<TABLE>

                                                              UNITED STATES
                                                   SECURITIES AND EXCHANGE COMMISSION
                                                           Washington, DC 20549
                                                                _________

                                                                FORM 10-K

                                         |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                                                     SECURITIES EXCHANGE ACT OF 1934
                                               For the fiscal year ended December 31, 1996

                                                                   OR

                                          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                                                     SECURITIES EXCHANGE ACT OF 1934
                                                    For the transition period from to

                                                       Commission File No. 0-22436

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<S>                                      <C>                                                                 <C>
            Delaware                                   Lady Luck Gaming Corporation                                88-0295602
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
            Delaware                              Lady Luck Gaming Finance Corporation                            88-0295603
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
           Mississippi                                   Lady Luck Tunica, Inc.                                   88-0289742
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
           Mississippi                                   Lady Luck Biloxi, Inc.                                   88-0285242
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
            Delaware                                     Gold Coin Incorporated                                   88-1223906
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
           Mississippi                                     Magnolia Lady, Inc.                                    88-0301634
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
           Mississippi                                 Old River Development, Inc.                                64-0837159
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
            Missouri                                    Lady Luck Kimmswick, Inc.                                 43-1653661
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
            Delaware                                   Lady Luck Quad Cities, Inc.                                42-1426966
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
           Mississippi                                 Lady Luck Mississippi, Inc.                                88-0277687
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)



<PAGE>


           Mississippi                                  Lady Luck Vicksburg, Inc.                                 88-0284406
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
           Mississippi                                  Lady Luck Gulfport, Inc.                                  88-0289741
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)

                                          206 North Third Street, Las Vegas, Nevada 89101
                                         (Address of principal executive offices)(Zip code)
                                              Registrant's telephone number, including
                                                     area code: (702) 477-3000

                                                             __________

                                  Securities registered pursuant to Section 12(b) of the Act: None

                                    Securities registered pursuant to Section 12(g) of the Act:


                                   Common Stock of Lady Luck Gaming Corporation ($.001 par value)
                                                          (Title of class)

                                                             __________


         Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes |X|  No [ ]

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of each registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

         At March 13, 1997, the aggregate market value of the registrant, Lady Luck Gaming Corporation's, Common Stock,
$.001 par value, held by non-affiliates was approximately $28,803,875.

         At March 13, 1997, 29,285,698 shares of the registrant, Lady Luck Gaming Corporation's, Common Stock, $.001 par
value, were outstanding.

         The registrant, Lady Luck Gaming Corporation's, proxy statement for its 1997 Annual Meeting of Shareholders is
incorporated by reference herein into Part III of this Form 10-K.
</TABLE>


<PAGE>

                                     PART I

ITEM 1.           BUSINESS.

     All statements  contained herein that are not historical  facts,  including
but not limited to statements regarding the Company's current business strategy,
the Company's prospective joint ventures, asset sales and expansions of existing
projects,  and the Company's plans for future  development  and operations,  are
based upon current expectations.  These statements are forward-looking in nature
and  involve  a  number  of  risks  and  uncertainties.   Generally,  the  words
"anticipates," "believes,"  "estimates,"  "expects," and similar expressions as
they relate to the Company and its management  are intended to identify  forward
looking statements. Actual results may differ materially. Among the factors that
could  cause  actual  results  to  differ  materially  are  the  following:  the
availability  of sufficient  capital to finance the  Company's  business plan on
terms satisfactory to the Company;  competitive factors, such as legalization of
gaming in  jurisdictions  from which the Company  draws  significant  numbers of
patrons and an  increase  in the number of casinos  serving the markets in which
the  Company's  casinos are  located;  changes in labor,  equipment  and capital
costs; the ability of the Company to consummate its contemplated  joint ventures
on  terms  satisfactory  to the  Company  and  to  obtain  necessary  regulatory
approvals therefor;  changes in regulations  affecting the gaming industry;  the
ability of the  Company to comply  with the  Indenture  as  supplemented  by the
Amendments and Waivers; future acquisitions or strategic  partnerships;  general
business and economic conditions;  and other factors described from time to time
in the Company's reports filed with the Securities and Exchange Commission.  The
Company  wishes to  caution  readers  not to place  undue  reliance  on any such
forward-looking  statements,  which  statements are made pursuant to the Private
Litigation Reform Act of 1995 and, as such, speak only as of the date made.


General

     Lady Luck Gaming Corporation  ("LLGC"),  together with its subsidiaries and
directly or indirectly owned affiliates (collectively with LLGC, the "Company"),
develops,  owns and operates  dockside,  land-based  and  riverboat  casinos and
related projects in recently created gaming jurisdictions. The Company currently
owns and  operates one dockside  casino in each of Natchez,  Mississippi  ("Lady
Luck  Natchez")  and Biloxi,  Mississippi  ("Lady Luck  Biloxi");  two dockside,
land-based  casinos in Coahoma County,  Mississippi  ("Lady Luck Rhythm & Blues"
and "Country  Casino");  a  land-based,  limited  stakes casino in Central City,
Colorado ("Lady Luck Central City");  and, through a 50% owned joint venture,  a
riverboat casino in Bettendorf, Iowa ("Lady Luck Bettendorf").  In addition, the
Company  owns 35% of a joint  venture,  a  dockside  casino in  northern  Tunica
County,  Mississippi  ("Bally's  Saloon & Gambling  Hall" and together  with the
aforementioned casinos, the "Operating Casinos").

     The Company  also has  dockside  or  riverboat  casino  projects in various
stages of  development  in  Kimmswick,  Missouri  (the  "Missouri  Project") and
Vicksburg,  Mississippi (the "Vicksburg  Project" and together with the Missouri
Project the "Development Stage Projects").  As of December 31, 1996, the Company
has net  remaining  investments  of $8.4  million  and $9.9  million,  after any
project  development  cost  write-downs  and  reserves and other losses to date,
respectively, in the Missouri Project and Vicksburg Project.

     The  Company is also in the  pre-development  stage of casino  projects  in
Scott  City,  Missouri  and  Vancouver,  British  Columbia  (collectively,   the
"Pre-development  Stage  Projects").  As of December 31,  1996,  the Company has
invested $1.1 million of capital in the  Pre-development  Stage Projects  (which
was  expensed  in each  year as  incurred)  and  does not  anticipate  investing
additional material amounts of capital prior to licensing.

     LLGC is the direct corporate parent of Lady Luck Gaming Finance Corporation
("LLGFC").  The following companies are wholly owned by LLGFC: Lady Luck Tunica,
Inc. ("LLT"),  Lady Luck Biloxi,  Inc.  ("LLB"),  the owner of Lady Luck Biloxi,
Gold Coin Incorporated  ("GCI"),  the owner of Lady Luck Central City,  Magnolia
Lady, Inc. ("MLI"), the owner of Lady Luck Rhythm & Blues and Country Casino and
the Pavilion,  Lady Luck Quad Cities, Inc. ("LLQC"),  which, through a 50% owned
joint venture owns Lady Luck Bettendorf,  Lady Luck  Mississippi,  Inc. ("LLM"),
the owner of Lady Luck Natchez,  Lady Luck  Vicksburg,  Inc.  ("LLV"),  which is
developing the Vicksburg Project,  Lady Luck Gulfport,  Inc. ("LLG"),  Old River
Development, Inc. ("ORD"), which entered into the Bally's Joint Venture and owns
a  35%  interest  in  the  Bally's  Saloon  &  Gambling  Hall  and  L.L.  Gaming
Reservations,  Inc. ("LLGR"), which books reservations for the Company's hotels.
In addition,  LLGFC owns 93% of the capital stock of Lady Luck  Kimmswick,  Inc.
("LLK"),  which has formed a joint venture (the  "Kimmswick  Joint  Venture") to
develop the Missouri Project.

     Notwithstanding  the  impact  on  operations  during  the  last  year  from
increased  competition in the markets in which the Company operates,  management
has  continued  efforts to  increase  the  revenue  producing  potential  of the
Company's existing assets,  expand its facilities,  acquire additional amenities
and focus its development efforts.

     In an  endeavor to service  excess  demand,  defend its market  position in
light of the project additions and enhancements planned or under construction at
competing casinos in neighboring Tunica County, Mississippi, and satisfy certain
provisions of its land lease, MLI expanded its casino and non-gaming  facilities
during 1996. The expansion  project (the  "Expansion"),  which opened on May 21,
1996,  is made up of the "Country  Casino" and the  "Pavilion."  Country  Casino
offers  approximately 33,000 square feet of casino space, and as of February 28,
1997 had  approximately 680 slot machines,  including slot machines  transferred
from Lady Luck  Rhythm & Blues,  18 table  games,  six poker  tables  and a food
court.   The  Pavilion   consists  of   approximately   25,000  square  feet  of
entertainment and event space, two movie theaters, an arcade and a logo shop. In
addition,  the Expansion  includes  approximately 650 additional parking spaces.
The Expansion was able to utilize equipment having a book value of approximately
$4.0 million that was originally  intended to be used in northern Tunica County,
Mississippi  and was not  contributed  to a joint  venture  with  affiliates  of
Bally's (the "Bally's Joint Venture"). Additionally, on July 3, 1996, MLI, which
operates Lady Luck Rhythm & Blues, Country Casino and the Pavilion, acquired the
Riverbluff   Hotel  in  Helena,   Arkansas   (the   "Riverbluff").   Casino  and
entertainment  space of the expanded  facility is expected by  management  to be
adequate to service demand for the foreseeable future. The Riverbluff is located
at the Arkansas  entrance to the bridge which crosses the Mississippi  River and
provides immediate access to MLI's Coahoma County,  Mississippi facilities.  The
Riverbluff  features 120 guest rooms,  adding to the existing 173 guest rooms at
the Coahoma County, Mississippi site.

     Seeking  to offer a more  complete  amenity  base to  patrons  of Lady Luck
Natchez  in light of  competition  from  four  dockside  casinos  in  Vicksburg,
Mississippi,  two  riverboat  casinos in Baton Rouge,  Louisiana,  and an Indian
casino in Marksville,  Louisiana, and fulfill certain requirements of its gaming
license regarding  land-based  investment,  LLM purchased the Best Western River
Park Hotel (the  "River  Park") from River Park Hotel  Group,  Inc. on April 15,
1996. The River Park is a 147-room hotel in Natchez,  Mississippi.  In addition,
the Company has commenced  remodeling portions of the River Park,  including the
replacement  of certain  furniture and equipment.  The Company  expects to spend
approximately  $0.2 million in 1997 in addition to amounts  expended in 1996 for
this remodeling. In a previous effort to monetize a portion of Lady Luck Natchez
in February 1996, the Company had executed a definitive joint venture  agreement
(the "Natchez Agreement") to form a joint venture with Holstar, Inc., a Virginia
corporation  ("Holstar"),  to own and  operate  the  dockside  casino  currently
operated by the Company in Natchez,  Mississippi  and the  125-room  Eola Hotel,
owned by Holstar.  During 1996,  the Company  elected to  terminate  the Natchez
Agreement  and not pursue  formation of a joint  venture.  The Company  retained
deposits  forfeited  by  Holstar  of  $0.3  million  upon  termination.  Certain
conditions  which had not been met entitled the Company to terminate the Natchez
Agreement at its discretion.

     Lady Luck  Bettendorf  has  increased  its share of the Quad  Cities,  Iowa
market from  approximately  37% during the period it was open during 1995 to 44%
during 1996. In an effort to further  solidify its position within its operating
market,  the property has a master plan for  expansion  which  includes,  in the
initial  phase, a 260-room  hotel,  a 30 to 100 slip marina,  an indoor pool and
fitness  center,  restaurant  facilities,  and a fully  enclosed  walkway to the
riverboat  casino.  In conjunction  with the expansion,  the City of Bettendorf,
Iowa would  provide  various  infrastructure  improvements  including  a parking
garage and a traffic overpass.  Commencement of the expansion is contingent upon
financing,  receipt of required  regulatory  approvals,  and the  execution of a
development  agreement  with the City of  Bettendorf.  There can be no assurance
that such agreements will be entered into that such approvals will be granted or
that infrastructure improvements will be provided by the City of Bettendorf.

     The Company also continues to explore alternatives to improve operations at
Lady Luck  Biloxi  and  previously  entered  into a  non-binding  Memorandum  of
Understanding  with Algernon  Blair,  Inc.  ("ABI"),  which  provided for ABI to
construct  a hotel  at Lady  Luck  Biloxi  (and to  obtain  financing  for  such
construction)  and which provided for LLB and LLGC to guarantee such  financing,
jointly and  severally.  Issuance of such a guarantee  would have  required  the
consent of the holders of the 2001 Notes.  During 1996,  the Company  elected to
terminate the agreement with ABI, as ABI was unable to obtain financing for such
construction.  The Company  continues to seek financing for the development of a
hotel and related amenities for Lady Luck Biloxi. There can be no assurance that
the Company will obtain such financing.

     During 1996,  the Company  continued  its efforts  towards  developing  the
Missouri Project, located in Jefferson County, Missouri,  approximately 20 miles
south  of  St.  Louis.  As of  December  31,  1996,  the  Company  has  expended
approximately $8.4 million on the Missouri Project,  consisting of approximately
$6.0  million  for  construction  of a cruising  vessel and  approximately  $2.4
million in other related development costs.  Development of the Missouri Project
is dependent upon approval of the Missouri Gaming Commission, which investigates
applicants  prior to licensing.  During 1996,  the Company and other  applicants
provided updated  information to the Missouri Gaming  Commission.  However,  the
Missouri  Gaming  Commission  did not select new  applicants to be  investigated
during 1996 and there can be no  assurance  that the Company will be selected or
obtain such  approvals  from the  Missouri  Gaming  Commission.  The Company has
entered the Kimmswick  Agreement (as defined below) with Davis Gaming Company II
to construct  and operate the  facility  contemplated  by the Missouri  Project.
However, there can be no assurance that the joint venture will be formed.

     The Company also is considering  alternatives to finance development of the
Vicksburg   Project.   As  of  December  31,  1996,  the  Company  has  invested
approximately  $14.4  million in the  Vicksburg  Project  with a net  investment
remaining  of  approximately   $9.9  million  after  project   development  cost
write-downs  and reserves and other losses.  The Company  currently  anticipates
that it will  require  approximately  $47.9  million  in  additional  capital to
complete the  Vicksburg  Project.  Given its current  financial  condition,  the
Company has determined not to use internally  generated  funds for the Vicksburg
Project. Accordingly, the Company is seeking alternatives to provide a return on
its investment in the Vicksburg  Project,  either  through  formation of a joint
venture to  complete  and operate  the  project,  or through the sale of certain
assets related  thereto.  There can be no assurance that the Company will form a
joint venture or sell such assets.

     Previously,  the Company had planned to  construct  and operate a casino in
Gulfport,  Mississippi  (the  "Gulfport  Project").  However,  due to  increased
competition  in the Gulfport  gaming market,  the Company has suspended  further
development  of the  Gulfport  Project.  The  Company is seeking  joint  venture
partners to assume the leases or invest in the proposed casino project; however,
there can be no assurance that such a joint venture will be  consummated.  Prior
to suspension of the Gulfport Project,  the Company had not invested significant
amounts of capital therein,  except with respect to a gaming vessel which can be
used at another location and certain leases.


Operating Casinos

     Lady Luck Rhythm & Blues,  Country  Casino and the Pavilion.  MLI commenced
dockside  gaming  operations  of Lady  Luck  Rhythm & Blues on June 27,  1994 in
Coahoma County,  Mississippi,  commenced operation of an adjacent 173-room hotel
on August 16, 1994,  commenced gaming operations of Country Casino and operation
of the  Pavilion on May 21, 1996 and  acquired  and took over  operation  of the
120-room  Riverbluff  in  Helena,  Arkansas  on July 3,  1996.  Coahoma  County,
Mississippi  is  located  approximately  120 miles  southeast  of  Little  Rock,
Arkansas and 60 miles southwest of Memphis,  Tennessee,  on the Mississippi side
of the Helena Bridge,  which crosses the Mississippi River and connects Arkansas
and Mississippi.  Lady Luck Rhythm & Blues has a Las Vegas-style  Rhythm & Blues
theme and is  constructed  on two adjacent  barges.  One barge has 25,000 square
feet of gaming space, including, as of February 28, 1997, approximately 680 slot
machines and 32 table games and a casino lounge area.  The other barge has three
restaurants.  Country  Casino  has a Las  Vegas-style  Country  theme and offers
approximately  33,000 square feet of casino space,  and as of February 28, 1997,
approximately  680 slot  machines,  18 table games,  six poker tables and a food
court.   The  Pavilion   consists  of   approximately   25,000  square  feet  of
entertainment and event space and two movie theaters, an arcade and a logo shop.
Based upon operating results,  these combined  operations are currently the most
profitable of the Operating Casinos.

     Lady Luck Natchez.  Lady Luck Natchez commenced  operations on February 26,
1993.  This  dockside  casino  is  located  on  the  Mississippi  River  at  the
intersection  of  Highway  61,  a  north-south   highway   connecting   Natchez,
Mississippi and Memphis,  Tennessee,  and Highway 84, an east-west highway which
runs  parallel  to and is  between  Interstates  10 and 20.  Lady  Luck  Natchez
consists of a three story  dockside  facility with  approximately  14,300 square
feet of gaming space and access to 500 dedicated parking spaces.  The casino, as
of December 31, 1996, featured  approximately 610 slot machines,  16 table games
and 4 poker  tables.  LLM  purchased the River Park from River Park Hotel Group,
Inc.  on April 15,  1996.  The River Park is a  147-room  hotel in  Natchez.  In
addition,  the  Company  has  commenced  remodeling  portions of the River Park,
including the replacement of certain furniture and equipment.

     Lady Luck Bettendorf.  Lady Luck Bettendorf  commenced  operations on April
21, 1995.  Lady Luck  Bettendorf  is located on a leased parcel of land which is
adjacent to Interstate 74 on the Mississippi River (the "Bettendorf  Site"). The
Bettendorf  Site is  approximately  six miles from its primary  competitor,  the
Presidents  Landing  Casino in Davenport,  Iowa,  which  together with Lady Luck
Bettendorf  comprise  approximately  90% of the gaming market in that area. Lady
Luck  Bettendorf  consists of an  approximately  30,000  square foot casino on a
riverboat  gaming vessel,  which is  approximately  300 feet by 100 feet, has an
entertainment  area for parties and special events and, as of December 31, 1996,
approximately 860 slot machines,  38 other table games and six poker tables. The
vessel has gaming operations on three floors. The first floor has a 19th century
Iowa river  theme,  the second floor has a sports theme and the poker room is on
the third floor.  The vessel is certified for 2,500  passengers  including crew.
Other related facilities include a restaurant,  gift shop, retail outlet center,
sports bar, showroom and approximately 1,000 parking spaces.

     In December 1994, the Company entered into a joint venture (the "Bettendorf
Joint  Venture")  with  Bettendorf  Riverfront  Development  Corp.  ("BRDC")  to
complete and operate a casino in Bettendorf, Iowa ("Lady Luck Bettendorf").  The
joint venture agreement  required that the Company and BRDC each contribute cash
to the  Bettendorf  Joint  Venture of $3.0 million in return for a 50% ownership
interest.  In addition,  BRDC is leasing certain real property to the Bettendorf
Joint  Venture at a lease  rate equal to  $150,000  per  month.  The  Company is
leasing a gaming  vessel  to the  Bettendorf  Joint  Venture  for  approximately
$189,000  per  month,   which  amount  was  determined  based  upon  arms-length
negotiations  between the Company and BRDC. In addition,  the Company is leasing
certain gaming  equipment to the Bettendorf  Joint Venture,  as discussed below,
for approximately $122,000 per month, its fair market rental value.

     All net profits and losses from all operations of Lady Luck  Bettendorf are
allocated  equally  between  the  Company  and BRDC.  The  Company has also been
granted  the  right to manage  Lady Luck  Bettendorf  pursuant  to a  management
agreement for a fee equal to 2% of gross revenues plus 7% of EBITDA generated by
Lady Luck Bettendorf,  less $37,500 per month. In no event shall such fee, prior
to the $37,500  adjustment,  exceed 4% of Lady Luck Bettendorf's  gross revenue.
BRDC provides consulting services to the Company concerning licensing,  staffing
and  management  of the marine  aspects of the gaming  vessel and any land based
development.  All  consulting  fees paid to BRDC  (which will be based upon Lady
Luck  Bettendorf's  gross  revenues)  will  be paid  by the  Company  out of its
management  fee.  The  Bettendorf  Joint  Venture is operated by a group of four
managers.  Each of BRDC  and the  Company  have  appointed  two  managers.  Most
management  decisions,  including  capital  calls  and  distributions,  will  be
determined by a majority of the managers.

     Lady Luck Biloxi.  Lady Luck Biloxi  commenced  operations  on December 13,
1993.  Biloxi is a beach  resort  town on the Gulf of Mexico.  The casino has an
Asian theme and is located  adjacent to Highway 90,  approximately 60 miles east
of New Orleans,  Louisiana.  Lady Luck Biloxi  consists of a two story  dockside
facility with approximately 21,000 square feet of gaming space containing, as of
December 31, 1996,  approximately 650 slot machines and 23 table games, a coffee
shop/buffet, a lounge bar, a gourmet restaurant and a logo shop. Currently, nine
other  casinos  are either  operating  or are under  construction  in the market
surrounding Lady Luck Biloxi.  As a result of increased  competition,  Lady Luck
Biloxi became  unprofitable on an operating basis during the second half of 1994
although  operations  stabilized  and  improved  in the second  half of 1995 and
during 1996. The Company  continues to seek  financing for the  development of a
hotel and related amenities for Lady Luck Biloxi. There can be no assurance that
the Company will obtain such financing.

     Lady Luck Central City. The Company's Central City,  Colorado casino,  Lady
Luck Central City, is located  approximately 35 miles west of Denver. The Casino
has a Las  Vegas-style  theme,  which  distinguishes  it  from  the  traditional
Victorian  theme of many other Central City casinos.  Lady Luck Central City has
significant  debt  service  requirements  which it is  currently  unable to meet
through its  operations.  During  November  1996, GCI entered into a non-binding
Memorandum of  Understanding  (the  "Memorandum")  with BWCC,  Inc.,  which does
business as Bullwhackers-Central City ("Bullwhackers").  The Memorandum provides
for a combination  of the  respective  companies'  gaming  establishments  which
currently  operate on adjacent real  property in Central City,  Colorado and the
use of, but not the title transfer or assumption of debt,  related to the assets
of GCI and Bullwhackers.  Pursuant to the Memorandum, Bullwhackers shall provide
resources  and  expertise  to  manage  the  joint  operation  subsequent  to the
completion  of certain  capital  improvements  to be made by GCI to combine  the
facilities and improve GCI's gaming equipment,  which capital improvements shall
in no event exceed $1.5 million. The Memorandum provides for distributions to be
made quarterly in accordance with certain  priorities  which first recognize the
capital improvements to be made by GCI. The Memorandum provides GCI an option to
purchase the assets of Bullwhackers  and  Bullwhackers an option to purchase the
assets of GCI upon advance  written  notice after the joint  facility  commences
gaming  operations.  In  addition,  the  Memorandum  provides  a put  option for
Bullwhackers  to sell its assets to GCI under  similar  terms.  The option price
shall be determined based on carrying amounts or earnings multiples and shall be
at  discounted  amounts  if the sale is within a certain  period and shall be in
exchange for certain  consideration,  a portion of which may include LLGC common
stock.  The  transactions  contemplated by the Memorandum are subject to various
contingencies  including,  inter alia,  the due diligence  investigation  of the
parties,  governmental approvals, approval by the Boards of Directors of GCI and
Bullwhackers,  and the  negotiation  and  execution  of  definitive  agreements.
However,  no  assurance  can  be  provided  that  these  contingencies  will  be
satisfied.

     The  Bally's  Joint  Venture.  In March 1995,  the  Company  formed a joint
venture with  affiliates of Bally's  Entertainment  Corporation  ("Bally's")  to
complete a casino/hotel  project in northern  Tunica County,  Mississippi.  Upon
formation of the Bally's Joint Venture,  ORD contributed  its existing  240-room
hotel  in  northern  Tunica  County,   as  well  as  other  related  assets  and
liabilities,  with a total  net cost of $16.1  million,  to the  joint  venture.
Bally's  contributed a closed dockside casino (the "Dockside Casino") which was,
at the time of such  contribution,  located at Mhoon Landing in southern  Tunica
County,  and certain other assets to the joint venture.  The Dockside Casino has
been  relocated to the ORD hotel site. A Bally's entity manages and controls the
Bally's Joint Venture. The Bally's Joint Venture is owned 58% by Bally's, 35% by
ORD and 7% by D.J. Brata, a former 11% minority  shareholder of ORD. The Company
is currently negotiating with Bally's and D.J. Brata concerning the final amount
of the Company's  initial  capital  contribution to be credited to its partners'
capital account and other matters in accordance with the joint venture agreement
and,  in 1995,  provided  a reserve  of  $350,000  relating  to any  unfavorable
resolution of these matters.  Hotel operations under Bally's  commenced in April
1995 and casino operations commenced in December 1995.

     The Bally's Joint Venture consists of  approximately  40,000 square feet of
gaming space,  with  approximately  1,260 slot  machines and 57 table games.  In
addition to the 240-room  hotel,  the Bally's Joint Venture has a  buffet/coffee
shop, a steak  house,  a  multi-purpose  entertainment  complex,  administrative
facilities and approximately 1,200 parking spaces.


Development Stage Projects

     In  addition to its  Operating  Casinos,  the  Company has two  dockside or
riverboat  casino  projects  in various  stages of  development,  one in each of
Kimmswick,  Missouri and Vicksburg,  Mississippi.  The current status of each of
these Development Stage Projects is described below.

     The Missouri  Project.  Previously,  the Company and a local  investor (the
"Original  Investor")  intended  to  develop a themed  hotel  and  entertainment
center,  including a casino on a cruising vessel, in Jefferson County, Missouri,
located just outside the city of Kimmswick and  approximately  20 miles south of
St. Louis.  At that time, the Original  Investor owned  approximately  7% of the
Missouri Project. However,  construction of the Missouri Project was delayed due
to the  prohibition  against games of chance (slot machines and roulette)  until
Missouri  voters  ratified a  constitutional  amendment  in November  1994.  The
Company determined that it was not in a position to commit additional capital to
the Missouri Project.  Thus,  management determined that it was in the Company's
best  interests to seek a new joint  venture  partner to assist in completion of
the Missouri Project.

     Accordingly, on November 30, 1995, LLK entered into an Agreement of General
Partnership  (the "Kimmswick  Agreement") with Davis Gaming Company II ("Davis")
to form a joint venture (the "Kimmswick Joint Venture") to construct and operate
a hotel  and  casino on an  approximately  45-acre  parcel of land in  Jefferson
County,  Missouri (the "Kimmswick Site"). Through December 31, 1996, the Company
has expended approximately $8.4 million in the Missouri Project. Such investment
consists  of  approximately  $6.0  million  for  construction  of the  partially
finished  cruising  vessel  and  approximately   $2.4  million  in  other  costs
associated with the development of the project.

     Pursuant to the Kimmswick  Agreement,  LLK will  contribute  certain assets
with a book value of  approximately  $8.0 million to the Kimmswick Joint Venture
in consideration of a 40% interest in the Kimmswick Joint Venture (if the assets
contributed by LLK are determined to have a value of less than $8.0 million, LLK
will  have  to  contribute  additional  cash or  assets  in the  amount  of such
shortfall or its interest in the Kimmswick Joint Venture will be proportionately
reduced) and Davis will contribute  $15.0 million in cash in  consideration of a
60% interest in the Kimmswick  Joint Venture.  Generally,  LLK's interest in the
Kimmswick Joint Venture will not be reduced below 20%. In addition, Davis agrees
either to obtain  financing on behalf of the Kimmswick  Joint Venture or provide
additional  capital to the  Kimmswick  Joint Venture in amounts  aggregating  an
additional $57.0 million.  Such additional capital  contributions by Davis would
be, depending upon the  circumstances  under which such  contributions are made,
either treated as preferred  capital  contributions or result in Davis receiving
an increased  interest in the  Kimmswick  Joint  Venture.  In the event that the
costs of completing  the first two phases of the Missouri  Project  exceed $80.0
million,  each of LLK and Davis will have the right, but not the obligation,  to
make an additional  capital  contribution  to the Kimmswick  Joint Venture based
upon their pro rata share of the additional amount of required funding.  If only
one of such partners elects to contribute  additional capital,  the contributing
partner may elect to withdraw such contribution, to advance the non-contributing
partner's share and have the entire contribution  treated as a loan to the joint
venture or to advance the  non-contributing  partner's share and have the entire
contribution treated as an additional capital contribution (which will result in
a proportionate  adjustment of the partners'  respective  interests in the joint
venture). The partners will have no other right or obligation to make additional
capital contributions to the joint venture.

     The  obligations  of Davis to contribute  capital to, or otherwise  provide
financing  to, the  Kimmswick  Joint  Venture  are  subject to  satisfaction  of
numerous  conditions,  including that there shall be no governmental  regulation
that is likely to increase  the cost of, or diminish  the EBITDA to be generated
by, the Missouri  Project in amounts  exceeding  certain  thresholds  and that a
gaming  license shall have been obtained  from the Missouri  Gaming  Commission.
There can be no assurance  that any of such  conditions  will be satisfied  and,
therefore,  there can be no assurance  that the Kimmswick  Joint Venture will be
funded.

     Beginning  with the first quarter in which the Kimmswick  Joint Venture has
operating  income,  the joint venture will distribute 80% of its Available Funds
(defined as net income less debt  repayments and capital  expenditure  and other
reserves) in each of the first three fiscal  quarters of each fiscal year to the
partners and, at the end of each fiscal year, the joint venture will  distribute
an amount which,  together with all other amounts previously  distributed during
such  fiscal  year,  equals 90% of  Available  Funds for such fiscal  year.  All
distributions  of Available  Funds shall be made first to Davis to the extent of
its priority or preferred  interest  and then to the partners in  proportion  to
their  respective  interests in the joint venture.  LLK will also be entitled to
certain additional distributions to the extent that its tax liability in respect
of the joint venture exceeds the amount otherwise distributed to it.

     The Kimmswick Agreement provides that the Company will manage the Kimmswick
Joint Venture for a five-year  term.  The Company will be paid a management  fee
equal to 2% of the joint  venture's  gross revenues plus 7% of the EBITDA of the
joint  venture but such  management  fee will in no event exceed 4% of the joint
venture's  gross revenues and the aggregate  management fee in any year plus the
amount of all  distributions  to LLK in such year  generally will not exceed the
amount of  distributions  to Davis in such year.  LLK's continued  engagement as
manager of the  Kimmswick  Joint  Venture  will be dependent  upon,  among other
things,  the achievement of certain  performance  standards.  In addition,  upon
meeting certain other performance  criteria,  LLK will have the unilateral right
to manage the Kimmswick Joint Venture for an additional five years.

     Development of the Missouri  Project is subject to approval by the Missouri
Gaming Commission.  The Company has filed an application  seeking such approval.
The State of Missouri investigates applicants at its discretion and there can be
no assurance that the Company's  application will be actively reviewed in future
periods. In addition,  a person owning real property adjacent to the site of the
Kimmswick  Project  sought  to  overturn   decisions  by  the  Jefferson  County
Commission (the  "Commission")  with respect to the zoning of such site. A trial
was conducted in April 1996 and the court decided to uphold the zoning decisions
made by the Commission.

     The Vicksburg  Project.  The Company's planned casino project in Vicksburg,
Mississippi is expected to be located on approximately  23.9 acres of land owned
by the Company immediately south of the I-20 bridge along the Mississippi River,
with access to Washington Street. The original Vicksburg Project plans include a
"Monte  Carlo"  themed  approximately  32,000  square foot  dockside  casino,  a
250-room  hotel,  934 parking  spaces,  restaurant  facilities and an arcade.  A
gaming  license was granted to LLV on August 18, 1994.  As of December 31, 1996,
approximately  $14.4  million  has been  spent by the  Company  to  develop  the
Vicksburg Project  (including  approximately  $7.0 million to acquire the land).
Reserves of $3.8 million were  provided in 1994 to reduce the carrying  value of
the Vicksburg  Project  assets to estimated net  realizable  value.  The Company
currently  estimates  that it will cost an additional  $47.9 million to complete
construction and commence  operations of the Vicksburg Project.  The Company has
ceased  committing  material amounts of capital to the Vicksburg  Project and is
considering  alternatives to provide a return on its investment in the Vicksburg
Project, either through formation of a joint venture to complete and operate the
project, or through the sale of certain assets related thereto.  There can be no
assurance that the Company will form a joint venture or sell such assets.


Pre-development Stage Projects

     In  addition  to its  Development  Stage  Projects,  the  Company is in the
Pre-development  stage of casino projects in Scott City, Missouri and Vancouver,
British   Columbia.   As  of  December  31,  1996,   the  Company  has  invested
approximately  $1.1 million of capital in these  Pre-development  Stage Projects
(which was expensed when incurred) and does not anticipate  investing additional
material  amounts of capital  prior to  licensing.  The Company is seeking joint
venture  partners to finance such  projects.  There can be no assurance that the
Company will form such joint ventures.  A brief  description of each of the Pre-
development Stage Projects is set forth below.

     Lady Luck  Vancouver.  The Company has entered into a management  agreement
with the Coquitlam Band (the "Band") to develop and manage a gaming  facility to
be located on tribal land  approximately  eight miles from  downtown  Vancouver,
British  Columbia,  Canada (the "Vancouver  Project").  The Vancouver Project is
expected  to consist  of a gaming and  entertainment  center,  a  youth-oriented
entertainment center and an outdoor  amphitheater.  The Company anticipates that
the Vancouver  Project will cost  approximately  $33.0 million to complete.  The
management agreement requires ratification by the Band prior to being perfected.
The  provincial  government  is currently  studying  the  expansion of gaming in
British Columbia, which could include gaming on First Nation Reserve lands.

     The Scott City  Project.  The  Company has  entered  into  options to lease
property  for a  casino  project  in  Scott  City,  Missouri  (the  "Scott  City
Project").  Scott City is approximately 150 miles south of St. Louis,  Missouri,
along  Interstate  55. The Scott City Project is expected to consist of a gaming
vessel,  a 200-room  hotel,  an outlet mall, an athletic  complex and an 18-hole
golf  course.  The Company  anticipates  that the Scott City  Project  will cost
approximately  $65.0 million to complete.  The Company has been endorsed by, and
entered  into a  development  contract  with,  the City of Scott  City to be the
exclusive casino operator for a three year period in Scott City. The Company has
filed an  application  for a gaming  license  with  respect  to the  Scott  City
Project. The Company intends to seek joint venture partners to finance the Scott
City Project.


Marketing

     The Company's marketing strategy is to target middle-market, value-oriented
gaming  customers  and to employ  systematic  marketing  programs to attract and
retain customers. The Company uses general marketing approaches to attract first
time  customers  to its casinos by  advertising  its slot  player club  program,
popular  entertainment and other promotions.  Once customers enter the Company's
casinos,  the Company  attempts  to capture the name and playing  level of every
slot  machine and table game  player,  regardless  of their  level of play.  The
Company  uses this  information  to treat every  player as a VIP by sending them
follow up  promotions  based on their level of play.  The Company  believes that
utilizing the Lady Luck name,  combined with these personalized  database driven
marketing  programs,  will create a strong brand image  synonymous  with quality
gaming facilities, service and food.

     Initially,  the Company focuses on targeting the local and drive-in markets
surrounding each of the Operating Casinos. To attempt to create a positive image
and maintain  awareness of the Operating  Casinos,  the Company  utilizes direct
mail, television,  radio,  billboard and newspaper advertising.  To target local
residents,  the Company's  promotions  emphasize the appetizing  food,  friendly
service,  a high  paying  slot  player  club  program,  and the latest in gaming
technology.  The goal of the Company's marketing program is to capture the name,
level of play and preferred  games of every customer that either  (i) plays slot
machines or table games;  (ii) responds  to an advertisement or redeems a coupon
book;  or  (iii) is  recommended  by another  customer.  The  Company  uses this
information  to treat every  customer  as a VIP,  regardless  of the  customer's
playing level.  Utilizing a similar strategy,  Gemini, as defined below, and the
Company's Operating Casinos have built a database of over one million customers.
Management  believes the Company will benefit from  utilizing  the names on this
database to target potential  customers.  The Company uses this data, as well as
the data  collected at the Company's  other  casinos,  to implement  direct-mail
marketing  programs  designed to increase the frequency of casino patron visits.
The  Company  expects to  continue  to build a detailed  database  by  utilizing
customer tracking systems.

     As the markets  surrounding  the Company's  Operating  Casinos  continue to
mature, the Company has expanded its focus to encompass the surrounding  tourist
markets of each Operating Casino. The Company utilizes and continuously monitors
the effectiveness of direct mail, television advertising, newspapers, billboards
and tourist  magazines placed in the surrounding areas to increase the Operating
Casinos'  visibility and to promote the image that these casinos are part of the
history and romance of  riverboats  of the past.  Management  believes  that the
advent of casino gaming will increase the current  length of a tourist's stay as
well as increase the number of tourists into some areas.  The Company also works
with local  organizations  with the goal of promoting  the areas to increase the
number of tourists.


Management Agreements

     The Company previously entered into certain management agreements (the "Old
Management Agreements") with Lady Luck Casino, Inc. ("LLCI"), a company owned by
Andrew Tompkins,  the CEO and Chairman of the Board of the Company.  Pursuant to
the Old Management Agreements,  LLCI provided management services to the Company
regarding  the  operations  and  marketing  of  each of the  Operating  Casinos.
Effective January 1, 1996 the Company entered into new marketing agreements (the
"New Marketing Agreements") with entities controlled by Mr. Tompkins.  Under the
New Marketing Agreements,  LLGC pays an annual licensing fee with respect to the
Lady Luck name and the mailing list  developed by Gemini,  Inc., a  wholly-owned
corporation of Mr. Tompkins which does business as Lady Luck Casino/Hotel in Las
Vegas,  Nevada  ("Gemini"),  equal to the  greater  of (a) 9% of  LLGC's  EBITDA
(calculated  as  EBITDA  of LLGC and all its  subsidiaries  and  joint  ventures
(multiplied, in the case of the Kimmswick Joint Venture, if consummated, and the
Bettendorf  Joint  Venture,  by the interest  owned by the Company in such joint
ventures), excluding, among other things, all revenues and expenses arising from
any casino or casino/hotel for which LLGC is not the operator and which does not
utilize the mailing list or Lady Luck name and excluding revenues from the lease
of equipment  owned by LLGC to third  parties) and (b)  $1,700,000  per year (as
adjusted  based on the Consumer  Price Index).  LLGC has agreed to use the "Lady
Luck" name on all existing and future casinos which it operates. With respect to
the  Bettendorf  Joint  Venture,  LLCI  assigned to LLGC its rights to receive a
management  fee and its  obligation  to pay part of that fee to BRDC (the  "BRDC
Obligation").  During any default in the payment of  principal of or interest on
the Notes, LLGC will not pay (but will accrue on its books) any licensing fee to
LLCI.  In  addition,  LLGC:  (i) pays  Gemini  the sum of  $300,000  per year as
adjusted based on the Consumer Price Index for corporate  office  facilities and
certain services  with  respect  to  such  corporate  office  facilities;   (ii)
reimburses a related party of LLGC, wholly-owned by Mr. Tompkins, which performs
marketing  services on the Company's  behalf,  for certain allocated payroll and
overhead  costs;  and,  (iii)  will  no  longer  receive  reimbursement  from  a
wholly-owned corporation of Mr. Tompkins for the salary and benefits paid to Mr.
Tompkins  as  Chairman  of  the  Board  and  Chief  Executive  Officer  of  LLGC
(collectively the "Management/License Fee Overhead Costs").


Employees

     As of December 31, 1996,  the Company had  approximately  2,950  employees:
approximately 990 employees at Lady Luck Rhythm & Blues,  Country Casino and the
Pavilion,  approximately  470 employees at Lady Luck Natchez,  approximately 810
employees  at Lady Luck  Bettendorf,  approximately  500  employees at Lady Luck
Biloxi,  approximately  150 employees at Lady Luck Central City, and anticipates
employing  up to 500 to 800  employees  at each of the other  Development  Stage
Projects.  The Company's employees are currently non-union.  The Company has not
experienced any work stoppages and believes its relations with its employees are
good.


Competition

     Currently,  the  Company  owns  and  operates  three  dockside  casinos  in
Mississippi,  a land-based  casino in Colorado and, through the Bettendorf Joint
Venture, a riverboat casino in Iowa. In addition, the Company has an interest in
the Bally's Joint Venture, which commenced operations in northern Tunica County,
Mississippi  during  December,  1995. The Company also has dockside or riverboat
casinos in various  stages of  development  in  Mississippi  and  Missouri.  The
Company is also in the pre-development stages of casino projects in Missouri and
British  Columbia.  The Company believes that these gaming markets are extremely
competitive  and  expects  them to become  even more  competitive.  The  Company
competes in these gaming markets by attempting to develop  locations within such
markets which are more  accessible to potential  customers and through its sales
and marketing efforts described above.

     In 1996, the Mississippi gaming market became increasingly competitive.  As
of December 31, 1996,  there were a total of 30 licensed and operating  dockside
gaming facilities in Mississippi,  consisting of 10 in Tunica,  eight in Biloxi,
two in  Gulfport,  four in  Vicksburg,  one in  Hancock  County,  one in Coahoma
County, one in Natchez and three in Greenville.  Two additional dockside casinos
are licensed and under  construction in Biloxi. In addition,  DeSoto County, the
northwestern-most  Mississippi  County and  nearest  to  Memphis,  could,  under
existing state law, vote to authorize  gaming  activities.  The voters of DeSoto
County have voted against legalized gaming on three occasions,  most recently in
November,  1996.  However,  local  referenda  can be  held  during  presidential
election  years,  and no assurance can be given that gaming will not be approved
in DeSoto County in future elections.  Furthermore, the Choctaw Indian Tribe has
negotiated a compact with the State of  Mississippi  and has opened a land-based
casino  located  within   approximately  100  miles  to  the  east  of  Jackson,
Mississippi.

     Accordingly,  there  is a  substantial  risk  that  the  supply  of  gaming
facilities in Mississippi will exceed the demand for gaming,  which could have a
material  adverse  effect on the operating  results of Lady Luck Rhythm & Blues,
Country  Casino,  Lady Luck Natchez,  Lady Luck Biloxi,  the Bally's  Saloon and
Gambling Hall, and, if opened, the Vicksburg Project.

     In Arkansas,  a gaming referendum,  which, if passed,  would have legalized
certain  forms of gaming at certain  locations was defeated in November of 1996.
If gaming were legalized in certain areas of Arkansas,  it could have a material
adverse effect on the Company's Coahoma County facilities and the Bally's Saloon
and Gambling Hall.

     In  Colorado,  the  Company  competes  with  other  limited  stakes  gaming
establishments in Central City,  nearby Black Hawk,  Cripple Creek and on Native
American  land in the  southwestern  part of  Colorado.  Competition  for gaming
revenue in Colorado is intense. As a result, the number of gaming establishments
has decreased from a peak of 75 in September 1992 to 55 in February 1997.

     The  Company  expects  that the  Missouri  Project,  if  opened,  will face
competition from dockside and riverboat gaming in Missouri, including St. Louis,
as well as existing and future riverboat and dockside unlimited stakes gaming in
Illinois.

     Lady Luck Bettendorf  faces  competition  from two other  riverboats in the
Quad Cities  area,  including  riverboats  in  Davenport,  Iowa and Rock Island,
Illinois.

     The Company also competes with gaming facilities  nationwide and in Canada,
including  land-based casinos in Nevada,  New Jersey,  South Dakota and Ontario,
riverboat or dockside gaming in Missouri as well as various gaming operations on
Native American land in such states as New York, California,  Connecticut, Iowa,
Michigan, Minnesota, Arizona, Washington,  Wisconsin, Louisiana and Mississippi.
Other  jurisdictions  may legalize various forms of gaming that may compete with
the Company in the future.  Although  the Company  expects  that the presence of
gaming in a city will  result in an  increase  in the number of people  visiting
such city,  there can be no  assurance  that such an increase  will  occur.  The
failure of such cities to realize such an increase,  or a subsequent decrease in
the number of visitors to an area where the Company is engaged in gaming,  could
have a material adverse effect on the Company's operations.

     In any jurisdiction where the Company may commence operations, it will face
competition  for desirable sites or qualified  personnel.  The Company will also
compete with other forms of wagering,  including bingo and pull tab games,  card
clubs,  pari-  mutuel  betting on horse  racing and dog racing,  state-sponsored
lotteries,  video lottery terminals and video poker terminals,  as well as other
forms of entertainment.

     Certain of the Company's  competitors have more gaming industry experience,
larger  operations or significantly  greater  financial and other resources than
the Company.  Given these factors,  it is possible that substantial  competition
could  have a  material  adverse  effect  on the  Company's  future  results  of
operations.


Seasonality and Weather

     Even if the  Company  is able to expand  into other  jurisdictions,  it may
remain dependent on a relatively small number of dockside facilities. A flood or
other severe weather condition could cause the Company to lose the use of one or
more  dockside  facilities  for an  extended  period.  Additionally,  due to its
location on the Gulf of Mexico,  Lady Luck Biloxi is  especially  vulnerable  to
damage from  hurricanes.  The  inability to use a dockside  facility  during any
period could have a material adverse effect on the Company's  financial results.
A  disproportionate  amount of Lady Luck  Central  City's  revenues are received
during  the summer  months.  Lady Luck  Central  City is  accessible  only via a
narrow,  winding mountain road and,  accordingly,  inclement weather may have an
adverse effect on its revenues. While seasonal revenue fluctuations may occur at
the casinos in Mississippi,  Iowa and Missouri,  such seasonal  fluctuations are
expected to be routinely less significant than those experienced in Colorado.


REGULATORY MATTERS

     LLGC,  through its  subsidiaries  and affiliates,  owns and operates gaming
casinos in  Mississippi,  Colorado  and Iowa and intends to develop a project in
Missouri.  The entities  owning such casinos and any entities  owning casinos in
the  future  are or will be  required  to obtain  and  maintain  certain  gaming
licenses  from the  applicable  state  regulatory  authorities  and comply  with
certain regulations with respect thereto. Although the Company believes it is in
material  compliance with all applicable gaming  regulations,  non-compliance by
the Company could have a material  adverse  effect on the Company's  operations.
Generally,  regulatory  authorities have broad discretion in granting,  renewing
and revoking  gaming  licenses.  LLGC itself is required to be found suitable to
own the entities  directly or indirectly owning such casinos.  In addition,  the
Company's  directors  and many of the  employees of such casinos are required to
obtain gaming licenses. Where it has not already done so, the Company intends to
apply for such licenses and to have its employees, to the extent required, apply
for such  licenses.  All directors  and  executive  officers of the Company have
received all necessary  approvals with respect to the Operating Casinos and have
received,  applied for or will apply for all necessary approvals with respect to
the Development Stage Projects and the Pre-development Stage Projects. While the
Company has  received  certain  gaming  licenses  in the states of  Mississippi,
Colorado  and  Iowa,  the  Company  has  not  received  licenses  in  any  other
jurisdiction. There can be no assurances that each casino, officer, director, or
the  appropriate  gaming  employees  will  receive  (where such has not yet been
received) or maintain the necessary gaming licenses,  or that the Company or its
casinos will be able to operate  successfully  or profitably  under the terms of
any such  licenses.  The failure of the Company or any of its key  personnel  to
obtain or retain a license in a  particular  jurisdiction  could have a material
adverse  effect on the Company's  ability to obtain or retain  licenses in other
jurisdictions.

     Any jurisdiction in which the Company may seek to conduct gaming operations
in the  future  would  likely  require  the  Company  to  apply  for and  obtain
regulatory  approvals with respect to the  construction,  design and operational
features of whatever  gaming  facilities it intends to utilize.  There can be no
assurance that the Company will obtain the necessary approvals on a timely basis
or  with  acceptable  conditions  to  allow  the  Company  to  open  any  of the
Development Stage Projects or Pre- development Stage Projects. In addition,  the
State of Mississippi  currently  requires,  and other jurisdictions may require,
prior  approval  for all  entities  that  are  conducting  gaming  within  their
respective  jurisdictions before conducting gaming in other  jurisdictions.  The
obtaining of such licenses and approvals may be time consuming and expensive and
cannot be  assured.  Any  regulations  adopted  by the gaming  commissions,  the
legislatures or any governmental  authority having  jurisdiction in Mississippi,
Colorado,  Missouri,  Iowa, or other  jurisdictions  in which the Company has or
intends to have  gaming  operations  may have a material  adverse  effect on the
Company's results of operations or financial condition, including its ability to
raise financing.


     Mississippi Gaming Regulations

     The ownership and operation of a gaming  business in Mississippi is subject
to extensive laws and regulations,  including the Mississippi Gaming Control Act
passed  in  June 1990  (the   "Mississippi   Act")  and  the  regulations   (the
"Mississippi  Regulations")  promulgated  thereunder by the  Mississippi  Gaming
Commission and  Mississippi  Tax  Commission  which are empowered to oversee and
enforce the Mississippi Act. Gaming in Mississippi can be legally conducted only
on vessels of a certain minimum size in navigable  waters in counties  bordering
the  Mississippi  River or in  waters  of the  State of  Mississippi  (so-called
dockside gaming) which lie adjacent and to the south (principally in the Gulf of
Mexico) of the Counties of Hancock,  Harrison,  Coahoma and Jackson, and only in
counties  in  Mississippi  in which  the  registered  voters  have not  voted to
prohibit such activities.  The voters in Jackson County,  the  southeastern-most
county of  Mississippi,  and DeSoto County,  south of Memphis,  Tennessee,  have
voted to prohibit gaming in such counties.  Gaming may also be legally conducted
on Native-  American  lands in  Mississippi  as regulated in part by the Federal
Indian  Gaming  Regulatory  Act of 1988,  which  activity  is not subject to the
Mississippi Act.  Presently,  the Mississippi  Band of Choctaws  operates a land
based casino at a location in East- Central Mississippi.

     The  Mississippi  Act requires that a person  (including any corporation or
other entity) must be licensed to conduct gaming  activities in  Mississippi.  A
license will be issued only for a specified  location which has been approved as
a gaming site by the Mississippi  Gaming  Commission prior to issuing a license.
The  Mississippi  Act also  requires  that each  officer or director of a gaming
licensee,  or  other  person  who  is  actively  and  directly  engaged  in  the
administration  or  supervision  of  gaming,  or who has any  other  significant
involvement  with the  activities of any gaming  subsidiary,  or who exercises a
material  degree of control over the licensee,  either  directly or  indirectly,
must be found suitable by the Mississippi  Gaming Commission.  In addition,  any
employee of the licensee which is directly involved in gaming must obtain a work
permit from the Mississippi Gaming Commission. The Mississippi Gaming Commission
will not  issue a license  or make a  finding  of  suitability  unless  they are
satisfied,  after an extensive investigation paid for by the applicant, that the
persons  associated  with the gaming  licensee or  applicant  for a license have
proven that they are of good character,  honesty and integrity, with no relevant
or material criminal record. In addition, the Mississippi Gaming Commission will
not issue a license  unless they are  satisfied  that the licensee is adequately
financed  or has a  reasonable  plan to finance  its  proposed  operations  from
acceptable  sources,  and  that  persons  associated  with  the  applicant  have
sufficient business probity, competence and experience to engage in the proposed
gaming enterprise.  The Mississippi Gaming Commission may refuse to issue a work
permit  to a  gaming  employee  (i)  if  the  employee  has  committed  larceny,
embezzlement  or any  crime  of  moral  turpitude,  or  knowingly  violated  the
Mississippi  Act or Mississippi  Regulations,  or (ii) for any other  reasonable
cause.

     The Mississippi Gaming Commission has the power to deny, limit,  condition,
revoke and suspend any license, finding of suitability or registration,  or fine
any person,  as they deem reasonable and in the public  interest,  subject to an
opportunity  for a  hearing.  The  Mississippi  Gaming  Commission  may fine any
licensee or person who was found  suitable up to $100,000 for each  violation of
the Mississippi Act or the Mississippi  Regulations,  which is the subject of an
initial  complaint,  and up to  $250,000  for each such  violation  which is the
subject of any subsequent  complaint.  The Mississippi Act provides for judicial
review of certain decisions of the Mississippi  Gaming Commission by petition to
a  Mississippi  Circuit  Court,  but  the  filing  of  such  petition  does  not
necessarily  stay any such action  taken by the  Mississippi  Gaming  Commission
pending a decision by the Circuit Court.

     License fees and taxes,  computed in various ways  depending on the type of
gaming involved, are payable to the State of Mississippi and to the counties and
cities in which the gaming  subsidiaries'  respective  operations are conducted.
Depending  on the  particular  fee or tax  involved,  these  fees and  taxes are
payable either monthly, quarterly or annually and are based upon a percentage of
the gross gaming  revenues  received by a casino  operation,  the number of slot
machines  operated by such casino, or the number of table games operated by such
casino.  Each gaming licensee must pay a license fee to the State of Mississippi
based upon "gaming receipts"  (generally  defined as gross receipts less payouts
to customers as winnings).  In Coahoma and Harrison Counties,  for instance, the
local governments have imposed gross revenue fees of 3.2% as well as annual fees
on slot  machines.  As of June 1, 1995,  the City of Natchez was  authorized  to
impose an equivalent tax on casino gross  revenue.  The license fee equals 4% of
gaming receipts of $50,000 or less per month, 6% of gaming receipts over $50,000
and up to $134,000 per month, and 8% of gaming receipts over $134,000 per month.
The  foregoing  license  fees are  allowed  as a credit  against  the  Company's
Mississippi  state income tax liability for the year paid.  The Company may also
be subject to a local  municipal or county tax equal to one-tenth of the license
fee due to the State of  Mississippi as set forth above.  An additional  license
fee,  based upon the number of table games  conducted or planned to be conducted
on the  gaming  premises,  is payable to the State of  Mississippi  annually  in
advance.  Based upon the Company's planned activities,  this additional licensee
fee will equal approximately  $399,200 (aggregate for all the Dockside Casinos),
plus $100 for each game in excess of 35 games at any one location. Municipal and
county fees have been and may in the future also be assessed,  and may vary from
jurisdiction to  jurisdiction.  All taxes must be timely paid in order to retain
the gaming license.

     The Company is also  subject to certain  audit and record  keeping laws and
regulations,  primarily  intended to ensure compliance with the Mississippi Act,
including  compliance  with the  provisions  relating  to the payment of license
fees. The Mississippi Gaming Commission, through the power to regulate licenses,
has the power to impose additional restrictions on the holders of the securities
of the Company,  at any time. The Company is required to provide the Mississippi
Gaming  Commission  with notice of any changes in  directors  or  officers.  The
Mississippi Gaming Commission requires that any CEO, president, CFO or secretary
of the  Company  or  its  subsidiaries  be  found  suitable.  In  addition,  the
Mississippi Gaming Commission requires that any other director or officer of the
Company  who  has  a  substantial  involvement  with  gaming  or  a  significant
administrative  supervisory  role of the gaming  operations  be found  suitable.
These  suitability  findings may be made after such  individuals  take office as
directors or officers.  However,  the Mississippi  Gaming Commission may require
that  the  Company  sever  relations  with  individuals  if they  are not  found
suitable.  In addition,  during the  pendency of any  suitability  finding,  the
Mississippi  Gaming  Commission  may require  that such  individuals  not act as
directors or officers. Messrs. Tompkins, Uboldi, Reid and Hlavsa have been found
suitable by the Mississippi Gaming Commission.

     Because the Company is licensed to conduct gaming in  Mississippi,  neither
the  Company  nor any  affiliates  may  engage in gaming  activities  outside of
Mississippi without the prior approval of the Mississippi Gaming Commission. The
Mississippi Gaming Commission has adopted  regulations related to foreign gaming
approval and the impact of any such regulations on the future  operations of the
Company cannot be determined at this time. The Mississippi Gaming Commission has
confirmed  that this  requirement  will not apply  retroactively.  However,  the
Mississippi  Gaming  Commission will need to approve the Company's future gaming
operations outside of Mississippi. The Compan's operations in Colorado and Iowa
have been approved by the Mississippi Gaming Commission.

     The  Mississippi  Regulations  also require  prior  approval for a "plan of
recapitalization" as defined by such regulations.  In addition, the Company must
submit detailed financial, operating and other reports to the Mississippi Gaming
Commission.  Substantially all loans,  leases,  securities and similar financing
transactions  entered into by the Company must be reported to or approved by the
Mississippi  Gaming Commission.  The Company is required  periodically to submit
detailed  financial and operating  reports to the Mississippi  Gaming Commission
and to furnish any other information which the Mississippi Gaming Commission may
require.  The Mississippi  Act requires  annual audits by independent  certified
public  accountants of the financial  statements of casino  licensees with gross
revenue of $3 million or more.

     Any permanently moored vessel used for casino operations must meet the fire
safety standard of the Mississippi Fire Prevention Code and the Life Safety Code
and the Standards for the Construction and Fire Protection of Marine  Terminals,
Piers and Wharfs of the National Fire Protection Association.  Additionally, any
establishment  to be  constructed  for  dockside  gaming must meet the  Southern
Standard Building Code or the local building code, if such a local building code
has been  implemented at the casino's site. All permanently  moored vessels must
comply with  certain  standards  for  stability,  flooding and  stability  after
damage.  The regulations  require  approvals by the American Bureau of Shipping,
which is under contract with the Mississippi  Gaming  Commission to perform such
stability tests.


     Colorado Gaming Regulations

     The State of  Colorado  created the  Division  of Gaming  (the  "Division")
within the Department of Revenue to license,  implement,  regulate and supervise
the  conduct of  limited  stakes  gaming.  The  Director  of the  Division  (the
"Director"),  under the supervision of a five-member  Colorado  Commission,  has
been  granted  broad  power to ensure  compliance  with the law and  regulations
adopted thereunder (the "Colorado Regulations").

     The  Colorado  Commission  is  empowered  to issue five types of gaming and
gaming  related  licenses.  Lady Luck Central City was granted an operator's and
retailer's  gaming  license on April 16,  1993. The license must be renewed each
year.

     As a  general  rule,  under  the  Colorado  Regulations,  it is a  criminal
violation  for any  person  to have a legal,  beneficial,  voting  or  equitable
interest, or right to receive profits, in more than three retail gaming licenses
in Colorado. The Commission has ruled that a person does not have an interest in
a licensee for purposes of the multiple-license  prohibition if: (i) such person
has less than a five percent (5%) interest in an  institutional  investor  which
has an  interest  in a publicly  traded  licensee  or  publicly  traded  company
affiliated  with a  licensee  (such as the  Company);  (ii) a person  has a five
percent (5%) or more financial  interest in an institutional  investor,  but the
institutional  investor has less than a five percent (5%) interest in a publicly
traded licensee or publicly traded company affiliated with a licensee;  (iii) an
institutional investor has less than a five percent (5%) financial interest in a
publicly traded licensee or publicly traded company  affiliated with a licensee;
(iv) an institutional  investor possesses securities in a fiduciary capacity for
another  person,  and does not exercise voting control over five percent (5%) or
more of the outstanding  voting securities of a publicly traded licensee or of a
publicly traded company  affiliated with a licensee;  (v) a registered broker or
dealer retains  possession of securities of a publicly  traded  licensee or of a
publicly  traded company  affiliated with a licensee for its customers in street
name or otherwise,  and exercises  voting rights for less than five percent (5%)
of the publicly  traded  licensee's  voting  securities or of a publicly  traded
company  affiliated with licensee;  (vi) a registered broker or dealer acts as a
market maker for the stock of a publicly traded licensee or of a publicly traded
company  affiliated with a licensee and possesses a voting interest in less than
five percent (5%) of the stock of the publicly  traded licensee or of a publicly
traded  company  affiliated  with a licensee;  (vii) an  underwriter  is holding
securities  of a  publicly  traded  licensee  or of a  publicly  traded  company
affiliated with a licensee as part of an  underwriting  for no more than 90 days
if it exercises voting rights with respect to less than five percent (5%) of the
outstanding  securities  of a publicly  traded  licensee  or a  publicly  traded
company affiliated with a licensee;  (viii) a stock  clearinghouse  holds voting
securities for third parties, if it exercises voting rights with respect to less
than five  percent  (5%) of the  outstanding  securities  of a  publicly  traded
licensee or of a publicly traded company  affiliated with a licensee;  or (ix) a
person owns less than five percent (5%) of the voting securities of the publicly
traded  licensee or publicly traded company  affiliated with a licensee.  Hence,
the business  opportunities  of the Company and its stockholders in Colorado are
limited to such interests that comply with the statute and Commission's rules.

     The Colorado  Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee,  and to
investigate the moral character, honesty, integrity, prior activities,  criminal
record, reputation, habits and associations of (i) all persons licensed pursuant
to  the  Colorado  Limited  Gaming  Act;   (ii) all   officers,   directors  and
stockholders  of a licensed  privately  held  corporation;  (iii) all  officers,
directors  and  stockholders  holding  either  a 5%  or  greater  interest  or a
controlling interest in a licensed publicly traded corporation; (iv) all general
partners and all limited  partners of a licensed  partnership;  (v) all  persons
which have a relationship similar to that of an officer, director or stockholder
of a corporation;  (vi) all persons supplying  financing or loaning money to any
licensee  connected with the  establishment or operation of limited gaming;  and
(vii) all  persons  having a contract,  lease or ongoing  financial  or business
arrangement with any licensee, where such contract, lease or arrangement relates
to limited gaming operations, equipment, devices or premises. In addition, under
the Colorado  Regulations,  every  person who is a party to a "gaming  contract"
with an  applicant  for a license,  or with a licensee,  upon the request of the
Colorado  Commission or the Director,  promptly must provide to the Director all
information  which may be requested  concerning:  financial  history,  financial
holdings,  real and personal property  ownership,  interests in other companies,
criminal history,  personal history and associations,  character,  reputation in
the  community,  and  all  other  information  which  might  be  relevant  to  a
determination  whether a person would be suitable to be licensed by the Colorado
Commission.  Failure to provide all information requested constitutes sufficient
grounds  for the  Director  or  Colorado  Commission  to require a  licensee  or
applicant  to  terminate  its  "gaming  contract"  with any person who failed to
provide the  information  requested.  In addition,  the Director or the Colorado
Commission may require  changes in "gaming  contracts"  before an application is
approved or  participation  in the contract is allowed.  A "gaming  contract" is
defined as an agreement in which a person does  business with or on the premises
of a licensed entity.

     Under the Colorado  regulations,  any person or entity having any direct or
indirect  interest in a gaming  license or an  applicant  for a gaming  license,
including,  but not limited to, the Company and stockholders of the Company, may
be required to supply the Commission with  substantial  information,  including,
but not limited to, background  information,  source of funding  information,  a
sworn  statement  that such person or entity is not holding his interest for any
other party, and fingerprints. Such information,  investigation and licensing as
an "associated person" automatically will be required of all persons (other than
certain  institutional  investors  discussed below) which directly or indirectly
own ten  percent  (10%) or more of a direct or  indirect  legal,  beneficial  or
voting  interest in Lady Luck  Central  City,  through  their  ownership  in the
Company.   Such  persons  must  report  their  interests  and  file  appropriate
applications within 45 days after acquiring such interests.  Persons directly or
indirectly  having a five percent (5%) or more  interest  (but less than 10%) in
Lady Luck Central  City,  through  their  ownership in the Company,  must report
their  interest  to the  Commission  within ten (10) days after  acquiring  such
interest and may be required to provide  additional  information and to be found
suitable. If certain institutional  investors provide certain information to the
Commission,  such investors, at the Commission's discretion, may be permitted to
own up to 14.99% of Lady Luck  Central  City,  through  their  ownership  in the
Company,  before  being  required  to  be  found  suitable.  All  licensing  and
investigation fees will have to be paid for by the person in question.

     A person  or entity  may not sell,  lease,  purchase,  convey or  acquire a
controlling   interest  in  the  Company  without  the  prior  approval  of  the
Commission.  The  Company  may not sell any  interest  in GCI  without the prior
approval of the Commission.

     All persons  employed by the Company and involved,  directly or indirectly,
in gaming operations in Colorado also are required to obtain a gaming license in
Colorado.  Lady Luck Central City pays the cost of such licensing for certain of
its employees.

     An  application  for licensure or  suitability  may be denied for any cause
deemed  reasonable by the Colorado  Commission or the Director,  as appropriate.
Specifically,  the Colorado  Commission  and the Director must deny a license to
any applicant who (i) fails to prove by clear and  convincing  evidence that the
applicant is qualified;  (ii) fails  to provide  information  and  documentation
requested,  fails to reveal any fact  material  to  qualification,  or  supplies
information  which is untrue or misleading  as to a material fact  pertaining to
qualification;  (iii) has been, or has any director,  officer,  general partner,
stockholder,  limited  partner  or other  person who has a  financial  or equity
interest of 5% or greater in the  applicant  who has been  convicted  of certain
crimes,  including the service of a sentence upon  conviction  for a felony in a
correctional  facility,  city or county jail, or community correctional facility
or under the state board of parole or any probation  department within ten years
prior  to the  date  of the  application,  gaming  related  offenses,  theft  by
deception or other crimes involving fraud or misrepresentation, is under current
prosecution for such crimes (license  determination  may be deferred during such
pendency),  is a career  offender or a member or associate of a career  offender
cartel or is a professional  gambler;  or (iv) has refused to cooperate with any
state or federal body  investigating  organized  crime,  official  corruption or
gaming offenses.

     If the Colorado Commission determines that a person or entity is unsuitable
to own  interests  in Lady Luck Central  City,  whether  directly or  indirectly
through  the  Company,  then the  Company  and  Lady  Luck  Central  City may be
sanctioned, which may include the loss by Lady Luck Central City and the Company
of their approvals and licenses.

     In  addition  to its  authority  to deny an  application  for a license  or
suitability,  the Colorado Commission has jurisdiction to disapprove a change in
corporate position of a licensee and may have such authority with respect to any
entity which is required to be found  suitable by the Colorado  Commission.  The
Colorado  Commission  has the power to  require  Lady Luck  Central  City or the
Company to suspend or dismiss  officers,  directors  and other key  employees or
sever   relationships   with  other  persons  who  refuse  to  file  appropriate
applications or whom the authorities  find unsuitable to act in such capacities,
and may have such power with respect to any entity which is required to be found
suitable.

     Lady Luck Central City must meet certain architectural  requirements,  fire
safety  standards  and  standards  for access for  disabled  persons.  Lady Luck
Central City also must not exceed certain gaming square footage  requirements as
a total of each floor and the full building.  Lady Luck Central City may operate
only between 8:00 a.m. to 2:00 a.m., and may permit only individuals 21 years or
older to gamble in the casino. It may permit slot machines, blackjack and poker,
with a maximum  single  bet of $5.00.  Lady Luck  Central  City may not  provide
credit to its gaming patrons.

     The  Colorado  Constitution  permits a gaming tax of up to 40% on  adjusted
gross gaming proceeds.  The Colorado  Commission has set a gaming tax rate of 2%
on adjusted gross gaming proceeds of up to and including $2 million,  4% over $2
million up to and including $4 million,  14% over $4 million up to and including
$5 million,  18% over $5 million up to and  including  $10  million,  and 20% in
excess of $10 million. The Colorado Commission also has imposed an annual device
fee of $100 per gaming device. The Colorado Commission may revise the gaming tax
rate and device fee from time to time. Central City has imposed an annual device
fee of $1,165 per gaming device and may revise the same from time to time.

     The sale of  alcoholic  beverages  is subject  to  licensing,  control  and
regulation  by the  Colorado  Liquor  Agencies.  All  persons  who  directly  or
indirectly own 10% or more of Lady Luck Central City, through their ownership of
the Company, must file applications and possibly be investigated by the Colorado
Liquor  Agencies.  The Liquor Agencies also may  investigate  those persons who,
directly or indirectly,  loan money to or have any financial  interest in liquor
licensees. All licenses are revocable and not transferable.  The Liquor Agencies
have the full power to limit, condition,  suspend or revoke any such license and
any such  disciplinary  action  could  (and  revocation  would)  have a material
adverse effect upon the operations of the Company.  Lady Luck Central City holds
a Retail Gaming Tavern liquor license. No person with an interest in the Company
can have an interest in a liquor  licensee  which  holds  anything  other than a
Retail Gaming Tavern liquor license,  and no person can have an interest in more
than three Retail Gaming Tavern liquor licenses.


     Iowa Gaming Regulations

     In 1989, the State of Iowa legalized  riverboat  gaming on the  Mississippi
River and certain other waterways  located in Iowa. The  legislation  authorized
the granting of licenses to  not-for-profit  corporations  which,  in turn,  are
permitted to enter into operating  agreements  with  qualified  persons who also
actually conduct  riverboat gaming  operations.  Such operators must likewise be
approved and licensed by the Iowa Racing and Gaming Commission (the "Iowa Gaming
Commission").

     In 1994, Iowa amended the enabling  legislation  removing  several previous
restrictions  including loss and wager limits and  restrictions on the amount of
space on a vessel that may be utilized  for gaming.  Current law permits  gaming
licensees to offer unlimited  stakes gaming on games approved by the Iowa Gaming
Commission on a 24-hour basis.  Dockside casino gaming is authorized by the Iowa
Gaming  Commission  although the licensed vessel is required to conduct at least
one 2-hour  excursion cruise each day for at least 100 days during the excursion
season. The legal age for gaming is 21.

     On August 11,  1994 the  Riverbend  Regional  Authority,  a  not-for-profit
corporation  organized  for the  purpose  of  facilitating  riverboat  gaming in
Bettendorf,  Iowa (the "Authority"),  entered into an agreement (the "Operator's
Contract") with the Bettendorf  Joint Venture  authorizing the Bettendorf  Joint
Venture to operate riverboat gaming  operations in Bettendorf.  The initial term
of the Operator's  Contract is for three years. The Bettendorf Joint Venture has
the right to renew the  contract  for  succeeding  three year periods as long as
Scott County voters approve gaming in the jurisdiction. The enabling legislation
gives  each  county the  opportunity  to hold a  referendum  on whether to allow
casino gaming within its  boundaries.  Such a referendum  was passed on April 7,
1994  with  80%  voting  in favor of  passage  and  casino  gaming  was  thereby
authorized  in  Bettendorf  for a period of nine years from the issuance date of
the  license.  Another  referendum  cannot be held until  2002 and if  approved,
subsequent  referenda  will  occur at 8 year  intervals.  Under  the  Operator's
Contract,  the Bettendorf  Joint Venture pays the Authority $1 per passenger for
the first 500,000  passengers in any year and $1.50 for each passenger in excess
of  500,000.  The per  passenger  admission  charge is  increased  by 1/2 of the
Consumer  Price  Index for each three year  extension  period of the  Operator's
Contract.  The Bettendorf  Joint Venture also pays the Authority an amount equal
to 2% of the net gaming win in excess of $35,000,000  and less than  $44,000,000
in any year.

     Further,  pursuant to statute,  the Bettendorf Joint Venture must pay a fee
to the City  equal to $.50 per  passenger.  On March 6,  1997,  the Iowa  Gaming
Commission  authorized  the renewal of the  Bettendorf  Joint  Venture's  gaming
license.  The license is for an additional term of one year commencing  April 1,
1997, is not  transferrable  and will need to be renewed in March of 1998 and at
the end of each renewal period thereafter.

     The  ownership  and  operation of gaming  facilities in Iowa are subject to
extensive  state laws,  regulations  of the Iowa Gaming  Commission  and various
county  and  municipal  ordinances  (collectively,   the  "Iowa  Gaming  Laws"),
concerning,  among other things,  the  responsibility,  financial  stability and
character of gaming operators and persons financially  interested or involved in
gaming  operations.  Iowa Gaming Laws seek to (i) prevent unsavory or unsuitable
persons from having direct or indirect involvement with gaming at any time or in
any capacity;  (ii) establish and maintain responsible  accounting practices and
procedures;  (iii) maintain  effective  control over the financial  practices of
licensees (including the establishment of minimum procedures for internal fiscal
affairs,  the  safeguarding  of assets and  revenues,  the provision of reliable
record  keeping  and the  filing  of  periodic  reports  with  the  Iowa  Gaming
Commission);  (iv) prevent cheating and fraudulent practices;  and (v) provide a
source of state and local revenues through taxation and licensing fees.  Changes
in such laws, regulations and procedures could have a material adverse effect on
the Bettendorf Joint Venture's gaming operations.

     Gaming  licenses  granted to  individuals  must be renewed every year,  and
licensing  authorities  have  broad  discretion  with  regard to such  renewals.
Licenses are not transferable. The Bettendorf Joint Venture must submit detailed
financial and operating reports to the Iowa Gaming  Commission.  Any contract in
excess  of  $50,000  must  be  submitted  to and  approved  by the  Iowa  Gaming
Commission.

     Officers,  directors,  managers and certain key employees of the Bettendorf
Joint  Venture  are  required  to be  licensed  by the Iowa  Gaming  Commission.
Employees  associated  with gaming must obtain work permits which are subject to
immediate suspension under certain circumstances.  In addition,  anyone having a
material  relationship or involvement  with the Bettendorf  Joint Venture may be
required to be found  suitable or to be  licensed,  in which case those  persons
would be  required to pay the costs and fees of the Iowa  Gaming  Commission  in
connection  with the  investigation.  An application for a license may be denied
for any cause deemed  reasonable by the Iowa Gaming  Commission.  In addition to
its authority to deny an application for license, the Iowa Gaming Commission has
jurisdiction  to  disapprove  a  change  in  position  by such  officers  or key
employees  and the power to require the  Bettendorf  Joint Venture to suspend or
dismiss officers,  directors or other key employees or sever  relationships with
other  persons  who  refuse to file  appropriate  applications  or whom the Iowa
Gaming Commission finds unsuitable to act in such capacities.

     The Iowa Gaming  Commission  may revoke a gaming  license  if,  among other
conditions,  the  licensee:  (i) has  been  suspended  from  operating  a gaming
operation in another jurisdiction by a board or commission of that jurisdiction;
(ii) has  failed to  demonstrate  financial  responsibility  sufficient  to meet
adequately  the  requirements  of the gaming  enterprise;  (iii) is not the true
owner of the enterprise;  (iv) has failed to disclose ownership of other persons
in the enterprise;  (v) is a corporation 10% of the stock of which is subject to
a contract  or option to  purchase  at any time  during the period for which the
license was issued,  unless the  contract  or option was  disclosed  to the Iowa
Gaming Commission and the Iowa Gaming  Commission  approved the sale or transfer
during the period of the license;  (vi) knowingly  makes a false  statement of a
material  fact to the Iowa  Gaming  Commission;  (vii)  fails to meet a monetary
obligation in connection with an excursion gaming boat; (viii) pleads guilty to,
or is convicted of a felony;  (ix) loans to any person,  money or other thing of
value for the purpose of permitting  that person to wager on any game of chance;
(x) is delinquent  in the payment of property  taxes or other taxes or fees or a
payment  of any other  contractual  obligation  or debt due or owed to a city or
county; or (xi) assigns, grants or turns over to another person the operation of
a licensed  excursion  boat (this  provision  does not prohibit  assignment of a
management  contract approved by the Iowa Gaming  Commission) or permits another
person to have a share of the money  received  for  admission  to the  excursion
boat.

     If it were  determined  that gaming laws were  violated by a licensee,  the
gaming  licenses  held by such  licensee  could be  limited,  made  conditional,
suspended or revoked. In addition,  the Bettendorf Joint Venture and the persons
involved  could be subject to substantial  fines for each separate  violation of
the  Iowa  Gaming  Laws  at  the  discretion  of  the  Iowa  Gaming  Commission.
Limitations,  conditioning  or  suspension  of any  gaming  license  could  (and
revocation of any gaming  license  would) have a material  adverse effect on the
operations of the Bettendorf Joint Venture.

     The Iowa  Gaming  Commission  may also  require  any  individual  who has a
material  relationship  with the Bettendorf Joint Venture to be investigated and
licensed or found suitable. Any person who acquires 5% or more of the Bettendorf
Joint Venture's equity securities must be approved by the Iowa Gaming Commission
prior to such  acquisition.  The  applicant  stockholder  is required to pay all
costs of such investigation.

     Gaming taxes  approximating  20% of the  adjusted  gross  receipts  will be
payable by the Bettendorf  Joint Venture on its operations to the State of Iowa.
In addition,  there are costs which include a $50,000 initial  application  fee,
yearly  operations fees and all costs associated with monitoring and enforcement
by the Iowa Gaming Commission and the Iowa Department of Criminal Investigation.

     If required by any gaming authority or if the Company reasonably determines
that ownership of any of the Company's  securities,  including the Notes, by any
person or entity will either materially  preclude,  interfere with,  threaten or
delay the issuance of, or jeopardize the maintenance and existence of any gaming
or liquor license, or result in the imposition of significantly burdensome terms
or conditions on such license, the Indenture provides that the Company will have
certain rights to redeem such Notes or require the sale of such Notes.


     Missouri Gaming Regulations

     Gaming was  originally  authorized in the state of Missouri on  November 3,
1992,  although no  governmental  action was taken to enforce or  implement  the
original  law. On April 29,  1993,  Missouri  enacted the  Missouri  Gaming Law,
replacing the original law.  Substantial  amendments to the Missouri  Gaming Law
were passed  effective May 20, 1994.  The Missouri  Gaming Law  established  the
Missouri  Gaming  Commission,   which  is  responsible  for  the  licensing  and
regulation of riverboat gaming in Missouri.

     The ownership and operation of riverboat gaming  facilities in Missouri are
subject to extensive ongoing state and local regulation to which the Company and
certain of its officers and employees will be subject,  including licensure. The
Company and certain of its  officers and  employees  will be required to undergo
extensive  application  procedures in order to obtain the requisite licenses and
permits to operate.  Such licenses are to be issued through application with the
Missouri   Gaming   Commission,   which  will   require,   among  other  things,
(a) investigations  into applicants'  character,  financial  responsibility  and
experience  qualifications  and (b) that  applicants  furnish (i) an affirmative
action plan for the hiring and  training of  minorities  and women;  and (ii) an
economic  development  or impact report.  The Company's  license fees will be at
least  $50,000  for the  application,  with an  annual  fee of at least  $25,000
thereafter. The Company's licenses will last for a term of two years except that
the first license and subsequent  renewal granted to each gaming operator are to
be  for  terms  of one  year.  There  can be no  assurance  that  the  Company's
application  for a license  to operate a  riverboat  in  Missouri  or such other
requisite  applications  will be  approved  in a  timely  manner  or at all.  In
addition,  every individual  participating in gaming  operations in any capacity
must obtain an occupational license.  There are two levels of such licenses. The
first is level one and  includes the audit  manager,  casino  manager,  chief of
security,  controller,  electronic  data  processing  manager,  slot  department
manager,  surveillance  manager,  assistant manager,  "key person" and any other
person or entity  the  Missouri  Gaming  Commission  directs to file a level one
application.  A "key  person"  includes,  but is not  limited  to,  an  officer,
director or holder of any direct or indirect legal or beneficial  interest whose
combined  direct,  indirect or  attributed  interest is 5% or more in a business
entity or anyone so designated by the Missouri  Gaming  Commission.  A level two
license would include all other  employees.  The application fee for a level one
license  is $1,000  and for a level two  license is $75.  The  licenses  must be
renewed  annually  and the renewal fee is $50 for either  license.  The Missouri
Gaming  Commission  may  revoke or suspend  gaming  licenses  and  impose  other
penalties for violation of the Missouri Gaming Law and the rules and regulations
which may be  promulgated  thereunder.  Penalties may include  forfeiture of all
gaming  equipment  used for  improper  gaming and fines of up to three  times an
operator's  highest daily gross adjusted  receipts  during the preceding  twelve
months. Also, the Missouri Regulations provide that any transfer of a 5% or more
direct or indirect  ownership  interest in a publicly traded gaming licensee can
be disapproved by the Missouri Gaming Commission.

     The  Missouri  Gaming Law imposes  operational  requirements  on  riverboat
operators,  including a charge of two dollars per gaming customer that licensees
must pay to the Missouri Gaming Commission,  a minimum payout requirement of 80%
for gambling devices, a 20% tax on adjusted gross receipts, prohibitions against
lending to gaming  customers  (except  for the use of credit  cards and  cashing
checks) and a  requirement  that each  licensee  reimburse  the Missouri  Gaming
Commission for all costs of any Missouri  Gaming  Commission  staff necessary to
protect the public on the  licensee's  boat.  Licensees must also submit audited
quarterly  financial  reports  to the  Missouri  Gaming  Commission  and pay the
associated  auditing fees. The Missouri  Gaming Law provides for a loss limit of
$500 per  person per  excursion.  Although  the  Missouri  Gaming Law  currently
provides no limit on the amount of riverboat  space that may be used for gaming,
the Missouri  Gaming  Commission  is empowered to impose such space  limitations
through the adoption of rules and regulations. Additionally, United States Coast
Guard safety  regulations could affect the amount of riverboat space that may be
devoted to gaming. The Missouri Gaming Commission will ultimately  determine the
location,  number and type of  excursion  boats in any city or county  which has
approved riverboat  gambling,  such city or county approval being a prerequisite
to riverboat gambling in such city or county.

     Any city or county which has recommended  riverboat gambling is to submit a
plan outlining,  inter alia, the number of boats to be licensed, the recommended
licensee(s),  and the community's economic development or impact and affirmative
action plan. By regulation, the plan is to be submitted within 30 days after the
filing of an application  for a license in that city or county.  With respect to
the availability of dockside gaming, the Missouri Gaming Commission is empowered
to  determine  on  a  city  and  county-specific  basis  where  such  gaming  is
appropriate  and  shall  be  permitted.  All  other  boats  must  cruise  unless
authorized by the Missouri Gaming Commission for continuous dockside gaming. The
Missouri  Gaming Law also includes  requirements  as to the form of  riverboats,
which must resemble Missouri's or the local city's or county's riverboat history
to the extent practicable and include certain non-gaming amenities. An excursion
gambling boat is now defined as a boat,  ferry or other floating  facility.  The
Missouri Gaming Law also imposes annual  licensing  requirements on suppliers of
gaming equipment or other suppliers to riverboat operators.

     There can be no  assurance  that gaming will  continue to be  permitted  in
Missouri.  The Missouri  Gaming Law could be repealed or modified by  Missouri's
legislative process or by its judiciary.


 Non-Gaming Regulations

     The Company is subject to certain  federal,  state and local  environmental
protection,  health and safety laws,  regulations  and ordinances  that apply to
businesses  generally,  such as the Clean  Air Act,  the Clean  Water  Act,  the
Resource  Conservation  and Recovery Act, CERCLA,  the  Occupational  Safety and
Health Act, and similar state statutes.  The Colorado casino  operations of Lady
Luck  Central City are located  generally  within the Central  City/Clear  Creek
Superfund  Site as designated by the EPA pursuant to CERCLA.  The Superfund Site
includes numerous specifically identified areas of mine tailings and other waste
piles  from  former  gold  mine  operations  that  are the  subject  of  ongoing
investigation and cleanup by the EPA and the State of Colorado.  CERCLA requires
cleanup of sites from which  there has been a release or  threatened  release of
hazardous  substances  and  authorizes  the EPA to take any  necessary  response
actions at Superfund sites,  including ordering Potentially  Responsible Parties
("PRP's") to clean up or  contribute to the cleanup of a Superfund  site.  PRP's
are  broadly  defined  under  CERCLA,  and include  past and present  owners and
operators of a site. Courts have interpreted CERCLA to impose strict,  joint and
several liability upon all persons liable for response costs.

     Lady Luck  Central City is not  included  within any of the specific  areas
within the Superfund Site currently identified for investigation or remediation.
In the course of  developing  the Lady Luck  Central City  facility,  the former
owner's  contractors  conducted  investigations  at the site in accordance  with
requirements  of the  governmental  authorities as a  prerequisite  to obtaining
certain necessary  development  permits.  The investigations have been completed
and the requisite permits issued.  Nonetheless,  there is the potential that the
EPA or other  governmental  authorities could broaden their  investigations  and
identify  additional  areas within the Superfund  Site,  including the Company's
site,  for  cleanup.  If Lady  Luck  Central  City  were  included  in the EPA's
investigation  and  designated  as an  additional  area of  concern  within  the
Superfund  Site,  the Company  could be  identified  as a PRP and any  liability
related thereto could have a material adverse effect on the Company.

     The Vicksburg Site has been used as a bulk petroleum storage facility since
the early 1950's,  and contained  above ground storage tanks and barge and truck
loading  docks  associated  with that  operation.  Known  releases of  petroleum
products  from three of the seven tanks have  occurred  since  1986,  along with
other small releases at various locations on site. The Subsurface  Assessment of
the environmental  condition of the site by an outside environmental  consultant
indicated that certain of the soils at the site were contaminated with petroleum
hydrocarbons  and  associated   volatile  organic   compounds,   and  that  such
contamination  was present in  significant  concentrations  in some locations on
site.

     Remediation efforts at the Vicksburg Site are complete.  Under the terms of
the acquisition of the Vicksburg Site, the purchase price for the Vicksburg Site
of  $4.5 million  was placed in an escrow  account,  with all costs  incurred to
remediate environmental conditions on site paid out of such escrow account (with
any funds  remaining  after  remediation  going to the  seller of the  Vicksburg
Site). On February 21, 1996, the Mississippi Department of Environmental Quality
determined that the environmental  remediation conducted by the seller meets all
federal  and  state  standards,  and has  certified  that no  further  action is
required.  The entire  remediation cost was paid out of the escrow fund, and the
Company did not incur any of these costs.  However, no assurance can be provided
that  the  Mississippi  Department  of  Environmental  Quality  or  the  Federal
Environmental  Protection  Agency will not alter  target  cleanup  levels in the
future,  resulting in  additional  cleanup  requirements.  This would expose the
Company to additional  liability as the owner of the property,  and could result
in a material delay of the construction of new facilities on-site.

     In the course of conducting the environmental investigation at the proposed
site for Lady Luck Gulfport, the Company identified certain contamination at the
site. Pursuant to an administrative  order issued by the Mississippi  Department
of Environmental  Quality, the Company undertook remedial activities,  including
soil  remediation  and the  installation  of groundwater  monitoring  wells.  No
additional  remediation is currently  required,  although some  additional  soil
remediation  may be  required  in the course of  obtaining  a  building  permit.
Although there can be no assurances,  the Company believes that the cost of such
additional soil remediation, if any, will not be material.

     Although  the  Company  knows of no other  pre-existing  conditions  at the
intended sites for the Development or the Pre-  development  Stage Projects that
will result in any material  environmental  liability or delay,  there can be no
assurance  that  pre-existing  conditions  will not be discovered  and result in
material liability or delay to the Company.

     Other  than  those  described,  the  Company  has not  made,  and  does not
anticipate  making,  material  expenditures  with respect to such  environmental
protection, and health and safety laws and regulations.  However, the compliance
or cleanup costs  associated  with such laws,  regulations  and  ordinances  may
result in future additional costs to the Company's operations.


ITEM 2.           PROPERTIES.

     The Company has various  property  leases and options to lease property and
owns barges  upon which  dockside  casinos  have been or are  anticipated  to be
constructed.  Additionally,  LLB owns two  parcels of property at the site where
Lady Luck Biloxi is located and leases  several  other  properties at such site;
LLV owns certain  property  (including  the Vicksburg  Site) where the Vicksburg
Project would be located.  The Lady Luck Natchez  leases include the Silver Land
lease,  the Old Ferry Ramp lease and the Toll Plaza lease,  all in Natchez.  LLM
also owns the property  where the River Park is located.  In  addition,  MLI has
entered into the Coahoma  County lease and purchased  the  leasehold  associated
with the  property  where the  Riverbluff  is located;  LLG has entered into the
Gulfport  Leases;  LLK has entered into an option to lease property in Jefferson
County, Missouri; and the Company has entered options to lease property in Scott
City,  Missouri.  All rental  payments  under  these  leases,  other than rental
payments under the Coahoma  County  leases,  are calculated on a fixed base rent
adjusted  in  accordance  with  increases  in the  Consumer  Price Index up to a
maximum of 3% in any given year. Rental payments under the Coahoma County leases
are 5.5% of the annual Gross  Revenues (as defined in such leases).  The Company
owns nine barges, one of which is in Natchez,  one of which is in Biloxi,  three
of which are intended for use in the  construction of the Vicksburg  Project and
four of which are in Coahoma  County.  The Company  also owns a cruising  gaming
vessel  which  is  being  leased  to  the  Bettendorf   Joint  Venture  and  has
approximately  $6.0 million  invested in a partially  finished  cruising  vessel
which is  currently  intended to be used by LLK.  GCI owns the property on which
Lady Luck Central City is located and leases (and has an  obligation to acquire)
property  where  Lady  Luck  Central  City has a  parking  lot.  Certain  of the
Company's  properties are encumbered by mortgages and other security  agreements
for the benefit of holders of the Notes.  Additionally,  the Company has granted
liens on certain of its owned and leased properties to the sellers or lessors of
such properties, including the property where Lady Luck Central City is located,
a plot of land adjacent to Lady Luck Biloxi,  the property  where the River Park
is located and purchased the leasehold interest where the Riverbluff is located.
The Company leases its corporate  offices in Las Vegas,  Nevada  pursuant to the
New Marketing Agreements. See "Business -- Management Agreements".


ITEM 3.           LEGAL PROCEEDINGS.

     The Company has been named as a defendant in a purported  shareholder class
action lawsuit alleging  violations by the Company of the Securities Act of 1933
and the Securities Exchange Act of 1934 for alleged material  misrepresentations
and  omissions in  connection  with the Company's  1993  prospectus  and initial
public offering of Common Stock.  The complaint  seeks,  inter alia,  injunctive
relief,  rescission and  unspecified  compensatory  damages.  In addition to the
Company, the complaint also names as defendants Andrew H. Tompkins, Chairman and
Chief  Executive  Officer of LLGC,  Alain Uboldi,  Director and Chief  Operating
Officer of LLGC,  Michael Hlavsa,  the former Chief  Financial  Officer of LLGC,
Bear  Stearns  & Co.,  Inc.  and  Oppenheimer  & Co.,  Inc.,  who  acted as lead
underwriters for the initial public  offering.  The Company has retained outside
counsel to respond to the  complaint and while the outcome of this matter cannot
presently  be  determined,  the  Company  believes  based in part on  advice  of
counsel, that it has meritorious defenses.

     The Company and certain of its joint venture  partners  (the  "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism  before  the Greek  Multi-Member  Court of First  Instance.  The  action
alleges that the Defendants  failed to make certain  payments in connection with
the gaming license bid process for Patras,  Greece.  The payments the Company is
alleged  to have been  required  to make  aggregate  approximately  2.1  billion
drachma  (which was  approximately  $7.8  million as of March 5, 1997 based upon
published  exchange  rates).  Although it is difficult to determine  the damages
being sought from the lawsuit,  the action may seek damages up to such aggregate
amount. The Company's Greek counsel is defending the lawsuit and in management's
opinion, the ultimate outcome of this matter is not presently known.

     Additionally,  a lawyer and a consultant  which were allegedly  retained by
the Company in connection  with the Company's bid for a gaming license in Greece
recently  threatened  litigation against the Company.  On or about September 24,
1996, the Company and the lawyer and consultant  reached an agreement whereby in
exchange for certain consideration mutual releases were executed.

     Also, a Greek architect  filed an action against the Company  alleging that
he was retained by the Company to provide professional  services with respect to
a casino in Loutraki,  Greece.  The plaintiff in such action  sought  damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter.  The Greek
Court entered judgement against the Company in the amount of approximately  87.1
million drachma (which was approximately $325,000 as of March 5, 1997 based upon
published  rates).  The Company  intends to appeal the Court's  decision and has
been informed by its Greek counsel that it has meritorious  grounds to prosecute
such appeal.

     On November 5, 1996,  the United States  Bankruptcy  Court for the Northern
District of  Mississippi  dismissed a lawsuit which had been brought by Superior
Boat Works,  Inc.  ("Superior")  against  LLM on or about  September  23,  1993.
Superior had  previously  done  construction  work for LLM on its Natchez  barge
("Lady Luck Natchez"), as well as some minor preparatory work on one other barge
of the Company. Such proceeding alleged damages of approximately $47,000,000, of
which approximately  $3,400,000 was alleged for additional  construction work on
Lady Luck Natchez and the  remaining  amount was alleged for unjust  enrichment,
for causing the bankruptcy of Superior and for future work Superior  expected to
perform for the  Company.  Superior  has  appealed  the  decision to dismiss the
action. The Company,  based in part on the advice of its counsel,  believes that
it has meritorious defenses and does not believe that the appeal of the decision
will have a material  adverse  effect on the  Company's  financial  condition or
results of operations.

     In addition,  from time to time the Company is a party to legal proceedings
arising in the ordinary  course of  business.  The Company does not believe that
the results of such legal proceedings will have a material adverse impact on its
financial condition.


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

     No matters were submitted to a vote of  security-holders of LLGC during the
fourth quarter of 1996.

<PAGE>
PART II

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

     LLGC's common stock (symbol  "LUCK") trades on the Nasdaq  National  Market
tier of the Nasdaq  Stock  Market and is quoted in the Wall  Street  Journal and
other newspapers. The following table sets forth the high and low sale prices of
the Common Stock for each quarter during the preceding two years, as reported by
Nasdaq.

<TABLE>
<CAPTION>

                                                      Nasdaq Daily Sales Price
<S>                                                                                     <C>                    <C>


                                                                                                 High                  Low
--------------------------------------------------------------------------------------- ---------------------  --------------------



1995

1st quarter                                                                                    2-13/16                1-7/8
2nd quarter                                                                                     2-3/16                1-1/2
3rd quarter                                                                                     2-3/8                 1-1/2
4th quarter                                                                                     2-1/2                 1-5/8


1996

1st quarter                                                                                     2-7/32                1-5/8
2nd quarter                                                                                     4-5/8                   2
3rd quarter                                                                                     4-5/16                2-7/16
4th quarter                                                                                       3                   1-3/4

      As of March 12, 1997, LLGC had approximately 535 holders of record of its common stock.

      LLGC did not pay any cash dividends on its common stock in 1995 or 1996 and has no intention of paying cash
dividends on its common stock in the foreseeable future.  In addition, the Indenture covering the 2001 Notes (defined below
in Part II, Item 8) provides restrictions on the Company's ability to pay dividends on its common stock.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

ITEM 6.           SELECTED FINANCIAL DATA.

<S>                                                 <C>            <C>            <C>              <C>             <C>
Years ended December 31,                                1996           1995            1994            1993           1992
--------------------------------------------------- -------------  -------------  --------------   -------------   ------------
Thousands of dollars

Gross revenues                                       $   174,234   $    158,411   $      125,134   $      81,124   $         -
Promotional allowances                                   (12,527)        (8,821)          (7,979)         (4,313)            -
Net revenues                                             161,707        149,590          117,155          76,811             -
Casino expenses                                           56,806         49,703           41,859          21,492             -
Food and beverage costs and expenses                       6,928          8,582            7,215           2,982             -
Hotel expenses                                             1,925          1,667              652               -             -
Other operating expenses                                     282            310              574             194             -
Selling, general and administrative                       53,786         49,539           51,926          21,722           370
Related party management fees                              2,317          5,520            2,471           2,894             -
Depreciation and amortization                             11,289          9,694            7,067           2,478             -
Settlement of a Claim                                      1,100              -                -               -             -
Project development cost write-downs and reserves            404            509           15,635               -             -
Pre-opening expense                                          247              -            2,970           6,769             -
Abandonment loss                                               -              -            9,344               -             -
Operating income (loss)                                   26,623         24,066          (22,558)         18,280          (370)
Other (expense)                                          (20,415)       (19,204)         (15,393)         (2,729)            -
Income (loss) before income tax and extraordinary
    items                                                  6,208          4,862          (37,951)         15,551          (370)
Net income (loss)                                          6,139          6,718          (35,665)          3,810          (370)
Net cash provided by (used in) operating activities       13,492         17,083            8,590          22,935          (451)
---------------------------------------------------  -------------  -------------  --------------   -------------   ------------

At December 31, 1996, 1995, 1994, 1993 and 1992
Cash and cash equivalents                            $    15,490    $    22,148     $     28,914     $    18,351     $      25
Restricted cash                                                -          8,858            7,847               -             6
Current assets                                            20,584         35,219           44,679          22,327           112
Property and equipment, net                              173,119        155,664          170,345          91,116         6,899
Total assets                                             223,718        217,281          226,963         122,975         9,407
Current liabilities                                       19,892         23,702          216,954          42,200         2,123
Total liabilities                                        200,973        200,675          221,137          85,369         2,123
Series A mandatory cumulative redeemable preferred
    stock                                                 16,430         14,669           13,097          11,693             -
Stockholders' equity (deficit)                             6,315          1,937           (7,271)         25,913         7,284
Working capital                                              692         11,517         (172,275)        (19,873)       (2,011)
---------------------------------------------------  -------------  -------------  --------------   -------------  -------------







<PAGE>



Years ended December 31,                                 1996            1995           1994            1993            1992
---------------------------------------------------- -------------  -------------  ---------------  -------------  -------------
Thousands of dollars, except per share amounts and
    employees

Selected Data
Net Income (loss) per share
      Before extraordinary item                      $       0.21  $        0.15   $        (1.45)  $       0.43   $      (0.02)
      Extraordinary item                                        -           0.08             0.04          (0.28)             -
      Applicable to common stockholders                      0.15           0.18            (1.47)          0.12              -
      Pro Forma net income (unaudited)
Pro Forma earnings per share (unaudited)                        -              -                -           0.11           0.01
Shares used in computing net income per share
    (in thousands)                                         29,285         28,952           25,300         24,664         24,286

Shares outstanding at year end (in thousands)              29,285         29,285           27,285         24,793              -

Cash dividends declared per common share                        -              -                -              -              -
Common Stock - High                                  $       4.63  $        2.81   $        13.75   $      19.00   $          -
Common Stock - Low                                   $       1.63  $        1.50   $         2.25   $       7.25   $          -
Common Stock - Year end                              $       1.88  $        1.63   $         2.59   $      10.75   $          -
Number of employees                                         2,950          2,850            2,100          2,330              5
--------------------------------------------------   ------------- --------------  ---------------  -------------  -------------


Reference is made to Part I, Item 3 - Legal Proceedings, which contains information regarding uncertainties which may have
a material adverse effect on the Company's future financial condition and results of operations.

</TABLE>


<PAGE>

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

     All statements  contained herein that are not historical  facts,  including
but  not  limited  to,  statements  regarding  the  Company's  current  business
strategy,  the Company's prospective joint ventures,  asset sales and expansions
of  existing  projects,  and the  Company's  plans for  future  development  and
operations,   are  based  upon  current   expectations.   These  statements  are
forward-looking  in nature  and  involve  a number  of risks and  uncertainties.
Generally,  the words  "anticipates,"  "believes,"  "estimates,"  "expects," and
similar  expressions  as they  relate  to the  Company  and its  management  are
intended to  identify  forward  looking  statements.  Actual  results may differ
materially.  Among  the  factors  that  could  cause  actual  results  to differ
materially are the following:  the availability of sufficient capital to finance
the Company's  business plan on terms  satisfactory to the Company;  competitive
factors,  such as legalization of gaming in jurisdictions from which the Company
draws  significant  numbers of patrons  and an increase in the number of casinos
serving  the markets in which the  Company's  casinos  are  located;  changes in
labor, equipment and capital costs; the ability of the Company to consummate its
contemplated  joint ventures on terms  satisfactory to the Company and to obtain
necessary  regulatory approvals therefor;  changes in regulations  affecting the
gaming  industry;  the ability of the Company to comply  with the  Indenture  as
supplemented  by the Amendments and Waivers;  future  acquisitions  or strategic
partnerships;  general  business  and  economic  conditions;  and other  factors
described  from time to time in the Company's  reports filed with the Securities
and  Exchange  Commission.  The Company  wishes to caution  readers not to place
undue reliance on any such forward-looking statements, which statements are made
pursuant to the Private  Litigation  Reform Act of 1995 and, as such, speak only
as of the date made.


Results of Operations


Year Ended December 31, 1996 Compared to Year Ended December 31, 1995

     The  Company's  gross  revenues  increased  from $158.4  million in 1995 to
$174.2  million during 1996, an increase of $15.8 million or 10%. The opening of
Country  Casino  adjacent  to Lady  Luck  Rhythm  &  Blues  in  Coahoma  County,
Mississippi, the acquisition of the 147-room River Park in Natchez, Mississippi,
the  opening  of the  casino at the  Company's  joint  venture  with  Bally's in
Robinsonville,  Mississippi,  and  the  opening  of  Lady  Luck  Bettendorf,  in
Bettendorf,  Iowa,  improvements  in its  operations  and income from  leasing a
gaming  vessel and certain  equipment  to Lady Luck  Bettendorf  were  primarily
responsible  for this increase in the Company's  1996 gross  revenues,  over the
prior year.

     Lady Luck Rhythm & Blues  generated  $7.6 million of the Company's  overall
$15.8 million  increase in gross revenues.  A 43% increase in the average number
of slot machines partially offset by a 25% decrease in the average daily net win
per  slot  machine  accounted  for $5.3  million  of Lady  Luck  Rhythm & Blues'
increase in gross revenues. Country Casino, which opened May 21, 1996, increased
the average number of slot machines in operation and decreased the average daily
net win per slot machine significantly.  In addition, increased competition from
the  casinos  in  Tunica,  Mississippi,  during  the  second  half of 1996 had a
significant  adverse  effect on average  daily net win per slot  machine.  These
changes,  when analyzed quarterly,  indicate,  for the first quarter of 1996, an
approximately  consistent  average  daily  net win per slot  machine  while  the
average number of slot machines in operation  increased by 14%; and for the nine
months ended  December  31,  1996, a 52% increase in the average  number of slot
machines in operation  partially  offset by a 30% decrease in the average  daily
net win per slot  machine.  Increases  in food and  beverage,  hotel  and  other
revenues  offset  partially  by a 5% decrease  in table and card games  revenues
accounted for the balance of the increase in gross  revenues at Lady Luck Rhythm
& Blues.

     LLM's gross  revenues  increased $2.4 million in 1996 compared to 1995. LLM
acquired  and took over  operation of the  147-room  Best Western  River Park in
Natchez,  Mississippi  on April 15, 1996.  During the period from April 15, 1996
through  December 31, 1996,  the hotel's  gross room revenues were $1.3 million.
The remainder of LLM's  increase in gross  revenues was primarily from increases
in food and beverage  operations  at the casino in addition to the revenues from
food and beverage sold at the hotel site.

     The Bally's Joint Venture,  which was formed March 31, 1995,  included only
hotel operations until the December 18, 1995 opening of the casino. During 1996,
the Company's equity in net income of unconsolidated affiliates from the Bally's
Joint  Venture  was  $0.7  million,  after  deducting  the  Company's  share  of
pre-opening  expenses of $1.1  million,  a net increase of $1.6 million over the
Company's  $0.9 million equity in net loss of  unconsolidated  affiliates in the
nine months ended December 31, 1995.

     During  1996,  the  Company's  equity  in  net  income  of   unconsolidated
affiliates  from the Bettendorf  Joint Venture was $3.1 million,  an increase of
$3.3  million  over  the   Company's   $0.2  million   equity  in  net  loss  of
unconsolidated  affiliates  in 1995.  The  Company's  $0.2 million loss for 1995
reflects the deduction of the Company's  share of  pre-opening  expenses of $1.2
million upon  commencement of operations on April 21, 1995 and the completion of
the outlet mall later that year. In addition, for the leasing of a gaming vessel
and equipment to the Bettendorf Joint Venture, the Company recognized revenue of
$3.8  million,  a $1.3  million  increase  over  the  $2.5  million  of  revenue
recognized  during the period from  commencement of operations  through December
31, 1995.

     Casino operating expenses as a percentage of casino revenues increased from
36% in 1995 to 39% in 1996, primarily due to the following:  (i) a 1.0% increase
in cash  incentives  to slot  machine  players in relation  to slot  machine net
revenues,  (ii) a 1.3%  increase in the cost of  complimentary  rooms,  food and
beverage furnished to casino customers in relation to casino revenues,  (iii) an
8%  decrease in table and card games net  revenues  and a 3% increase in related
expenses exclusive of complimentaries,  and (iv) an increase in the local gaming
tax rate paid by LLM.

     Food and beverage  gross  revenues  increased from $14.6 million in 1995 to
$16.9  million in 1996,  an  increase  of $2.3  million or 16%,  including a 37%
increase in complimentary food and beverage revenues. This increase was also due
to higher  customer  counts and  additional  outlets  at the Lady Luck  Rhythm &
Blues/Country Casino complex, improvements at Lady Luck Natchez and the addition
of outlets at the River Park, and was offset  partially by changes in outlets at
Lady Luck Biloxi.  Food and beverage costs and expenses,  prior to reclassifying
the cost of  complimentaries,  as a percentage of related revenues declined from
102% for 1995 to 91% for 1996, continuing a trend of lowering costs of sales and
labor expenses as a percentage of food and beverage revenues which was partially
offset by the costs associated with outlet changes at Lady Luck Biloxi.

     Hotel total gross room revenues and operating  results  between periods are
not comparable because ORD's hotel operations,  which commenced August 25, 1994,
were  contributed  to the Bally's  Joint  Venture  effective  March 31, 1995. In
addition,  LLM  purchased  the River Park on April 15, 1996 and MLI acquired the
120-room  Riverbluff in Helena,  Arkansas on July 3, 1996.  Notwithstanding  the
lack of comparability of total gross room revenues, gross room revenues at MLI's
173-room  hotel  adjacent  to Lady  Luck  Rhythm  & Blues  increased  7% in 1996
compared to 1995.

     Despite an increase in selling,  general and  administrative  expenses from
$49.5  million in 1995 to $53.8  million in 1996,  they  remained  constant as a
percentage  of gross  revenues  for both 1995 and 1996 at 31%.  The $4.3 million
increase in expense is primarily due to the  following:  (i) an increase of $2.2
million for marketing  expenses  primarily related to the Country Casino and the
Pavilion,  (ii) $2.1 million for the BRDC Obligation and  Management/License Fee
Overhead  Costs in connection  with,  and,  effective  January 1, 1996,  the New
Marketing  Agreements,(iii) a $1.3 million increase in rent, utilities and other
expenses related to the new Country Casino,  Pavilion, River Park and Riverbluff
operations,  and (iv) $0.2  million  due to  reserving  the cost of  demolishing
certain  pre-existing  structures  at the  Vicksburg  site during  1996,  offset
partially by: (i) a $0.6 million  reduction in fees and costs, from $1.7 million
in 1995 to $1.1 million in 1996,  related to the  solicitation of the amendments
and waivers of continuing  defaults  (the  "Amendments  and Waivers")  under the
Indenture  relating to the First  Mortgage  Notes due 2001 issued by the Company
(the "2001 Notes")  which was  completed in March 1996,  and (ii) a $0.6 million
reduction in development costs due to focusing development efforts.

     Related party  management/license  fees  decreased from $5.5 million during
1995 to $2.3  million  during  1996,  a decrease  of $3.2  million or 58%.  This
decrease was due to the Company  entering into the New  Marketing  Agreements in
replacement of the Old Management Agreements as described above offset partially
by  certain  abatements   totaling  $0.7  million  deducted  in  1996  from  the
management/license  fees the Company received from the Bettendorf Joint Venture.
In  addition,  under  the New  Marketing  Agreements,  the BRDC  Obligation  and
Management/License  Fee  Overhead  Costs  totaling  $2.1 million are included in
selling,  general and administrative  expense for 1996, while, in 1995, the cost
of these items was the  responsibility  of related parties,  wholly-owned by Mr.
Tompkins, pursuant to the Old Management Agreements.

     Operating  income was $26.6  million  and $24.1  million for 1996 and 1995,
respectively. This increase is due to the following: (i) a $5.0 million increase
in equity in net income of unconsolidated affiliates, (ii) reduced related party
management/license   fees,  (iii)  increased  food  and  beverage  revenues  and
operating margins, (iv) consistent selling,  general and administrative expenses
as a percentage  of gross  revenues on an expanded  revenue  base,  and (iv) the
acquisition  of two  additional  hotel  operations,  offset  partially  by:  (i)
increased casino operating expenses as a percentage of casino revenues, and (ii)
a $1.1 million settlement of a claim.

     Interest expense, net of capitalized interest, increased from $20.1 million
in 1995 to $22.2 in 1996,  an increase of $2.1 million or 10%.  This increase is
primarily  attributable  to a 1 3/8%  increase in the interest  rate on the 2001
Notes offset  partially by a $6.5 million  higher  balance  outstanding  of 2001
Notes for a portion of 1995.

     The net income applicable to common  stockholders was $5.1 million or $0.18
per share in 1995 compared with net income applicable to common  stockholders of
$4.4 million or $0.15 per share for 1996.  This  decrease was  primarily  due to
increases in interest  expense and preferred stock dividends offset partially by
increased  operating  income  as  described  above.  In  addition,   net  income
applicable to common  stockholders for 1995 also included an extraordinary  gain
of $2.3  million or $0.08 per share  resulting  from an exchange of common stock
for indebtedness.


Year Ended December 31, 1995 Compared to Year Ended December 31, 1994

     The Company's  gross  revenues  rose from $125.1  million in 1994 to $158.4
million in 1995, a 27% increase. The increase in gross revenues of $33.3 million
is primarily  from the  operations  of Lady Luck Rhythm & Blues which  generated
$87.6 million in gross  revenues for 1995, an increase of $50.6 million over the
$37.0 million generated by Lady Luck Rhythm & Blues during 1994 after its casino
opened on June 27,  1994,  offset  partially  by Lady Luck  Tunica  which had no
revenues in 1995, but which  generated  $11.1 million in gross  revenues  during
1994, and by an $8.4 million  reduction in gross revenues from Lady Luck Natchez
during  1995 as compared  to the same  period in 1994.  During the eight  months
ended  December  31,  1995,  the Company  also  recognized  lease income of $2.5
million for the lease of a gaming vessel and equipment to the  Bettendorf  Joint
Venture.

     Casino revenues increased from $109.8 million during 1994 to $138.4 million
in 1995, an increase of $28.6  million or 26%.  Casino  operating  expenses as a
percentage of casino revenues declined from 38% in 1994 to 36% in 1995.

     Food and beverage  revenues  increased  from $12.8 million in 1994 to $14.6
million in 1995, an increase of $1.8 million or 14%.

     Hotel  operations  results between periods are not comparable  because Lady
Luck Rhythm & Blues which  commenced  hotel  operations  August 7, 1994 had less
than five  months of  operations  in 1994  compared  to a full year in 1995.  In
addition,  ORD's  hotel  operations,  which  commenced  August  25,  1994,  were
contributed to the Bally's Joint Venture effective March 31, 1995.

     Selling,  general and administrative  expenses decreased from $51.9 million
in 1994, to $49.5 million in 1995. Moreover,  as a percentage of gross revenues,
selling,  general and administrative  expenses decreased from 41% in 1994 to 31%
in 1995, or 10 percentage points. This decrease is primarily attributable to the
unusually high selling,  general and administrative  expenses as a percentage of
net  revenues for Lady Luck Tunica in 1994,  due to its closing  April 24, 1994,
and also due to  implementation  of steps,  during  1995,  to  reduce  corporate
overhead costs and focus development efforts on those projects which the Company
believes have the highest  probability  of success.  Also,  included in selling,
general and  administrative  expenses in 1995 are expenses of approximately $1.7
million in connection with the solicitation of the Amendments and Waivers.

     During  1995,  the Company  recorded  equity in net loss of  unconsolidated
affiliates of $1.1 million of which  approximately  $0.2 million  relates to the
Company's 50% ownership  interest in the  Bettendorf  Joint Venture and of which
approximately  $0.9 million  relates to the Company's 35% ownership  interest in
the Bally's Joint Venture. Included in the Company's portion of Bettendorf's net
loss is a one time pre-opening expense of $1.2 million.

     Operating  income (loss) was $24.1 million and ($22.6) million for 1995 and
1994,  respectively.  This  increase  was a result of a net revenue  increase of
$32.4 million period over period while expenses decreased $14.2 million.

     Interest expense, net of capitalized interest, increased from $16.9 million
in 1994 to  $20.1  million  in 1995.  The $3.2  million  increase  is  primarily
attributable  to the  additional  long  term debt  incurred  by the  Company  in
February  1994 and to a decrease in 1995 in the amount of  interest  capitalized
from $2.4 million to $0.8 million in 1994 and 1995, respectively,  a decrease of
$1.6 million or 67%, due to less construction activity during 1995.

     The net income applicable to common  stockholders was $5.1 million or $0.18
per share in 1995 compared with a loss applicable  common  stockholders of $37.1
million or $1.47 per share for the same period in 1994. In addition to operating
and other  factors  described  above,  the  Company  had $0.5  million and $15.6
million of one-time charges in 1995 and 1994,  respectively,  for the reserve or
partial reserve of development  assets associated with projects that the Company
did not expect to complete in the near future.  In 1994, the Company also had an
abandonment  loss related to ceasing  operations in Tunica of $9.3 million.  Net
income for 1995 and 1994 also  include  extraordinary  gains of $2.3 million and
$1.1  million,  respectively,  resulting  from  exchanges  of  common  stock for
indebtedness.


      Certain Risks and Uncertainties

     The Company's operations in Mississippi, Iowa and Colorado are dependent on
the continued licensability or qualification of the Company and its subsidiaries
that  hold the  gaming  licenses  in these  jurisdictions.  Such  licensing  and
qualifications  are reviewed  periodically  by the gaming  authorities  in those
states.  In  addition,  the  Company's  directors  and many of the  employees of
casinos are required to obtain  gaming  licenses.  The failure of the Company or
any of its  key  personnel  to  obtain  or  retain  a  license  in a  particular
jurisdiction  could have a material  adverse effect on the Company's  ability to
continue its current gaming  operations or to obtain or retain licenses in other
jurisdictions.  In addition,  any regulations adopted by the gaming commissions,
the   legislatures  or  any  governmental   authority  having   jurisdiction  in
Mississippi,  Colorado,  Missouri,  Iowa,  or other  jurisdictions  in which the
Company has or intends to have gaming operations may materially adversely affect
the Company's operations.

     Mississippi  Gaming  Commission  regulations  require  licensees  to invest
certain  minimum  amounts  in  land-based,   non-  gaming   infrastructure  (the
"Land-Based   Requirement").   While  the  Mississippi  Gaming  Commission  (the
"Commission")  previously  expressed  concern as to whether LLB is in compliance
with such requirements,  the Commission found,  subsequent to December 31, 1996,
that LLB did in fact comply with the Land-Based Requirement.

     A significant portion of the Company's  consolidated revenues and operating
income are generated by the Company's  Rhythm & Blues and Country  Casino gaming
operations in Coahoma County, Mississippi. These casinos are highly dependent on
patronage by residents of Arkansas.  A change in general economic  conditions or
the extent and nature of  regulations  enabling  casino gaming in Arkansas could
adversely effect these casinos' future operating results. In Arkansas,  a gaming
referendum,  which, if passed,  would have legalized  certain forms of gaming at
certain  locations,  was defeated in November  1996. If gaming were legalized in
certain  areas of  Arkansas,  it could  have a  material  adverse  effect on the
Company's Coahoma County facilities and the Bally's Saloon and Gambling Hall.

     The Company believes that its gaming markets are extremely  competitive and
expects them to become even more  competitive  as the number of gaming and other
entertainment establishments increases. Such competition is particularly intense
in the  Colorado and  Mississippi  markets and the Company  also  competes  with
gaming  facilities  nationwide.  It is also possible that substantial  local and
nationwide competition could cause the supply of gaming facilities to exceed the
demand for gaming. Additionally,  certain of the Company's competitors have more
gaming industry experience, larger operations or significantly greater financial
and other  resources  than the Company.  Given these factors it is possible that
substantial  competition  could have a material  adverse effect on the Company's
future results of operations.

     The Company is highly  leveraged.  As of December 31, 1996,  the  Company's
total  long-term   indebtedness  was   approximately   $181.1  million  and  its
stockholders' equity was approximately $6.3 million.  This level of indebtedness
could have important consequences to stockholders. While management believes the
Company will have  sufficient  cash flow to meet its debt service and other cash
outflow requirements and maintain compliance with the covenants of the Indenture
as supplemented,  to the extent that a substantial portion of the Company's cash
flow from  operations  is dedicated to the payment of principal  and interest on
its indebtedness,  such cash flow would not be available for other purposes such
as  general  operations,   maintenance  and  improvement  of  casino  and  hotel
facilities  or  expansion  of  existing  sites  or into  other  gaming  markets.
Furthermore,  the Company's ability to obtain additional financing in the future
for working capital, capital expenditures or acquisitions may be limited and the
Company's level of indebtedness  could limit its flexibility in planning for, or
reacting to, changes in its industry.

     The  Company  currently  estimates  that  it  will  cost  approximately  an
additional $72.0 million to complete  development of the first two phases of the
Missouri Project and an additional $47.9 million to complete  development of the
Vicksburg  Project.  The  Company  has  entered  into an  Agreement  of  General
Partnership for a joint venture with Davis Gaming Company II with respect to the
Missouri Project which would reduce the Company's future capital  commitments to
zero with respect to such project.  However,  there can be no assurance that the
Kimmswick Joint Venture will be consummated. In addition, Davis has entered into
a gaming joint  venture with another party in Missouri.  If the Kimmswick  Joint
Venture is not  consummated,  there can be no assurance that the Company will be
able to continue to implement its business  strategy with regard to the Missouri
Project.  The Company has ceased  committing  material amounts of capital to the
Vicksburg  Project and is actively seeking joint venture partners to finance its
completion.  See  "Business -  Development  Stage  Projects."  Rising  costs and
capital  constraints  have forced the Company to seek joint venture  partners to
complete  the  development  of the  Development  Stage  Projects and may further
suspend or delay certain projects, including the Pre-development Stage Projects.
The Company believes that, unless it is able to raise additional capital through
equipment  or  bank  financing,  joint  venture  arrangements,  dispositions  of
non-essential  assets,  or issuances of  additional  debt or equity  securities,
while simultaneously  reducing expenses,  it will not be able to complete any of
the  Development  Stage  Projects or pursue  further the  Pre-development  Stage
Projects. There can be no assurance that additional capital, whether from equity
or debt financing or other sources, will be available, or if available,  will be
on terms satisfactory to the Company.

     Long-lived assets,  which are not to be disposed of, including property and
equipment,   are  reviewed  for  impairment   whenever   events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of the  asset  may  not be
recoverable. An estimate of undiscounted future cash flows produced by the asset
is compared to the carrying amount to determine whether an impairment exists. If
an asset is  determined  to be  impaired,  the loss is measured  based on quoted
market prices in active markets,  if available.  If quoted market prices are not
available,  the  estimate  of  fair  value  is  based  on the  best  information
available,  including  considering  prices for similar assets and the results of
valuation techniques to the extent available.

     The Company has evaluated the  recoverability of LLB's and GCI's long-lived
assets as of December 31, 1996 pursuant to Financial  Accounting Standards Board
Statement  No. 121. In  performing  its review for  recoverability,  the Company
compared the estimated  undiscounted  future cash flows to the carrying value of
LLB's  and  GCI's  long-lived  assets.  The  carrying  value of LLB's  and GCI's
long-lived assets were $33.3 million and $9.7 million, respectively, at December
31, 1996. As the estimated  undiscounted future cash flows exceeded the carrying
value of  long-lived  assets,  the  Company  was not  permitted  or  required to
recognize an impairment loss.  Circumstances affecting management's estimates of
future  undiscounted  cash flow to be  generated  by LLB and GCI could differ in
future periods and result in a significant write-down.

<PAGE>
Operating Casinos

     None of the Company's  subsidiaries that are registrants  hereunder,  other
than the  companies  for  which  results  of  operations  are set  forth  below,
currently  has any  operations.  Amounts  shown in the  following  tables are in
millions, except percentage amounts.

     LLGC manages and charges fees to its  wholly-owned  operating  subsidiaries
with  substantially  the same terms as the Old Management  Agreements with LLCI.
LLGC does not  separately  allocate the fees under the New Marketing  Agreement,
certain selling general and administrative  expenses,  rent for corporate office
facilities and certain services with respect to such corporate office facilities
and the salary of the  Chairman of the Board of the Company  that were  formerly
included under the Old Management  Agreements (all capitalized terms are defined
below).

<TABLE>
<CAPTION>

      Lady Luck Rhythm & Blues (a)
<S>                                                   <C>          <C>          <C>         <C>            <C>

                                                                                            % Increase     % Increase
                                                                                            (Decrease)     (Decrease)
                                                         Year ended December 31,              1996 vs.       1995 vs.
                                                        1996         1995         1994          1995           1994

                  Gross revenues...................   $ 95.2       $ 87.6       $ 37.0            9             137
                  Net revenues.....................     88.9         83.1         34.7            7             139
                  Management fee...................      3.1          3.1          0.7            -             343
                  Operating income.................     22.9         27.5          7.8          (17)            253
                  Operating margin (b).............      26%          33%          22%           (7) pts         11 pts

</TABLE>

____________________

     (a) MLI commenced operations June 27, 1994; therefore, a comparison of 1995
to 1994 may not be  meaningful.  In  addition,  Country  Casino and the Pavilion
opened  May 21,  1996,  therefore,  a  comparison  of  1996  to 1995  may not be
meaningful.

     (b) Operating income divided by net revenues
____________________


     Year ended December 31, 1996 compared to Year ended December 31, 1995

     MLI's gross  revenues rose from $87.6 million  during 1995 to $95.2 million
during 1996,  an increase of $7.6 million or 9%. Slot  machines  generated  $5.3
million  of this  increase.  Increases  in food and  beverage,  hotel  and other
revenues  offset  partially  by a 5% decrease  in table and card games  revenues
accounted for the balance of the increase in gross revenues at MLI.

     There was a 43% increase in the average  number of slot  machines from 1995
to 1996 which was  partially  offset by a 25% decrease in the average  daily net
win per slot machine.  During 1996, MLI operated an average number of 1,141 slot
machines,  an increase of 344 over the 797  average  number of slot  machines in
operation  during 1995. This increase was partially  offset by a $55 decrease in
the average  daily net win per slot machine from $224 during 1995 to $169 during
1996.  This  decrease  in the  average  daily net win per slot  machine  for the
comparative  years occurred  during the last three quarters as the average daily
net win per slot machine was approximately constant during the comparative first
quarter  periods  even though the average  number of slot  machines in operation
during the comparative first quarters increased 14%.

     Despite  only a 2  percentage  point  decrease  in  the  table  games  hold
percentage  and an increase in the average number of tables in operation from 32
during 1995 to 43 during  1996,  table games  revenues  decreased  9%  primarily
because the average daily net win per table game  decreased from $1,186 to $820,
a decrease of $366 or 31%.

     MLI's operating income decreased from $27.5 million to $22.9 million during
1995 and 1996, respectively, a decrease of $4.6 million or 17%. Operating income
decreased  despite an increase in gross and net  revenues  due  primarily to the
following:  (i) disruption  attributable  to  construction,  (ii) a $4.5 million
increase  in selling,  general  and  administrative  expenses  including  casino
marketing,  rent and other expenses, and (iii) $0.2 million of other pre-opening
expenses for the opening of Country Casino and the Pavilion.


     Year ended December 31, 1995 compared to Year ended December 31, 1994

     MLI's gross  revenues rose from $37.0  million to $87.6 million  during the
approximately  six month and one year periods ended  December 31, 1994 and 1995,
respectively,  an  increase  of $50.6  million or 137%.  The  increase  in gross
revenues was  primarily  from a full year of  operations  in 1995  compared with
approximately  six months of operations  in 1994 and also from  increases in the
number of slot machines and daily win per slot machine.

     During the year ended December 31, 1995, MLI generated an average daily net
win per slot  machine of $224  compared  with an average  daily net win per slot
machine of $205 during the  approximately six months ended December 31, 1994, an
increase of $19 daily per slot or 9%. This increase in average daily net win per
slot  machine was  achieved  despite an  increase in the average  number of slot
machines in operation for those periods.  The average number of slot machines in
operation  increased  from 675 during the  approximately  six month period ended
December 31, 1994 to 797 during the year ended December 31, 1995, an increase of
122 in average slot machines or 18%.

     Furthermore,  MLI's operating  income  increased from $7.8 million to $27.5
million during the  approximately  six month and one year periods ended December
31, 1994 and 1995, respectively, an increase of $19.7 million or 253%. Operating
income was higher  primarily  due to a full year of operation  in 1995  compared
with  approximately six months of operations in 1994 and also from a decrease in
selling,  general and administrative  expenses in relation to gross revenues and
the absence of pre-opening expense in 1995.


Other factors

     Additional  casino  and  hotel  capacity  has  been  added  to the  Tunica,
Mississippi  market,  which  competition  the  Company  believes  has  adversely
affected  revenues and  operating  results at MLI, the extent,  materiality  and
permanence of which are not presently known.

     MLI's casinos are highly dependent on patronage by residents in Arkansas. A
change in general  economic  conditions or the extent and nature of  regulations
enabling  casino  gaming in Arkansas  could  materially  adversely  affect these
casinos' future operating results. In Arkansas,  a gaming referendum,  which, if
passed,  would have legalized certain forms of gaming at certain locations,  was
defeated in  November of 1996.  If gaming  were  legalized  in certain  areas of
Arkansas,  it could  have a material  adverse  effect on the  Company's  Coahoma
County facilities and the Bally's Saloon and Gambling Hall.

                                                                 29
<PAGE>
<TABLE>
<CAPTION>

Lady Luck Natchez
<S>                                         <C>        <C>          <C>        <C>            <C>

                                                                               % Increase     % Increase
                                                                               (Decrease)     (Decrease)
                                               Year ended December 31,           1996 vs.      1995 vs.
                                             1996       1995         1994         1995           1994

                  Gross revenues..........  $33.3      $30.9        $39.3            8           (21)
                  Net revenues............   30.4       29.0         36.9            5           (21)
                  Management fee..........    1.1        1.1          0.8            -            38
                  Operating income........    4.4        5.7         11.4          (23)          (50)
                  Operating margin (a)....     14%        20%          31%          (6)pts       (11)pts

</TABLE>

____________________

     (a) Operating income divided by net revenues
____________________


     Since the fall of 1993, four casinos have opened in Vicksburg, Mississippi,
approximately  75 miles from  Natchez;  a Native  American  gaming  facility has
opened in  Louisiana  within 60 miles of  Natchez;  and two  cruising  riverboat
casinos  have  opened in Baton  Rouge,  Louisiana,  approximately  85 miles from
Natchez.  As  competition  has  intensified,  revenues,  cash flow and operating
income of LLM have been less than that attained in prior periods.


     Year ended December 31, 1996 compared to Year ended December 31, 1995

     LLM's gross  revenues  increased from $30.9 million to $33.3 million during
1995 and 1996,  respectively,  an increase of $2.4  million or 8%. The  increase
resulted from an increase in slot machine and food and beverage revenues and the
addition  of hotel  revenues  offset  partially  by a  decrease  in table  games
revenues.

     During these  comparative  periods,  the average number of slot machines in
operation  increased  from 537 to 584, an increase of 47, or 9%. The decrease in
the table games  revenues was primarily due to the average number of table games
in operation  during 1995 and 1996,  respectively,  decreasing  from 19 to 17, a
decrease  of 11%.  During the period from April 15, 1996  through  December  31,
1996, the hotel's gross room revenues were $1.3 million.

     During  1996,  LLM had  operating  income  of $4.4  million  compared  with
operating  income of $5.7 million for the prior year, a $1.3 million decrease or
23%.


     Year ended December 31, 1995 compared to Year ended December 31, 1994

     LLM's gross  revenues  decreased from $39.3 million to $30.9 million during
the years ended  December  31, 1994 and 1995,  respectively,  a decrease of $8.4
million or 21%. The decrease was from declines in average daily net win per slot
machine and per table game. During these comparative periods,  average daily net
win per slot machine  decreased from $140 to $116, a decrease of $24 or 17%, and
average net daily win per table game  decreased  from $1,016 to $764, a decrease
of $252 or 25%.

     However,  the decline in gross revenues appears to have ceased as evidenced
by a decrease in gross  revenues from $15.9 million to $15.8 million  during the
six month periods ended December 31, 1994 and 1995, respectively,  a decrease of
only $0.1 million or 1%.

     During the year ended December 31, 1994, LLM had operating  income of $11.4
million  compared  with  operating  income of $5.7  million  for the year  ended
December 31, 1995, a $5.7 million  decrease or 50%.  This  decrease is primarily
due to  operating  expenses  decreasing  approximately  9%  while  net  revenues
declined  approximately  21%  because LLM  experienced  lower  casino  operating
margins.


Other factors

     The  Company  believes  the  purchase  of the River  Park in April 1996 has
enhanced casino  marketing  efforts at Lady Luck Natchez by enabling it to offer
casino customers rooms at a Company operated hotel facility.

     While other gaming projects have been announced in the Natchez market, none
are being  developed at this time. If additional  gaming projects were developed
in the Natchez market, LLM could be materially adversely affected.

     If the Company  develops its Vicksburg  Project,  the Company believes that
the revenues of LLM would not be materially  adversely affected but, rather, the
revenues  for the  Vicksburg  Project  would  be taken  from  the four  existing
Vicksburg casinos.



<PAGE>
<TABLE>
<CAPTION>

Lady Luck Bettendorf (a)
<S>                                                <C>               <C>                    <C>

                                                                                            % Increase
                                                    Year ended       Period ended           (Decrease)
                                                   December 31,      December 31,            1996 vs.
                                                       1996             1995                   1995

                  Gross revenues    .............     $68.5            $38.1                     80
                  Net revenues...................      65.2             36.5                     79
                  Management fee.................       1.6              0.8                    100
                  Operating income (loss)........       6.4             (0.1)                 6,500
                  Operating margin (b)...........         10%              0%                    10 pts
</TABLE>

_____________________

     (a) Lady Luck Bettendorf opened April 21, 1995.  Accordingly,  a comparison
of 1996 to 1995 may not be  meaningful.  Lady  Luck  Bettendorf  is 50% owned by
LLQC.  The  Company  includes  50% of its net  income as equity in net income of
affiliates using the equity method of accounting.

     (b) Operating income divided by net revenues.
____________________


     Year ended December 31, 1996 compared to Period ended December 31, 1995

     The Bettendorf  Joint  Venture's  gross revenues rose from $38.1 million to
$68.5 million  during the  approximately  eight month and one year periods ended
December 31, 1995 and 1996,  respectively,  an increase of $30.4 million or 80%.
This  increase in gross  revenues was due to a full year of  operations  in 1996
compared with approximately eight months of operations in 1995, increases in the
average  number of slot machines in operation and the average daily win per slot
machine, and increases in food and beverage revenues.

     The Bettendorf  Joint Venture has generated a steadily  increasing  average
daily  net win per  slot  machine.  During  1995,the  Bettendorf  Joint  Venture
generated  average  daily net win per slot  machine of $141  compared to average
daily net win per slot  machine of $173 for 1996,  a $32  increase or 23%.  This
increase in average  daily net win per slot  machine was  achieved  despite a 5%
increase in the average number of slot machines. For 1996, average daily net win
per table was $717 machine,  which was a $136 decrease, or 16%, from the average
daily net win per table of $853 achieved in 1995.  This was partially  offset by
the 9% increase in the average number of table games.

     Included  in  operating  income for 1995 are  preopening  expenses  of $2.5
million  related to the property's  opening on April 21, 1995 and the completion
of the outlet mall later that year.





<PAGE>
<TABLE>
<CAPTION>

Lady Luck Biloxi


<S>                                              <C>         <C>         <C>            <C>               <C>

                                                                                        % Increase        % Increase
                                                                                        (Decrease)        (Decrease)
                                                    Year ended December 31,               1996 vs.         1995 vs.
                                                   1996       1995        1994               1995             1994

                  Gross revenues...............   $31.5      $31.0       $28.6                 2               8
                  Net revenues.................    28.7       29.1        26.3                (1)             11
                  Management fee...............     1.1        1.1         0.6                 -              83
                  Operating (loss).............    (1.1)      (1.4)       (4.3)               21              67
                  Operating margin (a).........     (4)%        (5)%       (16)%               1 pt           11 pts
</TABLE>

____________________

     (a) Operating income divided by net revenues
____________________


     Year ended December 31, 1996 compared to Year ended December 31, 1995

     During 1995 and 1996, total gross revenues  increased from $31.0 million to
$31.5  million.  Slot machine  revenues  increased  $1.9 million;  however,  the
increase was partially offset by a $0.5 million decrease in table games revenues
and a $0.8 million decrease in food and beverage revenues.

     This increase in slot revenues was due to an increase in the average number
of slot machines in operation  during these  comparative  years which  increased
from 590 to 630, an  increase  of 40 or 7% and an increase in the average  daily
net win per slot  machine from $89 to $92, an increase of $3 or 3%. The decrease
in table games revenues during these  comparative  periods was due to a decrease
in the average number of table games in operation from 26 to 23, a decrease of 3
or 12% and was partially  offset by an increase in the average daily net win per
table  game  from  $604 to $610,  an  increase  of $6 or 1%.  Food and  beverage
revenues  decreased due to changes in the outlets and a temporary closing of one
outlet during remodeling.

     LLB's operating loss improved from $1.4 million to $1.1 million in 1995 and
1996,  respectively.  The  improvement  was  primarily  due to reduced  selling,
general and administrative expenses.

     Year ended December 31, 1995 compared to Year ended December 31, 1994

     LLB's gross  revenues  increased from $28.6 million to $31.0 million during
the years ended  December 31, 1994 and 1995,  respectively,  an increase of $2.4
million or 8%. The increase was primarily  from an increase in average daily net
win per slot machine.  During these comparative  periods,  average daily net win
per slot  machine  increased  from $76 to $89, an increase of $13 or 17%,  which
more than offset the effect of decreasing the average number of slot machines in
operation for these comparative periods from 614 to 590, a decrease of 24 or 4%.

     This increase in gross revenues  primarily  occurred during the comparative
six month periods ended  December 31, 1994 and 1995, as evidenced by an increase
in gross  revenues  from $13.2 million to $16.1  million  during these  periods,
respectively,  an increase of $2.9 million or 22%.  This  increase was primarily
from an increase in average  daily net win per slot  machine from $70 to $95, an
increase of $25 or 36%, during these comparative periods.

     LLB's  operating  loss decreased from a $4.3 million loss to a $1.4 million
loss during the years ended December 31, 1994 and 1995, respectively, a decrease
in loss of $2.9  million or 67%.  This  decrease  in  operating  loss  primarily
occurred  during the  comparative  six month periods ended December 31, 1994 and
1995. LLB had a $3.3 million  operating  loss and a $0.6 million  operating loss
during the six month periods ended December 31, 1994 and 1995, respectively,  an
improvement of $2.7 million.  These comparative  improvements were primarily due
to improved operating margins in the casino department and decreases in selling,
general and administrative expenses in relation to net revenues.


Other factors

     Additional  hotel  capacity  has been added in close  proximity  to LLB and
additional casino and hotel capacity are currently under construction in Biloxi.
The Company  believes the Gulf Coast gaming market will remain at least constant
in the near term and that the  long-term  effects on LLB's results of operations
are not presently known.



<PAGE>
<TABLE>
<CAPTION>

Lady Luck Central City
<S>               <C>                                   <C>          <C>          <C>       <C>               <C>

                                                                                            % Increase        % Increase
                                                                                            (Decrease)        (Decrease)
                                                           Year ended December 31,           1996 vs.          1995 vs.
                                                        1996         1995         1994         1995              1994
                  Gross revenues...................     $6.5         $6.9         $8.3           (6)              (17)
                  Net revenues.....................      6.1          6.4          8.3           (5)              (23)
                  Management fee...................      0.2          0.3          0.2          (33)               50
                  Operating (loss).................     (1.2)        (1.2)        (0.4)           -              (200)
                  Operating margin (a).............      (20)%        (19)%         (5)%         (1)pt            (14)pts
</TABLE>

____________________

     (a) Operating income divided by net revenues.
____________________


     Year ended December 31, 1996 compared to Year ended December 31, 1995

     GCI's gross  revenues  decreased  from $6.9 million to $6.5 million  during
1995 and 1996, respectively, a decrease of $0.4 million or 6%.

     The  decrease  was due to declines in slot  revenues  from  decreasing  the
average  number  of  slot  machines  in  operation  from  341 to 294  for  these
comparative periods.  These machines were relocated,  primarily in June 1995, to
other  operating  properties with higher average daily net wins per slot machine
or  operating  margins.  This  decrease was  partially  offset by an increase in
average  daily net win per slot machine from $45 to $50 for 1996, an increase of
$5 or 11%.

     Year ended December 31, 1995 compared to Year ended December 31, 1994

     GCI's gross revenues decreased from $8.3 million to $6.9 million during the
years ended December 31, 1994 and 1995, respectively, a decrease of $1.4 million
or 17%.

     The  decrease  was due to declines in slot  revenues  from  decreasing  the
average  number of slot machines in operation from 400 to 341 in the years ended
December 31, 1994 and 1995, respectively,  a decrease of 59 or 15%. In addition,
for the year ended December 31, 1994, GCI generated an average daily net win per
slot machine of approximately  $44 as compared with an average daily net win per
slot machine of  approximately  $45 for the year ended  December  31,  1995,  an
increase of $1 daily per slot machine or 2%. This  increase in average daily net
win per slot machine did not offset the decrease in slot  revenues  arising from
decreasing the average number of slot machines in operation. These machines were
relocated  primarily  in June 1995 to other  operating  properties  with  higher
average daily net win per slot machine or operating margins.


Other factors

     During  November 1996,  GCI entered into the  non-binding  Memorandum  with
Bullwhackers.  The  Memorandum  provides  for a  combination  of the  respective
companies'  gaming  establishments  which  currently  operate on  adjacent  real
property in Central City, Colorado and the use of, but not the title transfer or
assumption of debt related to, the assets of GCI and  Bullwhackers.  Pursuant to
the Memorandum, Bullwhackers shall provide resources and expertise to manage the
joint operation  subsequent to the completion of certain capital improvements to
be made by GCI to combine the  facilities  and improve  GCI's gaming  equipment,
which capital improvements shall in no event exceed $1.5 million. The Memorandum
provides for  distributions  to be made at least  quarterly in  accordance  with
certain priorities which first recognize the capital  improvements to be made by
GCI.  The  Memorandum   provides  GCI  an  option  to  purchase  the  assets  of
Bullwhackers  and  Bullwhackers  an option to  purchase  the  assets of GCI upon
advance written notice after the joint facility commences gaming operations.  In
addition,  the  Memorandum  provides a put option for  Bullwhackers  to sell its
assets to GCI under similar terms. The option price shall be determined based on
carrying amounts or earnings multiples and shall be at discounted amounts if the
sale  is  within  a  certain  period  and  shall  be  in  exchange  for  certain
consideration,   a  portion  of  which  may  include  LLGC  common  stock.   The
transactions contemplated by the Memorandum are subject to various contingencies
including,   inter  alia,  the  due  diligence  investigation  of  the  parties,
governmental  approvals,  approval  by  the  Boards  of  Directors  of  GCI  and
Bullwhackers,  and the  negotiation  and  execution  of  definitive  agreements.
However,  no  assurance  can  be  provided  that  these  contingencies  will  be
satisfied.

     Additional  casinos  developed in the Central  City or  competing  Colorado
gaming markets or changes in the Colorado gaming legislation may have a material
adverse effect on the net revenues and operating results of GCI.


Liquidity and Capital Resources

     During 1996, the Company  generated $13.5 million in cash from  operations.
Additional  sources  of cash were $8.9  million  of  restricted  cash,  and $3.0
million of cash and cash equivalents related to the Greek projects, which became
available for specified uses upon consent from a sufficient number of holders of
the 2001 Notes.  Cash flow from operations,  restricted cash and cash on hand at
the  beginning  of the year were the primary  sources of cash during  1996.  The
primary uses of cash and non- cash resources  during 1996,  other than operating
expenditures, include:

A.   $21.5  million cash for the purchase of property and  equipment,  including
     approximately  $18.0  million to complete  construction  and equip  Country
     Casino and the Pavilion, $4.0 million for the acquisition of the River Park
     comprising $1.0 million cash and a mortgage note for the balance,  and $1.0
     million for the acquisition of the Riverbluff  comprising $0.6 million cash
     and a mortgage  note for the  balance.  Also  included  are portions of the
     costs of remodeling Lady Luck Natchez,  the Riverbluff and a portion of the
     River Park.

B.  $5.4 million cash for payment of debt and slot contracts.

C.   $3.8  million for the  acquisition  of slot  machines  and other  assets by
     certain subsidiaries in exchange for indebtedness.

     GCI did not generate positive  operating cash flow during 1996. Due to debt
service  requirements  on an  equipment  note payable and a mortgage  note,  GCI
required  cash  infusions  of $1.1  million  during 1996 and,  during  1997,  is
expected to require  additional  cash  infusions  to cover up to $0.7 million of
scheduled repayments on an equipment note payable and anticipated operating cash
shortfalls.

     During  November 1996, GCI entered into the Memorandum  with  Bullwhackers.
Pursuant to the Memorandum, certain capital improvements would be made by GCI to
combine the GCI and Bullwhackers  facilities and improve GCI's gaming equipment,
which capital improvements shall in no event exceed $1.5 million. The Memorandum
provides  for  distributions  to be made  quarterly in  accordance  with certain
priorities which first recognize the capital improvements to be made by GCI. The
Memorandum  provides  GCI an option to purchase the assets of  Bullwhackers  and
Bullwhackers an option to purchase the assets of GCI upon advance written notice
after the joint facility commences gaming operations in addition to a put option
for Bullwhackers to sell its assets to GCI under similar terms. The transactions
contemplated by the Memorandum are subject to various  contingencies  including,
inter  alia,  the  due  diligence  investigation  of the  parties,  governmental
approvals, approval by the Boards of Directors of GCI and Bullwhackers,  and the
negotiation  and execution of definitive  agreements.  There can be no assurance
that these contingencies will be satisfied.

     The Company is remodeling  portions of the River Park and will be expending
approximately  $0.2 million in 1997 in addition to amounts expended during 1996.
The remodeling  includes  replacement of certain  furniture and equipment and is
expected to be completed during the first half of 1997.

     Various  other  amounts of cash and other  non-cash  resources  may be used
during 1997 for capital  improvements,  expansions or acquisitions  which cannot
currently be estimated and may be contingent  upon market  conditions  and other
factors.  If significant cash or other resources become  available,  the Company
may make  additional  capital  expenditures  related  to the Lady Luck  Rhythm &
Blues,  Lady Luck  Natchez,  Lady Luck  Biloxi and other  capital  acquisitions,
improvements,  or  expansions  which cannot  currently  be estimated  and may be
contingent  upon  market  conditions  and the amount of excess  cash or non-cash
resources  available,  if any. Capital  expenditures at Lady Luck Rhythm & Blues
could include  additional  hotel rooms and signage.  In any case,  the amount of
such  capital  expenditures  will  be  based  upon  cash  available  and  market
conditions at the time any commitment is made.

     The  Company  may also  repurchase  2001  Notes  from time to time in early
satisfaction of any repurchase expected pursuant to the Indenture, the amount of
which  and the  timing  of  repurchase  cannot  currently  be  estimated  and is
dependent on excess cash flow and market conditions.

     The  Company  has  entered  into an  agreement  for the  construction  of a
cruising  gaming  vessel in the amount of $16.0  million and as of December  31,
1996,  approximately  $6.0  million  has  been  expended  under  this  contract,
approximately  $1.9  million of which is  included in  construction  payables at
December 31, 1996.  It is  anticipated  that this vessel will be utilized by LLK
and,  therefore,  the Missouri  Project will be  responsible  for payment of the
remaining amounts under the contract.  However, if the Missouri Project is never
consummated the Company may be responsible for the then outstanding obligations.

     No further  significant  expenditures  for projects under  development  are
anticipated  from  existing  cash or cash flow from  operations.  If the Company
determines it needs additional funds, there can be no assurance that such funds,
whether from equity or debt financing or other sources, will be available, or if
available, will be on terms satisfactory to the Company.

     LLGC has been named as a defendant in a purported  shareholder class action
lawsuit alleging violations by the Company of the Securities Act of 1933 and the
Securities  Exchange  Act of 1934 for alleged  material  misrepresentations  and
omissions in connection  with LLGC's 1993 prospectus and initial public offering
of Common Stock. The complaint seeks, inter alia, injunctive relief,  rescission
and unspecified  compensatory  damages.  In addition to LLGC, the complaint also
names as defendants Andrew H. Tompkins,  Chairman and Chief Executive Officer of
LLGC,  Alain  Uboldi,  Director  and Chief  Operating  Officer of LLGC,  Michael
Hlavsa, the former Chief Financial Officer of LLGC, Bear Stearns & Co., Inc. and
Oppenheimer & Co., Inc., who acted as lead  underwriters  for the initial public
offering.  The Company has retained  outside counsel to respond to the complaint
and while the outcome of this matter cannot presently be determined, the Company
believes based in part on advice of counsel, that it has meritorious defenses.

     The Company and certain of its joint venture  partners  (the  "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism  before  the Greek  Multi-Member  Court of First  Instance.  The  action
alleges that the Defendants  failed to make certain  payments in connection with
the gaming license bid process for Patras,  Greece.  The payments the Company is
alleged  to have been  required  to make  aggregate  approximately  2.1  billion
drachma  (which was  approximately  $7.8  million as of March 5, 1997 based upon
published  exchange  rates).  Although it is difficult to determine  the damages
being sought from the lawsuit,  the action may seek damages up to such aggregate
amount. The Company's Greek counsel is defending the lawsuit and in management's
opinion, the ultimate outcome of this matter is not presently known.

     Also, a Greek architect  filed an action against the Company  alleging that
he was retained by the Company to provide professional  services with respect to
a casino in Loutraki,  Greece.  The plaintiff in such action  sought  damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter.  The Greek
Court entered judgement against the Company in the amount of approximately  87.1
million  drachma (which was  approximately  $325,000 as of March 5, 1997,  based
upon  published  exchange  rates).  The  Company  intends to appeal the  Court's
decision  and has been  informed by its Greek  counsel  that it has  meritorious
grounds to prosecute such appeal.

     On November 5, 1996,  the United States  Bankruptcy  Court for the Northern
District of  Mississippi  dismissed a lawsuit which had been brought by Superior
against  LLM on or about  September  23,  1993.  Superior  had  previously  done
construction work for LLM on its Natchez barge ("Lady Luck Natchez"), as well as
some minor  preparatory work on one other barge of the Company.  Such proceeding
alleged damages of approximately $47,000,000,  of which approximately $3,400,000
was  alleged  for  additional  construction  work on Lady Luck  Natchez  and the
remaining amount was alleged for unjust  enrichment,  for causing the bankruptcy
of Superior  and for future work  Superior  expected to perform for the Company.
Superior has appealed the decision to dismiss the action. The Company,  based in
part on the advice of its counsel, believes that it has meritorious defenses and
does not believe  that the appeal of the decision  will have a material  adverse
effect on the Company's financial condition or results of operations.

     The Company is subject to certain  federal,  state and local  environmental
protection,  health and safety laws,  regulations  and ordinances  that apply to
non-gaming businesses  generally.  In the course of conducting the environmental
investigation  at  the  proposed  site  for  Lady  Luck  Gulfport,  the  Company
identified  certain  contamination  at the site.  Pursuant to an  administrative
order issued by the Mississippi Department of Environmental Quality, the Company
undertook remedial  activities,  including soil remediation and the installation
of  groundwater   monitoring  wells.  No  additional  remediation  is  currently
required,  although  some  additional  soil  remediation  may be required in the
course of obtaining a building permit. Although there can be no assurances,  the
Company believes that the cost of such additional soil remediation, if any, will
not have a material impact on the liquidity or capital resources of the Company.
Additionally,  although the Company knows of no other pre-existing conditions at
its  Operating  Casinos  or at the  intended  sites  for the  Development  Stage
Projects or the Pre-development  Stage Projects that will result in any material
environmental  liability or delay,  there can be no assurance that  pre-existing
conditions  will not be discovered and result in material  liability or delay to
the Company.

     In the opinion of management,  the Company believes it will have sufficient
cash flow to meet its debt  service  and other  cash  outflow  requirements  and
maintain  compliance  with the revised  covenants of the Indenture  during 1997.
There  can be no  assurance,  however,  that  the  Company  will  in  fact  have
sufficient cash resources to meet its cash requirements under any circumstances.


Impact of Inflation

     Absent changes in competitive and economic conditions or in specific prices
affecting the industry,  management  does not expect that  inflation will have a
significant impact on the Company's operations. Changes in specific prices (such
as fuel and transportation prices) relative to the general rate of inflation may
have a material effect on the hotel-casino industry.


Seasonality and Weather

     A flood or other severe weather  condition  could cause the Company to lose
the use of one or more dockside facilities for an extended period. The inability
to use a  dockside  facility  during any  period  could have a material  adverse
effect on the  Company's  financial  results.  In addition,  a  disproportionate
amount of GCI's revenues is received during the summer months. GCI is accessible
only via a narrow, winding mountain road and, accordingly, inclement weather may
have an adverse effect on revenues.  While  seasonal  revenue  fluctuations  may
occur at the Company's  existing and proposed  casinos in Mississippi,  Iowa and
Missouri,  such seasonal  fluctuations  are expected to be less significant than
those experienced in Colorado.



<PAGE>

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Mandatory Cumulative Redeemable Preferred
   Stock and Stockholders' Equity for the years ended
   December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
   December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements




<PAGE>








                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of Lady Luck Gaming Corporation:

     We have audited the accompanying  consolidated  balance sheets of Lady Luck
Gaming Corporation (a Delaware  corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,  mandatory
cumulative  redeemable  preferred stock and stockholders'  equity and cash flows
for each of the  three  years in the  period  ended  December  31,  1996.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects, the financial position of Lady Luck Gaming Corporation
and  subsidiaries  as of December  31,  1996 and 1995,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.



                                      ARTHUR ANDERSEN LLP

Las Vegas, Nevada
February 26, 1997


<PAGE>
<TABLE>
<CAPTION>

                                                   LADY LUCK GAMING CORPORATION
                                                    CONSOLIDATED BALANCE SHEETS
                                                 As of December 31, 1996 and 1995
                                                           (in thousands)

                                                               ASSETS

<S>                                                               <C>                      <C>

                                                                         1996                      1995

Current assets:
     Cash and cash equivalents................................     $          15,490       $            22,148
     Restricted cash..........................................                     -                     8,858
     Accounts receivable......................................                 1,276                       597
     Inventories..............................................                 1,198                       885
     Prepaid expenses.........................................                 2,620                     2,731
         Total current assets.................................                20,584                    35,219

Property and equipment:
     Land and land improvements...............................                26,604                    19,569
     Building and improvements................................               113,500                    93,554
     Furniture, fixtures and equipment........................                50,306                    42,275
                                                                             190,410                   155,398
     Less accumulated depreciation............................               (28,736)                  (17,611)
                                                                             161,674                   137,787
     Construction in progress.................................                11,445                    17,877
         Total property and equipment, net....................               173,119                   155,664

Other assets:
     Pre-opening costs........................................                 1,353                     1,100
     Deferred financing fees and costs, net of
         accumulated amortization of $2,482 and $1,607
         as of December 31, 1996 and 1995,
         respectively.........................................                 3,605                     4,470
     Investment in unconsolidated affiliates, net.............                21,449                    17,619
     Other....................................................                 3,608                     3,209
                                                                              30,015                    26,398
TOTAL ASSETS..................................................       $       223,718         $         217,281














                         The accompanying notes are an integral part of these consolidated balance sheets.

</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                                    LADY LUCK GAMING CORPORATION
                                              CONSOLIDATED BALANCE SHEETS (continued)
                                                  As of December 31, 1996 and 1995
                                         (in thousands, except share and per share amounts)

                                                LIABILITIES AND STOCKHOLDERS' EQUITY
<S>                                                               <C>                       <C>

                                                                         1996                      1995
Current liabilities:
     Current portion of long-term debt........................    $            3,385        $            5,624
     Accrued interest.........................................                 1,825                     2,326
     Accounts payable.........................................                 4,416                     3,240
     Construction payables....................................                 1,957                     3,126
     Income taxes payable.....................................                    42                       195
     Other accrued liabilities................................                 8,267                     9,191
         Total current liabilities............................                19,892                    23,702

Long-term debt:
     Mortgage notes payable...................................               173,500                   173,500
     Other long-term debt.....................................                 7,581                     3,473
         Total long-term debt.................................               181,081                   176,973
              Total liabilities...............................               200,973                   200,675

Commitments and contingencies (Notes 14, 15 and 16)

Series A mandatory cumulative redeemable preferred
     stock, $37.89 and $33.83, respectively per share
     liquidation value, 1,800,000 shares authorized,
     433,638 shares issued and outstanding....................                16,430                    14,669

Stockholder' equity:.........................................
     Common stock, $.001 par value, 75,000,000 shares
         authorized, 29,285,698 shares issued and
         outstanding as of December 31, 1996
         and 1995.............................................                    29                        29
     Additional paid-in capital...............................                31,382                    31,382
     Accumulated deficit......................................               (25,096)                  (29,474)
         Total stockholders' equity...........................                 6,315                     1,937
TOTAL LIABILITIES AND
     STOCKHOLDERS' EQUITY.....................................        $      223,718           $       217,281












                         The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>



<PAGE>
<TABLE>
<CAPTION>

                                                    LADY LUCK GAMING CORPORATION
                                               CONSOLIDATED STATEMENTS OF OPERATIONS
                                        For the Years Ended December 31, 1996, 1995 and 1994
                                              (in thousands, except per share amounts)
<S>                                                  <C>                      <C>                     <C>

                                                          1996                       1995                     1994
Revenues:
     Casino....................................      $      143,886          $        138,412         $       109,800
     Food and beverage.........................              16,928                    14,556                  12,766
     Hotel.....................................               3,948                     2,635                   1,569
     Equity in net income (loss) of
         unconsolidated affiliates.............               3,815                    (1,137)                     -
     Other.....................................               5,657                     3,945                     999
         Gross revenues........................             174,234                   158,411                 125,134
         Less: Promotional
              allowances.......................             (12,527)                   (8,821)                 (7,979)
         Net revenues..........................             161,707                   149,590                 117,155

Costs and expenses:
     Casino....................................              56,806                    49,703                  41,859
     Food and beverage.........................               6,928                     8,582                   7,215
     Hotel.....................................               1,925                     1,667                     652
     Other.....................................                 282                       310                     574
     Selling, general and
         administrative........................              53,786                    49,539                  51,926
     Related party management/license fees                    2,317                     5,520                   2,471
     Depreciation and amortization.............              11,289                     9,694                   7,067
     Settlement of claim.......................               1,100                         -                       -
     Pre-opening expenses......................                 247                         -                   2,970
     Project development cost write-downs
         and reserves..........................                 404                       509                  15,635
     Abandonment loss..........................                   -                        -                    9,344
         Total costs and expenses..............             135,084                   125,524                 139,713

Operating income (loss)........................              26,623                    24,066                 (22,558)

Other income (expense):
     Interest income...........................               1,073                     1,237                   1,717
     Interest expense, net.....................             (22,170)                  (20,058)                (16,910)
     Other.....................................                 682                      (383)                   (200)
                                                            (20,415)                  (19,204)                (15,393)

Income (loss) before income tax
     (provision) benefit and
      extraordinary items......................               6,208                     4,862                 (37,951)







                              The accompanying notes are an integral part of these consolidated statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                                      LADY LUCK GAMING CORPORATION
                                            CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
                                          For the Years Ended December 31, 1996, 1995 and 1994
                                           (in thousands, except share and per share amounts)
<S>                                                  <C>                     <C>                     <C>
                                                        1996                      1995                      1994

Income (loss) before income tax
     (provision) benefit and
      extraordinary items...................            6,208                     4,862                   (37,951)

Income tax (provision) benefit..............              (69)                     (401)                    1,171
Income (loss) before extraordinary
     items..................................            6,139                     4,461                   (36,780)
Extraordinary gain on early
     extinguishment of debt.................                -                     2,257                     1,115

NET INCOME (LOSS)...........................            6,139                     6,718                   (35,665)

Preferred stock dividends...................          ( 1,761)                   (1,572)                   (1,404)
Income (loss) applicable to
     common stockholders....................         $  4,378                 $   5,146              $    (37,069)

NET INCOME (LOSS) PER SHARE

     Before extraordinary items and
         preferred stock dividends..........         $   0.21                 $    0.15              $      (1.45)
     Extraordinary items....................         $      -                 $    0.08              $       0.04
     Applicable to common stockholders               $   0.15                 $    0.18              $      (1.47)

Weighted average number of common
     shares outstanding.....................       29,285,698                28,952,365                25,299,968




















                              The accompanying notes are an integral part of these consolidated statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                                      LADY LUCK GAMING CORPORATION
                               CONSOLIDATED STATEMENTS OF MANDATORY CUMULATIVE REDEEMABLE PREFERRED STOCK
                                                   AND STOCKHOLDERS' EQUITY (DEFICIT)
                                          For the Years Ended December 31, 1996, 1995 and 1994
                                                             (in thousands)
<S>                               <C>            <C>          <C>                      <C>             <C>               <C>

                                  Mandatory
                                  Cumulative                                                            Retained            Total
                                  Redeemable      Common           Common Stock        Additional       Earnings       Stockholders'
                                  Preferred       Stock         Number                  Paid-in       (Accumulated        Equity
                                    Stock        Warrants     of Shares      Amount     Capital         Deficit)         (Deficit)

Balance at December 31, 1993       $ 11,693            1        24,793       $   25    $  23,438         $   2,449         $ 25,913

Warrants exercised.............           -           (1)          992            1            -                 -                -

Accrued preferred stock
    dividends..................       1,404            -             -            -            -            (1,404)          (1,404)

Common stock issued for debt...           -            -         1,500            1        3,884                 -            3,885

Net loss.......................           -            -             -            -            -           (35,665)         (35,665)

Balance at December 31, 1994         13,097            -        27,285           27       27,322           (34,620)          (7,271)

Accrued preferred stock
    dividends  ................       1,572            -             -            -            -            (1,572)          (1,572)
Common stock issued for debt...           -            -         2,000            2        4,060                 -            4,062

Net income.....................           -            -             -            -            -             6,718            6,718

Balance at December 31, 1995         14,669            -        29,285           29       31,382           (29,474)            1,937

Accrued preferred stock
    dividends  ...............        1,761            -             -            -            -            (1,761)          (1,761)

Net income....................            -            -             -            -            -             6,139            6,139

Balance at  December 31, 1996    $   16,430            -        29,285       $   29    $  31,382       $   (25,096)    $      6,315

                              The accompanying notes are an integral part of these consolidated statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                                      LADY LUCK GAMING CORPORATION
                                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          For the Years Ended December 31, 1996, 1995 and 1994
                                                             (in thousands)

<S>                                                                    <C>                  <C>                  <C>

                                                                               1996                1995                1994
Cash flows from operating activities:
   Net income (loss)............................                       $         6,139      $         6,718      $     (35,665)
   Adjustments to reconcile net income
     (loss) to net cash provided by
       (used in) operating activities:
     Depreciation and amortization..............                                11,289                9,694              7,067
     Amortization of bond offering
       fees and costs...........................                                   865                  910                929
     Gain on early extinguishment
       of debt..................................                                     -               (2,257)            (1,115)
     (Gain) loss on sale of assets..............                                  (404)                 533                  -
     Abandonment loss...........................                                     -                   -               9,344
     Equity in net (income) loss of
       unconsolidated affiliates................                                (3,815)               1,137                  -
     Project development cost write-downs
       and reserves.............................                                   404                  509             15,635
     Pre-opening expenses.......................                                   247                   -               2,970
   (Increase) decrease in assets:
     Accounts receivable........................                                  (275)                 210               (517)
     Inventories................................                                  (313)                 (89)                68
     Prepaid expenses...........................                                   111                  637             (1,185)
     Income tax receivable......................                                     -                2,308             (2,308)
     Deferred tax asset.........................                                     -                    -              3,421
   Increase (decrease) in liabilities:
     Accrued interest...........................                                  (501)              (4,178)             5,254
     Accounts payable...........................                                 1,176               (3,492)             4,292
     Income taxes payable.......................                                  (153)                 195             (1,642)
     Other accrued liabilities..................                                (1,278)               4,248              2,042
Net cash provided by operating activities.......                                13,492               17,083              8,590

Cash flows from investing activities:
   Purchase of property and equipment                                          (21,524)             (10,752)          (102,682)
   Retirement of property and equipment.........                                     -                    -                905
   Construction payables........................                                (1,169)              (6,681)            (1,003)
   Development costs............................                                     -                    -             (8,635)
   Investment in unconsolidated affiliates......                                   (15)              (2,163)                 -
   Pre-opening costs............................                                  (500)                (427)            (3,420)
   Restricted cash..............................                                 8,858               (1,011)            (7,847)
   Other assets.................................                                  (449)                 104               (680)
Net cash used in investing activities                                          (14,799)             (20,930)          (123,362)






                              The accompanying notes are an integral part of these consolidated statements.

</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                                      LADY LUCK GAMING CORPORATION
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                          For the Years Ended December 31, 1996, 1995 and 1994
                                                             (in thousands)
<S>                                                              <C>                <C>                 <C>

                                                                 1996               1995                1994

Cash flows from financing activities:
   Net proceeds from borrowings.................                    40               2,219            186,343
   Payment on 1998 Notes........................                     -                   -            (47,200)
   Deferred financing fees and costs............                     -                   -             (6,490)
   Payments on debt and slot contracts..........                (5,391)             (5,138)            (7,318)
Net cash (used in) provided by financing
   activities ..................................                (5,351)             (2,919)           125,335


Net (decrease) increase in cash and cash
   equivalents..................................                (6,658)             (6,766)            10,563
Cash and cash equivalents,
   beginning of year............................                22,148              28,914             18,351
Cash and cash equivalents, end of year..........            $   15,490            $ 22,148           $ 28,914


Supplemental disclosures of cash flow
   information :
      Cash paid during the year for:
        Interest (net of amount capitalized
          of $514, $762 and
          $2,383 in 1996, 1995 and
          1994, respectively) ..................            $   21,806            $ 22,563           $ 10,727
        Income taxes paid (received)............            $      225            $ (2,103)          $   (641)






















                              The accompanying notes are an integral part of these consolidated statements.
</TABLE>


<PAGE>

Supplemental Schedule of Non-Cash Investing and Financing Activities:

The liquidation value of the Series A mandatory cumulative  redeemable preferred
stock increased by approximately $1,761,000, $1,572,000 and $1,404,000 in unpaid
accrued  dividends  for the  years  ended  December  31,  1996,  1995 and  1994,
respectively.

On  April  15,  1996,  Lady  Luck  Mississippi   acquired  the  River  Park  for
approximately   $4,000,000,   including  approximately  $1,000,000  cash  and  a
non-recourse mortgage note for the balance.

On July 3, 1996,  Magnolia Lady, Inc.  acquired the Riverbluff for approximately
$1,000,000,  including  approximately  $600,000 cash and a non-recourse mortgage
note for the balance.

In  February  1995,  2,000,000  shares  of common  stock  were  issued  upon the
conversion of $6,500,000 of the 2001 Notes. In December 1994,  1,500,000  shares
of common stock were issued upon the conversion of $5,000,000 of the 2001 Notes.

On March 31, 1995, the Company  contributed  net assets  totaling  approximately
$16,100,000 to the Bally's Joint Venture.

In  addition  to net cash  investments  in and cash  payments  on  behalf of the
Bettendorf  Joint Venture during 1995 of approximately  $2,100,000,  the Company
contributed non-cash assets of approximately $837,000.

The Company entered into several  contracts with  manufacturers for the purchase
of slot  machines  and other  assets  which  totaled  approximately  $3,780,000,
$111,000  and $209,000  for the years ended  December  31, 1996,  1995 and 1994,
respectively.































  The accompanying notes are an integral part of these consolidated statements.



<PAGE>

                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



     1.           The Company and Basis of Presentation

     The  consolidated  financial  statements  of Lady Luck  Gaming  Corporation
("LLGC"),  a  Delaware  corporation,  include  the  accounts  of  LLGC  and  its
subsidiaries  (collectively the "Company").  The Company's  operations primarily
include  those of LLGC,  Lady  Luck  Gaming  Finance  Corporation  ("LLGFC"),  a
Delaware  corporation;  Lady Luck Mississippi,  Inc. ("LLM"),  Lady Luck Biloxi,
Inc.  ("LLB"),  Lady Luck Gulfport,  Inc.  ("LLG"),  Lady Luck  Vicksburg,  Inc.
("LLV") and Lady Luck  Tunica,  Inc.  ("LLT"),  each a  Mississippi  corporation
(collectively the "Mississippi  Companies");  Gold Coin Incorporated  ("GCI"), a
Delaware  corporation;  Lady Luck Kimmswick,  Inc. ("LLK"), a 93% owned Missouri
corporation;  Magnolia Lady, Inc. ("MLI"), a Mississippi corporation;  Lady Luck
Quad Cities, Inc. ("LLQC"), a Delaware  corporation;  and Old River Development,
Inc. ("ORD"),  a Mississippi  corporation.  The Company also owns investments in
joint  ventures with BRDC and Bally's (see Note 4) which are accounted for under
the equity  method.  LLGC and its  subsidiaries  were  organized  to develop and
operate gaming and hotel properties in emerging jurisdictions.

     LLGC and LLGFC were formed in  February  1993,  pursuant  to an  Investment
Agreement dated October 20, 1992 between Andrew H. Tompkins,  certain affiliates
of Mr.  Tompkins and certain  holders of equity and debt  securities of GCI (the
"Investment  Agreement").  Pursuant to the Investment  Agreement,  Mr.  Tompkins
indirectly contributed all outstanding common stock of the Mississippi Companies
to LLGFC in exchange for 550,000 shares of LLGC Class B Common Stock and 216,819
shares of LLGC Series A Mandatory Cumulative Redeemable Preferred Stock ("Series
A") (see  Note 6),  liquidation  value of  $5,420,000.  In  connection  with the
contribution of the stock of the Mississippi  Companies,  Mr. Tompkins  received
$3,734,000 which represented the historical  carrying value of the net assets of
$13,400,000  in excess of the capital  contribution  required by the  Investment
Agreement. LLM began dockside casino operations on February 26, 1993 in Natchez,
Mississippi  and acquired and took over  operation of the 147-room River Park in
Natchez,  Mississippi on April 15, 1996; GCI reopened on May 28, 1993; LLT began
dockside  casino  operations  on September 18, 1993 in southern  Tunica  County,
Mississippi  and ceased  operations on April 24, 1994; LLB began dockside casino
operations  on December  13, 1993 in Biloxi,  Mississippi,  and MLI,  which does
business as Lady Luck Rhythm & Blues,  commenced  dockside gaming  operations on
June 27, 1994 in Coahoma County, Mississippi,  commenced operation of a 173-room
hotel on August 16, 1994,  commenced gaming operations of Country Casino and the
Pavilion,  as  described  below,  on May 21,  1996 and  acquired  and took  over
operation of the 120-room  Riverbluff in Helena,  Arkansas on July 3, 1996.  ORD
commenced operation of a 240-room hotel on August 24, 1994 and contributed it to
the  Bally's  Joint  Venture  in  March  1995  (see  Note 4).  All of the  other
Mississippi  Companies and LLK are in various stages of development  and have no
operating history.

     2.           Certain Risks and Uncertainties

     The Company's operations in Mississippi, Iowa and Colorado are dependent on
the  continued   licensability  or   qualifications   of  the  Company  and  its
subsidiaries  that  hold  the  gaming  licenses  in  these  jurisdictions.  Such
licensing and qualifications are reviewed periodically by the gaming authorities
in these states.

     Mississippi  Gaming  Commission  regulations  require  licensees  to invest
certain  minimum   amounts  in  land-based,   non-gaming   infrastructure   (the
"Land-Based Requirement").  The Mississippi Gaming Commission (the "Commission")
found,  subsequent to December 31, 1996,  that LLB complied with the  Land-Based
Requirement.

     A significant portion of the Company's  consolidated revenues and operating
income are generated by the Company's  Coahoma County casino  operations.  These
casinos are highly dependent on patronage by residents in Arkansas.  A change in
general  economic  conditions or the extent and nature of  regulations  enabling
casino gaming in Arkansas could adversely affect these casinos' future operating
results.  On  November  5,  1996,  Arkansas  residents  voted to defeat a ballot
measure  which would have  allowed  voters in Hot Springs,  Arkansas,  to decide
whether to allow up to three casinos in the city. The measure, if passed,  would
also have created a state lottery and legalized charitable bingo.


<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996




     3.           Summary of Significant Accounting Policies

         (a)      Principles of Consolidation

     The consolidated  financial  statements include the accounts of the Company
and its subsidiaries.  Significant  intercompany  accounts and transactions have
been eliminated.

         (b)      Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual results could differ from these estimates.  Among the
estimates  made by management is the  evaluation  of the  recoverability  of the
carrying  values  of the  land  held  for  development  and the  projects  under
development by Lady Luck Vicksburg, Inc. and Lady Luck Kimmswick, Inc. (See Note
16).

         (c)      Cash and Cash Equivalents

     The Company  considers  all highly  liquid  investments  purchased  with an
original maturity of three months or less as cash equivalents.

         (d)      Restricted Cash

     Restricted  cash  consists of amounts held in escrow and cash  specifically
restricted to be used in accordance  with the terms of the Indenture  related to
the 2001 Notes.

         (e)      Inventories

     Inventories are stated at the lower of cost, as determined by the first-in,
first-out method, or market value.

         (f)      Property and Equipment

     Property and equipment are stated at cost. The Company capitalizes interest
on funds dispersed during the active  construction and development phases of its
projects.  Depreciation and amortization  are computed using  predominantly  the
straight-line  method for financial  reporting purposes and accelerated  methods
for income tax purposes. Estimated useful lives for financial reporting purposes
are as follows:

         Land improvements..............................................15 years
         Buildings and improvements..................................15-30 years
         Furniture, fixtures and equipment.............................5-7 years

     Costs of major improvements are capitalized,  while costs of normal repairs
and maintenance are charged to expense as incurred.

     Substantially  all property  and  equipment  is pledged as  collateral  for
long-term debt. (See Note 5).




<PAGE>

                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



         (g)      Investment in Joint Ventures

     The Company accounts for its investment in 50% or less owned joint ventures
using  the  equity  method of  accounting.  Under the  equity  method,  original
investments  are  recorded  at cost  and  adjusted  by the  Company's  share  of
earnings, losses and distributions of these joint ventures.

         (h)      Pre-Opening Costs

     Pre-opening  costs include direct  incremental  project  salaries and other
pre-opening   costs  incurred  during  the  pre-opening   phase  of  a  project.
Pre-opening   costs  directly   related  to  gaming  and  hotel  operations  are
capitalized  as incurred and are charged to expense in the period the  project's
operations commence.

         (i)      Development Costs

     Development  costs represent those costs such as legal and consulting fees,
gaming license applications and options for land acquisitions or leases incurred
for  prospective  gaming  projects.  The  Company  defers  such  costs for those
projects in  jurisdictions in which gaming is legalized and in which the Company
believes that it has a probable chance of obtaining a license and completing the
project;  otherwise,  the costs are  expensed as  incurred.  These costs will be
capitalized  as either  pre-opening  costs or property  and  equipment  when the
gaming license is received and the project commences construction.

         (j)      Deferred Financing Fees and Costs

     Deferred  financing fees and costs incurred relating to the issuance of the
2001 Notes were  capitalized and are being  amortized to interest  expense using
the effective interest method over the term of the 2001 Notes.

         (k)      Revenue Recognition

     Casino revenues represent the net win from gaming activities,  which is the
difference between gaming wins and losses.

         (l)      Income Taxes

     The Company  follows the  provisions  of Statement of Financial  Accounting
Standards  ("SFAS") No. 109 "Accounting for Income Taxes." SFAS No. 109 requires
the recognition of deferred tax assets and  liabilities for the  consequences of
temporary  differences  between  amounts  reported for  financial  reporting and
income tax purposes.  SFAS No. 109 requires  recognition of a future tax benefit
of net operating loss  carryforwards and certain other temporary  differences to
the extent that realization of such benefit is more likely than not;  otherwise,
a valuation allowance is applied.

         (m)      Net Income (Loss) Per Share

     Net income (loss) per share is computed  using the weighted  average number
of common shares and common stock equivalents, if dilutive, actually outstanding
during the year.  Common stock  equivalents  represent  the shares that would be
outstanding  assuming  exercise  of  dilutive  stock  options.  No common  stock
equivalents  are included in the  computation  for the years ended  December 31,
1996,  1995 and 1994,  as their  effect would be  anti-dilutive  or would dilute
earnings per share by less than three percent.





<PAGE>

                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



         (n)      Fair Value of Financial Instruments

     The fair value of the Company's  financial  instruments  approximates their
recorded values at December 31, 1996 and 1995, except for the Company's mortgage
notes payable,  the fair market values of which,  based on quoted market prices,
were  approximately  $175.0 million and $159.8 million,  respectively.  The fair
values are not  necessarily  indicative of the amounts the Company could realize
in a current market exchange.

         (o)      Long-lived Assets

     Long-lived assets,  which are not to be disposed of, including property and
equipment,   are  reviewed  for  impairment   whenever   events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of the  asset  may  not be
recoverable. An estimate of undiscounted future cash flows produced by the asset
is compared to the carrying amount to determine whether an impairment exists. If
an asset is  determined  to be  impaired,  the loss is measured  based on quoted
market prices in active markets,  if available.  If quoted market prices are not
available,  the  estimate  of  fair  value  is  based  on the  best  information
available,  including  considering  prices for similar assets and the results of
valuation techniques to the extent available.

     The Company has evaluated the  recoverability of LLB's and GCI's long-lived
assets as of December 31, 1996 pursuant to Financial  Accounting Standards Board
Statement  No. 121. In  performing  its review for  recoverability,  the Company
compared the estimated  undiscounted  future cash flows to the carrying value of
LLB's  and  GCI's  long-lived  assets.  The  carrying  value of LLB's  and GCI's
long-lived assets were $33.3 million and $9.7 million, respectively, at December
31, 1996. As the estimated  undiscounted future cash flows exceeded the carrying
value of  long-lived  assets,  the  Company  was not  permitted  or  required to
recognize an impairment loss.  Circumstances affecting management's estimates of
future  undiscounted  cash flow to be  generated  by LLB and GCI could differ in
future periods and result in a significant write-down.

         (p)      Reclassifications

     Certain  reclassifications  have  been made to the prior  year  amounts  to
conform to the current year presentation and have no impact on net income.

     4.           Investment in Unconsolidated Affiliates

     The Company's  investments  in joint  ventures with  Bettendorf  Riverfront
Development  Company  ("BRDC")  and Bally's are  accounted  for under the equity
method and the  Company's  portion of income or loss from the joint  ventures is
included  in Equity in Net Income  (Loss) of  Unconsolidated  Affiliates  in the
accompanying  Consolidated Statements of Operations for the years ended December
31, 1996 and 1995.

     In December 1994, the Company entered into a joint venture (the "Bettendorf
Joint  Venture") with BRDC to complete and operate a casino in Bettendorf,  Iowa
("Lady Luck Bettendorf").  The joint venture agreement required that the Company
and BRDC each contribute cash to the Bettendorf Joint Venture of $3.0 million in
return for a 50% ownership interest.  In addition,  BRDC is leasing certain real
property to the  Bettendorf  Joint Venture at a lease rate equal to $150,000 per
month.  The Company is leasing a gaming vessel with a cost of $21,635,000  and a
carrying  value net of  accumulated  depreciation  as of  December  31,  1996 of
$20,168,000  to the  Bettendorf  Joint  Venture for  approximately  $189,000 per
month, which amount was determined based upon arms-length  negotiations  between
the Company and BRDC and the Company's cost of capital at the time. In addition,
the Company is leasing certain gaming  equipment with a cost of $3,705,000 and a
carrying  value net of  accumulated  depreciation  as of  December  31,  1996 of
$2,755,000  to  the  Bettendorf   Joint  Venture,   as  discussed   below,   for
approximately  $122,000 per month,  its fair market rental value.  The Company's
rental income  relating to the gaming vessel lease was $2,187,000 and $1,707,000
for the years ended  December  31, 1996 and 1995,  respectively.  The  Company's
rental



<PAGE>

                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



income  relating to the gaming  equipment  lease was $1,649,000 and $833,000 for
the years ended December 31, 1996 and 1995, respectively.

     Lady  Luck  Bettendorf  commenced  operations  on April 21,  1995.  All net
profits and losses from all  operations  of Lady Luck  Bettendorf  are allocated
equally  between  the Company  and BRDC.  The Company has also been  granted the
right to manage Lady Luck Bettendorf with  substantially the same terms and fees
as the Company's wholly-owned casinos, less $37,500 per month, with a portion of
the fees received by the Company paid to BRDC as consultants.

     Summarized balance sheet information for the Bettendorf Joint Venture as of
December 31, 1996 and 1995 is as follows (in thousands):

                                          December 31, 1996    December 31, 1995

         Current assets                    $        5,935       $      3,142
         Property and equipment, net               12,435             11,435
           Total assets                    $       18,370       $     14,577

         Current liabilities               $        5,492       $      7,108
         Long-term liabilities                      1,107              1,880
         Members' equity                           11,771              5,589
           Total liabilities and
              members' equity              $       18,370       $     14,577

     The  Bettendorf  Joint  Venture's  net loss for 1995  includes  pre-opening
expenses of $2.5 million.  Summarized  results of operations  for the Bettendorf
Joint  Venture  for the  year  ended  December  31,  1996  and the  period  from
commencement  of  operations  through  December  31,  1995  are as  follows  (in
thousands):

                                                  1996                 1995

         Net revenues                      $       65,202        $    36,475
         Costs and expenses                        59,020             36,886
         Net income (loss)                 $        6,182        $      (411)

     In March 1995,  the  Company  formed a joint  venture  with  affiliates  of
Bally's  to  complete  a  casino/hotel   project  in  northern   Tunica  County,
Mississippi.  Upon formation of the Bally's Joint Venture,  ORD  contributed its
existing  240-room  hotel in northern  Tunica  County,  as well as other related
assets and  liabilities,  with a total net cost of $16.1  million,  to the joint
venture.  Bally's  contributed a closed dockside casino (the "Dockside  Casino")
which  was,  at the  time of such  contribution,  located  at Mhoon  Landing  in
southern  Tunica  County,  and certain  other assets to the joint  venture.  The
Dockside  Casino has been  relocated  to the ORD hotel  site.  A Bally's  entity
manages and controls the Bally's  Joint  Venture.  The Bally's  Joint Venture is
owned 58% by Bally's,  35% by ORD and 7% by D.J.  Brata,  a former 11%  minority
shareholder of ORD. The Company is currently  negotiating  with Bally's and D.J.
Brata the final  amount of the  Company's  initial  capital  contribution  to be
credited to its partners'  capital  account and other matters in accordance with
the joint  venture  agreement  and,  in 1995,  provided  a reserve  of  $350,000
relating to any unfavorable  resolution of these matters. Hotel operations under
Bally's  management  commenced in April 1995 and casino operations  commenced in
December 1995.





<PAGE>

                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



     Summarized  balance sheet  information  for the Bally's Joint Venture as of
December 31, 1996 and 1995 is as follows (in thousands):

                                     December 31, 1996         December 31, 1995

     Current assets                     $      8,630               $   10,110
     Property and equipment, net              51,537                   51,511
     Other assets                              1,041                    4,329
         Total assets                   $     61,208               $   65,950

     Current liabilities                $      7,279               $    6,148
     Long-term liabilities                     6,994                      485
     Partners' capital                        46,935                   59,317
         Total liabilities and
             partners' capital          $     61,208               $   65,950

     Summarized results of operations for the Bally's Joint Venture for the year
ended  December  31, 1996 and the period  from  formation  of the Bally's  Joint
Venture  on  March  31,  1995  through  December  31,  1995 are as  follows  (in
thousands):


                                              1996                  1995

              Net revenues              $     70,093               $     6,963
              Costs and expenses              67,976                     9,676
              Net income (loss)         $      2,117               $    (2,713)


     Net income (loss) of the Bally's Joint Venture for the year ended  December
31, 1996 and the period  from  formation  through  December  31,  1995  includes
pre-opening expenses of $3.3 million and $0.7 million, respectively.

<PAGE>

     5.           Long-Term Debt

     At December 31, 1996 and 1995,  long-term  debt  consisted of the following
(in thousands):

<TABLE>
<S>                                                                 <C>                          <C>

                                                                           1996                      1995
11 7/8% First Mortgage Notes; semi-annual payments
      of interest only; due March 2001; collateralized
      by substantially all assets of the Company (the
      "2001 Notes").......................................          $         173,500            $    173,500
Note payable to a corporation; monthly payments of
      interest only at 10%; principal due July 2001,
      collateralized by a deed of trust...................                      2,750                   3,000
Note payable to a corporation; annual payments of
      principal of $119 plus accrued interest at 8%;
      due June 2003; collateralized by a land deed of
      trust...............................................                        833                     952
Notes payable to corporations; monthly payments of
      principal and interest at rates up to prime plus
      7%; due through May 1998 secured by the
      equipment...........................................                      3,589                   2,420
Note payable to a corporation; payment of principal
      and accrued interest at 14%; due March 1996;
      secured by a gaming vessel..........................                          -                   2,219
Mortgage note payable to a corporation; quarterly
      payments of principal and interest at prime plus
      1 1/2% based on a 20 year amortization; due
      April 2006; collateralized by a deed of trust.......                      2,925                       -
Note payable to a corporation; quarterly payments of
      principal and accrued interest at 9%; due
      October 1998, collateralized by a deed of trust.....                        385                       -
Other.....................................................                        484                     506
                                                                              184,466                 182,597
Less: current portion.....................................                    (3,385)                 (5,624)
      Total long-term debt................................            $       181,081          $      176,973

</TABLE>
<PAGE>

                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996


     The Indenture as supplemented  effective March 28, 1996,  covering the 2001
Notes (the  "Indenture")  provides for, among other things,  restrictions on the
Company's  and certain of its  subsidiaries'  abilities  (a) to pay dividends or
other distributions on its capital stock, (b) to incur additional  indebtedness,
(c) to make asset  sales (d) to engage in other  lines of  business,  and (e) to
maintain a minimum consolidated net worth as defined.

     As of  September  30,  1994  and  each  of the  five  consecutive  quarters
thereafter, the Company did not meet the Minimum Net Worth Covenant as contained
in the Indenture.  Under the terms of the Indenture, the Company was required to
offer to  repurchase  $16,500,000  of 2001 Notes within  certain  specific  time
periods of  determination  of the failure to maintain  the minimum net worth for
two  consecutive  quarters.  The Company did not offer to repurchase  any of the
2001  Notes.  After  notice to the  Company and a failure by the Company to cure
such  event of  default,  the  holders of 25% of the 2001 Notes had the right to
accelerate payment of the 2001 Notes.

     In  addition,  the Company was  generally  required  under the terms of the
Indenture to complete four  qualifying  projects,  as defined,  by September 30,
1995 (the "Construction Completion Covenant").  The Company completed and opened
the  dockside  casino  owned by MLI, a  qualifying  casino,  during 1994 and has
incurred  significant  costs related to the LLV and LLK projects;  however,  the
Company  was  unable  to  complete  the  three  remaining  qualifying  projects.
Accordingly,  the Company was required  under the terms of the Indenture to make
an irrevocable,  unconditional offer to repurchase $30,000,000 of 2001 Notes for
each project not completed. The Company did not make such offer.


<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



     On March 28, 1996 the Company received consents from certain holders of the
2001  Notes who held in excess of 66 2/3% of the  outstanding  2001  Notes  (the
"2001  Noteholders")  to approve the  Amendments  and Waivers.  Based upon these
consents,  the 2001 Notes have been  classified  as long-term as of December 31,
1996 and 1995.  The  Amendments  and  Waivers  enable the Company to continue to
implement its business  strategy by, among other  things,  seeking joint venture
partners  to  invest in its  development  stage  projects  and  selling  certain
specified   under-performing   assets.   The  elimination  of  the  Construction
Completion  Covenant  in the  Indenture  allows  the  Company  to  complete  the
development  stage  projects on a timetable  and in a manner  dictated by market
conditions,  if at all.  Also,  an  adjustment  to the  consolidated  net  worth
covenant in the Indenture which ties the net worth  calculation more directly to
the Company's operating results by, among other things,  excluding the impact of
write-downs  or losses upon the sale of  unproductive  assets owned on or before
December 31, 1994 and  including  the book value of any  investment in any joint
venture which is pledged for the benefit of the  noteholders,  was approved.  In
addition, the Company received waivers from the 2001 Noteholders with respect to
the Company's failure or possible failure to comply with certain other covenants
and restrictions contained in the Indenture.

     The 2001 Notes now bear interest at the rate of 11-7/8% per annum effective
retroactive to October 15, 1995.  Interest on the 2001 Notes held by each holder
who consented to the  Amendments  and Waivers will be payable  quarterly on each
March 1,  June 1,  September  1 and  December  1, so long as the 2001  Notes are
outstanding  (interest  on the notes held by each  holder who did not consent to
the Amendments and Waivers will continue to be payable  semi-annually on March 1
and  September 1). In addition,  the Company is obligated  within 180 days after
the end of each year,  commencing  with the year ending  December 31,  1996,  to
purchase on the open market, or to make an offer to purchase from the holders at
par, 2001 Notes with a principal amount equal to Excess Cash Flow (as defined in
the Indenture)  for such year,  provided that the Company will be able to credit
towards the amount of 2001 Notes required to be purchased in any year any amount
of 2001 Notes it has purchased since January 1, 1996 which it has not previously
used as a credit in any prior  year.  There was no Excess Cash Flow for the year
ended December 31, 1996. After giving effect to the Amendments and Waivers,  the
Company believes it is in compliance with the Indenture as of December 31, 1996.

     Scheduled  maturities of long-term  debt for each of the years ending as of
December 31, are as follows (in thousands):


1997............................................                $     3,385
1998............................................                      1,538
1999............................................                        271
2000............................................                        271
2001............................................                    176,521
Thereafter......................................                      2,480
        Total...................................                $   184,466

     6.     Mandatory Cumulative Redeemable Preferred Stock

     LLGC has  authorized  1,800,000  shares  of Series A  Mandatory  Cumulative
Redeemable Preferred Stock. As indicated in Note 1, 216,819 Series A shares were
issued to Mr.  Tompkins in connection  with the  contribution of the Mississippi
Companies'  common stock and 216,819 shares were issued to various  stockholders
in connection with LLGC's  acquisition of GCI.  Holders of Series A are entitled
to a  compounded  cumulative  preference  dividend  each  quarter.  The  current
dividend is 11.5% of the liquidation  preference per share per annum, payable or
accrued  in  quarterly  installments.  Dividends  of  approximately  $1,761,000,
$1,572,000  and $1,404,000  were accrued on the Series A preferred  stock during
the years ended  December 31, 1996,  1995 and 1994,  respectively.  The Series A
also requires mandatory redemption on December 31, 2013.





<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



     7.     Stockholders' Equity

     Common  stock  of  LLGC  consists  of  75,000,000   authorized  shares.  In
connection  with the  issuance  of the $40  million  of notes in 1998 (the "1998
Notes"), LLGC issued warrants to purchase 4,857,620 shares of its Class A Common
Stock to the holders of the 1998 Notes. Also, in connection with the acquisition
of GCI on April 28,  1993,  LLGC  issued  warrants  to  purchase  an  additional
4,857,620  shares of its Class A Common  Stock to the former  owners of GCI. The
warrants are exercisable for five years from the date of issuance at an exercise
price of $.001 per share.

     On  October 8, 1993,  LLGC  successfully  completed  a public  offering  of
5,175,000  shares of its common  stock of which  3,675,000  shares  were sold by
existing  shareholders  and 1,500,000 shares were sold by LLGC. The net proceeds
to the Company  from the  offering  were  $20,616,000.  In  connection  with the
offering,  LLGC amended its Certificate of  Incorporation  to eliminate  certain
supermajority  voting provisions,  to increase the authorized  capitalization to
75,000,000  shares of common stock and 1,800,000 shares of mandatory  cumulative
redeemable  preferred stock and to have only one class of common stock. Also, in
connection with the offering,  LLGC declared an approximately  24.29 for 1 stock
split.  All share and per share  amounts  have been  retroactively  restated  to
reflect the stock split.

     In  connection  with  the  completion  of the  public  offering,  8,722,829
warrants were exercised at the exercise  price of $.001 per share,  3,675,000 in
accordance  with the initial  public  offering and  5,047,829  subsequent to the
public offering.  The remaining  992,411 warrants were exercised at the exercise
price of $.001 per share during the year ended December 31, 1994.

     On February 27, 1995 and December 30, 1994, the Company exchanged 2,000,000
and 1,500,000  shares of its common stock for  $6,500,000  and $5,000,000 of the
2001 Notes,  respectively.  The Company recognized  extraordinary  gains on such
exchanges of $2,257,000 and $1,115,000 for the years ended December 31, 1995 and
1994, respectively,  which represented the difference between the amount of debt
exchanged,  net of unamortized  issue costs,  and the market price of the common
stock.  Due to available net operating  loss carry  forwards,  (See Note 11), no
income tax provision was recognized on the extraordinary gains.


     8.     Promotional Allowances

     The retail value of food,  beverages and rooms provided on a  complimentary
basis to  customers  without  charge are  included  in gross  revenues  and then
deducted as  promotional  allowances.  The  estimated  cost of  providing  these
promotional  allowances  are  included in casino  departmental  expenses for the
years ended December 31, 1996, 1995, and 1994, as follows (in thousands):



                                     1996                1995             1994
Food and beverage.................  $8,370              $6,201           $5,845
Hotel and other...................     800                 439               85
        Total.....................  $9,170              $6,640           $5,930






<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



     9.     Abandonment Loss

     The  operating  results at LLT during the first  three  months of 1994 were
significantly below the results for the period from opening (September 18, 1993)
through December 31, 1993. Additionally,  the Company determined that because of
increased  competition  from casinos in northern Tunica County,  it was unlikely
that operating  results at LLT would improve if LLT remained in southern  Tunica
County.  Therefore,  on April 24, 1994,  pursuant to a decision of the Company's
management and the Board of Directors,  the Company ceased  operations at LLT in
southern Tunica County.

     LLT abandoned  certain  leasehold  rights and  improvements at the southern
Tunica  County  site  which  had a cost,  net of  accumulated  depreciation,  of
approximately $8,137,000.  Further, certain assets on the barge with a cost, net
of  depreciation,   of  approximately  $1,207,000  were  removed  and  abandoned
resulting in an  abandonment  loss of $9,344,000 for the year ended December 31,
1994. The Company transferred the remaining property and equipment,  principally
the casino and restaurant barges,  with a net cost of approximately  $19,164,000
to  MLI.  Significant  additional  improvements,   at  an  approximate  cost  of
$30,702,000 were made to the MLI casino and restaurant barges.

     10.    Project Development Cost Write-Downs

     During  1996,  the  Company  provided  reserves of  approximately  $350,000
related to the remaining  LLG leases and  approximately  $50,000  related to its
investment in Lady Luck New Mexico ("LLNM") for a total reserve related to LLNM,
including the 1995 reserve of approximately $150,000, of approximately $200,000.

     During  1995,  the Company  provided a reserve of  $350,000  related to the
Bally's Joint Venture agreement for any potential unfavorable  resolution of the
Company's initial  investment in and other matters related to the joint venture.
(See Note 4).

     During 1994, the Company  re-evaluated  all of its proposed  projects under
developments giving  consideration to the changing  regulatory,  political,  and
competitive  environment  in  several  jurisdictions  as well as the  decline in
available financial resources required to complete all of the proposed projects.
As a result  of  these  and  other  factors,  the  Company  determined  to cease
developing  projects in  Chicago,  Illinois,  the  Country of Greece,  Gulfport,
Mississippi,  and several other locations.  The Company also determined that the
present  probability of obtaining a license in  Lawrenceburg,  Indiana no longer
met the Company's cost deferral  criteria.  Accordingly,  the Company recorded a
charge of approximately $8,262,000 related to these projects.

     Further,  due to the  Bally's  Joint  Venture  agreement  (see Note 4), and
changing market  conditions in Vicksburg,  Mississippi,  the Company  determined
that certain  adjustments  were necessary to properly  reflect the estimated net
realizable value of ORD and LLV. Accordingly, the Company recognized development
cost write-downs of $3,540,000  related to ORD and $3,833,000  related to LLV in
1994.




<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



     11.          Income Taxes

     The net  deferred tax asset  (liability)  as of December 31, 1996 and 1995,
are as follows (in thousands):

                                                       1996              1995
Deferred Tax Asset
     Net operating loss carry-forward............   $   15,480        $  14,295
     Abandonment loss............................        2,161            2,161
     Unconsolidated affiliates...................          605              570
     Deposits....................................          525              525
     Other.......................................        2,059            1,941
                                                        20,830           19,492

     Less:  valuation allowance..................       (7,055)          (9,371)

     Net deferred tax asset......................       13,775           10,121
Deferred Tax Liability
     Excess of tax depreciation over book........      (11,913)          (9,030)
     Other.......................................       (1,862)          (1,091)

     Net deferred tax liability..................      (13,775)         (10,121)
Net..............................................   $        -        $       -

     SFAS No. 109 requires recognition of the future tax benefit of these assets
to the extent realization of such benefits is more likely than not, otherwise, a
valuation  allowance  is  applied.  At December  31, 1996 and 1995,  the Company
determined that $7,055,000 and $9,371,000 respectively,  of tax benefits did not
meet the  realization  criteria  because of the  Company's  history of operating
results.   Accordingly,  a  valuation  allowance  was  applied  to  reserve  the
applicable deferred tax assets.

     The  following  summarizes  the  components  of the income tax  (provision)
benefit for the years ended December 31, 1996, 1995 and 1994 (in thousands):

<TABLE>
<S>                                                 <C>              <C>              <C>

                                                        1996             1995             1994
Current.........................................    $      (69)      $      (196)      $     4,592
Deferred........................................             -              (205)           (3,421)
      Income Tax  (Provision) Benefit...........    $      (69)      $      (401)      $     1,171

     Mississippi state income taxes were offset by a tax credit for state gaming
taxes which are based on gross gaming revenues.  The credit is the lesser of the
annual  total  gaming taxes paid or the  Mississippi  state  income tax.  Credit
carry-  forwards  are not  permitted  and may not be used on a combined  company
basis.
</TABLE>




<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



     A reconciliation of the "expected" income tax (provision)  benefit assuming
a 35% federal  statutory  rate to the income tax  provision  for the years ended
December 31, 1996, 1995 and 1994 is as follows (in thousands):


<TABLE>
<S>                                                               <C>              <C>                <C>

                                                                      1996             1995                1994
"Expected" income tax  (provision)  benefit.............          $   (2,173)      $    (2,492)       $   12,892
Nondeductible items.....................................                 (59)             (278)              274
Net operating loss carryforward.........................               2,163             2,369                 -
Net operating loss-no benefit recorded..................                   -                 -           (11,995)
  Income Tax  (Provision) Benefit.......................          $      (69)      $      (401)       $    1,171
</TABLE>

     At  December  31,  1996  and  1995,  the  Company  had net  operating  loss
carryforwards available for income tax purposes of approximately $44,000,000 and
$41,000,000, respectively, which expire from 2009 to 2010.

     12.          Stock Option Plan

     Under the 1993 stock option plan (the "Stock Option Plan"),  options may be
granted to purchase up to an  aggregate  of  1,000,000  shares of LLGC's  common
stock.  All  full-time  officers  and other key  executives,  as well as outside
directors of LLGC, will be eligible to receive  options.  Options may be granted
that either are intended to be incentive  stock options or  non-qualified  stock
options for income tax purposes. Each option granted will be exercisable in full
at any time or from time to time as  determined by the  Compensation  Committee,
provided that no option may have a term exceeding ten years.

     During the years ended December 31, 1996,  1995 and 1994,  177,000,  43,000
and 575,000 stock options were granted, respectively, at exercise prices ranging
from $2.50 to $13.00 per share. The exercise prices of the options granted at an
exercise price greater than $3.12 per share were re-priced  during 1994 to $3.12
per share, the market value at the date of the re-pricing. During 1996, 1995 and
1994, no options expired or were exercised;  10,000,  252,000 and 42,000 options
were canceled, respectively.

     The Company  accounts  for the Stock  Option  Plan under APB No. 25,  under
which no compensation  cost has been recognized.  Had compensation cost for this
plan been  determined  consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts:

                                                        Years Ended December 31,
                                                               1996        1995
                                                              (In thousands)

Net income applicable to common stockholders reported          $4,378     $5,146
Pro Forma                                                      $4,054     $5,021

Primary Earnings per share as reported                         $ 0.15      $0.18
Pro Forma                                                      $ 0.14      $0.17

     Because the  Statement  123 method of  accounting  has not been  applied to
options  granted prior to January 1, 1995, the resulting pro forma  compensation
cost may not be representative of that to be expected in future years.



<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



     The options granted to date to various employees and outside directors vest
ratably  over 5 years,  with an  expiration  10 years from the date of issuance.
Option  prices  were  equal  to or  greater  than  market  value  on the date of
issuance,  and at December 31, 1996, the weighted issue price of the options was
$2.64.  The fair value of each option  grant is  estimated  on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995,  respectively:  risk-free interest
rates of 6.5% for both  1995 and  1996;  expected  lives of 5 years for 1996 and
1995, expected volatility of 185 and 153 percent. There are no expected dividend
yields in 1996 and 1995.

     A summary  of the  status of the stock  option  plan and  weighted  average
exercise  prices  ("WAEP") at December 31, 1996 and 1995 and changes  during the
years then ended is presented in the table below:
<TABLE>
<CAPTION>

                                                                                Years Ended December 31,
                                                                             1996                       1995
<S>                                                                <C>            <C>        <C>            <C>

                                                                   Number of                 Number of
                                                                    Shares        WAEP        Shares        WAEP

        Outstanding at beginning of year                                324        $3.12          533         $3.12
        Granted                                                         177         2.53           43          3.12
        Forfeited/Canceled                                              (10)        3.12         (252)         3.12
        Outstanding at end of year                                      491         2.91          324          3.12
        Exercisable at year end                                         121         3.12          118          3.12

        Weighted average fair value of options                                     $2.02                      $1.93
</TABLE>

     13.          Employment Agreements

     On October 24, 1994,  LLGC entered Letter  Agreements with Alain J. Uboldi,
LLGC's President, Chief Operating Officer and Director, and Rory J. Reid, LLGC's
Senior   Vice-President,   General   Counsel,   Secretary   and  Director   (the
"Agreements").  The Agreements provide that in the event of a Change of Control,
as defined in the Agreements,  and the subsequent  termination of the employment
of either Mr.  Uboldi or Mr. Reid,  under certain  circumstances,  LLGC would be
required to pay to Mr. Uboldi and Mr. Reid a lump sum severance payment equal to
2.99 times the sum of their respective annual base salary plus the amount of any
bonus  paid  in the  year  preceding  such  termination.  In the  event  of such
termination,  Mr. Uboldi and Mr. Reid would also receive in cash an amount equal
to the product of the difference between  subtracting the exercise price of each
option held by Mr.  Uboldi or Mr. Reid (whether or not fully  exercisable)  from
the current  price of LLGC's common stock,  as defined.  Further,  in connection
with the  Agreements,  Mr. Uboldi and Mr. Reid would  receive life,  disability,
accident and health insurance benefits  substantially  similar to those they are
receiving  immediately  prior to their  termination  for a 36-month period after
such termination.

     14.          Related Party Transactions

     The Company previously entered into certain management agreements (the "Old
Management Agreements") with Lady Luck Casino, Inc. ("LLCI"), a company owned by
Andrew Tompkins,  the CEO and Chairman of the Board of the Company.  Pursuant to
the Old Management Agreements,  LLCI provided management services to the Company
regarding  the  operations  and  marketing  of  each of the  Operating  Casinos.
Effective January 1, 1996 the Company has entered into new marketing  agreements
(the "New Marketing Agreements") with entities controlled by Mr. Tompkins. Under
the New Marketing Agreements,  LLGC pays an annual licensing fee with respect to
the Lady Luck name and the mailing list developed by Gemini, Inc. a wholly-owned
corporation of Mr. Tompkins which does business as Lady Luck Casino/Hotel



<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



in Las Vegas, Nevada, ("Gemini") equal to the greater of (a) 9% of LLGC's EBITDA
(calculated  as  EBITDA  of LLGC and all its  subsidiaries  and  joint  ventures
(multiplied, in the case of the Kimmswick Joint Venture, if consummated, and the
Bettendorf  Joint  Venture,  by the interest  owned by the Company in such joint
ventures), excluding, among other things, all revenues and expenses arising from
any casino or casino/hotel for which LLGC is not the operator and which does not
utilize the mailing list or Lady Luck name and excluding revenues from the lease
of equipment  owned by LLGC to third  parties) and (b)  $1,700,000  per year (as
adjusted  based on the Consumer  Price Index).  LLGC has agreed to use the "Lady
Luck" name on all existing and future casinos which it operates. With respect to
the  Bettendorf  Joint  Venture,  LLCI  assigned to LLGC its rights to receive a
management  fee and its  obligation to pay part of that fee to BRDC.  During any
default in the payment of principal  of or interest on the Notes,  LLGC will not
pay (but will accrue on its books) any licensing fee to LLCI. In addition, LLGC:
(i) pays Gemini the sum of $300,000  per year as adjusted  based on the Consumer
Price Index for corporate office facilities and certain services with respect to
such  corporate  office  facilities;  (ii)  reimburses a related  party of LLGC,
wholly-owned by Mr. Tompkins, which performs marketing services on the Company's
behalf, for certain allocated payroll and overhead costs, which for 1996 totaled
approximately  $659,000;  and, (iii) will no longer receive reimbursement from a
wholly-owned corporation of Mr. Tompkins for the salary and benefits paid to Mr.
Tompkins  as  Chairman  of  the  Board  and  Chief  Executive  Officer  of  LLGC
(collectively the "Management/License Fee Overhead Costs").

     Certain  transactions  have  occurred  between  the  Company and Marco Polo
International Marketing, Inc. ("Marco Polo"), Gemini, Inc. ("Gemini"), and LLCI,
all  companies  wholly owned and  controlled  by Mr.  Tompkins.  The Company has
incurred, on behalf of LLCI and Marco Polo in accordance with the Old Management
Agreements, expenses for certain individuals' salaries, wages and benefits which
were  reimbursed by those  entities in the amount of $668,000 and $1,370,000 for
the years ended  December  31, 1995 and 1994,  respectively.  In  addition,  the
Company  incurred  $3,000,  $30,000 and $159,000 of expenses for the years ended
December  31,  1996,  1995  and  1994,  respectively,   which  were  related  to
advertising and other expenses and were reimbursed by Gemini.

     The  Company  also  reimbursed  expenses  in the  amount  of  $219,000  and
$1,364,000 for the years ended December 31, 1995 and 1994, respectively, related
to direct  advertising and marketing costs that were paid for by Marco Polo. The
Company also reimbursed  Gemini for the approximate  retail value of rooms, food
and beverage, and other items provided to the Company by Gemini in the amount of
$129,000,  $146,000 and $515,000 for the years ended December 31, 1996, 1995 and
1994, respectively.

     In addition, pursuant to the Old Management Agreements, Andrew H. Tompkins,
the  Chairman  of the Board and Chief  Executive  Officer  of the  Company,  was
obligated  to use the  Company  as his  exclusive  vehicle,  subject  to certain
limited  circumstances,  for conducting  gaming  activities in the United States
(exclusive of Nevada) and Puerto Rico. Mr. Tompkins was free, however, to pursue
gaming  opportunities  outside such area.  Certain  affiliates  of Mr.  Tompkins
entered into agreements regarding pursuit of certain gaming opportunities in the
Country of Greece (the "Greek  Opportunities")  for which Mr. Tompkins  incurred
expenses.   Subsequently,   Mr.  Tompkins  assigned  the  rights  to  the  Greek
Opportunities  to the Company and the Company  reimbursed Mr. Tompkins  $597,000
for his expenses.

     15.          Litigation

        Shareholder Class Action Lawsuits

     LLGC has been named as a defendant in a purported  shareholder class action
lawsuit alleging violations by the Company of the Securities Act of 1933 and the
Securities  Exchange  Act of 1934 for alleged  material  misrepresentations  and
omissions in connection  with LLGC's 1993 prospectus and initial public offering
of Common Stock. The complaint seeks, inter alia, injunctive relief,  rescission
and unspecified compensatory damages. In addition to the Company, the


<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



complaint  also  names as  defendants  Andrew H.  Tompkins,  Chairman  and Chief
Executive Officer of LLGC, Alain Uboldi, Director and Chief Operating Officer of
LLGC, Michael Hlavsa, the former Chief Financial Officer of LLGC, Bear Stearns &
Co., Inc. and  Oppenheimer & Co., Inc., who acted as lead  underwriters  for the
initial public  offering.  LLGC has retained  outside  counsel to respond to the
complaint and while the outcome of this matter cannot  presently be  determined,
the Company believes based in part on advice of counsel, that it has meritorious
defenses.

        Greek Lawsuits

     The Company and certain of its joint venture  partners  (the  "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism  before  the Greek  Multi-Member  Court of First  Instance.  The  action
alleges that the Defendants  failed to make certain  payments in connection with
the gaming license bid process for Patras,  Greece.  The payments the Company is
alleged  to have been  required  to make  aggregate  approximately  2.1  billion
drachma  (which was  approximately  $7.8  million as of March 5, 1997 based upon
published  exchange  rates).  Although it is difficult to determine  the damages
being sought from the lawsuit,  the action may seek damages up to such aggregate
amount. The Company's Greek counsel is defending the lawsuit and in management's
opinion, the ultimate outcome of this matter is not presently known.

     Additionally,  a lawyer and a consultant  which were allegedly  retained by
the Company in connection  with the Company's bid for a gaming license in Greece
recently  threatened  litigation against the Company.  On or about September 24,
1996, the Company and the lawyer and consultant  reached an agreement whereby in
exchange for certain consideration mutual releases were executed.

     Also, a Greek architect  filed an action against the Company  alleging that
he was retained by the Company to provide professional  services with respect to
a casino in Loutraki,  Greece.  The plaintiff in such action  sought  damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter.  The Greek
Court entered judgement against the Company in the amount of approximately  87.1
million drachma (which was approximately $325,000 as of March 5, 1997 based upon
published  exchange  rates).  The Company intends to appeal the Court's decision
and has been  informed by its Greek counsel that it has  meritorious  grounds to
prosecute such appeal.

        Other Matters

     On November 5, 1996,  the United States  Bankruptcy  Court for the Northern
District of  Mississippi  dismissed a lawsuit which had been brought by Superior
Boat Works,  Inc.  ("Superior")  against  LLM on or about  September  23,  1993.
Superior had  previously  done  construction  work for LLM on its Natchez  barge
("Lady Luck Natchez"), as well as some minor preparatory work on one other barge
of the Company. Such proceeding alleged damages of approximately $47,000,000, of
which approximately  $3,400,000 was alleged for additional  construction work on
Lady Luck Natchez and the  remaining  amount was alleged for unjust  enrichment,
for causing the bankruptcy of Superior and for future work Superior  expected to
perform for the  Company.  Superior  has  appealed  the  decision to dismiss the
action. The Company,  based in part on the advice of its counsel,  believes that
it has meritorious defenses and does not believe that the appeal of the decision
will have a material  adverse  effect on the  Company's  financial  condition or
results of operations.




<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



     16.          Commitments and Contingencies

        Lease Commitments

     MLI leases  approximately 1,000 acres of land surrounding the Helena Bridge
which connects Mississippi to Arkansas.  The MLI lease provides that the monthly
lease payment would increase by $150,000 per month  beginning July 1, 1995 until
an  additional  casino  either  north or south of the Lady  Luck  Rhythm & Blues
property  commenced  operation.  In accordance  with the lease  agreement,  this
additional rent was paid by the Company.  With the opening of the Country Casino
on May 21, 1996, this provision was satisfied and the rental payment reverted to
a percentage basis.

     LLGC on its own or through its operating  subsidiaries,  has entered into a
series of leases and options to lease in various locations where it is operating
or intends to develop and operate dockside casinos. The leases are primarily for
a term of 40 years from the date of execution  and are  cancelable at the option
of LLGC with a maximum period of notice of 60 days with the exception of certain
leases entered into by LLB and LLG which are  cancelable  upon six months notice
on the fifth  anniversary of the  commencement  date of such leases and upon six
months notice on any fifth  anniversary date thereafter.  In addition,  LLGC, on
its own or through its operating subsidiaries,  has entered into certain options
to either lease or purchase  additional  property in other  states.  Most of the
leases  are  contingent  upon  regulatory  approval  of the lease and all leases
contain certain periodic rent adjustments. Rent expense incurred under operating
leases was  approximately  $8,934,000,  $8,380,000  and $4,514,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.

     Prior  to  suspending   development   of  a  planned  casino  in  Gulfport,
Mississippi,  the  Company  entered  into three  leases for real  property  (the
"Gulfport Lease"). The leases currently require annual payments of approximately
$920,000 and provide for future increases based on the Consumer Price Index. The
Company is seeking joint venture  partners to assume the leases or invest in the
proposed  casino project;  however,  there can be no assurance that such a joint
venture  will be  consummated.  The  principal  lease  is  terminable  by LLG in
November 1998 and requires an annual lease payment of approximately $550,000 per
year  through such date.  The Company was required to prepay the lease  payments
for the twelve months  ending  November  1998.  The Company was required to make
improvements to the leased property of at least $1.0 million on or before May 8,
1995 (the "Improvement  Requirement").  While the Company has spent in excess of
$1.0 million on the Gulfport Project, the landlord,  while not now claiming that
the  Company  is in  default,  has  reserved  the right to claim  that Lady Luck
Gulfport has not satisfied the Improvement Requirement.  The Company has been in
discussions with third parties,  including joint venture partners,  regarding an
assumption  of  the  Gulfport  Lease.  There  can  be  no  assurance  that  such
negotiations  or  discussions  will  be  successful.  Because  the  Company  has
suspended  development  of the  Gulfport  Project and in order to  conserve  its
funds,  the  Company may not make the  required  monthly  lease  payments in the
future.  Accordingly,  a reserve of  approximately  $600,000  was provided as of
December  31, 1995 to fully  reserve the  prepaid  lease  payment for the twelve
months ending November 1998, and an additional reserve of approximately $350,000
was  provided  as of  December  31,  1996 to reserve a portion  of future  lease
payments.

     Future minimum lease commitments under  non-cancelable  long-term operating
leases for the years ending December 31, are as follows (in thousands):

     1997..............................................           $   3,500
     1998..............................................               2,995
     1999..............................................               2,128
     2000..............................................               2,083
     2001..............................................               1,771
     Thereafter........................................              33,887
        Total..........................................           $  46,364

         Central City Memorandum of Understanding

     During  November  1996,  GCI  entered  into  a  non-binding  Memorandum  of
Understanding (the "Memorandum") with Bullwhackers.  The Memorandum provides for
a combination of the respective companies' gaming establishments which currently
operate on adjacent real property in Central City,  Colorado and the use of, but
not the title  transfer or  assumption of debt related to, the assets of GCI and
Bullwhackers.  Pursuant to the Memorandum,  Bullwhackers shall provide resources
and  expertise to manage the joint  operation  subsequent  to the  completion of
certain  capital  improvements  to be made by GCI to combine the  facilities and
improve GCI's gaming  equipment,  which capital  improvements  shall in no event
exceed $1.5 million.  The Memorandum  provides for  distributions  to be made at
least quarterly in accordance with certain  priorities which first recognize the
capital improvements to be made by GCI. The Memorandum provides GCI an option to
purchase the assets of Bullwhackers and gives Bullwhackers an option to purchase
the assets of GCI upon advance written notice after the joint facility commences
gaming  operations.  In  addition,  the  Memorandum  provides  a put  option for
Bullwhackers  to sell its assets to GCI under  similar  terms.  The option price
shall be determined based on carrying amounts or earnings multiples and shall be
at  discounted  amounts  if the sale is within a certain  period and shall be in
exchange for certain  consideration,  a portion of which may include LLGC common
stock.  The  transactions  contemplated by the Memorandum are subject to various
contingencies  including,  inter alia,  the due diligence  investigation  of the
parties,  governmental approvals, approval by the Boards of Directors of GCI and
Bullwhackers,  and the  negotiation  and  execution  of  definitive  agreements.
However,  no  assurance  can  be  provided  that  these  contingencies  will  be
satisfied.

        Construction Commitments

     The  Company  has  entered  into an  agreement  for the  construction  of a
cruising  gaming  vessel in the amount of $16.0  million and as of December  31,
1996,  approximately  $6.0  million has been  expended  under this  contract and
approximately  $1.9  million  is  included  in  construction   payables.  It  is
anticipated  that  this  vessel  will be  utilized  by LLK and,  therefore,  the
Missouri Project will be responsible for payment of the remaining  amounts under
the contract.  However,  if the Missouri  Project is not consummated the Company
may be responsible for the then outstanding obligations.

        Development Stage Projects

     In addition to its Operating Casinos, the Company has dockside or riverboat
casino  projects in various  stages of  development  in Kimmswick,  Missouri and
Vicksburg,  Mississippi.  The current status of each of these  Development Stage
Projects is described below.

        Kimmswick, Missouri

     Previously,  the Company and a local  investor  (the  "Original  Investor")
intended to develop a themed hotel and entertainment center,  including a casino
on a cruising vessel,  in Jefferson County,  Missouri,  located just outside the
city of Kimmswick and  approximately  20 miles south of St. Louis. At that time,
the Original Investor owned  approximately 7% of the Missouri Project.  However,
construction of the Missouri Project was delayed due to the prohibition  against
games of chance (slot machines and roulette)  until Missouri  voters  ratified a
constitutional  amendment in November 1994. The Company  determined  that it was
not in a position to commit additional  capital to the Missouri  Project.  Thus,
management  determined that it was in the Company's best interests to seek a new
joint venture partner to assist in completion of the Missouri Project.

     Accordingly, on November 30, 1995, LLK entered into an Agreement of General
Partnership  (the "Kimmswick  Agreement") with Davis Gaming Company II ("Davis")
to form a joint venture (the "Kimmswick Joint Venture") to construct and operate
a hotel  and  casino on an  approximately  45-acre  parcel of land in  Jefferson
County, Missouri (the "Kimmswick


<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



Site").  Through December 31, 1996, the Company had expended  approximately $8.4
million in the Missouri Project.  Such investment consists of approximately $6.0
million  for  construction  of  the  partially   finished  cruising  vessel  and
approximately $2.4 million in other costs associated with the development of the
project.

     Pursuant to the Kimmswick  Agreement,  LLK will  contribute  certain assets
with a book value of  approximately $8 million to the Kimmswick Joint Venture in
consideration  of a 40% interest in the  Kimmswick  Joint Venture (if the assets
contributed by LLK are  determined to have a value of less than $8 million,  LLK
will  have  to  contribute  additional  cash or  assets  in the  amount  of such
shortfall or its interest in the Kimmswick Joint Venture will be proportionately
reduced) and Davis will contribute $15 million in cash in consideration of a 60%
interest  in the  Kimmswick  Joint  Venture.  Generally,  LLK's  interest in the
Kimmswick Joint Venture will not be reduced below 20%. In addition, Davis agrees
either to obtain  financing on behalf of the Kimmswick  Joint Venture or provide
additional  capital to the  Kimmswick  Joint Venture in amounts  aggregating  an
additional $57 million. Such additional capital contributions by Davis would be,
depending upon the circumstances under which such contributions are made, either
treated as  preferred  capital  contributions  or result in Davis  receiving  an
increased  interest in the Kimmswick Joint Venture.  In the event that the costs
of completing  the first two phases of the Missouri  Project exceed $80 million,
each of LLK and Davis will have the right,  but not the  obligation,  to make an
additional capital  contribution to the Kimmswick Joint Venture based upon their
pro rata share of the additional amount of required funding. If only one of such
partners elects to contribute  additional capital,  the contributing partner may
elect to withdraw such contribution,  to advance the non-contributing  partner's
share and have the entire contribution treated as a loan to the joint venture or
to  advance  the  non-   contributing   partner's  share  and  have  the  entire
contribution treated as an additional capital contribution (which will result in
a proportionate  adjustment of the partners'  respective  interests in the joint
venture). The partners will have no other right or obligation to make additional
capital contributions to the joint venture.

     The  obligations  of Davis to contribute  capital to, or otherwise  provide
financing  to, the  Kimmswick  Joint  Venture  are  subject to  satisfaction  of
numerous  conditions,  including that there shall be no governmental  regulation
that is likely to increase  the cost of, or diminish  the EBITDA to be generated
by, the Missouri  Project in amounts  exceeding  certain  thresholds  and that a
gaming  license shall have been obtained  from the Missouri  Gaming  Commission.
There can be no assurance  that any of such  conditions  will be satisfied  and,
therefore,  there can be no assurance  that the Kimmswick  Joint Venture will be
funded.

     Development  of the  Missouri  Project  is subject  to  approval  by gaming
authorities  in the State of  Missouri.  The  Company  has filed an  application
seeking such  approval.  The State of Missouri  investigates  applicants  at its
discretion and there can be no assurance that the Company's  application will be
actively reviewed in future periods. In addition,  a person owning real property
adjacent to the site of the Kimmswick Project was seeking to overturn  decisions
by the Jefferson County Commission (the "Commission") with respect to the zoning
of such  site.  A trial was  conducted  in April  1996 and the court  decided to
uphold the zoning decisions made by the Commission.

     Beginning  with the first quarter in which the Kimmswick  Joint Venture has
operating  income,  the joint venture will distribute 80% of its Available Funds
(defined as net income less debt  repayments and capital  expenditure  and other
reserves) in each of the first three fiscal  quarters of each fiscal year to the
partners and, at the end of each fiscal year, the joint venture will  distribute
an amount which,  together with all other amounts previously  distributed during
such  fiscal  year,  equals 90% of  Available  Funds for such fiscal  year.  All
distributions  of Available  Funds shall be made first to Davis to the extent of
its priority or preferred  interest  and then to the partners in  proportion  to
their  respective  interests in the joint venture.  LLK will also be entitled to
certain additional distributions to the extent that its tax liability in respect
of the joint venture exceeds the amount otherwise distributed to it.

     The Kimmswick Agreement provides that the Company will manage the Kimmswick
Joint Venture for a five-year  term.  The Company will be paid a management  fee
equal to 2% of the joint  venture's  gross revenues plus 7% of the EBITDA of the
joint  venture but such  management  fee will in no event exceed 4% of the joint
venture's gross revenues and the aggregate



                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



management fee in any year plus the amount of all  distributions  to LLK in such
year  generally  will not exceed the  amount of  distributions  to Davis in such
year. LLK's continued  engagement as manager of the Kimmswick Joint Venture will
be dependent upon,  among other things,  the achievement of certain  performance
standards.  In addition,  upon meeting certain other performance  criteria,  LLK
will have the  unilateral  right to manage the  Kimmswick  Joint  Venture for an
additional five years.

     The Company  has  provided  no reserve  for the assets  designated  for the
Kimmswick Joint Venture. Management believes that the project is viable and that
the assets as of December 31, 1996 are stated at estimated net realizable value.
This  assumption  is based  upon  expected  future  economic,  market and gaming
regulatory  conditions.  Changes in these assumptions could result in changes in
the estimated net realizable value of the property.

         Vicksburg, Mississippi

     The Company's planned casino project in Vicksburg,  Mississippi is expected
to be  located  on  approximately  23.9  acres  of  land  owned  by the  Company
immediately south of the I-20 bridge along the Mississippi River, with access to
Washington  Street (the "Vicksburg  Project").  The original  Vicksburg  Project
plans include a "Monte Carlo"  themed  32,000  square foot  dockside  casino,  a
250-room  hotel,  934 parking  spaces,  restaurant  facilities and an arcade.  A
gaming  license was granted to LLV on August 18, 1994.  As of December 31, 1996,
approximately  $14.4  million  has been  spent by the  Company  to  develop  the
Vicksburg Project  (including  approximately  $7.0 million to acquire the land).
Reserves of $3.8 million were  provided in 1994 to reduce the carrying  value of
the Vicksburg  Project  assets to estimated net  realizable  value.  The Company
currently  estimates  that it will cost an additional  $47.9 million to complete
construction and commence  operations of the Vicksburg Project.  The Company has
ceased  committing  material amounts of capital to the Vicksburg  Project and is
considering  alternatives to provide a return on its investment in the Vicksburg
Project, either through formation of a joint venture to complete and operate the
project, or through the sale of certain assets related thereto.  There can be no
assurance that the Company will form a joint venture or sell such assets.

     Management's  calculation of net realizable value is based upon assumptions
regarding future economic, market and gaming regulatory conditions including the
viability of the Vicksburg site for the development of a casino project. Changes
in these  assumptions  could result in changes in the estimated  net  realizable
value of the property.

         Environmental Matters

     The Company is subject to certain  federal,  state and local  environmental
protection,  health and safety laws,  regulations  and ordinances  that apply to
businesses  generally,  such as the Clean  Air Act,  the Clean  Water  Act,  the
Resource  Conservation  and Recovery Act, CERCLA,  the  Occupational  Safety and
Health Act, and similar state statutes.  The Colorado casino  operations of Lady
Luck  Central City are located  generally  within the Central  City/Clear  Creek
Superfund  Site as designated by the EPA pursuant to CERCLA.  The Superfund Site
includes numerous specifically identified areas of mine tailings and other waste
piles  from  former  gold  mine  operations  that  are the  subject  of  ongoing
investigation and cleanup by the EPA and the State of Colorado.  CERCLA requires
cleanup of sites from which  there has been a release or  threatened  release of
hazardous  substances  and  authorizes  the EPA to take any  necessary  response
actions at Superfund sites,  including ordering Potentially  Responsible Parties
("PRP's") to clean up or  contribute to the cleanup of a Superfund  site.  PRP's
are  broadly  defined  under  CERCLA,  and include  past and present  owners and
operators of a site. Courts have interpreted CERCLA to impose strict,  joint and
several liability upon all persons liable for response costs.

     The Vicksburg Site had been used as a bulk petroleum storage facility since
the early 1950's,  and contained  above ground storage tanks and barge and truck
loading  docks  associated  with that  operation.  Known  releases of  petroleum
products  from three of the seven tanks have  occurred  since  1986,  along with
other small releases at various locations on site. The Subsurface  Assessment of
the environmental  condition of the site by an outside environmental  consultant
indicated that certain


<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



of the soils at the site  were  contaminated  with  petroleum  hydrocarbons  and
associated  volatile organic compounds,  and that such contamination was present
in significant concentrations in some locations on site.

     Remediation efforts at the Vicksburg Site are complete.  Under the terms of
the acquisition of the Vicksburg Site, the purchase price for the Vicksburg Site
of  $4.5 million  was placed in an escrow  account,  with all costs  incurred to
remediate environmental conditions on site paid out of such escrow account (with
any funds  remaining  after  remediation  going to the  seller of the  Vicksburg
Site). On February 21, 1996, the Mississippi Department of Environmental Quality
determined that the environmental  remediation conducted by the seller meets all
federal  and  state  standards,  and has  certified  that no  further  action is
required.  The entire  remediation cost was paid out of the escrow fund, and the
Company did not incur any of these costs.  However, no assurance can be provided
that  the  Mississippi  Department  of  Environmental  Quality  or  the  Federal
Environmental  Protection  Agency will not alter  target  cleanup  levels in the
future,  resulting in  additional  cleanup  requirements.  This would expose the
Company to additional  liability as the owner of the property,  and could result
in a material delay of the construction of new facilities on-site.

     In the course of conducting the environmental investigation at the proposed
site for Lady Luck Gulfport, the Company identified certain contamination at the
site. Pursuant to an administrative  order issued by the Mississippi  Department
of Environmental  Quality, the Company undertook remedial activities,  including
soil  remediation  and the  installation  of groundwater  monitoring  wells.  No
additional  remediation is currently  required,  although some  additional  soil
remediation  may be  required  in the course of  obtaining  a  building  permit.
Although there can be no assurances,  the Company believes that the cost of such
additional soil remediation, if any, will not be material.

     Although  the  Company  knows of no other  pre-existing  conditions  at the
intended sites for its development or pre-development  stage projects that will
result  in any  material  environmental  liability  or  delay,  there  can be no
assurance  that  pre-existing  conditions  will not be discovered  and result in
material liability or delay to the Company.

     Other  than  those  described,  the  Company  has not  made,  and  does not
anticipate  making,  material  expenditures  with respect to such  environmental
protection, and health and safety laws and regulations;  accordingly, no accrual
for any costs has been made. However, the compliance or cleanup costs associated
with such laws, regulations and ordinances may result in future additional costs
to the Company's operations.

     For properties currently in operation or under development, the Company has
taken  extra   precautions  to  minimize  the   possibility   of   environmental
contamination.  The  Company  does  not  believe  that any  significant  capital
expenditures to monitor or reduce  hazardous  substances or other  environmental
impacts are currently required.  As a result, near term reclamation  obligations
are not expected to have a significant impact on the Company's liquidity.


     17.          Expansion Project and Hotel Acquisitions

         Country Casino, Pavilion and Riverbluff

     In an  endeavor to service  excess  demand,  defend its market  position in
light of the project additions and enhancements planned or under construction at
competing casinos in neighboring Tunica County, Mississippi, and satisfy certain
provisions of its land lease, MLI expanded its casino and non-gaming  facilities
during 1996. The expansion  project (the  "Expansion"),  which opened on May 21,
1996,  is made up of the "Country  Casino" and the  "Pavilion."  Country  Casino
offers  approximately 33,000 square feet of casino space, and as of February 28,
1997 approximately 680 slot machines,  including slot machines  transferred from
Lady Luck Rhythm & Blues, 18 table games, six poker tables and a food court. The
Pavilion consists of approximately 25,000 square feet of entertainment and event
space and two movie  theaters,  an arcade  and a logo  shop.  In  addition,  the
Expansion  includes  approximately an additional 650 parking spaces.  On July 3,
1996, MLI acquired the


<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



Riverbluff  in Helena,  Arkansas.  The  Riverbluff  is  located at the  Arkansas
entrance  to the  bridge  which  crosses  the  Mississippi  River  and  provides
immediate access to its Coahoma County,  Mississippi facilities.  The Riverbluff
features 120 guest rooms,  adding to the existing 173 guest rooms at the Coahoma
County  Mississippi site. The Company purchased the Riverbluff for approximately
$1.0  million,  comprised  of cash of $0.6  million and a mortgage  note for the
balance.

         River Park

     On April 15, 1996,  LLM  purchased  from River Park Hotel Group,  Inc. (the
"Seller") the River Park, a 147-room hotel in Natchez,  Mississippi. The Company
purchased  the River Park for $4.0  million,  with $1.0  million paid in cash at
closing  together with a non-recourse  promissory  note on the unpaid balance at
the prime rate plus 1.5% with equal  quarterly  installments  (based on a twenty
year  amortization  schedule) and a balloon payment due on the tenth anniversary
date of such note. The River Park was purchased  subject to an existing lien for
an  outstanding  note on the property  which was  retained  with the Seller upon
purchase.  In accordance with the purchase agreement,  the Seller must apply the
Company's  quarterly  installments to pay down the note the balance of which was
$830,000 at April 15, 1996. Upon final payment of the outstanding note, the lien
will be removed and clear title will revert to the Company.

     18.          Natchez Joint Venture

     In February  1996,  the Company had  executed a  definitive  joint  venture
agreement (the "Natchez  Agreement") to form a joint venture (the "Natchez Joint
Venture")  with Holstar,  Inc., a Virginia  corporation  ("Holstar")  to own and
operate  the  dockside  casino,  currently  operated  by the Company in Natchez,
Mississippi,  and the 125-room Eola Hotel,  owned by Holstar.  During 1996,  the
Company has elected to terminate the Natchez  Agreement and not pursue formation
of a joint venture.  The Company retained deposits  forfeited by Holstar of $0.3
million upon termination. Certain conditions which had not been met entitled the
Company to terminate the Natchez Agreement at its discretion.

      19.         Summarized Financial Information

     Summarized  balance sheet  information of LLK, a partially owned subsidiary
of LLGC,  as of December 31, 1996 and 1995,  for which assets of the  subsidiary
collateralize the outstanding 2001 Notes, is as follows (in thousands):

                               December 31, 1996         December 31, 1995

     Current assets              $           50            $          50
     Property and equipment                 726                      726
     Other assets                         1,403                    1,150
     Total assets                $        2,179            $       1,926

     Current liabilities         $            -            $           -
     Long-term liabilities                2,429                    2,176
     Stockholders' deficit                 (250)                    (250)
     Total liabilities and
       stockholders' deficit     $        2,179            $       1,926

     LLK had no operations for the years ended December 31, 1996, 1995 and 1994.
Stockholders'  deficit represents the write- down of certain project development
costs during 1994.




<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996



     The following  subsidiaries  of the Company are not  guarantors of the 2001
Notes:  LLDC,  Lady  Luck  Cape  Girardeau  and  Lady  Luck  Lawrenceburg.  Each
subsidiary that is not a guarantor of the 2001 Notes is currently  inactive.  It
is the intent of the Company to wind down the operations of these  subsidiaries.
Accordingly, no separate financial information is being provided with respect to
these non-guarantor subsidiaries.

     Substantially  all  assets  of Lady Luck  Gaming  Finance  Corporation  and
subsidiaries   collateralize  2001  Notes.  The  following  presents  summarized
consolidated  balance  sheets as of December  31,  1996 and 1995 and  summarized
consolidated  statements of operations  for each of the years ended December 31,
1996, 1995 and 1994, for Lady Luck Gaming Finance Corporation and subsidiaries.

<TABLE>
<CAPTION>

                                          LADY LUCK GAMING FINANCE CORPORATION AND SUBSIDIARIES
                                                       CONSOLIDATED BALANCE SHEETS
                                                    As of December 31, 1996 and 1995
                                                             (in thousands)

                                                                 ASSETS
<S>           <C>                                             <C>                         <C>

                                                                 December 31,              December 31,
                                                                     1996                      1995
              Current assets:
                  Cash and cash equivalents.................   $     15,371               $    22,146
                  Restricted cash...........................              -                     8,858
                  Accounts receivable.......................          1,223                       396
                  Inventories...............................          1,198                       885
                  Prepaid expenses..........................          2,412                     2,418
                      Total current assets..................         20,204                    34,703

              Total property and equipment, net.............        172,603                   154,954

              Other assets:
                  Pre-opening costs.........................          1,353                     1,100
                  Deferred financing fees and costs, net              3,605                     4,470
                  Investment in unconsolidated
                      affiliates, net.......................         21,449                    17,619
                  Other.....................................          3,117                     2,491
                                                                     29,524                    25,680

              TOTAL ASSETS..................................     $  222,331                $  215,337


</TABLE>

<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996


<TABLE>
<CAPTION>

                                          LADY LUCK GAMING FINANCE CORPORATION AND SUBSIDIARIES
                                                       CONSOLIDATED BALANCE SHEETS
                                                    As of December 31, 1996 and 1995
                                                             (in thousands)

                                             LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

                                                                                           December 31,    December 31,
                                                                                               1996            1995
            <S>                                                                            <C>             <C>

            Current liabilities:
                  Current portion of long-term debt.........                               $    3,288      $    5,622
                  Accrued interest..........................                                    1,818           2,326
                  Accounts payable..........................                                    4,358           2,234
                  Construction and retention payables.......                                    1,957           3,126
                  Due to Related Party......................                                   20,971          25,670
                  Other accrued liabilities.................                                    7,277           7,566
                      Total current liabilities.............                                   39,669          46,544

                      Mortgage notes payable................                                  173,500         173,500
                      Other long-term debt..................                                    7,506           3,338
                           Total liabilities................                                  220,675         223,382

                  Commitments and contingencies

                  Stockholders' equity (deficit):
                      Retained earnings/(accumulated
                           deficit).........................                                    1,656          (8,045)
                      Total stockholders' equity (deficit)                                      1,656          (8,045)

                  TOTAL LIABILITIES AND
                      STOCKHOLDERS' EQUITY
                      (DEFICIT).............................                                $ 222,331      $  215,337


</TABLE>

<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1996


<TABLE>
<CAPTION>

                                          LADY LUCK GAMING FINANCE CORPORATION AND SUBSIDIARIES
                                                  CONSOLIDATED STATEMENTS OF OPERATIONS
                                          FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
                                                             (in thousands)

                                                                        1996               1995             1994
<S>                   <C>                                            <C>               <C>              <C>
                      Revenues:
                           Gross revenues...................         $ 174,234         $  158,412       $   125,134
                           Less: Promotional allowances                (12,527)            (8,821)           (7,979)
                           Net revenues.....................           161,707            149,591           117,155

                      Costs and expenses:
                           Operating department expenses                66,041             60,262            50,300
                           Selling, general and administrative          46,994             46,536            44,372
                           Related party management/license
                             fees...........................             5,586              5,520             2,471
                           Depreciation and amortization                11,170              9,586             6,999
                           Settlement of a claim............             1,100                  -                 -
                           Pre-opening expenses.............               247                  -             2,970
                           Project development cost write-
                             downs and reserves.............               354                350             9,528
                           Abandonment loss.................                 -                  -             9,344
                           Total costs and expenses.........           131,492            122,254           125,984

                           Operating income (loss)..........            30,215             27,337            (8,829)

                      Other income (expense):
                           Interest income..................             1,030              1,208             1,717
                           Interest expense.................           (22,165)           (20,049)          (16,909)
                           Other............................               690                 75              (157)

                      Income (loss) before income tax
                           (provision) benefit and
                           extraordinary items..............             9,770              8,571           (24,178)

                      Income tax (provision) benefit........               (69)              (401)            1,171

                      Income (loss) before extraordinary
                           item.............................             9,701              8,170           (23,007)
                      Extraordinary gain on early
                           extinguishment of debt...........                 -              2,257             1,115

                      NET INCOME (LOSS).....................       $     9,701          $  10,427         $ (21,892)
</TABLE>

<PAGE>

ITEM 14(d)



                              FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1996 AND 1995
             TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



<PAGE>




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Members of
Lady Luck Bettendorf, L.C.:


     We have audited the  accompanying  balance sheets of LADY LUCK  BETTENDORF,
L.C. (the  "Company")  (an Iowa limited  liability  company) as of  December 31,
1996,  and 1995, and the related  statements of operations,  changes in members'
equity and cash flows for the year ending  December  31, 1996 and for the period
April 21,  1995  (commencement  of  operations)  to  December  31,  1995.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material respects,  the financial position of LADY LUCK BETTENDORF,  L.C.
as of  December 31,  1996,  and 1995,  and the results of its operations and its
cash flows for the year ended  December  31,  1996 and for the period  April 21,
1995, to December 31, 1995, in conformity  with  generally  accepted  accounting
principles.


                                                             ARTHUR ANDERSEN LLP

Chicago, Illinois,
February 26, 1997


<PAGE>
<TABLE>
<CAPTION>

                                        LADY LUCK BETTENDORF, L.C.
                                              BALANCE SHEETS
                                    AS OF DECEMBER 31, 1996 AND 1995


                                                 ASSETS
<S>                                                                               <C>               <C>

                                                                                     1996              1995

CURRENT ASSETS:
     Cash and cash equivalents                                                    $5,119,000        $2,569,000
     Accounts receivable, net of allowance for doubtful
       accounts of $181,000 and $80,000, respectively                                 10,000           106,000
     Inventories                                                                     125,000            75,000
     Prepaid expenses and other current assets                                       681,000           392,000
               Total current assets                                                5,935,000         3,142,000

PROPERTY AND EQUIPMENT:
     Leasehold improvements                                                        4,069,000         4,018,000
     Furniture, fixtures and equipment                                             7,042,000         5,674,000
                                                                                  11,111,000         9,692,000
     Less: Accumulated depreciation                                               (1,822,000)         (676,000)
                                                                                   9,289,000         9,016,000
     Construction in progress                                                      3,146,000         2,419,000
             Total property and equipment, net                                    12,435,000        11,435,000

     Total assets                                                                $18,370,000       $14,577,000

                   LIABILITIES AND MEMBERS' EQUITY:
CURRENT LIABILITIES:
     Current portion of long-term debt                                            $1,245,000        $3,332,000
     Accounts payable                                                              1,334,000           958,000
     Accounts payable - affiliates                                                   210,000            24,000
     Accrued gaming taxes                                                            610,000           534,000
     Accrued progressive & slot club liabilities                                     590,000           576,000
     Token and chip liability                                                        221,000            80,000
     Accrued liabilities                                                           1,282,000         1,604,000
               Total current liabilities                                           5,492,000         7,108,000


     Long-term debt, less current portion                                          1,107,000         1,880,000
     Total liabilities                                                             6,599,000         8,988,000


MEMBERS' EQUITY                                                                   11,771,000         5,589,000

Total liabilities and members' equity                                            $18,370,000       $14,577,000




                         The accompanying notes are an integral part of these statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                            LADY LUCK BETTENDORF, L.C.

                                             STATEMENTS OF OPERATIONS

                      FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD APRIL 21, 1995
                                (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995

<S>                                                                     <C>                  <C>


                                                                             1996                 1995
REVENUES:
     Casino                                                              $ 62,202,000        $ 34,807,000
     Food and beverage                                                      5,680,000           2,933,000
     Other                                                                    664,000             385,000
               Gross revenues                                              68,546,000          38,125,000
     Less:  Promotional allowances                                         (3,344,000)         (1,650,000)

               Net revenues                                                65,202,000          36,475,000

COSTS AND EXPENSES:
     Casino                                                                16,080,000           9,057,000
     Food and beverage                                                      2,413,000           1,572,000
     Gaming and admission taxes                                            15,731,000           8,477,000
     Management fees - affiliates                                           1,579,000             782,000
     Marine operations                                                      2,340,000           1,515,000
     Selling, general and administrative                                   12,766,000           7,688,000
     Rental expense - affiliates                                            5,760,000           3,881,000
     Other expenses                                                           945,000             437,000
     Depreciation                                                           1,156,000             676,000
     Pre-opening expenses                                                        -              2,467,000

             Total costs and expenses                                      58,770,000          36,552,000

             Operating income(loss)                                         6,432,000            (77,000)

     Interest income                                                           51,000              34,000
     Interest expense                                                        (301,000)           (368,000)
                                                                         ------------        ------------

             Net income(loss)                                            $  6,182,000       $    (411,000)




                         The accompanying notes are an integral part of these statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                            LADY LUCK BETTENDORF, L.C.

                                     STATEMENTS OF CHANGES IN MEMBERS' EQUITY

                      FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD APRIL 21, 1995
                                (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995

<S>                                              <C>                         <C>                 <C>

                                                                               Bettendorf
                                                                               Riverfront
                                                    Lady Luck                 Development
                                                 Quad Cities, Inc.           Company, L.C.           Total

Contributed capital                                  $3,000,000                $3,000,000        $ 6,000,000
Net Loss                                               (206,000)                 (205,000)          (411,000)
Balance at December 31, 1995                          2,794,000                 2,795,000          5,589,000
Net Income                                            3,091,000                 3,091,000          6,182,000
Balance at December 31, 1996                         $5,885,000                $5,886,000        $11,771,000





























                        The accompanying notes are an integral part of these statements.
</TABLE>


<PAGE>
<TABLE>
<CAPTION>

                                            LADY LUCK BETTENDORF, L.C.

                                             STATEMENTS OF CASH FLOWS

                      FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD APRIL 21, 1995
                                (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995


<S>                                                                                <C>                <C>

                                                                                     1996                1995
CASH FLOWS FROM OPERATING ACTIVITIES:

     Net income (loss)                                                             $6,182,000         $ (411,000)
     Adjustments to reconcile net income(loss) to net cash
     provided by operating activities:
     Depreciation                                                                   1,156,000            676,000
     Pre-opening expenses                                                                   -          2,467,000
     (Increase) decrease in operating assets:
           Accounts receivable, net                                                    96,000           (106,000)
           Inventories                                                                (50,000)           (75,000)
           Prepaid expenses and other current assets                                 (289,000)          (392,000)
     Increase (decrease) in operating liabilities:
           Accounts payable (including affiliates)                                    562,000            982,000
           Accrued gaming taxes                                                        76,000            534,000
           Accrued gaming liabilities                                                 155,000            656,000
           Other current liabilities                                                 (322,000)         1,604,000
     Net cash provided by operating activities                                      7,566,000          5,935,000

CASH FLOWS FROM INVESTING ACTIVITIES:
     Property and equipment additions                                              (1,362,000)        (5,049,000)
     Construction in progress                                                        (727,000)        (2,419,000)
     Pre-opening costs                                                                      -         (2,467,000)
     Net cash used in investing activities                                         (2,089,000)        (9,935,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds from borrowings                                                     645,000          2,833,000
     Payments on debt                                                              (3,572,000)        (2,264,000)
     Proceeds from contributed capital                                                      -          6,000,000
     Net cash provided(used)in financing activities                                (2,927,000)         6,569,000

NET INCREASE IN CASH AND CASH EQUIVALENTS                                           2,550,000          2,569,000
CASH AND CASH EQUIVALENTS:
     Beginning of period                                                            2,569,000                  -

     End of period                                                                 $5,119,000         $2,569,000

SUPPLEMENTAL DISCLOSURE:
      Cash paid for interest net of amounts capitalized of $100,000                  $301,000           $368,000
and $50,000 for 1996 and 1995, respectively

                        The accompanying notes are an integral part of these statements.
</TABLE>

<PAGE>

                           LADY LUCK BETTENDORF, L.C.

                      STATEMENTS OF CASH FLOWS (continued)

     FOR THE YEAR ENDED DECEMBER 31, 1996 AND FOR THE PERIOD APRIL 21, 1995
                (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995

     Supplemental Schedule of Non-Cash Investing and Financing Activities:

     The Company  entered  into several  contracts  with  manufacturers  for the
purchase of slot machines which totaled approximately $67,000 and $4,643,000 for
the year ended December 31, 1996 and the period ended December 31, 1995.

     During 1996,  approximately  $2,556,000 of long-term debt was refinanced at
more favorable terms to the Company.




































       The accompanying notes are an integral part of these statements.

<PAGE>
                           LADY LUCK BETTENDORF, L.C.

                          NOTES TO FINANCIAL STATEMENTS

                           DECEMBER 31, 1996 AND 1995


     1. THE COMPANY

     Bettendorf Riverfront Development Company, L.C. ("BRDC") and Lady Luck Quad
Cities,  Inc.  ("LLQC")  formed an Iowa  limited  liability  company,  Lady Luck
Bettendorf, L.C. (the "Company") for the purpose of operating a riverboat casino
on the  Mississippi  River  based in  Bettendorf,  Iowa.  Under the terms of the
Articles of Incorporation, the Company's term will expire in 2065. BRDC and LLQC
each contributed $3.0 million for a 50% membership interest in the Company.  All
net profits and losses from all operations of the Company are allocated  equally
between LLQC and BRDC.  BRDC and LLQC are each  represented by two managers with
most  management   decisions  of  the  Company,   including  capital  calls  and
distributions, requiring the approval of the majority of the managers.

     The Company commenced  operations on April 21, 1995. The Company is located
on a leased parcel of land which is adjacent to Interstate 74 on the Mississippi
River.  The  Company's  operation  consists of a 30,000  square foot casino on a
gaming vessel,  which is  approximately  300 feet by 100 feet, an  entertainment
area for  parties,  shows,  and special  events and, as of December  31, 1996, a
gaming area with  approximately  44 table and card games and 856 slot  machines.
The vessel has gaming  operations  on three  floors.  The first floor has a 19th
Century Iowa River theme,  the second floor has a sports theme  (including a 300
seat showroom) and the poker room is on the third floor. The vessel is certified
for  2,500  passengers  including  crew.  Other  related  facilities  include  a
restaurant,  gift shop,  commercial  center,  sports bar and  showroom and 1,000
parking spaces. The Company's market is concentrated in the local Quad City area
and the Chicago area serviced by ongoing bus programs.

     The Company is currently seeking financing for a $35.0 million project that
includes a 260 room hotel,  a 500 car  parking  garage,  an overpass  that would
allow  vehicles  to cross  over  active  railroad  tracks,  and a 30 to 100 slip
marina.  The Company is negotiating with the City of Bettendorf to provide up to
$7.5 million in tax increment  financing that would be used for the construction
of the parking  garage,  overpass  and marina.  The  commercial  center would be
developed for  administrative  offices,  banquet/meeting  room space, and retail
establishments.  The Company is negotiating  with a financial  institution.  The
Company  expects  to use  approximately  $5.0  million  of  its  funds  for  the
development of the project.


AGREEMENTS

City of Bettendorf "Development Agreement"

     The  Company  entered  into an  agreement  with the City of  Bettendorf,  a
municipal  corporation  of the State of Iowa,  for the purpose of  developing  a
gaming  operation  in the city.  In return for certain  conditions,  the City of
Bettendorf  endorsed  and  supported  the  Company in  obtaining  an Iowa gaming
license.  The Company is in compliance  with the  conditions of the agreement as
follows:

     a. The Company obtained an Iowa gaming license  effective April 1, 1995 and
began operations on April 21, 1995.

     b. The Company was to use  commercially  reasonable  efforts to  facilitate
completion of the existing  shopping center  improvements so that the commercial
center would be opened for business on or before September 1, 1996 (See Note 6).
The commercial center was opened in October 1995 for the holiday

<PAGE>

season and is expected to be  utilized  as part of the hotel  project  discussed
above.

     c. The Company is to pay a development  fee to the City of Bettendorf of 2%
on adjusted gross receipts  exceeding  $35,000,000 but not to exceed $44,000,000
during any twelve  month  period  starting on the day gaming  operations  began,
April  21.  The  maximum  revenues  subject  to the 2% fee  would be  $9,000,000
resulting in maximum fees of $180,000.  The Company has accrued fees of $180,000
and $128,000 as of December 31, 1996 and 1995, respectively.


     Riverbend Regional Authority "Operator's Contract"

     The  Company  entered  into  an  agreement  with  the  Riverbend   Regional
Authority, an Iowa not-for- profit corporation (the "RRA") and the holder of the
Iowa gaming license, to operate a gaming boat. The Company is in compliance with
the conditions of the agreement as follows:

     a. The Company has obtained and is  operating a riverboat  gaming  facility
with a minimum capacity of 900 gaming positions.

     b. The Company is to pay RRA $1.00 for each of the first 500,000 admissions
and $1.50 for each  admission  in excess  thereof  computed  on an annual  basis
commencing on the date gaming operations  began,  April 21. These admission fees
are paid weekly.

     c. If the adjusted  gross gaming  receipts  exceed  $44,000,000  during any
twelve month period starting on the day gaming  operations began, the Company is
required to pay to RRA 2% of any such excess. The Company exceeded this level on
or about  December  30,  1996 and began to make these  additional  contributions
weekly.  The Company  will pay these  contributions  weekly until April 20, 1997
(the end of the RRA  fiscal  year  for this  purpose)  and  will  expense  these
contributions as they are paid.

     d. The  Company has  executed a  "Development  Agreement"  with the City of
Bettendorf as required by this agreement.


     Lady Luck Casino, Inc. "Casino Management Agreement"

     The Company entered into an agreement with Andrew H. Tompkins and Lady Luck
Casino,  Inc. ("LLCI"),  a Nevada  corporation,  to manage the operations of the
Company.  In May 1996, Lady Luck Gaming  Corporation  ("LLGC") (the  "Management
Company"),  a Delaware corporation,  replaced LLCI as the manager of the casino.
Andrew  H.  Tompkins,  LLCI and  LLGC are all  affiliates  of the  Company.  The
Management Company is to supervise and control the Company's operations, provide
marketing  and  accounting  services,  allow  the use of the Lady  Luck  name in
connection  with the operations  and access to the customer list.  Cash payments
made by the Company to LLCI, LLGC and their affiliates for services  provided to
the  Company  or  payments  made on  behalf of the  Company  for  marketing  and
advertising production,  medical and other insurance,  401(k) plan contributions
and other items totaled  approximately  $1,885,000 and $998,000 for the year and
period ended December 31, 1996 and 1995, respectively, excluding management fees
and rental  expenses  paid to these  related  parties.  The  Management  Company
believes that all expenses and costs  applicable to the Company are reflected in
the accompanying financial statements on a basis which is representative of what
they would have been if the Company operated on a stand-alone basis.  Highlights
of the agreement are as follows:

     a.  Term - The term of the "Casino Management  Agreement" is from September
30, 1994 to September 30, 2033.

     b.  Management  Fee - A management  fee of 2% of gaming gross  revenues (as
defined) plus 7% of earnings before income tax,  depreciation  and  amortization
(as  defined),  together not to exceed 4% of the annual casino gross revenue (as
defined), will be paid to the Management Company. Effective in June 1996,

<PAGE>

the  management  fee was  reduced by  $37,500  per month.  The  management  fees
incurred during the periods ended December 31, 1996 and 1995 were  approximately
$1,579,000 and $782,000,  respectively.  The outstanding  and unpaid  management
fees at December 31, 1996 and 1995,  were  approximately  $70,000 and  $582,000,
respectively.  BRDC  will  provide  consulting  services  concerning  licensing,
staffing, and management of the marine aspects of the gaming vessel and any land
based  development.  The  Management  Company  is to pay part of its fee,  up to
$325,000 annually, to BRDC for these consulting services.

     c.  Working  Capital  Reserve - The  agreement  requires  that  $500,000 be
maintained  in a casino  bank  account (as  defined) as working  capital for all
financial  needs of the casino.  At December 31, 1996 and 1995,  the casino bank
account  had  a  book  balance  of   approximately   $2,400,000   and  $315,000,
respectively.  On December 28, 1995,  approximately  $302,000 was withdrawn from
this account for  operating  cash during the New Year's  weekend.  On January 2,
1996, approximately $1,089,000 was deposited back into this account.

     d. Maintenance Capital  Improvements and Furniture,  Fixtures and Equipment
"Replacement  Reserve Account" - The Management Company is required to reserve a
percentage  of Casino Gross  Revenues (as defined)  each year (the  "Replacement
Reserve Account") to pay the cost of additions to and replacements of furniture,
fixtures and equipment, and to provide for capital improvements as follows:

      -       1st operating year                                    1.5%
      -       2nd operating year                                    2.5%
      -       3rd operating year                                    3.0%
      -       4th operating year                                    4.0%
      -       5th operating year and each year thereafter           5.0%

     Although funds have not been  segregated into a replacement  account,  this
requirement  has been  constructively  met.  The  Company  has made and paid for
replacements and capital improvements from the Casino Bank Account, in excess of
the  approximately  $1,555,000  and $522,000  that should have been funded as of
December 31, 1996 and 1995, respectively.


     2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a. Estimates - The  preparation of financial  statements in conformity with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities,  and
disclosure of contingent  assets and  liabilities,  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual  results  could  differ  from  those  estimates,  but
management believes they will not be material.

     b. Cash and Cash  Equivalents  - The Company  considers  all highly  liquid
investments  purchased  with  original  maturity of three months or less as cash
equivalents.  The carrying amount of cash and cash equivalents  approximates its
fair value.

     c. Inventories - Inventories are stated at the lower of cost, as determined
by the first-in, first-out method, or market value.


<PAGE>
     d.  Property  and  Equipment - Property and  equipment  are stated at cost.
Included in the cost of the commercial  center is interest  incurred  during the
construction  period of approximately  $100,000 and $50,000 incurred in 1996 and
1995,   respectively.   Depreciation   is  computed  using   predominantly   the
straight-line  method for financial  reporting purposes and accelerated  methods
for income tax purposes. Estimated useful lives for financial reporting purposes
are as follows:

            Leasehold improvements 15-20 years
            Furniture, fixtures and equipment 5-7 years

     Costs of major improvements are capitalized,  while costs of normal repairs
and  maintenance  are charged to expense as  incurred.  Portions  of  furniture,
fixtures and equipment are pledged as  collateral  for long-term  debt (See Note
3).

     e. Revenue Recognition -

     Casino: In accordance with gaming industry practice, the Company recognizes
as casino revenues the net win from gaming  activities,  which is the difference
between  gaming  wins  and  losses.  Casino  revenues  are net of  accruals  for
anticipated  payouts of progressive slot jackpots and certain table games.  Such
anticipated  jackpot  payments  are  reflected  as  current  liabilities  in the
accompanying balance sheets.

     Food, Beverage,  Entertainment and Gift Shop: Revenues from food, beverage,
entertainment  and the gift shop are recognized at the time the related  service
or sale is performed/made.

     f.  Promotional  Allowances - The retail value of food,  beverage and other
items provided on a complimentary basis to customers without charge are included
in gross  revenues and then deducted as  promotional  allowances.  The estimated
cost  of  providing  these   promotional   allowances  are  included  in  casino
departmental expenses for the years ended December 31, 1996 and 1995 as follows:

                                          1996                         1995
      Food and Beverage                $2,981,000                   $1,693,000
      Gift Shop                            50,000                       45,000
         Total                         $3,031,000                   $1,738,000

     g. Mad Money Estimates - The Company provides Slot patrons incentives based
on the dollar amount of play on slot machines.  An accrual has been  established
based on an  estimate  on the  outstanding  value,  utilizing  the age and prior
history of redemptions.  This amount is reflected as a current  liability on the
accompanying balance sheets.

     h.  Advertising  -  Advertising  costs are  expensed  the  first  time such
advertisement appears. Total advertising costs (including direct mail marketing)
were approximately $1,399,000 and $1,050,000 in 1996 and 1995, respectively.

     i. Pre-Opening Costs - Pre-opening costs include direct incremental project
salaries and other  pre-opening  costs incurred during the pre-opening  phase of
projects.  All  pre-opening  costs directly  related to construction of projects
were  capitalized  as  incurred  and were  charged to expense in the period each
project commenced operations.

     j. Income  Taxes - No  provision  for U.S.  federal  income  taxes or state
income taxes is recorded in the financial  statements  as such  liability is the
responsibility of the members.

     k.  Reclassification  - Certain 1995  balances  have been  reclassified  to
conform to 1996 presentation.




<PAGE>
     3. LONG-TERM DEBT

     At December 31, 1996, long-term debt consisted of the following:


 a.  Northwest Bank and Trust Co. - Interest of
9.25%; principal payment of $100,000 per
month plus interest; due on demand not
earlier than February 1998 and no later than
October, 1998; collateralized by gaming
equipment and guaranteed up to $1,600,000
by affiliates of BRDC.                                               $2,300,000

 b.  Sigma Note - Imputed interest of 8%;
payment of $3,716 per month; for eighteen
months; due in March 1998; collateralized by                             52,000
gaming equipment.                                                     2,352,000

      Less:  current portion                                         (1,245,000)

            Total long-term debt                                     $1,107,000

         At December 31, 1995, long-term debt consists of the following:


 a.  International Gaming Technology (IGT) Note -
Imputed interest of 13.5% interest during the
first twelve months and prime plus 7% during
the last twelve months; monthly principal
payments of $187,872 during the first twelve
months and principal plus interest during the
final twelve months; due March 1997;
collateralized by IGT gaming equipment.                              $2,733,000

 b.   Bally's Note - Interest of 11%; payment of
$4,451 per month; for twelve months; due July
1996; collateralized by Bally gaming                                     26,000
equipment.

 c.   Bally's Note - Interest of 11%; payment of
$4,451 per month; for twelve months; due
September 1996; collateralized by Bally
gaming equipment.                                                        34,000

 d.   Bally's Note - Interest of 11%; payment of
$2,225 per month; for twelve months; due
September 1996; collateralized by Bally
gaming equipment.                                                        17,000

 e.   Rock Island Note - A construction loan with a
maximum principal sum of $2,500,000; interest
of 1% over prime; monthly interest only
payments until May of 1996 then monthly
interest plus $125,000 principal; due December
1997; collateralized by the Commercial Center.                        2,402,000
                                                                      5,212,000


<PAGE>

       Less:  current portion                                        (3,332,000)
              Total long-term debt                                   $1,880,000

     Prior to December 31, 1996, the Company  obtained  financing from Northwest
Bank at terms more  favorable  to the  Company to repay the IGT and Bally  notes
prior to their scheduled maturity.


     4. ACCRUED LIABILITIES

         Accrued liabilities consist of the following as of December 31,:
                                                             1996         1995
         Accrued salaries, vacation and bonuses          $  481,000   $  670,000
         Accrued management fee - affiliates                 70,000      582,000
         Accrued  taxes                                     479,000      293,000
         Other                                              252,000       59,000
            Total accrued liabilities                    $1,282,000   $1,604,000


     5. RELATED PARTY TRANSACTIONS

     The  Company has  entered  into  long-term  operating  leases with  related
parties. They are as follows:

     a.  Land - The  Company  has  entered  into  a  long-term  operating  lease
agreement  with BRDC.  The lease is for an initial  term of 10 years with six 10
year  options.  The parties  have set the lease  payment at $150,000  per month,
based on the  appraised  value.  The Company has an option to purchase  the land
during the initial term of the lease for its appraised fair market value.

     b. Boat - The Company  has entered  into a  long-term  operating  lease,  a
charter  hire  lease,  with  LLGC and Lady  Luck  Kimmswick,  Inc.,  a  Missouri
corporation. This lease is for an initial term of 5 years with a 10 year option.
The lease  payment is  $189,000  per month,  before use tax.  The Company has an
option to purchase the Boat during the initial  term of lease for its  appraised
fair market value.

     c.  Equipment - The Company has entered  into a long-term  operating  lease
with Lady Luck Gaming Finance  Corporation to lease equipment.  The lease is for
an initial term of 36 months with two 1 year renewal options.  The lease payment
of $122,000 per month was modified in June, 1996 via a written agreement between
the parties. Previously, the Company had been paying $100,000 per month.


     6. COMMERCIAL CENTER DEVELOPMENT

     The original  gaming license  granted to the Company in January 1995 by the
Iowa  Racing  and  Gaming  Commission  (the  "IRGC")  was  conditioned  upon the
Company's  construction of a 76,000 square foot commercial  center, on or before
April  1,  1996.  The  Company   fulfilled  this   commitment  by   accelerating
construction of the center. In October 1995, the Company completed  construction
of a 90,000 square foot center and opened a winter  warehouse  sale featuring 14
national  and local  tenants.  In January  1996,  the IRGC  determined  that the
Company had fulfilled all of its  obligations  and  conditions,  and renewed the
Company's  annual  gaming  license  through  March  31,  1997,  without  further
conditions.

     Since  completion of the center and the winter  warehouse sale, the Company
has  utilized  the  center for a variety  of  purposes.  The center has hosted a
number of arts and crafts shows,  trading card and  memorabilia  displays,  flea
markets, and other events of local and regional interest.  On December 31, 1996,
Jester's  Comedy Club opened for business in the center,  occupying 5,000 square
feet. The Company's future

<PAGE>
plans for the center  include  retail,  restaurant,  and banquet  facilities  in
connection  with the proposed  development of a full-service  hotel, on the site
adjacent to the center.  As the Company executes these plans,  additional tenant
and other  construction  costs will be incurred,  the amount of which depends on
the specific plan. Management intends to fund these costs from operations.


     7. LITIGATION

     On January  18,  1997,  a lawsuit was filed in the United  States  District
Court for the Central District of Illinois, Peoria Division, asserting claims in
excess of $2,000,000 for malicious  prosecution  and  intentional  infliction of
emotional  distress  arising  from the  plaintiff's  arrest for theft  after the
plaintiff stopped payment on $20,000 in checks at the casino in August 1995. The
Company is in the  discovery  stage and cannot  predict the ultimate  outcome of
this lawsuit, at this time.


     8. COMMITMENTS AND CONTINGENCIES

     Lease  Commitments - Future minimum lease  payments for the land,  boat and
gaming equipment required under operating leases that have non-cancelable  lease
terms in excess of one year as of December 31, 1996, are as follows:

                           1997                   $  6,118,000
                           1998                      4,805,000
                           1999                      4,256,000
                           2000                      4,251,000
                           2001                      4,248,000
                           Thereafter               13,656,000
                              Total               $ 37,334,000


     9. EMPLOYEE SAVINGS PLAN

     LLGC's 401(k) Savings Plan became  effective on November 1, 1994. Under the
plan,  all of the employees of the Company  after the  completion of one year of
service,  including at least 1,000 hours of credited  service,  as defined,  are
eligible to participate in the plan.  Eligible  employees can contribute from 1%
to 15% of their  compensation on a pre-tax basis. For each $1.00 of contribution
from the  employee,  the Company plans to match $0.25 on behalf of the employee,
with the employee  contribution to be matched not to exceed 4% of the employee's
compensation.  However,  the  matching  percentage  by the Company can vary each
year.  During 1996 and 1995, 492 and 10 employees,  respectively,  were eligible
for the plan and 125 and 4 employees,  respectively,  participated  in the plan.
The Company's  matching  contribution  was  $18,328 and $375 for 1996  and 1995,
respectively.




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

     Not applicable



     PART III

          The Board of  Directors of LLGC has  established  July 23, 1997 as the
     annual meeting date of shareholders.


     ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

          The  information  required  by this  Item  will be set forth in LLGC's
     Proxy Statement for the 1997 Annual Meeting of Shareholders of LLGC,  which
     information is incorporated by reference herein.


     ITEM 11.  EXECUTIVE COMPENSATION

          The  information  required  by this  Item  will be set forth in LLGC's
     Proxy Statement for the 1997 Annual Meeting of Shareholders of LLGC,  which
     information is incorporated by reference herein.


     ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The  information  required  by this  Item  will be set forth in LLGC's
     Proxy Statement for the 1997 Annual Meeting of Shareholders of LLGC,  which
     information is incorporated by reference herein.


     ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          The  information  required  by this  Item  will be set forth in LLGC's
     Proxy Statement for the 1997 Annual Meeting of Shareholders of LLGC,  which
     information is incorporated by reference herein.


     ITEM 14.     EXHIBITS AND REPORTS ON FORM 8-K

         (a)(1)   Financial Statements.

                  Included in Part II of this Report:

                  Report of Independent Accountants
                  Consolidated Balance Sheets as of December 31, 1996 and 1995
                  Consolidated Statements of Operations -- for the years
                    ended December 31, 1996, 1995 and 1994
                  Consolidated Statements of Mandatory Cumulative Redeemable
                    Preferred Stock and Stockholders'
                  Equity (Deficit) -- for the years ended December 31, 1996,
                    1995 and 1994
                  Consolidated Statements of Cash Flows -- for the years ended
                    December 31, 1996, 1995 and 1994
                  Notes to Consolidated Financial Statements


          (a)(2)  Financial Statement Schedules.

                  Included   in   Part  III of  this  Report  --  Unconsolidated
                    financial   statements  Lady  Luck  Bettendorf,   L.C.,  and
                    unconsolidated  50% or less  owned  investee  accounted  for
                    under the equity method included in Item 14(d):

                  Report of Independent Accountants
                  Balance Sheets as of December 31, 1996 and 1995
                  Statements of Operations -- for the year ended
                    December 31, 1996 and the period from commencement of
                    operations on April 21, 1995 to December 31, 1995
                  Statements of Mandatory Cumulative Redeemable Preferred Stock
                    and Stockholders' Equity (Deficit) -- for the years ended
                    December 31, 1996 and the period from commencement of
                    operations on April 21, 1995 to December 31, 1995
                  Statements of Cash Flows -- for the years ended
                    December 31, 1996 and the period from commencement of
                    operations on April 21, 1995 to December 31, 1995
                  Notes to Financial Statements


         (a)(3)   Exhibits.

     Exhibit
     Number       Description of Exhibits

          3.1  Certificate of Incorporation of Lady Luck Gaming Corporation,  as
               amended. Incorporated by reference to Exhibit 3.1 to the Form S-1
               Registration  Statement  filed by Lady  Luck  Gaming  Corporation
               under the Securities Act (No. 33-63930) (the "Form S-1").

          3.2  By-Laws of Lady Luck Gaming Corporation, as amended. Incorporated
               by reference to Exhibit 3.2 to the Form S- 1.

          4.1  Indenture  dated as of  February  17, 1994 by and among Lady Luck
               Gaming  Finance  Corporation,  the  Guarantors  named therein and
               First Trust National Association (the "Indenture").  Incorporated
               by reference to Exhibit 4.1 to the Annual Report on Form 10-K for
               the  fiscal  year ended  December  31,  1993 by Lady Luck  Gaming
               Corporation (the "Form 10-K").

          4.2  Registration  Rights  Agreement  dated as of February 17, 1994 by
               and among Lady Luck Gaming  Finance  Corporation,  the Guarantors
               named therein and the  Purchasers who were  signatories  thereto.
               Incorporated by reference to Exhibit 4.2 to the Form 10-K.

          4.3  Pledge  Agreement  dated as of  February  17, 1994 from Lady Luck
               Gaming  Finance  Corporation,  as Pledgor to First Trust National
               Association, as Trustee. Incorporated by reference to Exhibit 4.4
               to the Form 10-K.

          4.4  Pledge  Agreement  dated as of  February  17, 1994 from Lady Luck
               Gaming  Finance  Corporation,  as Pledgor to First Trust National
               Association, as Trustee. Incorporated by reference to Exhibit 4.4
               to the Form 10-K.

          4.5  Leasehold  Deed  of  Trust,  Assignment  of  Rents  and  Security
               Agreement  dated as of  February  17, 1994 by and among Lady Luck
               Gulfport,  Inc., as Trustor,  Jim B. Tohill as Trustee, and First
               Trust  National  Association,  as  Beneficiary.  Incorporated  by
               reference to National Exhibit 4.5 to the Form 10-K.

          4.6  Leasehold  Deed  of  Trust,  Assignment  of  Rents  and  Security
               Agreement  dated as of  February  17, 1994 by and among Lady Luck
               Mississippi,  Inc. as Trustor,  Jim B.  Tohill,  as Trustee,  and
               First Trust National Association, as Beneficiary. Incorporated by
               reference to Exhibit 4.6 to the Form 10-K.

          4.7  Leasehold  Deed  of  Trust,  Assignment  of  Rents  and  Security
               Agreement  dated as of  February  17, 1994 by and among Lady Luck
               Tunica,  Inc., as Trustor,  Jim B. Tohill, as Trustee,  and First
               Trust  National  Association,  as  Beneficiary.  Incorporated  by
               reference to Exhibit 4.7 to the Form 10-K.

          4.8  Leasehold  Deed  of  Trust,  Assignment  of  Rents  and  Security
               Agreement  dated as of  February  17, 1994 by and among Lady Luck
               Biloxi,  Inc., as Trustor,  Jim B. Tohill, as Trustee,  and First
               Trust  National  Association,  as  Beneficiary.  Incorporated  by
               reference to Exhibit 4.8 to the Form 10-K.

          4.9  Leasehold  Deed  of  Trust,  Assignment  of  Rents  and  Security
               Agreement  dated as of February  17,  1994 by and among  Magnolia
               Lady,  Inc.,  as Trustor,  Jim B. Tohill,  as Trustee,  and First
               Trust  National  Association,  as  Beneficiary.  Incorporated  by
               reference to Exhibit 4.9 to the Form 10-K.

          4.10 Leasehold  Deed  of  Trust,  Assignment  of  Rents  and  Security
               Agreement  dated as of  February  17, 1994 by and among Gold Coin
               Incorporated,  as Trustor,  Jim B. Tohill, as Trustee,  and First
               Trust  National  Association,  as  Beneficiary.  Incorporated  by
               reference to Exhibit 4.10 to the Form 10-K.

          4.11 First  Preferred  Vessel Mortgage on the Whole of the Lady Luck I
               dated as of February 17, 1994 from Lady Luck Mississippi, Inc. in
               favor  of  First  Trust  National  Association.  Incorporated  by
               reference to Exhibit 4.11 to the Form 10-K.

          4.12 First  Preferred  Fleet  Mortgage  on the  Whole of the Lady Luck
               Tunica I and Lady Luck  Tunica II dated as of  February  17, 1994
               from Lady Luck  Tunica,  Inc.  in favor of First  Trust  National
               Association.  Incorporated  by  reference  to Exhibit 4.12 to the
               Form 10-K.

          4.13 First  Preferred  Vessel  Mortgage  on the Whole of the Lady Luck
               Biloxi, Inc. dated as of February 17, 1994 from Lady Luck Biloxi,
               Inc. in favor of First Trust National  Association.  Incorporated
               by reference to Exhibit 4.13 to the Form 10-K.

          4.14 Security  Agreement  dated as of February 17, 1994 by and between
               Lady Luck Kimmswick,  Inc. and First Trust National  Association.
               Incorporated by reference to Exhibit 4.14 to the Form 10-K.

          4.15 Security  Agreement  dated as of February 17, 1994 by and between
               Lady Luck Vicksburg,  Inc. and First Trust National  Association.
               Incorporated by reference to Exhibit 4.15 to the Form 10-K.

          4.16 Deed of Trust,  Assignment of Rents and Security  Agreement dated
               as of February 17, 1994 by and among Gold Coin Incorporated,  the
               Public  Trustee of the County of Gilpin,  State of  Colorado  and
               First Trust National  Association.  Incorporated  by reference to
               Exhibit 4.16 to the Form 10-K.

          4.17 Deed of Trust,  Assignment of Rents and Security  Agreement dated
               as of February 17, 1994 by and among Lady Luck Biloxi,  Inc., Jim
               B. Tohill and First Trust National  Association.  Incorporated by
               reference to Exhibit 4.17 to the Form 10-K.

          4.18 Deed of Trust,  Assignment of Rents and Security  agreement dated
               as of February 17, 1994 by and among Lady Luck Mississippi, Inc.,
               Jim B. Tohill and First Trust National Association.  Incorporated
               by reference to Exhibit 4.18 to the Form 10-K.

          4.19 Assignment  of Option  dated as of February 17, 1994 by Lady Luck
               Gulfport,  Inc.  in favor of First  Trust  National  Association.
               Incorporated by reference to Exhibit 4.19 to the Form 10-K.

          4.20 Assignment  of Option  dated as of February 17, 1994 by Lady Luck
               Kimmswick,  Inc.  in favor of First Trust  National  Association.
               Incorporated by reference to Exhibit 4.20 to the Form 10-K.

          4.21 Assignment  of Option  dated as of February 17, 1994 by Lady Luck
               Vicksburg,  Inc.  in favor of First Trust  National  Association.
               Incorporated by reference to Exhibit 4.21 to the Form 10-K.

          4.22 Stockholders Agreement dated as of April 1, 1993 by and among the
               Lady Luck Gaming Corporation,  Andrew H. Tompkins and all current
               stockholders and warrant holders of Lady Luck Gaming Corporation.
               Incorporated by reference to Exhibit 4.14 to the Form S-1.

          4.23 Cash  Collateral and  Disbursement  Agreement  dated February 17,
               1994 among First Trust National Association.  the Company and the
               Guarantors  named therein.  Incorporated  by reference to Exhibit
               4.18 to the Form 10-K.

          4.24 First  Amendment to  Stockholders  Agreement  dated as of June 9,
               1993, by and among Andrew H. Tompkins and the Stockholders  named
               therein.  Incorporated  by  reference  to  Exhibit  4.24  to  the
               Registration   Statement  on  Form  S-4   (Registration  No.  33-
               91616)(the "Form S-4, No. 91616").

          4.25 Second Supplemental  Indenture dated as of March 17,  1995 by and
               among Lady Luck Gaming Finance Corporation,  the Guarantors named
               therein and First Trust  National  Association.  Incorporated  by
               reference  to Exhibit 4.25 to the  Quarterly  Report on Form 10-Q
               for the quarterly period ended March 31, 1995 by Lady Luck Gaming
               Corporation.

          4.26 Third  Supplemental  Indenture  by and  among  Lady  Luck  Gaming
               Finance Corporation,  Lady Luck Quad Cities, Inc. and First Trust
               National  Association.  Incorporated by reference to Exhibit 4.26
               to the  Annual  Report on Form  10-K for the  fiscal  year  ended
               December 31, 1995 by Lady Luck Gaming Corporation the ("1995 Form
               10-K.")

          4.27 Fourth  Supplemental  Indenture  by and among  Lady  Luck  Gaming
               Finance Corporation, the Guarantors named therein and First Trust
               National  Association.  Incorporated by reference to Exhibit 4.27
               to the 1995 Form 10-K.

          4.28 Specimen Common Stock  Certificate.  Incorporated by reference to
               Exhibit 4.15 to the Form S-1.

          4.29 Security Agreement (Lady Luck Gaming Finance  Corporation) by and
               between  Lady Luck  Gaming  Finance  Corporation  and First Trust
               National  Association.  Incorporated by reference to Exhibit 4.29
               to the 1995 Form 10-K

          4.30 Security Agreement (Lady Luck Gaming  Corporation) by and between
               Lady  Luck   Gaming   Corporation   and  First   Trust   National
               Association.  Incorporated  by  reference  to Exhibit 4.30 to the
               1995 Form 10-K

          4.31 Pledge  Agreement  between Lady Luck Quad Cities,  Inc. and First
               Trust National Association.  Incorporated by reference to Exhibit
               4.31 to the 1995 Form 10-K

          10.1.Lease for parking lot in Biloxi,  Mississippi  dated May 28, 1993
               by and  between  John M.  Mladnick  and Lady  Luck  Biloxi,  Inc.
               Incorporated by reference to Exhibit 10.18 to the Form S-1.

          10.2 Lease  Agreement  dated  January 12, 1994 by and among  Tyrone J.
               Gollott, Gary F. Gollott, Thomas H. Gollott and Lady Luck Biloxi,
               Inc. Incorporated by reference to Exhibit 10.10 to the Form 10-K.

          10.3 Lease  Agreement dated January 17, 1994 by and between Michael S.
               Sinopoli and Lady Luck Biloxi, Inc.  Incorporated by reference to
               Exhibit 10.11 to the Form 10-K.

          10.4 Lease for Parcel in Biloxi,  Mississippi  dated July 25,  1993 by
               and among Lady Luck Biloxi,  Inc. and Joe G.,  Jackie R. and John
               Brett Aldrich.  Incorporated by reference to Exhibit 10.12 to the
               Form S-1.

          10.5 Lease for casino  site in Tunica,  Mississippi,  dated  March 18,
               1993 between Lady Luck Tunica,  Inc. and D.C.  Parker and Richard
               B. Flowers. Incorporated by reference to Exhibit 10.5 to the Form
               S-1.

          10.6 Lease for casino site in Gulfport,  Mississippi  dated October 5,
               1992  between Lady Luck  Gulfport,  Inc.  and  Mississippi  Coast
               Marine Inc. Incorporated by reference to Exhibit 10.6 to the Form
               S-1.

          10.7 Lease in  Gulfport,  Mississippi  dated  October  1,  1993 by and
               between  Coast  Materials  Company and Lady Luck  Gulfport,  Inc.
               Incorporated by reference to Exhibit 10.15 to the Form 10-K.

          10.8 Agreement to Lease in Gulfport,  Mississippi  dated September 23,
               1993 by and among Robert C. Fielding,  Lady Luck  Gulfport,  Inc.
               and Lady Luck Gaming  Corporation.  Incorporated  by reference to
               Exhibit 10.16 to the Form 10-K.

          10.9 Leases  of part of  casino  site in  Natchez,  Mississippi  dated
               October 29, 1991 between Lady Luck  Mississippi,  Inc. and Silver
               Land, Inc.  Incorporated by reference to Exhibit 10.7 to the Form
               S-1.

          10.10Silver Land,  Inc.  Amended and Restated  Lease  Agreement  dated
               December 31, 1992.  Incorporated  by reference to Exhibit 10.8 to
               the Form S-1.

          10.11Lease for part of casino site in Natchez,  Mississippi dated June
               30, 1992 by and between Lady Luck Mississippi,  Inc. and the City
               of  Natchez  and  amendment   thereto  dated  October  27,  1992.
               Incorporated by reference to Exhibit 10.9 to the Form S-1.

          10.12Lease for part of casino site in Natchez,  Mississippi dated June
               30, 1992 by and between Lady Luck Mississippi,  Inc. and the City
               of  Natchez  and  amendment   thereto  dated  October  27,  1992.
               Incorporated by reference to Exhibit 10.10 to the Form S-1.

          10.13Sublease  Contract  dated  August 13, 1993 by and between  Callon
               Petroleum Company and Lady Luck Mississippi, Inc. Incorporated by
               reference to Exhibit 10.22 to the Form 10-K.

          10.14Lease for parking  lot in Central  City,  Colorado  dated June 1,
               1993 by and among Gold Coin Incorporated and J. Scott Bradley and
               Phyllis  M. Brown  (Lots  1-12).  Incorporated  by  reference  to
               Exhibit 10.21 to the Form S-4 Registration  Statement  previously
               filed under the Securities Act (No. 33-65232) (the "Form S-4, No.
               65232").

          10.15Lease for parking  lot in Central  City,  Colorado  dated June 1,
               1993 by and among J. Scott  Bradley and Phyllis M. Brown and Gold
               Coin  Incorporated  (Lots  13-21).  Incorporated  by reference to
               Exhibit 10.22 to the Form S-4, No. 65232.

          10.16Agreement   of  Option,   Purchase  and  Sale  and  Joint  Escrow
               Instructions for Vicksburg, Mississippi casino site dated May 21,
               1993 by and  between  Lady Luck  Vicksburg,  Inc.  and  Vicksburg
               Terminal Company, Inc. Incorporated by reference to Exhibit 10.11
               to the Form S-1.

          10.17Option to purchase site in Jefferson County,  Missouri dated July
               8, 1993 by and between  Lady Luck  Kimmswick,  Inc. and Donald J.
               Branch.  Incorporated  by reference to Exhibit  10.17 to the Form
               S-1.

          10.18Lease in Coahoma,  Mississippi  dated  November 30, 1993 (sic) by
               and among Roger Allen  Johnson,  Jr.,  Charles Bryant Johnson and
               Magnolia Lady, Inc. Incorporated by reference to Exhibit 10.28 to
               the Form 10-K.

          10.19Agreement  dated  March 19,  1994 by and among  Lady Luck  Gaming
               Corporation,   Old  River  Development,   Inc.  and  D.J.  Brata.
               Incorporated by reference to Exhibit 10.29 to the Form 10-K.

          10.20Lady  Luck  Gaming   Corporation   Employee  Stock  Option  Plan.
               Incorporated by reference to Exhibit 10.31 to the Form 10-K.

          10.21Indemnification  Agreement  dated  April  28,  1993 by and  among
               Terry Christensen, Barry Fink, Kimberly Harrison, Colorado Casino
               Properties  Investment  L.P.  and Lady Luck  Gaming  Corporation.
               Incorporated by reference to Exhibit 10.13 to the Form S-1.

          10.22$2,300,000  Promissory Note of Gold Coin Incorporated dated April
               28, 1993.  Incorporated by reference to Exhibit 10.14 to the Form
               S-1.

          10.23Warrant Agreement dated April 1, 1993.  Incorporated by reference
               to Exhibit 10.15 to the Form S-1.

          10.24Amendment  to  Agreement  dated March 19, 1994 (sic) by and among
               Lady Luck Gaming  Corporation,  Old River  Development,  Inc. and
               D.J.  Brata.  Incorporated  by reference to Exhibit  10.32 to the
               Form S-4  registration  statement  filed under the Securities Act
               (No. 33-77184) (the "Form S-4, No. 77184").

          10.25Option   Agreement   dated   April  28,   1994  by  and   between
               Seven-Thirty, Inc. and Lady Luck Scott City. Inc. Incorporated by
               reference to Exhibit 10.33 to the Form S-4, No. 77184.

          10.26Lease  dated  September  13,  1993 by and  between  Nancy  Harris
               Holmes, James S. Williams,  Tempe Kyser Adams and Ben C. Adams as
               Trustee  under the Trust  Agreement  dated  September 9, 1993, as
               Lessor and D.J.  Brata as Lessee.  Incorporated  by  reference to
               Exhibit  10.34  to the  Quarterly  Report  of Form  10-Q  for the
               quarter ended June 30, 1994 of Lady Luck Gaming  Corporation (the
               "June 30, 1994 Form 10-Q.")

          10.27Assignment  of Lease  Agreement  dated  September 30, 1993 by and
               between D.J. Brata, as assignor, and Old River Development, Inc.,
               as assignee.  Incorporated  by reference to Exhibit  10.35 to the
               Form 10-Q for the quarter ended June 30, 1994.

          10.28Modification  of Lease  Agreement  dated  February 8, 1994 by and
               between Old River Development,  Inc., Lady Luck Tunica,  Inc. and
               Nancy Harris Holmes, James S. Williams, Tempe Kyser Adams and Ben
               C. Adams,  Jr., as Trustee  under the Trust  dated  September  9,
               1993. Incorporated by reference to Exhibit 10.36 to the Form 10-Q
               for the quarter ended June 30, 1994.

          10.29Second  Modification  of Lease  Agreement  dated April 7, 1994 by
               and  between  Old  River  Development,  Inc.,  Lady  Luck  Gaming
               Corporation  and Nancy Harris Holmes,  James S.  Williams,  Tempe
               Kyser  Adams and Ben C. Adams,  Jr.,  as Trustee  under the Trust
               Agreement dated  September 9, 1993.  Incorporated by reference to
               Exhibit 10.37 to the June 30, 1994 Form 10-Q.

          10.30Escrow Agreement  Concerning Agreement of Option and Purchase and
               Sale of  Property  dated  April 21,  1994 by and among  Vicksburg
               Terminal Company,  Inc. and Lady Luck Vicksburg,  Inc., including
               Exhibit  A,  Agreement  of  Option,  Purchase  and Sale and Joint
               Escrow  Instructions.  Incorporated by reference to Exhibit 10.38
               to the June 30, 1994 Form 10-Q.

          10.31Agreement  dated July 18, 1994 by and among Green Bridge Company,
               an Iowa corporation,  Bettendorf Riverfront  Development Company,
               L.C., an Iowa limited liability company,  Lady Luck Casino, Inc.,
               a  Nevada   corporation,   and  Lady  Luck  Gaming   Corporation.
               Incorporated  by reference to Exhibit  10.40 to the June 30, 1994
               Form 10-Q.

          10.32Management  Agreement  dated  August  15,  1994 by and  among the
               Pueblo of Santa  Ana,  (the  "Pueblo"),  a  federally  recognized
               Indian Tribe,  Santa Ana Nonprofit  Enterprise,  an enterprise at
               the  Pueblo,  and  Lady  Luck  New  Mexico,  Inc.,  a New  Mexico
               corporation.  Incorporated  by reference to Exhibit  10.41 to the
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1994 of Lady Luck Gaming Corporation.

          10.33Letter  Agreement  dated  October 24,  1994 by and between  Alain
               Uboldi  and  Lady  Luck  Gaming   Corporation.   Incorporated  by
               reference to Exhibit  10.41 to the Annual Report on Form 10-K for
               the  fiscal  year ended  December  31,  1994 by Lady Luck  Gaming
               Corporation (the "1994 Form 10-K").

          10.34Letter  Agreement  dated  October 24, 1994 by and between Rory J.
               Reid and Lady Luck Gaming Corporation.  Incorporated by reference
               to Exhibit 10.42 to the 1994 Form 10-K.

          10.35Amended and  Restated  Joint  Venture  Agreement by and among Old
               River Development,  Inc., D.J. Brata,  Bally's Operator,  Inc., a
               Delaware   corporation,   Bally's  Tunica,  Inc.,  a  Mississippi
               corporation and Bally's Olympia Limited  Partnership,  a Delaware
               limited  partnership  dated  February 24, 1995.  Incorporated  by
               reference  to  Exhibit  2(a) to the Form 8-K of Lady Luck  Gaming
               Corporation dated February 28, 1995.

          10.36Stock Exchange  Agreement  dated December 30, 1994 by and between
               Grace  Brothers,  Ltd. an Illinois  limited  partnership and Lady
               Luck Gaming  Corporation.  Incorporated  by  reference to Exhibit
               10.44 to the 1994 Form 10-K.

          10.37Stock Exchange  Agreement  dated February 17, 1995 by and between
               Grace  Brothers,  Ltd. an Illinois  limited  partnership and Lady
               Luck Gaming  Corporation.  Incorporated  by  reference to Exhibit
               10.45 to the 1994 Form 10-K.

          10.38Real  Estate   Lease   dated   January  12,  1995  by  and  among
               Greenbridge Company, an Iowa corporation,  Bettendorf  Riverfront
               Development  Company,  L.C., an Iowa limited  liability  company,
               Lady Luck Bettendorf, L.C., an Iowa limited liability company and
               Lady Luck Quad Cities, Inc., a Delaware corporation. Incorporated
               by reference to Exhibit 10.46 to the 1994 Form 10-K.

          10.39Operating  Agreement  dated  December 2, 1994 by and between Lady
               Luck Quad Cities,  Inc., a Delaware  corporation  and  Bettendorf
               Riverfront  Development Company,  L.C., an Iowa limited liability
               company.  Incorporated  by reference to Exhibit 10.47 to the 1994
               Form 10-K.

          10.40Charter  Agreement  dated December 9, 1994 by and among Lady Luck
               Gaming  Corporation,  Lady  Luck  Kimmswick,  Inc.  and Lady Luck
               Bettendorf, L.C., an Iowa limited liability company. Incorporated
               by reference to Exhibit 10.48 to the 1994 Form 10-K.

          10.41Memorandum  of Intent  dated  February  22, 1995 by and among C-A
               International Associates, a Virginia limited partnership and Lady
               Luck Mississippi, Inc. Incorporated by reference to Exhibit 10.50
               to the 1994 Form 10-K.

          10.42Agreement  of General  Partnership  dated as of November 30, 1995
               by and among Lady Luck  Kimmswick,  Inc., a Missouri  corporation
               and Davis Gaming Company II. Incorporated by reference to Exhibit
               2 to the Form 8-K of Lady Luck Gaming  Corporation dated December
               1, 1995.

          10.43Memorandum of Understanding  between Lady Luck Biloxi, Inc., Lady
               Luck Gaming Corporation and Algernon Blair, Inc.  Incorporated by
               reference to Exhibit 10.58 to the Form S-4, No. 91616.

          10.44Contribution  and Sale  Agreement  dated February 5, 1996 between
               Lady Luck  Mississippi,  Inc. and Holstar,  Inc.  Incorporated by
               reference  to  Exhibit  2 to the  Form  8-K of Lady  Luck  Gaming
               Corporation dated February 5, 1996.

          10.45License  Agreement  dated as of  January  1, 1996 among Lady Luck
               Casino,  Inc., Lady Luck Gaming Corporation and the other parties
               listed on the signature pages thereto.  Incorporated by reference
               to Exhibit 10.45 to the 1995 Form 10-K.

          10.46Services  Agreement  dated as of  January 1, 1996 among Lady Luck
               Gaming Corporation and Marco Polo International  Marketing,  Inc.
               Incorporated by reference to Exhibit 10.46 to the 1995 Form 10-K.

          10.47Office  Lease  dated as of January 1, 1996 among Lady Luck Gaming
               Corporation and Gemini, Inc. Incorporated by reference to Exhibit
               10.47 to the 1995 Form 10-K.

          10.48Assignment and Assumption  Agreement  dated as of January 1, 1996
               among Lady Luck Gaming  Corporation  and Lady Luck Casinos,  Inc.
               Incorporated by reference to Exhibit 10.48 to the 1995 Form 10-K.

          10.49Contract  for the  Purchase  and Sale of Real Estate and Personal
               Property  dated as of April 12,  1996 by and  between  River Park
               Hotel Group, Inc. and Lady Luck Mississippi, Inc. Incorporated by
               reference to Exhibit 10.49 to the  Quarterly  Report on Form 10-Q
               for  the  quarter  ended  March  31,  1996 of  Lady  Luck  Gaming
               Corporation.

          10.50Memorandum  of  Understanding  dated  November  1996 between Gold
               Coin, Inc., a Delaware  corporation and Colorado Gaming,  Inc., a
               Colorado corporation.

          21   Subsidiaries of Lady Luck Gaming Corporation.

          27   Financial Data Schedule


               (b) Reports on Form 8-K.

                    None.

               (c) Exhibits.

               (d) Financial Statement Schedules

                       Lady Luck Bettendorf, L.C.


<PAGE>
     SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

     LADY LUCK GAMING CORPORATION


     By           /s/ Andrew H. Tompkins
                  Andrew H. Tompkins
                  (Chairman of the Board and Chief Executive Officer)


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


     /s/ Andrew H. Tompkins                                       March 25, 1997
     Andrew H. Tompkins
     (Chairman of the Board, Principal Executive Officer and Director)


     /s/ Alain Uboldi                                             March 25, 1997
     Alain Uboldi
     (President, Chief Operating Officer and Director)


     /s/ Lawrence P. Tombari                                      March 25, 1997
     Lawrence P. Tombari
     (Senior Vice President, Chief Financial Officer and
           Principal Financial Officer)


     /s/ James D. Bowen                                           March 25, 1997
     James D. Bowen
     (Vice President Finance and Principal Accounting Officer)


     /s/ Rory J. Reid                                             March 25, 1997
     Rory J. Reid
     (Senior Vice President, General Counsel, Secretary and Director)


     /s/ Minxin Pei                                               March 25, 1997
     Minxin Pei
     (Director)


     /s/ Anthony J. Drexel Biddle III                             March 25, 1997
     Anthony J. Drexel Biddle III
     (Director)


     /s/ James A. Bilbray                                         March 25, 1997
     James A. Bilbray
     (Director)