp., Grand Palais Riverboat, Inc., and Grimaldi
Construction, Inc., dated October 25, 1994 (without
exhibits).(17)

10.146 Stock Purchase Agreement by and between Registrant, Fidelity
Galileo Fund, L.P., and Fidelity Copernicus Fund, L.P., dated as
of March 30, 1995.(18)

10.147 Registration Rights Agreement by and between Registrant,
Fidelity Galileo Fund, L.P., and Fidelity Copernicus Fund, L.P.,
dated as of March 30, 1995.(18)

10.148 Riverboat Casino Operating Agreement by and between Crescent
City Capital Development Corp. and River Marine Services, Inc.,
dated as of January 13, 1995.(18)

10.152 Promissory Note dated March 27, 1995 between Crescent City
Capital Development Corp. and First National Bank of
Commerce.(18)

10.153 Commercial Guaranty dated March 27, 1995 between Registrant and
First National Bank of Commerce.(18)

10.154 Credit Agreement dated March 10, 1995 by and among River City
Joint Venture, Crescent City Capital Development Corp., Grand
Palais Riverboat, Inc., and First National Bank of Commerce.(18)

10.155 Promissory Note dated March 10, 1995 between River City Joint
Venture and First National Bank of Commerce.(18)

10.156 Mortgage dated March 9, 1995 between River City Joint Venture
and First National Bank of Commerce, relating to certain
property owned by the River City Joint Venture (the "Orange
Street Parcels").(18)

10.157 Mortgage dated March 9, 1995 between River City Joint Venture
and First National Bank of Commerce, relating to certain
property owned by the River City Joint Venture (the "Cusimano
Parcels").(18)

10.162 Employment Agreement dated May 30, 1995 by and between the
Registrant and Edward Tracy.(19)

10.163 Employment Agreement dated May 30, 1995 by and between the
Registrant and I.G. Davis, Jr.(19)

10.167 Buy-Out Agreement dated September 1, 1995 by and among
Registrant, Capital Gaming Management, Inc. and the Cow Creek
Band of Umpqua Tribe of Indians.(19)

10.168 Amendments to the January 13, 1994 Amended and Restated

Riverboat Construction Agreement by and between the Registrant,
Crescent City Capital Development Corp. and Bender Shipyard,
Inc. dated October 19, 1994, February 3, 1995, and February 9,
1995.(19)

10.169 First Preferred Ship Mortgage by Crescent City Capital
Development Corporation in favor of First Trust National
Association dated March 23, 1995.(19)

10.170 Engagement Agreement between Registrant and Donaldson, Lufkin &
Jenrette dated June 20, 1995.(19)

10.171 Employment Agreement dated May 17, 1996 by and between
Registrant and William S. Papazian.#

11.0 Computation of Earnings Per Share - Included on Page S-2.#

12.0 Computation of Ratio of Earnings to Fixed Charges - Included on
Page S-3.#

27. Financial Data Schedule#

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

# Filed herewith.

1 Incorporated by reference to the exhibit with the same number, filed in
connection with the Registrant's Form 10-K filed with the Securities and
Exchange Commission on September 28, 1992.

2 Incorporated by reference to the exhibit with the same number, filed in
connection with the Registrant's Post-Effective Amendment No. 5 to the
Registration Statement on Form S-1, File No. 33-36618, declared effective
by the Securities and Exchange Commission on November 21, 1990.

3 Incorporated by reference to the exhibit with the same number, filed in
connection with the Registrant's Post-Effective Amendment No. 6 to the
Registration Statement on Form S-1, File No. 33-36618, declared effective
by the Securities and Exchange Commission on November 21, 1990.

4 Incorporated by reference to the exhibit with the same number, filed in
connection with the Registrant's Post-Effective Amendment No. 8 to the
Registration Statement on Form S-1, File No. 33-36618, declared effective
by the Securities and Exchange Commission on November 21, 1990.

5 Incorporated by reference to the exhibit with the same number filed in
connection with the Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on September 27, 1993.

6 Incorporated by reference to the exhibit with the same number filed in

connection with the Registrant's Form 10-K filed with the Securities and
Exchange Commission on September 28, 1993.

7 Incorporated by reference to the exhibit with the same number filed in
connection with the Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on January 3, 1994.

8 Incorporated by reference to the exhibit numbered 10.109 filed in
connection with the Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on February 1, 1994.

9 Incorporated by reference to the exhibit with the same number filed in
connection with the Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on March 4, 1994.

10 Incorporated by reference to the exhibits numbered 10.110, 10.111,
10.112, 10.113, 10.114, 10.115, 10.116, 10.117, 10.118 and 10.119,
respectively, filed in connection with the Registrant's Current Report on
Form 8-K filed with the Securities and Exchange Commission on March 4,
1994.

11 Incorporated by reference to the exhibits with the same number, filed in
connection with the Registrant's Registration Statement on Form S-1, File
No. 33-79082, which was filed with the Securities and Exchange Commission
on May 18, 1994.

12 Incorporated by reference to the exhibits with the same number, filed in
connection with the Registrant's Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-1, File No. 33-79082, which was filed
with the Securities and Exchange Commission on July 11, 1994.

13 Incorporated by reference to the exhibit with the same number, filed in
connection with the Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on July 29, 1994.

14 Incorporated by reference to the exhibit with the same number, filed in
connection with the Registrant's Pre-Effective Amendment No. 2 to the
Registration Statement on Form S-1, File No. 33-79082, which was filed
with the Securities and Exchange Commission on August 11, 1994.

15 Incorporated by reference to the exhibit with the same number filed in
connection with the Registrant's Form 10-K filed with the Securities and
Exchange Commission on September 28, 1994.

16 Incorporated by reference to the exhibit with the same number filed in
connection with the Registrant's Registration Statement on Form S-1, File
No. 33-86094, which was filed with the Securities and Exchange Commission
on November 7, 1994.

17 Incorporated by reference to the exhibit with the same number filed in
connection with the Registrant's Pre-Effective Amendment No. 1 to the
Registration Statement on Form S-1, File No. 33-86094, which was filed
with the Securities and Exchange Commission on November 15, 1994.

18 Incorporated by reference to the exhibit with the same number filed in
connection with the Registration Statement on Form S-1, File No.
33-91024, which was filed with the Securities and Exchange Commission on
April 7, 1995.

19 Incorporated by reference to the exhibit with the same number filed in
connection with the Registrant's Form 10-K filed with the Securities and
Exchange Commission on October 12, 1995.

20 Incorporated by reference to the exhibit with the same number, filed in
connection with the Registrant's Current Report on Form 8-K filed with
the Securities and Exchange Commission on January 31, 1996.

21 Incorporated by reference to the exhibit with the same number, filed in
connection with the Registrant's Form 10-Q filed with the Securities and
Exchange Commission on May 10, 1996.

(b) Reports on Form 8-K.

No Current Reports on Form 8-K were filed for the fourth quarter of
the fiscal year ended June 30, 1996.

CAPITAL GAMING INTERNATIONAL, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

Independent Auditor's Report............................................... F-2
Consolidated Balance Sheets as of June 30, 1996 and 1995................... F-4
Consolidated Statements of Operations for the years ended
June 30, 1996, 1995 and 1994........................................... F-6
Consolidated Statement of Changes in Stockholders' Equity
for the years ended June 30, 1996, 1995 and 1994....................... F-8
Consolidated Statements of Cash Flows for the years
ended June 30, 1996, 1995 and 1994..................................... F-9
Notes to Consolidated Financial Statements................................. F-14

F-1

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders of
Capital Gaming, International, Inc.
West Atlantic City, New Jersey

We have audited the accompanying consolidated balance sheets of Capital
Gaming International, Inc. and its subsidiaries as of June 30, 1996 and 1995,
and the related consolidated statements of operations, changes in stockholders'
[deficit], and cash flows for each of the three fiscal years in the period ended
June 30, 1996. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Capital Gaming International, Inc. and its subsidiaries as of June 30, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended June 30, 1996, in conformity
with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 6 to the
consolidated financial statements, one of the Company's subsidiaries ceased
operations and was sold primarily because of the failure of its gaming
operations to generate sufficient revenue to satisfy operating costs. The
Company has also suffered recurring losses from, operations, has a working
capital deficit of approximately $118,000,000, and has a stockholders' deficit
of approximately $100,000,000. The Company has not been able to satisfy its debt
obligations and consequently is in default on substantially all of its debt.
Additionally, the Company is a party to various legal and other actions as a
result of the cessation of certain operations and defaults on debt as described
above. The ultimate liability resulting from those matters cannot presently be
determined. The above conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters, including the possible filing by Capital Gaming International, Inc. of
a voluntary petition for relief on a pre-negotiated basis under the
reorganization provision of Chapter 11 of the U.S. Bankruptcy Code, and its
planned restructuring are described in Note 26. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

As discussed in Note 2 to the financial statements, effective July 1, 1994,
the Company adopted Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of.

As discussed in Note 29 to the consolidated financial statements, the
Company restated its consolidated financial statements as of and for the year
ended June 30, 1996 to reflect an accrued expense relating to a marketing
services agreement.

As more fully described in Note 6, subsequent to the issuance of the
Company's June 30 1996 and 1995 financial statements and our report thereon
dated September 18, 1996, the Company revised its financial statements as a
result of comments from the Securities and Exchange Commission staff which
indicated that an item classified as a disposal of a segment should be
reclassified as continuing operations.

F-2

MOORE STEPHENS, P.C.
Certified Public Accountants.

Cranford, New Jersey
September 18, 1996

F-3

CAPITAL GAMING INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

ASSETS

June 30
-------------------------
1996 1995
[Restated]

CURRENT ASSETS:
Cash and Cash Equivalents $ 2,101,624 $ 1,187,241
Cash Held in Escrow [Note 3] 500,000 -
Interest Receivable 616,619 587,489
Native American Management Fees and Expenses Receivable 666,672 1,996,096
Current Portion - Native American Loan Receivable [Note 14] 3,696,165 1,029,694
Notes Receivable [Note 3] 35,000,000 -
Prepaid Expenses and Other Current Assets 206,327 212,883
----------- -----------
TOTAL CURRENT ASSETS 42,787,407 15,013,403

ASSETS HELD FOR SALE, net [Note 3 and 6] - 40,660,974

FURNITURE, FIXTURES AND EQUIPMENT, net [Note 12] 127,053 140,667

OTHER ASSETS
Restricted Cash [Note 4] - 4,063,558
Native American Loan Receivable [Note 14] 7,629,720 11,323,830
Investments in Native American Management Agreements, net of
accumulated amortization of $1,290,273 and $566,559 [Note 13] 2,677,053 3,294,550
Deferred Financing Costs, (net of accumulated amortization of
$3,303,686 and $1,873,055) [Note 10] 6,212,978 7,643,608
Deposits and Other Assets 188,175 370,654
Goodwill, (net of accumulated amortization of $110,760 and
$70,510) [Note 9] 425,784 466,059
----------- -----------

TOTAL OTHER ASSETS 17,133,710 27,162,259
----------- -----------

TOTAL ASSETS $60,048,170 $82,977,303
=========== ===========

The Accompanying Notes are an Integral Part of
these Consolidated Financial Statements.

F-4

CAPITAL GAMING INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

June 30
------------------------------
1996 1995
[Restated]

CURRENT LIABILITIES:
Accounts Payable and Accrued Expenses $ 9,943,087 $ 12,275,745
Accrued Professional Fees 1,916,880 1,920,610
Accrued Interest 23,277,243 6,505,172
Notes Payable - Current Maturity 1,289,390 1,683,007
Bank Line of Credit [Note 3 and 21] 2,000,000 2,000,000
Bondholder Consent Fee Note [Note 3] 1,350,000 1,350,000
Proportionate Share of Losses in Joint Venture in Excess of
Investments and Advances [Note 6 and 7] - 9,794,726
11.5% Senior Secured Notes Payable - net of $8,000,000 face
Treasury Bonds and unamortized Original Issue Discount of
$2,979,588 and $3,622,821 [Notes 4, 5, 8 and 10] 124,020,412 123,377,179
Funds Held by Trustee for Senior Secured Noteholders [Note 4] (22,488,686) -
Unsecured 11.5% Term Note Payable [Note 3] 19,000,000 -
------------- -------------

TOTAL CURRENT LIABILITIES 160,308,326 158,906,439

LONG-TERM DEBT:
Unsecured 11.5% Term Note Payable [Note 3] - 19,000,000
Notes Payable - Native American - 1,292,743
============= =============

COMMITMENTS AND CONTINGENCIES - -

STOCKHOLDERS' (DEFICIT): [Notes 11 and 15]
Preferred Stock, No Par Value, Authorized 5,000,000 Shares; None
Issue - -
Common Stock, No Par Value, Authorized 75,000,000 Shares; Issued
and Outstanding 19,329,574 and 19,329,574 Shares, respectively 37,617,099 37,617,099

Additional Paid In Capital 7,877,002 7,877,002

Accumulated (Deficit) (145,754,257) (141,715,980)
------------- -------------

TOTAL STOCKHOLDERS' (DEFICIT) (100,260,156) (96,221,879)
------------- -------------

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) $ 60,048,170 $ 82,977,303
============= =============

The Accompanying Notes are an Integral Part of
these Consolidated Financial Statements.

F-5

CAPITAL GAMING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended June 30,
---------------------------------------------
1996 1995 1994
[Restated]

REVENUES:
Native American Casino Management
Fees [Note 8] $ 7,663,059 $ 6,440,962 $ 1,723,819
Riverboat Gaming Revenues [Note 6] - 4,196,171 -
------------ ------------- ------------
Total Revenues 7,663,059 10,637,133 1,723,819

COSTS AND EXPENSES
Salaries, Wages and Related Costs 2,861,560 4,564,614 3,955,786
Gaming Development Costs 8,464 1,454,905 1,885,988
Native American Gaming Development Costs 1,899,475 2,146,481 1,605,424
Professional Fees 1,795,283 6,244,656 3,292,877
General and Administrative 2,033,699 3,654,110 2,597,908
Write-off of Native American Assets - 1,017,766 -
Depreciation and Amortization 939,631 398,067 395,344
Debt Restructuring Fee 600,000 - -
Bondholder Consent Fee and Related Costs [Note 3] - - 2,847,000
Cost of Operations of Riverboat Gaming Facility
[Note 6] 4,903,000 23,150,094 -
Costs of Disposal of Riverboat Gaming Assets - 69,276,883
------------ ------------- ------------

Total Costs and Expenses 15,041,112 111,907,576 16,580,327
------------ ------------- ------------
Loss From Operations (7,378,053) 101,270,443) (14,856,508)
Other Income [Expense]:
Interest Income 1,959,405 2,619,646 1,712,272
Interest Expense, net of Capitalized Interest (19,061,910) (18,225,375) (11,023,794)
Gain on Sale of Development Agreement 220,958 - -
Sale of Management Contract 3,000,000 - -
Gain on Disposal of Riverboat Gaming Assets [Note 6] 17,541,968 - -
------------ ------------- ------------
Total Other Income [Expense], net 3,660,421 (15,605,729) (9,311,522)
------------ ------------- ------------
Loss From Operations Before Income Tax (3,717,632) (116,876,172) (24,168,030)
Provision For Income Tax (Expense) Benefit (320,645) - 483,738
------------ ------------- ------------
[Loss] Before Extraordinary Item $ (4,038,277) $(116,876,172) $(23,684,292)
Extraordinary Item - Loss on Early
Extinguishment of Debt [Net of Income Tax] [Note 8] - (832,846) -
------------ ------------- ------------
Net [Loss] $ (4,038,277) $(117,709,018) $(23,684,292)
============ ============= ============

The Accompanying Notes are an Integral Part of
these Consolidated Financial Statements.

F-6

CAPITAL GAMING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Year ended June 30,
--------------------------------------
1996 1995 1994
[Restated]

EARNINGS [LOSS] PER SHARE:

Loss from Operations Before Extraordinary Item $(.21) $(6.82) $(1.68)

Extraordinary Item - (.05) -
----- ------ ------

Net [Loss] $(.21) $(6.82) $(1.68)
----- ------ ------

Weighted Average Number of Shares Outstanding 19,329,574 17,256,591 14,135,625
========== ========== ==========

The Accompanying Notes are an Integral Part of
these Consolidated Financial Statements.

F-7

CAPITAL GAMING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [DEFICIT]

Common Stock
---------------------------- Additional Accumulated
Shares Amount Capital [Deficit]
------------ ------------ ---------- -------------
[Restated]

Balance - June 30, 1993 12,746,326 $ 9,224,448 $ 22,564 $ (322,670)
Exercise of Warrants 860,756 2,025,049 - -
Repurchase of Common Stock (2,000,000) (8,000,000) - -
Issuance of Common Stock 4,912,291 24,711,455 - -
Issuance of Common Stock Purchase
Warrants - (474,987) 7,854,438 -
Equity Issuance Cost - (1,377,465) - -
Net Loss Year Ended June 30, 1994 - - - (23,684,292)
------------ ------------ ---------- -------------
Balance - June 30, 1994 16,519,373 $ 26,108,500 $7,877,002 $ (24,006,962)
Exercise of Common Stock Options 60,000 80,000 - -
Issuance of Common Stock 750,000 3,187,500 - -
Issuance of Common Stock in Exchange
for Debt 2,000,201 8,241,099 - -
Net Loss Year Ended June 30, 1995 (117,709,018)
------------ ------------ ---------- -------------
Balance - June 30, 1995 19,329,574 $ 37,617,099 $7,877,002 $(141,715,980)
Net Loss Year Ended June 30, 1996 - - - (4,038,277)
------------ ------------ ---------- -------------
Balance - June 30, 1996 19,329,574 $ 37,617,099 $7,877,002 $(145,754,257)
============ ============ ========== =============

The Accompanying Notes are an Integral Part of
these Consolidated Financial Statements.

F-8

CAPITAL GAMING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended June 30,
----------------------------------------------
1996 1995 1994
------------ ------------- -------------
[Restated]

OPERATING ACTIVITIES:
Net [Loss] from Operations $ (4,038,277) $(117,709,018) $ (23,684,292)
Adjustments to Reconcile Net Loss to
Net Cash Provided by Operations:
Loss on Early Extinguishment of Debt - 832,846 -
Loss on Sale of Assets 1,303 - -
[Gain] on Sale of Development Agreement (220,958) - -
Write-off of Native American Assets - 1,017,766 -
Depreciation and Amortization 939,631 398,067 395,344
Amortization of Original Issue Discount 643,233 673,392 249,501
Amortization of Advances and Deferred Financing Costs 1,430,630 1,441,753 827,787
Interest Charge in Connection with Termination of
Warrant - - 4,000,000
Other Non-Cash Charges - - 1,625,000
Equity in (Gain) Losses of Unconsolidated Affiliate 1,262,000 48,388,511 -
Reserve for Port of New Orleans Assets - 7,051,500 -
Write-off of Impaired Gaming Assets - 23,725,380 -
Depreciation and Amortization - 2,807,326 -
Adjustments to Basis of Disposed Assets (5,980,779) - -
[Gain] on Sale of Disposed Assets (17,542,802) - -
Proceeds from Sale of Riverboat Gaming Operations 15,000,000 - -
Cash Disbursed to Liquidating Trust (4,740,773) - -
Repayment of Debtor in Possession Financing of CCCD (3,009,227) - -
Accrued Expenses due to Liquidating Trust 7,000,000 - -
Accrued Expenses on Sale of Riverboat Gaming Operations 500,000 - -

Changes in Assets and Liabilities -
Net of Assets and Liabilities Acquired
[Increase] Decrease in:
Interest Receivable (29,130) (150,878) (436,611)
Income Taxes Receivable - 486,720 (84,266)
Prepaid Expenses and Other Current Assets (58,979) (193,751) 46,284
Management Fees and Expenses Receivable 1,329,424 (1,630,974) (90,141)
Deposits and Other Assets 6,163 (44,273) (226,381)
Increase [Decrease] in:
Accounts Payable and Accrued Expenses 1,496,364 12,407,884 1,096,331
Accrued Interest Expense 16,794,432 331,908 6,173,264
------------ ------------- -------------
Total Adjustments 14,820,532 97,543,177 13,576,112
------------ ------------- -------------
Net Cash - Operating Activities 10,782,255 (20,165,841) (10,108,180)

F-9

CAPITAL GAMING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended June 30,
----------------------------------------------
1996 1995 1994
------------ ------------- -------------
[Restated]

INVESTING ACTIVITIES:
Proceeds from Sale of Assets 292,240 - -
Investment in Property and Equipment - (35,083,517) (7,773,489)
Berth Infrastructure Reimbursement (Payments) - 500,000 (3,016,561)
Proceeds from Sale of Assets 1,571 112,500 -
Cash Held in Escrow - - (2,534,939)
Issuance of Notes Receivable - - (5,000,000)
Proceeds from Repayment of Notes Receivable - - 5,000,000
CMDI Acquisition Payment - - (112,500)
Cash Acquired with CMDI - - 196,725
Advances to Affiliates (335,172) (37,590,605) (1,045,025)
Gaming Asset Purchase - - (6,540,000)
Net Transfers (to) from Restricted Cash 4,063,558 89,398,474 (93,462,032)
Investments in Management Agreements (242,662) (3,037,193) (138,307)
Native American Casino Development Advances - - (1,505,988)
Repayment of Native American Casino
Development Advances/Loans 12,097,137 1,419,958 765,439
Loans to Tribes (1,069,498) (17,261,596) (1,281,733)
Cash Held in Escrow (500,000) -- -
------------ ------------- -------------
Net Cash - Investing Activities $ 14,307,174 $ (1,541,979) $(116,448,410)

The Accompanying Notes are an Integral Part of
these Consolidated Financial Statements.

F-10

CAPITAL GAMING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended June 30,
---------------------------------------------
1996 1995 1994
------------ ------------ -------------

FINANCING ACTIVITIES:
Proceeds from Issuance of Notes $ - $ 2,000,000 $ 135,000,000
Repayment of Equipment/Other Notes (1,686,360) (379,995) (16,200,000)
Proceeds from Exercise of Warrants and Options - 80,000 2,025,049
Proceeds from Common Stock Issuance - 3,187,500 24,711,455
Cash for Debt Issuance Costs - - (8,899,402)
Proceeds from Bridge Financing - - 4,000,000
Payments to Trustee for Senior Secured Noteholders (22,488,686) - -
------------ ------------ -------------

Net Cash - Financing Activities (24,175,046) 4,887,505 140,637,102
------------ ------------ -------------

Net Increase in Cash and Cash Equivalents 914,383 (16,820,315) 14,080,512

Cash and Cash Equivalents - Beginning of Periods 1,187,241 18,007,556 3,927,044
------------ ------------ -------------

Cash and Cash Equivalents - End of Periods $ 2,101,624 $ 1,187,241 $ 18,007,556
============ ============ =============

Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest (Net of Amounts Capitalized) $ 2,510,052 $ 17,251,844 $ 4,322,743
Income Taxes $ 320,645 $ - -

The Accompanying Notes are an Integral Part of
these Consolidated Financial Statements.

F-11

CAPITAL GAMING INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

In August 1993, the Company offset a receivable from a company for
$300,000 against an obligation to the same company for $300,000.

In November 1993, the Company issued a note payable for $8,000,000 in
exchange for 2,000,000 shares of common stock.

In December 1993, the Company issued a note payable for $4,000,000
and charged interest expense in lieu of the issuance of warrants to purchase
1,250,000 shares of the Company's common stock.

In connection with the issuance of debt and equity, the Company also
issued detachable purchase warrants. The value of these warrants were charged
to deferred financing costs, original issue discount and no par common stock in
the amounts of $2,595,387, $4,784,064 and $474,987, respectively, with an
offset to paid-in capital.

The Company capitalized interest of $1,473,522 and $233,645 during
the years ended June 30, 1995 and 1994, respectively, related to the
construction of the riverboat.

In connection with the acquisition of all of the common stock of
British American Bingo for $2,612,500, the Company acquired on October 1, 1993,
assets with a fair value of $3,353,738 and assumed liabilities of $1,546,769.
As a result, goodwill of $805,531 was recorded.

In April 1994, the Company purchased certain gaming assets for
$25,540,000 from an entity which held a 28% interest in the future profits of
a Company subsidiary. The Company paid cash of $6,540,000 and issued a note for
$19,000,000.

On March 31, 1995, the Company exchanged 1,961,290 shares of Common
Stock for $8,000,000 principal amount of Senior Secured Notes outstanding.
[See Note 7].

The Company's wholly owned subsidiary, CGMI, secured equipment
financing of $3,355,745 on behalf of the Native American Tribes whose
facilities the Company manages. Such amount is also included in the balance of
Native American Loans Receivable at June 30, 1995.

In May 1996, the Company sold all the outstanding common stock of its
wholly owned subsidiary, CCCD, for $50,000,000, plus assumption of equipment
liabilities of $6,500,000. The Company received cash of $15,000,000, a note for
$35,000,000 and Casino Magic assumed equipment Notes of $6,500,000.

In May of 1996, the Company, as guarantor, assumed the liability from
CCCD of the bank note payable of $2,000,000 to FNBC.

F-12

CAPITAL GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

[1] ORGANIZATION AND BUSINESS

Capital Gaming International, Inc. (the "Company"), together with its
subsidiaries, is a multi-jurisdictional gaming company with gaming management
interests with Native American Tribes in several states. The management of
Native American gaming facilities is conducted through Capital Gaming
Management, Inc. ("CGMI"), a wholly owned subsidiary of the Company. The
development of the Narragansett Casino Project is conducted through Capital
Development Gaming Corp., (CDGC) a wholly owned subsidiary of the Company. The
Company previously had an interest in Crescent City Capital Development Corp.
("CCCD"), a wholly owned subsidiary which had a 50% interest in a joint venture
riverboat gaming facility in New Orleans, Louisiana (the "River City Joint
Venture"). The gaming facility ceased operations in June of 1995 and the River
City Joint Venture was terminated in July of 1995. On July 26, 1995 a
involuntary bankruptcy petition was filed against CCCD seeking reorganization
under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Case"). On July
28, 1995 CCCD consented to the entry of an order for relief in the Bankruptcy
Case. Since such order, CCCD continued to manage its business and properties as
a debtor-in-possession. On May 13, 1996, the Company sold the assets and its
remaining interest in CCCD to a wholly owned subsidiary of Casino Magic
Corporation (CMC) for cash, notes and the assumption of certain liabilities in
an aggregate amount of $56.5 million (see gain on disposal of Gaming assets).
[See Note 6].

In order to enter the Native American, riverboat, dockside casino or
any other aspect of the gaming industry, the Company will be subject to
regulation by each state in which it conducts business, and to a certain extent
under Federal, Tribal and (in some cases) state law with respect to Native
American gaming. In jurisdictions where gaming has recently been legalized,
gaming cannot begin until a licensing and regulatory framework is promulgated
and regulatory commissions are appointed, staffed and funded. The regulatory
framework adopted by any jurisdiction may impose delays in licensure,
restrictions or costs that would materially detract from the profitability of
gaming operations. The Company must obtain a gaming license for each location
where it will operate or manage a gaming casino, and each of the Company's
officers, directors, managers and principal shareholders are subject to strict
scrutiny and approval of the gaming commission or other regulatory body of each
state in which the Company may conduct gaming operations. In addition, gaming
on Native American lands is extensively regulated, and the terms and conditions
of management contracts must be approved by the Tribes and certain regulatory
entities. Changes in the interests of principals must be approved, and the
Company and certain of its principals must be licensed, by Tribal and, in some
cases, state authorities. There can be no assurance that the Company or any of
its key personnel will obtain the requisite licenses and approvals of the
various state and Tribal gaming commissions and the NIGC in a timely fashion,
if at all.

The Company must also obtain liquor licenses from state regulatory
agencies for each of its proposed operations. Rules and regulations in this
regard are strict and the loss of such licenses is possible for regulatory
violations. The loss or suspension of a liquor license could significantly
impact a licensee's operations. Local building, health and fire codes and
similar regulations could also impact the Company's operations. Violations of
any of such statutes, codes or regulations could have a material adverse impact
on the financial condition or operations of the Company.

F-13

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

As a result of CCCD's reorganization and sale, the Company is now
focusing all of its efforts on (i) restructuring the Company's debt, (ii)
maintaining its remaining gaming management contracts with Native American
Tribes, (iii) developing the Narragansett Casino, and (iv) seeking new gaming
opportunities. In the event the Company is unable to satisfactorily restructure
its debt, the Company may be compelled to seek relief under the reorganization
provisions of Chapter 11 of the Bankruptcy Code.

[2] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned
subsidiaries - Capital Gaming Management, Inc. and Capital Development Gaming
Corp. Intercompany balances and transactions have been eliminated.

The payment of principal and interest of the Company's 11.5% Senior
Secured Notes due 2001 are unconditionally guaranteed by CGMI. The guarantor is
a wholly owned subsidiary of the Company and its guaranty is full,
unconditional, joint and several. Summarized financial information for CGMI has
been provided in Note 9 to the consolidated financial statements. The
non-guarantor subsidiary of the Company, Capital Development Gaming Corp., is
inconsequential to the Company as of June 30, 1996.

Revenue Presentation and Recognition - The revenues recognized in
these financial statements from continuing operations are those of CGMI and
represent management fees derived primarily from Class III (gaming) facilities
in 1996 and 1995 and from Class II (primarily bingo), facilities in 1994.
Management fees are recognized as revenue when earned based upon earnings
sharing arrangements detailed in the respective management contracts with the
Native American Tribes. Revenue is also recognized from operation of the
Riverboat Gaming Facility which was closed in June of 1995 and is based on the
Net Win from Gaming activities which is the difference between Gaming wins and
losses.

Cash and Cash Equivalents - The Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents. Cash equivalents are carried at cost which approximates market

value.

Impairment - Certain long term assets of the Company, including
Goodwill, Acquired Gaming Assets, and Investments in Native American Management
Agreements are reviewed at least annually as to whether their carrying value
has become impaired, pursuant to guidance established in Financial Accounting
Standard 121, "Accounting for the Impairment of Long Lived Assets." Management
considers assets to be impaired if the carrying value exceeds the future
projected cash flows from related operations (undiscounted and without interest
charges). If impairment is deemed to exist, the assets will be written down to
fair value or projected discounted cash flows from related operations.
Management also re-evaluates the periods of amortization to determine whether
subsequent events and circumstances warrant revised estimates of useful lives.
As of June 30, 1996 management expects these assets to be fully recoverable
based on revised carrying amounts of assets, some of which were substantially
written down in 1995. [See Note 3].

Excess of Purchase Price Over Fair Value of Assets Acquired -
Goodwill arising from the CGMI acquisition is being amortized using the straight
line method over a period of 20 years.

F-14

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Original Issue Discount and Deferred Financing Costs - Original issue
discount is amortized over the seven year life of the senior secured notes
using the straight line method. Costs associated with the issuance of debt are
deferred and amortized over seven years using the straight-line method.
Amortization is included in "Interest Expense" in the statement of operations.
A pro-rata amount of these assets were reduced with the repurchase of
$8,000,000 face amount of outstanding notes. [See Note 8].

Depreciation - Office furniture and fixtures are recorded at cost
and depreciated using the straight line method over the estimated useful life -
primarily 4 to 8 years.

Net (Loss) Income Per Share of Common Stock - Net income (loss) per
share of common stock is computed on the basis of the weighted average shares
of common stock outstanding. The loss per share is computed without
consideration for contingently issuable shares underlying stock options and
warrants as the effect on earnings per share would be anti-dilutive. Fully
diluted and primary earnings per share are the same for all periods presented.

Reclassifications - Certain reclassifications have been made to
prior year financial statements to conform with classifications used in the
current year.

Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and

liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.

[3] THE NEW ORLEANS RIVERBOAT PROJECT (Assets Held For Sale)

The Grand Palais and Crescent City Queen riverboats operating through
the River City Joint Venture, in which CCCD held a 50% interest, ceased gaming
operations on June 6, 1995 and June 9, 1995, respectively, primarily due to a
failure of the gaming operations to generate sufficient revenue to satisfy
operating costs. As a result, CCCD became a debtor-in-possession in a case
under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court
for the Eastern District of Louisiana (the "CCCD Reorganization Case"). The
Reorganization Case was originally filed as an involuntary Chapter 11 petition
on July 26, 1995 and was converted to a voluntary case under Chapter 11 on July
28, 1995. The Grand Palais riverboat and River City Joint Venture's
entertainment pavilion and docking facility commenced operations on March 29,
1995 and the Company's Crescent City Queen riverboat commenced operations on
April 4, 1995. From the commencement of gaming operations until termination of
same on June 9, 1995, CCCD incurred operating losses of approximately
$10,061,000. The revenues derived during the period of operation of the River
City Joint Venture were approximately 66% below the revenues projected by the
Company. As a result of project cost overruns in excess of $30 million and the
failure of the River City Casino to generate sufficient revenue to cover
operating costs, CCCD determined they could no longer continue funding
operating losses. On July 28, 1995, CCCD filed a voluntary petition seeking
reorganization under Chapter 11 of the U.S. Bankruptcy Code. [See Note 21]

F-15

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Subsequent to and in connection with the bankruptcy proceedings, the
Company entered into an agreement with a wholly owned subsidiary of Casino
Magic Corp. (CMC) to sell 100% of the stock and substantially all the assets of
the Crescent City subsidiary in consideration for the following:

Notes $35,000,000
Cash 15,000,000
Assumption of equipment liabilities 6,500,000
-----------
$56,500,000

The $35,000,000 note had an interest rate of 11-1/2% per annum,
payable quarterly beginning August 13, 1996. The principal amount of the notes
was due no later than May 13, 1999 and was guaranteed by CMC. The note was paid
in full on July 29, 1996.

The difference between the amounts realized and the investment in
the Crescent City subsidiary have been accounted for as a gain from disposal
(See Note 6).

In connection with the sale, the Company agreed to indemnify the
purchaser for any undisclosed liabilities which are discovered within 36 months
after the closing. The Company was required to place in escrow $500,000 until
May 13, 1997 to partially secure the potential indemnification obligation.

Purchase of Real Property - Crescent City originally intended to
locate the New Orleans Riverboat Project at the Julia Street Wharf in downtown
New Orleans. The Partners re-examined that location and decided to move to an
alternative site on and adjacent to an approximately 51-acre parcel of
riverfront land which is approximately 3/4 mile upriver from the Julia Street
Wharf (the "New Orleans 2000 Property"). On June 24, 1994, the holders of the
Company's Senior Secured Notes consented to the relocation of the New Orleans
Riverboat Project. Pursuant to the consent, the Company paid $1,350,000 on June
30, 1994 and executed a note payable for $1,350,000 due August 1, 1995 in favor
of the noteholders. The Company did not make this payment on August 1, 1995,
resulting in a default of the Company's Indenture Agreement.

The Partners acquired title to the New Orleans 2000 Property at a
closing on July 14, 1994 (the "Closing"). The Land Purchase Agreement provides
for a purchase price of $37,500,000, subject to certain prorations and credits.
The purchase price was paid $15,000,000 in cash at Closing and $22,500,000 in
the form of a purchase money note and mortgage (the "Mortgage") in favor of the
seller which is a first lien on the New Orleans 2000 Property. The Mortgage has
a term of five years, provides for quarterly payments of interest at a rate
equal to the prime rate as published in the Wall Street Journal, calculated
monthly, and requires principal payments from the Riverboat Joint Venture in
the amount of $1,500,000 on each anniversary date of the Mortgage, with the
remaining principal and accrued interest due at the end of the fifth loan year.
Due to failure to make the July 1995 principal payment and interest payments
and the occurrence of other conditions, the River City Joint Venture is in
default. On July 7, 1995, the seller filed suit. [See Note 5].

Bank Line of Credit - On March 28, 1995, CCCD entered into a loan
agreement with First National Bank of Commerce ("FNBC") which was guaranteed by
the Company. Pursuant to the terms of this agreement, CCCD received a $2
million working capital Line of Credit from FNBC for a period of ninety (90)
days. In April 1995, this credit facility was utilized to provide CCCD with $2
million used for construction requirements. The Note bears interest at a rate
of prime plus 2%. Borrowings against this facility were due June 27, 1995. CCCD
was not able to repay the obligation thereby causing a default under the
agreement. FNBC has filed suit against Capital Gaming International, Inc. and
there is a likelihood that their suit will succeed. The Company has recorded a
liability in the amount of $2,500,000 which included the original Note of

F-16

$2,000,000 plus interest and costs of $500,000. The entire amount was added to
the basis of the disposed assets and is included in the gain from disposal.
This amount is based upon the estimated amount of judgement arising from
litigation related to the Note and accordingly, actual amounts may differ from
this estimate in the near term.

F-17

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Berth Infrastructure Reimbursement Agreement - CCCD had contemplated
locating the New Orleans Riverboat operation at the Julia Street Wharf and in
September 1993 entered into a Berth Infrastructure Reimbursement Agreement with
the Board of Commissioners of the Port of New Orleans [the "Dock Board"]
pursuant to which CCCD agreed to pay for costs of certain interrelated
infrastructure improvements in the amount of $7,551,500. The total costs of the
berth infrastructure improvements were to be borne equally by CCCD, Grand
Palais and one other holder of a preliminary riverboat gaming license. In order
to fund its reimbursement obligations to the Port, CCCD had posted a $7,551,500
Stand-by Letter of Credit issued by First National Bank of Commerce ["FNBC"] in
New Orleans, Louisiana pursuant to which the Port had the right to draw down on
the Stand-by Letter of Credit as work progressed. The Company has also issued a
warrant to FNBC to purchase 50,000 shares of the Company's common stock at the
exercise price of $9.00 per share.

In February 1994, CCCD terminated its letter of credit and loan
agreement with FNBC by paying $1,179,513 in principal, representing funds
disbursed for improvements, and $3,502 in interest to FNBC. Crescent City
replaced the letter of credit with an escrow account for the benefit of the
Port. As of June 30, 1994, the escrow account held $4,534,939 and a total of
$3,016,561 has been disbursed for improvements. The $3,016,561 was recorded as
a prepaid rental and was to be amortized over the 10 year term of the berthing
agreement with such amortization commencing when the berthing improvements were
finished and placed in service. As of June 30, 1995 these assets had been
reserved for and were fully disposed of as of June 30, 1996.

On June 9, 1995, the Dock Board notified CCCD, Grand Palais Riverboat
Inc. and River City Joint Venture that each of them were in default of the
Terminal and Use Agreement between the Dock Board and the River City Joint
Venture for the failure of the River City Joint Venture to operate the terminal
as required on a continuous day-to-day basis. On the same day, the Dock Board
also notified CCCD that it was in default of its Berthing Agreement as a result
of CCCD's closure of its gaming vessel and discontinuance of its day-to-day
operations.

Acquisition of Certain Gaming Related Assets - In developing its
Louisiana operations, the Company had reached an agreement, as amended, in
principal with Republic Corporate Services, Inc. ("Republic") pursuant to which
the parties formed a joint venture in which Republic received 20% of the
pre-tax profits and an additional 8% of pre-tax profits (limited to $1,600,000
annually) of CCCD, in return for which the Company received the right to 40% of
Republic's pre-tax profits as well as certain consulting, public relations and
marketing and marketing support services. Republic granted the Company an
option in August 1993 to purchase Republic's profit interest in CCCD for $26
million. The granting of the option required a $300,000 payment to Republic and
is included in "Gaming Development Costs" in the Statement of Operations for

the year ended June 30, 1994.

F-18

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Effective April 26, 1994, the Company exercised its option to purchase
from Republic their minority interest in the future profits of CCCD. In May
1994, the Company was repaid the loan of $5,000,000, which it made to Republic
in February 1994, together with interest of $93,150. The Company then paid
$7,000,000 toward the buy-out and executed a promissory note payable to
Republic for $19,000,000. As a result of the closing, the Company was entitled
to all profits of the New Orleans Riverboat operation.

The purchase price of $26,000,000 was allocated based on independent
appraisal to various gaming assets. On June 30, 1995, management of the Company
determined the carrying value of these acquired gaming assets would not have an
available future revenue or cash flow stream to support any cost recovery.
Hence, effective June 30, 1995, the Company charged to earnings $23,725,000
representing the unamortized balance of the assets. This charge is included in
"Costs of Disposal of Riverboat Gaming Assets." The amortization for the year
ended June 30, 1995 of $1,765,000 is included in "Costs of Operations of the
Riverboat Gaming Facility." [See Note 6].

Term Note Payable - In connection with the buy-out of Republic's
profit interest in Crescent City, the Company executed an unsecured promissory
note payable to Republic for $19,000,000. The note bears interest at 11.5% per
annum and requires semi-annual interest payments in April and October until its
maturity on April 26, 2002 when all principal becomes due.

In October 1994 and April 1995, the Company made each of the required
interest payments of this term note totaling $2,185,000. As a result of the
cessation of the Company's New Orleans operations on June 9, 1995, and the
resultant Chapter 11 Petition filed by the Company's wholly owned subsidiary,
CCCD, and other reasons, the Company did not make the required interest
payments under the note. As a result, the Company is in default under the note
agreement. [See Note 5].

[4] FUNDS HELD BY TRUSTEE FOR SENIOR SECURED NOTEHOLDERS

As of June 30, 1996, approximately $22.5 million was held by the
Trustee for Senior Secured Noteholders against obligations owed by the Company
to the Noteholders in the amount of approximately $124 million. The obligations
included Senior Secured Notes - $127 million, consent fee note payable of $1.35
million and accrued interest of approximately $20.7 million. The funds held
represent the approximate $7.6 million Muckleshoot loan repayment, $2.8 million
net Cow Creek buy-out payment, approximately $.8 million of Cow Creek loan
repayment, approximately $3.2 million in unused restricted cash, approximately
$1.3 million paid to noteholders from the $2.0 million debtor in possession
financing obtained from Mirage in December 1995 and approximately $6.8 million
paid to noteholders from the sale of the CCCD subsidiary to Casino Magic, Inc.
All such funds were directly paid and/or returned to the Trustee. As management

is currently negotiating with the noteholders to restructure the outstanding
debt, the specific application of these repayments among the three different
noteholder obligations is not known at this time. The balance sheet as of June
30, 1996 therefore reflects approximately $22.5 million as a contra-liability
related to Senior Secured Noteholder indebtedness. Interest expense for the
year ended June 30, 1996 and total accrued interest as of June 30, 1996 has
been recorded based on the total $127 million in outstanding Senior Secured
Notes.

In addition, the trustee held $28.0 million face amount of Notes due
from Casino Magic as a result of the sale of CCCD. These Notes are classified
in the Balance Sheet as Notes Receivable in the amount of $35.0 million and
accrued expenses in the amount of $7.0 million.

F-19

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

[5] DEFAULT ON INDEBTEDNESS

On June 13, 1995, First Trust National Association, the Trustee with
respect to the issuance of the Company's 11-1/2% Senior Secured Notes due 2001
(the "Senior Secured Notes") notified the Company of the occurrence of events
of default ("Events of Default") under the Company's Indenture (the
"Indenture"). The Senior Secured Notes were guaranteed by the CCCD and CGMI
subsidiaries. The Events of Default cited by the Trustee related to the
assertion of various claims of creditors against Collateral, as defined in the
Company's Indenture, which was pledged to secure repayment of the Senior
Secured Notes. In addition, on June 13, 1995, the Trustee also notified First
National Bank of Commerce ("FNBC") - the Company's Collateral Agent - that FNBC
could not make further disbursements from cash collateral accounts established
pursuant to the Indenture until directed by the Trustee. The Company also
failed to make interest payments on its Senior Secured Notes of $7,302,500 each
on August 1, 1995, February 1, 1996 and August 1, 1996, and a $1,350,000
consent fee payment which was due to the holders of the Senior Secured Notes on
August 1, 1995. Such consent fee was previously incurred to allow the
relocation of the Company's New Orleans River City Casino. The Company's
failure to make the August 1, 1995 interest and consent payments and the
February 1, 1996 interest payment are Events of Default under the Indenture.

The Company's Indenture also contains certain covenants regarding
maintenance of consolidated net worth levels, the maintenance of ratios between
earnings before income taxes, depreciation and amortization and certain fixed
charges of the Company. As of the date hereof, it does not appear that the
Company will be in a position to satisfy many of the financial covenants
contained in the Indenture and accordingly the Trustee is in a position to
declare further Events of Default with respect to the breach of these financial
covenants.

As a result of the monetary and non-monetary Defaults under the
Indenture, the holders of the Senior Secured Notes are entitled to all of the

remedies contained in the Indenture, including but not limited to acceleration
of the Senior Secured Notes and foreclosing on the Collateral pledged by the
Company to the Trustee which includes, among other things, the management fees
derived from the management agreements between CGMI and the Native American
Tribes. Furthermore, the security agreements entered into by the Company
provide remedies to the holders of Senior Secured Notes including a requirement
to transfer any proceeds received in respect of any dispositions of Collateral
from and after the occurrence of an Event of Default as defined in the
Indenture.

On June 21, 1995, the New Orleans 2000 Partnership, the mortgagee of
real property owned by River City (the "New Orleans 2000 Property"), provided
notice of various defaults under its first mortgage to CCCD, River City Joint
Venture and Grand Palais. An event of default under this mortgage constitutes
an Event of Default under the Indenture.

In addition, certain of the loan transactions the Company has entered
into as a borrower with third-party lenders contain cross-default provisions
with the Indenture, including the $2.0 million working capital line of credit
from FNBC acquired on March 28, 1995. Accordingly, the Events of Default under
the Indenture places the Company in default under such loan transaction.

F-20

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

However, the Company does not believe the holders of the Senior
Secured Notes will exercise their remedies where the exercise of such remedies
would prevent CGMI from continuing its operations as manager of several
existing Native American gaming facilities.

[6] LOSS FROM OPERATIONS AND GAIN (LOSS) ON DISPOSAL OF GAMING ASSETS

On June 9, 1995, the Company's riverboat casino operations in New
Orleans was forced to cease operations due primarily to significant revenue
shortfalls which contributed to operating losses that the Company could not
continue to fund. On July 26, 1995, CCCD was involuntarily petitioned for
reorganization under Chapter 11 of the Federal Bankruptcy Code by certain
creditors. On July 28, 1995, the petition was changed to a voluntary filing.
[See Note 3]. On May 13, 1996 the remaining assets of the CCCD subsidiary were
sold to a wholly owned subsidiary of Casino Magic, Inc. The Company's wholly
owned subsidiary, CCCD, reported a loss from operations for the three months
ended June 30, 1995 of approximately $10,061,000, including approximately
$5,094,000 in losses from the 50% interest in River City Joint Venture. The
subsidiary's operating loss for the years ended June 30, 1996 and 1995
approximated $4,903,000 and $17,189,000 respectively. (These losses exclude
CCCD's share of the significant write-down for impaired assets incurred by the

Joint Venture and $1,765,000 in 1995 in amortization of certain assets of
CGI.). Subsequent to the closing of the riverboat, the Board of Directors
believed it was necessary to seek an acquiror for the riverboat vessel and its
gaming equipment contents. The operations of CCCD for the years ended June 30,
1996 and 1995 had previously been segregated and presented in the Statement of
Operations as discontinued operations. However, in response to SEC comments,
the company has re-issued these financial statements to reflect the operations
and sale of the Riverboat Gaming Facility as continuing operations. The gain on
disposal of the Riverboat Gaming Assets of approximately $17,543,000 is
comprised of the sale price net of assumed debt of $50,000,000 less repayment
of advances from Casino Magic of $989,000, the net assets (assets less
liabilities) of the Crescent City subsidiary of $15,207,000, the repayment of
the Mirage DIP Financing of $2,020,000, the assumption of the FNBC debt of
$2,500,000 and amounts retained by the liquidating trust of $11,741,000. The
loss on disposal of the Riverboat Gaming Assets for year ended June 30, 1995 of
approximately $69,277,000 is comprised of a $38,500,000 charge for impaired
assets, charges for the reserve of cash held in escrow and prepaid rent of $2.2
million and $4.8 million, respectively, representing funds escrowed for the
Port of New Orleans use and funds already disbursed to the Port of New Orleans
and classified as prepaid rent, and the write-off of acquired gaming assets of
$23,725,000 recorded by Capital Gaming International, Inc.

F-21

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Summarized financial information of Crescent City Capital Development
Corp. as of and for the years ended June 30, 1996 and 1995 is as follows:

1996 1995
---- ----

Assets:
Current assets - $ 210,826
Riverboat vessel and related equipment - 40,660,875
------------ ------------
- 40,871,701
============ ============
Liabilities:
Current liabilties - 14,842,835
Proportionate share of unconsolidated affiliates - 14,178,073
losses in excess of investment
Due to parent (CGI) - 76,446,880
Accumulated deficit - (64,596,087)
------------ ------------
- $ 40,871,701
============ ============
Summary of Operations:
Revenues - 4,196,171
Pre-opening expenses - 7,905,785
Operating expenses 3,642,000 13,917,431
Net loss from operations (3,642,000) 17,188,831
Cost of Disposal of Riverboat Gaming Assets - 45,551,500
Gain (Loss) on disposal of Riverboat Gaming Assets 17,541,968 _

[7] INVESTMENT IN UNCONSOLIDATED AFFILIATE

The River City Joint Venture ("RCJV") was a general partnership formed
to develop, own and operate a common berthing terminal from which CCCD and
their partner's riverboat casino operated. Crescent City's 50% interest in
River City Joint Venture has been accounted for under the equity method. Under
this accounting method, CCCD records 50% of the losses incurred by RCJV. CCCD's
share of losses of River City Joint Venture included in consolidated
accumulated deficit is approximately $49,650,000 and $48,388,000 at June 30,
1996 and 1995 respectively, and represents CCCD's 50% share of losses for the
years then ended. It is inclusive of a $38,500,000 charge for the impairment of
River City's terminal facility which is discussed below.

In development of this facility, RCJV recorded approximately $102

million as the cost for the land, building and improvements of the terminal
facility. The land is encumbered by a first mortgage held by the seller of the
property in the amount of $22.5 million and an additional pledge to First
National Bank of Commerce in the amount of $2.5 million. RCJV defaulted on both
of these obligations. In accordance with Financial Accounting Standards #121,
"Accounting for the Impairment of Long-Lived Assets and the Impairment of
Long-Lived Assets to be Disposed of," the RCJV was required to write-down the
carrying cost of the land and building to a fair value. As of June 30, 1995,
RCJV recorded a charge of $77 million in reducing the carrying cost of these
assets down to approximately $25 million, the estimated fair market value. This
valuation is deemed to be conservative while representing management's best
estimate of a disposal value. Management has considered such factors as the
poor performance of the New Orleans gaming market as a whole, the lack of
interest in the terminal facility by potential gaming acquirors with which
management negotiated for the sale of the riverboat, the structural
characteristics of the facility and possible required modifications for use in
a non-gaming capacity. Accordingly, CCCD has incurred 50% of the $77 million

F-22

write-down charge or $38.5 million with such charge included in "Loss on
Disposal of Gaming Assets" in the Statement of Operations for the year ended
June 30, 1995. [See Note 6].

F-23

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Summarized unaudited financial information for River City Joint
Venture as of and for the years ended June 30, 1996 and 1995 is as follows:

Summary of Operations: 1996 1995
---- ----

Pre-opening costs $ - $ 9,558,418
Operating costs 2,524,000 10,556,663
------------- -------------

Net loss from operations 2,524,000 20,145,081
Write-down of impaired assets - 77,000,000
------------- -------------

Net loss year ended June 30 $ 2,524,000 $ 97,145,081
============= =============

[8] EXCHANGE OF DEBT FOR EQUITY AND PRIVATE PLACEMENT OF COMMON STOCK

On March 30, 1995, the Company entered into an agreement (the
"Fidelity Agreement") with certain funds managed by Fidelity Investments, who
held certain of the Company's outstanding Senior Secured Notes (the "Fidelity
Funds"). Pursuant to the Fidelity Agreement, the Company issued to the Fidelity
Funds, an aggregate of 2,750,201 shares of Common Stock (the "Fidelity Shares")
in connection with (i) the exchange of 1,961,290 shares of Common Stock for
$8,000,000 aggregate principal amount of Senior Secured Notes owned by the
Fidelity Funds, (ii) the payment of accrued interest on the Senior Secured
Notes by the issuance of 38,911 shares of Common Stock and (iii) the sale, in a
private placement, of 750,000 shares of Common Stock at the purchase price of
$4.25 per share, or an aggregate purchase price of $3,187,500 (collectively,
the "Fidelity Transaction"). The Fidelity Transaction lowered the Company's
annual interest expense by approximately $1,041,000. Additionally, as a result
of the Fidelity Transaction, stockholder's equity reflects an increase of
$10,595,753. The exchange of common shares for debt resulted in a loss in 1995
from early extinguishment of debt of $832,846. This is reflected as an
extraordinary item in the June 30, 1995 statement of operations. The loss is
primarily a result of the write-off of unamortized original issue discount and
unamortized deferred finance costs related to the $8,000,000 of notes retired.
There are no income taxes associated with this extraordinary item.

The reacquired Senior Secured Notes with an aggregate face value of
$8,000,000 have been placed in treasury. The Company's board of directors
approved the holding and non-cancellation of the Notes for future consideration
of issuance. Interest will not accrue on these obligations while in treasury.

F-24

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

[9] NATIVE AMERICAN GAMING OPERATIONS

Facility Openings and Summarized Financial Information - On March 10,
1995, the Umatilla Tribe opened the 40,000 square foot Wildhorse Gaming Resort
in Pendleton, Oregon. This facility, under management by the Company offers 300
video slot machines, keno, non-banking table games, off-track betting (OTB) and
high stakes bingo. The first phase of this development opened on November 5,
1994. During the periods ending June 30, 1996 and 1995 the facility produced
approximately $3,210,000 and $1,365,000 respectively in management fees for the
Company.

On April 27, 1995, the Tonto Apache Tribe opened the 32,000 square
foot Mazatzal Casino located north of Phoenix, Arizona. The casino features 318
slot machines, keno, non-banking table games and high stakes bingo. The
Company, as manager of the casino, collected approximately $1,961,000 and
$305,000 in management fees for the periods ending June 30, 1996 and 1995
respectively.

CGMI currently has management contracts for three operating Native
American facilities. The loss of any one contract could result in a significant
negative impact in the near term.

F-25

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Summarized financial information of CGMI is provided below. For the
years ended June 30, 1996 and 1995 the net income (loss) reflects approximately
$1.9 million and $2.2 million respectively in interest expense to the parent
and approximately $0 and $ .5 million respectively in interest income earned on
restricted cash.

June 30, 1996 June 30, 1995
------------- -------------

Assets:
Current Assets $ 4,619,500 $ 18,022,417
Non-Current Assets 10,832,031 15,999,648
--------------- ---------------
15,451,531 34,002,065
=============== ===============

Liabilities:
Current Liabilities 1,479,898 4,718,728
Due to Parent 6,340,071 26,841,005
Non- Current Liabilities - 1,292,743
Net Book Value 7,631,562 1,169,589
--------------- ---------------
$ 15,451,531 $ 34,002,065
=============== ===============

Management Fee 7,663,059 6,440,962

Acquisition of CGMI - In March 1993, the Company signed a stock
purchase agreement to purchase all of the 630 shares of outstanding voting
common stock of British American Bingo, Inc. for a purchase price of $2,500,000.
The closing under the Stock Purchase Agreement occurred on November 19, 1993
and a final additional payment of $112,500 was made on that date for
additional assets. On August 11, 1994, British American Bingo, Inc.
changed its name to Capital Gaming Management, Inc. ("CGMI").

The acquisition of CGMI was recorded under the purchase method of
accounting. Accordingly, the total purchase price of $2,612,500 was allocated
to assets acquired and liabilities assumed based on their estimated fair
values. Expenses of the acquisition were not material. The excess of purchase
price over fair value of assets and liabilities acquired has been recorded as
goodwill and is being amortized over 20 years using the straight-line method.
Amortization for the years ended June 30, 1996 and 1995, was $40,250 and
$40,250, respectively.

Condensed balance sheet data for the acquired net assets is as

follows:

Current Assets, (including cash of $196,725) $ 612,344
Land and Other Assets 167,912
Investment in Native American Management Agreements - Net 1,577,653
Native American Casino Development Advances 995,829
Liabilities (1,546,769)
--------------
Fair Market Value of Net Assets $ 1,806,969
Purchase Price 2,612,500
--------------
Goodwill $ 805,531
==============

F-26

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Subsequent to the acquisition the Company recorded a write down of the
goodwill in the amount of $268,909.

National Indian Gaming Commission Approval - In August 1994 CGMI's
management contract with the Umatilla Tribe was approved by the National Indian
Gaming Commission (NIGC). The approval follows an extensive background
investigation by the NIGC into the Company's past and current business
activities and practices as well as the Companies "key employees" and
management personnel. Additionally, the NIGC approved the Company's management
contracts with the Tonto Apache Tribe and Muckleshoot Tribe. The management
contract's provisions were not significantly modified as a result. The
Company's management contract with the Cow Creek Band of Umpquas was previously
approved under regulations administered by the Bureau of Indian Affairs. The
Company's management contract with the Narragansett Tribe is currently pending
NIGC approval.

[10] DEBT TRANSACTIONS

The Company has been notified by Senior Secured Noteholders of various
default conditions under the Indenture Agreement. [See Note 5].

Private Placement of Notes - On February 17, 1994, the Company issued
$135,000,000 aggregate principal amount of Series A 11-1/2% Senior Secured
Notes due 2001 ("A Notes") pursuant to a private offering. The Company
structured the offering of the Notes as a private placement to be followed by
an exchange offer of Series B 11-1/2% Senior Secured Notes due 2001 ("B Notes")
for A Notes (the "Exchange Offer") in order to raise funds on a more
expeditious basis than would have been possible had the initial sale been
pursuant to an offering registered under the Securities Act. Such funds were
required in order to proceed with various projects in which the Company is
involved. The purchasers of the A Notes, as a condition to such purchase,

requested that the Company agree to commence the Exchange Offer following the
Private Offering. The terms of the B Notes and the A Notes are identical in all
material respects, except for certain provisions which are no longer
consequential as of August 12, 1994, the date the B Notes registration with the
Securities and Exchange Commission became effective.

Also as part of the Private Offering, the Company sold an aggregate of
4,912,291 shares of Common Stock and 3,051,250 Common Stock Purchase Warrants,
resulting in gross proceeds to the Company of an additional $24,711,455, for
total gross proceeds from the Company's debt and equity financing of
$159,711,455. [See Note 4, 5, 8 and 10].

Senior Secured Notes Due 2001 - The Notes are senior secured
obligations of the Company and were issued pursuant to an indenture agreement
dated February 17, 1994, as amended, June 24, 1994 (the "Indenture"). The Notes
mature on February 17, 2001 with all principal due at that time. The Notes
require semi-annual interest payments based on a per annum rate of 11.5%. The
first year's interest payments on the Notes were funded from a portion of the
proceeds of the Notes which has been escrowed in a collateral account for such
purpose. The Company has granted security interests in substantially all of the
Company's assets along with security interests granted by the Company's
subsidiaries in their capacities as guarantors.

F-27

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

The proceeds from the financing transactions were used for the
development of the New Orleans Riverboat Casino and expansion of Class III
Native American gaming projects, reserve for interest payments, payment to
Republic for the purchase of their minority interest in the future profits of
the New Orleans Riverboat Casino and for general corporate working capital
needs.

The Notes have been recorded at their face value of $135,000,000 net
of an original issue discount of $4,784,063 resulting from 2,733,750 warrants
with ascribed value of $1.75 each. Amortization of original issue discount of
$643,236 and $673,390 is included in interest expense for the years ending June
30, 1996 and 1995, respectively. The notes were reduced by $8,000,000 on March
31, 1995 in a debt for equity exchange. [See Note 8]. During the year ended
June 30, 1995 the Company recorded capitalized interest in the amount of
$1,474,000.

Deferred Financing Costs - The Company has recorded as Deferred
Financing Costs all debt issuance costs associated with the private offering of
the Senior Secured Notes on February 17, 1994. Such costs include fees to the
Company's investment bankers, legal costs, printing costs and 1,754,500 common
stock purchase warrants valued at $1.75 each, issued to the investment banker,
certain employees of the investment banker and to bondholders. Total financing
costs were allocated to debt and equity financing. Amortization of the deferred

finance costs amounted to approximately $1,431,000 and $1,442,000 for the years
ended June 30, 1996 and 1995, respectively, and is included in "Interest
Expense".

CGMI has various notes payable with gaming equipment suppliers which
were incurred on behalf of certain Native American tribes under management
contract agreements. These Notes bear interest at rates ranging from a fixed
10% to prime + 1% and have scheduled maturity dates ranging from February to
May, 1997.

[11] CAPITAL STOCK

No Par, Common Stock - The Company has increased the number of common
shares authorized from 30,000,000 to 75,000,000. The amendment was ratified by
shareholder vote on June 15, 1994. Holders of common stock are entitled to one
vote for each share held on all matters to be voted on by stockholders. The
common stock does not carry cumulative voting rights, and is not redeemable or
convertible. All outstanding shares of common stock are fully paid and
non-assessable. There are 19,329,574 and 19,329,574 shares outstanding at June
30, 1996 and 1995, respectively.

No Par, Preferred Stock - The company is authorized to issue up to
5,000,000 shares of no par, preferred stock. No shares have been issued as of
June 30, 1996. The Board of Directors has the authority without shareholder
approval, to determine and affix the rights, conversion rights, voting rights
and any terms of redemption, liquidation preferences or special rights and
qualifications of this class of stock.

Initial Offering of Units and Warrants - In November 1990, the Company
completed the initial public offering of 640,000 units, at $5 per unit
resulting in net proceeds to the Company of $2,362,512. Each unit consists of
four shares of common stock and four redeemable Class A warrants. Each Class A
warrant entitles the holder to purchase one share of common stock and one
redeemable Class B warrant at $1.90 until the fifth anniversary of the date of
the offering. Each Class B warrant entitles the holder to purchase shares of
common stock at $2.80 from the date of issuance until the fifth anniversary of
the date of the offering. The exercise prices of the Warrants were subject to
adjustment under certain circumstances. Both the Class A and Class B warrant
exercise prices were reduced from $1.90 and $2.80, respectively, to $1.10 for a
90 day period commencing February 14, 1992. During this 90 day period,
2,271,150 Class A warrants and 2,244,900 Class B warrants were exercised
resulting in proceeds to the Company of $4,931,322 [net of $36,333 related
expenses].

F-28

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

In connection with the initial public offering, the Company sold a
unit purchase option to purchase 64,000 units to the underwriter. In June 1993,

these unit purchase options were exercised at $6.00 per unit resulting in
proceeds to the Company of $384,000.

During June 1993, 114,729 Class A warrants and 134,729 Class B
warrants were exercised at a price of $1.90 and $2.80, respectively, resulting
in proceeds to the Company of $595,226. An additional 427,883 Class A warrants
and 432,873 Class B warrants were exercised in July 1993 resulting in proceeds
of $2,025,049.

As of June 30, 1994 there are no Class A or Class B warrants
outstanding.

Equity Financing - In February and March of 1994 the Company
consummated transactions under various equity purchase agreements pursuant to a
private placement of senior secured notes and common stock [See Note 9]. A
total of 4,662,291 common shares were sold in February at $5.00 per share and
250,000 common shares were sold in March at $5.60 per share, resulting in total
equity proceeds of $24,711,455. Included were 3,600,450 common shares,
3,051,250 common stock purchase warrants and $135,000,000 in 11.5% senior
secured notes issued in units to the purchasers. There were four purchasers of
the Company's common stock who did not purchase debt securities. In the
aggregate they purchased 1,311,841 shares.

The Company's placement agent in this financing transaction and
certain employees of the placement agent, received 1,442,000 common stock
purchase warrants. All warrants issued to the unit purchasers and the placement
agent are exercisable at any time up to five years from issuance at a price of
$6.50 for each share of common stock. The Company issued additional warrants to
purchase an aggregate of 100,000 shares of common stock to a financial advisor
of the Company and certain employees of the financial advisor.

As of June 30, 1996, a total of 4,643,250 common stock purchase
warrants (the "Investor Warrants") with an exercise price of $6.50 per share
are outstanding, except for 50,000 warrants exercisable at $9.00 each (the
"FNBC Warrants"). The Investor Warrants and FNBC Warrants expire on February 1,
1999 and September 30, 1998, respectively.

The Company incurred $11,972,495 in debt and equity issuance costs in
connection with the private offering. Such costs have been allocated to debt
(capitalized as deferred finance charges) and to equity (charged against no
par, common stock) based on a ratio equal to their respective proceeds to total
proceeds. The allocation resulted in 15.47% or $1,852,452 being charged to
common stock, including $474,987 attributable to the warrants issued to the
placement agent. All warrants were valued at $1.75 each and charged to deferred
financing costs ($3,070,375) and original issue discount ($4,784,063) in
February 1994.

F-29

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

[12] PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of June 30:

1996 1995
---- ----

Office furniture, fixtures and equipment $ 247,700 $ 253,079
----------- -----------

247,700 253,079
Less accumulated depreciation (120,647) (112,412)
----------- -----------

$ 127,053 $ 140,667
=========== ===========

Depreciation expense for the years ended June 30, 1996, 1995 and
1994 was $37,100, $65,000 and $16,100 respectively and is included as part
of depreciation and amortization.

[13] INVESTMENT IN NATIVE AMERICAN MANAGEMENT AGREEMENTS

The costs associated with developing, negotiating and securing new
management agreements are expensed as incurred until such time when management
believes the development of a casino facility is likely. This juncture in
development requires, at a minimum, a management contract in effect, existence
of favorable Company-Tribal relations, and indications that regulatory
approvals and licensure is probable. Subsequent costs are capitalized and
included in Investments in Native American Management Agreements. Amortization
of capitalized amounts related to new contracts begins when the facility opens.
Management of the Company will periodically evaluate whether the individual
carrying value of these assets has been impaired by comparing the carrying
value to the value of projected net cash flow from related operations.

The balance of $2,677,053 as of June 30, 1996 in this caption on the
balance sheet represents capitalized costs and payments related only to the
remaining Class III management agreements. The Company is amortizing such
amounts over the remaining lives of these management contracts of approximately
4-5 years. Amortization for the years ended June 30, 1996, 1995 and 1994 was
approximately $860,000, $293,000 and $301,000, respectively.

F-30

[14] LOANS RECEIVABLE - NATIVE AMERICAN TRIBES

The Company has funded the development and construction of the three
remaining Native American Class III facilities including equipment financing

amounting to approximately $3.3 million. As of June 30, 1996, there was a total
of $11,325,885 in loans outstanding, with $3,696,165 to be realized within one
year and $7,629,720 classified as long-term. These notes bear interest at rates
ranging from 8.75% to prime + 1% (prime rate at June 30, 1996 was 8%) and have
scheduled repayments of 36 to 60 months. A five year maturity table is
presented below:

June 30, 1997 $ 3,696,165
June 30, 1998 3,941,606
June 30, 1999 2,248,182
June 30, 2000 1,439,932
June 30, 2001 -
----------
$11,325,885

F-31

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Federally recognized Native American Indian tribes are sovereign
nations governed by federal statutes that are different than statutes governing
commercial enterprises in the United States. These receivables are due from
four tribes, collectively. While the Company has legal counsel experienced in
Indian gaming law and matters, there is the risk that the Company may not
prevail if collectability is forced into litigation. Management has no disputes
with any Native American tribe that would place doubt on the full
collectability of any of the receivables. The Company takes all necessary legal
measures in the documentation and preparation of agreements executed with
Native American Tribes, including the Tribe's waiver of sovereign immunity
related to contract enforcement.

Loan Repayment and Contract Buy-Out - Pursuant to the terms of the
Class III management contract between the Muckleshoot Tribe and the Company's
Native American gaming subsidiary - Capital Gaming Management, Inc. (CGMI) -
the Tribe has repaid to CGMI approximately $7.6 million that was advanced for
developing, constructing and equipping the gaming facility. Additionally, under
the terms of the Class III management contract, the annual management fee of
11.5% of gross gaming revenues has been reduced to 3.9% simultaneously upon the
repayment of the loan by the Tribe in September 1995.

The Company also closed an agreement effective September 1, 1995
pursuant to which the Cow Creek Band of Umpqua Tribe of Indians bought out the
remaining term of the Management Agreement for the Tribe's gaming facility in
Canyonville, Oregon. The Tribe has paid the Company and its Native American
subsidiary $3.0 million in consideration for early termination of the
Management Agreement and principal repayment of approximately $823,000. The
buy-out of future management fees of $3.0 million and the principal repayment
of $823,000 was paid to the Trustee for the Senior Secured Noteholders, less
$200,000 for expenses in connection with the transaction which was reimbursed
to the Company. The five year Management Agreement had less than two years

remaining prior to its expiration.

[15] STOCK OPTION PLAN

In July 1990, the Company adopted the 1990 Stock Option Plan [the
"Plan"] covering 350,000 shares of the Company's common stock, pursuant to
which officers, directors and key employees of the Company are eligible to
receive incentive and/or non-qualified stock options. During 1992, 1993 and
most recently June 15, 1994, the Board of Directors, with shareholder approval,
adopted resolutions to increase the number of options under the Plan. The
number of options which currently may be issued under the Plan is 6,500,000.
The Plan expires on July 30, 2000. Incentive stock options granted under the
Plan are exercisable for a period up to 10 years from the date of grant at an
exercise price which is not less than the fair market value of the common stock
on the date of the grant, except that the term of an incentive stock option
granted under the Plan to a stockholder owning more than 10% of the outstanding
common stock may not exceed five years and its exercise price may not be less
than 110% of the fair market value of the common stock on the date of the
grant.

Repricing of Stock Options - On January 14, 1996, upon the
recommendation of the Executive Compensation Committee, the Board of Directors
(i) cancelled 1,782,500 outstanding stock options with exercise prices in
excess of the fair market value of the Company's common stock at the time and
granted 1,770,000 stock options exercisable at $.3125 per share and (ii)
cancelled 2,000,000 outstanding stock options, held by the Company's Chairman,
I.G. Jack Davis, Jr., with exercise prices in excess of fair market value of
the Company's common stock at that time, and granted 1,200,000 stock options
exercisable at $.50 per share. In addition, on January 14, 1996, upon the
recommendation of the Executive Compensation Committee, the Board of Directors
awarded new stock options (i) to Colonel Clinton L. Pagano, Executive Vice
President of Compliance, to purchase 100,000 shares of the Company's common
stock exercisable at $.3125 per share, (ii) to Mr. Thomas P. Gallagher to
purchase 100,000 shares of the Company's common stock exercisable at $.3125 per
share, (iii) to James F. Ahearn, Vice President of Operations (CGMI), to
purchase 65,000 shares of the Company's common stock exercisable at $.3125 per
share (iv) to William S. Papazian, Senior Vice President

F-32

and General Counsel, to purchase 165,000 shares of the Company's common stock
exercisable at $.3125 per share and (v) to Robert Specht, former Acting
Treasurer and former Acting Chief Financial Officer, to purchase 25,000 shares
of the Company's common stock exercisable at $.3125 per share. The options
granted on January 14, 1996 all had exercise prices significantly above the Fair
Market Value of the Company's common stock on the date of grant as such term is
defined under the Company's 1990 Stock Option Plan, as amended. All of the stock
options granted on January 14, 1996 will vest on July 14, 1996 and will be
exercisable thereafter for a period of five years.

F-33

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

The following is a three year summary of stock option activity for
shares under option:

Incentive Non-Qualified
Stock Options Stock Options

Outstanding, June 30, 1993 270,918 2,533,082
Options Granted 200,284 1,799,716
---------- -----------

Outstanding, June 30, 1994 471,202 4,332,798
Options Granted 34,876 362,124
Options Exercised - (60,000)
Options Cancelled (34,807) (174,893)
----------- -----------

Outstanding, June 30, 1995 571,271 4,460,029
Options Granted 896,271 2,528,729
Options Exercised - -
Options Cancelled (571,271) (3,874,574)
---------- -----------

Outstanding, June 30, 1996 896,271 3,114,184
========== ===========

Options Exercisable as of
June 30, 1996 - 610,455
========== ===========

Options exercisable as of June 30, 1996 have exercise prices ranging from
$1.50 to $5.25 per share. The weighted average exercise price of those
options vested is $1.70 per share.

[16] COMMITMENTS AND CONTINGENCIES

On May 30, 1995, the Company entered into employment agreements with
the Company's Chairman and Chief Executive Officer which provides for three
year and two year terms at annual salaries of $297,000 and $495,000,
respectively. The agreements also provide for severance payments equal to one
to three years upon the occurrence of certain terminations and annual cash

payments in lieu of directors and officers liability insurance coverage.
Included in accrued expenses for the year ended June 30, 1996 are deferred
salaries to the Company's Chairman in the amount of $198,000 and to the
Company's Vice President of Compliance in the amount of $107,000. Employment
agreements in effect at June 30, 1996 with three other Company officers require
an aggregate annual compensation of $805,000 through terms expiring between
October 1996 and June 1999.

F-34

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

As of June 30, 1996, the Company has consulting agreements which can
be terminated upon varying short-term notices aggregating approximately $90,000
per year.

[17] INCOME TAXES

The Company uses Statement of Financial Accounting Standard (SFAS) No.
109 "Accounting for Income Taxes." The Statement requires that deferred income
taxes reflect the tax consequences on future years of differences between the
tax bases of assets and liabilities and their financial reporting amounts.

Components of income tax (expense) benefit:

Year ended June 30,
-----------------------------------------------
1996 1995 1994
---- ---- ----
Current:
Federal $ - $ - $ 483,738
State (320,645) - -
----------- ------------ ------------
Current (Expense) Benefit $ (320,645) - $ 483,738
=========== ============ ============

A reconciliation of income tax (expense) benefit at the federal
statutory rate to the Company's effective income tax (expense) benefit is as
follows:

Year ended June 30,
--------------------------------------
1996 1995 1994
---- ---- ----
Federal Income Tax Benefit at the
Statutory Rate $5,098,000 $5,306,000 $3,166,000

State Tax Benefit, (Expense) Net
of Federal Tax Benefit (320,645) 3,190,000 1,355,391

(Non) Recognition of NOL Carryforward (5,098,000) (8,496,000) (4,037,653)
----------- ------------ ---------
Income Tax (Expense) Benefit $ (320,645) - $ 483,738
=========== ============ ==========

As of June 30, 1996, the Company has a net operating loss carryforward
of approximately $72,000,000 expiring as follows:

June 30, 2009 $23,400,000
June 30, 2010 48,600,000
----------

Total $72,000,000

F-35

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

A tax benefit of $483,738 was recorded during the year ended June 30,
1994 and was derived from the carryback of operating losses. Additionally, as a
result of the net operating loss carryforward, the Company has a deferred tax
asset of approximately $24,500,000 which is offset by an allowance of
$24,500,000 because its realization cannot be assured at this time. The
allowance was reduced from June 30, 1995 by $15,224,000 principally due to the
sale of a subsidiary (CCCD) with operating loss carryforwards.

Additionally, in connection with the acquisition of CGMI [Note 3], the
Company elected to have IRS Code Section 338 apply to the transaction and
accordingly, the assets acquired receive a step-up in basis for tax purposes.
CGMI's tax attributes such as net operating loss carryforwards remain with the
seller and are not available for the Company's use.

[18] PENSION PLAN

Effective November 1, 1994, the Company adopted a defined contribution
[401(k)] plan covering all eligible employees. Under the terms of the Plan,
participating employees deposit a percentage of their salaries in the Plan. The
Company matches 50% of the employees' contribution up to a maximum of 4% of
salary. Expense for the year ended June 30, 1996 and 1995 was $22,131 and
$43,421 respectively.

[19] LEASES

The Company leases operating facilities under various leases expiring
through January 2001.

Rent expense aggregated approximately $129,000, $144,000 and $110,000

for the years ended June 30, 1996, 1995 and 1994, respectively. The Company's
aggregate lease commitments under non-cancelable leases with terms of one year
or greater total $343,000 and will require approximately $149,000 in 1997,
$97,000 in 1998, $40,000 in 1999, $36,000 in 2000 and $21,000 in 2001.

The Company previously leased space under an operating lease which
served as the gym and training facility. The lease which expired May 31, 1996
with one five year option period was assumed by Great American Recreation, Inc.
The Company remains obligated under this lease in the event Great American
Recreation, Inc. defaults on the lease payments.

[20] FEE FOR AGREEMENT MODIFICATION

On February 17, 1994, the Company entered into a Marketing Services
Agreement with HFS Gaming Corp. ("HFS"), a wholly-owned subsidiary of
Hospitality Franchise Systems, Inc., whereby HFS agreed to employ marketing
efforts (including sales efforts with tour operators and travel clubs,
distribution of promotional materials and advertisements in travel periodicals
and other publications) for the Company's current and future gaming operations
to its customers as well as the franchisees of Hospitality Franchise Systems,
Inc. and their customers in return for 1% of the Company's net gaming revenues
(as defined). The agreement's term is for a period of ten years from the
commencement of each gaming operation.

F-36

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

As amended in June 1994, the Marketing Services Agreement only applies
to the present and not the future gaming projects of the Company and limits the
fee paid to HFS for the Narragansett Project to 0.25% of annual Net Gaming
Revenues for such project. In consideration for the termination of HFS' right
to provide marketing services and collect marketing services fees with respect
to future gaming operations of the Company, and the limit placed on marketing
services fees paid to HFS for the Narragansett Project, the Company paid and
expensed $1 million to HFS in June 1994. Additionally, marketing expenses under
this agreement amounted to approximately $311,000 for the year ended June 30,
1995 and approximately $939,000 for the year ended June 30, 1996. The Company
is presently in default under the agreement.

Hospitality Franchise Systems, Inc. purchased approximately 730,000
shares of the Company's common stock in the February 1994 private placement in
which the Company raised debt and equity proceeds of $159.7 million.

[21] LEGAL PROCEEDINGS

Reorganization of Crescent City Capital Development Corp. The Grand
Palais and Crescent City Queen riverboats, operating through the River City
Joint Venture, in which CCCD had a 50% interest, voluntarily ceased gaming
operations on June 6, 1995 and June 9, 1995, respectively, primarily due to
unforeseen failure of projected market conditions which have been widely

reported to have severely and negatively impacted the entire New Orleans
riverboat and land-based gaming industry. As a result, CCCD consented to the
entry of an order for relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Eastern District of Louisiana (the "CCCD
Reorganization Case") on July 28, 1995 and became a debtor-in-possession. The
Grand Palais riverboat and River City Joint Venture's entertainment pavilion
and docking facility commenced operations on March 29, 1995 and the Company's
Crescent City Queen riverboat commenced operations on April 4, 1995. From the
commencement of gaming operations until termination on June 9, 1995, CCCD
incurred operating losses of approximately $10,061,000. The revenues derived
during the period of operation of the River City Joint Venture were
approximately 66% below the revenues projected by the Company. As a result of
the failure of the River City Casino to generate sufficient revenue to cover
operating costs, and a determination that the unforeseen failure of projected
market conditions could not be reasonably expected to change, CCCD ceased
operations in order to stem further operating losses.

F-37

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

CCCD filed a plan of reorganization under Chapter 11 of the Bankruptcy
Code on October 13, 1995. On January 12, 1996, CCCD's plan of reorganization
was confirmed (the "January Plan of Reorganization"). The January Plan of
Reorganization was predicted upon an agreement (the "MRI Agreement") with
Mirage Resorts, Inc. ("Mirage") for the sale of CCCD to Mirage for $55 million
plus the assumption of certain equipment liabilities of up to $6.5 million. The
sale to Mirage was contingent upon certain waivers and conditions being
achieved on or before January 24, 1996 including, but no limited to, receiving
all requisite regulatory approvals to transfer the operator's license. On
January 24, 1996, Mirage announced that conditions to the closing of the
purchase were not satisfied by the contractual deadline and terminated the MRI
Agreement. Although the Louisiana State Police determined on January 23, 1996
that Mirage was suitable to hold an operator's license, the Louisiana Riverboat
Gaming Commission deferred action on the matter indicating that it needed more
time to rule on the proposed change in berth and transfer of the license from
Orleans Parish to Bossier Parish, Louisiana. As a consequence of the

termination of the MRI Agreement, management believed that it was in the best
interests of the Company, its Senior Secured Noteholders and shareholders, to
immediately pursue other alternatives for the sale of CCCD's assets.

To that end, management was able to successfully enter into a new sale
agreement (the "CMC Agreement") with a wholly-owned subsidiary of Casino Magic
Corp. On February 21, 1996, the Company entered into a stock purchase agreement
with Casino Magic Corp., two of its wholly-owned subsidiaries, and CCCD to
transfer the ownership of CCCD and substantially all of its assets to a
wholly-owned subsidiary of Casino Magic Corp. An Amended Plan of Reorganization
(the "Amended Plan of Reorganization") predicated upon the CMC Agreement was
filed by CCCD. The Amended Plan of Reorganization was confirmed by the Court
and an order of confirmation was entered on April 29, 1996. On May 13, 1996,
the Company completed the sale of CCCD to a wholly-owned subsidiary of Casino
Magic Corp. for an aggregate purchase price of $56.5 million, consisting of $15
million cash and $35 million in 11.5% secured notes of the purchaser due in
three years (the "Purchaser's 11.5% Notes") and the assumption of up to $6.5
million in certain equipment liabilities.

The cash and Purchaser's 11.5% Notes paid by Casino Magic Corp. as the
purchase price for CCCD were distributed in accordance with the provisions of
CCCD's Amended Plan of Reorganization. In connection therewith, $7 million in
cash and $28 million in Purchaser's 11.5% Notes were distributed to the
Indenture Trustee for the Company's 11-1/2% Senior Secured Noteholders. The
Amended Plan of Reorganization also provided for the distribution to CCCD's
creditors of the proceeds of all of CCCD's remaining assets, those not sold to
Casino Magic Corp., including, without limitation, any and all causes of action
arising in favor of CCCD as a consequence of the termination of the MRI
Agreement.

F-38

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

On June 21, 1995, the New Orleans 2000 Partnership, the mortgagee of
real property owned by River City, provided notice of various defaults under
its first mortgage to CCCD, River City Joint Venture and Grand Palais, An event
of default under this mortgage constitutes an Event of Default under the
Indenture.

As a result of the various defaults under the Indenture, the holders
of the Senior Secured Notes are entitled to all of the remedies contained in
the Indenture, including but not limited to acceleration of the Senior Secured
Notes and foreclosing on the Collateral pledged by the Company to the Trustee
which includes, among other things, the management fees derived from the
management agreements between CGMI and the Native American Tribes. Furthermore,
the security agreements entered into by the Company provide remedies to the
holders of Senior Secured Notes including a requirement to transfer any
proceeds received in respect of any dispositions of Collateral from and after
the occurrence of an Event of Default as defined in the Indenture.

In the event that the holders of the Senior Secured Notes exercise all
of their available remedies under the Indenture and related agreements, the
Company and its subsidiaries will not be able to continue their operations.
However, the Company does not believe the holders of the Senior Secured Notes
will exercise their remedies where the exercise of such remedies would prevent
CGMI from continuing its operations as manager of several existing Native
American gaming facilities or CDGC from its development of the Narragansett
Casino Project.

Bank Line of Credit. On March 28, 1995, CCCD entered into a loan
agreement with First National Bank of Commerce ("FNBC") which was guaranteed by
the Company (the "Guaranty"). Pursuant to the terms of this agreement, CCCD
received a $2 million working capital Line of Credit from FNBC for a period of
ninety (90) days. In April 1995, this credit facility was utilized to provide
the Company with $2 million of working capital. Borrowings against this
facility were due June 27, 1995. CCCD was not able to repay the obligation
thereby causing a default under the agreement. In addition, the Line of Credit
contains cross-default provisions with the Indenture. FNBC has filed suit
against Capital Gaming International, Inc. as a guarantor of CCCD's obligation
and there is a chance that its suit may succeed. Any guarantor liability,
however, may be partially offset by amounts recovered by FNBC on this
obligation in connection with the CCCD reorganization case.

On November 21, 1995, FNBC filed suit against the Company in the U.S.
District Court for the Eastern District of Louisiana alleging the Company's
liability under the Guaranty for the debt incurred by CCCD, as well as a second
promissory note in the amount of $2,500,000 (the "RCJV Note") given by River
City Joint Venture ("RCJV"), an entity in which CCCD was a general partner.
FNBC sued the Company on the theory that CCCD, as a general partner of RCJV,
was liable on the RCJV Note and the Company Guaranty applied to any and all
liabilities of CCCD to FNBC. RCJV failed to pay all of the principal and
interest due on the RCJV Note and ultimately filed bankruptcy. CCCD never
repaid the principal of the CCCD Note and as described above filed the
Bankruptcy Case. FNBC demanded payment of the notes from the Company under the
Guaranty and the Company has refused for valid reasons to pay under the
Guaranty. As a result of the CCCD bankruptcy and the Company's refusal to pay

under the Guaranty, FNBC filed its Complaint.

F-39

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

On January 16, 1996, CCCD filed an Objection to Proof of Claim Filed
by FNBC (the "Crescent City Objection" or "Objection") in CCCD's Bankruptcy
Case which raised substantial questions about the liability of CCCD under the
promissory notes on which FNBC sued the Company. The Company then filed its
Motion for Referral to Bankruptcy Court on January 18, 1996, which motion was
opposed by FNBC. Notwithstanding the fact that the Motion for Referral was
pending. FNBC filed a Motion for Partial Summary Judgment with the District
Court on February 5, 1996, seeking judgment against the Company on only the
CCCD Note. The District Court granted the Company's motion to refer the case to
the Bankruptcy Court on February 9, 1996 as a non-core proceeding. The Order
transferring this case was entered on February 13, 1996.

FNBC moved to dismiss that portion of the case involving the RCJV Note
and the same was dismissed without prejudice by the Bankruptcy Court on May 31,
1996 leaving the only issues before the court as those relating to the
Guaranty, the CCCD Note and the Company's and CCCD's liability thereunder.

The Company opposed the FNBC Motion for Partial Summary Judgment,
asserting detrimental reliance as well as estoppel and misrepresentation as
defenses to liability under the Guaranty. On May 23, 1996, the Bankruptcy Case
judge held a hearing on the FNBC Motion and orally granted the motion.

On June 3, 1996, the Bankruptcy Case judge issued his written Proposed
Findings of Fact and Conclusions of Law. In accordance with the statutory
procedure, the Company filed timely objections to those findings of fact and
conclusions of law with the U.S. District Court on June 13, 1996, and set the
objections for hearing on July 24, 1996, before the District Judge. In its
objections, the Company argued, in addition to reiterating its previously
asserted defenses, that the Bankruptcy Court erred in the calculation of the
amounts due because of the uncertainty of and lack of evidence on the amounts
paid by the Company or seized by FNBC. The Company also objected that FNBC had
not proved any of its calculations of the interest due. FNBC filed a response
to the Company's objections on July 16, 1996, opposing the Company's arguments.
The Company filed a reply to FNBC's opposition to advise the court that FNBC's
response was untimely and to clarify and amplify on certain statements made by
FNBC in its opposition.

There has been no action by the court since July 24, 1996, and the
matter remains pending before the Judge for action on the Company's objections
to the Bankruptcy Judge's proposed Findings of Fact and Conclusions of Law.

The Company has and will continue vigorously to contest any liability
under the CCCD Note on the basis of detrimental reliance, estoppel, and
misrepresentation by FNBC. In the event that judgment is rendered against the

Company, appropriate motions to reconsider or to modify the judgment will be
filed and serious consideration will be given to an appeal.

Although valid objections have been made by the Company to the
proposed findings of fact and conclusions of law it is probable that an
unfavorable outcome could occur, notwithstanding the fact that the Company has
meritorious defenses based upon detrimental reliance, estoppel and
misrepresentation by FNBC. If the court rules against the Company's objections
final judgment may be entered against the Company, but the amount of such
judgment is still uncertain.

F-40

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Term Note Payable. In connection with the buy-out of the profit
interest of Republic Corporate Services, Inc. ("Republic") in CCCD, the Company
executed an unsecured promissory note payable to Republic for $19,000,000. The
note bears interest at 11.5% per annum and requires semi-annual interest
payments in April and October until its maturity on April 26, 2002 when all
principal becomes due. In October 1994 and April 1995, the Company made each of
the required interest payments of this term note totalling $2,185,000. As a
result of the cessation of the Company's New Orleans operations on June 9,
1995, and the resultant Chapter 11 Petition filed by CCCD, and other reasons,
the Company did not make the required interest payment under the note. As a
result, the Company is in default under the note agreement. See "Business Legal
Proceedings."

Other Litigation. The Company and its subsidiaries are parties to
various lawsuits that have arisen in the course of business, none of which is
material.

[22] NEW AUTHORITATIVE PRONOUNCEMENTS

The Financial Accounting Standards Board has issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of". SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity, including goodwill,
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company
elected early adoption of SFAS 121 for the year ended June 30, 1995.

The FASB has also issued SFAS No. 123 "Accounting for Stock Based
Compensation." in October 1995. SFAS No. 123 uses a fair value based method of
recognition for stock options and similar equity instruments issued to
employees as contrasted to the intrinsic valued based method of accounting
prescribed by Accounting Principles board ["APB"] Opinion No. 25, "Accounting
for Stock Issued to Employees." The recognition requirements of SFAS No. 123
are effective for transactions entered into in fiscal years that begin after
December 15, 1995. The Company will continue to apply Opinion No. 25 in
recognizing its stock based employee arrangements. The disclosure requirements

of SFAS No. 123 are effective for financial statements for fiscal years
beginning after December 15, 1995. The Company will adopt the disclosure
requirements on July 1, 1996, SFAS 123 also applies to transactions in which an
entity issues its equity instruments to acquire goods or services from
non-employees. Those transactions must be accounted for based on the fair value
of the consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable. This requirement is effective
for transactions entered into after December 15, 1995.

[23] AMENDMENTS TO THE CERTIFICATE OF INCORPORATION

In May 1993, the Company's shareholders authorized an amendment to the
Company's Certificate of Incorporation to change the corporate name of the
Company to Capital Gaming International, Inc. The prior legal name of the
Company, Triple Threat Enterprises, Inc., was changed to reflect the Company's
new business strategy to concentrate on opportunities in the secondary market
within the casino gaming industry.

The following additional amendments to the Company's Certificate of
Incorporation were approved by a vote of shareholders, through solicitation of
proxies, at the Annual meeting of shareholders held on June 15, 1994:

F-41

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

(1) The classification of the Board of Directors into three classes of
Directors with staggered terms of office;

(2) That Directors may only be removed for cause with the
affirmative vote of holders of 80% of the voting power of all the shares of
the Company entitled to vote thereon, or a majority of the remaining Directors;

(3) That any vacancy on the Board of Directors may be filled by the
remaining Directors then in office, or if such vacancy is not filled by the
next succeeding Annual or Special Meeting of Shareholders called for that
purpose, by a vote of the shareholders entitled to vote at such Meeting;

(4) That the number of Directors will be determined only by a majority
vote of the Board of Directors;

(5) To provide for the divestiture of shares of the Company's Capital
Stock and Stock Equivalents (as defined) from shareholders in instances in
which such ownership would jeopardize the Company's or its subsidiaries'
licenses with regulatory authorities or cause the Company to no longer be
considered a "United States citizen" under the Shipping Act of 1916, as
amended, or the Merchant Marine Act of 1936, as amended;

(6) That the shareholder vote required to amend, repeal or adopt any
provisions inconsistent with the foregoing amendments be increased from a
majority to 80% of the voting power of all the shares of the Company entitled
to vote thereon;

(7) To authorize an amendment to the Company's 1990 Stock Option Plan,
as amended, to increase the number of shares of Common Stock issuable pursuant
thereto from 5,000,000 shares to 6,500,000 shares; [See Note 12] and

(8) To authorize an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock authorized from
30,000,000 to 75,000,000 shares.

[24] CONCENTRATIONS OF CREDIT RISK

Financial instruments which potentially subject the Company to
concentrations of credit risk are cash equivalents and receivables arising from
Native American gaming development and operations. The Company places its cash
investments with high credit quality financial institutions and currently
invests primarily in U.S. government obligations that have maturities of less
than three months. The Company currently maintains cash and cash equivalents of
approximately $161,000 in financial institutions which are subject to credit
risk beyond FDIC insured limits. In addition, the Company has approximately
$1,900,000 in repurchase agreements which are not insured.

The Company has recorded at June 30, 1996 and 1995, $1,283,000 and
$2,584,000 respectively in casino development advances, management fees, and
reimbursable expenses due from Native American Tribes under management
contracts as well as $11,326,000 and $22,354,000 respectively for development
loans to tribes. Federally recognized Native American Indian tribes are
sovereign nations governed by federal statutes that are different than statutes
governing commercial enterprises in the United States. As of June 30, 1996
these receivables are due from three tribes, collectively. While the Company
has legal counsel experienced in Indian gaming law and matters, there is the
risk that the Company may not prevail if collectability is forced into
litigation. The Company does not have collateral with respect to these
contracts. Management has no disputes with any Native American tribe that would
place doubt on the full collectability of any of the receivables. The Company
takes all necessary legal measures in the documentation and preparation of
agreements executed with Native American Tribes, including the Tribe's waiver
of sovereign immunity related to contract enforcement.

F-42

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

[25] OTHER PROJECTS

Native American Casino [Rhode Island] - In August 1994, a Tribal-State
Compact was entered into between the Narragansett Indian Tribe and Governor
Bruce Sundlun of Rhode Island. In October and November of 1994, two lawsuits
were filed (including one by Rhode Island Attorney General Pine) seeking to
void the Tribal-State Company on the grounds that the Governor lacked the
authority to bind the State absent legislative approval. In 1995, the State's

new governor, Governor Almond, joined in the Pine Case.

In February of 1996, the United States District Court for the District
of Rhode Island held that the Compact was void. The State has subsequently
refused to negotiate with the Tribe.

In addition, in September of 1996, federal legislation was entered as
an amendment (introduced by U.S. Senator John Chaffee of Rhode Island) to the
Omnibus Appropriations Bill which has the effect of excluding the Narragansett
Tribe's reservation (where the gaming facility is currently planned to be
built) from the benefits of IGRA.

Although there can be no assurance, the Company believes that there is
a chance that the Chaffee amendment may be overturned in the next Congressional
session. In addition, the Secretary of the Interior has requested comments as
to whether the Secretary can enact Secretarial procedures to permit gaming
under IGRA for Tribe's in States (such as Rhode Island) that refuse to
negotiate Tribal-State Compacts in good faith. If the Secretary concludes that
he has such authority, the Company believes that the Secretary may adopt such
procedures sometime in 1997. On April 16, 1996, the Narragansett Tribe filed a
petition with the Secretary requesting that the Secretary adopt procedures
applicable to gaming by the Tribe. Unless the Chaffee amendment is overturned,
however, there can be no assurance that the Secretary may not have the
authority to impose a compact on the State of Rhode Island. In spite of the
set-back caused by the Chaffee amendment, the Company intends to pursue the
Narragansett development project.

CDGC has entered into a management contract with the Narragansett
Tribe (the "Narragansett Contract"). As amended, the Agreement provides for
CDGC to receive an annual management fee of 30% of net revenues (as defined) of
the facility for the first five years and 20% for the remaining two years. As
part of the amended management contract, the Company will advance a
construction loan to be repaid over a seven year period. The amended
Narragansett Contract was submitted to the NIGC for approval in June of 1995
and until approved is not legally binding, or enforceable against the Tribe. No
assurance can be given that, or when, such approval will be obtained. It is
possible, as a condition of obtaining such approval, that the NIGC will require
modifications to be made to the contract, some of which may be material.

In August 1996, the NIGC submitted comments on the Narragansett
Contract. In light of the decision by the United States District Court
invalidating the Tribal-State Company, the NIGC has informed the Company and
the Tribe that they will only consider at this time a contract relating solely
to Class II gaming. In light of this, the Company currently intends to
bifurcate the Narragansett Contract and submit only the portions relating to
Class II gaming and return the Class III contract as a development contract
until such time as a compact for Class III gaming is signed. Unless the Chaffee
amendment is overturned, however, there can be no assurance that the Chairman
of the NIGC will have the authority to approve the Narragansett contract.

There have not been any costs capitalized in connection with the
Narragansett contract. All costs have been expensed as incurred.

F-43

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

Included in "Native American Gaming Development Costs" in the
statement of operations for the year ended June 30, 1996 and 1995 are
approximately $1,808,000 and $1,927,000 in costs related to the development of
this management contract. Additionally, for the years ended June 30, 1996 and
1995 the Company has incurred additional costs for legal expenses related to
this project which are included as part of professional fees.

Rockford Riverboat - In August 1993, the Company entered into a
partnership agreement to develop and operate a casino riverboat in Rockford,
Illinois. The agreement was subject to passage of state legislation increasing
the number of authorized riverboats in Illinois. The Company was entitled to a
50% interest in the operation and a management fee for services as managing
partner if the development succeeded. The Company has incurred and expensed
$70,000 in various development costs during the year ended June 30, 1994 and
$170,000 during the year ended June 30, 1995. In July 1995, the Company sold
its 50% interest in the partnership to its partner for $243,800. Since the
development costs incurred by the Company for this project were expensed during
1994 and 1995, the Company reported a gain from the sale in the first quarter
of 1996 of approximately $221,000.

Philadelphia Real Property Purchase Option - In May 1993, the Company
entered into an agreement as amended, and secured an option to purchase certain
unimproved real property until May 1995 at a cost of $10,000 per month. In
March 1995, the option period was extended at a cost of $15,000 per month. In
September 1995, the Company terminated its Option Agreement to acquire certain
real estate in Philadelphia, Pennsylvania along the Delaware waterfront. In
arriving at its decision to terminate the Option Agreement, the Company
considered the anticipated lengthy time period for gaming legislation to be
passed in the State of Pennsylvania, including the risks of non-passage, the
substantial costs associated with developing, passing and implementing gaming
legislation in Pennsylvania and the costs associated with maintaining the real
estate option.

[26] GOING CONCERN

As shown in the accompanying financial statements, the Company has
incurred a net loss of approximately $3.3 million and $117.7 million for the
years ended June 30, 1996 and 1995, respectively, and has a stockholders'
deficit of approximately $99.5 million. At June 30, 1996 the Company's current
liabilities exceeded its current assets by approximately $116.8 million.
Additionally, the Company is a party to various legal and other actions as a
result of the cessation of certain operations and defaults on debt. Those
factors create uncertainty about the Company's ability to continue as a going
concern.

Management is taking the following steps to revise its operating and
financial requirements, which it believes are sufficient to provide the Company

with the ability to continue in existence: (1) restructure substantially all of
the Company's indebtedness, (2) continue to provide management services under
the Company's Native American gaming operations, (3) develop the Narragansett
Casino, and (4) seek new gaming opportunities. The ability of the Company to
continue as a going concern is dependent on the success of those plans.
Alternatively, the Company is contemplating filing a voluntary petition for
relief on a pre-negotiated basis under Chapter 11 of the Federal Bankruptcy
Code. The financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.

F-44

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

In connection with such a restructuring, the Company anticipates that
it will file a consensual, pre-negotiated Plan of Reorganization (the
"Prenegotiated Plan") under Chapter 11 of the U.S. Bankruptcy Code which will
have the approval of the Steering Committee for its Senior Secured Noteholders
(the "Restructuring Case"). The Steering Committee has indicated that it plans
to work with the Company to resolve its financial difficulties. The Company
believes that the filing of a Prenegotiated Plan has many benefits including an
expedited time frame for confirmation of approximately 120 days or less. At
this time the Company cannot project the terms of the Prenegotiated Plan or any
other plan of reorganization and there is no assurance that any plan of
reorganization filed by the Company will be consummated. The consummation of a
plan of reorganization will be dependent upon the satisfaction of numerous
conditions, including, among others, the acceptance of such plan by at least
one class of impaired claims and confirmation by the Bankruptcy Court.
Acceptance by a class of creditors requires the approval of holders of
two-thirds in principal amount and more than one-half in number of those voting
in such class. There is no assurance that the required conditions of any plan
of reorganization filed by the Company will be met. If the Company does file a
voluntary petition for relief under Chapter 11, it is not possible to predict
the length of time the Company will be able to operate under the protection of
Chapter 11, the outcome of the Chapter 11 proceedings in general, or the effect
of such proceedings on the remaining business of the Company.

While the Company cannot predict the terms of its restructuring, the
Restructuring Case is most likely to take the form of an exchange of all or a
substantial portion of the Company's debt for equity. Given the secured
position of the Company's Senior Secured Noteholders and the substantial amount
by which the Company's liabilities exceeds its assets, it is likely that the
consummation of any plan of reorganization proposed with respect to the Company
will result in substantial dilution of the Company's shareholders which could
result in their retaining little, if any, equity interest in the Company. The
Company believes that any plan of reorganization consummated by the Company
will not require a restructuring of the operations of CGMI or CDGC.
Furthermore, the Company does not believe it will be necessary and does not
intend to file any Bankruptcy Case for CGMI or CDGC. The Company does not
believe that the Restructuring Case will adversely affect the existing

management and development contracts of CGMI and CDGC and does not constitute a
default under any such agreements. However, there can be no assurance that the
Company's Native American casino management contracts will not be adversely
affected by the Restructuring Case.

In connection with the above restructuring the Company may experience
an "Ownership Change" within the meaning of Section 382 of the Internal Revenue
Code of 1986. If an "Ownership Change" were to occur the Company's use of its
tax net operating loss carryforwards could be severely limited.

The management contract with the Muckleshoot Indian Tribe provides
that any decree or judgment of insolvency against "Capital" (defined
collectively as the Company and CGMI) is an event of default allowing the tribe
to terminate the contract. The management contracts with the Tonto Apache Tribe
and the Umatilla Tribe generally provide that the tribe may terminate the
agreement if CGMI files or consents to the filing of an involuntary petition in
bankruptcy under Chapter 7, which is not dismissed within ninety days. The
Company does not anticipate that the Restructuring Case will constitute an
event of default under any of these provisions.

[27] FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective June 30, 1996, the Company adopted Statement of Financial
Accounting Standards No. 107, "Disclosure About Fair Value of Financial
Instruments" which requires disclosing fair value to the extent practicable for
financial instruments which are recognized or unrecognized in the balance
sheet. The fair value of the financial instruments disclosed herein is not
necessarily representative of the amount that could be realized or settled, nor
does the fair value amount consider the tax consequences of realization or
settlement.

F-45

Capital Gaming International, Inc.
Notes to Consolidated Financial Statements

In assessing the fair value of financial instruments, the Company used
a variety of methods and assumptions, which were based on estimates of market
conditions and risks existing at that time. For certain instruments, including
cash and cash equivalents, trade receivables, trade payables, and certain
short-term debt, it was concluded that the carrying amount approximated fair
value of these instruments because of their short maturities. Management also
estimates that the carrying amount of certain long-term debt approximates fair
value because the interest rates approximate the rates which can be obtained
currently from the bank.

For the 11.5% Senior Secured notes due 2001 carried at $101,531,726
(net of funds held in trust) and the 11.5% Term note due 2002 carried at
$19,000,000, and the Bondholder Consent Fee note due August 1, 1995 carried at
$1,350,000, it is not practicable to estimate the fair value for these
financial instruments because the Company is in default on these notes. The

Company is presently in negotiations with the bondholders steering committee to
reduce these notes but the amount is not determinable at the present time.
However, it is management's position that the notes will be reduced
substantially to an amount which is readily serviceable with the Company's cash
flow.

[28] SUBSEQUENT EVENTS

On July 29, 1996 a payment was made to the trustee for the holders of
the 11.5% Senior Secured Notes as follows:

Transfer of Casino Magic Notes $28,000,000
Released from Funds Held by Bond Trustee $21,986,000

[29] RESTATEMENT OF FINANCIAL STATEMENTS

The Company has a marketing services agreement with HFS (see Note 20).
The Company's management ceased accruing for this liability in October, 1995,
because of the anticipated rejection of the contract during the Company's
planned restructuring (See Note 26). Subsequently, it was determined by
management that relative to the expected restructuring of the Company, HFS
would have an unsecured claim for the nine months of unpaid fees pursuant to
the HFS agreement and that a liability should have been established for these
unpaid fees at June 30, 1996. As of June 30, 1996, accrued expenses include
approximately $763,000 in marketing services fees. An expense for this amount
has also been included in the Company's results of operation for the year ended
June 30, 1996.

Additionally, the company had previously accounted for income and
losses derived from its CCCD subsidiary as discontinued operations. It was
subsequently determined that these items should be accounted for as continuing
operations.

F-46

INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY SCHEDULES

To the Board of Directors and Stockholders of
Capital Gaming International, Inc.
West Atlantic City, New Jersey

Our report on the consolidated financial statements of Capital Gaming
International, Inc. and its subsidiaries, modified for going concern
considerations, is included on page F-2 of this Form 10-K. In connection with
our audits of such financial statements, we have also audited the related
consolidated financial statement schedule II, Valuation and Qualifying
Accounts, on page S-2 of Form 10-K.

In our opinion, the consolidated financial statement schedule referred
to above, when considered in relation to the basic consolidated financial

statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.

MOORE STEPHENS, P.C.
Certified Public Accountants.

Cranford, New Jersey
September 18, 1996

F-47

CAPITAL GAMING INTERNATIONAL, INC.
SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Balance at Charged to Other
Beginning of Cost and [Deductions] Balance at End
Description Period Expenses Additions of Period
- ----------------------------------------- ------------ ---------- ------------ --------------

June 30, 1996:

Prepaid Rent - Reserve (New Orleans $ 4,859,322 $ - $ (4,859,322) $ -
Dock Board)

Cash Held in Escrow - Port of New 2,192,178 - (2,192,178) -
Orleans - Reserve

Uncollectible Patron Markers - Reserve 14,250 - (14,250)

Employee Advance - Reserve 9,000 - (9,000) -
------------ ------------- -------------- --------------
TOTALS $ 7,074,740 $ - $ (7,074,750) $ -
============ ============= ============== ==============
June 30, 1995:

Prepaid Rent - Reserve (New Orleans $ - $ 4,859,322 - $ 4,859,322
Dock Board)

Cash Held in Escrow - Port of New - 2,192,178 - 2,192,178
Orleans - Reserve

Reserve for Asset Impairment - 993,536 (993,536) -

Uncollectible Patron Markers - Reserve - 14,250 - 14,250

Employee Advance - Reserve - 9,000 - 9,000
------------ ------------- -------------- --------------

TOTALS $ - $ 8,068,286 $ (993,536) $ 7,074,750
============ ============= ============== ==============

F-48

CAPITAL GAMING INTERNATIONAL, INC.
EXHIBIT 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE

Year ended June 30,
-----------------------------------------------------------------
1996 1995 1994
---- ---- ----

Proceeds upon Assumed Exercise of Options
Outstanding - - $ 36,681,000
============== ============== ==============

Number of Shares Outstanding as Adjusted 19,329,574 17,256,591 14,135,625

Issued Shares on Assumed Exercise of Options (1) (1) (1)

Shares Assumed to be Repurchased with Proceeds
from Exercise (1) (1) (1)
-------------- -------------- --------------

Total Common and Common Equivalent Shares 19,329,574 17,256,591 14,135,625
============== ============== ==============

NET [LOSS] INCOME FOR YEAR:

Loss Before Extraordinary Item $ (4,038,277) $ (116,876,172) $ (23,684,292)

Extraordinary Item - (832,846) -
-------------- -------------- --------------

NET [LOSS] $ (4,038,277) $(117,709,018) $ (23,684,292)
============== ============== ==============

EARNINGS PER SHARE:

Loss Before Extraordinary Item $ (.21) $ (6.77) $ (1.68)

Extraordinary Item - (.05) -
-------------- -------------- --------------
NET [LOSS] $ (.21) $ (6.82) $ (1.68)

============== ============== ==============

(1) No contingently issuable shares are considered under the treasury stock
method when the effect is anti-dilutive.

F-49

CAPITAL GAMING INTERNATIONAL, INC.
EXHIBIT 12
SCHEDULE OF COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

Years ended June 30,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
[Restated]

Consolidated Pre-Tax [Loss]
Income from Operations $ (3,717,632) $(116,876,172) $(24,168,030) $ (1,652,412) $ 52,282

Fixed Charges 21,846,414 20,388,518 7,837,795 2,332 12,800
------------- ------------- ------------ ------------ ----------

Earnings for Computation $ 18,128,782 $ (96,487,654) $(16,330,235) $ (1,650,080) $ 64,290
============= ============= ============ ============ ==========

Interest Expense $ 19,061,910 $ 18,225,375 $ 7,023,794(1) $ - $ 942

Capitalized Interest - 1,473,522 233,645 - -

Deferred Financing Cost 2,784,504 2,115,143 777,288 - -

Interest Portion of Rent
Expense - $ 48,000 $ 36,713 $ 2,332 11,066
------------- ------------- ------------ ------------ ----------
Fixed Charges $ 21,846,414 $ 21,862,040 $ 8,071,440 $ 2,332 $ 12,008
============= ============= ============ ============ ==========
Ratio of Earnings to Fixed
Charges $ - $ - $ - $ - $ 5.35
============= ============= ============ ============ ============

Deficiency of Earnings $ 3,717,632 $ 118,349,694 $ 23,917,937 $ 1,652,412 $ -
============= ============= ============ ============ ==========

(1) Does not include a one time charge of $4,000,000 which was recognized as
interest expense as consideration for the termination of the Company's
obligation to issue warrants to purchase 1,250,000 shares of the Company's
common stock.

F-50

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

CAPITAL GAMING INTERNATIONAL, INC.

Dated: May 16, 1997 By: /s/ William S. Papazian
----------------------------------------------
William S. Papazian, Senior Vice President and
Secretary
(Authorized Representative)

Dated: May 16, 1997 By: /s/ Cory Morowitz
----------------------------------------------
Cory Morowitz, Acting Chief Financial Officer
(Principal Accounting Officer)