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

                                   FORM 10-Q
 
[ X ]  QUARTERLY REPORT PURSUANT TO SECURITIES EXCHANGE ACT OF SECTION 13 OR 
       15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED:      DECEMBER 31, 1996
                               ----------------------------
 
[   ]   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             (I.R.S. Employer Identification Number)
 of incorporation or organization)   
 
                4949 N. 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                   February 13, 1997
-----------------------------------     ---------------------------------------
    Amount Outstanding                                            Date
<PAGE>
 
                          SANTA FE GAMING CORPORATION


                                     INDEX
<TABLE> 
<CAPTION> 
                                                                                  Page
                                                                                  ----
<S>                                                                               <C> 
PART I.   FINANCIAL INFORMATION
     Item 1. Consolidated Condensed Financial Statements
 
               Balance sheets at December 31, 1996                 
               (unaudited) and September 30, 1996................................   2
 
               Statements of Operations for the three months
               ended December 31, 1996 and 1995 (unaudited)......................   3
 
               Statement of Changes in Stockholders' Equity
               for the three months ended December 31, 1996 (unaudited)..........   4
 
               Statements of Cash Flows for the three months
               ended December 31, 1996 and 1995 (unaudited)......................   5
 
               Notes to Consolidated Condensed Financial
               Statements (unaudited)...........................................    6
 
               Independent Accountants' Review Report...........................   10

     Item 2.  Management's Discussion and Analysis of Financial Condition 
               and Results of Operations........................................   11

PART II.  OTHER INFORMATION.....................................................   20
</TABLE> 
                                       1
<PAGE>
 
                 SANTA FE GAMING CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                           December 31,   September 30,
                                                              1996            1996
----------------------------------------------------------------------------------------
                                                           (Unaudited)
<S>                                                        <C>            <C>
             ASSETS

Current assets:
  Cash and short-term investments                           $ 11,869,673   $ 17,497,824
  Accounts receivable, net                                     1,830,214      1,529,723
  Accounts receivable, officer                                   648,761        636,113
  Inventories                                                  1,302,941      1,218,120
  Prepaid expenses & other                                     3,684,493      3,778,514
  Assets held for sale                                         2,424,821      2,424,821
                                                            ------------   ------------
Total current assets                                          21,760,903     27,085,115


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

Property and equipment, net                                  108,425,480    110,217,659

Goodwill                                                      45,715,750     46,073,869

Other assets                                                   8,133,225      7,085,069
                                                            ------------   ------------
Total assets                                                $222,229,423   $228,655,777
                                                            ============   ============


LIABILITIES and STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt                         $  3,779,681   $  3,770,817
  Accounts payable                                             4,910,234      5,757,161
  Interest payable                                             1,986,134      7,142,225
  Accrued and other liabilities                               12,699,271      9,134,856
                                                            ------------   ------------
Total current liabilities                                     23,375,320     25,805,059

Deferred income taxes                                          1,098,584      2,687,751

Long-term debt - less current portion                        168,750,385    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                                           18,953,233     18,953,233
  Additional paid-in capital                                  51,513,504     51,513,504
  Accumulated deficit                                        (41,435,783)   (37,965,426)
                                                            ------------   ------------
      Total                                                   29,092,908     32,563,265

  Less treasury stock - 4,875 shares, at cost                    (87,774)       (87,774)
                                                            ------------   ------------
Total stockholders' equity                                    29,005,134     32,475,491
                                                            ------------   ------------

Total liabilities and stockholders' equity                  $222,229,423   $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

<TABLE>
<CAPTION>
                                                         Three Months            Three Months
                                                            Ended                   Ended
                                                      December 31, 1996        December 31, 1995
                                                      -----------------        -----------------
                                                         (Unaudited)             (Unaudited)
<S>                                                   <C>                      <C>
Revenues:
  Casino                                               $19,877,173              $21,998,864
  Hotel                                                    989,406                1,013,267
  Food and beverage                                      2,729,075                2,835,139
  Other revenues                                         1,812,185                2,218,721
  Gain on sale of assets                                         0               40,753,738
                                                       -----------              -----------
Total revenues                                          25,407,839               68,819,729
                                                       -----------              -----------
Operating expenses:
  Casino                                                10,630,817               10,617,544
  Hotel                                                    414,718                  439,858
  Food and beverage                                      3,915,410                3,734,860
  Other operating expenses                                 767,825                  947,512
  Selling, general & administrative                      3,398,183                4,096,628
  Utilities & property expenses                          2,981,869                2,384,706
  Depreciation & amortization                            2,727,536                3,923,318
                                                       -----------              -----------
Total operating expenses                                24,836,358               26,144,426
                                                       -----------              -----------
Operating income                                           571,481               42,675,303

Interest expense                                         5,645,112                6,822,262
                                                       -----------              -----------
Income (loss) before income tax expense
  (benefit)                                             (5,073,631)              35,853,041

Federal income tax expense (benefit)                    (1,603,274)              12,219,000
                                                       -----------              -----------
Income (loss)                                           (3,470,357)              23,634,041

Dividends on preferred shares                              379,065                  350,428
                                                       -----------              -----------
Net income (loss) applicable to common shares          $(3,849,422)             $23,283,613
                                                       ===========              ===========
Average common shares outstanding                        6,195,356                6,195,356
                                                       ===========              ===========
Income (loss) per common share                         $     (0.62)             $      3.76
                                                       ===========              ===========
</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                                                                     (3,470,357)                  (3,470,357)
                              -------        -----------    -----------    ------------   --------       -----------

Balances, December 31, 1996   $61,954        $18,953,233    $51,513,504    $(41,435,783)  $(87,774)      $29,005,134
                              =======        ===========    ===========    ============   ========       ===========
</TABLE>

See the accompanying Notes to Consolidated Condensed Financial Statements.    

                                       4
<PAGE>
 
                 SANTA FE GAMING CORPORATION AND SUBSIDIARIES
               CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                             Three Months        Three Months
                                                                Ended               Ended
                                                           December 31, 1996   December 31, 1995
------------------------------------------------------------------------------------------------
                                                              (Unaudited)         (Unaudited)
<S>                                                        <C>                 <C>
Cash flows from operating activities:
 Cash and short-term investments
  provided by operations                                    $  (300,601)         $  27,904,763
     Gain on sale of subsidiary assets                                             (40,753,738)
     Decrease (increase) in accounts receivable, net           (300,491)             2,788,814
     Increase in accounts receivable, officer                   (12,648)               (11,910)
     Decrease (increase) in inventories                         (84,821)               369,821
     Decrease (increase) in prepaid expenses and other           94,031               (401,724)
     Decrease (increase) in deferred income taxes            (1,589,167)            12,219,000
     Decrease (increase) in other assets                     (1,225,970)             1,324,860
     Decrease in accounts payable                              (846,927)            (1,607,061)
     Decrease in interest payable                            (5,037,292)            (6,981,348)
     Increase (decrease) in accrued and other liabilities     3,564,405             (4,158,206)
                                                            -----------          -------------
Net cash used in operating activities                        (5,739,481)            (9,306,729)
                                                            -----------          -------------
Cash flows from investing activities:                                            
     Proceeds from sale of subsidiary assets                                       128,508,377
     Increase in restricted cash                                                        64,976
     Capital expenditures, net                                 (236,576)            (1,860,330)
                                                            -----------          -------------
Net cash provided by (used in) investing activities            (236,576)           126,713,023
                                                            -----------          -------------
Cash flows from financing activities:                                            
     Cash proceeds of long-term debt                          1,559,000          
     Cash paid on long-term debt                             (1,211,094)          (124,994,751)
                                                            -----------          -------------
Net cash provided by (used in) financing activities             347,906           (124,994,751)
                                                            -----------          -------------
Decrease in cash and short-term investment                   (5,628,151)            (7,588,457)
                                                            -----------          -------------
Cash and short-term investments,                                                 
  beginning of year                                          17,497,824             42,749,932
                                                            -----------          -------------
Cash and short-term investments,                                                 
  end of year                                               $11,869,673          $  35,161,475
                                                            -----------          -------------
</TABLE>

See the accompanying Notes to Consolidated Condensed Financial Statements.

                                       5
<PAGE>
 
                  SANTA FE GAMING CORPORATION AND SUBSIDIARIES

              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 month period ended December 31, 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
December 31, 1996, the results of its operations for the three month periods
ended December 31, 1996 and 1995, the changes in stockholders' equity for the
three month periods ended December 31, 1996, and cash flows for the three month
periods ended December 31, 1996 and 1995.

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.

NOTE 2 - CASH AND SHORT-TERM INVESTMENTS

At December 31, 1996, approximately $6.2 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, 

                                       6
<PAGE>
 
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
December 31, 1996, SFHI did not meet the conditions precedent to making a
distribution to the Company.

At December 31, 1996, 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 Finance Corp. were issued.
As of December 31, 1996, PHI did not meet the conditions precedent to making a
distribution to the Company.

NOTE 3 - ACCOUNT RECEIVABLE OFFICER

As of December 31, 1996 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 $649,000 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 the 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 is
entitled to purchase the property for up to a six-month period for $350,000 in
additional net proceeds to the Company. In the event the option holder does not
elect to purchase the property, the option payment will convert to a first
mortgage note with a principal amount of $2.8 million at 10% interest payable
monthly with the entire principal balance due one year from the date the
option holder gives written notice of election not to purchase the property.

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.

                                       7
<PAGE>
 
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 - 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 7 - SUPPLEMENTAL INFORMATION

Supplemental statement of cash flows information for the three month periods
ended December 31, 1996 and 1995 is presented below:
<TABLE> 
<CAPTION> 
                                             1996               1995
                                          -----------        ----------
<S>                                       <C>                <C>   
   Cash paid during the period
   for interest                            $10,357,900       $13,456,207
                                           ===========       ===========
 
Supplemental Schedule of Non Cash
Investing and Financing Activities
 Land acquired in exchange
 of assets                                                   $21,504,400
                                                             ===========
</TABLE>

                                       8
<PAGE>
 
8.   Supplemental Statement of Subsidiary Information -
       For The Three Month Periods Ended December 31, 1996 and 1995


     The Company's primary operations are in the hotel/casino industry and since
October 1995 have been conducted through PHI and SFHI.  "Other" below includes
financial information for SNC, HHI and the Company's other operations before
eliminating entries. In addition to the financial information for the three
month periods ended December 31, 1996 and 1995, as set forth in the table below
(dollars in thousands), see notes 2, 5 and 6 for additional discussion of
subsidiary operations.
<TABLE>
<CAPTION>
                                       Year           PHI            SFHI           Other          Eliminations   TOTAL
                                       ----           ---            ----           -----          ------------   -----
<S>                                    <C>            <C>            <C>            <C>            <C>            <C>
Operating revenues                      1996           $  9,929       $15,197        $   669        $  (387)       $ 25,408
                                                       ========       =======        =======        =======        ========

                                        1995           $ 11,373       $15,409        $42,557        $  (519)       $ 68,820
                                                       ========       =======        =======        =======        ========


Operating Income (Loss)                 1996           $   (250)      $   759        $   212        $  (150)       $    571
                                                       ========       =======        =======        =======        ========

                                        1995           $    866       $ 1,039        $40,797        $   (27)       $ 42,675
                                                       ========       =======        =======        =======        ========


Interest Expense                        1996           $  1,974       $ 3,235        $   586        $  (150)       $  5,645
                                                       ========       =======        =======        =======        ========

                                        1995           $  2,807       $ 3,520        $   522        $   (27)       $  6,822
                                                       ========       =======        =======        =======        ========


Depreciation and Amortization           1996           $  1,400       $ 1,288        $    40                       $  2,728
                                                       ========       =======        =======        =======        ========

                                        1995           $  1,508       $ 2,251        $   164                       $  3,923
                                                       ========       =======        =======        =======        ========


Capital Expenditures                    1996           $    233       $   160        $   126                       $    519
                                                       ========       =======        =======        =======        ========

                                        1995           $    558       $ 1,036        $   266                       $  1,860
                                                       ========       =======        =======        =======        ========


Identifiable Assets                     1996           $112,574       $78,551        $32,349        $(1,245)       $222,229
                                                       ========       =======        =======        =======        ========

                                        1995           $125,659       $90,677        $49,211                       $265,547
                                                       ========       =======        =======        =======        ========
</TABLE>

                                       9
<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 as of December 31, 1996, the related
consolidated condensed statements of operations and of cash flows for the three-
month periods ended December 31, 1996 and 1995, and of stockholders' equity for
the three-month period ended December 31, 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
February 13, 1997

                                      10

<PAGE>
 
                          SANTA FE GAMING CORPORATION

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



RESULTS OF OPERATIONS - Three Months Ended December 31, 1996 and 1995
---------------------------------------------------------------------


CONSOLIDATED

Consolidated revenues for the three month period ended December 31, 1996 were
$25.4 million, a $43.4 million or 63.1% decrease from $68.8 million for the same
period in fiscal 1995, which included the $40.8 million gain on sale of assets.
Excluding the gain on sale in the prior year period, revenues decreased by $2.6
million in the December 1996 quarter, of which $200,000 was attributable to the
Santa Fe Hotel and Casino (the "Santa Fe") and $1.4 million was attributable to
the Pioneer Hotel and Gambling Hall (the "Pioneer").

Consolidated operating income for the three month period ended December 31, 1996
was $600,000, a $42.1 million or 98.7% decrease from $42.7 million for the same
period in fiscal 1995, which included the $40.8 million gain on sale of assets.
Excluding the gain on sale in the prior period, operating income declined $1.9
million in the 1996 quarter, of which $300,000 was attributable to the Santa Fe
and $1.2 million was attributable to the Pioneer.

Consolidated interest expense for the three month period ended December 31, 1996
was $5.6 million, a $1.2 million decrease compared to $6.8 million for the same
period in fiscal 1995. Interest expense decreased by $300,000 at the Santa Fe
and $800,000 at the Pioneer in the 1996 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.

Consolidated net loss before income taxes for the three month period ended
December 31, 1996 was $5.1 million, a $40.9 million decrease compared to net
income of $35.9 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 increased by approximately $750,000 in the December
1996 quarter compared to the prior year. Net loss before income taxes at the
Pioneer increased by $300,000 and was unchanged at the Santa Fe in the quarter
ended December 31, 1996 compared to the prior year period.

                                      11
<PAGE>
 
SANTA FE

Revenues at the Santa Fe decreased 1.4%, or $200,000, in the three months ended
December 31, 1996 to $15.2 million as compared to $15.4 million in the same
period in the prior year. Casino revenues decreased 2.1%, or $200,000, to $11.4
million from $11.6 million when compared to the same three month period of 1995.
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.

Operating expenses increased by 0.5%, or $70,000. Casino expenses increased by
$800,000, or 16.6%, primarily due to increased promotional costs incurred by the
slot club to compete with the competition in the area. This was mostly offset by
a decrease of $700,000, or 27.2%, in selling, general and administrative
expenses resulting from decreased general advertising and promotional costs.
Food and beverage expenses had increases of 10.0%, or $200,000 over the prior
year period. Decreases in depreciation and amortization of 42.8% or $1.0
million, were due to the sale of certain slot equipment in the prior fiscal
year. Utilities and property expenses increased $700,000 primarily attributable
to an increase in rent expense of $600,000 due to sale leaseback transactions
completed in fiscal 1996 with respect to certain gaming equipment. Accordingly,
operating income decreased $300,000 or 26.9% to $800,000 in 1996. 

Interest expense decreased $300,000, or 8.1% to $3.2 million in 1996 compared to
$3.5 million 1995, 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. 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,
which, in turn could have a material adverse effect on the results of operations
and financial condition of Santa Fe Inc. and the Company.


PIONEER

Revenues at the Pioneer decreased 12.7%, or $1.4 million, to $9.9 million in the
December 1996 quarter compared to the prior year. Casino revenues were $8.5
million in 1996, representing a decrease of 15.7%, or $1.6 million compared to
the 1995 period, comprised primarily of a $1.3 million or 14.7% decrease in slot
revenue and a $200,000 or 23.0% decrease in table games revenues. The decrease
is believed to be primarily due to the competitive gaming market environment in
and around Laughlin, including Indian gaming facilities opened in Arizona and
Southern California.

                                      12
<PAGE>
 
Operating expenses decreased $300,000 or 3.1% to $10.2 million in the quarter
ended December 31, 1996. Casino expenses decreased 8.6%, or $400,000. Selling,
general and administration expenses had an increase of $300,000 or 21.6% to $1.4
million in 1996 from $1.2 million in 1995. Rent expense increased to $300,000 in
the current period compared to $200,000 in the December 1995 quarter as the
result of an operating lease entered into during fiscal 1996. Decreases in
depreciation and amortization expenses of 7.2% or $100,000 were related to the
sale of certain equipment. Accordingly, operating income decreased by 128.8% or
$1.1 million, to a loss of $200,000 in the fiscal 1997 quarter from income of
$900,000 in the fiscal 1996 quarter.

Interest expense decreased $800,000 or 30.0% to $2.0 million in the December
1996 quarter compared to $2.8 million in the December 1995 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.


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

The Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") were $3.3 million and $46.6 million for the quarters ended December
31, 1996 and 1995, respectively. The Company's EBITDA in 1995 includes the $40.8
million gain on sale of assets. The Company's EBITDA in the 1995 quarter
excluding that gain was $5.8 million. 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, in part, due to a decline in
operating results at the Santa Fe due to increased competition and restricted
access to the Santa Fe resulting from road construction, as well as declining
operating results at the Pioneer attributable primarily to 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 early 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.

                                      13
<PAGE>
 
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, during fiscal year 1996, the 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 $5.1 million of the Company's current
---------------------                                                      
assets at December 31, 1996, including approximately $2.4 million of cash and
short-term investments, was held by Corporate.

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 $9.0 million principal amount of 10 1/4% Subordinated
Debentures due June 1998 (the "10 1/4% Debentures"), a $5.8 million note payable
to Sierra Construction Corp. ("Sierra Construction") due 1998 and $20 million
principal amount of 12% Notes due 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. 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.

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 $5.7 million as of February 28, 1997) and (ii) 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

                                      14
<PAGE>
 
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 & Resorts, Inc. ("Treasure Bay"), which disclosure 
statement was approved. Confirmation hearings with respect to reorganization 
plans of the Company and others have been scheduled for 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 to acquire 100% of the equity interests in Treasure Bay. 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 December 31, 1997. 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 financed 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. The Company
has no arrangements to obtain such funds, and no assurance can be given that
such funds can be obtained.

LIQUIDITY - SANTA FE - Approximately  $9.2 million of the Company's current
--------------------                                                       
assets, including approximately $6.2 million of cash and short term investments,
was held by Santa Fe Inc. at December 31, 1996.

Results from operations at the Santa Fe for the three months ended December 31,
1996 generated EBITDA of $2.1 million, approximately .63 times interest expense
during the same period compared to $3.3 million of EBITDA in 1995, or
approximately .93 times interest expense. In the fiscal 1997 three month period,
the Santa Fe reported approximately $600,000 in rent expenses compared to no
rent expense in the fiscal 1996

                                      15
<PAGE>
 
period. Santa Fe's operating expenses in fiscal 1997 will be greater than in
fiscal 1996 due to increased lease expenses associated with sale leaseback
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 expansions at its two nearest competitors,
which expansions opened in April and May 1996, 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 early part
of 1997, and by reduced traffic flow around the property expected to result from
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 twelve month
periods ended December 31, 1996, Santa Fe Inc. will have sufficient cash
resources to meet its operating expense requirements through the twelve month
period ending December 31, 1997, although no assurance can be given to that
effect. If operating results do not improve in the future compared to the
quarter ended December 31, 1996, management believes Santa Fe Inc. may not have
sufficient cash from operations to meet its debt service requirements through
December 31, 1997. 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 capital contributions or
advances to Santa Fe Inc. See "Liquidity-Corporate"

LIQUIDITY - PIONEER - At December 31, 1996, approximately $5.0 million of the
-------------------                                                          
Company's current assets, including approximately $3.3 million of cash and short
term investments, was held by Pioneer Inc. At that date, Pioneer Inc. also held,
through a wholly-owned subsidiary, 39 acre parcel of real property in Henderson,
Nevada.

Results from operations at the Pioneer for the three months ended December 31,
1996 generated EBITDA of $1.2 million, approximately .58 times interest expense
during the same period, compared with $2.4 million of EBITDA in fiscal 1995 or
approximately .85 times interest expense. In the fiscal 1997 three month period,
the Pioneer reported rent expenses of approximately $300,000 compared to
$200,000 in rent expense in the

                                      16
<PAGE>
 
fiscal 1996 period. Pioneer's operating expenses in fiscal 1997 will be greater
than in fiscal 1996 due to increased lease expenses associated with a lease for
new gaming equipment. 

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 current operations for the three and twelve
month periods ended December 31, 1996, Pioneer Inc. will have sufficient cash
and available resources to meet its operating requirements through the twelve
months ending December 31, 1997, although no assurance can be given to that
effect. If operating results do not improve in the future compared to the
quarter ended December 31, 1996, management believes Pioneer Inc. may not have
sufficient cash from operations to meet its debt service requirements. However,
Pioneer Inc., through a wholly-owned Subsidiary owns a 39 acre property which
management believes may be sold or financed 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 a refinancing 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 - For the remaining nine months of fiscal 1997 and for the
----------------                                                           
fiscal year 1998, scheduled maturities of long-term debt net of debt discounts, 
due to third parties (excluding capital leases) are $3.7 million and $7.6
million, respectively. The scheduled maturities at Corporate for the balance of
fiscal 1997 and for fiscal 1998 are $3.0 million and $7.2 million, respectively,
consisting primarily of $2.1 million in June 1997 and $6.6 million in June 1998
due on the 10 1/4% Subdebentures.

Additionally, approximately $66.6 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 $4.9 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 likely require the
approval of the Nevada Gaming
                                      17
<PAGE>
 
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
$649,000 as of December 31, 1996. 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 January 31, 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.

                                      18
<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
future operating results, existing and expected competition, financing and
refinancing sources and availability and 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, 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.

                                      19
<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

          None

Item 5 - Other Information

          None


Item 6 - Exhibits and Reports on Form 8-K

          A.   Exhibits:
               10.83    Employment Agreement by and between Santa Fe Gaming
                        Corporation and Thomas K. Land dated October 1, 1996.

               23        Consent of Deloitte & Touche LLP.

               27        Financial Data Schedule.


          B.   Reports:  None


                                      20
<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: February 13, 1997


                                      21