<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:  March  31, 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)
            
 
           Nevada                                      88-0304348
-------------------------------        ---------------------------------------
(State or other jurisdiction of        (I.R.S. Employer Identification Number)
incorporation or organization)         
 
             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              May 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 March 31, 1997
                 (unaudited) and September 30, 1996..........................  2
 
                 Statements of Operations for the three and six
                 months ended March 31, 1997 and 1996
                 (unaudited).................................................  3
 
                 Statement of Changes in Stockholders' Equity
                 for the six months ended March 31, 1997
                 (unaudited).................................................  4
 
                 Statements of Cash Flows for the six months
                 ended March 31, 1997 and 1996 (unaudited)...................  5
 
                 Notes to Consolidated Condensed Financial
                 Statements (unaudited)......................................  6
 
                 Independent Accountants' Review Report...................... 12

         Item 2. Management's Discussion and Analysis of
                 Financial Condition and Results of
                 Operations

PART II.    OTHER INFORMATION

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

<TABLE> 
<CAPTION> 

                                                              March 31,       September 30,
             ASSETS                                             1997             1996
------------------------------------------------------       ------------    ------------
                                                             (Unaudited)
<S>                                                          <C>             <C> 
Current assets:
  Cash and short-term investments                            $ 14,115,393    $ 17,497,824
  Accounts receivable, net                                      1,417,332       1,529,723
  Accounts receivable, officer                                    661,517         636,113
  Inventories                                                   1,145,427       1,218,120
  Prepaid expenses & other                                      3,845,432       3,778,514
  Assets held for sale                                                  0       2,424,821
                                                             ------------    ------------

Total current assets                                           21,185,101      27,085,115


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

Property and equipment, net                                   106,829,210     110,217,659

Goodwill                                                       45,357,630      46,073,869

Other assets                                                    8,578,411       7,085,069
                                                             ------------    ------------

Total assets                                                 $220,144,417    $228,655,777
                                                             ============    ============



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

Current liabilities:
  Current portion of long-term debt                          $  4,019,450    $  3,770,817
  Accounts payable                                              3,520,978       5,757,161
  Interest payable                                              6,967,737       7,142,225
  Accrued and other liabilities                                 9,264,341       9,134,856
                                                             ------------    ------------

Total current liabilities                                      23,772,506      25,805,059

Deferred income taxes                                             290,573       2,687,751

Long-term debt - less current portion                         169,002,815     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            19,711,362      18,953,233
  Additional paid-in capital                                   51,513,504      51,513,504
  Accumulated deficit                                         (44,120,523)    (37,965,426)
                                                             ------------    ------------
      Total                                                    27,166,297      32,563,265

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

Total stockholders' equity                                     27,078,523      32,475,491
                                                             ------------    ------------


Total liabilities and stockholders' equity                   $220,144,417    $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     Six Months      Six Months
                                                     Ended           Ended            Ended          Ended
                                                March 31, 1997  March 31, 1996   March 31, 1997  March 31, 1996
                                                --------------  --------------   --------------  --------------
<S>                                             <C>             <C>              <C>             <C>
Revenues:
  Casino                                           $21,448,942    $22,832,021    $41,326,115     $44,830,885  
  Hotel                                              1,020,996        951,492      2,010,402       1,964,759  
  Food and beverage                                  2,628,193      2,841,320      5,357,268       5,676,459  
  Other revenues                                     2,384,160      2,462,536      4,196,345       4,681,257  
  Gain on sale of assets                                     0              0              0      40,753,738  
                                                 -------------   ------------    -----------     -----------  
                                                                                                              
Total revenues                                      27,482,291     29,087,369     52,890,130      97,907,098  
                                                 -------------   ------------    -----------     -----------  
                                                                                                              
Operating expenses:                                                                                           
  Casino                                            10,398,711     11,171,925     21,029,528      21,789,469  
  Hotel                                                447,276        451,110        861,994         890,968  
  Food and beverage                                  3,544,401      4,027,683      7,459,811       7,762,543  
  Other operating expenses                             706,321        886,662      1,474,146       1,834,174  
  Selling, general & administrative                  3,650,402      4,091,367      7,048,585       8,187,995  
  Utilities & property expenses                      2,990,955      2,392,248      5,972,824       4,776,954  
  Depreciation & amortization                        2,760,061      3,411,941      5,487,597       7,335,259  
                                                 -------------   ------------    -----------     -----------  
                                                                                                              
Total operating expenses                            24,498,127     26,432,936     49,334,485      52,577,362  
                                                 -------------   ------------    -----------     -----------  
                                                                                                              
Operating income                                     2,984,164      2,654,433      3,555,645      45,329,736  
                                                                                                              
Interest expense                                     5,718,786      6,127,877     11,363,898      12,950,139  
                                                 -------------   ------------    -----------     -----------  
                                                                                                              
Income (loss) before income tax expense                                                                       
  (benefit) and extraordinary item                  (2,734,622)    (3,473,444)    (7,808,253)     32,379,597  
                                                                                                              
Federal income tax expense (benefit)                  (808,011)    (1,059,000)    (2,411,285)     11,160,000  
                                                 -------------   ------------    -----------     -----------  
                                                                                                              
Income (loss) before extraordinary item             (1,926,611)    (2,414,444)    (5,396,968)     21,219,597  
                                                                                                              
Extraordinary item-gain on early extinguishment                                                               
  of debt, net of tax provision of $4,229,000                       7,854,707                      7,854,707  
                                                 -------------   ------------    -----------     -----------  
                                                                                                              
Net income (loss)                                   (1,926,611)     5,440,263     (5,396,968)     29,074,304  
                                                                                                              
Dividends on preferred shares                          379,064        350,988        758,129         701,416  
                                                 -------------   ------------    -----------     -----------  
                                                                                                              
Net income (loss) applicable to common shares    $  (2,305,675)  $  5,089,275    $(6,155,097)    $28,372,888  
                                                 =============   ============    ===========     ===========  
Average common shares outstanding                    6,195,356      6,195,356      6,195,356       6,195,356  
                                                 =============   ============    ===========     ===========  
                                                                                                              
Income (loss) per common share                   $       (0.37)  $       0.82    $     (0.99)    $      4.58  
                                                 =============   ============    ===========     ===========   
</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                                                                   (5,396,968)               (5,396,968)

Preferred stock dividend accrued                   758,129                   (758,129)                        0
                                      -------  -----------  -----------  ------------   ---------   -----------

Balances, March 31, 1997              $61,954  $19,711,362  $51,513,504  $(44,120,523)  $ (87,774)  $27,078,523
                                      =======  ===========  ===========  ============   =========   ===========
</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>
                                                            Six Months      Six Months
                                                              Ended           Ended
                                                          March 31,1997    March 31,1996
-----------------------------------------------------    --------------    -------------
<S>                                                      <C>               <C>
Cash flows from operating activities:
 Cash and short-term investments
  provided by operations                                 $   984,307       $  37,300,941
     Gain on sale of assets                                                  (40,753,738)
     Gain on sale of land held for development              (725,179)
     Gain on early extinguishment of debt                                     (7,854,707)
     Decrease in accounts receivable, net                   (112,391)          3,751,937
     Increase in accounts receivable, officer                (25,404)            (23,621)
     Decrease in inventories                                  72,693             417,635
     Decrease (increase) in prepaid expenses & other         (66,907)            649,092
     Increase (decrease) in deferred income taxes         (2,397,178)         11,160,000
     Decrease (increase) in other assets                  (2,020,897)          1,635,988
     Decrease in accounts payable                         (2,236,183)         (2,005,768)
     Decrease in interest payable                           (174,488)         (2,488,222)
     Increase (decrease) in accrued and other liabilities    368,592          (2,932,542)
                                                         -----------       -------------
Net cash used in operating activities                     (6,108,253)         (1,143,005)
                                                         -----------       -------------

Cash flows from investing activities:
     Proceeds from sale of assets                                            128,508,377
     Proceeds from sale of land held for development       3,150,000
     Decrease in restricted cash                                                  95,569
     Capital expenditures                                   (542,209)         (3,423,060)
                                                         -----------       -------------
Net cash provided by investing activities                  2,607,791         125,180,886
                                                         -----------       -------------

Cash flows from financing activities:
     Cash proceeds of long-term debt                       1,675,658          20,000,000
     Cash paid on long-term debt                          (1,557,627)       (163,153,798)
                                                         -----------       -------------
Net cash provided by (used in) financing activities          118,031        (143,153,798)
                                                         -----------       -------------

Decrease in cash and short-term investments               (3,382,431)        (19,115,917)

Cash and short-term investments,
  beginning of period                                     17,497,824          42,749,932
                                                         -----------       -------------
Cash and short-term investments,
  end of period                                          $14,115,393       $  23,634,015
                                                         ===========       =============
</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 parcels on Las Vegas Boulevard South and adjacent
to the Santa Fe, and a wholly-owned subsidiary of the Pioneer owns real estate
in Henderson, Nevada, 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 six month periods ended  March 31,
1997 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
March 31, 1997, the results of its operations for the three and six month
periods ended March 31, 1997 and 1996, the changes in stockholders' equity for
the six month periods ended March 31, 1997, and cash flows for the six month
periods ended March 31, 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.

NOTE 2 - Cash and Short-term Investments

At March 31, 1997, approximately $7.5 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 March 31, 1997, SFHI did not meet
the conditions precedent to making a distribution to the Company.

At March 31, 1997, approximately $4.4 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 Finance Corp. were issued.
As of March 31, 1997, PHI did not meet the conditions precedent to making a
distribution to the Company.

NOTE 3 - Account Receivable Officer

As of March 31, 1997 and September 30, 1996, included in Accounts Receivable,
officer is an unsecured demand loan in the principal amount of $476,000, which,
together with accrued interest, totaled approximately $662,000 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 Hacienda on Las Vegas Boulevard South for
$2.8 million.  Pursuant to the option agreement, the option holder exercised the
option in

                                       7
<PAGE>
 
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 during the current period.

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 December 1996, the Company and the holder 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 (i)
provide that a $500,000 principal payment due on December 31, 1996 would be
deferred until June 30, 1997 and (ii) revise a covenant requiring redemption of
$3.5 million principal amount of 12% Notes (or alternatively the redemption of
$3.5 million principal amount of the 11% Notes).  The revised covenant now
requires such redemption in the event cash flow at the Santa Fe is less than
$13.5 million for any four-quarter period commencing with the four-quarter
period ending June 30, 1997.

NOTE 6 -  Stockholder's Equity

The Company has in the past satisfied the semi-annual dividend payment 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. In the event not declared, dividends will accrue on the
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.

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.

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.

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.

In December 1996, the Company executed an operating lease for 229 slot machines
at the Santa Fe.  The lease requires monthly payments of $46,000  for a 36 month
term.

NOTE 8 - Supplemental Information

Supplemental statement of cash flows information for the six-month periods ended
March 31, 1997 and 1996 is presented below:
<TABLE>
<CAPTION>
                                               1997          1996
                                            -----------   -----------
<S>                                         <C>           <C>
Operating Activities:

   Cash paid during the period
   for interest                             $10,745,622   $14,950,249
                                            ===========   ===========
Investing and Financing Activities:

   Debt incurred in connection with 
   the acquisition of machinery and 
   equipment                                $   552,263             0 
                                            ===========   ===========
Supplemental Schedule of Non Cash
Investing and Financing Activities
   Land acquired in exchange of assets                0   $21,504,400
                                            ===========   ===========
</TABLE> 

                                       8
<PAGE>
 
NOTE 9 - Subsequent Events

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 will be reported in the quarter ended June 30, 1997.

In May 1997, the Company borrowed $5.0 million at a rate of 12.25% 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 "12.25%
Note").

                                       9
<PAGE>
 
10.  Supplemental Statement of  Subsidiary Information -
     For The Six Months Ended March 31, 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 six months
ended March 31, 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     $ 21,107    $30,568    $ 1,859      $       (644)    $ 52,890
                                            ========    =======    =======      ============     ========


                                   1996     $ 23,436    $31,504    $44,318      $     (1,351)    $ 97,907
                                            ========    =======    =======      ============     ========


  Operating Income                 1997     $    942    $ 2,176    $   739      $       (301)    $  3,556
                                            ========    =======    =======      ============     ========


                                   1996     $  2,123    $ 2,410    $41,227      $       (430)    $ 45,330
                                            ========    =======    =======      ============     ========


  Interest Expense                 1997     $  4,007    $ 6,446    $ 1,212      $       (301)    $ 11,364
                                            ========    =======    =======      ============     ========


                                   1996     $  5,219    $ 6,909    $ 1,252      $       (430)    $ 12,950
                                            ========    =======    =======      ============     ========


  Depreciation and Amortization    1997     $  2,793    $ 2,602    $    93                       $  5,488
                                            ========    =======    =======      ============     ========


                                   1996     $  3,011    $ 4,260    $    64                       $  7,335
                                            ========    =======    =======      ============     ========


  Capital Expenditures             1997     $    455    $   512    $   127                       $  1,094
                                            ========    =======    =======      ============     ========


                                   1996     $    828    $ 2,329    $   266                       $  3,423
                                            ========    =======    =======      ============     ========


  Identifiable Assets              1997     $112,600    $79,197    $29,592      $     (1,245)    $220,144
                                            ========    =======    =======      ============     ========


                                   1996     $117,516    $90,553    $41,579                       $249,648
                                            ========    =======    =======      ============     ========
</TABLE> 
                                      10

<PAGE>
 
11. Supplemental Statement of  Subsidiary Information
    For The Three Months Ended March 31, 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 six months
ended March 31, 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     $ 11,178    $ 15,371    $  1,190   $       (257)    $ 27,482
                                         ========    ========    ========   ============     ========


                                1996     $ 12,064    $ 16,094    $  1,761   $       (832)    $ 29,087
                                         ========    ========    ========   ============     ========


  Operating Income              1997     $  1,192    $  1,416    $    527   $       (151)    $  2,984
                                         ========    ========    ========   ============     ========


                                1996     $  1,257    $  1,371    $    429   $       (403)    $  2,654
                                         ========    ========    ========   ============     ========


  Interest Expense              1997     $  2,033    $  3,211    $    626   $       (151)    $  5,719
                                         ========    ========    ========   ============     ========


                                1996     $  2,412    $  3,390    $    729   $       (403)    $  6,128
                                         ========    ========    ========   ============     ========


  Depreciation and Amortization 1997     $  1,393    $  1,314    $     53                    $  2,760
                                         ========    ========    ========   ============     ========


                                1996     $  1,502    $  2,009    $    (99)                   $  3,412
                                         ========    ========    ========   ============     ========


  Capital Expenditures          1997     $    222    $    352    $      0                    $    574
                                         ========    ========    ========   =============    ========


                                1996     $    270    $  1,293    $      0                    $  1,563
                                         ========    ========    ========   =============    ========


                                                              11
</TABLE>

<PAGE>
 
INDEPENDENT ACCOUNTANTS' REVIEW REPORT

Santa Fe Gaming Corporation:

We have reviewed the accompanying consolidated condensed balance sheet of Santa
Fe Gaming Corporation and subsidiaries (the "Company") as of March 31, 1997, the
related consolidated condensed statements of operations for three-month and six-
month periods ended March 31, 1997 and 1996, stockholders' equity for the six-
month period ended March 31, 1997 and cash flows for the six-month periods
ended March 31, 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 cash flows for the year then ended (not
presented herein); and in our report dated December 20, 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
May 13, 1997

                                       12
<PAGE>
 
                          SANTA FE GAMING CORPORATION

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



RESULTS OF OPERATIONS - Six Months Ended March 31, 1997 and 1996
----------------------------------------------------------------


Consolidated

Consolidated revenues for the six month period ended March 31, 1997 were $52.9
million, a $45.0 million or 46.0% decrease from $97.9 million for the same
period in fiscal 1996, which included a $40.8 million gain on sale of assets.
Excluding the gain on sale in the prior year period, revenues decreased by $4.3
million, of which $900,000 was attributable to the Santa Fe Hotel and Casino
(the "Santa Fe"), $2.3 million was attributable to the Pioneer Hotel and
Gambling Hall (the "Pioneer") and $1.1 million was attributable to operations
sold during the prior periods.

Consolidated operating income for the six month period ended March 31, 1997 was
$3.6 million, a $41.8 million or 92.2% decrease from $45.3 million for the same
period in fiscal 1996, which included the $40.8 million gain on sale of assets.
Excluding the gain on sale in the prior period, operating income declined $1.0
million. Operating income at the Santa Fe and the Pioneer decreased by $200,000
and $1.2 million, respectively.

Consolidated interest expense for the six month period ended March 31, 1997 was
$11.4 million, a $1.6 million decrease compared to $13.0 million for the same
period in fiscal 1996. Interest expense decreased by $500,000 at the Santa Fe
and $1.2 million at the Pioneer in the 1997 period due to the retirement of
approximately $5.6 million principal amount of 11% First Mortgage Notes due 2000
("11% Notes") issued by Santa Fe Hotel Inc. ("Santa Fe Inc.") in January 1996
and the retirement 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")
in January and March 1996.  Offsetting this decrease in part was increased 
interest expense of $100,000 attributable to corporate debt obligations in the 
1997 quarter.

Consolidated loss before income taxes and extraordinary item for the six month
period ended March 31, 1997 was $7.8 million, a $40.2 million decrease compared
to net income of $32.4 million in the same period in the prior year, which
included the $40.8 million gain on sale of assets. Excluding the gain on sale of
assets, net loss before income taxes and extraordinary item decreased by
approximately $600,000 compared to the prior year. Loss before income taxes and
extraordinary item at the Pioneer was unchanged and at the Santa Fe decreased by
$200,000 in the six months ended March 31, 1997 compared to the prior year
period.

                                       13
<PAGE>
 
Santa Fe

Revenues at the Santa Fe decreased 3.0%, or $900,000, in the six months ended
March 31, 1997 to $30.6 million as compared to $31.5 million in the same period
in the prior year.  Casino revenues decreased 2.5%, or $600,000, to $23.2
million from $23.8 million and food and beverage revenues decreased 9.2%, or
$400,000, to $3.7 million from $4.0 million when compared to the same six month
period of 1996.  Management believes the decrease is due primarily to continued
increased competition in the Santa Fe market area and to restricted access to
the Santa Fe due to construction of an interchange (at US 95 and Rancho) next to
the property, which commenced in April 1996.

Operating expenses decreased by 2.4%, or $700,000.  Casino expenses increased by
$600,000, or 5.4%, primarily due to increased promotional costs incurred by the
slot club to compete with other hotel-casinos in the area.  This was offset by a
decrease of $700,000, or 15.7%, in selling, general and administrative expenses
resulting from decreased general advertising and promotional costs.  Food and
beverage expenses had volume related decreases of 5.6%, or $300,000 over the
prior year period.  Utilities and property expenses increased $1.5 million
attributable to an increase in rent expense due to sale leaseback transactions
completed in fiscal 1996 with respect to certain gaming equipment.  Decreases in
depreciation and amortization of 38.9% or $1.7 million, were due to the sale of
certain slot equipment in the prior fiscal year.  Accordingly, operating income
decreased $200,000 or 9.7% to $2.2 million in 1997 from $2.4 million in 1996.

Interest expense decreased $500,000, or 6.7%  to $6.4 million in 1997 compared
to $6.9 million in 1996, primarily due to the repurchase and retirement of $5.6
million principal amount of 11% Notes in January 1996.

Santa Fe is required to negotiate with the Teamsters, Operating Engineers,
Culinary and Bartenders unions ("Unions") with respect to a collective
bargaining agreement covering certain employees at the Santa Fe, and
negotiations have not yet commenced. If negotiations result in an agreement
between the Santa Fe and the Unions, operating expenses may increase. In the
event negotiations fail to result in an agreement and the Unions call a strike,
operating revenues may be reduced. In either event, there could be a material
adverse effect on the results of operations and financial condition of Santa Fe
and the Company.

Pioneer

Revenues at the Pioneer decreased 9.9%, or $2.3 million, to $21.1 million as
compared to $23.4 million in the prior year.  Casino revenues were $18.1 million
in 1997, representing a decrease of 12.6%, or $2.6 million from $20.7 million
when compared to the 1996 period, comprised primarily of a $2.1 million or 11.9%
decrease in slot revenue and a $400,000 or 15.2% decrease in table games
revenues.  The decrease is believed to be primarily due to the continued
competitive gaming market environment in and around Laughlin, including 

                                       14
<PAGE>
 
Indian gaming facilities opened in Arizona and Southern California.

Operating expenses decreased $1.2 million or 5.4% to $20.2 million. Casino
expenses decreased 9.3%, or $1.0 million. Selling, general and administrative
expensed increased $200,000, or 6.3%, due to increased advertising and
promotional expenses. Utilities and property expenses decreased 8.8%, or
$200,000, primarily due to a decrease in payroll expense. Decreases in
depreciation and amortization expenses of 7.3% or $200,000 were related to the
sale of certain equipment during prior year period. Accordingly, operating
income decreased by 55.6% or $1.2 million to $900,000 in fiscal 1997 from $2.1
million in fiscal 1996.

Interest expense decreased $1.2 million or 23.2% to $4.0 million in 1997
compared to $5.2 million in 1996, primarily due to the repurchase and retirement
of approximately  $22.8 million principal amount of 13 1/2% Notes in January and
March 1996.

RESULTS OF OPERATIONS - Three Months Ended March 31, 1997 and 1996
------------------------------------------------------------------

Consolidated

Consolidated revenues for the three month period ended March 31, 1997 were $27.5
million, a $1.6 million or 5.5% decrease from $29.1 million for the same period
in fiscal 1996, of which $700,000 was attributable to the Santa Fe and $900,000
was attributable to the Pioneer.

Consolidated operating income for the three month period ended March 31, 1997
was $3.0 million, a $300,000 or 12.4% increase from $2.7 million for the same
period in fiscal 1996.  Operating income increased $50,000 at the Santa Fe and
decreased $60,000 at the Pioneer.

Consolidated interest expense for the three month period ended March 31, 1997
was $5.7 million, a $400,000 decrease compared to $6.1 million for the same
period in fiscal 1996.  Interest expense decreased by $200,000 at the Santa Fe
and $400,000 at the Pioneer in the 1997 period.  Interest expense
attributable to corporate debt obligations increased $200,000 during the period 
over the comparable period in the prior year.

Consolidated loss before income taxes and extraordinary item for the three
month period ended March 31, 1997 was $2.7 million, a $700,000 decrease compared
to $3.5 million in the same period in the prior year.  Net loss before income
taxes and extraordinary item at the Pioneer decreased by $300,000 and by
$200,000 at the Santa Fe in the quarter ended March 31, 1997 compared to the
prior year period.

Santa Fe

Revenues at the Santa Fe decreased 4.5%, or $700,000, in the three months ended
March

                                       15
<PAGE>
 
31, 1997 to $15.4 million as compared to $16.1 million in the same period in the
prior year. Casino revenues decreased 2.9%, or $400,000, to $11.8 million from
$12.2 million, when compared to the same three month period of 1996. Management
believes the decrease is due primarily to continued increased competition in the
Santa Fe market area and to restricted access to the Santa Fe due to
construction of an interchange (at US 95 and Rancho) next to the property. Food
and Beverage revenues decreased 15.0%, or $300,000, to $1.7 million from $2.0
million, primarily due to a change in marketing and advertising strategy which
relied less on offering discount-priced food.

Operating expenses decreased by 5.2%, or $800,000. Casino expenses decreased by
$200,000, or 4.1%. Food and beverage expenses had volume related decreases of
19.2%, or $500,000 over the prior year period. Utilities and property expenses
increased $800,000 attributable to an increase in rent expense due to sale
leaseback transactions completed in fiscal 1997 with respect to certain gaming
equipment. Decreases in depreciation and amortization of 34.6% or $700,000, were
due to the sale of certain slot equipment in the prior fiscal year. Accordingly,
operating income increased $50,000 or 3.3% to $1.4 million in 1997.

Interest expense decreased $200,000, or 5.3%  to $3.2 million in 1997 compared
to $3.4 million in 1996, primarily due to the repurchase and retirement of $5.6
million principal amount of 11% Notes in January 1996.

Pioneer

Revenues at the Pioneer decreased 7.3%, or $900,000, to $11.2 million in the
March 1997 quarter as compared to $12.1 million in the prior year. Casino
revenues were $9.6 million in 1997, representing a decrease of 9.7%, or $1.0
million from $10.7 million when compared to the 1996 period, comprised primarily
of a $800,000 or 9.3% decrease in slot revenue. The decrease is believed to be
primarily due to the continued competitive gaming market environment in and
around Laughlin, including continued Indian gaming facilities opened in Arizona
and Southern California.

Operating expenses decreased $800,000 or 7.6% to $10.0 million in the quarter
ended March 31, 1997. Casino expenses decreased 9.9%, or $500,000. Utilities and
property expenses decreased 17.4%, or $200,000, primarily due to cost savings 
from discontinued the operation and maintenance of a parking facility in
Arizona. Decreases in depreciation and amortization expenses of 7.3% or $100,000
were related to the sale of certain equipment in the prior year period.
Accordingly, operating income decreased by 5.2% or $60,000, to $1.2 million in
the fiscal 1997 quarter from $1.3 million in the fiscal 1996 quarter.

Interest expense decreased $400,000 or 15.7% to $2.0 million in the March 1997
quarter compared to $2.4 million in the March 1996 quarter, primarily due to the
repurchase and retirement of approximately  $22.8 million principal amount of 13
1/2% Notes in January and March 1996.

                                       16
<PAGE>
 
Liquidity and Capital Resources; Trends and Factors Relevant to Future
Operations

The Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") were $5.7 million and $9.0 million for the three and six months ended
March 31, 1997, respectively. The Company's EBITDA in 1996 excluding the $40.8
million in gain on the sale of assets was $6.1 million and $11.9 million for the
comparable three and six month period. EBITDA 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
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 the current year decline is due to the increased competition
in the Santa Fe's market area and restricted access to the Santa Fe resulting
from road construction, as well as the continued competitive market conditions
in the Laughlin market. Management believes that Santa Fe's EBITDA in future
periods may continue to be adversely impacted by restricted access to the Santa
Fe during construction of an interchange (at US 95 and Rancho) next to the Santa
Fe which commenced in April 1996. Northbound access from US 95 was opened at the
end of July 1996 and the Company has been advised by the Nevada Department of
Transportation that southbound access is anticipated to reopen in the mid part
of 1997. The Company has also been advised that construction work is planned
during 1997 at the intersection of Lone Mountain Road and US 95 next to the
Santa Fe, which management believes may result in reduced traffic flow by the
Santa Fe during construction. The Company believes that when completed the
construction work will ultimately improve traffic flow to the Santa Fe.

Prior to fiscal 1996, the Company generally generated sufficient cash liquidity
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, Pioneer Hotel Inc. ("Pioneer
Inc.") expended the balance of its restricted working capital and Santa Fe Inc.
sold assets and entered into financing arrangements to generate working capital
necessary to satisfy its cash requirements.  Indenture restrictions on Santa Fe
Inc. and Pioneer Inc. restrict the distribution of cash to the Company,  and
cash flow from these subsidiaries is not currently, and is not expected in the
foreseeable future to be, available for distribution to the Company.  In
addition, indenture restrictions limit additional indebtedness at Santa Fe Inc.
and at Pioneer Inc.  Therefore, the Company and its subsidiaries other than
Pioneer Inc. and Santa Fe  Inc. (collectively "Corporate") must rely on existing
cash and available resources to provide liquidity to fund Corporate cash
requirements.  Corporate consists primarily of non-operating entities which do
not generate cash flow from operations.

Liquidity - Corporate -Approximately $4.8 million of the Company's current
---------------------                                                     
assets at

                                       17
<PAGE>
 
March 31, 1997, including approximately $2.1 million of cash and short-term
investments, was held by Corporate. In April 1997, Corporate received $1.6
million from Santa Fe as payment against the balance of a working capital
revolving loan (the "Revolving Note"). In addition, Corporate purchased for $2.9
million approximately $3.5 million principal amount of 10 1/4% Subordinated
Debentures due 1998 plus accrued interest thereon. In May 1997, Corporate
received approximately $4.0 million from an indirectly wholly-owned subsidiary,
in repayment of funds advanced in connection with the development of a proposed
hotel and entertainment complex, (see discussion of 12.25% Note under Liquidity-
Pioneer)

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 10 1/4 % Subordinated
Debentures due June 1998 (the "10 1/4% Debentures"), a $5.5 million note payable
to Sierra Construction Corp. ("Sierra Construction") due December 1998, a $1.6
million loan on a 22 acre parcel of land due December 1999 and $20 million
principal amount of 12% Notes due December 1999 (the "12% Notes"). See "Debt
Obligations" below.

The Company has in the past 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 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.

Additional potential uses of cash by Corporate include (i) 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 $5.6 million as of March 31, 1997), (ii) the redemption of $3.5 million
principal amount of 12% Notes or alternatively the redemption of $3.5 million
principal amount of 11% Notes, pursuant to the 12% Notes agreement, as amended
and (iii) 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.
Additionally, in order to pursue possible development opportunities relating to
the Company's real property on Las Vegas Boulevard South or the real property in
Henderson, Nevada owned by a subsidiary of Pioneer Inc., the Company would be
required to obtain project development financing. No assurance can be given that
such financing would be available or, if available, would be on terms
satisfactory to the Company. Furthermore, in the event that cash at Santa Fe
Inc. or Pioneer Inc. is insufficient to meet liquidity requirements, Corporate
may make contributions or loans to either Santa Fe Inc. or Pioneer Inc. to
prevent an event of default under debt instruments to which Santa Fe Inc. or
Pioneer Inc. is a party.

Furthermore, the Company has submitted to the U.S. Bankruptcy Court of New
Orleans a disclosure statement with respect to a plan of reorganization for
Treasure Bay Gaming

                                       18
<PAGE>
 
& Resorts, Inc. ("Treasure Bay"), which disclosure statement was approved.
Confirmation hearings with respect to reorganization plans of the Company and
others commenced on April 7, 1997. The Company's reorganization plan for
Treasure Bay contemplates that, subject to various conditions, the various
classes of secured and unsecured creditors of Treasure Bay agree to accept
modifications to, and reductions in outstanding amounts of Treasure Bay's
outstanding obligations and the Company make a cash equity contribution of $10.0
million to acquire 100% of the equity interests in Treasure Bay. The Company has
received a commitment from a lender for a $10.0 million loan to fund the
Company's Proposed acquisition of the equity interests in Treasure Bay. The
commitment is subject to various conditions, including that a final order
approving the Company's reorganization plan is issued by September 30, 1997.  No
assurance can be given that the Company's plan will be confirmed by the Court.
Additionally, the Company may elect not to proceed with its plan or the Company
may amend its current reorganization plan resulting in changes to the amount and
terms of debt of the reorganized debtor and equity ownership acquired.

Management believes that Corporate has sufficient working capital and available
resources to meet its operating requirements through the twelve month period
ending March 31, 1998. Additionally, management believes that Corporate has
available resources, consisting primarily of approximately 27 acres of real
property on Las Vegas Boulevard South that may be sold or refinanced to the
extent necessary, to generate the liquidity to meet corporate debt service
requirements, although no assurance can be given to that effect. Management
believes such resources would also enable the Company to make capital
contributions or advances to Santa Fe Inc. and/or Pioneer Inc. if necessary. See
"Liquidity-Santa Fe", "Liquidity-Pioneer" and "Debt Obligations". To the extent
Corporate pursues development of new projects or proceeds with the Treasure Bay
reorganization plan, additional funds will be required other than the commitment
related to the Treasure Bay reorganization described above. The Company has no
arrangements to obtain such funds, and no assurance can be given that such funds
can be obtained.

Liquidity - Santa Fe - At March 31, 1997, approximately $10.5 million of the
--------------------
Company's current assets, including approximately $7.5 million of cash and short
term investments, was held by Santa Fe Inc. In April 1997, Santa Fe repaid $1.6
million to Corporate in reduction of the outstanding balance under the Revolving
Note.

Results from operations at the Santa Fe for the six months ended March 31, 1997
generated EBITDA of $4.8 million, approximately .74 times interest expense
during the same period compared to $6.7 million of EBITDA in 1996, or
approximately .97 times interest expense. In the fiscal 1997 six month period,
the Santa Fe reported approximately $1.5 million in rent expense compared to no
rent expense in the fiscal 1996 period. Santa Fe's operating expenses in fiscal
1997 will include increased lease expenses associated with lease transactions
completed in fiscal 1996, which will impact EBITDA. Additionally, management
believes that Santa Fe's EBITDA 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 work on an interchange near the
property which commenced in April 1996 and which is expected to continue through
the mid part of 1997, and by reduced traffic flow around the property expected
to result from

                                       19
 
<PAGE>
 
construction on another interchange near the property, which is expected to
occur through 1997. The Company believes that when completed the construction
work will ultimately improve traffic flow to the property.

Santa Fe Inc.'s principal uses of cash are for interest payments on indebtedness
and capital expenditures to maintain the facility.  Interest expense in fiscal
1997 attributable to the 11% Notes will decrease 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.  Interest expense in the first quarter of fiscal 1997
reflects this decrease.  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 three and six month
periods ended March 31, 1997, Santa Fe Inc. will have sufficient cash resources
to meet its operating expense requirements through the twelve month period
ending March 31, 1998, although no assurance can be given to that effect.  If
operating results do not improve in the future compared to the six months and
quarter ended March 31, 1997, management believes Santa Fe Inc. may not have
sufficient cash from operations to meet its debt service requirements through
March 31, 1998.  Santa Fe Inc. is exploring alternatives to improve liquidity,
including, but not limited to, possible reductions of indebtedness and a
possible refinancing of the 11% Notes.  To the extent that Santa Fe Inc. is
unable to generate sufficient cash to meet its debt service requirements,
Corporate may, to the extent of available funds, make loans under the Revolving
Note, make capital contributions or advances to Santa Fe Inc. See "Liquidity-
Corporate"

Liquidity - Pioneer - At March 31, 1997, approximately $6.1 million of the
-------------------                                                       
Company's current assets, including approximately $4.4 million of cash and short
term investments, was held by Pioneer Inc.  At that date, Pioneer Inc. also
held, through a wholly-owned subsidiary, a 39 acre parcel of real property in
Henderson, Nevada, ("Pioneer Subsidiary").  In May 1997, the Pioneer Subsidiary
borrowed $5.0 million for a twelve month term, pursuant to a first mortgage note
secured by the 39 acre parcel of land (12.25% Note).  The Pioneer Subsidiary
used approximately $4.0 million in net proceeds to reimburse Corporate for funds
advanced for development of a proposed hotel and entertainment complex on the 39
acre parcel. The balance of the funds will be used for ongoing development cost
and to fund debt service.

Results from operations at the Pioneer for the six months ended March 31, 1997,
generated EBITDA of $3.7 million, approximately .93 times interest expense
during the same period, compared with $5.1 million of EBITDA in fiscal 1996 or
approximately .98 times interest expense.  In the fiscal 1997 six month period,
the Pioneer reported rent expense of approximately $500,000 compared to
$400,000 in rent expense in the fiscal 1996 period.

                                       20
<PAGE>
 
Pioneer Inc.'s principal uses of cash are for interest payments on indebtedness
and capital expenditures to maintain the facility.   Interest expense
attributable to the 13  1/2% Notes will decrease 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 first quarter of fiscal 1997 reflects this decrease.  Capital
expenditures to maintain the facility in fiscal 1997 are expected to be
approximately that expended during fiscal 1996.  However, no assurances can be
given to that effect.

Management believes that, based on operations for the three and six month
periods ended March 31, 1997,  Pioneer Inc.  will have sufficient cash and
available resources to meet its operating requirements  through the twelve
months ending March 31, 1998, although no assurance can be given to that effect.
If operating results do not improve in the future compared to the six months and
quarter ended March 31, 1997, management believes  Pioneer Inc. may not have
sufficient cash from operations  to meet its debt service requirements.
However, Pioneer Inc., 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. Pioneer Inc. is exploring
financing 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 Pioneer Inc. is unable to generate sufficient
cash to meet its debt service requirements, Corporate may, to the extent of
available funds, make capital contributions or advances to Pioneer Inc. See
"Liquidity-Corporate".

Debt Obligations  - The Company has approximately $4.0 million in current
-----------------                                                        
maturities of long term debt due to third parties during the twelve-month period
ending March 31, 1998, comprised primarily of a $2.3 million sinking fund
obligation in June, 1997 on the 10 1/4% Debentures (which has been satisfied in
May 1997), and principal amortization payments under notes payable and capital
leases. The scheduled maturities applicable to third party debt at the Santa Fe
Inc. and Pioneer Inc. during the twelve month period ending March 31, 1998 are
$750,000 and $210,000, respectively.

The Company has $169.0 million in long-term debt, net of current maturities and
debt discount as of March 31, 1997.  The 10 1/4% Debentures have approximately
$5.5 million outstanding balance and mature in June 1998.  In addition, a $5.0
million 12.25% Note matures in May 1998.  Approximately $65.8 million of long-
term debt (excluding capital leases) matures during fiscal 1999, comprising
primarily $60.0 million of principal amount of 13  1/2% Notes in December 1998
and a $4.8 million balloon payment due in December 1998 on the note payable to
Sierra Construction.

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 any assets.  Any such refinancing or asset sale
would be subject to the Company's future operations and the prevailing market
conditions at the time of such proposed transaction and would

                                       21
<PAGE>
 
likely require the approval of the Nevada Gaming Authorities and potentially
other state gaming authorities. 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.

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 unsecured demand loan which bears interest at 2% over the prime
rate.  The outstanding balance of the loan including accrued interest was
$662,000 as of March 31, 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 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 April 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.  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 and contract sales operations.
Any such increases in costs associated with casino operations and maintenance of
properties may not be completely recovered by the Company.

                                       22
<PAGE>
 
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
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 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.

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.

                                       23
<PAGE>
 
                          SANTA FE GAMING CORPORATION

                          PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

          None

Item 2 - Changes in Securities

          None

Item 3 - Defaults Upon Senior Securities

          None

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

       The Annual Meeting of Shareholders was held on February 21, 1997, wherein
       the following matters were submitted to a vote:

       The result of the vote taken on the election of Directors was as follows:

               Suzanne Lowden     4,928,462
               John W. Delaney    4,930,520
 
       The result of the vote taken for ratification of selection of outside
auditors are as follows:
 
               For: 4,991,346    Against: 17,829   Votes abstaining: 26,957

Item 5 -  Other Information

          None

Item 6 -  Exhibits and Reports on Form 8-K

          A.  Exhibits:
 
              23    Consent of Deloitte & Touche LLP

              27    Financial Data Schedule

          B.  Reports on Form 8-K: None

                                       24
<PAGE>
 
                                   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: May 15, 1997

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