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

                                   FORM 10-Q
 
[ X ]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934
                             
FOR THE QUARTERLY PERIOD ENDED:    JUNE  30, 1997
                               -------------------------------------------------
[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 For the transition period from_________to__________
                                
COMMISSION FILE NUMBER:                  1-9481
                       ---------------------------------------------------------
 
                          SANTA FE GAMING CORPORATION
 -------------------------------------------------------------------------------
            (Exact name of registrant as specified in its charter)

 
<TABLE> 
 <S>                                                                <C> 
                               NEVADA                                              88-0304348
 ------------------------------------------------------------       --------------------------------------
(State or other jurisdiction of incorporation or organization)      (I.R.S. Employer Identification Number)
</TABLE> 

               4949 NORTH RANCHO DRIVE, LAS VEGAS, NEVADA  89130
--------------------------------------------------------------------------------
             (Address of principal executive office and zip code)

                                (702) 658-4300
            ------------------------------------------------------
            (Registrant's  telephone  number, including area code)


             ----------------------------------------------------
             (Former name, former address and former fiscal year, 

                         -----------------------------
                         if changed since last report)

     Indicate by a 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
                                               -----         ----     

               APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.  YES_____               NO_____

                     APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

              6,195,356                   as of         August 13, 1997
------------------------------------------     ---------------------------------
         Amount  Outstanding                                   Date
<PAGE>
 
                  SANTA FE GAMING CORPORATION AND SUBSIDIARIES


                                     INDEX

<TABLE> 
<CAPTION> 
                                                                           Page
                                                                           ----
<S>                                                                        <C> 
PART I.   FINANCIAL INFORMATION

     Item 1. Consolidated Condensed Financial Statements
 
               Balance sheets at June 30, 1997
               (unaudited) and September 30, 1996                           2
 
               Statements of Operations for the three and nine
               months ended June 30, 1997 and 1996
               (unaudited)                                                  3
 
               Statement of Changes in Stockholders' Equity
               for the nine months ended June 30, 1997
               (unaudited)                                                  4
 
               Statements of Cash Flows for the nine months
               ended June 30, 1997 and 1996 (unaudited)                     5
 
               Notes to Consolidated Condensed Financial
               Statements (unaudited)                                       6
 
               Independent Accountants'  Review Report                     14
 
     Item 2.   Management's Discussion and Analysis of
               Financial Condition and Results of
              Operations                                                   15

PART II.    OTHER INFORMATION                                              26
</TABLE> 

                                       1
<PAGE>
 
                        Santa Fe Gaming Corporation and
                           Subsidiaries Consolidated
                           Condensed Balance Sheets
<TABLE>
<CAPTION>

                                                               June 30,       September 30,
             ASSETS                                              1997             1996
-------------------------------------------------            ------------     ------------
<S>                                                         <C>              <C> 
                                                            (Unaudited)
Current assets:
  Cash and short-term investments                            $ 10,205,138     $ 17,497,824
  Accounts receivable, net                                      1,414,853        1,529,723
  Accounts receivable, officer                                    674,485          636,113
  Inventories                                                   1,169,741        1,218,120
  Prepaid expenses & other                                      4,934,592        3,778,514
  Assets held for sale                                                  0        2,424,821
                                                             ------------     ------------

Total current assets                                           18,398,809       27,085,115

Land held for development                                      38,194,065       38,194,065

Property and equipment, net                                   105,744,418      110,217,659

Goodwill                                                       44,999,511       46,073,869

Other assets                                                    7,831,215        7,085,069
                                                             ------------     ------------

Total assets                                                 $215,168,018     $228,655,777
                                                             ============     ============



LIABILITIES and STOCKHOLDERS' EQUITY
-------------------------------------------------

Current liabilities:
  Current portion of long-term debt                          $ 12,417,139     $  3,770,817
  Accounts payable                                              4,829,186        5,757,161
  Interest payable                                              1,858,238        7,142,225
  Accrued and other liabilities                                 8,727,840        9,134,856
                                                             ------------     ------------

Total current liabilities                                      27,832,403       25,805,059

Deferred income taxes                                                   0        2,687,751

Long-term debt - less current portion                         162,235,666      167,687,476

Commitments

Stockholders' equity:
  Common stock, $.01 par value; authorized-100,000,000
    shares; issued and outstanding-6,195,356 shares                61,954           61,954
  Preferred stock, exchangeable, redeemable 8% cumulative,
    stated at $2.14 liquidation value, authorized-10,000,000
    shares; issued and outstanding-8,856,651 shares            20,090,427       18,953,233
  Additional paid-in capital                                   51,513,504       51,513,504
  Accumulated deficit                                         (46,478,162)     (37,965,426)
                                                             ------------     ------------      
    Total                                                      25,187,723       32,563,265

  Less treasury stock - 4,875 shares, at cost                     (87,774)         (87,774)
                                                             -------------    ------------

Total stockholders' equity                                     25,099,949       32,475,491
                                                             -------------    ------------


Total liabilities and stockholders' equity                   $215,168,018     $228,655,777
                                                             ============     ============
</TABLE>

See the accompanying Notes to Consolidated Condensed Financial Statements.

                                       2
<PAGE>
 
                 Santa Fe  Gaming Corporation and Subsidiaries
                Consolidated Condensed Statements of Operations
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                         Three Months   Three Months    Nine Months    Nine Months    
                                                            Ended          Ended              Ended          Ended       
                                                        June 30, 1997   June 30, 1996  June 30, 1997   June 30, 1996   
                                                         -----------    -----------    -----------    -----------   
                                                                                                                    
<S>                                                    <C>            <C>            <C>            <C>             
Revenues:                                                                                                           
  Casino                                                 $22,283,530    $20,374,926    $63,609,645    $65,205,811   
  Hotel                                                    1,051,280      1,063,904      3,061,682      3,028,663   
  Food and beverage                                        2,729,467      2,812,246      8,086,735      8,488,705   
  Other revenues                                           1,451,711      1,698,950      5,648,056      6,380,207   
  Gain on sale of assets                                           0              0              0     40,753,738   
                                                         -----------    -----------    -----------    -----------   
                                                                                                                    
Total revenues                                            27,515,988     25,950,026     80,406,118    123,857,124   
                                                         -----------    -----------    -----------    -----------   
                                                                                                                    
Operating expenses:                                                                                                 
  Casino                                                  10,720,016     10,943,438     31,749,544     32,732,907   
  Hotel                                                      457,155        474,049      1,319,149      1,365,017   
  Food and beverage                                        3,438,509      4,040,954     10,898,320     11,803,497   
  Other operating expenses                                   738,779        850,305      2,212,925      2,684,479   
  Selling, general & administrative                        3,553,412      3,826,082     10,601,997     12,014,077   
  Utilities & property expenses                            3,111,085      2,652,156      9,083,909      7,429,110   
  Depreciation & amortization                              2,753,904      3,532,881      8,241,501     10,868,140   
                                                         -----------    -----------    -----------    -----------   
                                                                                                                    
Total operating expenses                                  24,772,860     26,319,865     74,107,345     78,897,227   
                                                         -----------    ------------   -----------    -----------   
                                                                                                                    
Operating income (loss)                                    2,743,128       (369,839)     6,298,773     44,959,897   
                                                                                                                    
Interest expense                                           5,585,080      5,766,250     16,948,978     18,716,389   
                                                         -----------    -----------    -----------    -----------   
                                                                                                                    
Income (loss) before income tax expense                                                                             
  (benefit) and extraordinary item                        (2,841,952)    (6,136,089)   (10,650,205)    26,243,508   
                                                                                                                    
Federal income tax expense (benefit)                        (491,055)    (1,965,000)    (2,902,340)     9,195,000   
                                                         -----------    -----------    -----------    -----------   
                                                                                                                    
Income (loss) before extraordinary item                   (2,350,897)    (4,171,089)    (7,747,865)    17,048,508   
                                                                                                                    
Extraordinary item-gain on early extinguishment                                                           
  of debt, net of tax provision of $200,482                                                                         
  in 1997 and $4,229,000 in 1996                             372,323              0        372,323      7,854,707   
                                                         -----------    -----------    -----------    -----------   
                                                                                                                    
Net income (loss)                                         (1,978,574)    (4,171,089)    (7,375,542)    24,903,215   
                                                                                                                    
Dividends on preferred shares                                379,065        364,432      1,137,194      1,065,848   
                                                         -----------    -----------    -----------    -----------   
                                                                                                                    
Net income (loss) applicable to common shares            ($2,357,639)   ($4,535,521)   ($8,512,736)   $23,837,367   
                                                         ===========    ===========    ===========    ===========   
                                                                                                                    
Average common shares outstanding                          6,195,356      6,195,356      6,195,356      6,195,356   
                                                         ===========    ===========    ===========    ===========   
                                                                                                                    
Income (loss) per common share                                ($0.38)        ($0.73)        ($1.37)         $3.85   
                                                         ===========    ===========    ===========    ===========    

</TABLE>
See the accompanying Notes to Consolidated Condensed Financial Statements.

                                       3
<PAGE>
 
                 Santa Fe Gaming Corporation and Subsidiaries
           Consolidated Condensed Statements of Stockholders' Equity
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                               Additional
                                        Common    Preferred     Paid-in    Accumulated    Treasury       
                                         Stock      Stock       Capital      Deficit       Stock       Total    
                                        -------  -----------  -----------  ------------   --------   -----------
<S>                                     <C>      <C>          <C>          <C>            <C>        <C>        
Balances, October 1, 1996               $61,954  $18,953,233  $51,513,504  ($37,965,426)  ($87,774)  $32,475,491
                                                                                                                
Net loss                                                                     (7,375,542)              (7,375,542)
                                                                                                                
Preferred stock dividend accrued                   1,137,194                 (1,137,194)                       0
                                        -------  -----------  -----------  ------------   --------   -----------
                                                                                                                
Balances, June 30, 1997                 $61,954  $20,090,427  $51,513,504  ($46,478,162)  ($87,774)  $25,099,949
                                        =======  ===========  ===========  ============   ========   =========== 

</TABLE>

See the accompanying Notes to Consolidated Condensed Financial Statements.

                                       4
<PAGE>
 
                 Santa Fe Gaming Corporation and Subsidiaries
                Consolidated Condensed Statements of Cash Flows
                                  (Unaudited)
<TABLE>
<CAPTION>

                                                                 Nine Months      Nine Months
                                                                    Ended            Ended
                                                                  30-Jun-97        30-Jun-96
--------------------------------------------                    ------------    -------------

<S>                                                             <C>            <C>
Cash flows from operating activities:
 Cash and short-term investments
  provided by operations                                          $2,164,108      $37,098,150   
     Gain on sale of assets                                                       (40,753,738)  
     Gain on sale of land held for development                      (725,179)                   
     Gain on early extinguishment of debt                           (372,323)      (7,854,707)  
     Deferred gain on sale of equipment                                              (962,552)  
     Decrease in accounts receivable, net                            114,870        3,547,883   
     Increase in accounts receivable, officer                        (38,372)         (78,424)  
     Decrease in inventories                                          48,379          231,874   
     Decrease (increase) in prepaid expenses & other              (1,156,066)         575,309   
     Increase (decrease) in deferred income taxes                 (2,888,233)       9,195,000   
     Decrease (increase) in other assets                          (1,614,350)       2,409,023   
     Decrease in accounts payable                                   (927,975)        (827,790)  
     Decrease in interest payable                                 (5,031,376)      (7,361,822)  
     Decrease in accrued and other liabilities                      (300,202)      (5,562,441)  
                                                                ------------    -------------   
                                                                                                
Net cash used in operating activities                            (10,726,719)     (10,344,235)  
                                                                ------------    -------------   
                                                                                                
Cash flows from investing activities:                                                           
     Proceeds from sale of assets                                                 128,508,377   
     Proceeds from sale leaseback of equipment                                      3,570,000   
     Proceeds from sale of land held for development               3,150,000                    
     Decrease in restricted cash                                                       95,569   
     Capital expenditures                                         (1,551,270)      (4,369,535)  
                                                                ------------    -------------   
                                                                                                
Net cash provided by investing activities                          1,598,730      127,804,411   
                                                                ------------    -------------   
                                                                                                
Cash flows from financing activities:                                                           
     Cash proceeds of long-term debt                               6,675,658       20,000,000   
     Cash paid on long-term debt                                  (4,840,355)    (163,565,349)  
                                                                ------------    -------------   
                                                                                                
Net cash provided by (used in) financing activities                1,835,303     (143,565,349)  
                                                                ------------    -------------   
                                                                                                
Decrease in cash and short-term investments                       (7,292,686)     (26,105,173   
                                                                                                
Cash and short-term investments,                                                                
  beginning of period                                             17,497,824       42,749,932   
                                                                ------------    -------------   
                                                                                                
Cash and short-term investments,                                                                
  end of period                                                 $ 10,205,138    $  16,644,759   
                                                                ============    =============    

</TABLE> 

See the accompanying Notes to Consolidated Condensed Financial Statements.


                                       5
<PAGE>
 
                          SANTA FE GAMING CORPORATION

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                  (Unaudited)

NOTE 1 - BASIS OF PRESENTATION AND GENERAL INFORMATION

Santa Fe Gaming Corporation, formerly known as Sahara Gaming Corporation, (the
"Company" or "Santa Fe Gaming"), a publicly traded Nevada corporation, is the
successor corporation of two affiliates, Sahara Resorts and Sahara Casino
Partners, L.P., which combined in a business combination in September, 1993. The
Company's primary business operations are conducted through two wholly owned
subsidiary corporations, Santa Fe Hotel Inc. ("SFHI") and Pioneer Hotel Inc.
("PHI") (the "Operating Companies"). SFHI owns and operates the Santa Fe Hotel
and Casino (the "Santa Fe"), located in Las Vegas, Nevada, and PHI owns and
operates the Pioneer Hotel & Gambling Hall (the "Pioneer") in Laughlin, Nevada.
The Company owns real estate adjacent to the Santa Fe, on Las Vegas Bouelvard
South through an indirect wholly owned subsidiary of the Company, Sahara Las
Vegas Corp ("SLVC"), and in Henderson, Nevada through a wholly-owned subsidiary
of the Pioneer for possible development opportunities. The Company, through its
wholly-owned subsidiaries, Hacienda Hotel Inc. ("HHI") and Sahara Nevada Corp
("SNC") previously owned and operated the Hacienda Resort Hotel & Casino (the
"Hacienda") and the Sahara Hotel & Casino (the "Sahara"), but sold substantially
all of the assets related to those hotel/casinos in August 1995 and October
1995, respectively.

These consolidated condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report to stockholders for the year ended September 30, 1996.
The results of operations for the three and nine month periods ended June 30,
1997 and 1996 are not necessarily indicative of the results to be expected for
the entire year.

In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
accruals) necessary to present fairly the financial position of the Company at
June 30, 1997, the results of its operations for the three and nine month
periods ended June 30, 1997 and 1996, the changes in stockholders' equity for
the nine month period ended June 30, 1997, and cash flows for the nine month
periods ended June 30, 1997 and 1996.

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results may differ from estimates.

                                       6
<PAGE>
 
Recently Issued Accounting Standards

The Financial Accounting Standard Board ("FASB") recently issued SFAS No. 128
"Earnings per Share".  This statement establishes standards for computing and
presenting earnings per share and is effective for financial statements issued
for periods ending after December 15, 1997.  Earlier application of this
statement is not permitted and upon adoption requires restatement (as
applicable) of all prior-period earnings per share data presented.  Management
believes that the implementation of this standard will not have a significant
impact on earnings per share.

In addition, the FASB issued SFAS No. 129, Disclosure of Information about
Capital Structure in February 1997.  This statement establishes standards for
disclosing information about an entity's capital structure.  Management intends
to comply with the disclosure requirements of this statement which are effective
for periods ending after December 15, 1997.

On June 30, 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This statement requires companies to classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position, and is effective for financial statements issued for fiscal years
beginning after December 15, 1997.  Management does not believe this new FASB
will have material impact on their financial statements.

On June 30, 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information.  This statement establishes additional
standards for segments reporting in the financial statements and is effective
for fiscal years beginning after December 15, 1997.  Management has not
determined the effect of this statement on its financial statement disclosure.

NOTE 2 - CASH AND SHORT-TERM INVESTMENTS

At June 30, 1997, approximately $6.1 million of the Company's consolidated cash
and short term investments was held by SFHI and was subject to certain
restrictions and limitations on its use, including restrictions on its
availability for distribution to the Company, by the terms of an indenture
pursuant to which $115 million principal amount of 11% First Mortgage Notes due
2000 ("11% Notes") of SFHI was issued.  As of June 30, 1997, SFHI did not meet
the conditions precedent to making a distribution to the Company.

At June 30, 1997, approximately $3.3 million of the Company's consolidated cash
and short-term investments was held by PHI and was subject to certain
restrictions, including restrictions on its availability for distribution to the
Company, by the terms of an indenture pursuant to which the 13 1/2% First
Mortgage Notes due 1998 ("13 1/2% Notes") of Pioneer 

                                       7
<PAGE>
 
Finance Corp. were issued. As of June 30, 1997, PHI did not meet the conditions
precedent to making a distribution to the Company.

NOTE 3 - ACCOUNT RECEIVABLE OFFICER

As of June 30, 1997 and September 30, 1996, Accounts Receivable, Officer
reflects an unsecured demand loan in the principal amount of $476,000, which,
together with accrued interest, totaled approximately $674,000 and $636,000,
respectively, from HHI to LICO, a company wholly-owned by Paul W. Lowden,
Chairman of the Board, Chief Executive Officer and 52% stockholder of the
Company.  The loan from HHI to LICO bears interest at the rate equal to 2% over
the prime rate.  In January 1997, the Company and Mr. Lowden agreed that the
Company may offset amounts due Mr. Lowden under certain compensation
arrangements against the outstanding balance of the loan beginning in 1998.

NOTE 4 - ASSETS HELD FOR SALE

In November 1996, the Company sold an option to acquire a 40 acre parcel located
approximately eight miles south of the former Hacienda on Las Vegas Boulevard
South for $2.8 million.  Pursuant to the option agreement, the option holder
exercised the option in February, 1997 to purchase the property for $350,000 in
additional net proceeds to the Company.  The Company reported a $730,000 gain on
the sale and has included this gain in other revenues in the quarter ended March
31, 1997.

NOTE 5 - LONG-TERM DEBT

In December 1996, the Company borrowed approximately $1.6 million pursuant to a
first mortgage note secured by the 22 acre parcel of real property adjacent to
the Santa Fe ("Land Note").  The Land Note requires interest only payments at a
12% per annum interest rate for a three-year term.  The Company utilized
proceeds from the Land Note to satisfy an existing first mortgage note of
$850,000 and expenses of the transactions resulting in net proceeds of
approximately $650,000.

In April 1997, the Company acquired $3.5 million principal amount of 10 1/4%
Subordinated Sinking Fund Debentures ("Debentures"), due 1998.  The Company
submitted $2.3 million in Debentures to the trustee for cancellation in
satisfaction of the sinking fund payment due in June 1997.  In addition, the
Company submitted $1.2 million for cancellation in reduction of the balance due
at maturity in June 1998.  The Company recorded a $700,000 extraordinary gain
before amortization of debt discount and original issue cost and federal income
tax on the purchase which is reported in the quarter ended June 30, 1997.

                                       8
<PAGE>
 
In May 1997, the Company borrowed $5.0 million at a rate of 12 1/4% interest,
payable monthly for a twelve month term, pursuant to a first mortgage note
secured by the 39 acre parcel of land located in Henderson, Nevada (the "12 1/4%
Note").

In August 1997, the Company and the holders of the 12% First Mortgage Notes due
1999 ("12% Notes") secured by, among other things, the 27 acre real property
located on Las Vegas Boulevard South, amended the terms of the 12% Notes to,
among other things, (i) provide for the issuance of up to an additional $20
million of 12% Notes, (ii) provide for the deferral of a $500,000 principal
payment originally due on December 31, 1996 from June 30, 1997, until December
31, 1997, and (iii) revise a covenant requiring redemption of 12% Notes (or
alternatively the redemption of 11% Notes), in the event cash flow (before
maximum of $2.4 million lease payments) at the Santa Fe is less than $13.5
million for any four-quarter period commencing with the four-quarter period
ending December 31, 1997. (See Note 10 - Subsequent Events)

NOTE 6 - STOCKHOLDERS' EQUITY

Prior to fiscal 1997, the Company satisfied the semi-annual dividend payments on
its preferred stock through the issuance of paid-in-kind dividends. Commencing
in fiscal 1997, dividends paid on the preferred stock, to the extent declared,
must be paid in cash. Pursuant to the terms of the Certificate of Designation
with respect to the preferred stock, dividends that are not declared are
cumulative and accrue at a rate per annum equal to 8% of $2.14 for each share of
preferred stock. The Company is a party to financing arrangements that restrict
the Company's ability to declare and pay dividends or make distributions with
respect to the Company's capital stock, which currently prohibit the payment of
cash dividends on the preferred stock.

In March 1997, the Company announced that it was not declaring the semi-annual
dividend with respect to its preferred stock. The accrued stock dividend has
been recorded as an increase to the preferred stock account.

Pursuant to the terms of the 12% Notes, as amended, while the 12% Notes are
outstanding the Company is prohibited from exercising an option to exchange the
Preferred Stock into Junior Subordinated Notes, beginning in September 1998.

NOTE 7 - LEASES

In December 1996, the Company executed an operating lease for 180 slot machines
at the Pioneer.  The lease requires monthly payments of $37,000 for a 36 month
term.

The Company amended the terms of Santa Fe operating leases entered into during
fiscal 1996 to, among other things, extend the term of the leases from 24 to 36
months and to

                                       9
<PAGE>
 
replace older gaming equipment with newer equipment.  Santa Fe's lease payments
aggregating approximately $250,000 per month, expire at various times between
March 1, 1999 and May 15, 2001.

NOTE 8 - INCOME TAXES

For the nine months ended June 30, 1997, a tax benefit of $2.7 million was
recognized. All of the benefit was a deferred tax benefit.  The tax benefit for
federal income taxes differs from the amounts computed by applying the federal
income tax rate of 35% to income before benefit for federal income taxes for the
following items (dollars in thousands):

<TABLE>
<CAPTION>
                                                   % of Pretax
                                           Amount     Income
                                           -------   --------
<S>                                        <C>       <C>
     Expected benefit for federal
        income taxes                       $3,527        35%
     Amortization of goodwill                (376)       (4%)
     Other, Net                              (449)       (4%)
                                           -------       ----
     Benefit for federal income taxes      $2,702        27%
                                           =======       ====
</TABLE>

The Company, as of September 30, 1996, had federal net operating loss credit
carryforwards of approximately $24.5 million expiring at various dates though
2010.

NOTE 9 - SUPPLEMENTAL INFORMATION

Supplemental statement of cash flows information for the nine month periods
ended June 30, 1997 and 1996 is presented below:

<TABLE>
<CAPTION>
                                                  1997          1996
                                               -----------   -----------
<S>                                            <C>           <C>
Operating Activities:
   Cash paid during the period
   for interest                                $21,139,499   $25,400,475
                                               ===========   ===========
 
Cash paid during the period for income taxes:  $   100,000   $         0
                                               ===========   ===========
 
Investing and Financing Activities:
   Debt incurred in connection with the
   acquisition of machinery and equipment      $   633,865   $    76,734
                                               ===========   ===========
 
Supplemental Schedule of Non Cash
Investing and Financing Activities
   Land acquired in exchange of assets         $         0   $21,504,400
                                               ===========   ===========
</TABLE>

NOTE 10 - SUBSEQUENT EVENTS

Amended 12% Notes - In 1997, the Company and the holders of the 12% Notes
-----------------                                                              
amended the terms of the 12% Notes to provide for the issuance of up to an
additional $20 million of 12% Notes.  The proceeds from an additional $15
million in 12% Notes were 

                                       10
<PAGE>
 
used as follows: (i) $2 million was deposited in a cash collateral account 
for future principal and interest payments on the 12% Notes, (ii) $1 million
was distributed to the Company and is restricted to certain uses, including debt
service obligations of the Company and its subsidiaries, and (iii) $12 million
is available to be used for certain expenses, and to repurchase 11% Notes, which
are and will be held as collateral for the 12% notes. If all the 12 million is
not used the Company will be required to redeem a principal amount of 12% Notes
equal to the amount of such proceeds not so used. As of August 13, 1997,
$500,000 remains available for such purposes. Pursuant to the amended agreement
relating to the 12% Notes, the Company has the right to borrow an additional $5
million, the proceeds of which may be used, among other things, to refinance the
12 1/4% Notes.

In addition, the Company and the holders of the 12% Notes, amended the terms of
the 12% Notes to, among other things, (i) provide for the deferral of a $500,000
principal payment originally due on December 31, 1996 from June 30, 1997, until
December 31, 1997, and (ii) revise a covenant requiring redemption of 12% Notes
(or alternatively the redemption of 11% Notes) in the event cash flow (before
maximum of $2.4 million in lease payments) at the Santa Fe is less than $13.5
million for any four-quarter period commencing with the four-quarter period
ending December 31, 1997 from the four-quarter period ending June 30, 1997.

As of August 13, 1997, there are $35 million principal amount of 12% notes
outstanding. Interest is payable semi-annually on June 20 and December 20 and
principal payments of $1 million and $500,000 are due December 31, 1997 and
1998, respectively. The 12% Notes, as amended, are guaranteed by the Company and
secured by, among other things, a 27 acre parcel of real property on the Las
Vegas Strip, Nevada and $33.1 million principal amount of the 11% Notes held by
Sahara Las Vegas Corp. ("SLVC") and collateral accounts consisting of $2.5
million in cash.

Investments - In July 1997, the U.S. Bankruptcy Court of New Orleans entered an
-----------                                                                    
order denying confirmation of the Company's Plan of Reorganization for Treasure
Bay Gaming & Resorts, Inc. ("Treasure Bay").  The Court simultaneously entered
an order for confirmation of the Plan of Reorganization proposed by the current
debtor-in-possession of Treasure Bay.

Investments - In August 1997, Santa Fe Mining Company, L.L.C. ("Santa Fe
-----------                                                             
Mining") converted a $100,000 working capital line of credit into a three-year
fully amortizing term loan. In addition, Santa Fe Mining entered into a
financing commitment for a three year fully amortizing Note at 11 1/2% per annum
for approximately $100,000 to finance the acquisition of slot equipment. The
Company owns a 50% equity interest in Santa Fe Mining, a restaurant/tavern
operation in Northwest Las Vegas. The Company and its partner have guaranteed
the above obligations.

                                       11
<PAGE>
 
11. Supplemental Statement of Subsidiary Information -
     For The Nine Months Ended June 30, 1997 and 1996


    The Company's primary operations are in the hotel/casino industry and in
fiscal years 1997 and 1996 are conducted through PHI and SFHI. "Other" below
includes financial information for the Company's other operations before
eliminating entries. In addition to the financial information for the nine
months ended June 30, 1997 and 1996, as set forth in the table below (dollars in
thousands), see notes 2, 5 and 7 for additional discussion of subsidiary
operations.

<TABLE> 
<CAPTION> 
                                Year        PHI         SFHI            Other       Eliminations     TOTAL
                             ---------   ---------   ---------        ---------     -----------     ---------
<S>                          <C>         <C>         <C>               <C>          <C>             <C>  
Operating revenues             1997      $ 31,688      $47,334         $ 2,524       ($1,140)       $ 80,406  
                                         ========      =======         =======       =======        ======== 
                                                                                                             
                                                                                                             
                               1996      $ 34,543      $47,101         $45,632       ($3,419)       $123,857  
                                         ========      =======         =======       =======        ======== 
                                                                                                             
                                                                                             

Operating income               1997      $  1,302      $ 4,877         $   834       ($  714)       $  6,299  
                                         ========      =======         =======       =======        ========
                                                                                                             
                                                                                                             
                               1996      $  2,488      $ 3,323         $41,065       ($1,916)       $ 44,960  
                                         ========      =======         =======       =======        ========
                                                                                                             
                                                                                                             
                                                                                                             
Interest expense               1997      $  6,046      $ 9,911         $ 1,706       ($  714)       $ 16,949  
                                         ========      =======         =======       =======        ========
                                                                                                             
                                                                                                             
                               1996      $  7,295      $10,231         $ 1,861       ($  671)       $ 18,716  
                                         ========      =======         =======       =======        ========
                                                                                                             
                                                                                                             
                                                                                                             
Depreciation and amortization  1997      $  4,186      $ 3,918         $   138                      $  8,242  
                                         ========      =======         =======       =======        ========
                                                                                                             
                                                                                                             
                               1996      $  4,518      $ 6,254         $    96                      $ 10,868  
                                         ========      =======         =======       =======        ========
                                                                                                             
                                                                                                             
                                                                                                              
Capital expenditures           1997      $    726      $ 1,266         $   193                      $  2,185  
                                         ========      =======         =======       =======        ========
                                                                                                             
                                                                                                             
                               1996      $  1,025      $ 3,079         $   266                      $  4,370  
                                         ========      =======         =======       =======        ========
                                                                                                             
                                                                                                             
                                                                                                             
Identifiable assets            1997      $111,012      $77,326        $ 28,075       ($1,245)       $215,168  
                                         ========      =======        ========       =======        ========
                                                                                                             
                                                                                                             
                               1996      $117,737      $84,320        $ 36,475       ($1,245)       $237,287  
                                         ========      =======        ========       =======        ======== 
</TABLE>


                                      12
<PAGE>
 
12. Supplemental Statement of Subsidiary Information
    For The Three Months Ended June 30, 1997 and 1996


     The Company's primary operations are in the hotel/casino industry and in
fiscal years 1997 and 1996 are conducted through PHI and SFHI. "Other" below
includes financial information for the Company's other operations before
eliminating entries. In addition to the financial information for the three
months ended June 30, 1997 and 1996, as set forth in the table below (dollars in
thousands), see notes 2, 5 and 7 for additional discussion of subsidiary
operations.

<TABLE>
<CAPTION>

                                      Year           PHI          SFHI       Other     Eliminations       TOTAL   
                                     ------        -------       -------     ------    ------------      -------  
<S>                                   <C>          <C>           <C>         <C>       <C>               <C>      
Operating revenues                    1997         $10,582       $16,767       $663           ($496)     $27,516  
                                                   =======       =======     ======    ============      =======  
                                      1996         $11,107       $15,597     $1,314         ($2,068)     $25,950  
                                                   =======       =======     ======    ============      =======  
                                                                                                                  
Operating income                      1997            $360        $2,701        $95           ($413)      $2,743  
                                                   =======       =======     ======    ============      =======  
                                      1996            $365          $913      ($162)        ($1,486)       ($370) 
                                                   =======       =======     ======    ============      =======  
                                                                                                                  
Interest expense                      1997          $2,039        $3,465       $494           ($413)      $5,585  
                                                   =======       =======     ======    ============      =======  
                                      1996          $2,076        $3,322       $609           ($241)      $5,766  
                                                   =======       =======     ======    ============      =======  
                                                                                                                  
Depreciation and amortization         1997          $1,394        $1,316        $44                       $2,754  
                                                   =======       =======     ======    ============      =======  
                                      1996          $1,507        $1,994        $32                       $3,533  
                                                   =======       =======     ======    ============      =======  
                                                                                                                  
Capital expenditures                  1997            $271          $754        $66                       $1,091  
                                                   =======       =======     ======    ============      =======  
                                      1996            $197          $750         $0                         $947  
                                                   =======       =======     ======    ============      =======   
</TABLE>

                                      13
<PAGE>
 
INDEPENDENT ACCOUNTANTS' REVIEW REPORT

Santa Fe Gaming Corporation:

We have reviewed the accompanying consolidated condensed balance sheet of Santa
Fe Gaming Corporation ( formerly Sahara Gaming Corporation) and subsidiaries
(the "Company") as of June 30, 1997, the related consolidated condensed
statements of operations for three-month and nine-month periods ended June 30,
1997 and 1996, stockholders' equity for the nine-month period ended June 30,
1997 and of cash flows for the nine-month periods ended June 30, 1997 and 1996,
in accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.  All
information included in these financial statements is the representation of the
Company's management.

A review of interim financial information consists principally of inquiries of
Company personnel and analytical procedures applied to financial data.  It is
substantially less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.  Accordingly, we do not
express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to such consolidated condensed financial statements in order for them to
be in conformity with generally accepted accounting principles.

We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Santa Fe Gaming Corporation and
subsidiaries as of September 30, 1996, and the related consolidated statements
of operations, stockholders' equity and of cash flows for the year then ended
(not presented herein); and in our report dated December 16, 1996 we expressed
an unqualified opinion on those consolidated financial statements.  In our
opinion, the information set forth in the accompanying consolidated condensed
balance sheet as of September 30, 1996 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.

DELOITTE & TOUCHE LLP

Las Vegas, Nevada
August 11, 1997

                                       14
<PAGE>
 
                          SANTA FE GAMING CORPORATION

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS - Nine Months Ended June 30, 1997 and 1996
----------------------------------------------------------------


CONSOLIDATED

Consolidated revenues for the nine month period ended June 30, 1997 were $80.4
million, a $2.7 million or 3.2% decrease from $83.1 million for the same period
in fiscal 1996, excluding a $40.8 million gain on the sale of assets in the
prior year period.  Revenues decreased by $2.9 million at the Pioneer Hotel and
Gambling Hall (the "Pioneer") and increased by $1.4 million at the Santa Fe
Hotel and Casino (the "Santa Fe"), excluding a $1.2 million intercompany gain in
the sale of land included in the prior year period. Revenues associated with
operations sold, primarily a recreational vehicle park, during prior periods
accounted for a $1.3 million decrease in revenues.

Consolidated operating income for the nine month period ended June 30, 1997 was
$6.3 million, a $2.1 million or 49.8% increase from $4.2 million for the same
period in fiscal 1996, excluding the $40.8 million gain on sale of assets.
Operating income increased by $2.8 million at the Santa Fe, excluding the
intercompany gain included in the prior year period, and decreased by $1.2
million at the Pioneer.

Consolidated interest expense for the nine month period ended June 30, 1997 was
$16.9 million, a $1.8 million decrease compared to $18.7 million for the same
period in fiscal 1996. Interest expense decreased by $300,000 at the Santa Fe
and $1.2 million at the Pioneer in the 1997 period due to the retirement in
January 1996 of approximately $5.6 million principal amount of 11% First
Mortgage Notes due 2000 ("11% Notes") issued by Santa Fe Hotel Inc. ("SFHI") and
the retirement  in January and March 1996 of approximately $22.8 million
principal amount of 13 1/2% First Mortgage Notes due 1998 issued by Pioneer
Finance Corp. ("13 1/2% Notes").

Consolidated loss before income taxes and extraordinary item for the nine month
period ended June 30, 1997 was $10.7 million, a $3.9 million decrease compared
to a loss of $14.5 million in the same period in the prior year, excluding the
$40.8 million gain on sale of assets.  Loss before income taxes and
extraordinary item at the Santa Fe decreased by $3.1 million in the nine months
ended June 30, 1997 compared to the prior year period, excluding the
intercompany gain included in the prior year period, and was unchanged at the
Pioneer.

                                       15
<PAGE>
 
SANTA FE

Revenues at the Santa Fe increased 3.2%, or $1.4 million, in the nine months
ended June 30, 1997 to $47.3 million as compared to $45.9 million in the same
period in the prior year, excluding a $1.2 million intercompany gain on the sale
of land included in the prior year period. Casino revenues increased 5.5%, or
$1.9 million, to $36.6 million from $34.7 million, comprised of an increase in
slot revenue of 8.4%, or $2.4 million, offset by decreases in table and other
gaming revenues of $500,000. Food and beverage revenues decreased 9.1%,or
$500,000, to $5.4 million from $5.9 million. The revenue increase for the nine
month period reflects the net effect of an increase in the current quarter of
$2.4 million offset by a decrease of approximately $800,000 during the first six
months of the current period. (See discussions of the most recent three month
period below). Since April 1996, revenues have been impacted due to construction
of an interchange north of the Santa Fe (at US 95 and Rancho). The Nevada
Department of Transportation has advised the Company that construction on the
interchange is expected to be completed before the end of fiscal 1997; however,
the Company has been advised that construction of an overpass at Lone Mountain
Road is scheduled to commence thereafter.

Operating expenses decreased by 3.0%, or $1.3 million. Casino expenses increased
by $1.0 million, or 6.0%, primarily due to increased promotional costs incurred
to directly market to members of the slot club to compete with other hotel-
casinos in the area. This was offset by a decrease of $1.0 million, or 14.4%, in
selling, general and administrative expenses as a result of more direct casino
marketing resulting in decreased general advertising and marketing costs. Food
and beverage expenses had volume and cost control related decreases of 10.7%, or
$800,000, over the prior year period. Utilities and property expenses increased
55.8%, or $2.1 million, attributable to an increase in rent expense due to
operating lease transactions completed in fiscal 1996 with respect to gaming
equipment. Decreases in depreciation and amortization of 37.4%, or $2.3 million,
were due to the sale of slot equipment in the prior fiscal year. Accordingly,
operating income increased $2.8 million, or 134.7%, to $4.9 million in 1997 from
$2.1 million in 1996, excluding the intercompany gain included in the prior year
period.

Interest expense decreased $300,000, or 3.1% to $9.9 million in 1997 compared to
$10.2 million in 1996, primarily due to the repurchase and retirement of $5.6
million principal amount of 11% Notes acquired in January 1996.

Santa Fe is negotiating with the Teamsters, Operating Engineers, Culinary and
Bartenders unions ("Unions") with respect to a collective bargaining agreement
covering certain employees at the Santa Fe. If negotiations result in an
agreement between SFHI and the Unions, operating expenses may increase. In the
event negotiations fail to result in an agreement; the Unions may call a strike,
which would result in operating revenues being adversely affected. In either
event, there could be a material adverse effect on the results of operations and
financial condition of Santa Fe and the Company.

                                       16
<PAGE>
 
PIONEER

Revenues at the Pioneer decreased 8.3%, or $2.9 million, to $31.7 million as
compared to $34.5 million in the prior year. Casino revenues were $27.0 million
in 1997, representing a decrease of 10.6%, or $3.2 million, from $30.2 million
when compared to the 1996 period, comprised primarily of decreases of 10.6%, or
$2.8 million, in slot revenue, and $200,000 or 6.7%, in table games revenues.
Food and beverage revenues increased 7.6%, or $200,000, to $2.7 million from
$2.5 million. The decrease in the fiscal 1997 period is believed to be primarily
due to the continued competitive gaming market environment in and around
Laughlin, including Indian gaming facilities operating in Arizona and Southern
California.

Operating expenses decreased $1.7 million, or 5.2%, to $30.4 million. Casino
expenses experienced volume-related decreases of 9.3%, or $1.4 million.
Selling, general and administrative expenses increased 7.7%, or $300,000,
primarily as a result of increased advertising and promotional costs.
Utilities and property expenses decreased 7.7%, or $300,000, primarily due to a
decrease in payroll expenses.  Decreases in depreciation and amortization
expenses of 7.3%, or $300,000, were related to the sale of certain equipment
during the prior year period.  Accordingly, operating income decreased by 47.7%,
or $1.2 million, to $1.3 million in fiscal 1997 from $2.5 million in fiscal
1996.

Interest expense decreased $1.2 million, or 17.1%, to $6.0 million in 1997
compared to $7.3 million in 1996, primarily due to the repurchase and retirement
of $22.8 million principal amount of 13 1/2% Notes in January and March 1996.

Three Months Ended June 30, 1997 and 1996
-----------------------------------------

CONSOLIDATED

Consolidated revenues for the three month period ended June 30, 1997 were $27.5
million, a $1.5 million, or 6.0%, increase from $26.0 million for the same
period in fiscal 1996. Revenues increased by $2.4 million at the Santa Fe,
excluding a $1.2 million intercompany gain on the sale of land included in the
prior year period, and decreased by $500,000 at the Pioneer.

Consolidated operating income for the three month period ended June 30, 1997 was
$2.7 million, a $3.1 million increase from a $400,000 loss for the same period
in fiscal 1996. Operating income increased by $3.0 million at the Santa Fe,
excluding the intercompany gain included in the prior year period, and was
unchanged at the Pioneer.

                                       17
<PAGE>
 
Consolidated interest expense for the three month period ended June 30, 1997 was
$5.6 million, a $200,000, or 3.1%, decrease compared to $5.8 million for the
same period in fiscal 1996.  Interest expense decreased by  $100,000 at the
Santa Fe in the 1997 period.

Consolidated loss before income taxes and extraordinary item for the three month
period ended June 30, 1997 was $2.8 million, a $3.3 million decrease compared to
$6.1 million in the same period in the prior year.  Net loss before income taxes
and extraordinary item at the Santa Fe decreased by $2.9 million in the quarter
ended June 30, 1997 compared to the prior year period, excluding the
intercompany gain included in the prior year period, and was unchanged at the
Pioneer.

SANTA FE

Revenues at the Santa Fe increased 16.8%, or $2.4 million, in the three months
ended June 30, 1997 to $16.8 million as compared to $14.4 million in the same
period in the prior year, excluding a $1.2 million intercompany gain on the sale
of land, included in the prior year period. Casino revenues increased 23.2%, or
$2.5 million, to $13.4 million from $10.8 million, comprised of increases in
slot revenue of 24.8%, or $2.3 million. Management believes that slot revenues
during the current period increased in part, from the installation of new games,
and a new advertising campaign. Since April 1996, revenues, have been impacted
due to the construction of an interchange north of the Santa Fe (at US 95 and
Rancho). The Nevada Department of Transportation has advised the Company that
construction on the interchange is expected to be completed before the end of
fiscal 1997; however, the Company has been advised that construction of an
overpass at Lone Mountain Road is scheduled to commence thereafter.

Operating expenses decreased by 4.2%, or $600,000. Casino expenses increased by
$400,000, or 7.2%, primarily due to increased promotional costs incurred by the
slot club to compete with other hotel-casinos in the area. This was partially
offset by a decrease of $200,000, or 11.7%, in selling, general and
administrative expenses as a result of more direct casino marketing resulting in
decreased general advertising and marketing costs. Food and beverage expenses
decreased 20.6%, or $600,000, over the prior year period, related to both
decrease in volume and improved control of cost-of-sales. Utilities and property
expenses increased 38.5%, or $500,000, attributable to an increase in rent
expense due to sale leaseback transactions completed in fiscal 1996 with respect
to gaming equipment. Decreases in depreciation and amortization of 34.0%, or
$700,000, were due to the sale of slot equipment in the prior fiscal year.
Accordingly, operating income increased $3.0 million to $2.7 million in 1997
from a loss of $300,000 in 1996, excluding the intercompany gain included in the
prior year period. Results for the third quarter are not necessarily indicative
of the results to be expected in the future.

                                       18
<PAGE>
 
PIONEER

Revenues at the Pioneer decreased 4.7%, or $500,000, in the three month period
ended June 30, 1997 to $10.6 million as compared to $11.1 million in the same
period in the prior year.  Casino revenues were $8.9 million in 1997,
representing a decrease of 6.3%, or $600,000, comprised primarily of a 7.9%, or
$600,000, decrease in slot revenue.  The decrease is believed to be primarily
due to the continued competitive gaming market environment in and around
Laughlin, including Indian gaming facilities opened in Arizona and Southern
California.

Operating expenses decreased $500,000, or 4.8%, to $10.2 million. Casino
expenses experienced volume-related decreases of 9.3%, or $500,000.  Selling,
general and administrative expenses increased 10.7%, or $100,000, primarily as a
result of increased advertising and promotional costs.  A decrease in
depreciation and amortization expense of 7.5%, or $100,000, was related to the
sale of gaming equipment during the prior year period.  Accordingly, operating
income  of $400,000 was unchanged in fiscal 1997 from fiscal 1996.

LIQUIDITY AND CAPITAL RESOURCES; TRENDS AND FACTORS RELEVANT TO FUTURE
OPERATIONS

As of June 30, 1997, the Company held cash and short-term investments of $10.2
million compared to $17.5 million at September 30, 1996. The Company's cash used
for operations was $10.7 million for the nine months ended June 30, 1997 as
compared to $10.3 million for similar period in the prior year. Cash generated
from investing activities was $1.6 million and $127.8 million, during the nine
month periods ended June 1997 and 1996, respectively. The 1996 period included
cash of approximately $128.5 million from the sale of the Sahara Hotel. Cash
provided from financing activities was $1.8 million in the nine month period
compared to cash used in financing activities of $143.6 million during the same
period in 1997 compared to 1996. In 1996, the Company utilized proceeds from the
sale of the Sahara Hotel and from the issuance of the private placement of 12%
Notes due 1999 (the "12% Notes") to retire $163.6 million of indebtedness.

The Company's earnings before interest, taxes, depreciation, amortization and
rents ("EBITDAR") were $6.5 million and $17.5 million for the three and nine
months ended June 30, 1997, respectively. The Company's EBITDAR in 1996
excluding the $40.8 million gain on the sale of assets was $3.6 million and
$15.9 million for the comparable three and nine month periods. EBITDAR for the
1997 three and nine month periods represents .99 and .88 times rent and interest
expense, respectively, compared to approximately .58 and .81 times rent and
interest expense, respectively, in the prior year three and nine month periods.
In the fiscal 1997 nine month period, the Company reported approximately $2.9
million in rent expense compared to approximately $900,000 in the fiscal 1996
period. EBITDAR is presented to enhance the understanding of the financial
performance of the Company and its ability to service its indebtedness, but
should not be construed as an alternative to

                                       19
<PAGE>
 
operating income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance, or to cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles) as a measure of liquidity. Management believes
EBITDAR gives a better representation of operating cash flow as a result of
operating leases included in the Company's capital structure.

Prior to fiscal 1996, the Company generally generated sufficient cash from
operations to finance operations, meet existing debt service obligations,
complete capital improvements, maintain existing facilities, and provide working
capital. However, beginning in fiscal year 1996, the Company expended the
balance of its restricted working capital and has, since then, sold assets and
entered into financing arrangements to generate working capital necessary to
satisfy its cash requirements. Debt agreements restrict the distribution of cash
from certain of the Company's subsidiaries to the Company. Cash flow from the
Santa Fe and Pioneer and Sahara Las Vegas Corp., ("SLVC") are not currently, and
are not expected in the foreseeable future to be, available for distribution to
the Company. In addition, debt agreements limit additional indebtedness of such
subsidiaries. Therefore, the Company and its subsidiaries other than SLVC,
Pioneer Hotel Inc. ("PHI") and SFHI, (collectively "Corporate") must rely on
existing cash and available resources including assets that may be sold, to
provide liquidity to fund Corporate cash requirements. See more detailed
discussion of Liquidity for SLVC, PHI, SFHI and Corporate, below.

Debt Obligations  - The Company has approximately $12.4 million in current
----------------                                                         
maturities of long term debt due to third parties during the twelve-month period
ending June 30, 1998, comprised primarily of a $5.5 million principal amount of
10 1/4% Subordinated Debenture due June 1998 (the "10 1/4% Debentures"), $5.0
million pursuant to a first mortgage note secured by the 39 acre parcel of land
located in Henderson, Nevada maturing in May 1998 (the "12 1/4% Note"), and
principal amortization payments under notes payable and capital leases. Under
the amended agreement relating to the 12% Notes, the Company has the right to
borrow an additional $5 million, the proceeds of which may be used, among other
things, to refinance the 12 1/4% Notes. The scheduled maturities applicable to
third party debt at SFHI and PHI during the twelve month period ending June 30,
1998 are $700,000 and $100,000, respectively.

The Company had $162.2 million in long-term debt, net of current maturities and
debt discount, as of June 30, 1997.  Approximately $64.8 million of long-term
debt (excluding capital leases) matures in December 1998, comprised primarily of
$60.0 million of principal amount of 13 1/2% Notes and a $4.8 million balloon
payment due on the note payable to Sierra Construction Corp. ("Sierra 
Construction") due December 1998.

Although management has in the past and is currently exploring refinancing
alternatives, as well as possible dispositions or financing of certain assets,
in order to satisfy long-term debt obligations as they become due, no assurance
can be given that the Company will be able to refinance or modify some or all of
its indebtedness or dispose of, or obtain financing with respect to any assets.
Any such refinancing or modification would be subject to the Company's future
operations and the prevailing market conditions at the time of such proposed
transaction and would likely require the approval of the Nevada Gaming
Authorities for such financings or asset sales.

                                       20
<PAGE>
 
If the Company is ultimately unable to refinance or modify any such debt prior
to maturity, and/or obtain sufficient proceeds from asset dispositions or
financings to repay such debt, and if the holders of the various debt
instruments were to demand payment upon the maturity dates, events of default
would occur which would lead to cross-defaults in other material agreements of
the Company including, without limitation, agreements relating to substantially
all of the outstanding long-term debt of the Company and its subsidiaries.

LIQUIDITY - CORPORATE - Approximately $4.0 million of the Company's current
---------------------                                                      
assets at June 30, 1997, including approximately $800,000 of cash and short-term
investments, was held by Corporate. In August 1997, Corporate received
an approximate $900,000 distribution from the proceeds of the issuance of an
additional $15 million of 12% Notes. (See Liquidity - SLVC below)

Corporate consists primarily of non-operating entities which do not generate
cash flow from operations. Corporate's principal uses of cash are for debt
service, administrative and professional expenses of the parent company, and
costs associated with the evaluation and development of proposed projects.
Corporate debt service includes payment obligations on $5.5 million principal
amount of the 10 1/4% Debentures, a $5.5 million note payable to Sierra
Construction due December 1998 and a $1.6 million loan on a 22 acre parcel of
land due December 1999. See "Debt Obligations" above.

Additional potential uses of cash by Corporate include the payment of a
guaranteed tenant loan if the Company terminates the lease to which the parcel
on Las Vegas Boulevard South is subject (which loan had an outstanding balance
of $5.5 million as of June 30, 1997) and the payment of $750,000 to the
recreational vehicle park operator to which the Company transferred its rights
and obligations relating to the Camperland recreational vehicle group contracts
if the operator chooses to relocate the Camperland membership to a mutually
acceptable new location. Furthermore, in the event that cash at SFHI or PHI is
insufficient to meet liquidity requirements, Corporate may make contributions
or, to the extent permitted by financing arrangements loans to either SFHI or
PHI to prevent an event of default under debt instruments to which SFHI or PHI
is a party.

Prior to fiscal 1997, the Company satisfied the semi-annual dividend payments on
its preferred stock through the issuance of paid in kind dividends. Commencing
in fiscal 1997, dividends paid on the preferred stock, to the extent declared,
must be paid in cash. The Company is a party to financing arrangements that
restrict the Company's ability to exchange the preferred stock to junior
subordinate notes in September 1998 and to declare and pay dividends or make
distributions with respect to the Company's capital stock, which currently
prohibit the payment of cash dividends on the preferred stock. In the event not
declared, dividends will accrue on the preferred stock. The Company accrued the
semi-annual preferred stock dividend due in March 1997. To the extent the

                                       21
<PAGE>
 
Company accrues four consecutive semi-annual preferred stock dividends, the
preferred stockholders will have the right to appoint two members to the Board
of Directors at the next annual meeting of shareholders.  In March 1999, the
dividend rate increases to 11.0% from 8.0% and increases by 50 basis points each
semi-annual period thereafter, up to a maximum of 16%.

Management believes that Corporate has sufficient working capital and available
resources to meet its operating requirements through the twelve month period
ending June 30, 1998, excluding the maturity of $5.5 million principle amount of
10 1/4% Subdebentures in June 1998. Management is exploring alternatives to 
satisfy the outstanding indebtedness on the 10 1/4% Subdebentures.
See "Debt Obligations" above.

LIQUIDITY - SFHI - At June 30, 1997, approximately  $9.2 million of the
----------------                                                       
Company's current assets, including approximately $6.1 million of cash and short
term investments, was held by SFHI.

Results from operations at the Santa Fe for the three and nine months ended June
30, 1997 generated EBITDAR of $4.8 million and $11.0 million, approximately 1.13
and .91 times rent and interest expense, respectively, during the same period
compared to $1.9 million and $8.6 million, excluding a $1.2 million intercompany
gain on sale of land, of EBITDAR in 1996, or approximately .54 and .82 times
rent and interest expense, respectively. In the fiscal 1997 nine month period,
the Santa Fe reported approximately $2.2 million in rent expense compared to
$300,000 in the fiscal 1996 period. Management believes that Santa Fe's EBITDAR
in future periods may continue to be adversely impacted as a result of increased
competition in its market area and restricted access to the property due to road
construction. The Nevada Department of Transportation has advised the Company
that construction on the interchange is expected to be completed before the end
of 1997; however, the Company has also been advised that construction of an
overpass at Lone Mountain Road is scheduled to commence thereafter.

SFHI's principal uses of cash from operations are for lease payments, interest
payments on indebtedness and capital expenditures to maintain the facility.
Santa Fe's operating expenses in fiscal 1997 include increased lease expenses
associated with lease transactions completed in fiscal 1996. Interest expense in
fiscal 1997 attributable to the 11% Notes decreased when compared to fiscal 1996
as a result of the repurchase and cancellation of $5.6 million principal amount
of 11% Notes in January 1996. Capital expenditures to maintain the facility in
fiscal 1997 are expected to be less than in fiscal 1996 and 1995 in which
expansion projects were completed.

Management believes that, based on operations for the nine month period ended
June 30, 1997, SFHI will have sufficient cash resources to meet its operating
expense requirements 

                                       22
<PAGE>
 
through the twelve month period ending June 30, 1998, although no assurance can
be given to that effect. Results for the third quarter ended June 30, 1997
improved compared to the same quarter in the prior year and to the first two
quarters in fiscal 1997. However, results for the 1997 third quarter are not
necessarily indicative of results for the entire fiscal year. If operating
results do not improve in the future compared to the nine months ended June 30,
1997, management believes SFHI may not have sufficient cash from operations to
meet its debt service requirements through June 30, 1998. SFHI is exploring
alternatives to improve liquidity, including, but not limited to, operating
lease amendments, possible reductions of indebtedness and possible refinancings 
or modification of the 11% Notes. To the extent that SFHI is unable to generate
sufficient cash to meet its debt service requirements, Corporate may, to the
extent of available funds, make loans under the intercompany revolving loan
note (the "Revolving Note") with a maximum principal amount of $5 million, or
make capital contributions or make advances to SFHI. See "Liquidity-Corporate."

LIQUIDITY - PHI - At June 30, 1997, approximately $5.1 million of the Company's
---------------                                                                
current assets, including approximately $3.3 million of cash and short term
investments, was held by PHI  At that date, PHI also held, through a wholly-
owned subsidiary, a 39 acre parcel of real property in Henderson, Nevada
("Pioneer Subsidiary").  As of June 30, 1997, the Pioneer subsidiary held
$600,000 of the cash and short-term investments held by the Pioneer.

Results from operations at the Pioneer for the three and nine months ended June
30, 1997, generated EBITDAR of $2.0 million and $6.2 million, approximately .88
and .92 times rent and interest expense respectively, during the same period,
compared with $2.0 million and $7.6 million of EBITDAR in fiscal 1996 or
approximately .91 and .96 times, rent and interest expense, respectively. In the
fiscal 1997 nine month period, the Pioneer reported approximately $700,000 in
rent expense compared to $600,000 in the fiscal 1996 period. Results for the
third quarter are not necessarily indicative of the results to be expected in
the future.


PHI's principal uses of cash are for lease payments, interest payments on
indebtedness and capital expenditures to maintain the facility.  Interest
expense attributable to the 13 1/2% Notes decreased to $8.1 million in fiscal
1997 as a result of the retirement of $22.8 million principal amount of 13 1/2%
Notes in January and March 1996. (See Results of Operations - Pioneer).
Interest expense in the future periods will include debt service on the 12 1/4%
Notes in the principal amount of $5 million at the Pioneer subsidiary.  Capital
expenditures to maintain the facility in fiscal 1997 are expected to be
approximately that expended during fiscal 1996.

Management believes that, based on operations for the three and nine month
periods ended June 30, 1997,  PHI  will have sufficient cash and available
resources to meet its operating requirements  through the twelve months ending
June 30, 1998, although no assurance can be given to that effect.  If operating
results do not improve in the future compared to the nine months and quarter
ended June 30, 1997, management believes PHI may not have sufficient cash from
operations to meet its debt service requirements. 

                                       23
<PAGE>
 
However, PHI, through the Pioneer subsidiary, owns a 39 acre property which
management believes may be sold to the extent necessary to generate liquidity to
meet debt service requirements. PHI is exploring alternatives to improve
liquidity, including, but not limited to, the possible sale of assets, a
possible reduction of indebtedness or retiring of the 13 1/2% Notes. To the
extent that PHI is unable to generate sufficient cash to meet its debt service
requirements, Corporate may, to the extent of available funds, make capital
contributions or, to the extent permitted by financing arrangements, advances to
PHI See "Liquidity-Corporate".

LIQUIDITY - SLVC - At June 30, 1997, approximately $70,000 of the Company's
----------------                                                           
current assets, including approximately $50,000 of cash and short-term
investments, was held by SLVC. In 1997, SLVC amended and restated the agreement
relating to the 12% Notes, pursuant to which SLVC borrowed an additional $15
million, and has the right to borrow an additional $5 million. The proceeds from
the additional $15 million of 12% Notes were used as follows: (i) $2 million was
deposited in a cash collateral account restricted in use for future principal
and interest payments on the 12% Notes, (ii) $1 million was distributed to the
Company and is restricted to certain uses, including debt service obligations of
the Company and its subsidiaries, and (iii) $12 million is available to be used
for certain expenses and to purchase 11% Notes, which are and will be held as
collateral for the 12% Notes. If all $12 million is not used SLVC will be
required to redeem a principal amount of 12% Notes equal to the amount of such
proceeds not so used. As of August 13, 1997, $500,000 remains available for such
purposes. The additional $5 million that may be borrowed may be used, among
other things, to refinance the 12 1/4% Notes.

SLVC owns a 27 acre parcel of real estate on Las Vegas Boulevard South which is
subject to a lease with a water theme park operator. SLVC generates minimal cash
from the lease agreement, after payment of property costs. SLVC receives
interest income on $33.1 million principal amount of 11% Notes which are held as
collateral for the 12% Notes. SLVC's principal uses of cash on hand, cash
generated under the lease agreement, and interest income on the 11% Notes is to
satisfy principal and interest obligations on the 12% Notes.

Additional potential uses of cash by SLVC include the redemption of $7.0 million
principal amount of 12% Notes or alternatively the redemption of $7.0 million
principal amount of 11% Notes, in the event cash flow, before a maximum $2.4
million in lease obligations at the Santa Fe, is less than $13.5 million for any
four quarter period commencing with the four quarter period ending December 31,
1997.

Management believes that SLVC has available resources, consisting primarily of
restricted working capital, to meet operating and debt service requirements
through the twelve months ending June 30, 1998, although no assurance can be
given to that effect.

Related Parties   From 1991 through 1993 LICO, a company wholly-owned by Mr.
---------------                                                             
Lowden, Chairman of the Board, Chief Executive Officer and 52% stockholder of
the Company, borrowed an aggregate of $476,000 from a subsidiary of the Company,
pursuant to an 

                                       24
<PAGE>
 
unsecured demand loan which bears interest at 2% over the prime rate. The
outstanding balance of the loan including accrued interest was $674,000 as of
June 30, 1997. In January 1997, the Company and Mr. Lowden agreed that the
Company may offset amounts due Mr. Lowden, under certain compensation
arrangements, against the outstanding balance of the loan beginning in 1998.

In November 1993, Mr. Lowden and Bank of America ("the Bank") entered into a
personal loan agreement under which the principal balance of the loan is
amortized through quarterly principal payments through April 1998, with any
remaining principal balance due July 31, 1998. At June 30, 1997, the principal
balance of the loan was approximately $927,000. The loan is secured by
substantially all of the common stock of the Company owned by Mr. Lowden (the
"Pledged Shares"). Mr. Lowden's loan agreement provides that in the event the
market value of the Pledged Shares is less than three times the outstanding loan
balance, the bank, at its sole option, may require either an immediate reduction
in the outstanding balance or the pledging of additional collateral acceptable
to the bank such that the value of the pledged collateral is at least three
times the outstanding loan balance. Based on the recent trading price of the
Company's common stock, the market value of the Pledge Shares is less than 3
times the outstanding loan balance. The Bank has requested Mr. Lowden to either
reduce the outstanding loan balance or to provide additional collateral. If an
event of default were to occur under Mr. Lowden's personal loan with the bank,
and if the bank acquired the Pledged Shares upon foreclosure, Mr. Lowden's
ownership of the Company's outstanding common stock would be reduced to below
50%. If Mr. Lowden ceases to own more than 50% of the outstanding shares of the
Company's common stock, an event of default would result under certain of the
Company's long-term indebtedness, which could result in cross-defaults under
substantially all of the Company's other long-term indebtedness.

Effects of Inflation
--------------------

The Company has been generally successful in recovering costs associated with
inflation through price adjustments in its hotel operations.  Any such increases
in costs associated with casino operations and maintenance of properties may not
be completely recovered by the Company.

Private Securities Litigation Reform Act
----------------------------------------

Certain statements in this Quarterly Report on Form 10-Q which are not
historical facts are forward looking statements, such as statements relating to
future operating results, existing and expected competition, financing and
refinancing sources and availability, plans for future development or expansion
activities and capital expenditures.  Such forward looking statements involve a
number of risks and uncertainties that may significantly affect the Company's
liquidity and results in the future and, accordingly, actual results may differ
materially from those expressed in any forward looking statements.  Such risks
and uncertainties include, but are not limited to, those related to effects of
competition, leverage and debt service and ability, financing and refinancing
efforts, general economic conditions, changes in gaming laws or regulations
(including the legalization of gaming in various jurisdictions) and risks
related to development and construction activities.

                                       25
<PAGE>
 
                          SANTA FE GAMING CORPORATION

                          PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

HYLAND V. GRIFFIN INVESTIGATIONS ET AL.

     Pursuant to an order of the United States District Court in New Jersey, the
lawsuit was dismissed as against Santa Fe Gaming Corporation and virtually all
other defendants.

TREASURE BAY - SECURITIES LITIGATION

     The United States District Court in Nevada dismissed the Francis L. Miller
lawsuit as originally filed in Mississippi Circuit Court. The Court permitted
Mr. Miller to file the claims that he asserted in the dismissed action as
counterclaims to the lawsuit filed by the Company against Mr. Miller et al. on
December 12, 1994 in the United States District Court, District of Nevada. The
effect of this court initiated action was to combine the two lawsuits.

Item 2 - Changes in Securities

                 None

Item 3 - Defaults Upon Senior Securities

                 None

Item 4 - Submission of Matters to a vote of Security Holders

                 None

Item 5 - Other Information

The Company, PHI, and SFHI, (Collectively, the "Santa Fe Group"), are subject to
extensive state and local regulations by the Nevada Gaming Commission, Nevada
Gaming Control Board and in the case of Pioneer Hotel, Inc., and Santa Fe Hotel,
Inc., the Clark County Liquor & Gaming Licensing Board and the City of Las
Vegas, respectively, (collectively the "Nevada Gaming Authorities").  Management
believes the Santa Fe Group is in compliance with regulations promulgated by the
Nevada Gaming Authorities.

                                       26
<PAGE>
 
In June 1997, the Nevada legislature adopted Senate Bill 208 ("SB 208") which is
intended to impose stricter requirements with respect to developing resort
hotels within Clark County, Nevada, before gaming licenses can be granted.
Under SB 208, the stricter requirements will not be applicable to the Company's
proposed development of the Henderson, Nevada project provided (i) the project
has received all approvals for land use for the proposed project from the local
governing body on or before December 31, 1998, and such approvals remain
unexpired on that date, and (ii) the Nevada Gaming Commission approves a
nonrestricted gaming license for the project on or before December 31, 2002.

Item 6 - Exhibits and Reports on Form 8-K

          A.   Exhibits:

               10.84     Sahara Las Vegas Corp Tranche A Note due December 15, 
                         1999, dated July 31, 1997

               10.85     Casino Properties Guaranty dated July 29, 1997

               10.86     Sahara Resorts Guaranty dated July 29, 1997

               10.87     Hacienda Hawaiian Guaranty dated July 29, 1997

               10.88     First Amendment to Company Security Agreement dated 
                         July 29, 1997

               10.89     Sahara Resorts Pledge Agreement dated July 29, 1997

               10.90     Company Pledge Agreement dated July 29, 1997

               10.91     Casino Properties Pledge Agreement dated July 29, 1997

               10.92     Hacienda Hawaiian Pledge Agreement dated July 29, 1997

               23        Consent of Deloitte & Touche LLP

               27        Financial Data Schedule

          B.   Reports on Form 8-K:

               None



                                   SIGNATURES
                                   ----------


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

                         SANTA FE GAMING CORPORATION, Registrant
 

                         By: /s/ Thomas K. Land
                            -------------------------------------------------
                                 Thomas K. Land, Chief Financial Officer

Dated: August 14, 1997

                                       27