DUNES HOTELS & CASINOS INC, 10-K, 1998-03-27

DUNES HOTELS & CASINOS INC
10-K, 1998-03-27
REAL ESTATE DEALERS (FOR THEIR OWN ACCOUNT)

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

FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required] for the fiscal year ended DECEMBER 31, 1997
or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
to .
Commission File No. 1-4385

DUNES HOTELS AND CASINOS INC.
(Exact name of registrant as specified in its charter)

NEW YORK 11-1687244
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

4600 NORTHGATE BOULEVARD, SUITE 130, SACRAMENTO, CALIFORNIA 95834
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (916) 929 2295

Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE NONE

Securities Registered Pursuant to Section 12(g) of the Act:
SERIES B, $7.50 CUMULATIVE
COMMON STOCK, $.50 PAR VALUE PREFERRED STOCK, $.50 PAR VALUE
(Title of class) (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)

The aggregate market value of the voting stock held by non-affiliates of
the Registrant (2,094,340 common shares) computed by reference to the price at
March 11, 1998 ($.28125 per share) was approximately $589,033. No market
value is assigned to the Series B preferred stock. See "Item 5. Market for
Registrant's Common Equity and Related Matters".

The number of shares of common stock outstanding as of March 11, 1998 was
6,375,096.
Documents Incorporated by Reference Not Applicable

This document consists of pages with exhibits, pages without exhibits.

<PAGE>2

ITEM 1. BUSINESS

Dunes Hotels and Casinos Inc. was incorporated in New York in 1956. In
this report the term "the Company" refers to Dunes Hotels and Casinos Inc.,
individually, or with its wholly-owned subsidiaries, Continental California
Corporation (Continental), M & R Corporation (MRC) and MRC's subsidiary M & R
Investment Company, Inc. (MRI) and MRI's subsidiaries SHF Acquisition
Corporation (SHF) and Southlake Acquisition Corporation (Southlake).

The Company, through its subsidiaries, operates in two principal business
segments: real estate (development and sale of residential lots and rental of
agricultural land), and agriculture (drying and storing rice). See Note 15 of
Notes to Consolidated Financial Statements for information relating to
industry segments and class of services.

The Company's real estate segment develops and sells completed
residential lots primarily to builders of custom homes and to the general
public located in and around the greater Sacramento, California area.

The agricultural segment dries harvested rice over a two month period
(approximately September 15 to November 15) and stores, for a fee, the dried
rice (or other grains) until it is removed by the owner. The Company dries
and stores rice principally for one customer, Farmers Rice Co-operative
(Farmers). Farmers accounts for approximately 98% of the rice drying and
storage revenue. If the Company were to lose Farmers as a customer, it would
have a material adverse effect on the Company's agricultural segment. In
September 1997, the Company completed construction of a new rice drying
facility adjacent to its rice storage facility. See "Item 1. Business -
Agricultural Segment - Grain Storage and Drying Facilities."

RESOLUTION OF SASA DISPUTE

On October 24, 1995, the Company, along with Continental, MRI and SHF,
entered into a Settlement, Release and Loan Modification Agreement (the
Settlement Agreement) with the Resolution Trust Corporation (the RTC) in
connection with the Company's obligation, alleged to be approximately
$21,107,796, to San Antonio Savings Association (the SASA Obligation) which
became effective on December 6, 1995. As a result of the settlement, the
Company recorded a one-time extraordinary gain of $8,346,000. Pursuant to the
terms of the Settlement Agreement and as full payment of the SASA Obligation,
(i) Continental transferred four parcels of non-contiguous real property
located northwest of San Diego, California, owned by Continental, to the RTC
in consideration of a $1,500,000 credit against the SASA Obligation, (ii) the
Company paid $290,000 to the RTC, and (iii) the Company delivered a secured
promissory note to the RTC (the RTC Settlement Note) in the principal amount
of $2,710,000. The RTC Settlement Note bears interest at an annual rate of 1%
over the prime rate, adjustable semi-annually; provided, however, that the
interest rate shall not be less than 8% or more than 12% per annum. The RTC
Settlement Note requires monthly payments of interest until December 6, 2000,
at which time the entire unpaid principal amount and all accrued and unpaid
interest is due. The RTC Settlement Note is collateralized by a deed of
trust on 50 unsold residential lots at The Fairways in Rancho Murieta,
California and a collateral assignment of purchase money promissory notes
in the aggregate principal amount of $227,160 secured by 2 residential lots
previously sold at The Fairways. The SASA Obligation has been purchased by
Beal Bank.

<PAGE>3

REAL ESTATE SEGMENT:

THE FAIRWAYS

The Company, through SHF, developed approximately 50 acres of real
property as a residential planned unit development known as "The Fairways" in
Rancho Murieta, California. Rancho Murieta is a 3,500 acre master planned
unit development located approximately 25 miles from Sacramento, California.
Rancho Murieta consists primarily of single family homes, town houses,
commercial property and two 18-hole championship golf courses, including
country club facilities. The Fairways, located within the boundaries of one
of the golf courses at Rancho Murieta, was subdivided into 110 single family
estate lots. As of March 11, 1998, 49 lots remain unsold.

In connection with its development of The Fairways, SHF was required to
construct several water, sewer and drainage facilities (the Improvements) that
are oversized to serve lands outside the boundaries of The Fairways (the
Benefited Properties). SHF and Rancho Murieta Community Services District
(the District) have entered into an agreement (the Reimbursement Agreement)
wherein SHF and the District have agreed that the total cost of the
Improvements was $1,597,425 and that of this amount, $276,088 is allocable to
The Fairways and $1,321,337 is allocable to the Benefited Properties. SHF and
the District also agreed that future construction of certain other facilities
will benefit both The Fairways and the Benefited Properties. The
Reimbursement Agreement provides that the amount that will be allocable to The
Fairways will be approximately $176,500 and will be deducted from the amount
due SHF resulting in a net amount due to SHF of approximately $1,140,900. The
funds will be reimbursed to SHF out of proceeds of any subsequent community
facilities district or by direct payment by subsequent developers of the
Benefited Properties. SHF's right to reimbursement under the Reimbursement
Agreement will expire in twenty years from September 1995. The Company is
unable to predict what amount, if any, will be received under the
Reimbursement Agreement. The rights to reimbursement under the Reimbursement
Agreement are personal to SHF and do not run with The Fairway property unless
assigned by SHF.

As part of the development of The Fairways, SHF entered into a Parks
Development Agreement dated February 20, 1991 (the Parks Agreement) with
Rancho Murieta Association (RMA). In August 1994, SHF entered into a
Settlement Agreement Regarding Payment of Park Fees (the Park Fee Payment
Agreement). The Park Fee Payment Agreement acknowledged that the total park
fees owing to RMA were $173,238. On December 29, 1997, SHF paid all of the
remaining park fees that were due to RMA.

As part of the Settlement Agreement described above with the RTC, all of
the unsold lots in The Fairways are encumbered by a deed of trust in favor of
the RTC. The deed of trust requires a $40,000 payment for the release of each
encumbered lot. See "Resolution of SASA Dispute" above.

On October 7, 1996, the Company signed a letter agreeing to modify the
Purchase and Option Agreement (the New Agreement) between the Company and
Murieta Investors, LLC, (MI) formerly West Coast Properties, LLC. The
Purchase and Option Agreement is described in detail in the Company's Form 10-
K for the year ended December 31, 1995. See Item 1. "Business - Real Estate
and Related Activities - The Fairways." The New Agreement provides that MI
will purchase from the Company 6 lots at The Fairways at $40,000 per lot plus
payment of the park fees applicable to the lots purchased. In addition, the
Company may receive contingent consideration equal to 20% of the gross sales

<PAGE>4

price of each residential dwelling sold less $40,000 (the Success Payments).
Eight months after the purchase of the initial 6 lots, MI will be entitled to
purchase a second group of 6 lots. An additional group of 6 lots may be
purchased every 4 months thereafter until 40 lots have been purchased. The
initial payment for the second 6 lots purchased will be $40,000, plus payment
of the applicable park fees and the Success Payments. Beginning with the
purchase of the third group of 6 lots, the initial payment will be $45,000,
plus payment of the park fees applicable to the lots purchased. The Success
Payments will be 20% of the gross sales price of each residential dwelling lot
sold less $45,000. If MI sells any lot without constructing a residential
dwelling thereon, the Company will receive 20% of the sale price without
offset of the initial payment. The sale of the first 6 lots closed on
December 20, 1996. Because of certain difficulties regarding MI's ability to
obtain plans and permits relating to the first 6 lots purchased, MI did not
purchase any lots in 1997.

WHITE RANCH

On July 15, 1997, the Company closed the sale of the White Ranch. Net
proceeds from the sale were approximately $5,965,000 of which approximately
$2,982,500 was paid to the Company. The balance of the proceeds were paid to
the other 50% owner of the White Ranch.

SAM HAMBURG FARM

MRI owns approximately 150 acres of agricultural property called Sam
Hamburg Farm (Hamburg Farm) in Fresno and Merced Counties, California. MRI's
150 acres are operated by SHF. Of the 150 acres, 40 acres contain the
airstrip and the shop areas which are the focus of continuing attempts at
chemical clean-up. The remaining 110 acres are leased to various tenants at
an annual aggregate rental of approximately $20,000.

In connection with a potential 1991 sale of a portion of Hamburg Farm,
SHF was advised of possible contamination on the site. The Company retained a
specialist to inspect the sites, take samples, analyze the samples and report
to the Company. The specialist indicated that there were two major sites of
chemical spillage, a storage facility for diesel fuels and an old airstrip
which had been used for the loading and fueling of aircraft applying
agricultural chemicals to the surrounding farm lands. The Company has
substantially completed the clean-up relating to the diesel storage tanks at a
cost of approximately $100,000. The Company has disposed of a large amount of
the contaminated earth at an approved site for the storage of toxic wastes.
However, approximately 5,000 cubic yards of contaminated earth still remain
to be disposed of. The Company, through its chemical and toxic clean-up
consultant, has been working with the California State Environmental
Protection Agency, in seeking alternate means to the disposal in toxic dump
sites of chemical and toxics-laden soil. The State has participated in the
funding of several projects by a number of chemical treatment firms in efforts
to try other detoxification methods on the soil.

Because of the ongoing testing, the State has not imposed a disposal date
upon the Company. Cost of disposal is estimated at $100 per cubic yard or
approximately $500,000. However, if on-site remediation can be achieved, it is
estimated that the cost will be between $90,000 and $115,000. The Company is
unable to predict when the ongoing testing will be completed or what the
outcome of these tests will be. As of December 31, 1997, the Company has paid
approximately $500,000, including the $100,000 expended for the diesel storage
tanks and has accrued an estimated $174,000 relating to the balance of the
clean up. That estimate could change as the remediation work takes place.

<PAGE>5

RESIDENTIAL LOTS, NORTH LAS VEGAS

The Company owned 57 partially developed residential lots in North Las
Vegas, Nevada. On July 3, 1997, the Company closed the sale of the 57
residential lots. Net proceeds to the Company were approximately $645,600
which included a reimbursement of approximately $72,600 for water fees
previously paid. Out of the net proceeds, the Company paid approximately
$318,000 to Beal Bank, the purchaser of the SASA Obligation.

SOLANO COUNTY OPTION

The Company has an option (the Solano County Option) to acquire
approximately 1,690 acres of farm land located in Solano County, California.
The Company acquired the Solano County Option as part of a settlement
agreement between Baby Grand Corp. (BGC), an Anderson Entity, a financial
institution and MRI. The purchase price of the Solano County Option was
$1,043,902. The Solano County Option provides that the Company can purchase
the 1,690 acres at a price of $3,000,000 (the Option Purchase Price). The
Company will receive a credit of $1,000,000 against the Option Purchase Price.
The option expires on May 1, 2003. Upon certain conditions and the consent of
the first lienholder on BGC's Maxim Hotel and Casino and the Nevada Gaming
Control Board, MRI can require BGC to repurchase the Solano County Option (The
Repurchase Agreement). The Repurchase Agreement expires on the earlier of:
(i) May 1, 2002 or (ii) 1 year prior to the date the Option Agreement expires.
However, due to the recent events between BGC, Mr. Anderson and the Federal
Deposit Insurance Corporation, the Company does not believe that BGC will be
in a position to honor the repurchase agreement. The Company can only recover
the value of the option (i) by exercising the option and selling the property
or (ii) selling the option. However, if the fair value of the real property
should drop below the Option Purchase Price, the Company would not be able to
recover all of its investment in the Solano County Option. The owner of the
property under option has informed the Company that it is current on all
payments due under the first mortgage lien. During the quarter ended September
30,1997, the Company wrote down its investments in the Solano County Option by
$400,000 because management believes that the Option Purchase Price is in
excess of the estimated fair value of the property believed to be $2,600,000.

AGRICULTURAL SEGMENT:

GRAIN STORAGE AND RICE DRYING FACILITIES

SHF owns a grain storage facility (The Storage Facility) located in Yolo
County, California. The Storage Facility generally stores, for a fee, grains
owned principally by Farmers Rice Co-operative. The Storage Facility can
store approximately 34,000 tons of grain.

<PAGE>6

promissory note (the Note) dated April 3, 1997, between ICON,LP and SHF in the
principal amount of $1,150,000, with interest at the rate of 12% per annum.
Interest is payable on the first day of the month following the first advance
and on the first day of the month thereafter. Upon completion of the Drying
Facility, advances made under the Note will be rolled into the equipment lease
financing as of the Base Lease Commencement Date (the last day of the month
following the date the Drying Facility is declared complete by both SHF and
ICON, LP), (2) A Master Equipment Lease (the Lease) dated April 3, 1997,
between ICON and SHF. Beginning with the Base Lease Commencement Date, ICON
will lease to SHF the Drying Facility for a period of five years. At the end
of the five year period, SHF will have the right to purchase not less than all
of the Drying Facility for $1.00. The monthly rental under the Lease will be
approximately 2.202% of the funded Drying Facility cost (estimated to be
approximately $25,000 per month) and will begin on March 30, 1998. In
addition to being collateralized by the Drying Facility, SHF has provided
additional collateral in the form of a Deed of Trust on certain parcels of
property, including the parcel on which the storage facility is located. Both
the Note and the Lease are guaranteed by MRI and the Company (collectively the
Guarantors). Before the Guarantors are liable for any deficiency, ICON or
ICON, LP must first proceed against the Drying Facility and the additional
collateral. Both the Lease and the Note contain certain events of defaults,
one of which relates to any material adverse change in the business or
financial condition of SHF and the Guarantors (defined as a reduction of
Tangible Net Worth of 20% or more) and another relates to the loss of Farmers
as a customer. These events of defaults only apply during the period the Note
remains unpaid. The Drying Facility commenced operations on September 15,
1997.

OTHER ACTIVITIES:

CERTAIN LOANS

From time to time the Company has made loans to various Anderson
Entities, Anderson Related Entities, Directors and Executive Officers of the
Company and other unrelated third parties. All loans to related parties were
approved by the Company's Audit Committee. The most significant of these are
as follows:

BABY GRAND CORP.

On November 26, 1997, the Company entered into a Loan Purchase Agreement
(the Note Sale Agreement) with John B. Anderson, as Trustee of the John J.
Anderson Family Trust. The Note Sale Agreement provided for the sale of a
note (the BGC Note) issued by Baby Grand Corp. payable to MRI. The BGC Note
is described in detail in the Company's Form 10-K for the year ended December
31, 1996. See Item 1. "Business - Other Activities - Certain Loans - Baby
Grand Corp." The Note Sale Agreement and events subsequent thereto are
described in detail in Item 3. "Legal Proceedings - Federal Deposit Insurance
Corporation, et. al. v. John B. Anderson et. al.

GOLDEN STATE TRUST

In 1997, management determined that the remaining balance of $150,000 on
the $250,000 loan to Golden State Trust, an Anderson related entity, was
uncollectible and therefore wrote the note off against the related reserve.

<PAGE>7

Other Transactions

In August 1997, the Company entered into a verbal agreement with an
Anderson related entity to lease the West Sacramento Drying Facility for the
purpose of drying short-grain rice during the 1997 rice drying season. Rental
for the West Sacramento Drying Facility was $20,000 plus 50% of the rice
drying and storage profit after deduction of the $20,000 rent payment. The
rent payment was made by transferring to the Anderson related entity a piece
of equipment, valued at $20,000, that was previously used in the Steadfast
Cattle operation.

DIRECTORS

On October 1, 1997, the Company loaned James H. Dale, the Company's
Secretary/Treasurer and President of MRI, $85,000. The loan is for three
years with interest at 9% with interest payable monthly. The loan is
collateralized by a deed of trust on real property and a conditional
assignment of Mr. Dale's director's fees.

COMPETITION

REAL ESTATE SEGMENT:

The real estate investment and development business is highly
competitive. The Company competes for real estate investments with investors
of all types, including domestic and foreign corporations, financial
institutions, other real estate investment companies and individuals, many of
which have substantially greater resources than the Company. In addition, the
Company's properties are subject to local competitors from the surrounding
areas. The Company does not consider its real estate business to be seasonal
in nature.

With respect to the residential real estate, the Company competes with
numerous other developers and residential properties in the greater Sacramento
area of California, ranging from regional and national firms to local
companies, many of which have substantially greater resources than the
Company. In the greater Sacramento area, the Company's residential lots
compete on the basis of, among other things, location, price and quality of
amenities, such as the golf course and country club facilities at Rancho
Murieta.

With respect to the Company's agricultural real estate, the Company
competes for tenants with other regional or local agricultural properties in
the area of California where the Company's property is located. Leasing
property to prospective tenants is generally determined on the basis of, among
other things, lease rates and quality of top soil. The Company's leases of
agricultural property are generally for a short-term period of one year or
less.

AGRICULTURAL SEGMENT:

With respect to the Company's rice drying and storage operations, the
Company competes with other rice drying and storage companies in Northern
California. The rice drying operation is seasonal and runs from approximately

<PAGE>8

September 15 to November 15. The storage facility, depending on the types of
grain being stored, operates on a year around basis. The rice drying and
storage operations are impacted by the number of acres of rice grown, the
yield per acre, weather conditions and government programs. Because the
Company dries and stores rice for principally one customer, the loss of that
customer could have a material adverse effect on the rice drying and storage
operation.

SALES AND MARKETING

The Company employs a sales consultant for the sale of its residential
lots at the Fairways, although sales by independent real estate brokers are
also encouraged. The residential lots are marketed primarily by means of
media advertising, customer referrals and realtor contacts. Selling prices
are set based on the local market conditions and competitive factors. The
agricultural properties are marketed to farmers in the surrounding area where
the agricultural property is located. The rice drying and storage operation
is marketed to principally one customer.

REGULATION

The Company must comply with various federal, state and local zoning,
building, pollution, environmental, health, and advertising ordinances, rules
and regulations, including regulations relating to specific building materials
to be used, building design, minimum elevations of properties and emissions
from the rice drying and storage facilities.

EMPLOYEES

At March 11, 1998, the Company had 8 employees. None of the Company's
employees are covered by collective bargaining agreements. The Company
believes its employee relations to be satisfactory.

ITEM 2. PROPERTIES

REAL ESTATE SEGMENT:

THE FAIRWAYS

The Fairways is comprised of approximately 50 acres of land which has
been developed into 110 single family estate lots. It is located in Rancho
Murieta, California, adjacent to Highway 16, approximately 25 miles southeast
of Sacramento. The land is encumbered by bonds in the approximate amount of
$600,000, which is the pro rata share of a bonded indebtedness incurred that
enabled the Rancho Murieta Community Services District to acquire the water
and sewer facilities that serve the community of Rancho Murieta, which
includes the Fairways. The bonded indebtedness will be assumed, pro rata, by
the individual lot buyers. As part of the settlement of the SASA Obligation,
the Company signed a note in favor of the RTC in the original principal amount
of $2,710,000. The note is collateralized by, among other things, a deed of
trust on the lots at The Fairways. The deed of trust requires a $40,000
payment for the release of each of the encumbered lots. See "Item 1. Business
- -- Real Estate Segment -- The Fairways."

<PAGE>9

RESIDENTIAL LOTS -- NORTH LAS VEGAS

The residential lots in North Las Vegas were sold on July 3, 1997. See
"Item 1. Business - Real Estate Segment - Residential Lots North Las Vegas.

WHITE RANCH

The White Ranch was sold on July 15, 1997. See "Item 1. Business - Real
Estate Segment - White Ranch.

SAM HAMBURG FARM

Sam Hamburg Farm consists of approximately 150 acres remaining from an
original 4,600 acres of agricultural land. The land is located in the most
southwesterly corner of Merced County, California and the most northwesterly
corner of Fresno County, California, approximately two miles east of
Interstate Highway 5. It is approximately ten miles south of the city of Los
Banos, California. The Company leases the remaining land to various tenants,
whose current crops include cotton, small grains, and certain types of melons.
The terms of the leases are usually one crop year on a cash rent basis. See
"Item 1. Business - Real Estate Segment - Sam Hamburg Farm".

AGRICULTURAL SEGMENT:

GRAIN STORAGE AND DRYING FACILITY

The Storage and Drying Facilities are located in Yolo County, California,
approximately 15 miles west of the city of Sacramento. The Storage Facility
can store approximately 34,000 tons of grain. The Drying Facility can dry
approximately 165,000 pounds of grain in a 24 hour period. The Drying
Facility dries enough grain to fill approximately one-half of the Storage
Facility. See "Item 1. Business -- Agricultural Segment -- Grain Storage and
Rice Drying Facilities."

EXECUTIVE OFFICES:

The Company's executive office is located in an office building in
Sacramento, California. The executive offices are 1,353 square feet and are
leased under terms of a lease agreement expiring June 30, 2001. The Company
believes that the executive office is suitable for its needs.

ITEM 3. LEGAL PROCEEDINGS

FEDERAL DEPOSIT INSURANCE CORPORATION, ET AL. V. JOHN B. ANDERSON ET AL.,
United States District Court, District of Nevada, Case No. CV-S-95-00679-PMP
(LRL), instituted on July 14, 1995. John B. Anderson (Anderson), Edith
Anderson (Anderson's wife), Cedar Development Co. (Cedar), J.A Inc (JA) J.B.A.
Investments Inc, (JBA and, collectively with Anderson, his wife, Cedar, and
JA, the Anderson Parties) are involved in litigation (the Anderson Litigation)
with the Federal Deposit Insurance Corporation (the FDIC). This matter is
more fully described in the Company's Form 10-K for the year ended December
31, 1996, see "Item 3. Legal Proceedings - Federal Deposit Insurance
Corporation, et al. v. John B. Anderson, et al."; Form 8-K, "Item 5. Other
Events," dated February 4, 1997; Form 8-K, "Item 5. Other Events," dated March
26, 1997; Form 8-K, "Item 5. Other Events," dated July 8, 1997; and Form 8-K,
"Item 1.Changes In Control Of Registrant and Item 5. Other Events," dated

<PAGE>10

December 16, 1997. Until December 11, 1997, Anderson was the President and
Chairman of the Board of the Company and Chairman of the Board of various
subsidiaries of the Company. Prior to the events described herein, Anderson,
through his ownership of Cedar, the parent of Baby Grand Corp. (BGC) and JBA,
owned approximately 4,280,756 shares or 67.2% of the Company's outstanding
common stock (the Common Stock). Of those shares (i) 3,000,000 shares (the
FDIC Pledged Shares) have been pledged as collateral in favor of entities of
which the FDIC is a successor and/or assign, and (ii) 1,280,756 shares (the
BGC Pledged Shares) had been pledged as collateral in favor of a subsidiary of
the Company. The BGC Pledged Shares have been ordered to be turned over to a
special liquidating master (the Special Master) appointed by the United States
District Court, District of Nevada (the Nevada District Court) to sell the
assets that serve as collateral for the obligation due the FDIC by the
Anderson Parties.

In July 1997, the FDIC won a motion in the Anderson Litigation before the
Nevada District Court to enforce its security interest in the FDIC Pledged
Shares. On December 12, 1997, the FDIC filed in the Nevada District Court an
emergency motion to acknowledge the FDIC's right to act by unanimous written
consent and to authorize the FDIC to so act with respect to Cedar, BGC, JBA
and JA. On December 16, 1997, with the consent of all parties to the Anderson
Litigation, the Nevada District Court issued an order declaring that the FDIC
has the right to act by written consent with respect to Cedar, BGC, JBA and
JA. Because of the Nevada District Court's order, the FDIC has the power to
exercise voting rights with respect to the FDIC Pledged Shares, which
represent 47.1% of the outstanding Common Stock. Because the FDIC is able to
exercise voting rights with respect to the FDIC Pledged Shares, the FDIC is
able to exercise substantial influence with respect to the election of the
entire Board of Directors of the Company and all matters submitted to
stockholders. The FDIC is able to significantly influence the direction and
future operations of the Company, including decisions regarding future
financing (which could involve the issuance of additional Common Stock or
other securities) and decisions regarding the day-to-day operations of the
Company's real estate and agricultural operations. If the Nevada District
Court ultimately determines that the FDIC has authority to exercise voting
rights with respect to the BGC Pledged Shares, then the FDIC would have the
power to vote 67.2% of the outstanding Common Stock of the Company. In such
event, the FDIC would be able to control, rather than only significantly
influence, the election of the entire Board of Directors of the Company and
all other matters submitted to stockholders.

In a letter dated January 15, 1998, to the Company, the FDIC demanded
that the Company hold a special meeting of the stockholders of the Company by
January 30, 1998, at which meeting the FDIC advised the Company that it
intends to vote or cause BGC and JBA to vote the FDIC and BGC Pledged Shares
to remove the existing board of directors of the Company and to elect a
designee or designees of the FDIC to constitute the new board of directors of
the Company. The FDIC further stated that no corporate action should be taken
by the Company which is inconsistent in any manner with the rights of the
FDIC.

In response to the FDIC's demand of January 15, 1998, the directors of
the Company on January 27, 1998, held a board meeting and met with
representatives of the FDIC. The Company stated that in light of regulatory
requirements under state and federal securities laws, the Company was unable
to hold a special stockholders meeting by January 30, 1998. The Company
indicated that it is willing to discuss the procedures and effects of a
stockholder meeting with the FDIC, but pending further information from the
FDIC, the Company was deferring the formal setting of the meeting date and
record date for voting purposes. The FDIC has not yet responded to the
Company.

<PAGE>11

Further, the FDIC has successfully obtained the approval of the Nevada
District Court to authorize the liquidation of the assets that serve as
collateral for the obligation owing to the FDIC by the Anderson Parties. The
FDIC's proposed plan for disposition of the collateral is more fully described
in the Company's 10-Q for the quarter ended June 30, 1997, see "Item 2.
Managements Discussion and Analysis of Financial Condition and Results of
Operations". On March 12, 1998, the Nevada District Court approved the sale of
the FDIC's security interest in that portion of the collateral relating to
the stock of BGC and JA. The sale of the security interest may allow the
purchasers to foreclose and assume ownership of the stock of BGC and JA. At
the same time, the Nevada District Court approved the FDIC's request for a 120
day extension to liquidate the remaining collateral.

Regardless of what action, if any, the FDIC should determine to take with
respect to the Company, if there is a change of more than 50% of the ownership
of the outstanding Common Stock (taking into account the action of the FDIC as
well as certain other changes that have occurred over the prior three-year
period), there will be a change of ownership of the Company for purposes of
the Internal Revenue Code of 1986, as amended (the Code). At December 31,
1997, the Company had a net operating loss carryforward (NOL) of approximately
$50,900,000. The Board of Directors believes that this NOL represents a
valuable asset to the Company which may or may not be used in future years.
It is unclear whether or not the events described herein have resulted in a
change of ownership under the Code. If the FDIC or a third-party purchaser
obtains the power to vote the BGC Pledged Shares in addition to the FDIC
Pledged Shares, there would be a change in ownership under the Code. It is
possible that the Internal Revenue Service will take the position that the
events described below or other events within the three-year period, taken
together with the events described above, have already resulted in a change in
ownership under the Code. If there is a change of ownership under the Code,
the value of the Company's NOL would be materially adversely reduced or
eliminated. There can be no assurance that a change of ownership will not
occur or has not already occurred.

On November 26, 1997, the Company entered into a Loan Purchase Agreement
(the Note Sale Agreement) with Anderson, as Trustee of the John J. Anderson
Family Trust (the Trust). At such date, Anderson was President and Chairman
of the Board of the Company and through his ownership of Cedar was the sole
shareholder and President of BGC. The Note Sale Agreement provided for the
sale of a note (the BGC Note) issued by BGC payable to MRI. The BGC Note is
described in detail in the Company's Form 10-K for the year ended December 31,
1996. See Item 1. "Business - Other Activities - Certain Loans - Baby Grand
Corp." The BGC Note had a principal balance at the date of the Note Sale
Agreement of approximately $1,900,000 and was due on December 1, 1997. It was
carried on the Company's books at approximately $100,000, an amount which the
Company believed to be its net realizable value. The sale price of the BGC
Note was $320,000 plus a possible contingent bonus payment of $50,000. Of the
$320,000, $200,000 was paid to the Company upon signing of the Note Sale
Agreement at which time the Company delivered to the Trust approximately
1,036,160 of the BGC Pledged Shares. The remaining $120,000 is held in escrow
pending delivery to the Trust of the remaining BGC Pledged Shares. In
connection with the Note Sale Agreement, MRI assigned to the Trust all of its
rights pursuant to that certain Amended and Restated Pledge Agreement (the
Pledge Agreement) dated November 2, 1992, made by BGC in favor of MRI.
Pursuant to the Pledge Agreement, BGC had granted the Company a security
interest in the BGC Pledged Shares as collateral for the BGC Note.

<PAGE>12

The Note Sale Agreement was unanimously approved by the Audit Committee
of the Board of Directors and by seven (7) of the Directors of the Company.
The Note Sale Agreement was approved because the Board of Directors and the
Audit Committee had been advised that the imminent foreclosure on the BGC
Pledged Shares by MRI, which represent approximately 20.1% of the outstanding
Common Shares of the Company, when coupled with the then likely exercise of
voting rights by the FDIC of the FDIC Pledged Shares, which represent 47.1% of
the outstanding Common Shares of the Company, would result in a change in
ownership under the Code. Such change of ownership would result in a
significant reduction, or the complete loss , of the NOL as described above.
The Board of Directors and the Audit Committee had been advised that, only
through Anderson maintaining control over the BGC Pledged Shares could a
change of ownership under the code be avoided and that the Trust was the only
entity controlled by Anderson that, at the time the Note Sale Agreement was
approved, was free from claims of the FDIC that might adversely effect the
ownership of the BGC Pledged shares. The Note Sale Agreement was approved in
part to avoid the loss of the NOL. Anderson did not participate in the
Board's deliberation or vote with respect to the Note Sale Agreement.
Anderson provided written representation to the Board that (i) he was aware of
his fiduciary obligation to the Company, and (ii) he was unaware of any
transaction pending or in prospect which would enhance the value of the BGC
Note above the sale price to the Trust.

On December 2, 1997, subsequent to completing the Note Sale Agreement, it
came to the Company's attention that BGC had transferred to the Trust, in
satisfaction of the BGC Note, assets having an estimated value, determined by
BGC, ranging from $1,192,443 to $1,612,632. The assets transferred consisted
of the BGC Pledged Shares, the net equity in a residence occupied by Anderson
in Yolo County, California, and $580,000 in cash.

By letter to Anderson, as Trustee of the Trust, dated December 8, 1997,
the Company demanded that Anderson confirm to the Company that the transfer of
the assets from BGC to the Trust did in fact occur. In addition, the Company
demanded that all assets received by the Trust from BGC, less the amount paid
to MRI for the purchase of the BGC Note, be turned over to MRI. The Company
further advised Anderson that the Company reserves all rights and remedies,
including possible claims for compensatory and punitive damages, the
imposition of a constructive trust, and rescission.

On December 15, 1997, Larry L. Bertsch, the Special Master previously
appointed by the Nevada District Court, filed with the court an emergency
motion seeking (1) to set aside the alleged fraudulent tranfers of assets by
the Company to the Trust and by BGC to the Trust; (2) to freeze assets held by
the Trust; and (3) to schedule an order to show cause why Anderson, James H.
Dale (the Company's Secretary/Treasurer, Director and the President of MRI),
Kent Neville Calfee (counsel to Anderson who drafted the Note Sale Agreement
documents), and Calfee & Young (Calfee's law firm) should not be held in
contempt by the Nevada District Court.

On December 16, 1997, the Nevada District Court ordered that Anderson, as
Trustee of the Trust, return to BGC the $580,000 in cash. The Nevada District
Court further ordered that the Anderson residence in Yolo County, California
remain in the Trust until further order of the Nevada District Court and that
the BGC Pledged Shares be turned over to the custody of the Special Master
until further order of the Nevada District Court. The Nevada District Court
gave the parties until January 9, 1998, to submit responses to the Special
Master's Motion. The Company submitted a response on that date challenging
the allegation in the Special Master's Motion that MRI fraudulently
transferred between $872,443 and $1,292,632 to the Trust. The response also

<PAGE>13

opposed unwinding the Note Sale Agreement and any order that would deny the
Trust ownership of the BGC Pledged Shares.

On January 27, 1998, the Special Master submitted to the Nevada District
Court his reply to the response of the Company, asking that the Nevada
District Court unwind the Note Sale Agreement, at least to the extent that MRI
is made whole for its lost profit, representing $580,000 in cash and the
interest in the Anderson residence in Yolo County, California and that the
Nevada District Court find Anderson and his attorneys Calfee & Young, in
contempt and to impose appropriate sanctions. In this reply, the Special
Master did not ask the Nevada District Court to find Mr. Dale in contempt.

On January 27, 1998, the FDIC submitted to the Nevada District Court its
Reply Memorandum Of Points and Authorities of FDIC in Support of Special
Master Larry L. Bertsch's Motion to Set Aside Fraudulent Transfer, For
Contempt and For Monetary Sanctions Jointly and Severally Against John B.
Anderson, James H. Dale, Kent Neville Calfee and Calfee & Young. This Reply
Memorandum asked the Nevada District Court to set aside the Note Sale
Agreement in the manner that the Nevada District Court deems most equitable
and that the Nevada District Court should sanction Anderson, the Trust and
Calfee and Calfee & Young. In its reply, the FDIC did not ask the Nevada
District Court to sanction Mr. Dale.

On February 3, 1998, the Nevada District Court ordered that a hearing be
held on Friday, March 27, 1998, regarding the Motion of the Special Master (1)
to Set Aside Fraudulent Transfer of Assets; and (2) to Freeze Assets held by
Transferee John J. Anderson Family Trust. The Nevada District Court further
ordered that no hearing shall be set regarding contempt charges and sanctions
until after the March 27, 1998 hearing.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise. No matter has been submitted to a vote of security
holders since December 19, 1984. See "Item 10. - Directors and Executive
Officers of the Registrant."

<PAGE>14

PART II

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

The principal United States market in which the Company's common stock is
traded is the over-the-counter market. There is no established public trading
market for the Company's Series B preferred stock. Neither the Company's
common stock nor the Company's preferred stock is listed for trading on an
exchange.

The following table sets forth for the periods indicated the range of the
high and low bid quotations for the Company's common stock as reported by the
National Quotation Bureau. The reported bid quotations reflect inter-dealer
prices, without retail markup, markdown or commissions, and may not
necessarily represent actual transactions.

1998 HIGH LOW
1st Quarter
(through March 11, 1998) 3/8 9/32

1997 HIGH LOW
1st Quarter 3/16 5/32
2nd Quarter 1/4 5/32
3rd Quarter 11/32 1/4
4th Quarter 1/2 1/4

1996 HIGH LOW
1st Quarter 3/16 3/16
2nd Quarter 11/32 3/32
3rd Quarter 1/4 1/8
4th Quarter 3/16 1/8

At December 31, 1997, the Company's transfer agent reported that there
were approximately 1,826 holders of record of the Company's common stock, and
approximately 753 holders of record of the Company's Series B $7.50
cumulative, voting and non-convertible Preferred Stock with a liquidating
value of $125 per share.

Dividends on the Company's common stock have not been paid since the
second quarter of 1979. Dividends on the Company's Series B preferred stock
have not been paid since the first quarter of 1982. The Company is in arrears
on such dividends in the amount of approximately $1,173,000 as of December 31,
1997. The Company has no present intention to pay dividends on either its
common or preferred shares. See "Item 7 - Management's Discussion and
Analysis of Financial Condition and Results of Operations".

<PAGE>15

ITEM 6. SELECTED FINANCIAL DATA

The following table summarizes certain selected financial data for the
periods indicated. The data for the years ended December 31, 1995, 1996 and
1997 should be read in conjunction with the more detailed audited Consolidated
Financial Statements and Notes thereto appearing elsewhere herein, including
the Independent Auditors' Report and with Management's Discussion and Analysis
of Financial Condition and Results of Operations.

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(NOT COVERED BY INDEPENDENT AUDITORS' REPORTS)

Year ended December 31,
1993 1994 1995 1996 1997
(Dollars in thousands, except per share data)
Continuing operations:
Net sales and miscellaneous
income $ 1,387 $ 3,242 $ 3,130 $ 2,982 $ 8,398

Loss from
continuing operations ($ 1,678) ($ 1,195) ($ 2,075) ($ 1,789) ($ 875)

Extraordinary item, net of
tax $ 8,346

Loss per common share
before extraordinary item ($ .25) ($ .20) ($ .33) ($ .29) ($ .14)

Extraordinary item per common
share $ 1.30

Earnings (loss) per common
share ($ .25) ($ .20) $ .97 ($ .29) ($ .14)

As of the end of period:
Total assets $21,262 $19,962 $19,527 $17,126 $14,037

Long-term debt and capital
lease obligations $ 25 $ 146 $ 2,797 $ 1,955 $ 2,272

Shareholders' equity $ 7,545 $ 6,275 $12,304 $10,443 $ 9,496

Book value per common share $ 1.16 $ .97 $ 1.93 $ 1.64 $ 1.49

Certain items in the table of selected financial data have been
reclassified to conform to the current classification.

<PAGE>16

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

The Consolidated Financial Statements and Notes thereto are an integral
part of this report, including this Item 7, and are incorporated herein by
this reference and should be read in conjunction herewith.

Certain information included herein contains statements that are forward-
looking, such as anticipated liquidity requirements for the coming fiscal
year, anticipated sources of liquidity for the coming fiscal year, the impact
of anticipated asset sales, proposed facilities construction and potential
changes in control of the Company. Such forward-looking information involves
important risks and uncertainties that could significantly affect the
Company's financial condition and future results of operations, and,
accordingly, such future financial condition and results of operations may
differ from those expressed in any forward-looking statements made herein.
These risks and uncertainties include, but are not limited to, those risks
relating to actual costs necessary to clean-up certain real property chemical
contamination, actual construction costs and construction contingencies in
connection with construction of any new facilities, real estate market
conditions and general economic conditions, the abilities of certain third
parties to obtain financing and otherwise perform under real estate purchase
agreements, and the outcome of certain litigation and other risks. The
Company cautions readers not to place undue reliance on any such forward-
looking statements, and, such statements speak only as of the date made.

YEAR 2000 ISSUE

The Company has addressed the possible exposures related to the impact on
its computer systems of the Year 2000. Key financial information and
operational systems have been assessed and steps have been taken to address
systems modifications timely. The financial impact of making the required
systems changes is not expected to be material to the Company's consolidated
financial position, results of operations or cash flows.

OVERVIEW

On October 24, 1995, the Company, along with its subsidiaries
Continental, MRI, and SHF, entered into a Settlement Agreement with the RTC in
connection with the SASA Obligation. The Settlement Agreement became
effective December 6, 1995.

Pursuant to the terms of the Settlement Agreement and as full payment of
the SASA Obligation, (i) Continental transferred the San Diego Property to the
RTC in consideration of a $1,500,000 credit against the SASA Obligation, (ii)
the Company paid $290,000 to the RTC, and (iii) the Company delivered a
secured promissory note to the RTC (the RTC Settlement Note) in the principal
amount of $2,710,000. The RTC Settlement Note bears interest at an annual
rate of 1% over the prime rate as published in the Wall Street Journal. The
interest rate is adjusted semi-annually; provided, however, that the interest
rate shall not be less than 8% or more than 12% per annum. The Company will
make monthly payments of interest until December 6, 2000, at which time the
entire principal amount and all accrued interest is due.

The RTC Settlement Note is collateralized by a Deed of Trust on 50
unsold residential lots at The Fairways in Rancho Murieta, California, and
the Collateral Assignment of purchase money promissory notes in the aggregate

<PAGE>17

principal amount of $227,160 secured by 2 residential lots previously sold at
The Fairways. The Deed of Trust requires a $40,000 payment for the release
of each of the encumbered lots. The RTC will apply such payments to the
outstanding principal due on the RTC Settlement Note. Principal collections
received by the Company on the purchase money promissory notes will be
remitted to the RTC for application to the outstanding principal due on the
RTC Settlement Note.

As a result of settling the SASA Obligation, the Company recorded an
extraordinary gain of $8,346,000 in the year ended December 31, 1995. The
gain consisted of a profit of approximately $1,100,000 on the transfer of the
San Diego property to the RTC and a reduction of indebtedness of approximately
$7,246,000 net of related legal fees and other costs.

On July 3, 1997, the Company closed the sale of the 57 residential lots
located in North Las Vegas, Nevada. Net proceeds to the Company were
approximately $645,600 which included a reimbursement of $72,600 for water
fees previously paid. Out of the net proceeds the Company paid approximately
$318,000 to Beal Bank, the purchaser of the SASA Obligation.

On October 7, 1996, the Company signed a letter agreeing to modify the
Purchase and Option Agreement (the New Agreement) between the Company and
Murieta Investors, LLC (MI), formerly West Coast Properties, LLC. The
Purchase and Option Agreement between West Coast Properties, LLC and the
Company is described in detail in the Company's Form 10-K for the year ended
December 31, 1995. See Item 1. "Business - Real Estate and Related Activities
- - The Fairways". The New Agreement provides that MI will purchase from the
Company 6 lots at The Fairways at $40,000 per lot plus payment of the Park
Fees applicable to the lots purchased. In addition, the Company may receive
contingent consideration equal to 20% of the gross sales price of each
residential dwelling sold less $40,000 (the Success Payments). Eight months
after the purchase of the initial 6 lots, MI will be entitled to purchase a
second group of 6 lots. An additional group of 6 lots may be purchased every
4 months thereafter until a total of 40 lots have been purchased. The initial
payment for the second 6 lots purchased will be $40,000, plus payment of the
applicable Park Fees and the Success Payments. The initial payment for all
subsequent lots purchased will be $45,000, plus payment of the applicable Park
Fees and the Success Payments. Beginning with the purchase of the third group
of 6 lots, the Success Payments will be 20% of the gross sales price of each
residential dwelling sold less $45,000. If MI sells any lots without
constructing a residential dwelling thereon, the Company will receive 20% of
the sales price without offset of the initial price of $40,000. The sale of
the first 6 lots closed on December 20, 1996. Because of certain difficulties
regarding MI's ability to obtain plans and permits relating to the first 6
lots purchased, MI did not purchase any lots in 1997.

On May 29, 1997, SHF signed a contract (the Contract) in the amount of
$1,651,800 for the construction of the Drying Facility adjacent to the rice
storage facility in Yolo County, California. The Contract did not include
certain costs such as permits, landscaping, paving, utility lines, interest
costs, etc. These additional costs were estimated to be between $200,000 and
$250,000. In connection with the financing of the Drying Facility
construction, SHF entered into the following agreements with ICON Cash Flow
Partners, L.P., Series E (ICON, LP) and ICON Financial Corp. (ICON): (1) A
promissory note (the Note) dated April 3, 1997, between ICON,LP and SHF in the
principal amount of $1,150,000, with interest at the rate of 12% per annum.
Interest is payable on the first day of the month following the first advance
and on the first day of the month thereafter. Upon completion of the Drying
Facility, advances made under the Note will be rolled into the equipment lease
financing as of the Base Lease Commencement Date (the last day of the month

<PAGE>18

following the date the Drying Facility is declared complete by both SHF and
ICON, LP), (2) A Master Equipment Lease (the Lease) dated April 3, 1997,
between ICON and SHF. Beginning with the Base Lease Commencement Date, ICON
will lease to SHF the Drying Facility for a period of five years. At the end
of the five year period, SHF will have the right to purchase not less than all
of the Drying Facility for $1.00. The monthly rental under the Lease will be
approximately 2.202% of the funded Drying Facility cost (estimated to be
$25,000 per month) and will begin on March 30, 1998. In addition to being
collateralized by the Drying Facility, SHF has provided additional collateral
in the form of a Deed of Trust on certain parcels of property, including the
parcel on which the storage facility is located. Both the Note and the Lease
are guaranteed by MRI and the Company (collectively the Guarantors). Before
the Guarantors are liable for any deficiency, ICON or ICON, LP must first
proceed against the Drying Facility and the additional collateral. Both the
Lease and the Note contain certain events of defaults, one of which relates to
any material adverse change in the business or financial condition of SHF and
the guarantors (defined as a reduction of Tangible Net Worth of 20% or more)
and another relates to the loss of Farmers as a customer. These events of
defaults only apply during the period the Note remains unpaid. The Drying
Facility was completed and commenced operations on September 15, 1997.

On July 15, 1997, the Company closed the sale of the White Ranch. Net
proceeds to the Company were approximately $5,965,000 of which approximately
$2,982,500 was paid to the Company. The balance of the proceeds were paid to
the other 50% owner of the White Ranch.

Until December 11, 1997, Anderson was the President and Chairman of the
Board of the Company and Chairman of the Board of various subsidiaries of the
Company. Anderson, through his ownership of Cedar, the parent of BGC and JBA,
owns approximately 4,280,756 shares or 67.2% of the Company's common stock.
Of those shares (i) 3,000,000 shares (the FDIC Pledged Shares) have been
pledged as collateral in favor of entities of which the FDIC is a successor
and/or assign, and (ii) 1,280,756 shares (the BGC Pledged Shares) had been
pledged as collateral in favor of a subsidiary of the Company. Refer to Item
3. Legal Proceedings - Federal Deposit Insurance Corporation et al. v. John B.
Anderson et al. Re: (i) the rights of the FDIC to vote the FDIC Pledged Shares
and the possible right of the FDIC to vote the BGC Pledged Shares; (ii) a
possible change in control of the Company and (iii) a demand made by the FDIC
to have the Company hold a shareholder meeting.

On November 26, 1997, the Company entered into a Loan Purchase Agreement
(the Note Sale Agreement) with Anderson, as Trustee of the John J. Anderson
Family Trust. The Note Sale Agreement provided for the sale of the BGC Note
issued by BGC payable to MRI. This matter is described in detail in Item 3.
Legal Proceedings - Federal Deposit Insurance Corporation et al. v. John B.
Anderson et al.

The Company has no present intentions to pay dividends on either its
common or preferred stock.

OPERATING RESULTS

Net loss for the year ended December 31, 1997 decreased by approximately
$914,000 when compared with the year ended December 31,1996. This was due to
a number of factors including: (i) an increase in profit from the sale of real
estate primarily due to the sale of the White Ranch and the sale of the 57

<PAGE>19

residential lots in North Las Vegas, Nevada and (ii) an increase in profit
from the rice drying and storage operation. This increase was due to the
increased efficiency of the new rice dryer as compared to the operations of
the West Sacramento rice dryer and, (iii) a decrease in bad debt expense which
resulted in fewer bad debts incurred in 1997 and the recovery of certain bad
debts written off in prior years.

1997 VS. 1996

REAL ESTATE

The major increase in real estate revenues and profits in 1997 was due to
the sale of the White Ranch and the 57 residential lots in North Las Vegas,
Nevada. Although the Sacramento real estate market is showing a modest
increase, sales at The Fairways continue to be slow.

Net rental income from agricultural properties decreased in 1997 when
compared with 1996 due primarily to the sale of the White Ranch.

AGRICULTURAL

Rice drying and storage profits in 1997 increased by approximately
$268,000 when compared with 1996. The increase was due to cost reductions
attributable to the operations of the new rice dryer, which included such
items as: (i) a reduction in salaries of approximately $27,000, (ii) a
reduction in repairs and maintenance of approximately $18,000, and (iii) a
reduction in custom services of approximately $35,000. In addition, because
the Company now owns its own rice dryer rental payments for the use of the
West Sacramento dryer decreased by approximately $85,000. Also in 1996, the
Company made a one time payment to cancel the original lease on the West
Sacramento dryer.

GENERAL

Selling, administrative and general expenses in total remained constant
when comparing 1997 with 1996. However, there were some significant increases
and decreases during 1997 such as: (i) an increase in legal fees which relates
to the ongoing litigation between John B. Anderson and the FDIC, (ii) a
decrease in office and related expenses of approximately $65,000 which was due
primarily to relocating the Company's offices to Sacramento, California and
(iii) a decrease of approximately $18,000 in the cost of directors and
officers liability insurance.

Interest income decreased because of principal collections on various
notes receivable. Interest expense decreased because of principal payments
made to Beal Bank, the purchaser of the SASA Obligation. The decrease in
interest expense was partially offset by interest expense applicable to the
Drying Facility financing.

<PAGE>20

1996 VS. 1995

REAL ESTATE

During 1996 the Company reduced the carrying value of The Fairway lots by
$290,000. The write down of the carrying value was necessitated when the
Company reduced the listed sales prices of The Fairways lots in an attempt to
increase the number of lot sales. The sale of the 6 lots to MI were recorded
at the initial price of $40,000 per lot. In accordance with Statement of
Accounting Financial Standards (SFAS) No. 66 "Accounting for Sales of Real
Estate," no recognition was given to any Success Payments the Company may
receive in the future. The Company has recorded all costs associated with the
lots which resulted in a loss on the sale of the 6 lots of approximately
$240,000.

Net rental income from agricultural properties increased by approximately
$400,000 when compared with 1995. The increase was due to increased acres
being rented for the 1996 crop year.

AGRICULTURAL

Rice drying and storage gross profit decreased by approximately $204,000
when compared with 1995. The decrease was due primarily to increased costs
associated with the operation of the Drying Facility, and the payment of
$75,000 relating to the Drying Facility lease. The cost of operating the
Drying Facility increased because the Company had to rent generators to
provide the power necessary to run the Drying Facility. This was necessitated
by vandalism relating to the electrical wiring in the drying facility.
Because of the vandalism, the Company was required, under the terms of the
drying facility lease, to return the premises to the lessor in the same
condition it was in at the inception of the lease. The Company paid the
lessor $75,000 and in return, the lessor agreed to accept the return of the
premises in an "as is" condition.

GENERAL

During 1996, the Company recorded bad debts of approximately $482,000
relating to loans made to entities owned or related to the Company's Chairman
of the Board and President. Of the $482,000, $150,000 related to a $250,000
loan made to Golden State Trust in connection with a proposed settlement
between John B. Anderson and the Anderson Parties and the FDIC. (See Item 1.
"Business - Other Activities - Certain Loans - Golden State Trust."). In
addition, the Company reduced the carrying value of the BGC Note by $338,000
to an amount the Company considers to be collectible by the due date. (See
Item 1. "Business - Other Activities - Certain Loans - Baby Grand Corp.").

On October 10, 1996, the last remaining home constructed by PRJV was
sold, thereby effectively terminating PRJV. (See Item 1. "Business - Real
Estate Segment - AJD Joint Venture."). The Company does not anticipate any
future losses relating to PRJV.

As of December 31, 1996, all operations of Steadfast ceased.

When compared with 1995, corporate selling, general and administrative
expenses decreased due primarily to a reduction in legal fees. When compared
with 1995, real estate selling, administrative and general expenses decreased
due primarily to the sale of lots at The Fairways which caused a reduction in

<PAGE>21

association dues, water and sewer fees, and property taxes. The decrease in
interest and dividend income, when compared with 1995, was due to a decrease
in notes receivables. When compared with 1995, interest expense increased
because of the December 1995 settlement of the SASA Obligation and the
commencement of interest payments.

As a result of the foregoing, the net loss, before the extraordinary
item, for the year ended December 31, 1996, decreased by $286,000 when
compared with the net loss before the extraordinary item for the year ended
December 31, 1995.

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 1997, cash, cash equivalents and
marketable securities increased by $3,162,000 from $1,810,000 at December 31,
1996 to $4,972,000 at December 31, 1997. The most significant sources of cash
in 1997 were cash provided by operations ($6,978,000), the collection of loans
made to others, including related parties, ($760,000),and proceeds from short-
term and long-term debt ($1,260,000). The most significant uses of cash in
1997, consisted of payments made to minority interest ($2,981,000), payments
for capital expenditures ($1,826,000), payments on long-term debt ($833,000),
payments on short term debt ($119,000), loans made to others, including
related parties ($189,000) and cash paid for other investments.

The Company believes that its primary requirements for liquidity in the
coming fiscal year will be to fund ongoing expenses at The Fairways, which
include, among other things, association dues, water and sewer fees and
property taxes; to fund the required payments due on the note to Beal Bank; to
fund the required payments due on the rice dryer financing; to fund costs that
may be incurred relating to the toxic clean-up at Sam Hamburg Farm; to fund
any tax payments that may be due to the California Franchise Tax Board; and to
fund general and administrative expenses. In addition the Company may be
required to fund certain costs relating to a possible stockholder meeting.

The Company believes that sources of required liquidity will be cash
generated from the rice drying and storage facilities, anticipated lot sales
at The Fairways, collection of notes receivable resulting from sales at The
Fairways,Success Payments related to the venture with MI. Based on known
commitments, the Company believes that the sources of cash described and the
cash available at December 31, 1997, will be adequate to fund known liquidity
requirements. However, if the sources of required liquidity and the cash
available at December 31, 1997 prove to be insufficient to cover the Company's
primary liquidity requirements, it will be necessary to sell some of the
Company's non-income producing assets.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and supplementary data of Dunes
Hotels and Casinos Inc. are located at pages F-1 to F-31 and are listed and
included under Item 14, Exhibits, Financial Statement Schedules and Reports on
Form 8-K of Part IV hereof and are incorporated herein by reference.

<PAGE>22

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The By-laws of the Company provide that the number of directors
constituting the entire board shall be twelve. Directors are elected at each
annual meeting of shareholders to hold office until the next annual meeting
and until a successor has been elected and qualified. The Company has not
held an annual meeting of stockholders since December 19, 1984. However, see
"Item 3. Legal Proceedings - Federal Deposit Insurance Corporation et al. v.
John B. Anderson et al." regarding a possible stockholders meeting. Of the
nine directors elected at the December 19, 1984 annual meeting of
shareholders, three have resigned, and only two of such vacancies thereby
created have been filled. As a result, the number of directors currently
serving is eight.

Pursuant to a Securities and Exchange Commission consent decree, the
Company has been required to have an Audit Committee of the Board of Directors
(Audit Committee) since 1978, a majority of which must be independent
directors.

Identified herein are all directors and executive officers of the
Company. The information set forth as to each Director and Executive Officer
has been furnished by such person.

John B. Anderson, 55, is and has been since May 1984, a director of the
Company and until December 11, 1997, served as the Company's chairman of the
board and president. On March 10, 1992, BGC (an Anderson Entity) filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the District of Nevada. On November 10,
1992, the United States Bankruptcy Court confirmed and approved BGC's plan of
reorganization which became effective December 1, 1992. On December 20, 1994,
the Chapter 11 case was closed. On April 6, 1992, Maxim Development Co. (an
Anderson Entity) filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the Eastern District
of California, which bankruptcy was subsequently dismissed on March 12, 1993.

Brent L. Bowen, 69, is and has been a director, officer and member of the
audit committee of the Company; and a director and officer of certain of the
Company's subsidiaries since December 1984. Mr. Bowen was employed by
Anderson Farms (an Anderson Entity) from 1981 to 1995 as a business and
financial analyst. Mr. Bowen became an employee of MRI in 1995. Mr. Bowen has
experience in the hotel/casino, farming, real estate, home-building, rice
mill, commodities and banking industries. Mr. Bowen retired from the Company
in 1998.

James H. Dale, 66, is and has been since January 1988, a director of the
Company. Mr. Dale was elected Treasurer of the Company in 1990 and Secretary
of the Company on December 11, 1997. From September 1986 to October 1991, Mr.
Dale was employed by Anderson Farms (an Anderson Entity) as Chief Financial
Officer. Prior to 1986, he was a partner in Grant Thornton, Certified Public
Accountants. Mr. Dale became an employee of MRI in October 1991 when he was
elected president of MRI and its subsidiaries.

Andrew Marincovich, 76, is and has been since August 1978, a director and
member of the Audit Committee of the Company. He is, and has been since July
1983, Chairman of the Audit Committee. He is President and Executive Officer

<PAGE>23

of Marincovich & Company, a certified public accounting firm in Rancho Palos
Verdes, California. He is a Certified Public Accountant, licensed to practice
in California.

Donald J. O'Leary, 67, was elected to the Company's Board of Directors
and appointed to the Company's Audit Committee on May 19, 1994. Mr. O'Leary
is an attorney and is a member of the California, Virginia and District of
Columbia Bars. He is currently in private practice in California. Prior to
entering private practice, Mr. O'Leary was a trial attorney for the U.S.
Department of Justice and resident counsel for several large real estate
companies.

Edward Pasquale, 54, is and has been a director and officer of the
Company since December 1984; and was a director and officer of certain of the
Company's subsidiaries from December 1984 until September 1988. On January
27, 1998, he was elected president and a director of certain of the Company's
subsidiaries. On December 11, 1997, Mr. Pasquale was elected president of the
Company. Mr. Pasquale has been a member of the Company's audit committee
since May 19, 1994. He is presently, and has been since September 1983,
self-employed as a financial consultant, with emphasis in litigation support
services, bankruptcy proceedings, and corporate reorganization. He is a
Certified Public Accountant, licensed to practice in the States of California
and Nevada.

Wayne O. Pearson, 67, is and has been since August 1978, a director and
member of the Audit Committee of the Company. From March 1975 to May 1993, he
was a marketing analyst for R&R Advertising Agency, Las Vegas, Nevada; and
since January 1970, sole proprietor, Wayne Pearson Consulting, Las Vegas,
Nevada, a business and public opinion research company.

Erik J. Tallstrom, 50, is and has been a director of the Company since
December 1984. Prior to 1985, he was self-employed as a certified public
accountant, and was a financial consultant to Anderson. From November 1985 to
December, 1996 he was a business partner with Anderson in several real
estate developments, including Rancho Murieta in California. Currently, Mr.
Tallstrom acts as a consultant to various real estate companies and is a part
owner of a tile manufacturing company.

There is no family relationship between any directors or executive
officers of the Company. No director holds a directorship in any other
company with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of such Act or
any company registered as an investment company under the Investment Company
Act of 1940, as amended.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT. Based solely upon a
review of the Commission's Forms 3 and 4 received by the Company during the
last fiscal year and upon written representations solicited by the Company, no
Officer, Director, beneficial owner of more than 10% of any class of the
Company's equity securities or any other person subject to Section 16 of the
Exchange Act failed to file on a timely basis as disclosed in the above forms,
reports required by Section 16(a) of the Exchange Act during the year ended
December 31, 1997.

<PAGE>24

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth the annual compensation paid to John B.
Anderson, who until December 11,1997, was the Company's Chairman of the Board
and President, and to James H. Dale, the only executive officer of the Company
who received compensation in excess of $100,000 for the year ended December
31, 1997.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
(a) (b) (c) (d) (e) (i)
Other annual All other
Name and prin- compensation compensation
CIPAL POSITION YEAR SALARY($) BONUS($) ($) ($)

John B. Anderson, 1997 -- -- -- $60,400 (1)
Chairman of the 1996 -- -- -- $74,998 (1)
Board and President 1995 -- -- -- $64,278 (1)

James H. Dale, 1997 $110,000 $ 3,500 -- $15,000 (2)
Secretary/Treasurer 1996 $110,000 $ 2,500 -- $15,000 (2)
1995 $102,400 $20,000 -- $15,000 (2)

(1) All other compensation to John B. Anderson consists of the following
for the years indicated:

1997 Annual Directors fees $ 15,000
Payments of certain expenses
on behalf of Mr. Anderson 45,400
----------
$ 60,400

1996 Annual Directors fees $ 15,000
Payments of certain expenses
on behalf of Mr. Anderson 59,998
-----------
$ 74,998

1995 Annual Directors fees $ 15,000
Payments of certain expenses
on behalf of Mr. Anderson 49,278
-----------
$ 64,278

(2) All other compensation to James H. Dale, the Company's Secretary/
Treasurer, consists of annual directors fees in the amount of
$15,000.

COMPENSATION OF DIRECTORS

The Company pays each director an annual fee of $15,000 which until
December 31, 1996, was paid quarterly. At the January 1997 Board of Directors
meeting, the Directors voted to pay directors fees monthly. Directors fees
due Mr. Anderson are retained by the Company and applied against amounts due

<PAGE>25

the Company from entities owned or controlled by Mr. Anderson. The assignment
of Mr. Anderson's directors fees will remain in effect until changed by the
Board of Directors. In addition to their regular directors fees and audit
committee fees, board members and audit committee members are paid $150 per
hour for special projects considered to be outside the scope of their duties
as board and audit committee members. In addition, they receive a travel
allowance of $300 for each meeting attended.

Messrs. Marincovich, Pearson, Bowen, Pasquale and O'Leary are all members
of the Company's Audit Committee. Audit Committee members receive
compensation of $1,000 per month plus a travel allowance of $300 for each
meeting attended. For services rendered as Audit Committee members and
consultants during the fiscal year 1997, Messrs. Marincovich, Pearson,
Pasquale, O'Leary and Bowen were paid $14,400, $12,900, $15,000, $14,100, and
$12,000, respectively. Beginning January 1, 1997, the Company adopted the
policy of deferring $250 of each monthly directors fee and $200 of each
monthly audit committee fee. In July 1997, the Company paid all deferred
directors and audit committee fees and resumed paying the directors and audit
committee fees in full on a monthly basis.

The Company does not have a plan, pursuant to which cash or non-cash
compensation is paid or distributed, or is proposed to be paid or distributed
in the future. The Company does not have any pension or other benefit plans.

<PAGE>26

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The table shown below (1) contains certain information with respect to
any person (including any "group" as that term is used in Section 13(d)(3) of
the Exchange Act), who are known to the Company to be beneficial owners (as
that term is defined in rules and regulations of the Commission under the
federal securities laws) of more than 5% of the Company's common stock. No
person is known to the Company to be the beneficial owner of more than 5% of
the Company's Series B preferred stock.

Name and Address of Amount and Nature of Percent of Common
BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1) STOCK OUTSTANDING

John B. Anderson(2) 4,280,756 67.2%
P.O. Box 1410
Davis, CA 95617

Federal Deposit Insurance 4,280,756 67.2%
Corporation(2)
550-17th N.W.
Washington, D.C.

The table shown below (1) contains certain information with respect to
the Company's common stock beneficially owned (as that term is defined in
rules and regulations of the Commission under the federal securities laws) by
all directors, and directors and executive officers of the Company as a group.
No director or executive officer of the Company is known to the Company to be
the beneficial owner of any of the Company's Series B preferred stock.

Name of Beneficial Amount and Nature of Percent of Common
Owner Beneficial Ownership(1) STOCK OUTSTANDING

John B. Anderson(2) 4,280,756 67.2%

Brent L. Bowen(3) 2,000 *

Andrew P. Marincovich(3) 200 *

All Directors and Officers
as a Group (3 Persons) 4,282,956 67.2%

* Less than one percent

(1) In furnishing this information, the Company is relying upon the
contents of statements filed with the Commission pursuant to Section
13(d) and Section 13(g) of the Exchange Act.

(2) Anderson, through various entities owned or controlled by him,
claims beneficial ownership of, and shared voting and shared investment
power with respect to the reported shares (the Anderson Shares). See
Item 3. Legal Proceedings.

<PAGE>27

Of the Anderson Shares, approximately 3,000,000 shares are pledged
in favor of the FDIC. On February 17, 1993, the Company received a copy
of Securities and Exchange Commission Schedule 13D dated February 12,
1993 filed with the Commission on behalf of EurekaBank (Eureka). The
Eureka Schedule 13D reports that Eureka possesses "sole voting power" and
"sole dispositive power" with respect to 3,000,000 shares of the
Company's common stock. The Eureka Schedule 13D also reports that Eureka
may be deemed to have acquired beneficial ownership of 4,367,643 shares
of the Company's common stock which amounts to 68.5% of the class
represented by said shares. In July 1993, Eureka representatives advised
the Nevada Gaming Control Board that the FDIC had assumed management and
supervision of efforts to collect Mr. Anderson's obligation under a
debtor-creditor agreement dated November 30, 1988, by and between John B.
Anderson, Edith Anderson and Eureka Federal Savings and Loan Association.
On July 14, 1995, the FDIC filed an action in the United States District
Court for the District of Nevada against Anderson, Edith Anderson, CDC,
J.A. Inc. and J.B.A. Investments, Inc. The Company is not a party to the
action. See "Item.3 - Legal Proceedings" for a detailed discussion of the
Anderson Parties obligation to the FDIC and the litigation relating
thereto.

Of the Anderson Shares, 1,280,756 shares are pledged in favor of
the Company to secure indebtedness to the Company. The balance of the
Anderson Shares are pledged in favor of other creditors of Anderson.

The transfer agent's records maintained for the Company show that
Anderson or entities owned or controlled by him own 4,260,912 shares.
The difference between what the transfer agent's records show and the
information provided to the Company by Anderson is 19,844 shares. The
difference consists of (i) 106,731 shares purchased by BGC and (ii)
86,887 shares owned by CBC given in payment of legal fees owed by Mr.
Anderson. None of these transactions have been changed on the transfer
agent's records.

(3) Messrs. Marincovich and Bowen claim beneficial ownership of, and
sole investment and sole voting powers with respect to the reported
shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Anderson and Anderson Entities own approximately 67.2% of the Company's
common stock. Refer to the Company's report on Form 8-K dated February 12,
1993 regarding Securities and Exchange Commission Schedule 13D filed on behalf
of Eureka wherein Eureka claims "sole voting" and "sole dispositive power"
with respect to 3,000,000 shares of the Company's common stock and beneficial
ownership of 4,367,643 shares of the Company's common stock. In July 1993,
the FDIC succeeded to the position of Eureka with respect to the Debtor-
Creditor Agreement.

On November 26, 1997, the Company entered into a Loan Purchase Agreement
(the Note Sale Agreement) with John B. Anderson, as Trustee for the John J.
Anderson Family Trust. The Note Sale Agreement provided for the sale of a
note (the BGC Note) issued by Baby Grand Corp. payable to MRI. The BGC Note
is described in detail in the Company's Form 10-K for the year ended December
31, 1996. See Item1. "Business - Other Activities - Certain Loans - Baby
Grand Corp." The Note Sale Agreement and events subsequent thereto are
described in detail in Item 3. "Legal Proceedings - Federal Deposit Insurance
Corporation et al. v. John B. Anderson et al."

<PAGE>28

On June 12, 1996, the Company loaned Golden State Trust, an Anderson
Entity, $250,000. The balance of the Golden State Trust loan, $150,000, was
written off against the 1996 reserve in 1997.

On October 1, 1997, the Company loaned James H. Dale, the Company's
Secretary/Treasurer and President of MRI, $85,000. The loan is for three
years with interest at 9% payable monthly. The loan is collateralized by a
deed of trust on real property and a conditional assignment of Mr. Dale's
directors fees.

<PAGE>29

PART IV

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

(a) The following documents are filed as part of this report.

1. Financial Statements.
PAGE

Independent Auditors' Report F-1

Dunes Hotels and Casinos Inc. and Subsidiaries
Consolidated Financial Statements:

Balance sheets as of December 31, 1997 and 1996 F-2

Statements of income (loss), three years ended
December 31, 1997, 1996 and 1995 F-4

Statements of shareholders' equity, three years
ended December 31, 1997, 1996 and 1995 F-6

Statements of cash flows, three years ended
December 31, 1997, 1996 and 1995 F-7

Notes to Consolidated Financial Statements, three
years ended December 31, 1997, 1996 and 1995 F-9

2. Financial Statement Schedules:

Schedule II S-1

Schedule III S-4

Schedule IV S-5

3. Exhibits.

3.01 Restated Certificate of Incorporation of Dunes Hotels and
Casinos Inc. dated June 17, 1982, is incorporated herein by
reference to Dunes Hotels and Casinos Inc. Annual Report on Form
10-K (file no. 1-4385) for the year ended December 31, 1994,
Part IV, Item 14(a)(3), Exhibit 3.01.

3.02 Certificate of Amendment of Restated Certificate of
Incorporation of Dunes Hotels and Casinos Inc. dated December
19, 1984, is incorporated herein by reference to Dunes Hotels
and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385)

<PAGE>30

for the year ended December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 3.02.

3.03 Revised By-laws of Dunes Hotels and Casinos Inc. dated December
1984, is incorporated herein by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for
the year ended December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 3.03.

4.01 Specimen Certificate for the Common Stock of Dunes Hotels and
Casinos Inc., is incorporated herein by reference to Dunes
Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-
4385) for the year ended December 31, 1994, Part IV, Item
14(a)(3), Exhibit 4.01.

4.02 Specimen Certificate for the Preferred Stock of Dunes Hotels and
Casinos Inc., is incorporated herein by reference to Dunes
Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-
4385) for the year ended December 31, 1994, Part IV, Item
14(a)(3), Exhibit 4.02.

10.04 Settlement Agreement dated June 28, 1988, by and between San
Antonio Savings Association and Dunes Hotels and Casinos Inc.;
First Amendment to Settlement Agreement dated December 5, 1989,
by and between San Antonio Savings Association, F.A. (assignee
of San Antonio Savings Association) and Dunes Hotels and Casinos
Inc., is incorporated herein by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for
the year ended December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 10.04. Settlement Release and Loan Modification
Agreement dated October 24, 1995, by and among the Resolution
Trust Corporation, Dunes Hotels and Casinos Inc., Continental
California Corporation, M & R Investment Company, Inc. and SHF
Acquisition Corporation, is incorporated herein by reference to
Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q for
the nine months ended September 30, 1995, Item 6, Exhibit 10.01.
Order Granting Joint Motion to Dismiss Bankruptcy Case and
Adversary Proceeding, dismissing bankruptcy case of Continental
California Corporation, is incorporated herein by reference to
Dunes Hotels and Casinos Inc. Current Report on Form 8-K dated
November 22, 1995, Item 7(c), Exhibit 99.01.

10.05 Stipulation and Order for Dismissal with Prejudice filed in the
United States Bankruptcy Court, District of Nevada, Case No. BK-
S-92-20989 (RCJ) executed by The Valley National Bank of
Arizona, EurekaBank, M&R Investment Company, Inc. and Baby Grand
Corp.; Compromise Agreement dated November 9, 1992, by and among
Maxim Development, The Valley National Bank of Arizona and
Redwood Bank; Settlement Agreement and Mutual Release dated
November 2, 1992, by and among EurekaBank, The Valley National
Bank of Arizona, M&R Investment Company, Inc. and Baby Grand
Corp.; Addendum to Settlement Agreement and Mutual Release dated
November 2, 1992, by and among EurekaBank, The Valley National
Bank of Arizona, M&R Investment Company, Inc., and Baby Grand
Corp.; Stipulation for Dismissal of Appeal with Prejudice filed
in the United States District Court, District of Nevada, Case

<PAGE>31

No. CV-S-92-675-LVG (RCH) dated November 2, 1992 and executed by
The Valley National Bank of Arizona, Baby Grand Corp., M&R
Investment Company, Inc. and the official Unsecured Creditors'
Committee; Promissory Note dated November 2, 1992, in the
principal amount of $2,650,000 made by Baby Grand Corp. to M&R
Investment Company, Inc.; Amended and Restated Pledge Agreement
dated November 2, 1992, by and between Baby Grand Corp. and M&R
Investment Company, Inc.; and Release of Assignment of Leases,
Rents and Revenues dated November 2, 1992, by M&R Investment
Company, Inc., are incorporated herein by reference to Dunes
Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-
4385) for the year ended December 31, 1992, Part IV, Item
14(a)(3), Exhibit 10.05. Second Settlement and Forbearance
Agreement dated February 9, 1995, by and among Baby Grand Corp.,
M & R Investment Company, Inc. and Bank One, Arizona, NA.; and
Purchase Agreement (including Option Agreement) dated February
9, 1995, by and between Baby Grand Corp. and M & R Investment
Company, Inc., are incorporated herein by reference to Dunes
Hotels and Casinos Inc. Current Report on Form 8-K (file no. 1-
4385) dated February 9, 1995, Item 7, Exhibit Nos. 10.01 and
10.02.

10.06 Straight Note dated August 28, 1990, in the principal amount of
$486,000 made by Rancho Murieta Properties, Inc. to SHF
Acquisition Corporation; and Deed of Trust with Assignment of
Rents (Short Form) dated August 28, 1990, by and between Rancho
Murieta Properties, Inc., First American Title Insurance Company
and SHF Acquisition Corporation, securing $486,000 Straight
Note, are incorporated herein by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for
the year ended December 31, 1990, Part IV, Item 14(a)(3),
Exhibit 10.07. Second Extension Agreement dated September 30,
1993, by and between SHF Acquisition Corporation and Rancho
Murieta Properties, Inc.; Pre-workout Letter Agreement dated
November 9, 1993, by and between SHF Acquisition Corporation and
Rancho Murieta Properties, Inc.; Assignment of Membership
Proceeds dated September 30, 1993, by and among SHF Acquisition
Corporation, Rancho Murieta Properties, Inc. and M & R
Investment Company, Inc.; and UCC-1 Financing Statement dated
November 29, 1993, by Rancho Murieta Properties, Inc. in favor
of SHF Acquisition Corporation and M & R Investment Company,
Inc., are incorporated herein by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for
the year ended December 31, 1993, Part IV, Item 14(a)(3),
Exhibit 10.10.

10.10 Letter Agreement dated July 21, 1991, by and among Calfee &
Young (on behalf of M & R Investment Company, Inc.), Rancho
Murieta Properties, Inc. and CBC Builders, Inc.; Promissory Note
in the principal amount of $955,500 made by Rancho Murieta
Properties, Inc. and CBC Builders, Inc. to M&R Investment
Company, Inc.; Deed of Trust with Assignment of Rents dated July
22, 1991, by CBC Builders, Inc. in favor of M&R Investment
Company, Inc.; Deed of Trust dated July 22, 1991 by CBC
Builders, Inc. in favor of M&R Investment Company, Inc.;
Collateral Assignment of Partnership Interest dated July 22,

<PAGE>32

1991, by Erik J. Tallstrom in favor of M&R Investment Company,
Inc.; Assignment of Director's Fees dated July 22, 1991, by and
between CBC Builders, Inc. and M&R Investment Company, Inc.;
Memorandum of Option to Purchase dated July 22, 1991, by and
between CBC Builders, Inc. and M&R Investment Company, Inc.; and
Personal Guaranty dated July 22, 1991, by Erik J. Tallstrom, are
incorporated by reference to Dunes Hotels and Casinos Inc.
Annual Report on Form 10-K (file no 1-4385) for the year ended
December 31, 1991, Part IV, Item 14(a)(3), Exhibit 10.12.
Extension Agreement dated September 30, 1993, by and among M & R
Investment Company, Inc., Rancho Murieta Properties, Inc. and
CBC Builders, Inc.; Pre-workout Letter Agreement dated November
9, 1993, by and among M & R Investment Company, Inc., Rancho
Murieta Properties, Inc. and CBC Builders, Inc.; Extension of
Option Agreement dated September 30, 1993, by and between M&R
Investment Company, Inc. and CBC Builders, Inc, are incorporated
herein by reference to Dunes Hotels and Casinos Inc. Annual
Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.10.

10.14 Corporation Deed of Trust with Assignment of Rents dated March
23, 1993, by and among Andrew P. Marincovich and Matilda C.
Marincovich, First American Title Insurance Company and M&R
Investment Company, Inc.; Promissory Note dated July 22, 1992,
in the principal amount of $500,000 made by El Dorado Vineyards,
Inc. to M&R Investment Company, Inc.; Business Loan Agreement by
and among M&R Investment Company, Inc., El Dorado Vineyards,
Inc. and Andrew P. Marincovich; Security Agreement by El Dorado
Vineyards, Inc. in favor of M&R Investment Company, Inc.;
Personal Guaranty dated April 7, 1993, by Andrew P. Marincovich
in favor of M&R Investment Company, Inc., are incorporated
herein by reference to Dunes Hotels and Casinos Inc. Annual
Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1992, Part IV, Item 14(a)(3), Exhibit 10.14.
Promissory Note in the principal amount of $500,000, made by El
Dorado Vineyards, Inc. to M&R Investment Company, Inc.;
Promissory Note in the principal amount of $8,800 made by El
Dorado Vineyards, Inc. to M&R Investment Company, Inc.;
Promissory Note in the principal amount of $3,945.21 made by El
Dorado Vineyards, Inc. to M&R Investment Company, Inc.;
Promissory Note in the principal amount of $39,591.29 made by El
Dorado Vineyards, Inc. to M&R Investment Company, Inc.; Business
Loan Agreement by and among M&R Investment Company, Inc., El
Dorado Vineyards, Inc. and Andrew P. Marincovich; Personal
Guaranty by Andrew P. Marincovich in favor of M&R Investment
Company, Inc.; and Security Agreement by El Dorado Vineyards,
Inc. in favor of M&R Investment Company, Inc., are incorporated
herein by reference to Dunes Hotels and Casinos Inc. Annual
Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.14. Loan
Modification Agreement dated July 15, 1994, by and among El
Dorado Vineyards, Inc., Andrew P. Marincovich and M&R Investment
Company, Inc.; Durable Special Power of Attorney dated July 21,
1994 by Andrew P. Marincovich; Promissory Note dated July 15,
1994, in the principal amount of $500,000 made by El Dorado
Vineyards, Inc. to M&R Investment Company, Inc.; Promissory Note
dated July 15, 1994, in the principal amount of $39,591.32 made

<PAGE>33

by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.;
Promissory Note dated July 15, 1994, in the principal amount of
$3,945.21 made by El Dorado Vineyards, Inc. to M&R Investment
Company, Inc.; Promissory Note dated July 15, 1994, in the
principal amount of $8,800.00 by El Dorado Vineyards, Inc. to
M&R Investment Company, Inc.; Promissory Note dated July 15,
1994, in the principal amount of $12,184.86 made by El Dorado
Vineyards, Inc. to M&R Investment Company, Inc.; and Promissory
Note dated July 19, 1994, in the principal amount of $153,428.94
by El Dorado Vineyards, Inc. to M&R Investment Company, Inc.,
are incorporated herein by reference to Dunes Hotels and Casinos
Inc. Quarterly Report on Form 10-Q (file no. 1-4385) for the six
months ended June 30, 1994, Item 6, Exhibit 10.01. Note
Modification Agreement (with Exhibits A through F) dated January
5, 1995, by and among El Dorado Vineyards, Inc., Andrew P.
Marincovich and M&R Investment Company, Inc., is incorporated
herein by reference to Dunes Hotels and Casinos Inc. Annual
Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.14.

10.16 Parks Development Agreement dated February 20, 1991, by and
among the Rancho Murieta Association, the Rancho Murieta
Community Services District, Rancho Murieta Properties, Inc.,
CBC Builders, Inc. and SHF Acquisition Corporation, is
incorporated herein by reference to Dunes Hotels and Casinos
Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.16.
Settlement Agreement Regarding Payment of Park Fees (not dated)
by and among Rancho Murieta Association, SHF Acquisition
Corporation, CBC Builders, Inc., Rancho Murieta Properties, Inc.
and Rancho Murieta Community Services District of Sacramento
County, is incorporated herein by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for
the year ended December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 10.16.

10.17 Inter-Creditor Agreement dated September 30, 1993, by and among
SHF Acquisition Corporation, M & R Investment Company, Inc. and
Calfee & Young, is incorporated herein by reference to Dunes
Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-
4385) for the year ended December 31, 1993, Part IV, Item
14(a)(3), Exhibit 10.17.

10.18 Commercial Premises Lease dated July 1, 1993, by and between
California Dehydrating Company and SHF Acquisition Corporation,
is incorporated herein by reference to Dunes Hotels and Casinos
Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.18.

10.19 Renewal Promissory Note secured by Security Agreement
Modification Agreement dated June 1989, by and between Eureka
Federal Savings and Loan Association and Andco Development
Group, Inc.; Security Agreement-Pledge dated June 1989, by and
between Rancho Murieta Properties, Inc. and Eureka Federal
Savings and Loan Association; Agreement to Modify Promissory
Note dated June 1989, by and among Eureka Federal Savings and

<PAGE>34

Loan Association, Andco Development Group, Inc., Andco Land and
Development Company, Inc. and CBC Builders, Inc.; Extension
Agreement dated February 1, 1990, by and among Eureka Federal
Savings and Loan Association, Andco Development Group, Inc.,
Andco Land and Development Company, Inc., Rancho Murieta
Properties, Inc., Erik J. Tallstrom and John B. Anderson;
Guaranty dated October 1, 1987, by John B. Anderson in favor of
Eureka Federal Savings and Loan Association; Guaranty dated
October 1, 1987, by Erik J. Tallstrom in favor of Eureka Federal
Savings and Loan Association; Guaranty dated October 1, 1987, by
Rancho Murieta Properties, Inc. in favor of Eureka Federal
Savings and Loan Association; Amendment No. 1 to Guaranty dated
June 1989, by and between John B. Anderson and Eureka Federal
Savings and Loan Association; Amendment No. 1 to Guaranty dated
June 1989, by and between Erik J. Tallstrom and Eureka Federal
Savings and Loan Association; Amendment No. 1 to Guaranty dated
June 1989, by and between Rancho Murieta Properties, Inc. and
Eureka Federal Savings and Loan Association; Corporation Deed of
Trust with Assignment of Rents dated June 1989, by and between
Rancho Murieta Properties, Inc. and Eureka Federal Savings and
Loan Association; Agreement for Purchase and Sale of Promissory
Note dated November 24, 1993, by and between Realecon, Inc. and
M&R Investment Company, Inc.; Assignment of Promissory Note
dated November 24, 1993, by and between Realecon, Inc. and M&R
Investment Company, Inc.; Assignment and Assumption Agreement of
Security Agreement and Guaranties dated November 24, 1993,
between Realecon, Inc. and M&R Investment Company, Inc.; Secured
Promissory Note dated November 24, 1993, in the principal amount
of $125,000 by M&R Investment Company, Inc. to Realecon, Inc.;
Assignment of Deed of Trust with Request for Special Notice
dated November 24, 1993, by Realecon, Inc. in favor of M&R
Investment Company, Inc.; and Corporation Deed of Trust with
Assignment of Rents dated November 24, 1993, by SHF Acquisition
Corporation in favor of Realecon, Inc, are incorporated herein
by reference to Dunes Hotels and Casinos Inc. Annual Report on
Form 10-K (file no. 1-4385) for the year ended December 31,
1993, Part IV, Item 14(a)(3), Exhibit 10.19.

10.20 Pine Ridge Joint Venture Agreement dated June 1993, by and
between AJD and M & R Investment Company, Inc., is incorporated
herein by reference to Dunes Hotels and Casinos Inc. Annual
Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1993, Part IV, Item 14(a)(3), Exhibit 10.20. Pine
Ridge Joint Venture -- Joint Venture Meeting-- November 10,
1994, discussing additional capital requirements for the
continuing operations of Pine Ridge Joint Venture and equity
increases to M&R Investment Company, Inc. related thereto, is
incorporated herein by reference to Dunes Hotels and Casinos
Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1994, Part IV, Item 14(a)(3), Exhibit 10.20.

10.21 Letter dated March 28, 1994 from M&R Investment Company, Inc. to
Michael Shipsey and Tri-Star International Development regarding
purchase of a 25% interest of Tri-Star International
Development's 50% interest in Arroyo Grande Joint Venture
Agreement of distributable cash; and Letter dated July 29, 1994
from Dennis L. Kennedy of Lionel Sawyer & Collins to Tri-Star

<PAGE>35

International Development regarding termination of Tri-Star
International Development's interest in the Arroyo Grande Joint
Venture, are incorporated herein by reference to Dunes Hotels
and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385)
for the year ended December 31, 1994, Part IV, Item 14(a)(3),
Exhibit 10.21.

10.22 Agreement dated January 1, 1996, by and between California
Dehydrating Company, Inc. and SHF Acquisition Corporation
regarding use of the California Dehydrating name and a Covenant
Not to Compete is incorporated herein by reference to Dunes
Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-
4385) for the year ended December 31, 1995, Part IV, Item
14(a)(3), Exhibit 10.22.

10.23 Commercial Premises Lease dated March 1, 1995, by and between
Pheasant Investment Corporation and SHF Acquisition Corporation
regarding the lease of the rice drying facility in West
Sacramento, California is incorporated herein by reference to
Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file
no. 1-4385) for the year ended December 31, 1995, Part IV, Item
14(a)(3), Exhibit 10.23.

10.24 Reimbursement Agreement dated September 20, 1995, by and between
Rancho Murieta Community Services District and SHF Acquisition
Corporation regarding the amount of the reimbursement due SHF
for excess work done at The Fairways at Rancho Murieta that will
benefit other properties within the boundaries of Rancho Murieta
is incorporated herein by reference to Dunes Hotels and Casinos
Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.24.

10.25 Assignment of promissory note in the original principal amount
of $57,000 made by James P. Parks and Dale A. Parks in favor of
SHF Acquisition Corporation; Promissory Note dated February 13,
1995, made by James P. Parks and Dale A. Parks in favor of SHF
Corporation; Deed of Trust dated February 13, 1995, made by
James P. Parks and Dale A. Parks is incorporated herein by
reference to Dunes Hotels and Casinos Inc. Annual Report on Form
10-K (file no. 1-4385) for the year ended December 31, 1995,
Part IV, Item 14(a)(3), Exhibit 10.25.

10.26 Assignment of promissory note in the original principal amount
of $70,000 made by Chandler T. Martin and Debra L. Martin in
favor of SHF Acquisition Corporation; Promissory Note dated
March 2, 1992, made by Chandler T. Martin and Debra L. Martin in
favor of SHF Acquisition Corporation; Letter dated April 6,
1994, extending the due date of the note to March 10, 1998; Deed
of Trust dated March 2, 1992, made by Chandler T. Martin and
Debra L. Martin is incorporated herein by reference to Dunes
Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-
4385) for the year ended December 31, 1995, Part IV, Item
14(a)(3), Exhibit 10.26.

10.27 Assignment of promissory note in the original principal amount
of $164,160 made by Consolidated Kapital, Inc. in favor of SHF
Acquisition Corporation; Promissory Note dated January 24, 1992,
made by Consolidated Kapital, Inc in favor of SHF Acquisition

<PAGE>36

Corporation; Deed of Trust dated January 24, 1992, made by
Consolidated Kapital, Inc. is incorporated herein by reference
to Dunes Hotels and Casinos Inc. Annual Report on Form 10-K
(file no. 1-4385) for the year ended December 31, 1995, Part IV,
Item 14(a)(3), Exhibit 10.27.

10.28 Assignment of promissory note in the original principal amount
of $85,360 made by William A. Brown in favor of SHF Acquisition
Corporation; Promissory Note dated April 6, 1995, made by
William A. Brown in favor of SHF Acquisition Corporation; Deed
of Trust dated April 6, 1995, made by William A. Brown is
incorporated herein by reference to Dunes Hotels and Casinos
Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.28.

10.29 Assignment of promissory note in the original principal amount
of $76,000 made by John P. Xepoleas and Monterey A. Xepoleas in
favor of SHF Acquisition Corporation; Promissory Note dated
March 10, 1995, made by John P. Xepoleas and Monterey A.
Xepoleas in favor of SHF Acquisition Corporation; Deed of Trust
dated March 10, 1995, made by John P. Xepoleas and Monterey A.
Xepoleas is incorporated herein by reference to Dunes Hotels and
Casinos Inc. Annual Report on Form 10-K (file no. 1-4385) for
the year ended December 31, 1995, Part IV, Item 14(a)(3),
Exhibit 10.29.

10.30 Assignment of promissory note in the original principal amount
of $193,800 made by T. E. Duerr and P. A. Duerr, Trustees of the
Duerr Family Revocable Trust dated October 14, 1987, in favor of
SHF Acquisition Corporation; Promissory Note dated July 22,
1992, made by T.E. Duerr and P. A. Duerr, Trustees of the Duerr
Family Revocable Trust in favor of SHF Acquisition Corporation;
Deed of Trust dated July 22, 1992, made by T.E. Duerr and P. A.
Duerr, Trustees of the Duerr Family Revocable Trust is
incorporated herein by reference to Dunes Hotels and Casinos
Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.30.

10.31 Assignment of promissory note in the original principal amount
of $79,000 made by Raymond L. James and Cheryle James in favor
of SHF Acquisition Corporation; Promissory Note dated December
7, 1994, made by Raymond L. James and Cheryle James in favor of
SHF Acquisition Corporation; Deed of Trust dated December 7,
1994, made by Raymond L. James and Cheryle James is incorporated
herein by reference to Dunes Hotels and Casinos Inc. Annual
Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.31.

10.32 Installment Note dated January 17, 1996, made by Mukhtar Ahmad
and Nazra P. Ahmad in favor of Willows Ranch Group, consisting
of SHF Acquisition Corporation and 500 First Street wherein SHF
Acquisition Corporation has a 91.90% interest is incorporated
herein by reference to Dunes Hotels and Casinos Inc. Annual
Report on Form 10-K (file no. 1-4385) for the year ended
December 31, 1995, Part IV, Item 14(a)(3), Exhibit 10.32.

<PAGE>37

10.33 Purchase and Option Agreement by and between SHF Acquisition
Corporation and West Coast Properties, LLC, undated, regarding
the sale of 20 lots and an option to purchase an additional 20
lots at The Fairways is incorporated herein by Dunes Hotels and
Casinos Inc. Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, Part II, Item 6, Exhibit 10.01.

10.34 Letter dated July 12, 1996 from Murieta Investors regarding
Amended Purchase Agreement is incorporated herein by reference
to Dunes Hotels and Casinos Inc. Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996, Part II, Item 6, Exhibit
10.01

10.35 Promissory note dated June 12,1996, between Golden State Trust
and M & R Investment Company, Inc.; Assignment of Rights to
Payments, Consent to Assignment between Baby Grand Corp. and M &
R Investment Company, Inc.; Loan Agreement and Assignment
between M & R Investment Company Inc. and Golden State Trust is
incorporated herein by reference to Dunes Hotels and Casinos
Inc. Quarterly Report on Form 10-Q for the quarter ended June
30,1996, Part II, Item 6, Exhibit 10.02.

10.36 Real Estate Option Agreement dated September 27, 1996, wherein
M&R Investment Company, Inc. granted an Option to MARCOR
PARTNERSHIP, a general partnership, an Option to acquire M&R
Investment Company, Inc's 66.667% interest in 2.16 acres of
industrial property in Las Vegas, Nevada; Memorandum Of Option
for the purpose of recordation is incorporated by reference to
Dunes Hotels and Casinos Inc. Annual Report on Form 10-K (file
no 1-4385) for the year ended December 31, 1996, Part IV, Item
14 (a) (3), Exhibit 10.36.

10.37 Purchase Agreement dated February 27, 1997 by and between Dana
C. Hair ("Buyer") and Southlake Acquisition Corporation, a
Nevada Corporation, and Jim Joseph, as Trustee of The Joseph
Revocable Trust, each as to an undivided 1/2 interest wherein
Buyer agrees to buy the property, more commonly known as The
White Ranch for $6,000,000; Exhibit "A" to purchase agreement,
Legal description of the property; Exhibit "B", there are no
items in Exhibit B; Exhibit "C", there are no items in Exhibit
"C"; Exhibit "D", (i) Copy of a Field Tenant Lease dated
January 5, 1997, between Southlake Acquisition Corporation and
Phoenix Farming Company (ii) Copy of a Field Tenant Lease dated
January 5, 1997, between Southlake Acquisition Corporation and
Four B's Farms (iii) Copy of an Agricultural Lease dated
September 8, 1992, and its amendment dated November 29, 1995
between Southlake Acquisition Corporation and J.G. Boswell
Company (iv) Copy of a letter dated February 14, 1997, from
Brent Bowen, Vice President, Southlake Acquisition Corporation
to J. W. Boswell, President, J.G. Boswell Company (v) Copy of a
Field Tenant Lease dated February 20, 1997, between Southlake
Acquisition Corporation and W.William Blanken dba HWB Farms.;
Exhibit "E", there are no items in Exhibit "E"; Exhibit "F",
(i) Copy of the Angiola Water District Restated Water
Distribution Agreement (ii) Copy of a Fax Transmittal dated
February 12, 1997, from Kevin Johansen, Angiola Water District,
to Brent Bowen, Southlake Acquisition Corporation, describing

<PAGE>38

portions of "the Property" lying within the boundaries of the
Tulare Lake Basin Water Storage District and the Tulare Lake
Drainage District, (iii) Copy of the Short Term State Water
Contract between Tulare Lake Basin Water Storage District and
Southlake Acquisition Corp. for the period January 1, 1997
through December 31, 1998, (iv) Copy of the Ninth Amended Rules
and Regulations Governing the Transmission of Water Under the
Water Supply Contract Between the State of California,
Department of Water Resources and the Tulare Lake Basin Water
Storage District; Exhibit "G", there are no items in Exhibit
"G" is incorporated by reference to Dunes Hotels and Casinos
Inc. Annual Report on Form 10-K (file no. 1-4385) for the year
ended December 31, 1996, Part IV, Item 14 (a) (3), Exhibit
10.37.

10.38 Agreement For The Purchase and Sale of Real Property dated
February 21,1997, wherein SHF Acquisition Corporation agrees to
sell to Celebrate, LLC, and/or assignee, a parcel of vacant land
consisting of approximately .82 acres described as a portion of
the W2, SW4, Se4NW4 of Section 33, Township 195 and Range 61E,
M.D.M. The Property is further described as Arroyo Grande Unit
3 consisting of 4 lots is incorporated by reference to Dunes
Hotels and Casinos Inc. Annual Report on Form 10-K (file no. 1-
4385) for the year ended December 31, 1996, Part IV, Item 14 (a)
(3), Exhibit 10.38.

10.39 Agreement For The Purchase and Sale of Real Property dated
February 21,1997, wherein SHF Acquisition Corporation agrees to
sell to Celebrate, LLC, and/or assignee, a parcel of vacant land
consisting of approximately 11 gross acres described as a
portion of the SW4, NW4 of Section 33, Township 195 and Range
61E, M.D.M. The property is further described as Arroyo Grande
Unit 2A and 2B consisting of 53 lots is incorporated herein by
reference to Dunes Hotels and Casinos Inc. Annual Report on Form
10-K (file no. 1-4385) for the year ended December 31, 1996,
Part IV, Item 14 (a) (3), Exhibit 10.39.

10.40 Purchase and Option Agreement by and between SHF Acquisition
Corporation and Murieta Investors, LLC, dated October 7, 1996,
wherein SHF Acquisition Corporation sold 6 lots at The Fairways
to Murieta Investors, LLC, and granted an option to Murieta
Investors, LLC, to acquire 34 additional lots at The Fairways
under terms and conditions described in the Purchase and Option
Agreement is incorporated herein by reference to Dunes Hotels
and Casinos Inc. Annual Report on Form 10-K (file no. 1-4385)
for the year ended December 31, 1996, Part IV, Item 14 (a) (3),
Exhibit 10.40.

10.41 Construction Contract dated March 24, 1997, between SHF
Acquisition Corporation and Tolson Construction Co. for the
construction of a new rice dryer is incorporated herein by
reference to Dunes Hotels and Casinos Inc. Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, Part II, Item 6,
Exhibit 10.01

10.42 Master Equipment Lease dated April 3, 1997, between ICON
Financial Corp. and SHF Acquisition Corporation; Promissory Note
dated April 3, 1997, in the principal amount of $1,150,000
between ICON Cash Flow Partners, L.P., Series E; Guaranty by

<PAGE>39

Dunes Hotels and Casinos Inc. to ICON Financial Corp. dated May
19, 1997; Guaranty by M&R Investment Company, Inc. to ICON
Financial Corp. dated May 19, 1997; Short Form Deed of Trust and
Assignment of Rents dated May 21, 1997, by SHF Acquisition
Corporation in favor of ICON Cash Flow Partners, L.P., Series E
is incorporated herein by reference to Dunes Hotels and Casinos
Inc. Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, Part II, Item 6, Exhibit 10.02.

10.43 Letter dated March 18, 1997, to Baby Grand Corp., 160 E.
Flamingo Road, Las Vegas, Nevada 89109, Re: Pledged Shares Of
Dunes Hotels and Casinos Inc. is incorporated herein by
reference to Dunes Hotels and Casinos Inc. Current Report on
Form 8-K, dated March 26, 1997, Item 5. Other Events.

10.44 Letter dated March 18, 1997, to J.B.A. Investments, Inc. c/o
John B. Anderson, Anderson Farms, Mace Blvd., Road 32 A, Davis,
California 95616, Re: Pledged Shares of Dunes Hotels and Casinos
Inc. is incorporated herein by reference to Dunes Hotels and
Casinos Inc. Current Report on Form 8-K, dated March 26, 1997,
Item 5. Other Events.

10.45 Letter dated March 28, 1997, to Federal Deposit Insurance
Corporation from Baby Grand Corp., Re: Pledged Shares of Dunes
Hotels and Casinos Inc. is incorporated herein by reference to
Dunes Hotels and Casinos Inc. Current Report on Form 8-K, dated
March 26, 1997, Item 5. Other Events.

10.46 Letter dated March 28, 1997, to Federal Deposit Insurance
Corporation from Cedar Development Co., Re: Pledged Shares of
Baby Grand Corp. is incorporated herein by reference to Dunes
Hotels and Casinos Inc. Current Report on Form 8-K, dated March
26, 1997, Item 5. Other Events.

10.47 Letter dated March 28, 1997, to Federal Deposit Insurance
Corporation from John B. Anderson, Re: Pledged Shares of Cedar
Development Co. is incorporated herein by reference to Dunes
Hotels and Casinos Inc. Current Report on Form 8-K, dated March
26, 1997, Item 5. Other Events.

10.48 Letter dated March 28, 1997, to Federal Deposit Insurance
Corporation from J.B.A. Investments Inc. Re: Pledged Shares of
Dunes Hotels and Casinos Inc. is incorporated herein by
reference to Dunes Hotels and Casinos Inc. Current Report on
Form 8-K, dated March 26, 1997, Item 5. Other Events.

10.49 Loan Purchase Agreement dated November 19, 1997, between M&R
Investment Company, Inc. and John B. Anderson, as Trustee of the
John J. Anderson Family Trust is incorporated herein by
reference to Dunes Hotels and Casinos Inc. Current Report on
Form 8-K, dated December 16, 1997, Item 5. Other Events.

21.01 Subsidiaries of Registrant.

27.01 Financial Data Schedule

<PAGE>40

(b) Reports on Form 8-K

8K.01 March 26, 1997. This report on Form 8-K, Item 5, reported that
the Company had received copies of letters to Baby Grand Corp.
(BGC) and J.B.A. Investments, Inc. (JBA) from the Federal
Deposit Insurance Corporation (FDIC) wherein the FDIC stated
that all rights of BGC and JBA pertaining to the Pledged Dunes
Shares were now vested in the FDIC..

8K.02 July 8, 1997. This report on Form 8-K, Item 5, reported that on
June 3, 1997, the FDIC filed a motion for a declaration that the
FDIC has the right to exercise the voting rights to the Pledged
Dunes Shares and requiring stockholders meetings be held for
Dunes and certain other entities and that on July 8, 1997, the
Nevada District Court granted the FDIC's motion.

8K.03 August 15, 1997. This report on Form 8-K, Item 5, reported that
on August 9, 1997, the court appointed Special Master, acting as
an agent of the FDIC, published in a major newspaper in Las
Vegas, Nevada, a notice of a court supervised sale of common
stock and other assets, including certain shares of common stock
of the Company.

8K.04 December 16, 1997. This report on Form 8-K, Item 1, reported
that the Federal Deposit Insurance Corporation (the FDIC) in a
letter dated January 15, 1998, had demanded that the Company
hold a special meeting of stockholders of the Company by January
30, 1998, at which meeting the FDIC intends to vote the FDIC and
Baby Grand Corp. Pledged Shares to remove the existing board of
directors of the Company and to elect a designee or designees of
the FDIC to constitute the new board of directors of the Company
and under Item 5, reported the sale, and events subsequent to
the sale, of the Baby Grand Note to the John J. Anderson Family
Trust.

<PAGE>41

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

DUNES HOTELS AND CASINOS INC. DUNES HOTELS AND CASINOS INC.

By EDWARD PASQUALE By JAMES H. DALE
Edward Pasquale James H. Dale
President Secretary/Treasurer (Principal
(Principal Executive Officer) Accounting and Financial Officer)

Dated MARCH 25, 1998

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

SIGNATURE TITLE DATE

John B. Anderson Director

BRENT L. BOWEN
Brent L. Bowen Director MARCH 25, 1998

JAMES H. DALE
James H. Dale Director MARCH 25, 1998

ANDREW P. MARINCOVICH
Andrew P. Marincovich Director MARCH 25, 1998

Donald J. O'Leary Director

EDWARD PASQUALE
Edward Pasquale President MARCH 25, 1998

WAYNE O. PEARSON
Wayne O. Pearson Director MARCH 25, 1998

ERIK J. TALLSTROM
Erik J. Tallstrom Director MARCH 25, 1998

<PAGE>F-1

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders
Dunes Hotels and Casinos Inc.
Sacramento, California

We have audited the accompanying consolidated balance sheets of Dunes
Hotels and Casinos Inc. and Subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income (loss), shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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 financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dunes
Hotels and Casinos Inc. and Subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.

As discussed in Note 3a(1), there is a substantial possibility that a
change of control of the Company may occur in the near future. The effect of
such a change on the Company's future operations or other activities cannot be
assessed at this time.

The Company has engaged in significant business activities and
transactions with related parties, including real estate investments and
lending, which have resulted in losses.

In connection with our audits of the financial statements referred to
above, we audited the financial statement schedules listed under Item 14(a)2.
In our opinion, these financial statement schedules present fairly, in all
material respects, the information stated therein, when considered in relation
to the financial statements taken as a whole.

PIERCY, BOWLER, TAYLOR & KERN

Las Vegas, Nevada

March 11, 1998, except for Note 12(b)
as to which the date is March 12, 1998

<PAGE>F-2

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996

ASSETS
1997 1996
(Dollars in thousands)
Cash and cash equivalents $ 4,299 $ 1,283
Marketable securities 673 527
Receivables
Trade, less allowance, 1996, $141 3 133
Related party, less allowance, 1996, $2,049 397
Real estate sales, less allowance, 1997, $64 469 928
Other, including officer,1997, $85 92 47
Inventory of real estate held for sale 4,359 10,919
Inventory, other 38
Prepaid expenses 122 116
Property and equipment, less accumulated
depreciation and amortization, 1997, $477;
1996, $425 3,252 1,678
Investments 644 1,049
Other assets 124 11
-------- --------
$ 14,037 $ 17,126

(continued)

<PAGE>F-3

LIABILITIES AND SHAREHOLDERS' EQUITY

1997 1996
(Dollars in thousands)
Accounts payable $ 24 $ 98
Accrued expenses 207 246
Deferred credits and other 178 70
Income taxes 307 247
Short-term debt 60 69
Long-term debt and capital lease obligations 2,272 1,955
Accrued preferred stock dividends in arrears 1,173 1,101
-------- --------
Total liabilities 4,221 3,786
-------- --------
Minority interest 320 2,897
-------- --------
Shareholders' equity
Preferred stock - authorized 10,750,000 shares
($.50 par); issued issued 10,512 shares Series
B $7.50 cumulative preferred stock, outstanding
9,610 shares in 1997 and 1996, aggregate
liquidation value $2,373 including dividends in
arrears 5 5

Common stock - authorized 25,000,000 shares ($.50
par); issued 7,799,780 shares, outstanding
6,375,096 shares in 1997 and 1996 3,900 3,900

Capital in excess of par 25,881 25,881

Deficit (18,290) (17,343)
-------- --------
11,496 12,443
Treasury stock at cost; Preferred - Series B, 902
shares Common 1,424,684 shares in 1997 and 1996 2,000 2,000
-------- --------

Total shareholders' equity 9,496 10,443
-------- --------
$ 14,037 $ 17,126
======== ========

<PAGE>F-4

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1997 1996 1995
(Dollars in thousands, except per share)
Operating revenues:
Sales of real estate $ 7,146 $ 1,128 $ 1,901
Cost of real estate sold 6,658 1,226 1,824
------- ------- -------
488 (98) 77
------- ------- -------
Rental income - agricultural properties 529 948 485
Cost and expense of rental income 97 449 386
------- ------- -------
432 499 99
------- ------- -------
Rice drying and storage revenues 806 787 752
Cost of rice drying and storage 519 768 529
------- ------- -------
287 19 223
------- ------- -------
Miscellaneous income (expense) - net (83) 119 (8)
------- ------- -------
1,124 539 391
------- ------- -------
Operating expenses:
Selling, administrative and general
Corporate 1,053 1,022 1,090
Real estate operations 218 245 388
Bad debts (recoveries), net (94) 556 425
Depreciation 83 99 69
Losses on real estate investments 400 290 284
------- ------- -------
1,660 2,212 2,256
------- ------- -------
Loss before other credits (charges), income
taxes, minority interest and extraordinary
item (536) (1,673) (1,865)
------- ------- -------
Other credits (charges):
Interest and dividend income 323 360 595
Interest expense (201) (230) (37)
Partnership income (loss) (135) (781)
Securities gains (losses), net (4) (14) 26
------- ------- -------
118 (19) (197)
------- ------- -------

(continued)

<PAGE>F-5
1997 1996 1995
(Dollars in thousands, except per share)

Loss before income taxes, minority interest
and extraordinary item (418) (1,692) (2,062)

Income taxes (53) (13)
------- ------- -------

Loss before minority interest and
extraordinary item (471) (1,692) (2,075)

Minority interest in income of the White
Ranch (404) (97)
------- ------- -------

Loss before extraordinary item (875) (1,789) (2,075)
Extraordinary item, net of taxes of $80 8,346
------- ------- -------

Net income (loss) $ (875) $(1,789) $ 6,271
======= ======= =======

Income (loss) per common share:
Loss before extraordinary item $ (0.14) $ (0.29) $ (0.33)
Extraordinary item 1.30
------- ------- -------
Net income (loss) $ (0.14) $ (0.29) $ 0.97
======= ======= =======

See notes to consolidated financial statements.

<PAGE>F-6
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREFERRED STOCK COMMON STOCK CAPITAL PREFERRED COMMON TOTAL
ISSUED(1) ISSUED IN TREASURY STOCK TREASURY STOCK SHARE
EXCESS HOLDERS'
SHARES AMOUNT SHARES AMOUNT OF PAR DEFICIT SHARES AMOUNT SHARES AMOUNT EQUITY
Balance, January 1,
1995 10,512 $5 7,799,780 $3,900 $25,881 $(21,681) (902) $(70) (1,339,684) $(1,760) 6,275

Accrued dividends,
Preferred (72) (72)
Purchase of
treasury stock (85,000) (170) (170)
Net income 6,271 6,271
------ ------ --------- ------ ------- --------- ---- ----- ---------- -------- ------

Balance, December 31,
1995 10,512 5 7,799,780 3,900 25,881 (15,482) (902) (70) (1,424,684) (1,930) 12,304

Accrued dividends,
Preferred (72) (72)

0
Net Loss (1,789) (1,789)
------ ------ --------- ------ ------- --------- ----- ----- ---------- -------- -------

Balance, December 31,
1996 10,512 5 7,799,780 3,900 25,881 (17,343) (902) (70) (1,424,684) ( 1,930) 10,443

Accrued dividends,
Preferred (72) (72)

Net loss (875) (875)
------ ------ --------- ------ ------- --------- ----- ----- ---------- -------- -------

Balance, December 31,
1997 10,512 $5 7,799,780 $3,900 $25,881 ($18,290) (902) ($70) (1,424,684) ($1,930) $ 9,496
====== ====== ========= ====== ======= ========= ===== ===== =========== ======== =======
</TABLE>

(1) Series B, $7.50 dividend, voting and non-convertible (liquidation value
$125 per share).

See notes to consolidated financial statements.

<PAGE>F-7

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 and 1995

1997 1996 1995
(Dollars in Thousands)
Cash flows from operating activities:
Net income (loss) $ (875) $(1,789) $ 6,271
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Provision for losses on accounts and
notes receivable, related parties
and others 240 600 331
Non-cash gain from settlement of
liability (8,619)
Depreciation 83 99 69
Gain on disposition of assets 58 (2)
Provision for losses on investments 400 171 346
Partnership loss, net 435
Allocation of minority interest 404 97
(Gain) loss on marketable securities 4 14 (26)
Changes in operating assets and
liabilities
Trade receivables 130 6 235
Inventory, real estate held for sale 6,560 1,431 1,248
Inventory, other 38 51 (89)
Prepaid expenses (6) 26 107
Other Assets (113) 41 (44)
Accounts payables (74) (2) (74)
Accrued expenses (39) 173 15
Deferred credits and other 108 47
Income taxes 60 (80) 80
------- ------- -------
Net cash provided by operating activities 6,978 885 283
------- ------- -------

Cash flows from investing activities:
Payments made to minority interest (2,981)
Capital expenditures (1,826) (23) (146)
Purchase of investments (125) (1,367)
Purchase of marketable securities (150) (30) (65)
Proceeds from sale of marketable
securities 435
Payments received on receivables 760 975 1,873
Loans made to related parties (250) (594)
Loans made to others, including
officer (189) (43) (193)
Proceeds from investments 5 247
Proceeds from disposition of
property 111 10
------- ------- -------
Net cash provided by (used in)
investing activities (4,270) 751 (47)
------- ------- -------

(continued)
<PAGE>F-8
1997 1996 1995
(Dollars in Thousands)

Cash flows from financing activities:
Proceeds from short-term debt $ 110 $ 123 $ 133
Payments on short-term debt (119) (129) (134)
Proceeds from long-term debt 1,150
Payments on long-term debt (833) (842) (444)
Payments for treasury stock (170)
------- ------- -------
Net cash provided by (used in)
financing activities 308 (848) (615)
------- ------- -------
Increase (decrease) in cash and
cash equivalents 3,016 788 (379)
Cash and cash equivalents,
beginning of year 1,283 495 874
------- ------- -------
Cash and cash equivalents,
end of year $ 4,299 $ 1,283 $ 495
======= ======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 185 $ 283 $ 10
Supplemental schedules of non-cash
investing and financing activities:
Total liability settled $ $ $ 8,985
Less assets transferred (366)
------- ------- -------
Non-cash gain from extraordinary
items -- settlement of liabilities $ $ $ 8,619
======= ======= =======
Real estate acquired through foreclosure $ $ 38 $
======= ======= =======
Note receivable from sale of investments $ $ 224 $
======= ======= =======
Property and equipment acquired through
a capital lease $ $ $ 73
======= ======= =======
Dividends accrued but unpaid $ 72 $ 72 $ 72
======= ======= =======

See notes to consolidated financial statements.

<PAGE>F-9

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

CONSOLIDATION:

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries Continental California
Corporation (Continental), M & R Corporation (MRC) and MRC's subsidiary, M
& R Investment Company, Inc. (MRI) and MRI's subsidiaries SHF Acquisition
Corporation (SHF) and Southlake Acquisition Corporation (Southlake), after
elimination of all material intercompany balances and transactions.

DESCRIPTION OF BUSINESS:

The Company operates in two principal business segments: Real estate
(development and sale of residential lots and rental of agricultural land)
and agricultural (rice drying and storage).

The Company's real estate segment sells completed residential lots primarily
to builders of custom homes and to the general public in and around the
greater Sacramento, California area. The agricultural properties are
leased to farmers in the area where the agricultural properties are
located.

The agricultural segment dries harvested rice over a two-month period
(approximately September 15 to November 15) and stores, for a fee, the
dried rice (or other grains) until it is removed by the owner. The
Company dries and stores rice principally for one customer, Farmers Rice
Co-operative (Farmers). Farmers accounts for approximately 98% of the
Company's rice drying and storage revenues. If the Company were to lose
Farmers as a customer, it would have a material adverse effect on the
Company's drying and storage operation.

PROPERTY AND EQUIPMENT AND DEPRECIATION AND AMORTIZATION:

Property and equipment are stated at cost. Depreciation and amortization
are provided by the straight-line method over the estimated useful lives
of the assets.

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," without
any material effect.

<PAGE>F-10

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

INCOME (LOSS) PER SHARE:

For the year ended December 31, 1997, the Company has adopted retroactively
Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS No. 128) which established a new accounting standard for the
computation and reporting on net income (loss) per share. The
implementation of SFAS No. 128 had no material effect on the Company's net
income (loss) per share computations.

Income (loss) per common share has been computed using the weighted average
number of shares outstanding during the year: 6,375,096, 6,375,096 and
6,429,822 for the years ended December 31, 1997, 1996 and 1995,
respectively. Dividends on nonconvertible preferred stock - Series B have
been deducted from income or added to the loss applicable to common
shares. See Note 16.

CASH AND CASH EQUIVALENTS:

Cash equivalents are short-term (original maturity of 90 days or less),
highly liquid investments that are both readily convertible to known
amounts of cash and so near their maturity that they present insignificant
risk of changes in value because of changes in interest rates.

MARKETABLE SECURITIES:

Effective in the year ended December 31, 1995, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". The Company's investments in
marketable securities are accounted for as trading securities. There
have been no material gains or losses related to the Company's investments
in marketable securities.

RECLASSIFICATIONS:

Certain amounts in the Company's prior years consolidated financial
statements have been reclassified to conform to the 1997 presentation.
Such reclassification has no effect on the results of operations.

<PAGE>F-11

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

ENVIRONMENTAL EXPENDITURES:

Expenditures that relate to current operations are expensed or capitalized
as appropriate. Expenditures that relate to an existing condition caused
by past operations and which do not contribute to future revenues are
expensed. Liabilities are recorded when remedial efforts are probable and
the costs can be reasonably estimated.

REAL ESTATE HELD FOR DEVELOPMENT AND SALE:

Real estate held for development and sale is stated at the lower of cost or
net realizable value. Costs include primarily acquisition costs and
improvements costs. Costs are allocated to individual properties using
the method appropriate in the circumstances. For purposes of the statement
of cash flows, sales and purchases of real estate held for development and
sale are classified as operating activities.

USE OF ESTIMATES:

The timely preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Actual
results could differ from those estimates some of which may require
revision in future periods.

CAPITALIZED INTEREST:

For the year ended December 31, 1997, the Company capitalized approximately
$15,000 of interest in connection with the construction of the rice drying
facility (the Drying Facility). The capitalization rate that was used was
12% which is the rate applicable to the debt related to the construction
of the Drying Facility.

<PAGE>F-12

2. FAIR VALUE OF FINANCIAL INSTRUMENTS:

The following methods and assumptions were used by the Company in estimating
its fair value and disclosures for financial instruments.

CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES: The carrying amount
approximates fair value of cash, cash equivalents and marketable
securities. For marketable securities, fair values are estimated based on
quoted market prices as of December 31, 1997 and 1996.

NOTES RECEIVABLE: The fair value of real estate notes receivable are based
on their outstanding balances (net of allowances), their respective
interest rates and the estimated fair value, based on comparable sales in
the area, of the real property which serves as collateral for the notes.
It was not possible to determine the fair value of the BGC Note because
the Company was unable to predict whether Baby Grand Corp. would be able
to pay its first lien note on its due date, which was the same date that
the BGC Note came due. The fair value of the note receivable
officer/director is base on its interest rate and the estimated fair value
of the real property that serves as collateral for the note.

SOLANO COUNTY OPTION: The fair value of the Solano County option is based on
management's estimate of the amount that could be realized if the Company
were to exercise its option and subsequently sell the property. See Note
7(a).

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION: The fair value of long-term
debt related to the SASA Obligation is not subject to reasonable
estimation because the debt arose principally as a result of the
settlement of a dispute. The fair value of the capital lease obligation
is based on current rates at which the Company could borrow funds.

The carrying amounts and fair values of the Company's financial instruments
at December 31, 1996 and 1997 are as follows (in thousands):

DECEMBER 31, 1996
Carrying Fair
AMOUNT VALUE

Cash, cash equivalents and marketable securities $1,810 $1,810
Notes receivable, real estate sales 928 928
Note receivable, related party, BGC Note 397
Solano County option 1,044 1,044
Long-term debt and capital lease obligation 1,955 57

<PAGE>F-13

2. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED):

DECEMBER 31, 1997
Carrying Fair
AMOUNT VALUE
Cash, cash equivalents and marketable securities $4,972 $4,972
Notes receivable, real estate sales 469 469
Note receivable, Officer/Director 85 85
Solano County option 644 644
Long-term debt and capital lease obligation 2,272 1,150

3. RELATED PARTY TRANSACTIONS:

a. John B. Anderson (Anderson), the Company's controlling stockholder and
former Chairman of the Board of Directors of the Company, and entities owned
or controlled by him (Anderson Entities) own approximately 67.2% of the
Company's common stock as of March 11, 1998. See Note 12 (b) regarding
litigation between Anderson and the Federal Deposit Insurance Corporation
(the FDIC) and a possible change in ownership of the Company. Each entity
related or controlled by Anderson will hereinafter be identified as an
Anderson Entity.

(1) On November 26, 1997, the Company entered into a Loan Purchase
Agreement (the Note Sale Agreement) with Anderson, as Trustee of the
John J. Anderson Family Trust (the Trust). At such date, Anderson was
President and Chairman of the Board of the Company, and through his
ownership of Cedar Development Co., was the sole shareholder and
President of Baby Grand Corp. (BGC). The Note Sale Agreement provided
for the sale of a note (the BGC Note) issued by BGC payable to MRI.
The BGC Note was in the original principal amount of $2,650,000 with
interest at 9% per annum and was collateralized by approximately
1,280,756 shares of the Company's outstanding common stock (the BGC
Pledged Shares). The BGC Note was due on December 1, 1997. The BGC
Note had a principal balance at the date of the Note Sale Agreement of
approximately $1,900,000. It was carried on the Company's books at
approximately $100,000, an amount which the Company believed to be its
net realizable value. The sale price of the BGC Note was $320,000 plus
a possible contingent bonus payment of $50,000. Of the $320,000,
$200,000 was paid to the Company upon signing of the Note Sale
Agreement and the delivery to the Trust of approximately 1,036,160 of
the BGC Pledged Shares. The remaining $120,000 is held in escrow
pending delivery to the Trust of the remaining BGC Pledged Shares and
is classified under other assets with an offset to deferred credits.

<PAGE>F-14

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

3. RELATED PARTY TRANSACTIONS (CONTINUED):

a. (1) continued

In connection with the Note Sale Agreement, MRI assigned to the Trust
all of its rights pursuant to that certain Amended and Restated Pledge
Agreement dated November 2, 1992, made by BGC in favor of MRI.

The Note Sale Agreement was unanimously approved by the Audit Committee
of the Company's Board of Directors and seven of the Directors of the
Company. The Note Sale Agreement was approved because the Board of
Directors and the Audit Committee had been advised that the imminent
foreclosure of the BGC Pledged Shares by MRI, which represents 20.1% of
the outstanding Common Shares of the Company, when coupled with the
then likely exercise of voting rights by the FDIC of 3,000,000 shares
of the Common Stock of the Company pledged to the FDIC by other
Anderson Entities, which represents 47.1% of the outstanding Common
Stock of the Company, would result in a change of ownership for
purposes of the Internal Revenue Code of 1986, as amended. Such a
change would result in a significant reduction, or the complete loss
of the Company's net operating loss carryforward, which as of December
31, 1997, approximated $50,900,000 (the NOL). The Board of Directors
and the Audit Committee had been advised that, only through Anderson
maintaining control over the BGC Pledged Shares could a change of
ownership under the code be avoided and that the Trust was the only
entity controlled by Anderson that, at the time the Note Sale Agreement
was approved, was free from claims of the FDIC that might adversely
effect the ownership of the BGC Pledged Shares. The Note Sale
Agreement was approved in part to avoid the loss of the NOL. Anderson
did not participate in the Board's deliberation or vote with respect to
the Note Sale Agreement. Anderson provided written representation to
the Board that (i) he was aware of his fiduciary obligation to the
Company, and (ii) he was not aware of any transaction pending or in
prospect which would enhance the value of the BGC Note above the sale
price to the Trust.

On December 2, 1997, subsequent to completing the Note Sale Agreement,
it came to the Company's attention that BGC had transferred to the
Trust, in satisfaction of the BGC Note, assets having an estimated
value, determined by BGC, ranging from approximately $1,192,443 to
approximately $1,612,632. The assets transferred consisted of the BGC
pledged shares, the net equity in a residence occupied by Anderson in
Yolo County, California and $580,000 in cash.

By letter to Anderson, as Trustee of the Trust, dated December 8, 1997,
the Company demanded that Anderson confirm to the Company that the
transfer of the assets from BGC to the Trust did in fact occur. In
addition, the Company demanded that all assets received by the Trust
from BGC, less the amount paid to MRI for the purchase of the BGC Note,
be turned over to MRI. The Company further advised Anderson that the
Company

<PAGE>F-15

RELATED PARTY TRANSACTION (CONTINUED):

a. (1) continued

reserves all rights and remedies, including possible claims for
compensatory and punitive damages, the imposition of a constructive
trust, and recission.

On December 15, 1997, Larry L. Bertsch, the special liquidating master
(the Special Master) previously appointed by the United States District
Court, District of Nevada (the Nevada District Court), to sell the
assets that serve as collateral for the obligation due the FDIC by the
Anderson Parties, filed with that court an emergency motion seeking (1)
to set aside the allegedly fraudulent transfer of assets by the Company
to the Trust and by BGC to the Trust; (2) to freeze assets held by the
Trust; and (3) to schedule an order to show cause why Anderson, James
H. Dale (the Company's Secretary/Treasure, Director and the President
of MRI), Kent Neville Calfee (counsel to Anderson who drafted the Note
Sale Agreement documents), and Calfee & Young (Calfee's law firm)
should not be held in contempt by the Nevada District Court.

On December 16, 1997, the Nevada District Court ordered that Anderson,
as Trustee of the Trust, return to BGC the $580,000 in cash. The
Nevada District Court further ordered that the Anderson residence in
Yolo County, California remain in the Trust until further order of the
Nevada District Court and that the BGC Pledged Shares be turned over to
the custody of the Special Master until further order of the Nevada
District Court. The Nevada District Court gave the parties until
January 8, 1998, to submit responses to the Special Master's Motion.
The Company submitted a response on that date challenging the
allegation in the Special Master's Motion that MRI fraudulently
transferred between $872,443 and $1,292,632 to the Trust. The response
also opposes the unwinding of the Note Sale Agreement and any order
that would deny the Trust ownership of the BGC Pledged Shares.

On January 27, 1998, the Special Master submitted to the Nevada
District Court his reply to the response of the Company, asking that
the Nevada District Court unwind the Note Sale Agreement, at least to
the extent that MRI is made whole for its lost profit, representing
$580,000 in cash and the interest in the Anderson residence in Yolo
County, California, and that the Nevada District Court find Anderson
and his attorneys Calfee & Young, in contempt and to impose appropriate
sanctions. In this reply, the Special Master did not ask the Nevada
District Court to find Mr. Dale in contempt.

On January 27, 1998, the FDIC submitted to the Nevada District Court
its Reply Memorandum of Points and Authorities of FDIC in Support of
Special Master Larry L. Bertsch's Motion to Set Aside Fraudulent
Transfer, For Contempt and For Monetary Sanctions Jointly and Severally
Against John B. Anderson, James H. Dale, Ken Neville

<PAGE>F-16

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

RELATED PARTY TRANSACTION (CONTINUED):
a. (1) continued

Calfee and Calfee & Young. This Reply Memorandum asked the Nevada
District Court to set aside the Note Sale Agreement in the manner that
the Nevada District Court deems most equitable and that the Nevada
District Court should sanction Anderson, the Trust, Calfee and Calfee
& Young. In its reply, the FDIC did not ask the Nevada District Court
to sanction Mr. Dale.

On February 3, 1998, the Nevada District Court ordered that a hearing
be held on Friday March 27, 1998, regarding the Motion of the Special
Master (1) to Set Aside Fraudulent Transfer of Assets; and (2) to
Freeze Assets Held by Transferee John J. Anderson Family Trust. The
Nevada District Court further ordered that no hearing shall be set
regarding contempt charges and sanctions until after the March 27,
1998 hearing.

(2) For the years ended December 31, 1997, 1996 and 1995, $45,400,
$59,998 and $49,278, respectively, was paid on behalf of Anderson for
certain of Anderson's expenses, in lieu of salary, which payments were
considered compensation to Anderson as President of the Company and
were approved by the Company's Audit Committee.

(3) In connection with a proposed settlement agreement in June 1996,
between the FDIC and the Anderson Parties, the Company loaned $250,000
to the Golden State Trust, an Anderson Party. The loan is evidenced by
a note dated June 12, 1996, which bears interest at the rate of 12% per
annum, payable monthly. A principal payment of $100,000 was paid on
July 1, 1996. In 1997, the Company determined that the balance
remaining on the Golden State Trust note was uncollectible and wrote it
off against the related reserve.

(4) In August 1997, the Company entered into a oral agreement with an
Anderson related entity to lease the West Sacramento Drying Facility
for the purpose of drying short-grain rice during the 1997 rice drying
season. Rental for the West Sacramento Drying Facility was $20,000
plus 50% of the rice drying and storage profit after deduction for the
$20,000 rent payment. The rent payment was made by transferring to the
Anderson related entity a piece of equipment, valued at $20,000, that
was previously used in the Steadfast Cattle operation.
.
(5) On October 1, 1997, the Company loaned James H. Dale, the Company's
Secretary/Treasurer and President of MRI, $85,000. The loan is for
three years with interest at 9% per annum, payable monthly. The loan
is collateralized by a deed of trust on real property and a conditional
assignment of Mr. Dale's director's fees.

<PAGE>F-17

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

4. INVENTORY OF REAL ESTATE HELD FOR DEVELOPMENT AND SALE:

1997 1996
The Fairways (a) $ 4,173 $ 4,664
White Ranch (b) 5,600
Residential lots, North Las Vegas (c) 469
Sam Hamburg Farm (d) 146 146
Other 40 40
------- -------
$ 4,359 $10,919
======= =======

(a) The Company, through SHF, developed 50 acres of residential land located
at Rancho Murieta, California as a residential planned unit development
known as "The Fairways". Rancho Murieta is a 3,500 acre master planned
unit development located approximately 25 miles from Sacramento,
California. Rancho Murieta consists primarily of single family homes,
town houses, commercial property and two 18-hole championship golf
courses, including country club facilities. The Fairways, located within
the boundaries of one of the golf courses located at Rancho Murieta, was
subdivided into 110 single-family estate lots. As of March 11, 1998, 49
lots remain unsold.

In connection with its development of The Fairways, SHF was required to
construct certain improvements that benefitted not only The Fairways, but
other properties that lay outside of the boundaries of The Fairways (the
Benefited Properties). The total cost of the improvements was $1,597,425,
of which $276,088 is allocable to The Fairways and $1,321,337 is allocable
to the Benefited Properties. SHF entered into an agreement (the
Reimbursement Agreement) with the Rancho Murieta Community Services
District which provides that SHF will be reimbursed the amount of the
costs allocable to the Benefitted Properties, less approximately $176,500
of future costs that will be of benefit to The Fairways for a net
reimbursement to the Company of approximately $1,140,900. The funds will
be reimbursed to SHF out of proceeds of any subsequent community
facilities district or by direct payment by subsequent developers of the
Benefited Properties. SHF's right to reimbursement will expire in twenty
years from September 1995. The Company is unable to predict what amount,
if any, will be received under the Reimbursement Agreement. The rights to
reimbursement under the Reimbursement Agreement are personal to SHF and do
not run with The Fairway's property unless assigned by SHF.

As part of the development of The Fairways, SHF entered into a Settlement
Agreement Regarding Payment of Park Fees (the Park Fee Payment Agreement)
regarding park fees that are payable to Rancho Murieta Association (RMA)
on each developed lot. The Park Fee Agreement acknowledged that the total
park fees owing to RMA were $173,238. SHF agreed to pay $17,323 upon
signing the Park Fee Agreement with the balance payable ratably as the
remaining lots were sold. In the event all of the lots were not sold by
December 31, 1997, then any remaining amount due must be paid in full. On
December 29, 1997, SHF paid all of the remaining park fees that were due
to RMA.

<PAGE>F-18

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

INVENTORY OF REAL ESTATE HELD FOR DEVELOPMENT AND SALE (CONTINUED):
(a) continued

As part of the Settlement Agreement with the Resolution Trust Corporation
(the RTC) as Receiver for San Antonio Savings Association, all of the
unsold lots in The Fairways are encumbered by a deed of trust in favor of
the RTC. The deed of trust requires a $40,000 payment for the release of
each of the encumbered lots. See Note 9 of Notes to Consolidated Financial
Statements.

On October 7, 1996, the Company signed a Purchase and Option Agreement
with West Coast Properties, LLC (WCP) whereby WCP offered to purchase from
the Company, 20 lots at The Fairways and obtain an option to purchase an
additional 20 lots, with the intent of constructing single family
residences on the lots purchased. On July 12, 1996, the Company signed a
letter agreeing to modify the Purchase and Option Agreement (the New
Agreement) between the Company and Murieta Investors, LLC (MI), formerly
WCP. The New Agreement provides that MI will purchase from the Company 6
lots at The Fairways at $40,000 per lot plus payment of Park Fees
applicable to the lots purchased. In addition, the Company may receive
contingent consideration equal to 20% of the gross sales price of each
residential dwelling sold less $40,000 (the Success Payments). Eight
months after the purchase of the initial 6 lots, MI will be entitled to
purchase a second group of 6 lots. An additional group of 6 lots may be
purchased every 4 months thereafter until a total of 40 lots have been
purchased. The initial payment for the second 6 lots purchased will be
$40,000, plus payment of the applicable Park Fees and the Success
Payments. The initial payment for all subsequent lots purchased will be
$45,000, plus payment of the applicable Park Fees and the Success
Payments. Therefore, beginning with the purchase of the third group of 6
lots, the Success Payments will be 20% of the gross sales price of each
residential lot sold less $45,000. If MI sells any lot without
constructing a residential dwelling thereon, the Company will receive 20%
of the sale price without offset of the initial payment. The sale of the
first 6 lots which closed on December 20, 1996, were recorded at the
initial price of $40,000 per lot. In accordance with Statement of
Accounting Financial Standards (SFAS) No. 66 "Accounting for Sales of Real
Estate," no recognition was given to any Success Payments the Company may
receive in the future, but the Company has recorded all costs associated
with the lots, resulting in a recorded loss on the sale of the six lots in
1996. Because of certain difficulties regarding MI's ability to obtain
plans and permits relating to the first 6 lots purchased, MI did not
purchase any lots in 1997.

(b) On July 15, 1997, the Company closed the sale of the White Ranch. Net
proceeds from the sale were approximately $5,965,000 of which
approximately $2,982,500 was paid to the Company. The balance of the
proceeds were paid to the other 50% owner of the White Ranch.

<PAGE>F-19

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

INVENTORY OF REAL ESTATE HELD FOR DEVELOPMENT AND SALE (CONTINUED):

(c) On July 3, 1997, the Company closed the sale of the 57 residential lots
located in North Las Vegas, Nevada. Net proceeds to the Company were
approximately $645,600 which included a reimbursement of approximately
$72,600 for water fees previously paid. Out of the net proceeds, the
Company paid approximately $318,000 to Beal Bank, the purchaser of the
SASA Obligation.

(d) Sam Hamburg Farm consists of approximately 150 acres of agricultural
property. Of the 150 acres, 40 acres contain the air strip and shop areas
which are the focus of continuing attempts at chemical clean-up. See Note
12 (c) for a detailed discussion concerning the removal of the toxic
waste. The remaining 110 acres are leased to various tenants at an annual
aggregate rental of approximately $20,000.

5. PROPERTY AND EQUIPMENT AND ACCUMULATED DEPRECIATION AND AMORTIZATION:

1997 1996
(Dollars in thousands)

Land and land improvements $ 159 $ 159
Building and improvements 3,484 1,679
Machinery and equipment 86 265
------- -------
3,729 2,103
Less accumulated depreciation and amortization ( 477) (425)
------- -------
$ 3,252 $ 1,678
======= =======

On May 29, 1997, SHF signed a contract (the Contract) in the amount of
$1,651,800 for the construction of a new rice drying facility (the Drying
Facility) adjacent to the storage facility in Yolo County, California.
The Contract did not include certain costs such as permits, landscaping,
paving, utility lines, interest costs and others. The completed cost of
the Drying Facility was $1,806,250. The Drying Facility commenced
operations on September 15, 1997.

<PAGE>F-20

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

6. LONG-TERM NOTES RECEIVABLE:
1997 1996
(Dollars in thousands)
Related parties
BGC, including interest (See Notes 3a(1) and (3) $ $ 2,296
Less allowance (1,899)
Golden State Trust 150
Less allowance (150)

Officer and Director 85
Real estate
Various real estate notes, collateralized by
deeds of trust with interest ranging from
8% to 10% (a) 469 928
------- -------
$ 554 $ 1,325
======= =======

(a) Approximately $227,160 of the various real estate notes are subject to
a collateral assignment in favor of the RTC. See Note 9.

7. INVESTMENTS:
1997 1996
(Dollars in thousands)
Investments at cost, net of valuation
allowances, consist of:
Solano County Option (a) $ 1,044 $ 1,044
Less allowance (400)
Pine Ridge Joint Venture (b) 572
Less reserve (572)

Steadfast Cattle Company (d) 84
Less reserve (84)
Other 5
------- -------
$ 644 $ 1,049
======= =======

(a) The Company has an option (the Solano County Option) to acquire
approximately 1,690 acres of farm land located in Solano County,
California. The Company acquired the Solano County Option as part of a
settlement agreement between BGC, an Anderson Entity, a financial
institution and MRI. The purchase price of the Solano County Option was
$1,043,902. The Solano County Option provides that the

<PAGE>F-21

7. INVESTMENTS (CONTINUED):
(a) continued

Company can purchase the 1,690 acres at a price of $3,000,000 (the Option
Purchase Price) The Company will receive a credit of $1,000,000 against
the Option Purchase Price. The option expires on May 1, 2003. Upon
certain conditions and the consent of the first lien holder on the Maxim
and the Nevada Gaming Control Board, MRI can require BGC to repurchase the
Solano County Option (the Repurchase Agreement). The Repurchase Agreement
expires on the earlier of: (i) May 1, 2002 or (ii) 1 year prior to the
date the option agreement expires. However, due to recent events between
BGC, Anderson and the FDIC, the Company does not believe that BGC will be
in a position to honor the repurchase agreement. The owner of the
property under option has informed the Company that it is current on all
payments that are required on the first mortgage lien. During the quarter
ended September 30, 1997, the Company wrote down its investment in the
Solano County Option by $400,000 because management believes that the
option purchase price may be in excess of the estimated fair value of the
property, believed to be $2,600,000.

(b) In June 1993, MRI entered into a joint venture known as Pine Ridge Joint
Venture (PRJV) with AJD, a Nevada limited partnership, for the purpose of
developing approximately 92 single-family residences in Clark County,
Nevada. The development was scheduled to be completed in two phases
consisting of 32 residences which were to be completed in the first phase
and the balance to be completed in the second phase. See Note 4 (c)
regarding the disposition of 57 of the PRJV lots. On October 10, 1996,
the last remaining house in Phase I was sold, thereby effectively
terminating PRJV.

(c) In July 1995, the Company's Board of Directors authorized the Company to
invest up to $200,000 for a 50% interest in a cattle feeding operation
with an unrelated third party. The parties formed a Limited Liability
Company named Steadfast Cattle Company (Steadfast). Steadfast's primary
operation was feeding cattle, owned by others, on leased land located in
Gonzales, California. As of December 31, 1996, all operations at the feed
lot had ceased.

In connection with its investment in Steadfast, the Company purchased
equipment costing approximately $200,000 for use in the Steadfast
operation. As of December 31, 1997, the equipment remaining had a
carrying value of approximately $5,000.

8. RESOLUTION OF SASA DISPUTE:

On October 24, 1995, the Company, along with Continental, MRI and SHF,
entered into a Settlement, Release and Loan Modification Agreement (the
Settlement Agreement) with the RTC in connection with the SASA Obligation.
The Settlement Agreement became effective December 6, 1995. Pursuant to
the Settlement Agreement and as full payment of the SASA Obligation, (i)
Continental transferred the San Diego

<PAGE>F-22

8. RESOLUTION OF SASA DISPUTE (CONTINUED):

Property to the RTC in consideration of $1,500,000 credit against the SASA
Obligation, (ii) the Company paid $290,000 to the RTC, and (iii) the
Company delivered a secured promissory note to the RTC (the RTC Settlement
Note) in the amount of $2,710,000. See Note 9 and 14 for a detailed
discussion of the terms of the RTC Settlement Note.

9. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS:

Long-term debt and capital lease obligations consists of the following at
December 31:

1997 1996
(Dollars in thousands)

RTC Settlement Note (a) $ 1,103 $ 1,784
RMA 93
Capital lease obligation (b) 1,150 57
Other (c) 19 21
------- -------
$ 2,272 $ 1,955
======= =======

Five year maturities of long-term debt are as follows:

(Dollars in thousands)
Long term Capital
Debt Lease Obligation Total
1998 $ 2 $ 134 $ 136
1999 3 198 201
2000 1,106 221 1,327
2001 3 247 250
2002 3 276 279
Thereafter 5 74 79
------- ------- -------
$ 1,122 $ 1,150 $ 2,272
======= ======= =======

(a) The RTC Settlement Note is dated December 6, 1995, and is due December
6, 2000. The note bears interest at the rate of 1% over the prime rate as
published in the Wall Street Journal. The rate is adjusted semi-annually
(the Interest Adjustment Date), provided, however, that under no
circumstances shall the rate be less than 8% or more than 12% per annum.
Payment terms are interest only, payable monthly. Monthly payments are
adjusted semi-annually on the Interest Adjustment Date. The entire
remaining principal amount and all accrued and unpaid interest is due and
payable in full on December 6, 2000. The RTC Settlement Note was sold to
Beal Bank in 1996.

The note is collateralized by the following:

<PAGE>F-23

9. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (CONTINUED):
(a) continued

A deed of trust with an assignment of rents (Rancho Murieta Deed of
Trust) with SHF. The Rancho Murieta Deed of Trust encumbers
approximately 50 finished residential lots at December 31, 1996
located at The Fairways. SHF is entitled to the release of a lot upon
the payment of $40,000 to Beal Bank for each lot released. Beal Bank
will apply such payments to the outstanding principal due on the note.

A collateral assignment of purchase money promissory notes (The
Promissory Notes) secured by deeds of trust (Collateral Assignment)
with SHF as pledgor and Beal Bank as pledgee. As of December 31,
1997, Notes with a face amount of $227,160 have been pledged to Beal
Bank. Principal collections on the Promissory Notes will be remitted
to Beal Bank for application to the outstanding principal due on the
note.

(b) In connection with the financing of the Drying Facility construction,
SHF entered into the following agreements with ICON Cash Flow Partners,
L.P., Series E (ICON, LP) and ICON Financial Corp. (ICON): (1) A
promissory note (the Note) dated April 3, 1997, between ICON, LP and
SHF in the principal amount of $1,150,000, with interest at the rate of
12% per annum. Interest is payable on the first day of the month
following the first advance and on the first day of the month
thereafter. Upon completion of the Drying Facility, advances made
under the Note will be rolled into the equipment lease financing as of
the Base Lease Commencement Date (the last day of the month following
the date the Drying Facility is declared complete by both SHF and ICON,
LP), (2) A Master Equipment Lease (the Lease) dated April 3, 1997,
between ICON and SHF. Beginning with the Base Lease Commencement Date,
ICON will lease to SHF the Drying Facility for a period of five years.
At the end of the five year period, SHF will have the right to purchase
not less than all of the Drying Facility for $1.00. The monthly rental
under the lease will be approximately 2.202% of the funded Drying
Facility cost. The monthly lease payments will be approximately
$25,000 and will commence on March 30, 1998. In addition to being
collateralized by the Drying Facility, SHF has provided additional
collateral in the form of a Deed of Trust on certain parcels of
property, including the parcel on which the storage facility is
located. Both the Note and the Lease are guaranteed by MRI and the
Company (collectively the Gurantors). Before the Guarantors are liable
for any deficiency, ICON or ICON, LP must first proceed against the
Drying Facility and the additional collateral.

<PAGE>F-24

10. SHAREHOLDERS' EQUITY:

The Company is authorized to issue 10,750,000 shares of $0.50 par value
Preferred shares. The Company gave authority to its Board of
Directors to issue such Preferred shares in one or more series, and to
fix the number of shares in each series, and all designations, relative
rights preferences and limitations of the shares issued in each series.
As of December 31, 1997, the Board of Directors has not exercised the
authority granted, and
no such Preferred shares have been issued except for the 10,512 shares
of Series B, $7.50 cumulative Preferred of which 902 shares are held as
Treasury stock.

Dividends on the Company's Series B Preferred stock have not been paid
since the first quarter of 1982. The Company is in arrears on such
dividends in the amount of approximately $1,173,000 as of December 31,
1997.

11. MINORITY INTEREST:

The minority interest consists of the other 50% owner's share of the
accumulated profits from the operations of the White Ranch as of
December 31,1997.

12. CONTINGENCIES:

(a) As of December 31, 1997, there were no material legal proceedings
pending against the Company. However, see footnote 3(a) and item b.
below regarding legal proceedings, not involving the Company, that may
have a material adverse effect on the Company.

(b) Anderson, Edith Anderson (Anderson's wife), Cedar Development Co.
(Cedar), J.A. Inc., and J.B.A. Investments, Inc. (JBA and collectively
with Anderson, his wife, Cedar, and J.A. Inc. the Anderson Parties)
are involved in litigation (the Anderson Litigation) with the FDIC.
Until December 11, 1997, Anderson was the President and Chairman of
the Board of the Company and Chairman of the Board of various
subsidiaries of the Company. Prior to the events described herein,
Anderson, through his ownership of Cedar, the parent of BGC and JBA,
owned approximately 4,280,756 shares or 67.2% of the Company's
outstanding common stock (the Common Stock). Of those shares (i)
3,000,000 shares (the FDIC Pledged Shares) have been pledged as
collateral in favor of entities of which the FDIC is a successor and/or
assign, and (ii) 1,280,756 shares (the BGC Pledged Shares) have been
pledged as collateral in favor of a subsidiary of the Company. The BGC
Pledged Shares have been ordered to be turned over to the Special
Master as more fully described in note 3b.

In July 1997, the FDIC won a motion in the Anderson Litigation before
the Nevada District Court to enforce its security interest in the FDIC
Pledged Shares. On December 12, 1997, the FDIC filed

<PAGE>F-25

12. CONTINGENCIES (CONTINUED):
(b) continued

in the Nevada District Court an emergency motion to acknowledge the
FDIC's right to act by unanimous written consent and to authorize the
FDIC to so act with respect to Cedar, BGC, JBA and JA. On December 16,
1997, with the consent of all parties to the Anderson Litigation, the
Nevada District Court issued an order declaring that the FDIC has the
right to act by written consent with respect to Cedar, BGC, JBA and JA.
Because of the Nevada District Court's order, the FDIC has the power to
exercise voting rights with respect to the FDIC Pledged Shares, which
represent 47.1% of the outstanding common stock. Because the FDIC is
able to exercise voting rights with respect to the FDIC Pledged Shares,
the FDIC is able to exercise substantial influence with respect to the
election of the entire Board of Directors of the Company and all
matters submitted to stockholders. The FDIC is able to significantly
influence the direction and future operations of the Company, including
decisions regarding future financings (which could involve the issuance
of additional Common Stock or other securities) and decisions regarding
the day-to-day operations of the Company's real estate and agricultural
operations. If the Nevada District Court ultimately determines that
the FDIC has the authority to exercise voting rights with respect to
the BGC Pledged Shares, then the FDIC would have the power to vote
67.2% of the outstanding Common Stock of the Company. In such event,
the FDIC would be able to control, rather than only significantly
influence, the election of the entire Board of Directors of the Company
and all matters submitted to stockholders.

In a letter dated January 15, 1998, to the Company, the FDIC demanded
that the Company hold a special meeting of the stockholders of the
Company by January 30, 1998, at which meeting the FDIC advised the
Company that it intends to vote or cause BGC and JBA to vote the FDIC
Pledged Shares and the BGC Pledged Shares to remove the existing board
of directors of the Company and to elect a designee or designees of the
FDIC to constitute the new board of directors of the Company. The FDIC
further stated that no corporate action should be taken by the Company
which is inconsistent in any manner with the rights of the FDIC.

In response to the FDIC's demand of January 15, 1998, the directors of
the Company on January 27, 1998, held a board meeting and met with
representatives of the FDIC. The Company stated that in light of
regulatory requirements under state and federal securities laws, the
Company was unable to hold a special shareholder meeting by January 30,
1998. The Company indicated that it is willing to discuss the
procedures and effects of a stockholder meeting with the FDIC, but
pending more information from the FDIC the Company was deferring the
formal setting of a meeting date and record date for voting purposes.
The FDIC has not yet responded to the Company.

<PAGE>F-26

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

12. CONTINGENCIES (CONTINUED):
(b) continued

Further, the FDIC has successfully obtained the approval of the Nevada
District Court to authorize the liquidation of the various corporate
entities included among the Anderson
Parties. On March 12, 1998, the Nevada District Court approved the
sale of the FDIC's security interest in that portion of the collateral
relating to the stock of BGC and JA Inc. The sale of the security
interest may allow the purchasers to foreclose and assume ownership of
the stock of BGC and JA Inc. At the same time, the Nevada District
Court approved the FDIC's request for a 120-day extension to liquidate
the remaining collateral. There can be no assurance that the FDIC
would not take similar action with respect to the Company and its
subsidiaries.

(c) SHF was advised of possible contamination on two sites at Sam Hamburg
Farm, a storage facility for diesel fuels and an old airstrip which had
been used for the loading and fueling of aircraft applying agricultural
chemicals to the surrounding farm lands. The Company has completed the
cleanup relating to the diesel storage tanks at a cost of approximately
$100,000.

The Company has disposed of a large amount of the contaminated earth at
an approved site for the storage of toxic wastes. However,
approximately 5,000 cubic yards of contaminated earth still remain to
be disposed of. The Company, through its chemical and toxic clean-up
consultant, has been working with the California State Environmental
Protection Agency, in seeking alternate means to the disposal in toxic
dump sites of chemical and toxics-laden soil. The State has
participated in the funding of several projects by a number of chemical
treatment firms in efforts to try other detoxification methods on the
soil.

Because of the ongoing testing, the State has not imposed a disposal
date upon the Company. Cost of disposal is estimated at $100 per cubic
yard or approximately $500,000. However, if on-site remediation can be
achieved, it is estimated that the cost will be between $90,000 and
$115,000. The Company is unable to predict when the ongoing testing
will be complete or what the outcome of these tests will be. As of
December 31, 1997, the Company has paid approximately $500,000,
including the $100,000 expended for the diesel storage tank, and
accrued an estimated $174,000 relating to the balance of the clean-up
of the contaminated earth. That estimate could change as the
remediation work takes place.

(d)The Company has received a notice from the State of California
Franchise Tax Board (FTB) wherein the FTB alleges that one of the
Company's subsidiaries owes California franchise tax of approximately
$316,000 plus approximately $250,000 in penalties and interest
resulting from the foreclosure sale of certain real property, owned by
the

<PAGE>F-27

DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

12. CONTINGENCIES (CONTINUED)
(d) continued
subsidiary, in San Diego, California. The Company has appealed this matter
to the California State Board of Equalization and is currently awaiting
its decision.

13. TAXES:

The Company and its subsidiaries file a consolidated federal income tax
return.
Deferred tax assets (liabilities) are comprised of the following at
December 31:

1997 1996
(Dollars in thousands)
Loan reserves 2 $ 697
Accounts receivable reserves 48
Investment reserves 136
Real estate reserves 480 480
Loss carryforwards 17,307 15,337
Other 13 2
-------- --------
Gross deferred tax assets 17,938 16,564
Deferred tax assets valuation allowance (17,929) (16,553)
-------- --------
9 11
-------- --------
Marketable securities valuation allowance (9) (11)
-------- --------
Gross deferred tax liabilities (9) (11)
-------- --------
Net deferred tax assets $ 0 $ 0
======== ========

A reconciliation of the changes in deferred tax assets valuation allowance
for 1997 and 1996 is as follows:

1997 1996
(Dollars in thousands)
Book reserve of idle equipment 11
Book marketable securities unrealized
(gain) loss 2 6
Current year loss carryforwards 1,970 635
(Decrease) increase in loan reserves (695) 161
(Decrease) increase in accounts receivable
reserves (48) 40
Book reserve of investments loss 136 (197)
Book reserve of real estate loss 98
-------- --------
Change in deferred tax asset valuation
allowance 1,376 743
Deferred tax assets valuation allowance,
beginning of year 16,553 15,810
-------- --------
Deferred tax assets valuation allowance,
end of year $ 17,929 $ 16,553
======== ========

<PAGE>F-28

13. TAXES (CONTINUED):

A reconciliation of the federal statutory tax rate to the effective tax
rate for 1997, 1996 and 1995, is as follows:

Percentage of pre-tax income
1997 1996 1995
Federal statutory rate (34.00%) (34.00%) 34.00%
Net operating loss applied (18.38%)
Debt discharges and other (84.69%) (15.52%) (21.55%)
Non-deductible items:
Loss reserves 104.74% 45.41% 0.03%
Valuation adjustments 16.72% 8.75% 0.03%
Other (2.77%) (4.64%) 5.88%
------- ------- -------
0.00% 0.00% 0.01%
======= ======= =======

The Company has the following net operating loss carryovers available for
income tax reporting purposes:

YEAR OF EXPIRATION (Dollars in thousands)
2000 2,386
2001 9,890
2003 20,156
2004 1,889
2005 1,891
2006 3,542
2007 809
2008 2,411
2009 595
2010 3,299
2011 1,343
2012 2,692

As more fully described in Note 3a (1) a change in ownership of the
Company may have or could take place. If such a change in ownership
were to take place, it would have an effect as to when and as to the
amount of net operating losses that the Company could use to offset
future taxable income in any given year. This annual limitation, to
the extent not used in any given taxable year, may be carried forward
and added to the limitation of subsequent years.

<PAGE>F-29

14. EXTRAORDINARY ITEM:

At December 31, 1995, the Company recorded as an extraordinary item, a
gain in the amount of $8,346,000, net of tax of $80,000, resulting from
the settlement of the SASA Obligation with the RTC. The settlement
resulted in the Company and the RTC entering into a Settlement, Release
and Loan Modification Agreement (The Agreement). The Agreement
provided, among other things, that upon execution of The Agreement, the
Company would pay to the RTC the sum of $290,000, transfer to the RTC
the San Diego property at an agreed upon price of $1,500,000 and sign a
promissory note in favor of the RTC in the principal amount of
$2,710,000. The effect of the foregoing was to reduce the amount of
the SASA Obligation by $8,616,000. In connection with the settlement,
the Company incurred legal fees and other costs in the approximate
amount of $190,000.

A reconciliation of the extraordinary item as shown in the Consolidated
Statements of Income (Loss) with the supplemental schedules of non-cash
investing and financing activities as shown in the Consolidated
Statements of Cash Flow for the year ended December 31, 1995 is as
follows:

Non-cash gain from extraordinary items--
Settlement of liabilities $8,619,000

Less: Cash paid for legal fees (190,000)
Tax effects (80,000)
Cash paid for miscellaneous expenses (3,000)
----------
Extraordinary item -- net of tax effect $8,346,000
==========

<PAGE>F-30

15. SEGMENT INFORMATION:

The Company operates in two principal business segments: Real estate
investments (development and sale of residential lots and rental of
agricultural land), and agricultural (drying and storing rice).

The Company's real estate segment sells completed residential lots
primarily to builders of custom homes and to the general public located
in and around the greater Sacramento, California area. The
agricultural properties are leased to farmers in the area where the
agricultural properties are located.

The agricultural segment dries harvested rice over a two month period
(approximately September 15 to November 15) and stores, for a fee, the
dried rice (or other grains) until it is removed by the owner. The
Company dries and stores rice for principally one customer, Farmers
Rice Co-operative (Farmers). Farmers accounts for approximately 98% of
the rice drying and storage revenues. If the Company were to lose
Farmers as a customer, it would have a material adverse effect on the
drying and storage operation.

Following is a summary of segmented information for 1997, 1996, and 1995:

1997 1996 1995
Net revenues from unaffiliated customers:
Real estate:
Sale of real estate $ 7,146 $ 1,128 $ 1,901
Land rent 529 948 485
Rice drying and storage revenue 806 787 752
------- ------- -------
$ 8,481 $ 2,683 $ 3,138
======= ======= =======
Income (loss) from operations:
Real estate $ 626 $ (254) $ (482)
Rice drying and storage 211 (42) 162
------- ------- -------
837 (296) (320)
Corporate operating expense (1,290) (1,496) (1,537)
Other income (expense) 35 100 (205)
Income taxes (53) (13)
Minority interest (404) (97)
------- ------- -------

Loss before extraordinary item as
reported in the accompanying
consolidated statement of income
(loss) ($ 875) ($ 1,789) ($ 2,075)
======= ======= =======

<PAGE>F-31

15. SEGMENT INFORMATION (CONTINUED):

1997 1996
Identifiable assets
Real estate $ 4,359 $ 10,919
Rice drying and storage 3,213 1,477
General corporate assets 6,465 4,730
-------- --------
Total assets as reported in the accompanying
consolidated balance sheets $ 14,037 $ 17,126
======== ========

16. COMPUTATION OF PER SHARE EARNINGS (LOSS):

Earnings (loss) per share for the years ended December 31, 1997, 1996 and
1995 were computed as follows:

1997 1996 1995

Weighted average number of shares
outstanding 6,375,096 6,375,096 6,429,822
========== ========== ==========

Loss before extraordinary item $ $ $ (2,075)
Extraordinary item 8,346
----------
Net income (loss) for the year (875) (1,789) 6,271
Dividends applicable to preferred
shares (72) (72) (72)
---------- ---------- ----------
Net income (loss) used for
computing net earnings (loss)
per common share $ (947) $ (1,861) $ 6,199
========== ========== ==========

Net earnings (loss) per common
share $ (.14) $ (.29) $ .97
========== ========== ==========

<PAGE>S-1
<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
December 31, 1997
<S> <C> <C> <C> <C> <C>
SCHEDULE II
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
(1) (2)
Balance at Charges to Charges to Other changes Balance
beginning Costs and other accounts- add (deduct) at end of
Classification of period expenses describe describe period
(Dollars in thousands)
Allowance for doubtful accounts:
Long-term notes receivable -
Related Party $ 2,049 ($ 2,049)(1)
Accounts receivable 141 (141)(2)
Real Estate Sales $ 64 $ 64
-------- -------- -------- -------- -------
$ 2,190 $ 64 ($ 2,190) $ 64
======== ======== ======== ======== =======
(1) Offset to related notes
receivable
(2) Bad recovery

Allowance for doubtful accounts:
Long-term notes receivable -
related party 1,566 483 2,049
Accounts receivables 23 118 141
-------- -------- -------- -------- -------
$ 1,589 $ 601 $ 0 $ 0 $ 2,190
======== ======== ======== ======== =======

Allowance for doubtful accounts:
Accounts Receivable $ 23 $ 23
Long-term notes receivable 1,174 $ 61(2) (1,235)(1) 0
Notes Receivable - Director $ 427 382 72 (881)(1) 0
Long-term notes receivable -
related party 2,967 41(2) (1,442)(3) 1,566
-------- -------- -------- -------- -------
$ 4,568 $ 405 $ 174 ($3,558) $1,589
======== ======== ======== ======= =======

(1) Write off against allowance
(2) Interest income
(3) Bad debt recovery
</TABLE>

<PAGE>S-4

<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Gross amount which carried
Initial Costs capitalized Gross amount which carried
Cost to Company subsequent to at close of period (Note 1)
Buildings Acquisition Buildings
and Carrying and
Description Encumbrances Land Improvements Improvements Costs Land Improvements Total
(Dollars in Thousands)
REAL ESTATE HELD FOR Deed of
SALE Trust in
Approximately 110 favor of
residential lots favor of
located in Rancho Resolution
Murieta, California Trust
(The Fairways) Corporation
(2) $1,062
$3,880 $6,837 $4,173 $4,173
Approximately 80
acres of unimproved
land located in
Auburn, California 40 40 40

Approximately 4,600
acres located in
Fresno and Merced
County, California 1,866 276 146 146
1,062 5,786 6,837 276 4,359 4,359

REAL ESTATE INCLUDED
IN PROPERTY, PLANT
AND EQUIPMENT Rice
storage facility
located in Yolo
County, California 159 1,678 1,791 15 159 3,484 3,643

$1,062 $5,945 $1,678 $8,628 $ 291 $4,518 $3,484 $8,002
</TABLE>

COLUMN F COLUMN G COLUMN H COLUMN I
Life on which
depreciation in
latest income
Accumulated Date of Date statement is
Description depreciation construction acquired computed

Real Estate Held For
Sale Approximately
110 Residential lots
located in Rancho
Murieta, California
(The Fairways)
01/31/90

Approximately 80
acres of unimproved
land located in
Auburn, California 03/08/94

Approximately 4,600
acrres located in
Fresno and Merced
County, California 03/23/88

Real Estate Included
in Property, Plant
and Equipment
Rice storage facility
located in Yolo 1985 & 11/90 & 10-31
County, California 430 1997 9/97 years

$430

<TABLE>
<CAPTION>
December 31, December 31,
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1995 1997 1996 1995
Accumulated Depreciation
Reconciliation: Reconciliation:
Balance-beginning of period $359 $301 $243 Balance-beginning
of period $12,756 $11,348 $12,920
Additions during period: Additions during
period:
Provision for depreciation 71 58 58 Improvements 17
Other acquisitions 1,806 2,841 427
14,562 14,189 13,364
Balance-end of period $430 $359 $301 Deductions during
period:
Cost of sales 6,560 1,143 1,732
Valuation allowance 290 284
Balance-close of
period $ 8,002 $12,756 $11,348
</TABLE>

Note 1 - The cost basis for Federal Income Tax purposes is the same as for
financial reporting purposes.

Note 2 - Valuation allowances have been provided against the lots in Rancho
Murieta. The purpose of valuation was to reduce the carrying value to
estimated market value.

<PAGE>S-5

<TABLE>
<CAPTION>
DUNES HOTELS AND CASINOS INC. AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 1997
<S> <C> <C> <C> <C> <C> <C> <C>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H
Prnicipal
Amount of
Loans
Carrying Subject to
Final Periodic Face Amount of Delinquent
Interest Maturity Payment Prior Amount of Mortgages Principal
Description Rates Date Term Liens Mortgages (Note 3) or Interest

Collateralized by
Sam Hamburg Farm
Property:
Delgado 9.00% 02/22/00 Note 1 None $ 50,099 $30,059 $ 0
ATB Packing 8.50% 02/08/00 Note 2 None 126,737 57,032 0
Subtotal 176,836 87,091 0
Collateralized by
property in
Houston, Texas
Parvizian 9.00% 12/31/97 Note 5 None 125,000 20,000

Collateralized by
the Fairways
Property:
Consolidated
Kapital, Inc. 8.00% 01/25/97 Note 3 & 4 None 164,160 100,000 164,160
Threatte Family
Ltd. Partnership 8.25% 06/20/00 Note 3 None 60,100 60,100
Threatte Family
Ltd. Partnership 8.25% 06/20/00 Note 3 None 43,900 43,900 0
James, Raymond L.
& Cheryle 10.00% 12/14/97 Note 3 None 79,200 79,200 0
Conners, James
& Dorrie 8.50% 03/15/00 Note 3 None 63,000 63,000 0
Subtotal 410,360 346,200 164,160
TOTAL $712,196 $453,291 $164,160

12/31/97
Balance at Beginning of $910,331
Additions During Period:
New Mortgage Loans 104,000
1,014,331
Deduction During Period:
Reduction of Principal 561,040
Balance at End of Period $ 453,291
</TABLE>

Note 1 - Interest Payable Quarterly - Prnicipal payable in 5 equal annual
installments.
Note 2 - Principal and interest payable quarterly until maturity.
Note 3 - Interest payable monthly until maturity.
Note 4 - Subject to a collateral assignment in favor of the Resolution Trust
Corporation as Receiver for San Antonio Savings Association, F.A.
Note 5 - Interest payable quarterly until maturity.

<PAGE>E-1

EXHIBIT INDEX

EXHIBIT
NO. DESCRIPTION

21.1 Subsidiaries of Registrant.

27.1 Financial Data Schedule

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

M & R CORPORATION ("MRC"), Delaware

M & R Investment Company, Inc. ("MRI"), Nevada
wholly-owned by MRC

SHF Acquisition Corporation, Nevada
wholly-owned by MRI

Southlake Acquisition Corporation, Nevada
wholly-owned by MRI

CONTINENTAL CALIFORNIA CORPORATION, Delaware
wholly-owned by Registrant

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF INCOME (LOSS) ON
PAGES F-2 THROUGH F-5 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,299
<SECURITIES> 673
<RECEIVABLES> 3
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 3,729
<DEPRECIATION> 477
<TOTAL-ASSETS> 14,037
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
5
<COMMON> 3,900
<OTHER-SE> 5,591
<TOTAL-LIABILITY-AND-EQUITY> 14,037
<SALES> 7,146
<TOTAL-REVENUES> 8,398
<CGS> 6,658
<TOTAL-COSTS> 7,274
<OTHER-EXPENSES> 1,754
<LOSS-PROVISION> (94)
<INTEREST-EXPENSE> (201)
<INCOME-PRETAX> (418)
<INCOME-TAX> (53)
<INCOME-CONTINUING> (471)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (875)
<EPS-PRIMARY> (.14)
<EPS-DILUTED> (.14)

</TABLE>