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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A

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

For the fiscal year ended June 30, 1997

Commission File 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)

2701 East Camelback Road, Suite 484
Phoenix, Arizona 85016
(Address of principal executive offices)

Registrant's telephone number, including area code: (602) 667-0670

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 by Section 13 or 15(d) of the Securities 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
"NASDAQ-Electronic Bulletin Board" on June 25, 1997 was $0.03 per share.*

Number of shares of Common Stock of the Registrant issued and outstanding as
of September 30, 1997 was 1,866,667

DOCUMENTS INCORPORATED BY REFERENCE
NONE
- -----------------
*The Company's common stock was delisted from the NASDAQ OTC Bulletin Board
effective June 25, 1997 because there were no marketmakers for the Company's
common stock. The Company will seek relisting upon satisfaction of relevant
criteria including registration of market makers.

TABLE OF CONTENTS

Page
----

ITEM 1. BUSINESS.................................................................................................1

ITEM 2. PROPERTIES..............................................................................................20

ITEM 3. LEGAL PROCEEDINGS.......................................................................................21

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................21

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................................21

ITEM 6. SELECTED FINANCIAL DATA.................................................................................22

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................24

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.............................................................33

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................33

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS........................................................................34

ITEM 11. EXECUTIVE COMPENSATION..................................................................................35

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................42

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................43

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.........................................44

ITEM 1. BUSINESS

General

Capital Gaming International, Inc. (the "Company"), together with its
subsidiaries, is a multi-jurisdictional gaming company with gaming management
and development interests with Native American Tribes in several states. The
management and development 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 project is conducted through
Capital Development Gaming Corp. ("CDGC"), a wholly-owned subsidiary of the
Company.

CGMI currently manages and operates three Native American gaming
facilities, which CGMI has developed or expanded into Class III gaming (as
herein defined) facilities:

Muckleshoot Tribe - Auburn, Washington (Class III facility became
operational in April 1995)

Tonto Apache Tribe - Payson, Arizona (Class III facility became
operational in April 1995)

Umatilla Tribes - Pendleton, Oregon (Class III facility became
operational in March 1995)

CDGC has a management and development contract with the Narragansett
Tribe for the development of a Class III gaming facility in Charlestown, Rhode
Island. See "Native American Gaming Operations".

Gaming has evolved into a national industry. At least 33 states
sponsor lotteries. Bingo games operated by charities are legal in at least 46
states. In addition to the primary markets in Nevada and New Jersey, gaming
activities have expanded to include riverboat and dockside gaming,
state-sponsored video lotteries, limited stakes casino gaming and Native
American gaming. Other forms of gaming conducted in certain areas of the
United States include slot machine gaming, or variations thereof, in
restaurants, bars, hotels and truck stops; pari-mutuel betting on horse
racing, dog racing and jai-alai; sports book making and card rooms. The
Company is actively seeking new opportunities in Native American gaming and
secondary gaming market jurisdictions.

Company's Strategy

The Company is focusing its efforts on maintaining its existing
gaming management interests with Native American Tribes, pursuing a strategy
to develop CGMI's and CDGC's Native American gaming operations and seeking
other gaming opportunities in existing and emerging gaming jurisdictions. The
Company believes that it has significant opportunities in Native American
gaming because of its demonstrated and continued success at the facilities it
currently manages through its subsidiaries, its approval and/or licensing by
the National Indian Gaming Commission (the "NIGC") and various state and
tribal gaming jurisdictions and its excellent reputation in this industry
segment. The Company continues to focus on management, consulting and
development opportunities in Native American gaming jurisdictions where the
Company is already licensed as well as new jurisdictions. The Company is also
focusing on secondary gaming market opportunities in various jurisdictions
where opportunities exist parallel to the size and scope that the Company has
successfully developed and manages in the Native American gaming segment of
the gaming industry.

Management believes its experience in and early entry into the Native
American gaming segment of the gaming industry and receipt of certain
approvals from the NIGC and other state and tribal regulatory authorities will
provide it with a competitive advantage over companies just entering Native
American gaming development and management.

Company History

The Company was originally organized in June 1990 and was involved in
an unrelated business prior to its entry into the Native American gaming
segment in 1993. From March 31, 1992 through January 20, 1993, the Company

entered into a series of transactions with Great American Recreation, Inc. and
its wholly-owned subsidiary (collectively, "GAR") pursuant to which the
Company sold its assets in this unrelated business segment to GAR. Management
believes that the foregoing transactions have resulted in the satisfaction of
substantially all of the liabilities associated with these prior unrelated
business activities conducted by the Company.

With the January 1993 hiring of Edward M. Tracy, the Company's
Chairman of the Board and Chief Executive Officer, and subsequent additions of
other experienced casino industry executives, the Company embarked on its new
strategy of pursuing opportunities in emerging segments of the gaming
industry.

Native American Gaming Operations

Background on Native American Gaming

Native American casino gaming has been a rapidly growing part of the
casino gaming industry. A 1987 United States Supreme Court decision opened the
way for full-scale Native American casinos. The Supreme Court held that if a
state has legalized any form of gaming, even in a restricted form, Native
American Tribes have the right to offer the same gaming on Native American
land, free of state restrictions. In 1988, in response to this decision and to
promote Tribal economic development and self-sufficiency, Congress passed the
Indian Gaming Regulatory Act ("IGRA" or the "Act"). The Act provides the
framework for federal, state and Tribal control over Native American gaming.
Native American Tribes must negotiate compacts with their host states before
certain types of gaming are allowed. If the state does not negotiate a compact
in "good faith" with the Tribe, the Act provides that the Tribe may sue the
state in federal court to force the state to negotiate. If the state continues
to resist negotiations, the Act provides that a court-appointed mediator will
impose upon the parties either the compact proposed by the state or the
compact proposed by the Tribe.

Several states have resisted entering into Tribal/State Compacts. In
Seminole Tribe of Florida v. Florida, the United States Supreme Court held
that a state may assert an 11th Amendment immunity defense where a Tribe has
commenced an action to enforce the state's obligation to negotiate in good
faith. Thus, the federal courts are incapable of providing the relief
contemplated by IGRA. In response to Seminole, the Secretary of the United
States Department of Interior (the "Secretary of the Interior") has requested
comments as to how the Secretary of the Interior should implement his
authority to promulgate Secretarial procedures which would govern gaming where
a state has asserted the 11th Amendment immunity from suit. If the Secretary
of the Interior decides to adopt such procedures, and if such procedures
withstood legal challenge, the procedures would substitute for the
Tribal/State Compact.

The Act divides the types of games which may be played into two
principal classes, Class II gaming and Class III gaming. "Class II gaming"
generally consist of bingo, pull-tabs, lotto and, in some circumstances,
poker. "Class III gaming" generally consists of all other forms of commercial
gaming, including table games such as blackjack, craps and roulette, slot
machines and video gaming (including video blackjack and poker), sports
betting and pari-mutuel gaming. The forms of gaming allowed in any class vary
from state to state depending upon the terms of each Tribal/State Compact.
Class II gaming is permitted on Native American land if (a) the state in which
the Native American land is located permits such gaming for any purpose by any
person; (b) the gaming is not otherwise specifically prohibited on Native
American Land by federal law; (c) the gaming is conducted in accordance with
an approved Tribal ordinance; and (d) other miscellaneous requirements are
met. Class III gaming is permitted on Native American land if the conditions
applicable to Class II gaming are met and, in addition, the gaming is in
compliance with the terms of the compact between the Tribal government and the
applicable state government. All compacts between Tribes and states must be
approved by the Secretary of the Interior.

Operations of the Company's Subsidiaries

CGMI was incorporated on October 24, 1978, as a wholly-owned
subsidiary of Bass Leisure Group, Inc., a wholly-owned subsidiary of Bass,
PLC. CGMI operated in the Class II gaming market, primarily providing
management for high stakes bingo facilities of certain Native American tribes.
On November 19, 1993, the Company acquired all of the issued and outstanding

shares of voting common stock of CGMI for a total purchase price of $2.6
million. At the time of CGMI's acquisition by the Company, CGMI was managing
Class II gaming facilities for the Oneida, Muckleshoot and Cow Creek Tribes.
Also, CGMI had executed a management contract with the Narragansett Tribe
which was and remains in the developmental stage. CGMI was also involved in
preliminary negotiations with regard to the execution of a Class III gaming
management contract with the Muckleshoot Tribe. As contemplated by various
agreements of the Company, CGMI's management and development rights and
obligations with the Narragansett Tribe were subsequently transferred to CDGC.

In August 1994, CGMI's management contract with the Umatilla Tribe
was approved by the NIGC. The approval followed an extensive background
investigation as required by applicable NIGC regulations into the Company's
past and current business activities and practices as well as the Company's
key employees. This approval was significant because the background
investigations, as well as certain environmental approvals, require the most
time in the entire NIGC management contract approval process. The management
contracts between CGMI and the Tonto Apache Tribe and the Muckleshoot Tribe
were approved by the NIGC in January 1995 and April 1995, respectively. The
Company and its subsidiaries invested approximately $27 million towards the
expansion of existing facilities and for the development of new Class III
gaming facilities for which it has signed contracts exclusive of the proposed
Narragansett project. Of this amount, $3.3 million represents equipment
financing obtained on behalf of the Tribes. The expenditures have included
construction/expansion costs, equipment purchases, pre-opening expenses and
general working capital. The funds were invested in the form of capital loans
from CGMI to the Tribes and will be required to be repaid with interest and
principal, generally over the life of the management contracts. In September
1995, the Cow Creek Tribe prepaid approximately $824,000 and the Muckleshoot
Tribe prepaid approximately $7.6 million of loans made by CGMI to these Tribes
relating to the construction of their respective facilities. As of June 30,
1997, the Company was owed approximately $7,631,000 on account of remaining
tribal loans.

The Company intends to maintain a focused strategy to develop CGMI's
and CDGC's Native American gaming operations and attempt to capitalize on its
presence in Native American gaming and general casino experience to seek
additional management contracts.

CGMI's and CDGC's principal existing and development projects are
described below.

Capital Gaming Management, Inc.

Muckleshoot Contract (Muckleshoot Casino - Auburn, Washington). CGMI
currently operates the 65,000 square foot Muckleshoot Casino which offers
Class III table games (such as blackjack, roulette, craps, baccarat, Pai Gow,
Caribbean Stud and Big Six), off-track betting ("OTB"), pulltabs and keno, in
addition to non-gaming amenities including fine dining and a gift shop. The
Muckleshoot Casino commenced operations on April 28, 1995. The Muckleshoot
Casino is located approximately 20 miles south of Seattle and 15 miles north
of Tacoma. The casino targets local residents from the Seattle-Tacoma area.
CGMI also managed a Class II high-stakes bingo facility for the Muckleshoot
Tribe until the expiration of the contract in September 1996.

On April 10, 1993, CGMI signed a management contract ("Operating
Agreement") with the Muckleshoot Tribe to construct, manage and operate a
Class III gaming facility offering Las Vegas-style games including blackjack,
roulette, craps, poker, OTB and keno. Certain games have state-mandated
maximum per hand betting limits of $500. As amended in April 1995, the
Operating Agreement is for a term of five years. Pursuant to the terms of the
Operating Agreement between the Muckleshoot Tribe and CGMI, the Muckleshoot
Tribe has prepaid to CGMI approximately $7.6 million that was advanced for
developing, constructing and equipping the gaming facility. Additionally,
under the terms of the Operating Agreement, the annual management fee of 11.5%
of gross gaming revenues has been reduced to 3.9% of gross gaming revenues
simultaneously with the repayment of the loan by the Muckleshoot Tribe in
September 1995. This 66% reduction in the management fee was effective
September 1995 and has significantly impacted and will continue to impact the
future management fees earned from the Operating Agreement.

The Operating Agreement between CGMI and the Muckleshoot Tribe was
approved by the NIGC in April 1995. In addition, the Company has received a
gaming license from the State of Washington permitting the Company to act as a
manager/financier of Native American gaming operations in the State of
Washington. The Company also has a temporary certification by the Muckleshoot
Tribe.

Tonto Apache Contract (Mazatzal Casino - Payson, Arizona). CGMI
currently manages the 35,000 square foot Mazatzal Casino for the Tonto Apache
Tribe which offers slot machines, keno, poker, pull tabs and high stakes bingo
in addition to non-gaming amenities including a restaurant, sports bar and
gift shop. The Mazatzal Casino commenced operations on April 27, 1995.

The Mazatzal Casino targets both the local Payson residents and other
persons living 75 miles to the south in the Phoenix, Arizona metropolitan
area. The Mazatzal Casino is located just south of Payson on Highway 87. In
addition to the Payson area residents, the Mazatzal Casino attracts people
from the Phoenix area on day trips and weekend vacations, particularly because
of the more desirable climate in Payson during the summer months.

On June 29, 1993, CGMI signed a five year management contract with
the Tonto Apache Tribe (the "Tonto Apache Management Contract"), to construct
and operate a Class III gaming facility which would offer slot machines, keno,
high stakes bingo, non-banking table games and OTB. The five-year term
commenced on the date the facility opened in April 1995. The Tonto Apache
Management Contract may be extended for two years at the option of the Tonto
Apache Tribe and upon application to the NIGC. The Tonto Apache Management
Contract provides for CGMI to receive a management fee of 30% of Net
Distributable Profits (as defined therein).

The Tonto Apache Management Contract between CGMI and the Tonto
Apache Tribe was approved by the NIGC on January 30, 1995. In addition, in
February 1995, the Company received temporary management certification from
the Arizona State Gaming Agency. The Company has a temporary certification by
the Tonto Apache Tribe.

Umatilla Contract (Wildhorse Gaming Resort - Pendleton, Oregon). CGMI
currently manages the Wildhorse Gaming Resort for the Umatilla Tribes which
offers video-lottery terminals, black jack, poker, OTB, keno and high stakes
bingo in addition to non-gaming amenities including a restaurant and gift
shop. The Wildhorse Gaming Resort commenced operations on March 10, 1995.

The Wildhorse Gaming Resort targets local residents of the Tri-Cities
area of southern Washington (Richland, Kennewick and Pasco). The Wildhorse
Gaming Resort site is accessible to residents within a 100 mile radius that
also includes Pendleton and Walla Walla. The Wildhorse Gaming Resort is
located approximately 200 miles east of Portland, Oregon, and targets business
travelers and tourists by attracting potential customers traveling along
Interstate 84, the main east-west freeway in northern Oregon and the location
of the historic Oregon trail.

CGMI signed a five year contract on November 9, 1993, with the
Umatilla Tribe (the "Umatilla Management Contract"), to construct, manage and
operate a Class II and Class III gaming facility. The five-year term commenced
on the date the facility opened in March 1995. The Umatilla Management
Contract provides for a management fee of 30% of net distributable profits
after debt service (as defined therein). The Umatilla Management Contract may
be extended for two years if certain contingencies are met. The Umatilla
Management Contract between CGMI and the Umatilla Tribe was approved by the
NIGC on August 17, 1995, and the State of Oregon has approved the Company as
being suitable to manage/finance Native American gaming operations in the
State of Oregon.

Capital Development Gaming Corp.

distributable profits (as defined therein) of the facility for the first five
years and 20% for the remaining two years. As part of the Narragansett
Contract, the Company is required to advance a construction loan to be repaid
over a seven-year period. The Narragansett Contract was submitted to the NIGC
for approval in June 1995. In light of certain federal legislation as well as
pending litigation, no assurance can be given if, or when, such approval will
be obtained or if the Narragansett Tribe will be able to establish a
commercial gaming enterprise (Class II or Class III) under IGRA. Additionally,
it is possible, as a condition of obtaining such approval, that the NIGC will
require material modifications to the Narragansett Contract which could
materialy adversely impact the value of such Contract.

In August 1994, a Tribal-State Compact was entered into between the
Narragansett Tribe and Governor Bruce Sundlun of Rhode Island. In October and
November 1994, two lawsuits were filed (including one by Rhode Island Attorney
General Pine referred to herein as the "Pine Case") seeking to void the
Tribal/State Compact on the grounds that the Governor of Rhode Island lacked
the authority to bind the State of Rhode Island absent State legislative
approval. In 1995, Rhode Island's new governor, Governor Almond, joined in the
Pine Case.

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

The Secretary of the Interior has requested comments as to whether
the Secretary of the Interior can enact Secretarial procedures to permit
gaming under IGRA for the Tribes in states (such as Rhode Island) that refuse
to negotiate Tribal/State Compacts in good faith. If the Secretary of the
Interior concludes that he has such authority, the Company believes that the
Secretary of the Interior may adopt such procedures resulting in the Secretary
of the Interior adopting procedures applicable to gaming by the Narragansett
Tribe. Unless the Chafee Rider (as defined below) is overturned, however,
there can be no assurance that the Secretary of the Interior will have the
authority to impose a compact on the State of Rhode Island.

In addition, in September 1996, federal legislation was passed as a
non-relevant rider (introduced by U.S. Senator John Chafee of Rhode Island,
the "Chafee Rider") to the must-pass Omnibus Appropriations Bill which has the
effect of singling out the Narragansett Tribe's reservation (where the gaming
facility is currently planned to be built) for exclusion from the benefits of
IGRA. The Chafee Rider, which the Company believes discriminates against the
Narragansett Tribe by treating it differently from every other Indian Tribe in
the United States, was passed without hearings or debate, with no consultation
with the Narragansett Tribe and over the objections of the ranking members of
the Senate Indian Affairs Committee. Unless the Chafee Rider is overturned,
the Narragansett Tribe will be precluded from establishing a Class II or Class
III gaming facility under IGRA. Under Rhode Island state law, therefore, the
Narragansett Tribe's only recourse to establish a gaming facility absent a
repeal of the Chafee Rider would be to submit the issue to a statewide and,
possibly, local referendum. There can be no assurance, however, that any such
referendum would be successful or, if successful, what the ultimate scope of
permitted gaming would be.

In August 1996, the NIGC submitted comments on the Narragansett
Contract. In light of the decision by the United States District Court for the
District of Rhode Island invalidating the Tribal/State Compact, the NIGC had
informed the Company and the Narragansett Tribe that they would only consider
a contract relating solely to Class II gaming. In light of this, the Company
bifurcated the Narragansett Contract and submitted it (the "Management
Agreement") on June 21, 1996 for review and approval by the NIGC of only the
portions relating to Class II gaming. The Company reclassified the Class III
contract as a development contract until such time as a Tribal/state compact
for Class III gaming was signed. As a result of the Chafee Rider, however, on
December 16, 1996, the NIGC declined further review of the Management
Agreement between the Narragansett Tribe and CDGC. In declining to approve the
Management Agreement, the NIGC cited enactment of the Chafee Rider that
removed the Narragansett Tribe's settlement lands from the application of the
IGRA. The Chairman of the NIGC declined review of the Management Agreement
asserting that the Naragansett Tribe had lost its rights to conduct Class II
and Class III gaming as a result of the application of the Chafee Rider. An
appeal from this decision was filed with the NIGC on December 20, 1996, and on
June 17, 1997, the NIGC issued a final decision upholding the Chairman's
decision.

On February 19, 1997, the Narragansett Tribe initiated litigation in
the United States District Court for the District of Columbia, naming the NIGC
and its Chairman as defendants. In this action, the Narragansett Tribe sought
a declaration of such Court to the effect that, among other things, the Chafee
Rider is unconstitutional under the equal protection component of the Fifth
Amendment to the U.S. Constitution, and an injunction requiring the defendants
to complete the Management Agreement between the Narragansett Tribe and CDGC.
Both the Narragansett Tribe and the NIGC filed cross-motions for summary
judgment in the matter. A hearing was held on this action on June 7, 1997 and
on August 18, 1997, the District Court for the District of Columbia granted
the NIGC's motion for summary judgment. Management believes that the
Narragansett Tribe will appeal this decision.

Congressional review of the Chafee Rider was initiated on May 1,
1997, with a hearing before the Committee on Resources of the U.S. House of
Representatives. The hearing included testimony from the U.S. Department of
the Interior, the Narragansett Tribe and the National Council of American
Indians, all of whom testified in support of repeal of the Chafee Rider, as
well as several political leaders from the State of Rhode Island, who support
the Chafee Rider. Following this hearing, on June 19, 1997, legislation that
would amend and effectively repeal the Chafee Rider ("H.R. 1983") was
introduced in the House of Representatives by Rep. Patrick J. Kennedy (D-RI),
a member of the Committee on Resources. Joining Rep. Kennedy as original
co-sponsors of H.R. 1983 were Rep. Don Young (R-AK), the Chairman of the
Committee on Resources, and Rep. Dale E. Kildee (D-MI), a member of the
Committee on Resources, and Co-Chairman of the Congressional Native American
Caucus. H.R. 1983 has been referred to and is pending before the Committee on
Resources.

In spite of the set-back caused by the Chafee Rider, CDGC intends to
pursue the Narragansett development project. There can be no assurance,
however, that any legislative or judicial efforts to overturn the Chafee Rider
will be successful.

The Company has continued funding the on-going development costs of
the Narragansett development project, which at June 30, 1997, has amounted to
approximately $8.7 million consisting primarily of legal costs, environmental
engineering and assessment and design costs, approximately $2,331,000 which
was expensed in Fiscal 1997. Additionally at June 30, 1997 approximately $7.4
million in development costs is expected to be recoverable if and when a
gaming facility is established by the Narragansett Tribe.

The Narragansett casino gaming facility will not be located on the
Charlestown site unless the Chafee Rider is rendered ineffective. Although
there can be no assurance, assuming the negotiation of an appropriate compact
with the State of Rhode Island, management believes that the Class III gaming
facility could contain up to 120,000 square feet of gaming space and offer up
to 3,000 slot machines and 150 table games. The gaming facility is expected to
target the local middle-income market and to attract local Rhode Island
residents from the surrounding areas. However, due to Rhode Island's small
geographical size, CDGC expects to also draw customers from the
neighboring states of Connecticut and Massachusetts.

New England is already home to several full scale casinos, including
the Foxwoods Casino operated by the Mashantucket Pequot Tribe and the Mohegan
Sun Casino operated by the Mohegan Tribe which opened in October 1996. Both
these casinos are in Connecticut. It is possible that other casinos will be
established in other parts of New England, including Massachusetts. Because of
the market size, the establishment of existing and such other casinos could
have an adverse impact on the Narragansett casino's gross revenues and, in
turn, on the income generated by CDGC under the Narragansett Contract.

In order to fund the construction costs for the project, it is
anticipated that the Company would require significant additional capital. The
inability of the Narragansett casino to offer a full scope of gaming could
create a competitive disadvantage. There can be no assurance that such
financing will be available, or if available, that the terms thereof will be
acceptable to the Company.

Other Projects of the Company

Jena Band of Choctaws Contract . When the Company completed the
acquisition of CGMI, there was an existing management contract relating to the
development of a Class III gaming facility with the Jena Band of Choctaws
Tribe in Louisiana (the "Jena Contract"). The Jena Contract has not been
approved by the NIGC. Subsequent to the execution of the Jena Contract, the
Jena Band of Choctaws became a federally-recognized tribe. This effort was
funded by the Company. The Jena Tribe has advised the Company that it does not
believe it is bound by the existing agreement, and the Jena Tribe has had
discussions with other management companies. The Company intends to enforce
its rights under the Jena Contract against any third parties which interfere
with this relationship.

Native American Gaming Competition

The Native American gaming industry has experienced significant
growth in the past few years and competition by management companies for
favorable Class II and Class III contracts has increased significantly. In
contrast to the early stages of Native American gaming, well-established
companies in the primary gaming market now compete for a limited number of
Tribal management contracts as opposed to significantly smaller operations
which competed for such contracts a few years ago. As a result of such
competition, new contracts may become less lucrative to management companies
such as the Company as the Tribes have more management companies to choose
from. Additionally, many of the Company's competitors have substantially more
gaming experience, are larger and have greater financial resources to fund the
development of new Tribal gaming operations and attract new management
contracts to the Company.

Additionally, Native American casinos experience intense competition
from other Native American casinos, state sponsored lotteries and gaming,
charitable gaming, as well as gaming in primary markets (Nevada and New
Jersey) and secondary markets (including riverboat, dockside, card rooms, bars
and truck stop operations). There can be no assurance that such competitive
factors will not negatively impact existing or future casinos which the
Company manages.

Reorganization

Reorganization of Crescent City Capital Development Corp. and Sale of
Discontinued Operation

Crescent City Capital Development Corp. ("CCCD"), a former
wholly-owned subsidiary of the Company, held a 50% interest in a riverboat
joint venture gaming facility in New Orleans, Louisiana (the "River City Joint
Venture"). Due primarily 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, and to stem
operating losses, the Company terminated CCCD's operations in June 1995 and
the River City Joint Venture was terminated in July 1995. On July 28, 1995,
CCCD consented to the entry of an order for relief under Chapter 11 of the
U.S. Bankruptcy Code (the "CCCD Reorganization Case") and sought a purchaser
for this discontinued operation.

CCCD filed a plan of reorganization under Chapter 11 of the
Bankruptcy Code (the "Bankruptcy Code") on October 13, 1995. On January 12,
1996, CCCD's plan of reorganization was confirmed (the "January CCCD Plan of
Reorganization"). The January CCCD Plan of Reorganization was predicated 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 financing 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, 1995, 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 of berth and transfer of the license from
Orleans Parish, Louisiana 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 its
shareholders, to immediately pursue other alternatives for the sale of CCCD's
assets.

On February 21, 1996, the Company entered into a stock purchase
agreement (the "CMC Agreement") with Casino Magic Corp. ("CMC"), two of CMC's
wholly-owned subsidiaries, and CCCD to transfer the ownership of CCCD and
substantially all of its assets to a wholly-owned subsidiary of CMC. An
Amended Plan of Reorganization (the "Amended CCCD Plan of Reorganization")
predicated upon consummation of the CMC Agreement was confirmed by the
bankruptcy court overseeing the CCCD Reorganization Case 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 CMC for an
aggregate purchase price of $56.5 million, consisting of $15 million cash, $35
million in Purchaser's Notes and the assumption of up to $6.5 million in
certain equipment liabilities. The cash and Purchaser's Notes paid by CMC's
wholly-owned subsidiary as the purchase price for CCCD were distributed in
accordance with the provisions of the Amended CCCD Plan of Reorganization. In
connection therewith, $7 million in cash and $28 million in Purchaser's Notes
were distributed to the indenture trustee on account of the Company's 11.5%
Senior Secured Notes due 2001 (the "Old Senior Secured Notes"). The Amended
CCCD Plan of Reorganization also provided for the distribution to CCCD's
unsecured creditors of the proceeds of all of CCCD's remaining assets not sold
to CMC.

On July 29, 1996, the indenture trustee for the Old Senior Secured
Notes distributed $49,986,000 in cash and Purchaser's Notes to the holders of
the Old Senior Secured Notes on account of principal and accrued interest (the
"Noteholder Distribution"). The Noteholder Distribution included $28 million
in Purchaser's Notes, as well as cash from the sale of CCCD to CMC, proceeds
from the early payment of a Tribal development loan, proceeds from the buyout
of a management contract, $3.2 million in unused restricted cash and other
sources. Subsequently, in August 1996, the Purchaser's Notes was redeemed by
CMC at 100% of the principal amount plus accrued interest.

Reorganization of the Company

As a result of the CCCD Reorganization Case, on June 13, 1995, First
Trust National Association, the indenture trustee with respect to the Old
Senior Secured Notes (the "Trustee"), notified the Company of the occurrence
of certain events of default ("Events of Default") under the Indenture with
respect to the Old Senior Secured Notes (the "Old Indenture"). The Old Senior
Secured Notes were guaranteed by CGMI and CCCD. The Event of Default cited by
the Trustee related to the assertion of various claims of creditors against
Collateral (as defined in the Old Indenture), which was pledged to secure
repayment of the Old 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 Old Indenture until directed
by the Trustee. Additionally, the Company failed to make interest payments on
its Old 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 Old Senior Secured Notes on August 1, 1995, which also
constituted Events of Default under the Old Indenture.

In order to restructure the Old Senior Secured Notes, pursuant to
negotiations with a steering committee ("Noteholders Steering Committee")
representing more than two-thirds of the holders of the Old Senior Secured
Notes, the Company filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
New Jersey (the "Bankruptcy Court") on December 23, 1996 (the "Petition Date").
The petition did not involve the Company's wholly-owned subsidiaries. The
Company operated as a debtor-in-possession until March 19, 1997 when its Plan
of Reorganization (as defined below) was confirmed by the Bankruptcy Court. As
a debtor-in-possession, the Company was authorized to operate its business but
could not engage in transactions outside its ordinary course of business
without the approval of the Bankruptcy Court.

Subject to certain exceptions under the Bankruptcy Code, the
Company's reorganization proceedings automatically enjoined the continuation
of any judicial or administrative proceedings against the Company. Any
creditor actions to obtain possession of or control over property of the
Company or to create, perfect or enforce any lien against the property of the
Company were also enjoined. As a result, the creditors of the Company were
precluded from collecting pre-petition debts without the approval of the
Bankruptcy Court.

On the Petition Date, the Company filed a pre-negotiated Plan of
Reorganization (together with all subsequent amendments and modifications the
"Plan of Reorganization"), and an accompanying disclosure statement (together
with all subsequent amendments and modification, the "Disclosure Statement").
The Disclosure Statement was approved by the Bankruptcy Court on February 6,
1997.

On March 19, 1997, the Bankruptcy Court conducted a hearing regarding
confirmation of the Plan of Reorganization and entered an order confirming the
Plan of Reorganization submitted by the Company as modified by that order. As
contemplated by the Plan of Reorganization, on May 28, 1997 (the "Effective
Date"), the Company emerged from Chapter 11 and consummated the Plan of
Reorganization.

The Plan of Reorganization provides for the continuation of the
Company. Under the Plan of Reorganization, on the Effective Date the
outstanding common stock of the Company (the "Old Common Stock") and the Old
Options (as hereinafter defined) were cancelled and the Company, as
reorganized, issued 1,866,667 shares of its new common stock, no par value
(the "New Common Stock"), some of which is being held by the transfer agent
subject to distribution under the Plan of Reorganization. The New Common Stock
will be distributed pursuant to the terms of the Plan of Reorganization.

The Plan of Reorganization provides generally that creditors of the
Company are to receive distributions as follows: (i) holders of Old Senior
Secured Notes receive in the aggregate (A) on account of their Allowed Secured
Claims (as defined in the Plan of Reorganization), their Pro Rata Share (as
defined in the Plan of Reorganization) of the Company's 12% Senior Secured
Notes due 2001 (the "New Senior Secured Notes") having a principal face amount
of $21.45 million and 1,225,000 shares of the New Common Stock, and (B) on
account of their unsecured Deficiency Claims (as defined in the Plan of
Reorganization) totaling $80,688,850, the same treatment as is afforded to
holders of General Unsecured Claims (see subparagraph (iii) below); (ii)
holders of Secured Claims (as defined in the Plan of Reorganization) that are
not Claims (as defined in the Plan of Reorganization) arising out of Old
Senior Secured Notes receive, at the option of the Company: (X) such treatment
as will leave such holder unimpaired; (Y) payment in full, in cash; or (Z)
return of such holder's collateral in the possession of the Company; and (iii)
holders of General Unsecured Claims against the Company received their pro
rata shares of (A) 525,000 shares of New Common Stock; (B) the right to
receive the net proceeds of Avoidance Actions (as defined in the Plan of
Reorganization) recovered pursuant to the Plan of Reorganization; and
$1,100,000 in New Senior Secured Notes. With respect to Class 4 Claims (as
defined in the Plan of Reorganization), the trustee with respect to the
Amended Indenture (the "Amended Indenture Trustee") could receive no more than
375,000 shares of New Common Stock and $550,000 in New Senior Secured Notes on
account of its allowed Class 4 Claim, and any shares the Amended Indenture
Trustee would otherwise receive on account of its Class 4 Claim in excess of
$550,000 in New Senior Secured Notes is required to be distributed pro rata to
all other holders of Allowed Class 4 Claims. See "Business - Debt After
Reorganization" for a description of the New Senior Secured Notes and
"Business - Capital Structure" for a description of the Company's current
capital structure.

Holders of the Old Common Stock received their pro rata share of
50,000 shares of New Common Stock. Existing warrants, options and other
rights to acquire Old Common Stock (collectively, the "Old Options") were
cancelled and holders of such Old Options received no distributions of
property on account thereof.

The Plan of Reorganization provides for the discharge of all claims
against the Company and/or release of liability only of the Company, its
wholly-owned subsidiaries and their respective present and former directors,
officers and employees, the Amended Indenture Trustee and the Noteholders
Steering Committee of all liabilities in any way related to the Company. In
addition, a critical element of the Plan of Reorganization is the release by
the Trustee and each of the Noteholders of all of their claims against
subsidiaries of the Company arising out of guaranties and pledges, except for
the treatment of their Claims provided under the Plan of Reorganization.

Management Agreements. The Plan of Reorganization provides for the
continued employment of the Company's key management, Edward M. Tracy,
Chairman and CEO, and William S. Papazian, Senior Vice President, General
Counsel and Director, and amended the existing employment agreements to
provide for three year terms expiring in May 2000 at an annual salary of

$495,000 and $200,000, respectively. The employment agreements also provide
for severance payments equal to one to three years upon the occurrence of
termination of employment under certain circumstances.

Liabilities Subject to Compromise . Prior to the commencement of the
Company's Chapter 11 case, the Company incurred certain secured and unsecured
obligations. Additional claims arose subsequent to the Petition Date resulting
from the rejection of certain executory contracts and from the allowance by
the Court of contingent and/or disputed claims. Creditors and other parties in
interest filed claims with the Court which were in excess of the amounts
recorded in the Company's records. These differences were related to errors,
duplicative claims and overstatement of claims.

Debt After Reorganization

New Senior Secured Notes. Pursuant to the Plan of Reorganization, the
holders of the Old Senior Secured Notes, along with certain unsecured
creditors and key members of management, were entitled to receive New Senior
Secured Notes having an aggregate principal amount of $23.1 million. Interest
on the New Senior Secured Notes accrues at a rate of 12% per annum, and is
payable semi-annually. The New Senior Secured Notes are secured by
substantially all the assets of the Company, including the common stock of
CGMI and CDGC. In addition, the Company's Amended and Restated Senior Secured
Notes Indenture, dated as of March 27, 1997 (the "Amended Indenture") includes
certain restrictive covenants. (See "Description of Amended Indenture".) The
New Senior Secured Notes are redeemable prior to maturity, in whole or part,
at the election of the Company, at the redemption price of 100% of the
principal amount plus accrued and unpaid interest to the redemption date. The
New Senior Secured Notes mature in May 2001. Required principal payments are
as follows:

May 28, 2000 $ 4,620,000
May 28, 2001 18,480,000

Additionally, the Company will make required interest payments of
approximately $1,386,000 commencing November 15, 1997 and continuing
semi-annually thereafter until May 2001.

Description of Amended Indenture. The Amended Indenture governs the
terms of the New Senior Secured Notes. The New Senior Secured Notes are
unconditionally guaranteed as to principal, premium, if any, and interest, on
a senior basis, jointly and severally by all existing and future Subsidiaries
(other than CDGC and its subsidiaries) of the Company (the "Guarantors"). The
New Senior Secured Notes are secured by a lien on substantially all of the
assets of the Company and all existing and future Guarantors. Under certain
circumstances, the Collateral (as defined in the Amended Indenture) may be
released from the lien created by the Amended Indenture and, under other
circumstances, additional liens may be granted on the Collateral.

The Company is required to offer to purchase New Senior Secured Notes
with the proceeds from asset sales which are deposited in a segregated net
cash proceeds account within 365 days after the date of such asset sale or
when amounts accumulated from such asset sales exceeds $7,500,000, together
with accrued interest to the date of repurchase. The New Senior Secured Notes
and the Guaranty rank pari passu with all existing and future senior
indebtedness of the Company and the Guarantors, respectively, and senior in
right of payment to all subordinated indebtedness of the Company and the
Guarantors, respectively.

Principal covenants include, among others, maintenance of coverage
ratio, and limitations on: dividends and other restricted payments and
investments, payment restrictions affecting Subsidiaries, transactions with
Affiliates (as defined in the Amended Indenture), consolidations, mergers and
sales of assets, incurrences of additional Indebtedness (as defined in the
Amended Indenture) and Disqualified Capital Stock (as defined in the Amended
Indenture), liens, lines of business and certain transactions which must be
authorized by the Advisory Committee (as defined in the Amended Indenture).

The Amended Indenture contemplates the formation of an advisory
committee ("Advisory Committee") for the purposes of, among other things,
overseeing certain aspects of the Company's operations. The initial members of
the Advisory Committee were selected by the Noteholders Steering Committee and
were approved by the Bankruptcy Court.

The Company and the Guarantors have covenanted to file, upon request
from the Advisory Committee or the Holders of the New Senior Secured Notes or
the New Common Stock, a registration statement under the Securities Act of
1933 with respect to the New Senior Secured Notes and the New Common Stock.

The Company and the Guarantors also have agreed to use their best efforts to
cause such registration statement to be declared effective by the Securities
and Exchange Commission (the "SEC") within 180 days following such notice.

Capital Structure Prior To The Reorganization

Preferred and Common Stock. Prior to the Effective Date, the Company
had authorized 5 million shares of preferred stock (the "Old Preferred
Stock"), of which none were issued. The Old Common Stock of the Company
consisted of 75 million authorized shares of which approximately 19.0 million
shares were outstanding immediately prior to the Effective Date. All Old
Common Stock and Old Preferred Stock were cancelled on the Effective Date.

Capital Structure Following the Reorganization

The Plan of Reorganization provided for the amendment and restatement
of the Company's Certificate of Incorporation (the "Certificate of
Incorporation") and bylaws. The Certificate of Incorporation authorizes 3.2
million shares of New Common Stock. On the Effective Date, 1,866,667 shares
of New Common Stock were issued to the Company as disbursing agent under the
Plan of Reorganization. The New Common Stock will be distributed to various
classes of creditors pursuant to the terms of the Plan of Reorganization. In
addition, the Company's executive management became entitled to receive a
total of 66,667 shares of common stock on the Effective Date. As of June 30,
1997, the Company had not allocated such shares among executive management.
Also on the Effective Date, 133,333 shares were reserved to be issued to
executive management pursuant to the Plan of Reorganization over the two-year
period after the Effective Date. Executive management will be entitled to
receive the remaining shares in two installments, on the first and second
anniversary of the Effective Date.

Stock Option Plan

Pursuant to the Plan of Reorganization, the Company cancelled all of
its existing stock options and adopted the 1997 Stock Option Plan (the "Stock
Option Plan") covering 200,000 shares of the New Common Stock, pursuant to
which officers, directors, consultants of, or other people rendering services
to the Company or its subsidiaries are eligible to receive incentive and/or
non-qualified stock options. With respect to any option granted to any
employee who was employed by the Company prior to the Effective Date of the
Plan of Reorganization no more than 100,000 of the shares authorized under the
Stock Option Plan may be awarded. The Stock Option Plan expires in March 2007.
Incentive stock options granted under the Stock Option Plan to employees who
are not 10% owners are exercisable for a period up to ten years from the date
of grant at an exercise price of $1.75 or such lesser amount approved by the
Company's noteholders advisory committee. The exercise price may be adjusted
subject to certain recapitalization provisions of the Stock Option Plan.
Incentive stock options granted under the Stock Option Plan to employees who
are 10% shareholders are exercisable for a period up to five years at the same
exercise price provisions. As of June 30, 1997, there were no options granted
under the Stock Option Plan.

Net Operating Loss Carryforwards ("NOLs")

The following description of the Company's net operating loss
carryforwards is based upon management's analysis of the application of the
relevant sections of the Tax Code (as herein defined) to the net operating loss
carryforwards of the Company. There can be no assurance that the Internal
Revenue Service or the courts will agree with management's analysis. There are
substantial risks associated with the Company's utilization of its NOLs. See
"Risk Factors - Net Operating Loss Carryforwards."

For purposes of this discussion, unless otherwise defined or
modified, the term "Gross NOLs" means the total NOLs reported to the Internal
Revenue Service on the federal income tax returns of the particular taxpayer,
before the application of any reductions and related adjustments described in
the following paragraphs under this heading "The Net Operating Loss

Carryforwards". Based on its federal income tax returns for the years through
June 30, 1996, the Company and its subsidiaries reported cumulative Gross NOLs
of approximately $107,000,000. Under Section 172(b) of the Internal Revenue
Code of 1986, as amended (the "Tax Code") as in effect for those years, unused
NOLs expire after fifteen taxable years from the taxable year of a loss.
Because these losses were generated in 1994, 1995 and 1996, they should expire
in 2009, 2010 and 2011 respectively.

For purposes of this discussion, the term "Net NOLs" means the amount
of NOLs of the particular taxpayer for federal income tax purposes adjusted to
reflect reductions and related adjustments required under Tax Code ss. 108 and
Tax Code ss. 382(1)(5), assuming that Tax Code ss. 382(1)(5) applies, but
subject to Internal Revenue Service audits, subsequent changes in the
ownership of the Company and effects under Tax Code ss. 382, and the
application of Tax Code Sections 269 and 384. See "Net Operating Loss
Carryforwards - Application of Tax Code ss. 382 Under the Chapter 11
Reorganization". After taking into account the reorganization of the Company
pursuant to the Plan of Reorganization and assuming that Tax Code ss.
382(1)(5) applies as described in more detail in this section "Net Operating
Loss Carryforwards", management of the Company believes the Net NOLs of the
Company and its subsidiaries as of June 30, 1997 are approximately
$31,500,000, although no assurance can be given that the Company will be able
to utilize these NOLs. See "Risk Factors - Net Operating Loss Carryforwards".

Cancellation of Debt Income Under Tax Code ss. 108. Under the Plan of
Reorganization, unsecured indebtedness of the Company with an aggregate face
amount of approximately $110,000,000 was canceled. Generally, Tax Code ss. 108
provides that a debtor whose indebtedness is canceled must include the amount
of canceled indebtedness in gross income to the extent the indebtedness
canceled exceeds any consideration (e.g., cash, notes, stock or other
property) given for the cancellation. Tax Code ss. 108 further provides,
however, that if a taxpayer is the subject of a bankruptcy case and the
cancellation of indebtedness ("COD") is pursuant to a plan approved by the
Bankruptcy Court, the excess amount canceled is not required to be included in
gross income. Instead, any such excess amounts so excluded from gross income
reduce prescribed tax attributes of the debtor, including NOLs and the bases
of the assets of the debtor, in a specified order of priority beginning with
NOLs. Management of the Company believes that approximately $75,500,000 of its
Gross NOLs of approximately $107,000,000 as of June 30, 1996 must be reduced
to take into account cancellation of indebtedness of the Company pursuant to
the Plan of Reorganization.

Tax Code ss. 382 In General. If a corporation undergoes an "ownership
change", Tax Code ss. 382 limits the corporation's right to use its NOLs each
year to an annual percentage (based on the federal long-term tax-exempt rate
which was 5.64% in May of 1997) of the fair market value of the corporation at
the time of the ownership change (the "Section 382 Limitation"). If an
ownership change under Tax Code ss. 382 is triggered, a corporation may also
be restricted from utilizing certain built-in losses and built-in deductions
recognized during a five-year recognition period after the ownership change. A
corporation is considered to undergo "an ownership change" if, as a result of
changes in the stock ownership by "5-percent shareholders" or as a result of
certain reorganizations, the percentage of the corporation's stock owned by
those 5-percent shareholders has increased by more than 50 percentage points
over the lowest percentage of stock owned by those shareholders at any time
during a prescribed prior three-year testing period. Five-percent shareholders
are persons who hold 5% or more of the stock of a corporation at any time
during the testing period as well as groups of shareholders who are not
individually 5-percent shareholders.

Application of Tax Code ss. 382 Under the Chapter 11 Reorganization.
If the Company is subject to the Section 382 Limitation as a result of the
consummation of the Plan of Reorganization, its annual Section 382 Limitation
would be equal to the product of the applicable long-term tax-exempt rate
(5.64%) times the fair market value of the equity of the Company immediately
before the ownership change. Thus, for example, if the value of the equity of
the Company as of the Effective Date of the Plan of Reorganization was $400,000,
the Company could only use approximately $23,000 of its NOLs each year until
they expire.

Although a 50% ownership change was expected to occur as a result of
the transfer of stock of the Company to creditors pursuant to the Plan or
Reorganization, an exception under Tax Code ss. 382(1)(5) is believed by
management to have applied as described as follows. Tax Code ss. 382(1)(5)
provides that the Section 382 Limitation will not apply to a loss corporation
if (1) the corporation, immediately before the ownership change, is under the

jurisdiction of a court in a United States Code Title 11 or similar case, and
(2) the shareholders and creditors of the old corporation own at least 50% of
the total voting power and value of the stock of the corporation after the
"ownership change" as a result of being shareholders and creditors before the
change. Stock transferred to such creditors counts only if it is transferred
with respect to "old and cold" indebtedness. Indebtedness of creditors
qualifies as "old and cold" if the indebtedness (i) was held by a particular
creditor for at least 18 months before the date of the filing of the Chapter
11 case, or (ii) arose in the ordinary course of the trade or business of the
old loss corporation and was held by the person who at all times held a
beneficial interest in that debt. These requirements will not apply, however,
and thus a loss corporation generally may treat the debt as meeting the
holding period requirement, unless (i) the creditor becomes a 5-percent
shareholder of the loss corporation (directly or indirectly) immediately after
the ownership change, or (ii) such creditor's participation in the formation
of the reorganization plan makes it evident to the debtor that the creditor
has not owned the debt in question for the required period.

Although the Company's management has attempted to determine the
extent to which the indebtedness of creditors who received stock pursuant to
the Plan of Reorganization qualifies as "old and cold", in certain instances
there is still a lack of corroborative evidence as to the status of certain
creditors, and the Amended Indenture Trustee has apparently not yet fixed the
record date for determining who is entitled to receive a distribution of the
New Common Stock as a result of being a holder of Old Secured Notes.
Management is attempting to obtain written confirmation of the status of the
creditors who are receiving New Common Stock. Management has requested the
Amended Indenture Trustee to fix the record date on or before the Effective
Date of the Plan of Reorganization. Because of the uncertainty related to
these issues, management of the Company is unable to document that Tax Code
ss. 382(1)(5) applies to the ownership change that occurred as a result of the
implementation of the Plan of Reorganization. However, based on the
information available to management of the Company, and based on management's
belief that it can favorably resolve the date on which the Amended Indenture
Trustee fixes the record date for distributions of New Common Stock,
management of the Company believes that sufficient indebtedness of creditors
will qualify as "old and cold" under Tax Code ss. 382(1)(5) so that Tax Code
ss. 382(1)(5) will apply to this ownership change. No assurances, however, can
be given that documentation will ultimately be obtained by the Company from
creditors to confirm this belief. Likewise, if the Amended Indenture Trustee
fixes a record date for distribution of the New Common Stock which is after
the Effective Date of the Plan of Reorganization, transfers of the right to
receive the New Common Stock after the Effective Date may cause the Company
not to be able to avail itself of Tax Code ss. 382(1)(5).

Under ss. 382(1)(5), although the Section 382 Limitation does not apply,
the Gross NOLs originally available to the Company must nevertheless be
reduced to the extent of the amount of interest accrued with respect to such
canceled debt during the three taxable years prior to the taxable year of the
"ownership change" and during the taxable year of the "ownership change" (up
to the change date). The Company's management estimates that this Tax Code ss.
382(1)(5) adjustment to the Company's Gross NOLs is approximately $32,000,000.
$27,300,000 of this amount is duplicated as a reduction under Tax Code Section
108, so that if the Company is under Tax Code Section 382(1)(5) the reduction
to NOLs under Tax Code Section 108 would amount to $54,700,000 rather than
$82,000,000. See "Cancellation of Debt Income Under Tax Code Section 108"
in this Section.

After taking into account the reductions and related adjustments to the
Gross NOLs under Tax Code ss. 108 and Tax Code ss. 382, assuming that Tax Code
ss. 382(1)(5) applies, management of the Company believes that the Net NOLs of
the Company and its Subsidiaries as of June 30, 1997 are approximately
$31,500,000, subject to Internal Revenue Service audits, subsequent changes in
the ownership of the Company and effects under Tax Code ss. 382, and the
application of Tax Code Sections 269 and 384, which are described below in
this section. See "Risk Factors - Net Operating Loss Carryforwards".

Tax Code ss. 382 and Subsequent Events and Investors. If Tax Code ss.
382(1)(5) applied to the Company, and a future ownership change under Tax Code
ss. 382 is triggered within two (2) years after the ownership change generated
pursuant to the Plan of Reorganization, the Company would not be allowed to
use any of its NOLs incurred as of that first ownership change. It is
therefore important for the Company to monitor further transfers of New Common
Stock by its 5-percent shareholders and further issuances or redemptions of
Company common stock. Because Tax Code ss. 382 tests whether a 50 percentage
point ownership change has occurred over a three-year testing period, the
Company's capacity to issue more common stock during the three years
subsequent to the Effective Date will be curtailed.

Certain Transferability Restrictions. In accordance with Section 10
of the Company's Certificate of Incorporation, the Company is imposing certain
transferability restrictions upon its 5-percent shareholders for purposes of
Tax Code ss. 382. These restrictions generally provide that the 5-percent
shareholders shall be prohibited from transferring shares of New Common Stock
without the consent of a designated Tax Advisor (the "Tax Advisor"). The Tax
Advisor shall have no obligation to consent to a transfer unless it determines
that the proposed transfer and any related proposed transfers do not create an
unreasonable risk of loss of, or material limitation on, the Company's use of
its net operating loss carryforwards. In the event that the Tax Advisor is
willing to consent to a transfer of New Common Stock by any one shareholder
subject to transferability restrictions, the other shareholders subject to
equivalent restrictions will be offered the opportunity to engage in a
transfer on a ratable basis. These restrictions generally expire on the
earlier of (i) the date that is two years after the Effective Date, (ii) the
date on which the Company determines that the Plan of Reorganization does not
qualify under Tax Code ss. 382(1)(5), or (iii) the date the Company's Board of
Directors in its reasonable business judgment determines that the restrictions
are no longer necessary.

Effect of Tax Code ss. 384. Congress adopted Tax Code ss. 384 in 1987 to
prevent a loss corporation from using its pre-acquisition NOLs and net
built-in losses against any net built-in gains of a corporation the control of
which (utilizing an 80% test of Tax Code Section 1504(a)(2)) is acquired by the
loss corporation or whose assets are acquired by the loss corporation in
certain types of reorganizations. The limitation of Tax Code Section 384
applies to built-in gains recognized within the five-year recognition period
after the acquisition date. Tax Code ss. 384 will prevent the Company from
utilizing its NOLs against built-in gains recognized by any acquired companies
(assuming the control test is met) within five years of the acquisition date.

Effect of Tax Code ss. 269. Tax Code ss. 269(a) provides that if:

(1) any person or persons acquire ... directly or indirectly, control
of a corporation, or
(2) any corporation acquires ..., directly or indirectly, property of
another corporation .. the basis of which property, in the hands of
the acquiring corporation, is determined by reference to the basis in
the hands of the transferor corporation;

and the principal purpose of such acquisition was the evasion or avoidance of
Federal income tax by securing the benefit of a deduction, credit, or other
allowance which such person or corporation would not otherwise enjoy, then the
Internal Revenue Service may disallow such deduction, credit or other
allowance. Control is defined to mean the ownership of stock possessing at
least 50% of the total combined voting power of all classes of stock entitled
to vote or at least 50% of the total value of shares of all classes of stock
of the corporation.

Under Treas. Reg. ss. 1.269-3(a), the determination of the purpose
for which an acquisition was made requires a scrutiny of the entire
circumstances in which the transaction or course of conduct occurred, in
connection with the tax result claimed to arise therefrom. It is uncertain
whether the Internal Revenue Service would attempt to apply Tax Code ss. 269
to the transactions provided for under the Plan of Reorganization. Arguably,
the "old and cold" creditors' receipt of Company common stock was a direct
consequence of their having extended credit to the Company. If the Old Secured
Notes of a creditor were acquired by an investor to achieve control of the
Company and thus avoid or evade federal income tax, the Internal Revenue
Service might attempt to apply Tax Code ss. 269 to prevent the Company from
utilizing its NOLs.

Risk Factors

In addition to other information contained elsewhere in this
document, the reader of this Annual Report on Form 10-K for the fiscal year
ended June 30, 1997 should consider carefully the factors set forth below.

Net Operating Loss Carryforwards. While management believes that the
Net NOLs of the Company and its subsidiaries are approximately $31,500,000 as
of June 30, 1997 (see "Description of Business - Net Operating Loss
Carryforwards - Application of Tax Code ss. 382 Under The Chapter 11
Reorganization), there are risks that the NOLs may have been significantly
diminished or lost as a result of the cancellation of indebtedness occasioned by
the Plan of Reorganization and possible subsequent transfers of rights to

receive New Common Stock under the Plan of Reorganization to the extent that
Tax Code ss. 382(1)(5) does not apply to the ownership change associated with
the implementation of the Plan of Reorganization. There are also risks
associated with the Company's use of its NOLs to reduce Federal income tax
payments, including the possibility that the Internal Revenue Service may seek
to challenge such use, that the Company may be unable to produce significant
levels of taxable income prior to the expiration of the NOLs and that a
subsequent "change in ownership" of the Company may occur which would cause
the Company to lose all or a substantial portion of the NOLs. Although the
Company has attempted to take steps to restrict transfers of New Common Stock
in order to avoid a future "change in ownership," there can be no assurance
that these steps will be successful. See "Description of Business - Net
Operating Loss Carryforwards" and Consolidated Financial Statements.

Substantial Indebtedness of the Company; Potential Limited Capacity
to Satisfy Repayment Obligations. As of May 28, 1997, the total amount of
outstanding Company long-term indebtedness was equal to $23,100,000 comprised
of the New Senior Secured Notes. As a result of the Company's indebtedness,
the Company has significant interest and principal repayment obligations, and
substantial cash is required to fulfill these obligations. This level of debt
poses a substantial risk to the holders of the Company's securities, including
the risk that the Company might not generate sufficient cash flow from
existing operations to service the Company's debt and the risk that the
Company could have limited financial capacity to respond to changes in market
conditions, extraordinary or unanticipated capital needs, shortfalls in
projected cash flow from operations or other changes. Because of the amount of
the Company's indebtedness, the Company's financial condition could be
materially adversely affected by a decline in revenues or increase in
expenses. Additionally, the Company believes it will require new sources of
cash beyond its existing operations in order to fund the final payment of
principal on its New Senior Secured Notes in 2001.

Expirations of Management Contracts. CGMI's management contracts all
currently expire in the year 2000. The ability of CGMI to continue to operate
is highly dependent upon the acquisition of new management contracts. There
can be no assurance that CGMI will be able to attract a sufficient number of
new management contracts to replace existing ones.

Need for Additional Financing for the Development of Gaming
Facilities. The development, management and operation of Native American
gaming and other gaming establishments and ancillary and complimentary
businesses is time consuming and capital intensive. Substantial capital is
needed to finance the licensing, development, construction, architectural,
engineering, equipping, legal and accounting fees and operating expenses
associated with the management, development and operation of casino gaming
establishments. It is anticipated that the Company will require significant
additional capital in order to fund future projects, including, without
limitation, the Narragansett project. There can be no assurance that such
financing will be available or, if available, that the terms thereof will be
attractive to the Company. No financing commitments for future capital needs
have been obtained as of the date hereof.

Need to Comply with Strict Statutory and Regulatory Standards in the
Gaming Industry; Expansion Dependent upon Favorable Regulatory Dispositions.
In order to enter the Native American gaming and other gaming businesses in
new jurisdictions, the Company will be subject to regulation by each state in
which it conducts business, and to a certain extent, federal and Tribal law.
See "Business -- Native American Gaming Operations" and "Business -- Company's
Strategy". 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 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 is 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. After a gaming license or approval is
obtained by the Company, regulatory authorities have broad powers with respect
to the licensing of casino operations, and may revoke, suspend, condition or

limit the Company's gaming licenses, and impose substantial fines and take
other actions, any one of which could have a material adverse effect on the
Company's business.

Congress and the States historically have permitted, restricted and
abolished gaming from time to time depending on prevailing public attitudes.
Congress and the States each have the power to restrict or eliminate gaming at
any time. Any federal or state action to limit Native American or other types
of gaming may have a material adverse effect on the Company. In particular,
the Native American gaming industry has had a limited operating history and
there is uncertainty concerning the future of the industry because of the
rapidly changing and increasingly hostile legal, regulatory and political
environment. If new legislation is enacted by Congress further restricting
Native American gaming, it may apply retroactively.

Gaming operators are typically subject to significant taxes and fees
in addition to normal Federal and state corporate income taxes which do not
apply to other industries. Such taxes and fees are generally in excess of 12%
of gaming revenues, may exceed 20% in some jurisdictions and are subject to
increase at any time. Any material increase in these taxes or fees would
adversely affect the Company. The Company anticipates the payment of
substantial taxes and fees with respect to its existing and future operations.

Competition. The Native American gaming industry and the gaming
industry as a whole, and businesses which are ancillary or complimentary to
these industries, are highly competitive (See "Business -- Native American
Gaming Competition"). As the Native American gaming and other secondary gaming
industries emerge, the Company expects that new competitors will enter the
market. Some of the competitors of the Company will have more personnel and
substantially greater financial, technological, gaming industry experience,
political experience and other resources than the Company.

The Company expects substantial competition for new projects as new
companies enter the market and/or industry consolidation creates new
competition. This competition could cause increases in the cost of securing
favorable new projects. The Company's Native American gaming casinos compete
with other forms of gaming, including land-based casinos, other Native
American casinos, riverboat and dockside gaming, bingo and pull-tab games,
pari-mutuel betting on horse racing and dog racing, state-sponsored lotteries
and gaming in bars and truck stops.

The Native American gaming industry has also experienced significant
growth in the past few years and competition by management companies for
favorable Class II and Class III contracts has increased significantly. In
contrast to the early stages of Native American gaming, well-established
companies in the primary gaming market now compete for a limited number of
Tribal management contracts as opposed to significantly smaller operations
which competed for such contracts a few years ago. As a result of such
competition, new contracts are becoming less lucrative to management companies
as Tribes have more management companies to choose from. Additionally, many of
the Company's competitors have substantially more Native American gaming
experience, are larger and have greater financial resources than the Company
in order to fund the development of new Tribal casinos and attract new
management contracts.

New jurisdictions may legalize various forms of gaming that may
compete with the Company. If other forms of gaming, including casino gaming,
are legalized in additional jurisdictions, existing or future gaming
establishments in which the Company may become involved will compete with
these new forms of legalized gaming. The Company expects that many of its
competitors will have more gaming industry experience, will be larger and will
have significantly greater financial and other resources than the Company.
Given these factors, it is possible that the competition will increase in the
casino gaming industry and that the Company's existing or future operations
will not be profitable.

Loans to Tribes; Limited Recourse Against Tribes. In general, Native
American Tribes do not make any equity investments in the construction,
development or equipment of casinos. With respect to existing and future
projects, the Company has been or will be required to make loans to Tribes for
all of the costs associated with the construction, development, equipment and
operation of casinos managed and to be managed by the Company. These loans are

not conventional real estate and construction loans subject to customary
mortgages and encumbrances. If the casinos that the Company manages do not
generate sufficient cash flow, the Company's loans will not be repaid.

Native American Tribes are sovereign nations and are generally immune
from legal proceedings commenced in state or federal courts. Also,
congressional policy has mandated limited liability of Native American Tribes
in such cases. Thus, the Company's only recourse for collection of
indebtedness from a Tribe or money damages for breach or wrongful termination
of a management contract would be from revenues, if any, from casino
operations. Although CGMI and CDGC normally seek and obtain limited waivers of
sovereign immunity from Tribes, these waivers are difficult to enforce,
particularly prior to receipt of NIGC approval of a management contract. In
the event that the Company should make loans to a Native American Tribe, the
Company may be required to subordinate such Tribal loans and other
distributions due the Company from the Tribe to other obligations of the Tribe
related to that casino. Accordingly, in the event of a default by the Tribe,
the Company's loans to that Tribe may not be repaid until the Tribe's senior
creditors have been repaid in full.

Relationships with Native American Tribes. Native American Tribes are
sovereign nations with their own governmental systems. Tribal officials are
subject to replacement by appointment or election. The Company's relationship
with a Tribe may improve or deteriorate under new administrations. Good
relationships with Native American Tribes and their officials are critical to
the Company's ability to obtain and renew management contracts. A
deterioration in the relationship between the Company and a Tribe would have a
material adverse effect on the Company, including possible termination of
management contracts.

Tribal/State Compacts. Management contracts and the operation of
casinos on Native American land, including the right to offer certain types of
gaming, are subject to Tribal/State Compacts, the terms of which vary from
state to state, and may vary from Tribe to Tribe within a state. At least 20
states have signed Tribal/State Compacts with Native American Tribes that
permit certain types of casino gaming on Native American land. Changes in
state gaming laws may limit the types of gaming that are eligible for
Tribal/State Compacts. The repeal of any Tribal/State Compact or any amendment
that limits the types of gaming that may be conducted on Native American land
in the state may have a material adverse effect on the Company. Certain states
have resisted entering into or renegotiating existing Tribal/State Compacts,
and Tribal/State Compacts have been the subject of litigation in several
states. The Company cannot predict which states, if any, will allow casino
gaming on Native American land, the timing of any such approvals or whether
the states will attempt to renegotiate such compacts in the future.

Risks of Construction. Native American gaming and other gaming
projects and ancillary business construction projects which the Company is
expected to undertake entail risks, including delays in construction,
shortages of material or skilled labor, unforeseen engineering and/or
geological problems, including dredging of waterways to facilitate riverboat
casino gaming, work stoppages, weather interference and unanticipated cost
increases. Pursuant to typical construction contracts, the Company may have to
pay certain construction cost overruns. The Company anticipates that expenses
in connection with the dredging of waterways to facilitate riverboat casino
gaming will be substantial depending upon the location and site conditions.
Construction, equipment or staffing problems or difficulties obtaining any of
the requisite licenses, permits and authorizations from regulatory authorities
may delay the construction or opening of casinos which the Company may
develop.

Native American Gaming Regulation. Gaming on Native American lands is
extensively regulated under federal and state law, Tribal/State Compacts and
Tribal law. The NIGC oversees Class II gaming (essentially bingo and similar
games) and, to a lesser degree, Class III gaming (e.g., slots, casino games
and banking card games). The actual regulation of Class III gaming is
determined pursuant to the terms of Tribal/State Compacts, which govern gaming
on Tribal lands.

The terms and conditions of management contracts for the operation of
gaming facilities on Native American lands are governed by IGRA, which is
administered by the NIGC. Under IGRA, the NIGC must approve all management
contracts between Native American Tribes and managers of Tribal gaming
facilities.

Historically, the Secretary of the Interior, acting through the
Bureau of Indian Affairs (the "BIA"), was charged with the review of
management contracts and collateral agreements, such as promissory notes and
security agreements executed in connection with a management contract. Though
IGRA became law in 1988, the BIA retained approval authority of management
contracts and collateral agreements until February 22, 1993, the effective
date of the regulations regarding the approval of management contracts by the
NIGC.

The NIGC regulations provide detailed requirements as to certain
provisions which must be included in management contracts, including a term
not to exceed five years except that upon request of a Tribe, a term of seven
years may be allowed by the NIGC Chairman if the Chairman is satisfied that
the capital investment and income projections for the gaming facility require
the additional time. Further, the fee received by the manager of a gaming
facility may not exceed 30% of the net revenues except that a fee of 40% of
net revenues may be approved if the NIGC Chairman is satisfied that the
capital investment and income projections for the gaming facility require the
additional fee.

In addition, the Company, its directors, persons with management
responsibilities and certain of the Company's owners, must provide background
information and be investigated by the NIGC and be found suitable to be
affiliated with a gaming operation in order for the management agreements to
be approved by the NIGC. The NIGC regulations provide that each of the ten
persons who have the greatest direct or indirect financial interest in a
management contract must be found suitable in order for the management
agreement to be approved by the NIGC. The NIGC regulations provide that any
entity with a financial interest in a contract must be found suitable, as must
the directors and ten largest shareholders of such entities in the case of a
corporate entity, or the ten largest holders of interest in the case of a
trust or partnership. The Chairman of the NIGC may reduce the scope of
information to be provided by institutional investors. At any time, the NIGC
has the power to investigate and require the finding of suitability of any
person with a direct or indirect interest in a management agreement, as
determined by the NIGC. The Company must pay all fees associated with
background investigations by the NIGC.

The NIGC regulations require that background information described
above must be submitted for approval within ten days of any proposed change in
financial interest in a management contract. The NIGC regulations do not
address any specialized procedures for investigations and suitability findings
in the context of publicly held corporations. If, subsequent to the approval
of a management contract, the NIGC determines that any of its requirements
pertaining to the management contract have been violated, it may require the
management contract to be modified or voided, subject to rights of appeal. In
addition, any amendments to the management contract must be approved by the
NIGC.

The NIGC regulations provide that a management contract must be
disapproved if the NIGC determines that: (1) any person with a direct or
indirect financial interest in, or having management responsibility for, a
management contract has been convicted of a felony or any misdemeanor gaming
offense; (ii) has engaged in prior activities which make him unsuitable to be
connected with gaming; (iii) is an elected member of a Tribe that is party to
the management contract; or (iv) has provided false statements to the NIGC or
a Tribe or has refused to respond to questions from the NIGC; (2) the
management contractor has attempted to unduly interfere with or influence
Tribal decisions relating to the gaming operation or has failed to follow the
management contract and applicable Tribal ordinances; or (3) a trustee would
not approve the management contract.

Because the NIGC has only recently been provided the regulatory
authority to approve management contracts, it is not yet clear how this
authority affects the BIA's statutory rights of approval of contracts between
Native American Tribes and non-Native Americans which state that if contracts
between non-Native Americans and Native American Tribes do not adhere to
certain statutory requirements, such contracts will be void.

Several bills have been introduced in Congress which would amend
IGRA. To this date, no such bill has passed either house of Congress. If IGRA
was amended, the amendment could change the governmental structure and
requirements within which the Tribe could conduct gaming.

Each of CGMI's Native American gaming management projects is also
regulated by state and/or Tribal gaming commissions. The Company and CGMI have

submitted applications for licenses to manage and finance Native American
gaming operations with the various applicable Tribal and state gaming
commissions for Arizona, Oregon and Washington and have subsequently received
permanent or temporary gaming licenses from each of such Tribes and states,
permitting them to act as managers/financiers of Native American gaming
operations in such states.

To the best of its knowledge, CGMI is presently in material
compliance with all applicable gaming rules and regulations.

The Amended Indenture. The Company is subject to certain restrictive
covenants pursuant to the Amended Indenture. The Company is also required to
repurchase the New Senior Secured Notes under certain conditions. See
"Business--Debt After Reorganization--Description of Amended Indenture." The
terms, conditions, covenants and restrictions contained in the Amended
Indenture could materially adversely affect the Company.

Default Under Amended Indenture. The Amended Indenture contemplates
that certain actions of the Company require prior notice to (and in certain
cases, approval from) the Advisory Committee. No proposed member of the
Advisory Committee has yet executed an appropriate confidentiality agreement
and, therefore no such proposed member has qualified to serve on such
committee. Moreover, the Company has been notified by several state gaming
regulators in States in which the Company conducts business, that the breadth
and scope of the powers granted to the Advisory Committee in the Amended
Indenture require that proposed members of the Advisory Committee be licensed
by the appropriate gaming regulators and further that, in the absence of such
licensure, actions by members of the Advisory Committee would constitute an
improper circumvention of applicable licensing requirements. In the absence of
a functioning Advisory Committee, the Company may not be able to enter into
certain transactions or otherwise conduct its business without violating
certain covenants in the Amended Indenture. The Company has been notified by
the Amended Indenture Trustee that the Amended Indenture Trustee has reserved
its right to assert that certain actions taken by the Company to date
(including the failure of the Company to have its budget approved by the
Advisory Committee) constitute a default under the Indenture. To date,
however, the Amended Indenture Trustee has not delivered to the Company any
notice of an Event of Default. Moreover, the Amended Indenture Trustee has
notified the Company that it has been directed by a majority in principal
amount of the Senior Secured Notes to forebear from taking any action to
accelerate the New Senior Secured Notes until November 14, 1997, during which
time the Company will have an opportunity to cure any such default. The
Company is currently engaged in discussions with Counsel and Noteholders
representing a majority of Noteholders for the purpose of amending the Amended
Indenture to affect solely the rights, duties and powers of the Advisory
Committee and provide for an Advisory Committee with the authority to approve
the Company's budget but without the need for Advisory Committee members to be
licensed as required by gaming regulators or the possible elimination of the
Advisory Committee concept from the Indenture altogether.

The Amended Indenture Trustee, the majority of Noteholders and the
Company believe it is probable that the parties will be able to amend the
Amended Indenture to cure the default by November 14, 1997. There is no
assurance, however, that a satisfactory resolution of this matter can be
achieved. In the absence of a satisfactory resolution, the Amended Indenture
Trustee would elect to declare an Event of Default in which case the New
Senior Secured Notes could be accelerated and the Amended Indenture Trustee
could seek to enforce its rights under the Amended Indenture, including
foreclosing on its collateral.

Continued Listing on NASDAQ. On June 25, 1997, the New Common Stock
was delisted from the OTC-Electronic Bulletin Board by NASDAQ because there
were no longer any market makers for the New Common Stock. The Company has
contacted and will continue to contact its former market makers to encourage
such entities to submit the necessary documents to NASDAQ to become market
makers of the New Common Stock. There can be no assurance that the Company
will be able to attract a sufficient number of market makers for the New
Common Stock to be relisted on the OTC Electronic Bulletin Board or that
NASDAQ will approve an application by the Company for relisting. As of the
date hereof, there is no established public trading market for the New Common
Stock.

Dependence Upon Key Personnel. The Company is substantially dependent
upon the experience and abilities of Edward M. Tracy, its Chairman and Chief
Executive Officer, and other key executives whose experience in gaming and
requisite licensure makes them unique. Mr. Tracy has been instrumental in
positioning the Company to take advantage of the opportunities to establish

casino gaming operations on Native American lands. While the Company has
employment agreements with Mr. Tracy and other key executives, the loss of
their services could materially adversely affect the Company.

Suitability of Associated Persons. The NIGC, state and Tribal gaming
regulatory agencies closely regulate the suitability of persons owning or
seeking to renew an interest in a gaming license or permit, which suitability
can be adversely affected by persons associated with licensees or permitees.
Additionally, any person or entity having any direct or indirect interests in
the Company or any casino directly or indirectly owned by the Company,
including holders of shares of New Common Stock, the New Senior Secured Notes
or any warrants or options to purchase shares of New Common Stock may be
subject to administrative action, including personal history and background
investigations. The actions of such associated persons over whom the Company
may have no control could jeopardize any licenses held by the Company.

Repurchase of Securities Relating to Gaming Matters. Persons who
acquire beneficial ownership of the Company's securities may be subject to
certain reporting and qualification procedures established by regulatory
authorities. Such regulatory scrutiny and related limitations could adversely
affect the marketability of the Company's securities. The Amended Indenture
provides that the New Senior Secured Notes may be redeemed by the Company at
par from holders of Senior Secured Notes if the Company believes such action
is required to prevent impairment of a material gaming license and in certain
other circumstances. The Company has amended its Certificate of Incorporation
to provide that if the Company reasonably determines that ownership of its
securities by any person or entity will either preclude, interfere with,
threaten or delay the issuance of or jeopardize the maintenance and existence
of any gaming license or result in the imposition of burdensome terms or
conditions on such license, the Company will have certain rights to repurchase
such securities or to require the sale of such securities. Accordingly, in
certain situations, a holder of such securities could be subject to the risk
of forfeiture or compelled sale.

Environmental Matters. The Company is subject to certain Federal,
state and local environmental protection, health and safety laws, regulations
and ordinances that apply to non-gaming businesses generally, such as the
Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act,
CERCLA, Occupational Safety and Health Act and similar state statutes. To the
best of its knowledge, the Company believes that it is in material compliance
with all such statutes and the regulations or ordinances thereunder.

Bank Secrecy Act. Similar to banks and other financial institutions,
casinos are required to monitor and report currency receipts and disbursements
in excess of a certain limit to the United States Department of the Treasury.
Under amendments recently adopted by the Department of the Treasury, casinos
must obtain and document customer identification data for all currency
transactions above a specified amount. These requirements impose recordkeeping
requirements on the Company which may increase its overall cost of operations.
However, the Company does not believe that such requirements will have a
material adverse impact on the financial condition or operations of the
Company.

Certain Local Regulations. 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.

Employees

The Company and its subsidiaries had 9 employees at fiscal year ended
June 30, 1997.

ITEM 2. PROPERTIES

CGMI leases office space in Phoenix, Arizona pursuant to a lease
agreement which expires December 31, 1997.

ITEM 3. LEGAL PROCEEDINGS

Pursuant to the Plan of Reorganization, all legal proceedings against
the Company prior to the Effective Date were settled. As a result there was no
material litigation pending against the Company on June 30, 1997. The Company
is or may become a defendant in pending or threatened legal proceedings in the
ordinary course of business although is not aware of the existence of any
material pending or threatened legal proceedings at this time.

See also "Risk Factors - Potential Default Under Amended Indenture".

Reorganization of the Company

The Company filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
New Jersey on December 23, 1996 (the "Petition Date"). The petition did not
involve the Company's wholly-owned subsidiaries. The Company operated as a
debtor-in-possession until March 19, 1997 when its Plan of Reorganization was
confirmed by the Bankruptcy Court. As a debtor-in-possession, the Company was
authorized to operate its business but could not engage in transactions
outside its ordinary course of business without the approval of the Bankruptcy
Court.

On the Petition Date, the Company filed its Plan of Reorganization,
and an accompanying disclosure statement (together with all subsequent
amendments and modification, the "Disclosure Statement"). The Disclosure
Statement was approved by the Bankruptcy Court on February 6, 1997.

On March 19, 1997, the Bankruptcy Court conducted a hearing regarding
confirmation of the Plan of Reorganization and entered an order confirming the
Plan of Reorganization submitted by the Company as modified by that order. As
contemplated by the Plan of Reorganization, on the Effective Date the Company
emerged from Chapter 11 and consummated the Plan of Reorganization.

For further details on the Company's reorganization and for
information regarding the reorganization of CCCD, a former subsidiary of the
Company, see "Business-Reorganization".

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

During the fourth quarter of the fiscal year ended June 30, 1997, no
matter was submitted to a vote of security holders, through the solicitation
of proxies or otherwise.

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

Through June 24, 1997, the New Common Stock was eligible for trading
on the OTC-Electronic Bulletin Board. On June 25, 1997, the New Common Stock
was delisted from the OTC-Electronic Bulletin Board by NASDAQ because there
were no longer any market makers for the New Common Stock. The Company has
contacted and will continue to contact its former market makers to encourage
them to submit the necessary documents to NASDAQ to become market makers of
the New Common Stock. There can be no assurance that the Company will be able
to attract a sufficient number of market makers for the New Common Stock to be
relisted on the OTC Electronic Bulletin Board or that NASDAQ will approve an
application by the Company for relisting. As of the date hereof, there is no
established public trading market for the New Common Stock.

As of September 30, 1997, there were 109 holders of record of the New
Common Stock.

The Company is currently authorized under its Certificate of
Incorporation to issue up to 3,200,000 shares of New Common Stock.

The following table sets forth the range of high and low bid prices
for the Common Stock and Investor Warrants, as reported by the NASDAQ Stock

Market for the periods indicated. The prices set forth below represent quotes
between dealers and do not include commissions, mark-ups or mark-downs, and
may not necessarily represent actual transactions.

The Investor Warrants were issued in the Company's private placement
financing in February 1994 and were listed on the NASDAQ SmallCap Market on
August 12, 1994. All the Investor Warrants were cancelled pursuant to the Plan
of Reorganization.

Common Stock Investor Warrants
Calendar Quarter High Low High Low
1995:
Third Quarter $0.69 $0.16 $0.23 $0.01
Fourth Quarter $0.38 $0.07 $0.06 $0.01

1996:
First Quarter $0.30 $0.10 $0.08 $0.02
Second Quarter $0.30 $0.13 $0.05 $0.03
Third Quarter $0.14 $0.06 $0.05 $0.03
Fourth Quarter $0.12 $0.02 $0.07 $0.001

1997:
First Quarter $0.08 $0.01 $0.001 $0.001
Second Quarter* $0.03 $0.125 $0.02 $0.01

* -- On June 25, 1997, the New Common Stock was delisted from the
OTC-Electronic Bulletin Board by NASDAQ.

The Company has never paid and does not presently anticipate the
payment of cash dividends in the foreseeable future. It is the present
intention of the Board of Directors to retain earnings, if any, to provide for
the growth of the Company. Payment of dividends in the future will depend,
among other things, upon the Company's ability to generate earnings, its need
for capital and its financial condition. Additionally, the Company's ability
to pay dividends is limited by the Amended Indenture and applicable state law.

ITEM 6. SELECTED FINANCIAL DATA (1)

The selected consolidated financial data set forth below for each of
the last five fiscal years ended June 30, is derived from the Company's
consolidated financial statements and notes. Due to the Company's
reorganization, comparisons of 1997 to prior years may be of limited use in
determining operating or other financial trends in the Company's business.
This data should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations".

IN THOUSANDS, EXCEPT SHARE DATA

- ---------------------------------------------------------------------------------------------------------------------
Reorganized Prececessor Company
Company ------------------------------------------------------------

Statement of Operations May 29,
Data (2) 1997
Through July 1, 1996
June 30, Through
1997(A) May 28, 1997 Years Ended June 30
---------------------------------------------
1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
Gross Revenues 753 7,447 7,663 10,637 1,724 --
Operating Expenses 1,921 7,238 14,441 111,908 16,580 3,003
Reorganization Items (Expense) -- (50,805) (600) -- -- --
Other Income (Expense) (168) (6,603) 3,660 (15,605) (9,312) 255
(Loss)Income Before Extraordinary Items(4) (1,351) (44,288) (4,039) (116,876) (23,685) (1,652)
Loss on Early Extinguishment of Debt -- (1,998) -- -- -- --
Gain From Reorganization Items -- (103,464) -- -- -- --
Net (Loss) Income (1,351) 145,754 (4,039) (117,709) (23,784) 658
- ---------------------------------------------------------------------------------------------------------------------
Earnings Per Share:(B)
Income (Loss) Before Extraordinary Item ($0.72) N/A N/A N/A N/A N/A
Income From Discontinued Operations -- N/A N/A N/A N/A N/A
Gain From Reorganization Items -- N/A N/A N/A N/A N/A
Net (Loss) Income ($0.72) N/A N/A N/A N/A N/A
Weighted Average Shares Outstanding 1,866,667 N/A N/A N/A N/A N/A

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

- --------------------------------------------------------------------------------------------------------
Predecessor Company
Reorganized as of June 30,
Company ---------------------------------------------
Balance Sheet Data: 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------

Working Capital (Deficit) (4) 6,431 (118,020) (143,893) 26,545 6,010
Total Assets 25,114 60,048 82,977 168,906 9,265
Long-Term Debt (4) 23,100 -- 20,293 150,815 --
Total Liabilities 26,065 160,308 179,199 158,928 341
Stockholder's Equity (Deficit) (951) (100,260) (96,222) 9,979 8,924
Ratio of Earnings to Fixed Charges (5) (5) (5) (5) (5)
- --------------------------------------------------------------------------------------------------------

(1) As a result of the sale of the Company's former unrelated business in
1992, closure of the River City Joint Venture in 1995, and the Company's
reorganization in 1997, the comparability and informative value of information
reflected in the forgoing selected financial data with respect to the fiscal
years ended June 30, 1997, 1995 and 1993 may not be meaningful for the reader
of this Annual Report on Form 10-K for the fiscal year ended June 30, 1997.

(2) Includes non-recurring income of $4,196,000 and $4,049,000 at June 30,
1995 and June 30, 1993 respectively, received by the Company in connection
with discontinued operations.

(3) For the 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 River City Joint Venture in New Orleans
in June 1995, substantial write-downs of assets cost were recorded
contributing to a significant loss from the closure. 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.

(A) Commencement of fresh start reporting in connection with the consummation
of the Company's reorganization after the Effective Date. See "Business -
Reorganization" for further details.

(B) The weighted average number of common shares outstanding and net income
per common share for the predecessor company (periods through May 28, 1997
(the Effective Date)) have not been presented because, due to the Company's
reorganization and implementation of fresh-start reporting, they are not
comparable to subsequent periods and irrelevant. See "Business -
Reorganization" for further details.

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
Annual Report on Form 10-K for the fiscal year ended June 30, 1997.

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

Notice Regarding Forward-Looking Statements

To the extent the information contained in this discussion and
analysis of consolidated financial condition and results of operations and the
information included elsewhere in this Annual Report on Form 10-K for the
fiscal year ended June 30, 1997 are viewed as forward-looking statements, the
reader is cautioned that various risks and uncertainties exist that could
cause the actual future results to differ materially from that inferred by the
forward-looking statements. Words such as "expects", "anticipates", "intends",
"potential", "believes" and similar expressions are intended to identify
forward-looking statements. A discussion of the risk factors regarding the
implementation of the Company's business strategy is set forth in this Annual
Report on Form 10-K in the section entitled "Risk Factors." Failure to
successfully implement this strategy would raise substantial doubt about the
Company's ability fulfill its principal obligations under its New Senior
Secured Notes. The reader is further cautioned that risks and uncertainties
exist that have not been mentioned herein due to their unforeseeable nature,
but which, nevertheless, may impact the Company's future operations.

Liquidity and Capital Resources

Sources and Uses of Cash. For the year fiscal year ended June 30,
1997 the Company had a net increase in cash of $1,821,000 of which $673,000
and $1,148,000 was provided by the "Reorganized Company" (the Company from and
after May 29, 1997) and the "Predecessor Company" (the Company from July 1,
1996 through May 28, 1997), respectively.

Operating activities for the fiscal year ended June 30, 1997 required
the use of $171,000 in cash. Operating activities of the Reorganized Company

provided $341,000 in cash which was offset by the Predecessor Company which
required the use of $512,000 in cash. The primary sources of cash from
operations were (i) management fees which provided $8,096,000 in cash,
$795,000 from the Reorganized Company and $7,301,000 from the Predecessor
Company and (ii) interest income which provided $1,004,000 in cash, $89,000
from the Reorganized Company and $915,000 from the Predecessor Company.
Significant adjustments to cash from operations for non-cash items for the
Reorganized Company and the Predecessor Company respectively were (increase
(decrease)): Depreciation and amortization - $262,000 and $735,000; Loss on
early extinguishment of debt - $0 and $1,998,000; Extraordinary gain from
reorganization and reorganization adjustments - $0 and ($157,418,000);
Restructuring fees paid to management - $0 and $550,000; Amortization of
deferred finance costs and original issue discounts - $0 and $813,000; and
Gain on sale of riverboat operations - $0 and ($364,000). Changes in working
capital balances were $955,000 for the Reorganized Company and $7,420,000 for
the Predecessor Company. Interest payments required the use of $0 and
$863,000 in cash for the Reorganized Company and the Predecessor Company
respectively.

Investing activities for the fiscal year ended June 30, 1997 provided
a total of $3,282,000 in cash primarily from the repayment of Native American
loans. The Reorganized Company received $332,000 in loan repayments while the
Predecessor Company received $3,363,000 in loan repayments which was offset by
a $413,000 transfer to restricted cash.

Financing activities for the fiscal year ended June 30, 1997 required
the use of $1,290,000 in cash and was due entirely to the repayment of
equipment notes by the Predecessor Company.

The Company's source of cash for the next twelve months is expected
to be derived from the receipt of management fees and debt service on the
Native American loans. In the event conditions arise, for whatever reasons,
that cause a reduction or elimination in such sources of cash, the Company may
not be able to continue operations or service its debt.

Capital Requirements. The Company will continue to operate, through
CGMI, the existing Muckleshoot, Tonto Apache and Umatilla casinos pursuant to
the related management agreements. Absent any new developments, these three
contracts, along with debt service payments on the Tribal Loans with Tonto
Apache and Umatilla Tribes and cash and cash equivalents at June 30, 1997 of
$3,923,000, will provide the Company with its only source of cash for the
approximately two and one-half years remaining on the contracts. The Company
believes that these sources of cash will exceed the ongoing cash requirements
for all operating expenses and general business development costs (including
the Narragansett project) as well as all interest payments on the New Senior
Secured Notes and principal payments on the New Senior Secured Notes, with the
exception of the final principal payment of $18,480,000 due 2001. The Company
expects to use any excess cash to fund new projects, although the realization
of excess cash is not assured. The Company believes it will require new
sources of cash beyond its existing operations in order to fund the final
payment of principal on its New Senior Secured Notes in 2001.

In order to complete the funding of the construction or acquisition
costs any new projects or fund the construction costs of the Narragansett
project, if and when a gaming facility is approved in Rhode Island, it is
anticipated that the Company will require significant additional capital. The
Company believes that should any new projects become available or if the
gaming facility is approved for Rhode Island, the Company will have available
funding through the debt and/or equity markets or alternatively though bank
financing, based on the viability of the individual projects. This belief is
founded on the Company's past success in developing Class III gaming
facilities, the expertise of its management in the gaming industry and its
favorable position of being currently licensed and/or approved by the NIGC and
by several state jurisdictions. However, there can be no assurance that such
financing will be available, or if available that the terms thereof will be
acceptable or favorable to the Company. Given the high level of uncertainty
concerning the prospects of new development projects and/or the Narragansett
Tribe's ability to secure a binding compact or approval for non-compacted
gaming, no financing commitments have been obtained as of the date of this
filing. Further, the timing of any new capital requirements cannot be
reasonably estimated at this time.

RESULTS OF OPERATIONS

Overview

The following discussion about the Company's results of operations
includes the Company, CGMI, and CDGC. It also includes CCCD until May 23,
1996, the date on which all of the shares of CCCD were sold to a wholly-owned
subsidiary of Casino Magic Corporation. The results of operations of CCCD for
the years ended June 30, 1996 and 1995, includes its 50% interest in losses of
River City Joint Venture, a general partnership whose other equal partner was
Grand Palais Riverboat, Inc. (then a wholly owned subsidiary of Hemmeter
Enterprises, Inc.).

On the Petition Date, the Company, apart from its subsidiaries, filed
a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On
the Petition Date, the Company filed its Plan of Reorganization. As
contemplated by the Plan of Reorganization, on the Effective Date, the Company
emerged from Chapter 11 and consummated the Plan of Reorganization.

On the Effective Date, upon emergence from bankruptcy, the Company
adopted fresh-start reporting as required by AICPA Statement of Position 90-7.
Under fresh-start reporting, all assets and liabilities were restated to
reflect their reorganization value which represents the fair value of the
entities under Reorganization. As a result of adopting fresh-start reporting,
the consolidated financial statements of the Reorganized Company are not
comparable with those of the Predecessor Company prepared before the Effective
Date.

In addition to the Plan of Reorganization, and in furthering its
strategy of reducing operating expenses, the Company's Board of Directors
approved an informal Business Plan for Consolidating Operations (the "Business
Plan"). The Business Plan called for the closure of the Company's New Jersey
headquarters offices and the relocation of the Company's headquarters to its
current Phoenix, Arizona offices, thereby gaining substantial efficiencies of
operations, better communications amongst management and significant
reductions in staffing and administrative costs on a prospective basis.

As a consequence of the implementation of its Business Plan, and the
resultant consolidation of operations, the Company effected a change in the
method used to distribute operating expenses among the Company and its
subsidiaries. Effective in June 1997, all staffing costs (with the exception
of officers of the Company), selling, general and administrative expenses of
the Company are charged to CGMI as the primary operating entity of the
Company. The Company's officers payroll and public company general and
administrative expenses are charged to the Company. CDGC continues to be
charged with the expenses relating to the development of the Narragansett
project. Accordingly, the results of operations for each of the entities of
the reorganized Company are not necessarily comparable to that of the
predecessor Company. As such, the following discussion of the results of
operations for Fiscal 1997 as compared to Fiscal 1996 is presented on a
consolidated basis only, with information about an individual entity provided
where necessary.

FISCAL 1997 COMPARED TO FISCAL 1996

As a consequence of the Company's fresh-start accounting, reporting
for the fiscal year ended June 30, 1997, is accomplished by combining the
results of operations for the Reorganized Company (May 29, 1997 through June
30, 1997) and the Predecessor Company (July 1, 1996 through May 28, 1997).

The following table sets forth certain key elements of the results of
operations for the combined periods discussed above:

Reorganized Predecessor Company
Company ------------------------------------------------------
May 29, 1997 - July 1, 1996- Fiscal Fiscal
June 30, 1997 May 28, 1997 1997 (1) 1996

REVENUES:
Management Fees 753,000 7,447,000 8,200,000 7,663,000

COSTS & EXPENSES
Salaries, Wages & Related 188,000 1,818,000 2,006,000 2,862,000
Native American Develop Costs 532,000 1,910,000 2,442,000 1,899,000
Professional Fees 469,000 1,387,000 1,856,000 1,795,000
General & Administrative 470,000 1,388,000 1,858,000 2,034,000
Depreciation & Amortization 262,000 735,000 997,000 940,000

TOTAL COSTS & EXPENSES 1,921,000 7,238,000 9,159,000 14,441,000

(LOSS) INCOME FROM OPERATIONS (1,168,000) 209,000 (959,000) (6,778,000)

REORGANIZATION ITEMS (EXPENSE) -- 50,805,000 50,805,000 (600,000)

OTHER INCOME (EXPENSE)
Interest Income 83,000 875,000 958,000 1,959,000
Interest Expense (251,000) (7,842,000) (8,093,000) (19,062,000)

(LOSS) INCOME BEFORE INCOME TAX (1,336,000) 44,411,000 43,075,000 (3,718,000)

PROVISION FOR INCOME TAX (15,000) (123,000) (138,000) (321,000)

(LOSS) INCOME BEFORE
EXTRAORDINARY ITEMS (1,351,000) 44,288,000 42,937,000 (4,039,000)

EXTRAORDINARY ITEMS:
Loss on Early Extinguishment
of debt -- (1,998,000) (1,998,000) --

Gain from Reorganization -- 103,464,000 103,464,000 --

NET (LOSS) INCOME (1,351,000) 145,754,000 144,403,000 (4,039,000)

(1) Reorganized Company and Predecessor Company combined.

Loss From Operations

Loss from operations for the year ended June 30, 1997 amounted to
$959,000 as compared to $6,778,000 for the year ended June 30, 1996, a
decrease of $5,819,000 or 85.6%. This decrease in loss from operations is
comprised of (i) an increase in revenues of $537,000, (ii) a decrease in
operating expenses of $379,000 and (iii) reduction in the costs of the
riverboat operations of $4,903,000.

The loss from operations of the Reorganized Company was $1,168,000
for the period May 29, 1997 to June 30, 1997. This loss includes certain
one-time charges, accruals and reserves of about $1,255,000 relating to
professional fees, Plan implementation costs, development costs, office
consolidation, insurance and taxes.

Revenues

Revenues for the year ended June 30, 1997, comprised primarily of
CGMI's management fees from the Company's three managed Class III gaming
facilities amounted to $8,200,000, an increase of $537,000 or 7.0% over the
year ended June 30, 1996. The following table sets forth the comparison
between Fiscal 1997 and Fiscal 1996 by facility:

Facility 1997 1996 Inc(Dec) %

Cow Creek 0 618,000 (618,000) (100.0%)
Muckleshoot Casino 2,360,000 2,038,000 322,000 15.8%
Muckleshoot Bingo (92,000) (197,000) 105,000 53.3%
Tonto Apache 2,055,000 1,961,000 94,000 4.8%
Umatilla 3,866,000 3,210,000 656,000 20.4%
Miscellaneous 11,000 33,000 (22,000) (66.7%)

Note: Revenues for Cow Creek are through August 1995 and; Muckleshoot
Bingo are through September 1996

The increase in management fees is due primarily to the strong
financial performance of each of Company's managed facilities. In comparison
to Fiscal 1996, Fiscal 1997 total revenues were higher for each facility by
the following percentages: Muckleshoot - 10.3%; Tonto Apache - 3.3% and;
Umatilla - 12.0%. Operating performance of each of -the three facilities for
Fiscal 1997, as measured by their EBITDA margins were: Muckleshoot - 47.8%;
Tonto Apache - 52.0% and; Umatilla - 54.9%. The Company anticipates the
continued strong performance of each of the managed facilities.

Interest income for the year ended June 30, 1997 was $958,000 which
represented a $1,001,000 or 51.1% decline from June 30, 1996 levels.
Approximately $464,000 of the decrease is due to the pay down of the Tribal
loans with the remainder of the decrease of $507,000 due to a lower average
balance of cash for Fiscal 1997 as compared to 1996. Additionally, approximately
$30,000 in interest income is included in Reorganization Items.

Costs and Expenses

Salaries, wages and related costs for the year ended June 30, 1997
were $2,006,000. This represents a decrease of $856,000 or 29.9% and is due
directly to the Company's efforts to reduce operating expenses.

Native American development Costs increased $543,000 or 28.6% from
$1,899,000 to $2,442,000 for the years ended June 30, 1996 and 1997
respectively. By reporting entity Native American development costs were:

Entity 1997 1996 Inc(Dec) %

CGII $ 141,000 $862,000 $ (722,000) (83.8%)
CDGC 2,190,000 951,000 1,239,000 130.3%
CGMI 112,000 86,000 26,000 30.2%

Development costs for CGII and CGDC for both Fiscal 1997 and 1996
were primarily for the benefit of the Narragansett Tribe in Rhode Island. The
increase in Rhode Island development costs is due primarily to increased
activity in attempting to further the Tribe's position toward an approved
Compact. As of June 30, 1997 the cumulative expenditures on the Rhode Island
project is approximately $8.7 million. About $7.4 million is expected to be
recoverable by the Company if and when a gaming facility is established by the
Narragansett Tribe. The Company's management expects that Fiscal 1998 funding
of the Narragansett project will not approach Fiscal 1997 levels, however, the
actual level of required funding cannot be reasonably estimated at this time
due to the uncertainty of the process.

Professional fees (primarily legal) increased $61,000 or 3.4% to
$1,856,000 for the year ended June 30, 1997 as compared to the year ended June
30, 1996. Of the total increase, $368,000 was attributable to CGMI which was
offset by a $307,000 decrease in CGII. The decrease in the Company was due to
the sale and closure of the riverboat operations in Fiscal 1996 while the
increase in CGMI was due primarily to increased legal costs in protecting
certain contractual claims and professional fees for consultants used to
service the existing contracts.

General and administrative costs for the year ended June 30, 1997
were $1,858,000, which included a reserve of about $120,000 for office
relocation costs and about a $75,000 write-off of F,F&E related to the
implementation of the Business Plan. This represents a decrease of $176,000
or 8.7% and is due directly to the Company's efforts to reduce operating
expenses.

Depreciation and amortization expenses were $997,000 and $940,000 for
the years ended June 30, 1997 and 1996 respectively. The Fiscal 1997 amount
includes one month amortization of the excess reorganization cost of $193,000
and is offset by about $120,000 in reduced amortization of deferred contract
charges from the termination of the Muckleshoot Bingo and Cow Creek contracts.

Reorganization adjustments included in Reorganization Items for the
year ended June 30, 1997 were comprised of:

Legal Professional Fees $(1,716,000)
Interest Income 30,000
Write-off of Goodwill (405,000)
Excess Reorganization Value 9,265,000
Adjustments to Capital Stock 37,217,000
Adjustment to Paid in Capital 7,877,000
-----------
Total $52,268,000

Reorganization fees paid to management included in Reorganization
Items amounted to $1,463,000 for the year ended June 30, 1997. According to
the Plan of Reorganization, this was comprised of (i) $900,000 from the
discontinuance and sale of the riverboat operation in New Orleans, (ii)
$550,000 in New Senior Secured Notes, and (iii) $13,000 in New Common Stock
grants.

Interest Expense

Interest expense for the year ended June 30, 1997 is comprised of the
following: (i) Old Senior Secured Notes - $5,929,000, (ii) New Senior Secured
Notes - $251,000, (iii) amortization of original issue discount and deferred
finance charges - $813,000, (iv) Republic Note Payable - $1,050,000 and, (v)
CGMI equipment notes - $50,000, for a total of $8,093,000.

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

Income Taxes

As discussed in "Business - Net Operating Loss Carryforwards", management
of the Company believes that the Company and its subsidiaries possesses Net
NOLs as of June 30, 1997 of approximately $31.5 million for federal income tax
purposes after taking into account the reorganization of the Company pursuant
to the Plan and assuming that Tax Code ss. 382(1)(5) applies, although no
assurance can be given that the Company will be able to utilize these NOLs.
See "Risk Factors - Net Operating Loss Carryforwards". For financial statement
purposes, a deferred tax benefit with respect to such NOLs could not be
recorded on the balance sheet of the Company because any realization of the
NOLs cannot be assured at this time and the amount cannot be estimated.

Extraordinary Items

The loss on early extinguishment of debt of $1,998,000 for the year
ended June 30, 1997, represents the accelerated write-off of original issue
discounts and deferred finance charges on the Old Senior Secured Notes paid as
a result of the closure and sale of the riverboat operations.

The gain from reorganization items of $103,464,000 for the year
ended June 30, 1997 represents the following:

Write-off Deferred Finance Costs and Original Issue Discounts $ (4,311,000)
Record New Notes in exchange for old debt (23,100,000)
Record New Notes issued to management included in Reorganization Items 550,000
Reduce Liabilities Subject to Compromise to zero 130,325,000
------------
Total $103,464,000

FISCAL 1996 COMPARED TO FISCAL 1995

Consolidated

The year ended June 30, 1996 resulted in a net loss from operations
of $4,039,000, (.21 per share). This compares with losses from the same period
ended June 30, 1995 of $116,876,000 and $833,000, 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 since sold Riverboat subsidiary.

The net decrease of $112,837,000 in the loss from operations is
attributable to (i) a decrease in loss of approximately $101,000,000 due to
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.

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 $661,000 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 Old 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 video slot machines, keno, non-banking table games, 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. Slot win represents approximately 85% of total revenues
of this facility compared to over 90% for the fiscal year ending 1995.

On April 27, 1995, the Tonto Apache Tribe opened the 35,000 square
foot Mazatzal Casino located north of Phoenix, Arizona. The casino features
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 period ending June 30, 1996 and 1995
respectively. Slot win, comprised approximately 87% of the facility's total
receivables in 1996 and 88% in 1995.

The Muckleshoot Tribe opened the first phase of its Muckleshoot
Casino on April 28, 1995. The final phase of this facility consisting of
approximately 65,000 square feet opened on September 8, 1995 and presently
offers table games, poker games, keno, pulltabs and OTB. The facility is
located in the Seattle-Tacoma metropolitan area. The Company as manager of the
facility collected approximately $2,038,000 and $615,000 for the years ending
June 30, 1996 and 1995 respectively. Table games comprised about 79% and 78%
of the total facility revenues 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 there were approximately $5,986,000 in fees from Class III
gaming facility operations and approximately $455,000 in fees from the two
remaining Class II gaming 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 gaming
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 pre-opening
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. (CGII)

The Company 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 CCCD,
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 the Company of
approximately $862,000 were primarily for the benefit of the Narragansett
Tribe in pursuing the development of gaming in Rhode Island. In addition, CDGC
incurred cost toward this development of $951,000. 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 Narragansett project exceeded $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) Old 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) Old 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 Old Common Stock
issued, in exchange for $8,000,000 of Old 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

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 discussed in "Description of Business
- - Net Operating Loss Carryforwards", management of the Company believes that
the Company and its subsidiaries possess Net NOLs as of June 30, 1997 of
approximately $31.5 million for federal income tax purposes after taking into
account the reorganization of the Company pursuant to the Plan of
Reorganization and assuming that Tax Code ss. 382(1)(5) applies, although no
assurance can be given that the Company will be able to utilize these NOLs.
See "Risk Factors - Net Operating Loss Carryforwards". For financial statement
purposes, a deferred tax benefit with respect to such NOLs could not be
recorded on the balance sheet of the Company because any realization of the
NOLs cannot be assured at this time and the amount cannot be estimated.

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. 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 $17,542,000.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This information appears in a separate section of this Annual Report
on Form 10-K for the fiscal year ended June 30, 1997 following Part IV.

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

There have been no disagreements with the Company's independent
public accountants with respect to any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedure.

PART III

MANAGEMENT

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

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

Name Age Position Director Class

Edward M. Tracy 44 Chairman and Chief Executive Officer A

Col. Clinton L. Pagano 69 Executive Vice President of Compliance B
(Retired) and Director

William S. Papazian 35 Senior Vice President and General Counsel, C
Corporate Secretary and Director

Mark Suglian 45 Vice President and Chief Financial Officer N/A

The Company's Class A Director's term shall expire at the third
Annual Meeting of Shareholders following May 28, 1997. The Company's Class B
Director's term shall expire at the second Annual Meeting of Shareholders
following May 28, 1997. The Company's Class C Director's term shall expire at
the first Annual Meeting of Shareholders following May 28, 1997.

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

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. Mr. Tracy became Chairman of the Board of
Directors on March 19, 1997. 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 of 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 Policy, 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. Col. Pagano also
served as a member of the Board of Directors of Digital Products Corporation
of Florida from December 10, 1992 to January 13, 1997, and was Chairman from
February 14, 1996 to January 13, 1997.

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. Mr. Papazian became a member of the Board of Directors on March 19,
1997. 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.

Mark J. Suglian was appointed Director of Finance of Capital Gaming
Management, Inc. in March 1995. In February 1997, Mr. Suglian was appointed
Vice President and CFO of Capital Gaming Management, Inc. and was then
appointed Vice President and CFO of the Company in June 1997. From October
1992 through March 1995, Mr. Suglian was Controller of Primadonna Resorts,
Inc. at Primm, Nevada. From November 1984 through October 1987, Mr. Suglian
was Controller for Park Lane Hotels International in San Francisco,
California. From October 1987 to August 1989, Mr. Suglian was General Manager
for Park Lane's Coco Palms Resort in Kauai, Hawaii. Mr. Suglian was appointed
to the Nevada Industry Gaming Committees that drafted the Audit Guide for
Casinos and negotiated the Tip Compliance Closing Agreement with the Internal
Revenue Service. In addition, Mr. Suglian has also held various executive
positions with the Lady Luck Hotel and Casino in Las Vegas, Nevada and Del
Webb Hotel Inc. in Las Vegas, Nevada and Phoenix, Arizona. Mr. Suglian was
also a member of the Audit staff of Deloitte, Haskins & Sells, CPA's in Las
Vegas, Nevada.

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.

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 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, 1997.

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 Officer, who was serving as an executive officer at the end of the
fiscal year ended June 30, 1997, and whose annual cash compensation exceeds
$100,000. Set forth below is such information with respect to the Company and
all subsidiaries.

SUMMARY COMPENSATION TABLE

- ------------------------------------------------------------------------------------------------------------------------------
Securities
Underlying All
Name and Fiscal Other Restricted Options/ Other
Principal Year Annual Stock SARs LTIP Compensa-
Position Ended Salary Bonus Compensation Awards Granted Payouts tion
- ------------------------------------------------------------------------------------------------------------------------------

Edward M. 6/30/97 $495,000 $333,333 $272,667(7) -0-(8) -0-(9) -0- $ 41,250(14)
Tracy, $ -0- (15)
Chairman and $175,000(16)
Chief 6/30/96 $495,000 $ -0- $ -0- -0- 1,200,000(10) -0- $ 41,250(14)
Executive(1) 6/30/95 $495,000 $100,000 $ 76,835(7) -0- 800,000(10) -0- $ -0-
- ------------------------------------------------------------------------------------------------------------------------------
Clinton L. 6/30/97 $100,000 $ -0- $ -0- -0-(8) -0-(9) -0- $ 14,268(17)
Pagano, 6/30/96 $260,000(6) $ -0- $ -0- -0- 350,000(11) -0- $ -0-
Executive 6/30/95 $232,492 $ -0- $ -0- -0- 50,000(11) -0- $ -0-
Vice
President
and
Director(2)
- ----------------------------------------------------------------------------------------------------------------------------

William S. 6/30/97 $210,000 $166,667 $127,333(7) -0-(8) -0-(9) -0- $16,667 (14)
Papazian, $ -0- (15)
Senior 6/30/96 $160,000 $ -0- $ -0- -0- 165,000(12) -0- $13,333(14)
Vice 6/30/95 $160,000 $ -0- $ -0- -0- 35,000(12) -0- $ -0-
President
and
General
Counsel,
Secretary
and
Director (3)
- ----------------------------------------------------------------------------------------------------------------------------

Mark 6/30/97 $124,039 $ -0- $ -0- -0-(8) -0-(9) -0- $ 7,500(14)
Suglian, 6/30/96 $ 90,000 $ -0- $ -0- -0- -0- -0- $11,652(17)
Vice 6/30/95 $ 22,500 $ -0- $ -0- -0- -0- -0- $ -0-
President
and Chief
Financial
Officer (4)
- ----------------------------------------------------------------------------------------------------------------------------

James F. 6/30/97 $150,000 $ -0- $ -0- -0-(8) -0-(9) -0- $12,500(14)
Ahearn, 6/30/96 $150,000 $ -0- $ -0- -0- 100,000(13) -0- $ -0-
Vice 6/30/95 $125,240 $75,000 $60,824(7) -0- 70,000(13) -0- $ -0-
President
and Chief
Operating
Officer of
Capital
Gaming
Management,
Inc. (5)
- ------------------------------------------------------------------------------------------------------------------------------

(1) 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, and became Chairman of the Board
of Directors on March 19, 1997.

(2) Mr. Pagano was appointed Executive Vice President of Compliance and a
member of the Board of Directors of the Company on October 17, 1993.

(3) 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 Secretary on September 5, 1995. He became a member of
the Board of Directors on March 19, 1997.

(4) Mr. Suglian was appointed Vice President of Finance and Chief Financial
Officer of Capital Gaming Management, Inc. on February 2, 1997; and Vice
President and Chief Financial Officer of the Company on June 1, 1997.

(5) Mr. Ahearn was appointed Vice President and Director of Operations of
Capital Gaming Management, Inc. on August 15, 1994. Mr. Ahearn resigned
as Vice President and Director of Operations of Capital Gaming
Management, Inc. on August 31, 1997.

(6) Based on an annual salary of $260,000 earned by Col. Pagano in fiscal
1996. By letter agreement dated November 1, 1995, Col. Pagano agreed to
defer $160,000 of his salary on that date. Pursuant to the Company's Plan
of Reorganization, Col. Pagano's total deferred salary was treated by
giving Col. Pagano a $4,000 priority expense claim with the balance being
a general unsecured claim.

(7) Payments made by the Company to cover income taxes.

(8) Pursuant to the Plan of Reorganization, management has the right to
receive, collectively, in the form of stock grants, ten (10%) percent of
the issued and outstanding shares of the Company in three equal annual
installments of 66,667 shares each commencing with the Effective Date.
The total value recorded by the Company for the initial installments of
the stock grants was $13,000. The Board of Directors has not as yet
issued any such stock grants.

(9) Pursuant to the Stock Option Plan, ten percent (10%) of the Company's
issued and outstanding stock has been reserved for issuance to management
as incentive stock options. The Board of Directors has not, as yet,
issued any such options.

(10) 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. All stock options were cancelled in
connection with the Plan of Reorganization.

(11) On January 14, 1996, 250,000 stock options exercisable at $5.25 per share
were cancelled and replaced with 250,000 stock options exercisable at
$.3125 per share. Also, an additional 100,000 stock options were granted
exercisable at $.3125 per share. All stock options were cancelled in
connection with the Plan of Reorganization.

(12) On January 14, 1996, 35,000 stock options exercisable at $5.25 per share
were cancelled and replaced with 35,000 stock options exercisable at
$.3125 per share. Also, an additional 165,000 stock options were granted
with an exercise price of $.3125 per share. All stock options were
cancelled in connection with the Plan of Reorganization.

(13) On January 14, 1996, 65,000 stock options exercisable at $5.25 per share
were cancelled and replaced with 65,000 stock options exercisable at
$.3125 per share. Also, an additional 35,000 stock options were granted
with an exercise price of $.3125 per share. All stock options were
cancelled in connection with the Plan of Reorganization.

(14) Vacation paid in lieu of time off.

(15) Pursuant to the Plan of Reorganization, Mr. Tracy and Mr. Papazian are
entitled to receive, collectively, $550,000 in New Senior Secured Notes
and $250,000 in cash, as a confirmation award subject to certain
conditions and events, one of which is the delivery of certain materials
to the Advisory Committee. According to their respective employment
agreements, Mr. Tracy and Mr. Papazian will receive two-thirds and
one-third of the confirmation award, respectively. As of yet, the
confirmation award has not been paid due to the uncertainty surrounding
the formation of the Advisory Committee.

(16) On July 18, 1997, $175,000 was paid to Mr. Tracy in lieu of the Company's
unfulfilled commitment to purchase Director's and Officer's Liability
insurance.

(17) Miscellaneous fringe benefits paid relating to moving expenses,
automobile allowances and medical insurance.

Option/SAR Grants in the Fiscal Year Ended June 30, 1997

In the fiscal year ended June 30, 1997, no stock options or SARs were
granted to any of the Company's executive officers named in the Summary
Compensation Table.

Aggregated Option/SAR Exercises in Fiscal Year Ended June 30, 1997, and
June 30, 1997 Option/SAR Values

In the fiscal year ended June 30, 1997, no stock options or SARs were
exercised by any of the Company's executive officers named in the Summary
Compensation Table and no stock options or SARs were held as of June 30, 1997
by any of such named executive officers. All of the Company's issued and
outstanding stock options were cancelled in connection with the Plan of
Reorganization and there were no stock options issued and outstanding as of
June 30, 1997.

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 Stock Option Plan is not a "long-term
incentive plan" as that term is defined under SEC Regulation S-K. Information
pertaining to the Stock Option Plan is provided herein under
"Business--Reorganization--Stock Option Plan".

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.

Edward M. Tracy, Col. Clinton L. Pagano and William S. Papazian 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 Edward M.
Tracy, the Company's President, Chief Executive Officer and Chief Operating
Officer, on May 30, 1995, (the "1995 Tracy Agreement") which provided for,
among other things, a three-year term commencing May 30, 1995; 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 and
certain severance agreements. An Amendment No. 1 to Mr. Tracy's employment
agreement was entered into on the Effective Date and provides, among other
things, for a term of three (3) years from the Effective Date, or lump sum
severance payment in the event of a termination without cause and a severance
payment of one year's salary in the event of a voluntary termination upon the
satisfaction of certain conditions. The Agreement further provides for the
distribution to Mr. Tracy, upon the satisfaction of certain conditions, of
$366,666 in New Senior Secured Notes and a $186,666 cash payment as
contemplated by the Plan. The Company loaned to Mr. Tracy pursuant to the
Agreement the amount of $186,666 which loan accrues interest at the rate of
six (6%) percent per annum and shall mature on the earlier of the date Mr.
Tracy receives the cash payment contemplated by the Plan of Reorganization and
one year from the Effective Date.

Col. Clinton L. Pagano, an Executive Vice President and Director of
the Company, entered into 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 notified the Company otherwise. Col. Pagano's entire deferred salary was
treated under the Plan of Reorganization as a $4,000 priority claim with the
balance treated as a general unsecured claim. Additionally, on October 1, 1996
Col. Pagano's employment agreement was amended to provide for an annual salary
of $100,000 and a term of three years from the Effective Date. In connection
with the amendment, all other terms of Col. Pagano's prior employment
agreements remain unchanged.

The Company entered into an amended and restated employment agreement
with William S. Papazian, the Company's Senior Vice President, General Counsel
and Secretary, and a Board Director on May 17, 1996, which provided for, among
other things, a three-year term, commencing on June 1, 1996, with automatic
one-year extensions; annual salary of $160,000 (which was subject to an
increase in connection with the Company's restructuring); incentive
compensation determined by the Executive Compensation Committee of the
Company's Board of Directors and certain severance agreements. Mr. Papazian's
annual salary was subsequently increased to $200,000. An amendment No. 1 to
Mr. Papazian's employment agreement was entered into on the Effective Date and
provides, among other things, for a term of three years from the Effective
Date, a lump sum severance payment of $600,000 in the event of termination
without cause and a severance payment of one year's salary in the event of a
voluntary termination upon the satisfaction of certain conditions. The
agreement further provides for the distribution to Mr. Papazian, upon the
satisfaction of certain conditions, of $183,333 in New Secured Notes and a
$83,333 cash payment as contemplated by the Plan of Reorganization. The
Company provided to Mr. Papazian pursuant to the Agreement a loan in the
amount of $83,333 which accrues interest at the rate of six (6%) percent per
annum and shall mature on the earlier of the date Mr. Papazian receives the
cash payment contemplated by the Plan of Reorganization and one year from the
Effective Date.

The Company also has employed Mark Suglian, Vice President and Chief
Financial Officer, for a period of two (2) years from June 1, 1997 at an
annual salary of $150,000. Mr. Suglian will be entitled to severance payments
in the event of termination without cause. Additionally, Mr. Suglian will be
awarded 60,000 stock options in connection with the finalization of his
employment agreement. The Company intends to memoralize the terms of Mr.
Suglian's employment in an employment agreement.

Repricing of Stock Options

There have been no repricings of stock options in the fiscal year
ended June 30, 1997. All of the Company's issued and outstanding stock options
were cancelled in connection with the Plan of Reorganization and there were no
stock options issued and outstanding as of June 30, 1997.

Compensation Committee Interlocks and Insider Participation in Compensation
Decisions

As of June 30, 1997, the Company's Executive Compensation Committee
consisted of Robert B. Runyon. The Company expects that Richard Mallery will be
added should he accept the Company's nomination. 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.

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 at ITT Corporation, ITT Grinnell, BP Oil Corporation and F.
W. Woolworth in the area 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. Mallery is a senior partner of the law firm Snell
and Wilmer which has served as special counsel to the Company from time to
time. Mr. Mallery is an experienced transactional attorney with expertise in
Native American gaming.

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.

THE EXECUTIVE COMPENSATION PROGRAM

Report from Board of Directors on Executive Compensation

This report is furnished by the Board of Directors of the Company.
During the fiscal year ended June 30, 1997, management of the Company spent
significant time and energies preparing for and completing its reorganization
proceedings. The Executive Compensation Committee of the Board of Directors
did not meet or issue any reports in fiscal 1997. Accordingly, compensation
paid to executive officers of the Company was determined by certain past and
present Board Directors who did not receive any bonuses or salary increases
(with affected Directors abstaining). In reaching its determinations, the
Board of Directors relied in part on the Executive Compensation Program
prepared by Runyon and Associates ("Runyon") in June 1995 as well as a
fairness opinion on success bonus awards prepared by Runyon in May 1996 as
well as input from the Company's Noteholder's Advisory Committee.

It is the objective of the Company's Executive Compensation Program
to develop, implement and manage a total executive compensation strategy that
will enable the Company to attract, motivate and sustain a superior
organization, as measured by the highest quality and performance standards, at
a cost that is fully competitive in the target marketplaces. The Executive
Compensation Program is further designed to enhance stockholder value,
motivate and attract superior executive officers to achieve long-term business
goals and provide compensation opportunities which are competitive and align
the interests of executive officers with the long-term interests of
stockholders through award opportunities that can result in ownership of
common stock.

The specific elements of the Executive Compensation Program,
including the specific business purpose of each program component, is as
follows:

1. Base Salary

This compensation is to bring to, and retain within the Company, the
technical, professional, industry knowledge, integrity, licensure and skills
required to operate the business competitively in the marketplace.

2. Benefits

In conjunction with base salary, benefits retain basic capabilities
and help maintain a competitive organization. Careful planning as to the cost
effectiveness of each benefit provided is a part of the program.

3. Perquisites

Careful consideration to cost effectiveness of perquisites is a
priority of the Executive Compensation Committee and the goal of any
perquisites provided is to reduce stress in the working environment to
executives whose personal time is often sacrificed to job demands.

4. Short-Term (Annual) Incentives

This variable element of the Executive Compensation Program focuses
on the achievement of specific near-term objectives. Measurements are in terms
of performance to plans and expectations which can be quantified and
qualified. Incentive rewards are more a result of quantitative value building
than perceived value increase, although sound quantitative growth is the
ultimate goal.

5. Long-Term Incentives

The goal of long-term incentives is the creation, development and
growth of an entity that increases in value, both quantitatively and
perceived, and demonstrates in real time the ability to generate superior
profits and profitability. Success under this criteria is best measured by
stock market valuation, over time, and incentive remuneration to the executive
is weighted towards equity appreciation.

COMPENSATION POLICIES APPLICABLE TO EXECUTIVE OFFICERS AND BASES FOR
CEO COMPENSATION

The fiscal years ending 1997 and 1996 represented a difficult time
for the Company and its executive officers. With the closure of the River City
Joint Venture in June, 1995 and the resultant default on the Company's Old
Secured Notes, critical to the Company's survival was the ability to
successfully sell and reorganize its CCCD subsidiary and recover maximum value
in a hostile business and regulatory climate, preserve the operations of the
Company's Indian gaming subsidiary, CGMI, as well as continue to develop the
Narragansett Project through the CDGC subsidiary, negotiate and complete a
successful restructuring of the parent company and accomplish all of the above
with a significantly reduced executive staffing level. Continued employment of
key executives and incentivized performance was a critical component of the
application of the Company's compensation policies in order to achieve these
essential tasks and position the Company for future growth.

In May, 1996 the Board of Directors of the Company requested a
fairness opinion on success bonus awards from Runyon. The subject
of the report was to analyze and provide an objective opinion on the
prevalence, appropriateness, fairness and structure of success fees, stay in
place fees and/or consummation bonuses in the context of business
reorganizations primarily arising from the bankruptcy process. This report
concluded that management of the Company took the prompt, prudent actions
necessary to not only recover substantially more financial assets from the
reorganization of the CCCD subsidiary than normally would have been possible,

but moreover preserved existing operations and positioned the Company for a
successful but difficult parent reorganization. The report further found that
in weighing the major contributions of management, the successful conversion
of CCCD's assets to substantial cash for the Company would, in and of itself,
warrant a significant success fee. The report additionally found that as
favorable a financial impact as such conversion represented, it would be
exceeded in the long run by the financial productivity of a viable,
competitive business enterprise. Based on the methodology contained in the
report for weighing these various relevant factors, the report concluded that
the reasonable range for the award of a success bonus, verified by consensus
both within bankruptcy environments, and in the course of normal business
conduct as fair and equitable to both executive management and debt/equity
holders, was within $1,100,000 to $1,665,000. Similarly, using a valuation of
the contributions made by management based on profitability, an award of
$1,030,000 to S1,548,000 was found to be reasonable. Finally, the report
concluded that the bonus pool ultimately created by the Board of Directors be
distributed by the Board of Directors to the principal contributors to the
reorganization. The actual payments made to the Company's executive officers
on the date hereof is contained in this Item 11 - Summary Compensation Table.

STOCK PRICE PERFORMANCE COMPARISON

The following graph compares cumulative total return of the Company's
Common Stock (the Old Common Stock and the New Common Stock taking into
account the conversion ratio pursuant to the Plan of Reorganization) with the
cumulative total return of the Standard & Poor's 500 Index and a peer group
selected in good faith by the Company. The Company selected a composite of
small cap gaming common stocks for the industry peer group comparison. These
stocks include Aztar Corporation, Grand Casinos and Showboat, Inc. equally
weighted.

The graph assumes $100 was invested on June 30, 1992 in shares of
Common Stock and stocks comprising the S&P 500 Index and the peer group.

S&P 500 Peer Group
Company Index Composite
------- ----- ---------

6/30/92 $100.00 $100.00 $100.00
6/30/93 900.00 110.39 125.82
6/30/94 480.60 108.80 106.49
6/30/95 54.50 133.39 126.52
6/30/96 10.31 164.20 142.07
6/30/97 2.38 216.58 113.94

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the
beneficial ownership of the New Common Stock as of September 30, 1997: (i) by
each person who was known by the Company to be a beneficial owner of more than
five percent (5%) of the New Common Stock; (ii) by all directors and nominees;
(iii) by each of the named executive officers of the Company (as that term is
defined in Item 402(a)(3) of Regulation S-K); and (iv) by all directors and
executive officers of the Company as a group. Percentage of class is
calculated on the basis of 1,866,667 shares outstanding as of September 30,
1997, except that shares underlying options currently vested and options
exercisable within 60 days are deemed to be outstanding for purposes of
calculating the beneficial ownership of securities owned by the holder of such
options. Pursuant to the Plan of Reorganization, the Company issued 1,866,667
shares of New Common Stock. As of September 30, 1997, the Company held
approximately 98% of the outstanding shares of the New Common Stock as
disbursing agent under the Plan of Reorganization. The Company expects the
balance of the outstanding shares will be distributed pursuant to the Plan of
Reorganization within the period of two years from the Effective Date.

Name and Address of Amount and Nature of
Beneficial Owner(1) Beneficial Ownership Percentage of Class

Edward M. Tracy 0 *%

Col. Clinton L. Pagano 0 *%

William S. Papazian(2) 1 *%

Directors and Executive 1 *%
Officers As a Group
(3 persons)

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

* Less than 1% of the Company's outstanding New Common Stock.

(1) The address of each beneficial owner named in this table, unless otherwise
noted, is: c/o Capital Gaming International, Inc., 2701 East Camelback
Road, Suite 484, Phoenix, Arizona 85016.

(2) Sole voting and investment power over the shares owned.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In order to induce key officers Edward M. Tracy and William S.
Papazian to remain with the Company during the restructuring process and to
reward them for maintaining and enhancing the value of the Company's assets
and business for the benefit of the Company's creditors and shareholders, the
Company distributed to the key officers on the Effective Date, the
Confirmation Payment consisting of (a) a company loan to the key officers in
the principal amount of $250,000, (b) $550,000 in New Secured Senior Notes and
(c) 3.34% of the issued and outstanding shares of New Common Stock on the
Effective Date.

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
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)
2.8 First Amended and Modified Plan of Reorganization of Capital Gaming International, Inc., dated
March 19, 1997. (22)
3.1 Restated Certificate of Incorporation of the Registrant. (15)
3.2 Amended and Restated Certificate of Incorporation of the Registrant. (26)
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)
4.15 Amended and Restated Indenture, dated February 17, 1994 and
amended and restated as of March 27, 1997, by and among the
Registrant, the Guarantor named therein and First Trust
National Association. (23)
4.16 Form of New Secured Note. (25)
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.
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. Crammer 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 Arrant 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 asof
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. (24)
10.172 Amendment No. 1 to Employment Agreement dated May 28, 1997, by and between Registrant and
William S. Papazian. (27)
10.173 Amendment No. 1 to Employment Agreement dated May 28, 1997, by and between the Registrant and
Edward M. Tracy. (27)

11.0 Schedule of Computation of Earnings Per Share #
12.0 Computation of Ratio of Earnings to Fixed Charges #
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
i 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.

22 Incorporated by reference to the exhibit with the same number, filed
in connection with the Registrant's Form 8-K filed with the
Securities and Exchange Commission on April 3, 1997.

23 Incorporated by reference to exhibit 4.1, filed in connection with
the Registrant's Form 8-K filed with the Securities and Exchange
Commission on April 3, 1997.

24 Incorporated by reference to the exhibit with the same number with
the Registrant's Form 10-K filed with the Securities and Exchange
Commission on October 15, 1996

25 Incorporated by reference to exhibit A to exhibit 4.1, filed in
connection with the Registrant's Form 8-K filed with the Securities
and Exchange Commission on April 3, 1997.

26 Incorporated by reference to exhibit B to exhibit 2.1, filed in
connection with the Registrant's Form 8-K filed in connection with
the Securities and Exchange Commission on April 3, 1997.

27 Incorporated by reference to the exhibit with the same number with
Registrant's Form 10-K filed with the Securities and Exchange
Commission on October 14, 1997.

(b) Reports on Form 8-K.

Current Report on Form 8-K filed with the Securities and Exchange
Commission on April 3, 1997.

Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 11, 1997.

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: October 20, 1997 By: /s/ William S. Papazian
------------------------------------------
William S. Papazian, Senior Vice President
and General Counsel and Secretary
(Authorized Representative)

Dated: October 20, 1997 By: /s/ Mark Suglian
------------------------------------------
Mark Suglian, Vice President and
Chief Financial Officer
(Principal Accounting Officer)

CAPITAL GAMING INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page

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

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

Consolidated Statements of Operations for the periods ended
June 30, 1997 and May 28, 1997 and the years ended June 30,
1996 and 1995...........................................................F-5

Consolidated Statements of Changes in Stockholders' Equity [Deficit]
for the periods ended June 30, 1997 and May 28, 1997 and the years
ended June 30, 1996 and 1995............................................F-6

Consolidated Statements of Cash Flows for the periods ended
June 30, 1997 and May 28, 1997 and the years ended June 30,
1996 and 1995...........................................................F-7

Notes to Consolidated Financial Statements................................F-11

Independent Auditor's Report on Supplementary Schedule....................S-1

Schedule II - Valuation and Qualifying Accounts...........................S-2

F-1

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders of
Capital Gaming International, Inc.
Phoenix, Arizona

We have audited the accompanying consolidated balance sheets of
Capital Gaming International, Inc. and its subsidiaries as of June 30, 1997
and 1996, and the related consolidated statements of operations, changes in
stockholders' equity [deficit], and cash flows for the period May 29, 1997 to
June 30, 1997, the period July 1, 1996 to May 28, 1997, and for each of the two
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, 1997 and 1996, and the consolidated results of their operations and their
cash flows for the period May 29, 1997 to June 30, 1997, the period July 1,
1996 to May 28, 1997, and for each of the two fiscal years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.

As more fully described in Note 1 to the consolidated financial
statements, effective May 29, 1997, the Company emerged from bankruptcy. In
accordance with an American Institute of Certified Public Accountants'
Statement of Position, the Company has adopted "fresh start" reporting whereby
its assets, liabilities and new capital structure have been adjusted to
reflect estimated fair values as of May 28, 1997. As a result, the
consolidated financial statements for the period subsequent to May 28, 1997,
reflect this basis of reporting and are not comparable to the Company's
prereorganization consolidated financial statements.

MOORE STEPHENS, P.C.
Certified Public Accountants.

Cranford, New Jersey
August 22, 1997

F-2

CAPITAL GAMING INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(ROUNDED)

ASSETS

Reorganized Company Predecessor Company
June 30, 1997 June 30, 1996
------------------- --------------------

CURRENT ASSETS
Cash & Cash Equivalents $ 3,923,000 $ 2,102,000
Interest Receivable 72,000 617,000
Native American Management Fees and Expenses Receivable 771,000 667,000
Current Portion-Native American Loan Receivable 3,943,000 3,696,000
Current Portion-Notes Receivable, Other 20,000 --
Notes Receivable From Officers' [Note 10] 250,000 --
Notes-Receivable [Note 1] -- 35,000,000
Prepaid Expenses and Other Current Assets 417,000 206,000
----------- -----------
TOTAL CURRENT ASSETS 9,396,000 42,288,000
----------- -----------
FURNITURE, FIXTURES AND EQUIPMENT, net [Note 8] 15,000 127,000
----------- -----------

EXCESS REORGANIZATION VALUE, net [Notes 1 & 5] 9,072,000 --
----------- -----------

OTHER ASSETS
Restricted Funds In Escrow [Note 20] 926,000 500,000
Native American Loans Receivable [Note 7] 3,688,000 7,630,000
Investment In Native American Management
Agreements, net [Note 9] 1,937,000 2,677,000
Notes Receivable, Other 80,000 --
Deferred Financing Costs (net of accumulated amortization
of $3,304,000) -- 6,213,000
Goodwill (net of accumulated amortization of $111,000) -- 425,000
Deposits and Other Assets -- 188,000
----------- -----------
TOTAL OTHER ASSETS 6,631,000 17,633,000
----------- -----------
TOTAL ASSETS $25,114,000 $60,048,000
=========== ===========

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

F-3

CAPITAL GAMING INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(ROUNDED)

LIABILITIES

Reorganized Company Predecessor Company
June 30, 1997 June 30, 1996
------------------ ------------------

CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 2,714,000 $ 11,860,000
Accrued Interest 251,000 23,277,000
Equipment Notes Payable -- 1,290,000
Bank Line of Credit -- 2,000,000
Bondholder Consent Fee Note -- 1,350,000
11.5% Senior Secured Notes Payable - net of $8,000,000 face
Treasry Bonds and unamortized Original Issue Discount of $0 and -- 124,020,000
$2,979,000
Funds Held by Trustee for Senior Secured Noteholders -- (22,489,000)
11.5% Term Note Payable -- 19,000,000
----------- -----------
TOTAL CURRENT LIABILITIES 2,965,000 160,308,000

LONG-TERM DEBT
12.0% Senior Secured Notes Payable [Notes 11 & 18] 23,100,000 --
----------- -----------
TOTAL LIABILITIES 26,065,000 160,308,000
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock, No Par Value, Authorized 5,000,000 Shares; None
Issued at June 30, 1996, Canceled on May 28, 1997 -- --
Common Stock, No Par Value, Authorized 75,000,000 Shares; Issued
and Outstanding 19,329,574 Shares at June 30, 1996, Canceled on
May 28, 1997 -- 37,617,000
Common Stock, No Par Value, Authorized 3,200,000 Shares; Issued
and Outstanding 1,866,667 Shares [Note 12] 400,000
Additional Paid In Capital -- 7,877,000
Retained Earnings [Deficit] (Since May 29, 1997, date of reorganization,
total deficit eliminated was $145,754,000) (1,351,000) (145,754,000)
----------- -----------
TOTAL STOCKHOLDERS' DEFICIT (951,000) (100,260,000)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $25,114,000 $60,048,000
=========== ===========

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

F-4

CAPITAL GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(ROUNDED EXCEPT NUMBER OF SHARES
AND PER SHARE DATA)

Reorganized
Company Predecessor Company
------------- -------------------------------------------------
May 29, 1997 July 1 1996
through through Year Ended June 30,
June 30, 1997 May 28, 1997 1996 1995
------------- ------------ ---- -----

REVENUES:
Native American Casino Management Fees [Note 4] $ 753,000 $ 7,447,000 $ 7,663,000 $ 6,441,000
Riverboat Gaming Revenues [Note 1] -- -- -- 4,196,000
---------- ----------- ------------ ------------
TOTAL REVENUES 753,000 7,447,000 7,663,000 10,637,000
---------- ----------- ------------ ------------
COSTS AND EXPENSES:
Salaries Wages and Related Costs 188,000 1,818,000 2,862,000 4,565,000
Gaming Development Costs -- -- 8,000 1,455,000
Native American Gaming Development Costs 532,000 1,910,000 1,899,000 2,146,000
Professional Fees 469,000 1,387,000 1,795,000 6,245,000
General & Administrative 470,000 1,388,000 2,034,000 3,654,000
Write-off of Native American Assets -- -- -- 1,018,000
Depreciation and Amortization 262,000 735,000 940,000 398,000
Costs of Operations of Riverboat Gaming Facility
[Note 1] -- -- 4,903,000 23,150,000
Costs of Disposal of Riverboat Gaming Assets [Note 1] -- -- -- 69,277,000
---------- ----------- ------------ ------------
TOTAL COSTS AND EXPENSES 1,921,000 7,238,000 14,441,000 111,908,000
---------- ----------- ------------ ------------
[LOSS] INCOME FROM OPERATIONS (1,168,000) 209,000 (6,778,000) (101,271,000)
---------- ----------- ------------ ------------

REORGANIZATION ITEMS:
Reorganization Adjustments -- 52,268,000 (600,000) --
Reorganization Fees Paid To Management -- (1,463,000) -- --
---------- ----------- ------------ ------------
TOTAL REORGANIZATION ITEMS -- 50,805,000 (600,000) --
---------- ----------- ------------ ------------
OTHER INCOME [EXPENSE]:
Interest Income 83,000 875,000 1,959,000 2,620,000
Interest Expense (Total Contractual Interest was
$13,610,000 for the 156 Days Ended May 28, 1997) (251,000) (7,842,000) (19,062,000) (18,225,000)
Gain on Sale of Development Agreement -- -- 221,000 --
Sale of Management Contract -- -- 3,000,000 --
Gain on Disposal of Riverboat Gaming Assets[Note1] -- 364,000 17,542,000 --
---------- ----------- ------------ ------------
TOTAL OTHER INCOME [EXPENSE] (168,000) (6,603,000) 3,660,000 (15,605,000)
---------- ----------- ------------ ------------
[LOSS] INCOME BEFORE INCOME TAX (1,336,000) 44,411,000 (3,718,000) (116,876,000)

PROVISION FOR INCOME TAX EXPENSE [NOTE 6] (15,000) (123,000) (321,000) --
---------- ----------- ------------ ------------
[LOSS] INCOME BEFORE EXTRAORDINARY ITEM (1,351,000) 44,288,000 (4,039,000) (116,876,000)
Extraordinary Item - Loss on Early Extinguishment
of Debt [Notes 1,2 & 19] -- (1,998,000) -- (833,000)
Extraordinary Item - Gain From
Reorganization Items [Notes 1,2 & 19] -- 103,464,000 -- --
---------- ----------- ------------ ------------
NET [LOSS] INCOME $ (1,351,000) $ 145,754,000 $(4,039,000) $ (117,709,000)
============= ============= ============ ==============
NET [LOSS] PER SHARE (b) $ (0.72) N/A N/A N/A
============= ============= ============ ==============
Weighted Average Common And Equivalent
Shares Outstanding 1,866,667 N/A N/A N/A
============ ============= ============= ==============

a) Due to the reorganization and implementation of fresh-start reporting,
financial statements for the Reorganized Company (Period starting May 29,
1997) are not comparable to those of the predecessor Company. See Notes to
the Financial Statements for additional information.
b) The weighted average number of common shares outstanding and net income per
common share for the predecessor company (periods through May 28, 1997 (the
Effective Date)) have not been presented because, due to the Company's
reorganization and implementation of fresh start reporting, they are not
comparable to subsequent periods and irrelevant.

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

F-5

CAPITAL GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY [DEFICIT]
(ROUNDED EXCEPT NUMBER OF SHARES)

Common Stock Additional Accumulated
------------ ---------- -----------
Shares Amount Capital Deficit
------ ------ ------- -------

Balance - June 30, 1994 16,519,373 $26,108,000 $ 7,877,000 $ (24,006,000)

Exercise of Common Stock Options 60,000 80,000 --
Issuance of Common Stock 750,000 3,188,000 --
Issuance of Common Stock in
Exchange for Debt 2,000,201 8,241,000 --
Net Loss Year Ended June 30, 1995 -- -- (117,709,000)
----------- ------------ ----------- -------------
Balance - June 30, 1995 19,329,574 37,617,000 7,877,000 (141,715,000)

Net Loss Year Ended June 30, 1996 (4,039,000)
----------- ------------ ----------- -------------
Balance - June 30, 1996 19,329,574 37,617,000 7,877,000 (145,754,000)

Cancellation of Predecessor Company
Common Stock and Elimination Of
Deficit (Pursuant to Fresh Start
Reporting) [Notes 1 & 2] (19,329,574) (37,617,000) (7,877,000) 145,754,000
----------- ------------ ----------- -------------
Balance - May 28, 1997 -- -- -- --

Issuance of New Common Stock (Pursuant to
Fresh Start Reporting) 1,800,000 387,000 -- --
Stock Grants to Officers and Directors 66,667 13,000 -- --
Net Loss May 29 through June 30, 1997 -- -- -- (1,351,000)
----------- ------------ ----------- ------------
Balance - June 30, 1997 1,866,667 $ 400,000 $ -- $ (1,351,000)
=========== ============ =========== ============

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

F-6

CAPITAL GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ROUNDED)

Reorganized
Company Predecessor Company
--------------- -------------------------------------------
May 29, 1997 July 1 1996
through through Year Ended June 30,
June 30, 1997 May 28, 1997 1996 1995
------------- ------------ ---- ----

OPERATING ACTIVITIES:

Net [Loss] Income $ (1,351,000) $ 145,754,000 $ (4,039,000) $ (117,709,000)
------------ -------------- ------------ ---------------
Adjustments to Reconcile Net [Loss] Income to
Net Cash Provided by Operations:
Depreciation and Amortization 262,000 735,000 940,000 398,000
Loss on Sale of Assets -- -- 1,000 --
[Gain] on Sale of Development Agreement -- -- (221,000) --
Loss on Early Extinguishment of Debt -- 1,998,000 -- 833,000
Write-off of Native American Assets -- -- -- 1,018,000
Extraordinary Gain From Reorganization -- (103,464,000) -- --
Reorganization Adjustments -- (53,954,000) -- --
Reorganization Fees Paid To Management -- 550,000 -- --
Amortization of Deferred Financing Cost -- 552,000 1,431,000 --
Amortization of Original Issue Discount -- 261,000 643,000 --
Abondonment of Capital Asset 75,000 -- -- --
Equity in (Gain) Lossses of Unconsolidated
Affiliate -- -- 1,262,000 48,389,000
Reserve For Port of New Orleans Assets -- -- -- 7,052,000
Write-off of Impaired Gaming Assets -- -- -- 23,725,000
Depreciation and Amortization -- -- -- 2,807,000
Adjustments to Basis of Disposed Assets -- -- (5,981,000) --
[Gain] on Sale of Riverboat Gaming Operations -- (364,000) (17,542,000) --
Proceeds from Sale of Riverboat Gaming
Operations -- -- 15,000,000 --
Cash Disbursed to Liquidating Trust -- -- (4,741,000) --
Repayment of Debtor in Possession Financing -- -- (3,009,000) --
Accrued Expenses Due To Liquidating Trust -- -- 7,000,000 --
Operations -- -- 500,000 --
(Increase) decrease in:
Restricted Funds (2,000) (11,000) -- --
Management Fees and Expenses Receivable 42,000 (146,000) 1,329,000 (1,631,000)
Interest Receivable 6,000 539,000 (29,000) (151,000)
Other assets [Including Income Taxes Receivable] 200,000 (512,000) (53,000) 248,000
Officer Loans -0- (250,000) -- --
Accounts Payable and accrued expenses 858,000 821,000 1,496,000 12,408,000
Accrued Interest 251,000 6,979,000 16,795,000 332,000
---------- ------------ ----------- -----------
Total Adjustments 1,692,000 (146,266,000) 14,821,000 97,543,000
---------- ------------ ----------- -----------
TOTAL FROM OPERATING 341,000 (512,000) 10,782,000 (20,166,000)
---------- ------------ ----------- -----------

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

F-7

CAPITAL GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ROUNDED)

Reorganized
Company Predecessor Company
------------------ -------------------------------------------------------
May 29, 1997 July 1, 1996
through through Year Ended June 30,
June 30, 1997 May 28, 1997 1996 1995
------------- ------------ ---- ----

INVESTING ACTIVITIES - -

Repayment of Native American
Loans/Advances 332,000 3,363,000 12,097,000 1,420,000
Proceeds From Sale of Assets - 293,000 113,000
Investment in Property and Equipment - - (35,084,000)
Berth Infrastructure Reimbursements - - 500,000
Advances to Affiliates - (335,000) (37,591,000)
Net Transfers (To) From Restricted Cashj - (413,000) 4,064,000 89,399,000
Investments in Management Agreements - (243,000) (3,037,000)
Loans To Tribes - (1,069,000) (17,262,000)
Cash Held in Escrow - (500,000)
------------------------------------------------------------------------

TOTAL FROM INVESTING 332,000 2,950,000 14,307,000 (1,542,000)
------------------------------------------------------------------------

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

F-8

CAPITAL GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ROUNDED)

FINANCING ACTIVITIES - -
Proceeds From Issuance of Notes - - 2,000,000
Reduction in Equipment Notes - (1,290,000) (1,686,000) (2,380,000)
Proceeds From Exercise of Warrants - - 80,000
and Options
Proceeds From Common Stock Issuance - - 3,188,000
Payments to Trustee for Senior Secured
Noteholders (22,489,000)
----------------------------------------------------------------------------
TOTAL FROM FINANCING - (1,290,000) (24,175,000) 4,888,000
----------------------------------------------------------------------------
NET INCREASE 673,000 1,148,000 914,000 (16,820,000)

CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIODS 3,250,000 2,102,000 1,188,000 18,008,000
----------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS -
END OF PERIODS $ 3,923,000 $ 3,250,000 $ 2,102,000 $ 1,188,000
=============================================================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:

Cash Paid During The Periods For:
Interest (Net of Amoutns Capitalized) $ 50,000 $ 2,510,000 $ 17,252,000 $ 4,323,000
Income Taxes $ - $ 423,000 $ - -

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

F-9

CAPITAL GAMING INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

The Company capitalized interest of $1,473,522 during the year ended
June 30, 1995 related to the construction of the riverboat.

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.

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

On July 29, 1996, the Indenture Trustee for the Company's Senior
Secured Noteholders distributed an aggregate of $49,986,000 in cash and
Purchaser's Notes to the Senior Secured Noteholders on account of principal
and accrued interest ("Noteholder Distribution"). The Noteholder
Distribution included $28,000,000 in Purchaser's Notes, as well as cash
from the sale of CCCD and CMC, proceeds from the early payment of the
development loan to the Muckleshoot Tribe, proceeds from the buyout of the
Cow Creek contract, $3,200,000 in unused restricted cash and other sources.
Subsequently, in August 1996 the Purchaser's Notes were redeemed by CMC at
100% of the principal amount plus accrued interest. The remainder of
$413,000 was held in a cash escrow account by the trustee of the Company's
Senior Secured Noteholders.

F-10

CAPITAL GAMING INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) BASIS OF PRESENTATION AND REORGANIZATION UNDER CHAPTER 11

The Company

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 is also active in seeking new opportunities in Native American
Gaming and secondary gaming market jurisdictions.

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 National Indian Gaming Commission ("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 such statutes, codes or regulations could have a material adverse impact
on the financial condition or operations of the Company.

The Company's CGMI subsidiary currently manages and operates three
Native American gaming facilities, which CGMI has developed or expanded into
Class III gaming facilities.

o Muckelshoot Tribe - Auburn, Washington (Class III facility
became operational in April 1995)

o Tonto Apache Tribe - Payson, Arizona (Class III facility
became operational in April 1995)

o Umatilla Tribes - Pendleton, Oregon (Class III facility
became operational in March 1995)

The Company's CDGC subsidiary has a management and development
contract with the Narragansett Tribe for the development of a Class III gaming
facility in Charlestown, Rhode Island.

F-11

Disposal of Riverboat Gaming Operation

The Company's former wholly-owned subsidiary, Crescent City Capital
Development Corp. ("CCCD"), was a 50% partner with Grand Palais Inc. in a
River City Joint Venture ("RCJV"), a general partnership formed to develop and
operate two riverboats in New Orleans, Louisiana. The joint venture, which was
accounted for on the equity method, was terminated in July 1995. The Company's
riverboat, the Crescent City Queen, opened on April 4, 1995. On June 9, 1995,
the riverboat casino operations in New Orleans was forced to cease due
primarily to significant revenue shortfalls which resulted in 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. On July 28, 1995, the petition was changed to a voluntary
filing. On October 13, 1996, CCCD filed a Plan of Reorganization (the "January
Plan") under Chapter 11 which was confirmed on January 12, 1996. The January
Plan was predicated upon an agreement (the "MRI Agreement") to sell CCCD to
Mirage Resorts, Inc. ("Mirage") for $55,000,000 plus the assumption of certain
equipment liabilities of up to $6,500,000. The sale was contingent upon
certain waivers and conditions being achieved on or before January 24, 1996.
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. On February 21, 1996, the Company entered into a stock purchase
agreement (the "CMC Agreement") with Casino Magic Corp. ("CMC") to transfer
the ownership of CCCD and substantially all of its assets to a wholly-owned
subsidiary of CMC. An Amended Plan of Reorganization (the "Amended Plan"),
which was predicated upon the CMC Agreement, was filed by CCCD and was
confirmed by the Bankruptcy Court on April 29, 1996. On May 13, 1996, the
Company completed the sale of CCCD for an aggregate purchase price of
$56,500,000, consisting of $15,000,000 in cash, Purchaser Notes of
$35,000,000, and the assumption of up to $6,500,000 in certain equipment
liabilities. The Purchaser Notes, due no later than May 13, 1999, had an
interest rate of 11-1/2% per annum, payable quarterly beginning August 13,
1996, and was guaranteed by CMC. The Purchaser Notes were paid in full on July
29, 1996.

For the period ended May 28, 1997, the Company recorded a gain on the
disposal of the riverboat gaming asset of $364,000 which represented an
adjustment to the carrying value of liabilities relative to the sale.

For the year ended June 30, 1996, the Company recorded costs of
operations of the riverboat gaming facility of $4,903,000, which included (i)
legal fees of $2,192,000, (ii) equity in loss of the RVJV of $1,262,000, (iii)
other reorganization items of $1,240,000, (iv) interest income of $11,000 and,
(v) interest expense of $220,000. Additionally, the Company recorded a gain on
sale of the riverboat gaming assets of $17,542,000.

For the year ended June 30, 1995, the Company recorded revenues from
the riverboat gaming facility of $4,196,000, operating costs of $15,682,000,
preopening expenses of $7,906,000, interest income of $674,000 and interest
expense of $236,000, which resulted in a net operating loss of $18,954,000.
Additionally, the Company recorded costs from the disposal of the riverboat
gaming asset of $69,277,000, which included (i) charge for impaired assets of
$38,500,000, (ii) cash held in escrow of $2,200,000, (iii) prepaid rent of
$4,800,000 and (iv) wirte-off of acquired gaming assets of $23,725,000.

Funds Held By Trustee for Old Senior Secured Noteholders

As of June 30, 1996, approximately $22,500,000 was reflected as a
contra-liability to the Old Senior Secured Notes and represented cash held by
the Trustee for the benefit of the Old Senior Secured Noteholders against
obligations owed by the Company to the Noteholders. The obligations included
approximately $124,000,000 in Old Senior Secured Notes, a consent fee note
payable of $1,350,000 and accrued interest of approximately $20,700,000. In
addition, the Trustee held $28,000,000 in Purchaser Notes due from CMC as a
result of the sale of CCCD which was reflected as notes receivable of
$35,000,000 and accrued expenses of $7,000,000. On July 29, 1996, the Trustee
distributed to the Old Senior Secured Noteholders, an aggregate of
approximately $50,000,000, consisting of $28,000,000 in Purchaser Notes and
approximately $22,000,000 in cash. The remaining $500,000 was held in escrow
to indemnify CMC for any undisclosed liabilities arising from the sale of
CCCD.

Term Note Payable

As of June 30, 1996, $19,000,000 was reflected as a term note
payable. The Note was executed as an unsecured promissory note Payable to
Republic Corporate Services, Inc. in connection with the buy-out, by the
Company, of Republic's profit interest in CCCD. The note, was due April 26,
2002, with interest paid semi-annually at rate on of 11.5% per annum.

F-12

Bank Line of Credit

As of June 30, 1996, $2,000,000 was reflected as a Bank Line of
Credit. This represented a the draw down in April 1995 of a credit line
entered into between CCCD and First National Bank of Commerce on March 28,
1995, and guaranteed by the Company. The credit line was for the construction
of the riverboat gaming facility. The Bank Line of Credit was due June 27,
1997 and had an interest rate of prime plus 2%.

Reorganization

On December 23, 1996 (the "Petition Date"), Capital Gaming
International, Inc., apart from its subsidiaries, filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code (the "Code")
in the United States Bankruptcy Court for the District of Camden, New Jersey
(the "Court"). The petition did not involve the Company's wholly-owned
subsidiaries. The Company operated as a debtor-in-possession until March 19,
1997 when its Plan (as defined below) was confirmed by the Court. As a
debtor-in-possession, the Company was authorized to operate its business but
could not engage in transactions outside its ordinary course of business
without the approval of the Court.

Subject to certain exceptions under the code, the Company's
Reorganization Proceedings automatically enjoined the continuation of any
judicial or administrative proceedings against the Company. Any creditor
actions to obtain possession of or control over property of the Company or to
create, perfect or enforce any lien against the property of the Company were
also enjoined. As a result, the creditors of the Company were precluded from
collecting pre-petition debts without the approval of the Court.

On the Petition Date, the Company filed a pre-negotiated Plan of
Reorganization (together with all subsequent amendments and modifications, the
"Plan") and an accompanying disclosure statement together with all subsequent
amendments and modifications, (the "Disclosure Statement"). The Disclosure
Statement was approved by the Court on February 6, 1997.

On March 19, 1997, the Court conducted a hearing regarding
confirmation of the Plan and entered an order confirming the Plan submitted by
the Company as modified by the order. As contemplated by the Plan, on May 28,
1997 (the "Effective Date") the Company emerged from Chapter 11 and
consummated the Plan.

Plan of Reorganization

The Plan provided for the continuation of Capital Gaming
International, Inc.'s operations. Under the Plan, the old common stock interests
in Capital Gaming International, Inc. were canceled and the Company, as
reorganized, issued new common stock (the "New Common Stock").

The Plan provides generally that creditors of the Company will
receive distributions as follows: (1) holders of Old Secured Notes received in
the aggregate (A) on account of their Allowed Secured Claims, their Pro Rata
Share of the New Secured Notes having a principal face amount of $21,450,000
and 1,225,000 shares of the New Common Stock of the Company; and (B) on
account of their unsecured Deficiency Claims totaling $80,688,850, the same
treatment as is afforded to holders of General Unsecured Claims (see
subparagraph (iii) below); (ii) holders of Secured Claims that are not Claims
arising out of Old Secured Notes receive, at the option of the Company: (X)
such treatment as will leave such holders unimpaired; (Y) payment in full, in
cash; or (Z) return of such holder's collateral in the possession of the
Company; and (iii) holders of General Unsecured Claims against the Company
received their pro rata shares of (A) 525,000 shares of New Common Stock; (B)
the right to receive the net proceeds of Avoidance Actions recovered pursuant
to Section 9.4 of the Plan; and $1,100,000 in New Secured Notes. With respect
to Class 4 Claims, the indenture Trustee could receive no more than 375,000
shares of New Common Stock and $550,000 in New Secured Notes on account of its
allowed Class 4 Claim, and any share the Indenture Trustee would otherwise
receive on account of its Class 4 Claim in excess of 375,000 shares and any

F-13

New Secured Notes the Indenture Trustee would otherwise receive on account of
its Class 4 Claim in excess of $550,000 in New Secured Notes is required to be
distributed pro rata to all other holders of Allowed Class 4 Claims.

Holders of Old Common Stock of the Company received their pro rata
share of 50,000 shares of New Common Stock of the Company. Existing warrants,
options and other rights to acquire Old Common Stock of the Company
(collectively, the "Old Options") were canceled and holders of such rights
received no distributions of property on account thereof.

The terms of the Plan provide for the discharge of all claims against
the Company and/or release of liability only of the Company, its wholly-owned
subsidiaries and their respective present and former directors, officers, and
employees, the Indenture Trustee and the Noteholders, Steering Committee of
all liabilities in any way related to the Company. In addition, a critical
element of the Plan is the release by the Indenture Trustee and each of the
Noteholders of all their claims against subsidiaries of the Company arising
out of guaranties and pledges, except for the treatment of their Claims
provided under the Plan.

Management Agreements

The Plan also calls for the continued employment of the Company's key
management under their existing employment contracts, as modified.

Liabilities Subject to Compromise

Prior to the Effective Date, the Company incurred certain secured and
unsecured claims prior to the filing of the Company's Chapter 11 case on the
Petition Date. Additional claims arose subsequent to the Petition Date
resulting from the rejection of certain executory contracts and from the
allowance by the court of contingent and/or disputed claims. Creditors and
other parties in interest filed claims with the Court which were in excess of
the amounts recorded in the Company's records. These differences were related
to errors, duplicative claims and overstatement of claims.

Liabilities subject to compromise consisted of the following
immediately preceding the Effective Date:

Senior Secured Notes $ 102,971,000
Consent Fee, Payable to Noteholders 1,350,000
Guarantee of Notes Payable to Banks 2,141,000
Notes Payable to Republic Corporate Services 22,630,000
Trade Payables and Accrued Expenses 3,297,000
------------------
$ 132,389,000

Fresh Start Reporting

In accordance with AICPA Statement of Position 90-7 "Financial
reporting by Entities in Reorganization Under the Bankruptcy Code" (SOP 90-7),
the Company was required to adopt fresh-start accounting on the Effective
Date. The effect of the adoption of fresh-start reporting is reflected in the
June 30, 1997 Consolidated Balance Sheet. In adopting fresh-start reporting,
the Company, with the assistance of its financial advisors, estimated its
reorganization value, which represents the fair value of the entities under
reorganization, before considering liabilities. In order to accomplish this,
the Company provided its financial advisors with cash flow projections for the
post-reorganization operation of the Company's business under different
scenarios. The scenarios, which ranged from three to eight years of
post-reorganization operation, included assumptions related to the completion
of the Narragansett project and the attraction of new management agreements.
Due to the uncertainty surrounding the Narragansett project and the ability of
the Company to attract and enter into new management agreements, there were
significant differences in the cash flow projections under the various
scenarios. Based upon their knowledge and experience in the gaming industry

F-14

generally, and their familiarity with the Company's business and description
of its contracts, the financial advisors applied appropriate probability
factors to each of the scenarios, which reflected, among other things, the
inherent risks in realizing the assumptions underlying each of the scenarios.
The result of applying the factors to each of the scenarios produced a
probability weighted cash flow projection for the Company as a whole. Due to
the Company's expected NOL carryforwards, no consideration was given to the
effect of federal income taxes. Further, as the Company has no significant
tangible fixed assets, no consideration was given to the terminal value of the
Company. A discount rate of 12% was the applied to the combined cash flow
projections to determine their present value. This resulted in as estimated
fair value of the Reorganized Company of approximately $23,500,000, which was
approved by the Bankruptcy Court during its confirmation hearings. The excess
of the reorganization value over the fair market value of the net assets,
totaling about $9,339,000, is reported as excess reorganization value in the
accompanying consolidated balance sheet and will be amortized over a period of
four years.

The adjustments to reflect the consummation of the Reorganization
(including the gain on extinguishment of debt and other pre-petition
liabilities) and the adjustment to record assets and liabilities at their fair
values have been reflected in the June 30, 1997 consolidated financial
statements. Accordingly, a vertical black line is shown in the consolidated
financial statements to separate post-Reorganization operations from those
prior to May 28, 1997. As a result of adopting fresh-start reporting the
reorganized Company's consolidated financial statements are not comparable
with those prepared before the Effective Date.

Reorganization adjustments for the period ended May 28, 1997 were
comprised of:

Legal/Professional Fees $(1,716,000)
Interest Income 30,000
Write-off of Goodwill (405,000)
Excess Reorganization Value 9,265,000
Adjustments to Capital Stock 37,217,000
Adjustment to Paid in Capital 7,877,000
------------
Total $52,268,000

Reorganization fees paid to management for the period ended May 28,
1997, included in Reorganization Items amounted to $1,463,000 for the year
ended June 30, 1997. According to the Plan of Reorganization, this was
comprised of (i) $900,000 from the discontinuance and sale of the riverboat
operation in New Orleans, (ii) $550,000 in New Senior Secured Notes, and (iii)
$13,000 in New Common Stock grants.

F-15

The effect of the Plan of Reorganization on the Balance
Sheet as of May 28, 1997, is as follows:

Prereorganized Debt Discharge Exchange of Reorganized
Balance Sheet Stock Fresh Start Balance Sheet
Assets
- ------
<C.
Current Assets
Cash and Cash Equivalents $3,250,000 $ 0 $ 0 $ 0 $3,250,000
Restricted Funds in Escrow 924,000 0 0 0 924,000
Interest Receivable 78,000 0 0 0 78,000
Native American Management Fees
and Expenses Receivable 813,000 0 0 0 813,000
Current Portion-Native American
& Other Loans Receivable 3,931,000 0 0 0 3,931,000
Notes Receivable From Officers' 250,000 0 0 0 250,000
Prepaid Expenses and Other Current
Assets 638,000 0 0 0 638,000
Property and Equipment 93,000 0 0 0 93,000
Excess Reorganization Value 0 0 0 9,339,000 9,339,000
Other Assets 0 0 0 0 0
Native American Loans Receivable 4,032,000 0 0 0 4,032,000
Investments in Native American
Management Agreement 2,002,000 0 0 0 2,002,000
Notes Receivable, Other 80,000 0 0 0 80,000
Deferred Financing Costs 4,311,000 0 0 (4,311,000) 0
Goodwill 405,000 0 0 (405,000) 0
Deposits and Other Assets 0 0 0 0 0
---------------------------------------------------------------------------------------------
TOTAL ASSETS $20,807,000 $ 0 $ 0 $4,623,000 $25,430,000
=============================================================================================
Liabilities and Shareholders'
Equity (Deficit)
- -----------------------------

Current Liabilities
Accounts Payable and Accrued Expenses $1,930,000 $ 0 $ 0 $ 0 $1,930,000
Accrued Interest on Secured Notes 0 0 0 0 0
12.0% Senior Secured Notes Payable 0 23,100,000 0 0 23,100,000
Liabilities Subject to Compromise 132,389,000 (132,389,000) 0 0 0
Common Stock 37,617,000 0 (37,617,000) 400,000 400,000
Additional Paid In Capital 7,877,000 0 (7,877,000) 0 0
Retained Earnings (Deficit) (159,006,000) (550,000) 45,494,000 4,223,000 0
0 132,389,000 0 0 0
0 (22,550,000) 0 0 0
---------------------------------------------------------------------------------------------
TOTAL LIABILITIES & EQUITY $20,807,000 $ 0 $ 0 $4,623,000 $25,430,000
=============================================================================================

F-16

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements of the Reorganized
Company (Period beginning May 29, 1997) and the Predecessor Company (Periods
prior to May 29, 1997) include the accounts of Capital Gaming International,
Inc. and its wholly owned subsidiaries Capital Gaming Management Inc. (CGMI)
and Capital Development Gaming Corp. (CDGC). Periods prior to July 1, 1996
also include a former subsidiary, Cresent City Development Corp. (CCCD).
Intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents

Cash and cash equivalents includes cash in banks and overnight
investments. The Company considers all highly-liquid investments purchased
with an original maturity of three months or less to be cash equivalents. The
carrying amount of cash equivalents approximates fair value due to the
short-term maturity of those investments.

Furniture, Fixtures and Equipment

Furniture, fixtures and equipment are stated at cost, depreciation
and amortization are computed using the straight-line method over the
estimated useful life - primarily 4 to 8 years.

Revenue Recognition

The revenues recognized in these financial statements from Native
American Casino Management Fees are those of CGMI and represent management
fees derived primarily from Class III (gaming) facilities. Management fees are
recognized as revenue when earned based upon earnings sharing arrangements
detailed in the respective management contracts with the Native American
Tribes.

Excess Reorganization Value

Excess Reorganization Value is amortized on a straight line basis
over four years. When changes in circumstances require, management evaluates
events and circumstances in order to determine whether the recorded balance
has been impaired. If impairment is deemed to exist, the excess reorganization
value will be written down to fair value. As of June 30, 1997, management
expects the asset to be fully recoverable.

Income Taxes

The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. SFAS
No. 109 requires the measurement of deferred tax assets for deductible temporary
differences and operating loss carryforwards and of deferred tax liabilities
for taxable temporary differences. Measurement of the current deferred tax
liabilities and assets is based on provisions of enacted tax law; the effects
of future changes in tax laws or rates are not anticipated. Deferred tax
assets primarily result from net operating loss carryforwards and impairment
of assets recognized in different periods for financial reporting and tax
purposes.

Capitalization of Development Costs

The costs associated with developing, negotiating and securing new
management agreements are expensed as incurred until such time when management
belives the development of a casino facility is likely. This juncture in
development requires, at a minimum, a management contract in effect 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.

F-17

Net (Loss) Per Share of Common Stock

Net (loss) per share of common stock for the reorganized company is
computed on the basis of the weighted shares of common stock outstanding. The
weighted average number of shares outstanding and net income per common share
for the predecessor company have not been presented because, due to the
reorganization and implementation of fresh start reporting, they are not
comparable to subsequent periods.

Reorganization Items

Reorganization items consist of income, expenses and other costs
directly related to the reorganization of the Company, the Chapter 11 filings
of both its former CCCD subsidiary and the reorganization of the parent
company, and subsequent reorganization efforts.

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) 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
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 May 29, 1997 to June 30, 1997 and July 1, 1996 to
May 28, 1997 and the years ended June 30, 1996 and 1995 the facility produced
approximately $337,000, $3,529,000, $3,210,000 and $1,365,000 respectively in
management fees for the Company.

On April 27, 1995, the Tonto Apache Tribe opened the 35,000 square
foot Mazatzal Casino located north of Phoenix, Arizona. The casino features
slot machines, keno, non-banking table games and high stakes bingo. The
Company, as manager of the casino, collected approximately $232,000,
$1,823,000, $1,961,000 and $305,000 in management fees for the periods May 29,
1997 to June 30, 1997 and July 1, 1996 to May 28, 1997 and the years ended
June 30, 1996 and 1995 respectively.

The Muckleshoot Tribe opened the first phase of its Muckleshoot
Casino on April 28, 1995, and presently offers table games, 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 of
65,000 square feet. The Company, as manager of the facility, collected
approximately $184,000, $2,176,000, $2,038,000 and $615,000 for the periods
May 29, 1997 to June 30, 1997 and July 1, 1996 to May 28, 1997 and the years
ended 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.

F-18

Total management fees for the periods ended June 30, 1977 and May 28,
1997 and the years ended June 30, 1996 and 1995 were approximately $753,000,
$7,447,000, $7,663,000 and $6,441,000 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.

Summarized financial information of CGMI is provided below. For
periods ended June 30, 1997 and May 28, 1997, and the years ended June 30,
1996 and 1995 the net income (loss) reflects approximately $27,000, $483,000,
$1,900,000 and $2,200,000 respectively in interest expense to the parent.

June 30, 1997 June 30, 1996
------------- -------------
Assets:
Current Assets $ 4,084,000 $ 4,620,000
Non-Current Assets 9,992,000 10,832,000
----------- -----------
$14,076,000 $15,452,000
=========== ===========

Liabilities:
Current Liabilities $ 689,000 $ 1,480,000
Due to (from) Parent (536,000) 6,340,000
Non-Current Liabilities - -
Net Book Value 14,229,000 7,632,000
----------- -----------
$14,076,000 $15,452,000
=========== ===========

Management Fees $ 8,200,000 $ 7,663,000
=========== ===========

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 $113,000 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 $2,613,000 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 was recorded as
goodwill. As a result of the Company's Chapter 11 reorganization, goodwill was
reduced to $0 at May 28, 1997.

Condensed balance sheet data for the acquired net assets is as follows:

Current Assets, (including cash of $197,000) $ 612,000
Land and Other Assets 168,000
Investment in Native American Management Agreements - Net 1,578,000
Native American Casino Development Advances 996,000
Liabilities (1,547,000)
----------
Fair Market Value of Net Assets $1,807,000
Purchase Price 2,613,000
----------
Goodwill $ 806,000
==========

F-19

(4) RHODE ISLAND DEVELOPMENT PROJECT

Narragansett Contract - Native American Casino (Rhode Island). CDGC
has entered into a seven-year management and development contract with the
Narragansett Tribe (as amended, the "Narragansett Contract"). The Narragansett
Contract provides for CDGC to receive an annual management fee of 30% of net
distributable profits (as defined therein) of the facility for the first five
years and 20% for the remaining two years. As part of the Narragansett
Contract, the Company is required to advance a construction loan to be repaid
over a seven-year period. The Narragansett Contract was submitted to the
National Indian Gaming Commission for approval in June 1995. In light of
certain federal legislation as well as pending litigation, no assurance can be
given if, or when, such approval will be obtained or if the Narragansett Tribe
will be able to establish a commercial gaming enterprise (Class II or Class
III) under Indian Gaming Regulatory Act. Additionally, it is possible, as a
condition of obtaining such approval, that the NIGC will require material
modifications to the Narragansett Contract.

F-20

Tribe. Unless the Chafee Rider (as defined below) is overturned, however,
there can be no assurance that the Secretary of the Interior will have the
authority to impose a compact on the State of Rhode Island.

In spite of the set-back caused by the Chafee Rider, the Company
intends to pursue the Narragansett development project. There can be no
assurance, however, that any legislative or judicial efforts to overturn the
Chafee Rider will be successful.

The Company has continued funding the on-going development costs of
the Rhode Island Development Project. None of these costs have been
capitalized. Included in Native American Gaming Development Costs in the
statement of operations for the periods May 29, 1997 to June 30, 1997 and July
1, 1996 to May 28, 1997 and the years ended June 30, 1996 and 1995 are
$532,000, $1,799,000, $1,899,000 and $1,927,000 respectively in costs related
to the development of this management contract. At June 30, 1997, approximately
$7,432,000 is expected to be recoverable by the Company only if and when a
gaming facility is established by the Narragansett Tribe as repayment will be
made from the Net Distributable Profits of the gaming facility.

(5) EXCESS REORGANIZATION VALUE

Accumulated amortization and amortization expense of excess
reorganization value was approximately $193,000 as of June 30, 1997 and for
the period May 29, 1997 to June 30, 1997.

(6) INCOME TAXES

Components of Income tax expense

Reorganized Predecessor Company
Company -------------------------------------------------------------

May 29, 1997 July 1, 1996 Years ended June 30,
Through Through -------------------------
June 30, 1997 May 28, 1997 1996 1995
------------- ------------ ---- ----

Current:
Federal $ -- $ -- $ -- $ --
State (15,000) ($123,000) (321,000) --
- -----------------------------------------------------------------------------------------------------------------------
Current Expense ($ 15,000) ($123,000) ($321,000) --

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

Predecessor Company
Reorganized Company --------------------------------------------------------
May 29, 1997 July 1, 1996 Years ended June 30,
through through -------------------------
June 30, 1997 May 28, 1997 1996 1995
------------- ------------ ---- ----

Federal Income Tax Benefit (Expense)
at the Statutory Rate $454,000 ($15,100,000) $5,098,000 $5,308,000

State Tax Benefit, (Expense) Net
of Federal Tax Benefit (15,000) (123,000) (321,000) 3,180,000
(Non) Recognition of NOL
Carryforward (454,000) 15,100,000 (5,098,000) (8,496,000)
- ----------------------------------------------------------------------------------------------------------------------
Current Expense
$(15,000) $(123,000) ($321,000) $ 0
======================================================================================================================

F-22

Net Operating Loss Carryforwards ("NOLs")

The following description of the Company's net operating loss
carryforwards is based upon management's analysis of the application of the
relevant sections of the Tax Code to the net operating loss carryforwards of
the Company. There can be no assurance that the Internal Revenue Service or
the courts will agree with management's analysis. There are substantial risks
associated with the Company's utilization of the NOLs.

The term "Gross NOLs" means the local NOLs reported to the Internal
Revenue Service on the federal income tax returns of the particular taxpayer,
before the application of any reductions and related adjustments. Based on its
federal income tax returns for the years through June 30, 1996, the Company
and its subsidiaries reported cumulative gross NOLs of approximately
$107,000,000. Under Section 172(b) of the Internal Revenue Code of 1986, as
amended (the "Tax Code") as in effect for those years unused. NOLs expire
after fifteen taxable years from the taxable year of a loss. Because these
losses were generated in 1994, 1995 and 1996, they should expire in 2009, 2010
and 2011 respectively.

Under the Plan, unsecured indebtedness of the Company with an
aggregate face amount of approximately $110,000,000 was canceled. Generally,
Tax Code ss. 108 provides that a debtor whose indebtedness is canceled must
include the amount of canceled indebtedness in gross income to the extent the
indebtedness canceled exceeds any consideration (e.g., cash, notes, stock or
other property) given for the cancellation. Tax Code ss. 108 further provides,
however, that if a taxpayer is the subject of a bankruptcy case and the
cancellation of indebtedness ("COD") is pursuant to a plan approved by the
Bankruptcy Court, the excess amount canceled is not required to be included in
gross income. Instead, any such excess amounts so excluded from gross income
reduce prescribed tax attributes of the debtor, including NOLs and the bases
of the assets of the debtor, in a specified order of priority beginning with
NOLs. Management of the Company believes that $75,500,000 of its Gross NOLs of
approximately $107,000,000 as of June 30, 1996 must be reduced to take into
account cancellation of indebtedness of the Company pursuant to the Plan.

The term "Net NOLs" means the amount of NOLs of the particular
taxpayer for federal income tax purposes adjusted to reflect reductions and
related adjustments required under Tax Code ss. 108 and Tax Code ss.
382(1)(5), assuming that Tax Code ss. 382(1)(5) applies, but subject to
Internal Revenue Service audits, subsequent changes in the ownership of the
Company and effects under Tax Code ss. 382, and the application of Tax Code
Sections 269 and 384. After taking into account the reorganization of the
Company pursuant to the Plan and assuming that Tax ss. 382(1)(5) applies,
management of the Company believes the Net NOLs of the Company and its
subsidiaries as of June 30, 1997 are approximately $31,500,000, although no
assurance can be given that the Company will be able to utilize these NOLs.

If a corporation undergoes an "ownership change", Tax Code ss. 382
limits the corporation's right to use its NOLs each year to an annual
percentage (based on the federal long-term tax-exempt rate which was 5.64% in
May of 1997) of the fair market value of the corporation at the time of the
ownership change (the "Section 382 Limitation"). If an ownership change under
Tax Code ss. 382 is triggered, a corporation may also be restricted from
utilizing certain built-in losses and built-in deductions recognized during a
five-year recognition period after the ownership change. A corporation is
considered to undergo "an ownership change" if, as a result of changes in the
stock ownership by "5-percent shareholders" or as a result of certain
reorganizations, the percentage of the corporation's stock owned by those
5-percent shareholders has increased by more than 50 percentage points over
the lowest percentage of stock owned by those shareholders at any time during
a prescribed prior three-year testing period. Five-percent shareholders are
persons who hold 5% or more of the stock of a corporation at any time during
the testing period as well as groups of shareholders who are not individually
5-percent shareholders.

Although a 50% ownership charge was expected to occur as a result of
the transfer of stock of the Company to creditors pursuant to the Plan, an
exception under Tax Code ss. 382(1)(5) is believed by management to have
applied as described as follows. Tax Code ss. 382(1)(5) provides that the
Section 382 Limitation will not apply to a loss corporation if (1) the
corporation, immediately before the ownership change, is under the
jurisdiction of a court in a United States Code Title 11 or similar case and

F-23

(2) the shareholders and creditors of the old corporation own at least 50% of
the total voting power and value of the stock of the corporation after the
"ownership change" as a result of being shareholders and creditors before the
change. Stock transferred to such creditors counts only if it is transferred
with respect to "old and cold" indebtedness. Indebtedness of creditors
qualifies as "old and cold" if the indebtedness (i) was held by a particular
creditor for at least 18 months before the date of the filing of the Chapter
11 case, or (ii) arose in the ordinary course of the trade or business of the
old loss corporation and was held by the person who at all times held a
beneficial interest in that debt. These requirements will not apply, however,
and thus a loss corporation generally may treat the debt as meeting the
holding period requirement, unless (i) the creditor becomes a 5-percent
shareholder of the loss corporation (directly or indirectly) immediately after
the ownership change or (ii) such creditor's participation in the formation of
the reorganization plan makes it evident to the debtor that the creditor has
not owned the debt in question for the required period.

Although the Company's management has attempted to determine the
extent to which the indebtedness of creditors who received stock pursuant to
the Plan qualifies as "old and cold", in certain instances there is still a
lack of corroborative evidence as to the status of certain creditors, and the
New Indenture trustee has apparently not yet fixed the record date for
determining who is entitled to receive a distribution of the Company common
stock as a result of being a holder of Old Secured Notes. Management is
attempting to obtain written confirmation of the status of the creditors who
are receiving Company common stock. Management has requested the New Indenture
trustee to fix the record date on or before the Effective Date of the Plan.
Because of the uncertainty related to these issues, management of the Company
is unable to document that Tax Code ss. 382(1)(5) applies to the ownership
change that occurred as a result of the implementation of the Plan. However,
based on the information available to management of the Company, and based on
management's belief that it can favorably resolve the date on which the New
Indenture trustee fixes the record date for distributions of Company common
stock, management of the Company believes that sufficient indebtedness of
creditors will qualify as "old and cold" under Tax Code ss. 382(1)(5) so that
Tax Code ss. 382(1)(5) will apply to this ownership change. No assurances,
however, can be given that documentation will ultimately be obtained by the
Company from creditors to confirm this belief. Likewise, if the New Indenture
trustee fixes a record date for distribution of the Company common stock which
is after the Effective Date of the Plan, transfers of the right to receive the
Company common stock after the Effective Date may cause the Company not to be
able to avail itself of Tax Code ss. 383(1)(5).

If the Company is subject to the Section 382 Limitation as a result
of the consummation of the Plan, its annual Section 382 Limitation would be
equal to the product of the applicable long-term tax-exempt rate (5.64%) times
the fair market value of the equity of the Company immediately before the
ownership change. Thus, based on the value of the equity of the Company as of
the Effective Date of the Plan of $400,000, then the Company could use
approximately $23,000 of its NOLs each year until they expire.

As a result of the Company's Chapter 11 proceedings, for financial
reporting, the Company recorded significant tax changes. Such changes are
reflected in the June 30, 1997 deferred tax asset amount as set forth below.
Substantial net operating loss carryforwards ("NOL's") generated in previous
years totaling approximately $107,000,000 were reduced by approximately
$75,500,000, leaving the Company with remaining NOL's totaling approximately
$31,500,000 assuming that section 382(1)(5) applies. The reductions are mainly
a result of the cancellation of Indebtedness income effected by the
reorganization.

As of June 30, 1997, the Company has a net operating loss
carryforward of approximately $31,500,000 expiring as follows:

June 30, 2009 6,930,000
June 30, 2010 14,490,000
June 30, 2011 10,080,000
-----------
Total $31,500,000

Pursuant to SOP 90-7 any benefits the Company may receive from the
utilization of preconfirmation net operating loss carryforwards will first
reduce excess reorganization value until exhausted and thereafter be reported
as a direct addition to paid-in capital.

F-24

The Income tax effects of temporary differences that give rise to significant
portions of deferred income tax assets as of June 30, 1997 and 1998 are as
follows:

1997 1998
---- ----
Deferred Income Tax Assets:
Federal Net Operating Losses $ 10,698,000 $ 24,500,000

State Net Operating Losses 2,138,000 4,277,000
--------------------------------------
Total Deferred Income Tax Assets 12,836,000 28,777,000

Valuation Allowance (12,836,000) (28,777,000)
======================================
Net Deferred Income Tax Assets $ 0 $ 0
======================================

The deferred tax asset valuation allowance is equal to the full amount of the
gross deferred tax asset because the realization of the assets cannot be
assured at this time.

(7) LOANS RECEIVABLE - NATIVE AMERICAN TRIBES

The Company has funded the development and construction of the Class
III Native American gaming facilities it manages and operates including
equipment financing amounting to approximately $3,300,000. As of June 30,
1997, there was a total of approximately $7,631,000 in loans outstanding with
$3,943,000 to be realized within one year and $3,688,000 classified as
long-term. These notes bear interest rates at prime +1% (9.5% at June 30,
1997) and have scheduled repayments of 36 to 60 months. A five year maturity
table is presented below:

For the years ended:

June 30, 1998 $3,943,000
June 30, 1999 2,249,000
June 30, 2000 1,439,000
June 30, 2001 -0-
June 30, 2002 -0-
--------------------
TOTAL $7,631,000

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 collectibility is forced into litigation. The
Company does not require collateral from the Tribes to secure its receivable.
Management has no disputes with any Native American tribe that would place
doubt on the full collectibility of any of the receivables. The Company takes
all necessary legal measures in the documentation and preparation of agreement
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 Muckleshhot Tribe and the Company's
Native American gaming subsidiary - Capital Gaming Management, Inc. (CGMI) -
the Tribe has repaid the CGMI approximately $7,600,000 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 Creok Bank 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

F-25

subsidiary $3,000,000 in consideration for early termination of the Management
Agreement and principal repayment of approximately $823,000. The buy-out of
future management fees of $3,000,000 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.

(8) PROPERTY AND EQUIPMENT

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

1997 1996
---- ----
Office furniture, fixtures and equipment $ 112,000 $ 248,000
Less accumulated depreciation (97,000) (121,000)
------------- -----------
$ 15,000 $ 127,000
============ ===========

Depreciation expense for the periods May 29, 1997 to June 30, 1997
and July 1, 1996 to May 28, 1997 and the years ended June 30, 1996 and 1995 is
$3,000, $34,000, $37,000 and $65,000 respectively and is included as part of
depreciation and amortization expense.

(9) INVESTMENT IN NATIVE AMERICAN MANAGEMENT AGREEMENTS

The balance of $1,937,000 as of June 30, 1997 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 five years on the straight line method. The remaining lives of
these management contracts is approximately 2-3 years. Amortization for the
periods May 29, 1997 to June 30, 1997 and July 1, 1996 to May 28, 1997 and the
years ended June 30, 1996 and 1995 was approximately $59,000, $687,000,
$860,000 and $293,000, respectively. Accumulated amortization as of June 30,
1997 and 1996 was approximately $1,290,000 and $1,412,000 respectively. When
changes in circumstances require, the management of the Company will evaluate
whether the individual carrying value of these assets has been impaired by
comparing the carrying value to the value of the projected net cash flow from
related operations. As of June 30, 1997, management expects the assets to be
fully recoverable.

(10) NOTES RECEIVABLE FROM OFFICERS

Pursuant to the Reorganization Plan and their respective amended
employment agreements, the Company's two senior executives borrowed a total of
$250,000 from the Company. These loans are evidenced by unsecured notes which
bear six percent (6%) simple interest. Both notes mature on May 28, 1998.
Pursuant to the Plan, the Company's two senior executives are entitled to a
confirmation bonus relative to the Company's restructuring of $250,000 in cash
as well as $550,000 in New Secured Notes. The cash portion of the confirmation
bonus is payable upon the satisfaction of certain conditions subsequent to the
confirmation date as outlined in the amended employment agreements.

F-26

(11) DEBT AFTER REORGANIZATION

Senior Secured Notes

Pursuant to the Reorganization, the holders of the Old Notes, along
with certain unsecured creditors and key members of management, received, on a
pro rata basis, the New Senior Secured Notes having an aggregate principal
amount of $23,100,000. Interest on the New Senior Secured Notes accrues at a
rate of 12% per annum, and is payable semi-annually. The New Senior Secured
Notes are secured by substantially all the assets of the Company, including
the common stock of CGMI and CDGC. In addition, the Amended Indenture includes
certain restrictive covenants. The Company has complied with substantially all
of the covenants as of June 30, 1997, except as more fully described below.
The New Senior Secured Notes are redeemable prior to maturity, in whole or
part, at the election of the Company, at the redemption price of 100% of the
principal amount plus accrued and unpaid interest to the redemption date. The
New Senior Secured Notes mature in May of 2001. Required principal payments
during the next five years are as follows:

June 30, 1998 $ 0
June 30, 1999 0
June 30, 2000 4,620,000
June 30, 2001 18,480,000
Thereafter 0
---------------
Total $ 23,100,000

The indenture - The proceeds from the issuance of the Company's New
Senior Secured Notes are subject to certain restrictions, and the Company is
subject to certain restrictive covenants, including dividend restrictions,
pursuant to the Amended Indenture. The Company is also required to repurchase
the New Senior Secured Notes under certain conditions.

Default Under Amended Indenture: The Amended Indenture contemplates
that certain actions of the Company require prior notice to (and in certain
cases, approval from) an Advisory Committee. No proposed member of the
Advisory Committee has yet executed an appropriate confidentiality agreement
and, therefore no such proposed member has qualified to serve on such
committee. Moreover, the Company has been notified by several state gaming
regulators in states in which the Company conducts business, that the breadth
and scope of the powers granted to the Advisory Committee in the Amended
Indenture require that proposed members of the Advisory Committee be licensed
by the appropriate gaming regulators and further that, in the absence of such
licensure, actions by members of the Advisory Committee would constitute an
improper circumvention of applicable licensing requirements. In the absence of
a functioning Advisory Committee, the Company may not be able to enter into
certain transactions or otherwise conduct its business without violating
certain covenants in the Amended Indenture. The Company has been notified by
the Amended Indenture Trustee that the Amended Indenture Trustee has reserved
its right to assert that certain actions taken by the Company to date
(including the failure of the Company to have its budget approved by the
Advisory Committee) constitute a default under the Amended Indenture. To date,
however, the Amended Indenture Trustee has not delivered to the Company any
notice of an Event of Default. Moreover, the Amended Indenture Trustee has
notified the Company that it has been directed by a majority in principal
amount of the New Senior Secured Notes to forebear from taking any action to
accelerate the New Senior Secured Notes until November 14, 1997 during which
time the Company will have an opportunity to cure any such default. The
Company is currently engaged in discussions with Counsel and a Noteholder
representing a majority of Noteholders for the purpose of amending the Amended
Indenture to affect solely the rights, duties and powers of the Advisory
Committee and provide for an Advisory Committee with the authority to approve
the Company's budget without the need for Advisory Committee members to be
licensed as required by gaming regulators or the possible elimination of the
Advisory Committee concept from the Indenture altogether.

F-27

(12) CAPITAL STRUCTURE

Capital Structure After Reorganization

Pursuant to the Plan, the Predecessor Company's common stock and
outstanding options were canceled on the Effective Date. The Plan also
provided for the amendment and restatement of the Company's Certificate of
Incorporation and bylaws. The new charter authorized 3,200,000 shares of no
par value common stock. Upon the Effective Date, 1,800,000 shares of common
stock were authorized for issue on a pro rata basis to the Company's various
classes of creditors. In addition, the Company's executive management became
entitled to receive a total of 66,667 share of common stock on the Effective
Date. Also on the Effective Date, 133,333 shares were reserved to be issued to
executive management pursuant to the Plan. The remaining shares will be issued
in two installments; on the first and second anniversary of the Effective
Date.

In accordance with Section 10 of the Company's Certificate of
Incorporation, the Company is imposing certain transferability restrictions
upon its 5-percent shareholders for purposes of Tax Code ss. 382. These
restrictions generally provide that the 5-percent shareholders shall be
prohibited from transferring shares of New Common Stock without the consent of
a designated Tax Advisor (the "Tax Advisor"). The Tax Advisor shall have no
obligation to consent to a transfer unless it determines that the proposed
transfer and any related proposed transfers do not create an unreasonable risk
of loss of, or material litigation on, the Company's use of its net operating
loss carryforwards.

Preferred and Common Stock

Preferred stock of the predecessor Company consisted of 5,000,000
authorized shares, of which none where issued. Common stock of the predecessor
Company consisted of 75,000,000 authorized shares. All predecessor common and
preferred stock were canceled under the Reorganization.

The predecessor Company had adopted a Stock Option Plan. All
outstanding options were canceled pursuant to the Reorganization.

(13) STOCK OPTION PLAN

Pursuant to the Reorganization, the Company canceled all of its
existing stock options and adopted the 1997 Stock Option Plan covering 200,000
shares of the Company's common stock, pursuant to which officers, directors,
consultants of, or other people rendering services to the Company or its
subsidiaries are eligible to receive incentive and/or non-qualified stock
options. With respect to any option granted to any employee who was employed
by the Company prior to the Effective Date of the Company's Plan of
Reorganization no more than 100,000 of the shares authorized under the Stock
Option Plan may be awarded. The Plan expires in March 2007. Incentive stock
options granted under the Plan to employees who are not 10% owners are
exercisable for a period up to ten years from the date of grant at an exercise
price of $1.75 or such lesser amounts approved by the Company's noteholders
advisory committee. The exercise price may be adjusted subject to certain
recapitalization provisions of the Plan. Incentive stock options granted under
the Plan to employees who are 10% shareholders are exercisable for a period up
to five years at the same exercise price provision. As of June 30, 1997 there
were no options granted under the Plan.

(14) COMMITMENTS AND CONTINGENCIES

Pursuant to the Plan and on the Effective Date, the Company adopted
and amended the existing employment agreements with the Company's President
and Chief Executive Officer and Senior Vice President and General Counsel
which provides for three year terms expiring in May 2000 at the annual salary
of $495,000 and $200,000, respectively. The agreements also provide for
severance payments equal to one to three years upon the occurrence of certain
terminations. Included in accrued expenses are salaries due to the Company's
former Chairman, in the amount of $4,000 and to the Company's Executive Vice
President of Compliance in the amount of $4,000. An employment agreement in
effect at June 30, 1997 with the Vice President of Compliance requires an
annual compensation of $100,000 expiring May 2000.

The Company has covenanted to file, upon request from the Advisory
Committee or the Holders of the New Senior Secured Notes or the Holders of the
New Common Stock, a registration statement under the Securities Act of 1933
with respect to the New Senior Secured Notes and the New Common Stock. The
Company also has agreed to use its best efforts to cause such registration
statement to be declared effective by the Securities and Exchange Commission
(the "SEC") within 180 days following such notice.

F-28

(15) 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 employee's contribution up to a
maximum of 4% of salary. Expense for the periods May 29, 1997 to June 30, 1997
and July 1, 1996 to May 28, 1997 and the years ended June 30, 1996 and 1995
was approximately $22,000, $51,000, $22,000 and $43,000 respectively.

(16) LEASES

The Company leases facilities under various operating leases expiring
through January 2001. The Company's aggregate lease commitments under
non-cancelable leases with terms of one year or greater total $194,000 and
will require approximately $97,000 in 1998, $40,000 in 1999, $36,000 in 2000
and $21,000 in 2001. Rent expense for the period May 29, 1997 to June 30,
1997, July 1, 1996 to May 28, 1997 and the years ended June 30, 1996 and 1995
was approximately $8,000, $74,000, $129,000 and $144,000 respectively.

(17) CONCENTRATION 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 in high credit quality financial institutions and currently
invests primarily in U.S. government and Euro rollover obligations that have
maturities of less than three months. The Company does not have cash that is
subject to credit risk beyond FDIC insured limits. The Company had
approximately $3,985,000 and $2,261,000 at June 30, 1997 and 1996
respectively, in repurchase agreements, cash management funds and Euro
investments which are not insured.

The Company has recorded as of June 30,1997, $798,000 in casino
development advances, management fees, and reimbursable expenses due from
Native American Tribes under management contracts as well as $7,611,000 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, 1997, 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 require collateral or other
security to support financial instruments subject to credit risk, beyond the
pledge of each Tribe of their gaming reserves. Management has no dispute 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 and securing appropriate regulatory approval.

All of the Company's management fee revenues are derived from three tribes as
follows:

Muckleshoot Tribe 28%

Tonto Apache 25%

Umatilla 47%

The loss of any one of these Tribes could have a material adverse effect on the
Company's financial condition.

(18) 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

F-29

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.

In assessing the fair value of the 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, it was
concluded that the carrying amount approximated fair value because of their
short maturities.

The 12.0% Senior Secured notes due 2001 are carried at their face value
of $23,100,000. The fair value of the Company was determined to be $23,500,000
of which $23,100,000 was attributed to senior secured notes and $400,000 to
common stock.

(19) EXTRAORDINARY ITEMS

Approximately $1,998,000 was recorded as early extinguishment of debt
related to the distribution of an aggregate $49,986,000 on July 29, 1996 in
cash and Purchasers Notes to the Senior Secured Noteholders from the sale of
CCCD and CMC. The $1,998,000 is comprised of the accelerated write-off of
$1,350,000 in Deferred Finance Costs and $648,000 in Original Issue Discounts.

Approximately $103,464,000 was recorded as an extraordinary gain as
the result of the Company's debt restructuring under Chapter 11 and the adoption
of fresh-start reporting. The $103,464,000 is comprised of the following:

Write-off Deferred Finance Costs and
Original Issue Discounts $ (4,311,000)
Record New Notes in exchange for old debt (23,100,000)
Record New Notes issued to management
included in Reorganization Items 550,000
Reduce Liabilities Subject to Compromise to zero 130,325,000
-----------------
Total $103,464,000

There is no income tax effect on the extraordinary items due to the
cancellation of indebtedness as more fully described in Note 6.

(20) RESTRICTED FUNDS IN ESCROW

Restricted funds in escrow consist of $500,000 with an escrow agent
in New Orleans, Louisiana representing funds withheld from the sale of CCCD
and $426,000 held in escrow by the Bond Indenture Trustee. On July 17, 1997,
the $500,000 was transferred to the Bond Indenture Trustee. The total $926,000
currently held by the Bond Indenture Trustee is for the benefit of the New
Senior Secured Noteholders for payment of the New Senior Secured Notes and is
classified as non-current.

(21) LEGAL PROCEEDINGS

Pursuant to the Plan, all legal proceedings against the parent
company prior to the Effective Date of May 28, 1997 were settled pursuant to
the Plan. As a result there was no litigation pending against the parent
company on the May 28, 1997 Effective Date. The Company may be subject to
various legal proceedings in the ordinary course of business although is not
aware of the existence of any such pending or threatened legal proceedings at
this time.

F-30

(22) NEW AUTHORITATIVE PRONOUNCEMENTS

The Financial Accounting Standards Board (FASB) has issued Statement
of Financial Accounting Standard (SFAS) No. 128, Earnings Per Share and FASB
No. 129, Disclosure of Information About Capital Structure. Both are effective
for financial statements issued for periods ending after December 15, 1997.
SFAS No. 128 simplifies the computation of earnings per share by replacing the
presentation of primary earnings per share with a presentation of basic
earnings per share. The statement requires dual presentation of basic and
diluted earnings per share by entities with complex capital structures. Basic
earnings per share include no dilution and is computed by dividing income
available to common stockholders by the weighted average number of shares
outstanding for the period. Diluted earnings per share reflect the potential
dilution of securities that could share in the earnings of an entity similar
to fully diluted earnings per share. SFAS 128 is not expected to have a
material impact on the Company.

SFAS No. 129 does not change any previous disclosure requirements
but, rather, consolidates existing disclosure requirements for ease of
retrieval.

The FASB has issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Earlier application is permitted. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. SFAS No. 130 is
not expected to have a material impact on the Company.

The FASB has issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 changes how operating
segments are reported in annual financial statements and requires the
reporting of selected information about operating segments in interim
financial reports issued to shareholders. SFAS No. 131 is effective for
periods beginning after December 15, 1997, and comparative information for
earlier years is to be restated. SFAS No. 131 need not be applied to interim
financial statements in the initial year of its application. SFAS No. 131 is
not expected to have a material impact on the Company.

F-31

INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY SCHEDULE

To the Board of Directors and Stockholders of
Capital Gaming International, Inc.
Phoenix, Arizona

Our report on the consolidated financial statements of Capital Gaming
International, Inc. and its subsidiaries 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
August 22, 1997

S-1

CAPITAL GAMING INTERNATIONAL, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(ROUNDED)

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

June 30, 1997: N/A N/A N/A N/A

June 30, 1996:
Prepaid Rent - Reserve (New Orleans $ 4,859,000 $ - $ (4,859,000) $ -
Dock Board)
Cash Held in Escrow - Port of New 2,192,000 - (2,192,000) -
Orleans - Reserve
Uncollectible Patron Markers - Reserve 14,000 - (14,000) -
Employee Advance - Reserve 9,000 - (9,000) -
------------ ------------- -------------- --------------
TOTALS $ 7,074,000 $ - $ (7,074,000) $ -
============ ============= ============== ==============

S-2