<PAGE>   1
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                               ----------------

                                   FORM 10-Q


(Mark One)
   X        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----------  EXCHANGE ACT OF 1934


For  the quarterly period ended September 28, 1997

                                       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. 1-12962


                              GRAND CASINOS, INC.
             (Exact name of registrant as specified in its charter)



                      Minnesota                      41-1689535       
       ----------------------------------------  -------------------  
             (State or other jurisdiction         (I.R.S. Employer    
          of incorporation or organization)      Identification No.)  



                  130 Cheshire Lane                                   
                Minnetonka, Minnesota                   55305         
       ----------------------------------------  -------------------  
       (Address of principal executive offices)      (Zip Code)       

                                 (612) 449-9092

              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

            
     Yes   X                    No 
         -----                     -----
              
As of November 7, 1997, there were 41,956,587 shares of Common Stock, $0.01 par
value per share, outstanding.


                                 Page 1 of 35

<PAGE>   2




                      GRAND CASINOS, INC. AND SUBSIDIARIES

                                     INDEX


<TABLE>
<CAPTION>
                                                                       Page of  
                                                                      Form 10-Q
                                                                      ---------
   <S>       <C>                                                         <C>
   PART I.   FINANCIAL INFORMATION
             ---------------------                                     

             ITEM 1.      FINANCIAL STATEMENTS

                          Consolidated Balance Sheets as of               3
                          September 28, 1997 and December 29, 1996

                          Consolidated Statements of Earnings             4
                          for the three months ended September 28, 1997
                          and September 29, 1996

                          Consolidated Statements of Earnings for the     5
                          nine months ended September 28, 1997 and
                          September 29, 1996

                          Consolidated Statements of Cash Flows           6
                          for the nine months ended September 28, 1997
                          and September 29, 1996

                          Notes to Consolidated Financial Statements      7

             ITEM 2.      MANAGEMENT'S DISCUSSION AND                     13
                          ANALYSIS OF FINANCIAL CONDITION
                          AND RESULTS OF OPERATIONS

   PART II.  OTHER INFORMATION
             ----------------                                          

             ITEM 1.      Legal Proceedings                               22

             ITEM 6.      Exhibits and Reports On Form 8-K                31
</TABLE>



                                     - 2 -

<PAGE>   3





                     GRAND CASINOS, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                                (IN THOUSANDS)


<TABLE>
<CAPTION>                                                                                    (UNAUDITED)     
                                                                                            SEPTEMBER 28,           DECEMBER 29,
                                                                                                1997                   1996
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                           <C>                   <C>        
ASSETS                                                                           
Current Assets:                                                                  
        Cash and cash equivalents                                                              $140,333               $147,254
        Current installments of notes receivable                                                  7,171                  7,792
        Accounts receivable                                                                      17,407                 13,463
        Deferred income taxes                                                                    12,835                  9,910
        Other current assets                                                                     14,823                 15,335
-----------------------------------------------------------------------------------------------------------------------------------
Total Current Assets                                                                            192,569                193,754
-----------------------------------------------------------------------------------------------------------------------------------
Property and Equipment-Net                                                                      934,205                821,827
-----------------------------------------------------------------------------------------------------------------------------------
Other Assets:                                                                                                
        Cash and cash equivalents-restricted                                                      6,078                 10,276
        Securities available for sale                                                            18,180                 23,603
        Notes receivable-less current installments                                               27,945                 30,772
        Investments in and notes from unconsolidated affiliates                                   8,467                  8,823
        Debt issuance and deferred licensing costs-net                                           20,596                 22,851
        Other long-term assets                                                                   19,620                 10,910
-----------------------------------------------------------------------------------------------------------------------------------
Total Other Assets                                                                              100,886                107,235
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                                 $1,227,660             $1,122,816
===================================================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY                                                                         
Current Liabilities:                                                                                         
        Accounts payable                                                                        $13,249                $20,002
        Current installments of long-term debt                                                    1,355                  4,101
        Current installments of capital lease obligations                                        16,871                 15,358
        Accrued interest                                                                         15,664                  5,486
        Accrued payroll and related expenses                                                     22,914                 23,418
        Other accrued expenses                                                                   46,935                 31,542
-----------------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities                                                                       116,988                 99,907
-----------------------------------------------------------------------------------------------------------------------------------
Long-term Liabilities:                                                                                       
        Long-term debt-less current installments                                                454,498                455,002
        Capital lease obligations-less current installments                                      87,447                 56,740
        Deferred income taxes                                                                    74,208                 71,494
-----------------------------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities                                                                     616,153                583,236
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES                                                                               733,141                683,143
-----------------------------------------------------------------------------------------------------------------------------------

COMMITMENTS AND CONTINGENCIES                                                                                
Shareholders' Equity:                                                                                        
        Capital stock, $.01 par value; authorized 100,000 shares;                                            
             common stock issued and outstanding 41,930 and 41,796                            
             at September 28, 1997 and December 29, 1996, respectively                              420                    418
        Additional paid-in-capital                                                              413,530                412,576
        Net unrealized gains (losses) on securities available for sale                              187                  1,358
        Retained earnings                                                                        80,382                 25,321
-----------------------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity                                                                      494,519                439,673
-----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                   $1,227,660             $1,122,816
===================================================================================================================================
</TABLE>

      * FROM AUDITED CONSOLIDATED FINANCIAL STATEMENTS                       
      

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
                                     -3-



<PAGE>   4




                     GRAND CASINOS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF EARNINGS
                  (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

<TABLE>
<CAPTION>

                                                                                                 (UNAUDITED)
                                                                                              THREE MONTHS ENDED
                                                                                      ----------------------------------------
                                                                                      SEPT. 28, 1997           SEPT. 29. 1996
                                                                                      --------------           ---------------
---------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                     <C>                          <C>
REVENUES:
     Casino                                                                              $125,764                    $109,391
     Hotel                                                                                 10,074                       6,516
     Food and beverage                                                                     17,546                      14,941
     Management fee income                                                                 23,133                      22,447
     Retail and other income                                                                3,715                       3,071
---------------------------------------------------------------------------------------------------------------------------------
Gross Revenues                                                                            180,232                     156,366
     Less:  Promotional allowances                                                        (12,651)                     (9,641)
---------------------------------------------------------------------------------------------------------------------------------
NET REVENUES                                                                              167,581                     146,725
---------------------------------------------------------------------------------------------------------------------------------

COSTS AND EXPENSES:                                                                                   
     Casino                                                                                42,972                      39,509
     Hotel                                                                                  2,462                       1,512
     Food and beverage                                                                      8,753                       8,980
     Other operating expenses                                                               3,205                       3,111
     Depreciation and amortization                                                         12,206                      14,930
     Lease expense                                                                          4,993                       4,992
     Selling, general and administrative                                                   48,371                      40,638
---------------------------------------------------------------------------------------------------------------------------------
           Total Costs and Expenses                                                       122,962                     113,672
---------------------------------------------------------------------------------------------------------------------------------

EARNINGS FROM OPERATIONS                                                                   44,619                      33,053
---------------------------------------------------------------------------------------------------------------------------------

OTHER INCOME (EXPENSE):                                                                               
     Interest income                                                                        2,846                       4,063
     Interest expense                                                                     (10,954)                    (11,167)
     Other                                                                                    (64)                       (245)
     Equity in loss of unconsolidated affiliates                                             (465)                    (10,910)
---------------------------------------------------------------------------------------------------------------------------------
           Total other expense, net                                                        (8,637)                    (18,259)
---------------------------------------------------------------------------------------------------------------------------------

Earnings before income taxes                                                               35,982                      14,794
Provision for income taxes                                                                 13,817                      11,291
---------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS                                                                              $22,165                      $3,503
=================================================================================================================================

EARNINGS PER COMMON SHARE                                                                   $0.51                       $0.08
=================================================================================================================================
WEIGHTED AVERAGE COMMON SHARES AND COMMON                                                             
 STOCK EQUIVALENTS OUTSTANDING                                                             43,606                      42,827
=================================================================================================================================
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
                                     -4-
<PAGE>   5



                                       
                     GRAND CASINOS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF EARNINGS
                  (IN THOUSANDS, EXCEPT EARNINGS PER SHARE)

<TABLE>
<CAPTION>

                                                                                                       (UNAUDITED)
                                                                                                     NINE MONTHS ENDED
                                                                                  -------------------------------------------------
                                                                                    SEPT. 28, 1997               SEPT. 29, 1996
                                                                                    --------------               --------------

-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                            <C>
REVENUES:
     Casino                                                                          $348,072                       $263,991
     Hotel                                                                             26,650                         18,555
     Food and beverage                                                                 48,498                         34,009
     Management fee income                                                             62,001                         61,539
     Retail and other income                                                           10,139                          8,406
----------------------------------------------------------------------------------------------------------------------------------
Gross Revenues                                                                        495,360                        386,500
     Less:  Promotional allowances                                                    (34,774)                       (22,961)
----------------------------------------------------------------------------------------------------------------------------------
NET REVENUES                                                                          460,586                        363,539
----------------------------------------------------------------------------------------------------------------------------------

COSTS AND EXPENSES:                                                                
     Casino                                                                           121,040                         90,195
     Hotel                                                                              6,572                          4,561
     Food and beverage                                                                 25,272                         18,500
     Other operating expenses                                                           9,655                          8,686
     Depreciation and amortization                                                     36,167                         28,269
     Lease expense                                                                     14,173                         13,164
     Selling, general and administrative                                              133,271                        102,487
----------------------------------------------------------------------------------------------------------------------------------
          Total Costs and Expenses                                                    346,150                        265,862
----------------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS                                                              114,436                         97,677
----------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):                                                                                             
     Interest income                                                                    9,540                         13,501
     Interest expense                                                                 (33,572)                       (21,733)
     Other                                                                               (176)                          (245)
     Equity in loss of unconsolidated affiliates                                         (665)                       (14,749)
----------------------------------------------------------------------------------------------------------------------------------
         Total expense, net                                                           (24,873)                       (23,226)
----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes                                                           89,563                         74,451
Provision for income taxes                                                             34,503                         33,892
----------------------------------------------------------------------------------------------------------------------------------
Net Earnings                                                                          $55,060                        $40,559
==================================================================================================================================
EARNINGS PER COMMON SHARE                                                               $1.27                          $0.94
==================================================================================================================================
WEIGHTED AVERAGE COMMON SHARES AND COMMON                                                                           
STOCK EQUIVALENTS OUTSTANDING                                                          43,320                         42,985
==================================================================================================================================
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

                                     -5-


<PAGE>   6




                    GRAND CASINOS, INC. AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (IN THOUSANDS)

<TABLE>
<CAPTION>

                                                                                        (UNAUDITED)
                                                                                    NINE MONTHS ENDED
                                                                          ---------------------------------------
                                                                          SEPTEMBER 28, 1997    SEPTEMBER 29, 1996

-------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:                                           
    Net Earnings                                                                 $55,060            $40,559
    Adjustments to reconcile net earnings to net cash                          
      provided by operating activities:                                         
    Depreciation and amortization                                                 36,167             28,269
    Equity in loss of unconsolidated affiliates                                      665             14,749
    Deferred income taxes                                                            -                  616
    Write-off of project note receivables                                            -                 (340)
    Changes in operating assets and liabilities:                                
      Other current assets                                                        (4,815)           (15,460)
      Accounts payable                                                            (6,753)             7,314
      Accrued expenses                                                            25,067             34,849
-------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities                                        105,391            110,556
-------------------------------------------------------------------------------------------------------------------
                                                                                
CASH FLOWS FROM INVESTING ACTIVITIES:                                           
    Increase in notes receivable                                                  (1,328)              (453)
    Proceeds from repayment of notes receivable                                    5,868             10,349
    Investment in and notes receivable from unconsolidated affiliates               (338)           (53,664)
    Payments for property and equipment                                         (144,100)          (261,508)
    Sales (Purchases) of securities available for sale                             4,045            (19,750)
    Decrease in cash and cash equivalents-restricted and other                     4,198                649
    Increase in other long-term assets                                           (10,309)           (13,455)
-------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities                                           (141,964)          (337,832)
-------------------------------------------------------------------------------------------------------------------
                                                                                 
CASH FLOWS FROM FINANCING ACTIVITIES:                                            
    Proceeds from issuance of common stock-net                                       956             15,047
    Debt issuance costs and deferred financing costs                                (276)            (5,018)
    Proceeds from issuance of long-term debt                                      45,088             18,429
    Payments on long-term debt and capital lease obligations                     (16,116)            (9,664)
-------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities                                         29,652             18,794
-------------------------------------------------------------------------------------------------------------------
                                                                                 
Net decrease in cash and cash equivalents                                         (6,921)          (208,482)
Cash and cash equivalents - beginning of period                                  147,254            334,772
-------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD                                       $140,333           $126,290
====================================================================================================================
                                                                                
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                              
    Cash paid during the period for:                                            
        Interest - net of capitalized interest                                   $29,731             $9,883
        Income taxes                                                             $19,642            $15,719
</TABLE> 



SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.


                                     -6-

                                       
<PAGE>   7


                      GRAND CASINOS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 28, 1997
                                  (UNAUDITED)




NOTE 1  UNAUDITED FINANCIAL STATEMENTS

        Grand Casinos, Inc. and Subsidiaries, collectively the Company,
        develop, construct, and manage land-based and dockside casinos and
        related hotel and entertainment facilities.  The Company owns and
        operates two dockside casinos on the Mississippi Gulf Coast and one
        dockside casino in Tunica County, Mississippi, and manages two
        Indian-owned casinos in Minnesota and two Indian-owned casinos in
        Louisiana. Related hotel facilities at Company-owned Grand Casino
        Biloxi, located in Biloxi, Mississippi, are currently under
        construction.  In addition, related hotel facilities at Indian-owned
        Grand Casino Hinckley, located in Hinckley, Minnesota, are currently
        under construction and are scheduled to open during the fourth quarter.
        The Company also owns approximately 42% of Stratosphere Corporation
        (Stratosphere), which owns and operates Stratosphere Tower, Casino &
        Hotel in Las Vegas, Nevada.  Stratosphere filed for reorganization
        under Chapter 11 of the Bankruptcy Code on January 27, 1997.  See Note
        7 for further discussion regarding Stratosphere's bankruptcy
        proceeding.


        The consolidated financial statements include the accounts of Grand 
        Casinos, Inc. and its wholly-owned and majority-owned subsidiaries. 
        Investments in unconsolidated subsidiaries representing between 20% and
        50% of voting stock are accounted for on the equity method. All 
        material intercompany balances and transactions have been eliminated in
        the consolidation.

        The accompanying unaudited consolidated financial statements have       
        been prepared by the Company in accordance with generally accepted
        accounting principles for interim financial information, in accordance
        with the rules and regulations of the Securities and Exchange
        Commission.  Pursuant to such rules and regulations, certain financial
        information and footnote disclosures normally included in the
        consolidated financial statements have been condensed or omitted.  In
        the opinion of management, all adjustments (consisting of normal
        recurring adjustments) considered necessary for fair presentation have
        been included.

        Operating results for the nine months ended September 28, 1997, are not
        necessarily indicative of the results that may be expected for the 
         fiscal year ending December 28, 1997.


                                     -7-

<PAGE>   8


                      GRAND CASINOS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)





NOTE 1  UNAUDITED FINANCIAL STATEMENTS (CONTINUED)

        The consolidated financial statements should be read in conjunction
        with the consolidated financial statements and notes thereto included
        in the Company's annual report on Form 10-K for the fiscal year ended
        December 29, 1996.

NOTE 2  NEW ACCOUNTING PRONOUNCEMENT

        During March 1997, the Financial Accounting Standards Board released
        Statement of Financial Accounting Standards No. 128, Earnings Per Share
        (SFAS 128), which requires the disclosure of basic earnings per share
        and diluted earnings per share.  The Company will adopt Statement 128
        in fiscal 1997.

NOTE 3  PREOPENING EXPENSES

        Expenses incurred prior to opening of Company-owned facilities are
        capitalized and amortized to expense using the straight-line method     
        over the six months following the opening of the respective facilities. 
        These costs include direct payroll and other operating costs incurred
        prior to commencement of operations.  Depreciation and amortization for
        the nine months ended September 28, 1997 and September 29, 1996
        includes approximately $1.3 million and $5.6 million of preopening
        amortization expense, respectively.  For the three months ended
        September 28, 1997 and September 29, 1996, approximately $.4 million
        and $5.2 million, respectively, of preopening amortization was
        expensed.


NOTE 4  INTEREST COSTS

        The Company's policy is to capitalize interest incurred on debt during
        the course of qualifying construction projects at Company-owned
        facilities.  Such costs are amortized over the related assets'
        estimated useful lives.  For the nine months ended September 28, 1997
        and September 29, 1996, approximately $6.3 million and $14.1 million,
        respectively, of interest cost was capitalized.  For the three months
        ended September 28, 1997 and September 29, 1996, approximately $2.6
        million and $1.0 million, respectively, of interest cost was
        capitalized.




                                     -8-
                                      


<PAGE>   9

                      GRAND CASINOS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)




NOTE 5  NOTES RECEIVABLE

        Notes receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                   
                                                  Sept. 28, 1997  Dec. 29, 1996
                                                  --------------  -------------
        <S>                                             <C>             <C>
        Notes from the Coushatta Tribe with                        
        interest at a defined reference rate plus                  
        1% (not to exceed 16%), receivable in                      
        84 monthly installments through                            
        January 2002                                    23,182          23,800
                                                                   
        Notes from the Tunica-Biloxi Tribe with                    
        interest at a defined reference rate plus                  
        1% (not to exceed 16%), receivable in                      
        84 monthly installments through June                       
        2001                                            10,963          12,558
                                                                   
        Other, less allowance for doubtful accounts                
        of $3,050 and $3,050, respectively                 971           2,206
                                                       -------         ------- 
                                                       $35,116         $38,564
        Less current installments of notes 
        receivable                                      (7,171)         (7,792)
                                                       -------         ------- 
        Notes receivable-less current installments     $27,945         $30,772
                                                       =======         =======  
                                                   
</TABLE>                                                   
NOTE 6  LONG-TERM DEBT                             
                                                   
        On November 30, 1995, the Company completed its public offering of 
        $450.0 million of eight year 10.125% First Mortgage Notes due December 
        1, 2003. The First Mortgage Notes are secured by substantially all the 
        assets of Grand Casino Biloxi and Grand Casino Gulfport, Grand Casino 
        Tunica assets included in Phase 1 development, capital stock owned by 
        the Company in Stratosphere, and certain existing notes receivable due 
        the Company from Tribes.  The notes require semi-annual payments of 
        interest only on June 1 and December 1 of each year which commenced 
        June 1, 1996, until December 1, 2003, at which time the entire 
        principal plus accrued interest is due and payable. The notes may be
        redeemed at the Company's option, in whole or in part, anytime after
        December 1, 1999, at a premium, declining ratably thereafter to par
        value on December 1, 2002, to maturity. 



        


                                     -9-


<PAGE>   10



                      GRAND CASINOS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


NOTE 6  LONG-TERM DEBT (CONTINUED)

        On May 10, 1996, the Company completed a $120 million Senior Secured
        Term Loan through BankAmerica Leasing and Capital Group.  The five-year
        Senior Secured Term Loan Facility, with varying interest rates ranging
        from 1.75% to 2.50% over the LIBO Rate, is being used for the continued
        development of the Company's Grand Casino Tunica project, located in
        northern Mississippi, just outside of Memphis, Tennessee.
        Approximately $90 million of the loan was used for furniture, fixtures
        and equipment for the 340,000 square foot casino complex.  The balance
        of approximately $30 million was used to construct a 600-room hotel at
        Grand Casino Tunica.  As of September 28, 1997, $104.3 million was the
        balance owing under the Senior Secured Term Loan Facility (see Note 8).

NOTE 7  COMMITMENTS AND CONTINGENCIES

        STRATOSPHERE CORPORATION

        The Company owns approximately 42% of the equity in Stratosphere
        Corporation.  Stratosphere did not make its scheduled First Mortgage
        Notes interest payment due on November 15, 1996.  On January 6, 1997,
        Stratosphere, the Company and an ad hoc committee representing the
        holders of more than 57% of Stratosphere's First Mortgage Notes reached
        an agreement-in-principle for restructuring the debt and equity of
        Stratosphere.

        On January 27, 1997, Stratosphere filed for reorganization under
        Chapter 11 of the U.S. Bankruptcy Code.  Pursuant to the
        agreement-in-principle, Stratosphere and the Company filed a joint
        proposed plan of reorganization for Stratosphere and a related
        investment agreement, which stated the terms and conditions pursuant to
        which the Company agreed to participate in the reorganization of
        Stratosphere.

        The proposed plan of reorganization and the related investment
        agreement provided that the Company's obligations to participate in the
        proposed reorganization were conditioned on Stratosphere obtaining
        average monthly consolidated cash flow (as defined in the investment
        agreement) of at least $2,267,000 for the months between October 1,
        1996 and June 30, 1997.  In June 1997, Stratosphere announced that its
        average monthly-consolidated cash flow for the eight-month period ended
        May 25, 1997 was $1,470,996. As a result of Stratosphere's inability to
        satisfy the consolidated cash flow condition, the Company terminated
        the original investment agreement.

                                     - 10 -


<PAGE>   11

                      GRAND CASINOS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

           STRATOSPHERE CORPORATION (CONTINUED)

           On June 20, 1997, Stratosphere and the Company entered into an
           amended investment agreement and filed an amended plan of
           reorganization, establishing modified terms and conditions of the
           Company's proposed participation in the reorganization of
           Stratosphere.

           On July 25, 1997, Stratosphere advised the Company that an
           independent committee of Stratosphere's Board of Directors had
           reached a preliminary determination that a restructuring proposal
           presented to Stratosphere by High River Limited Partnership and
           American Real Estate Partners, L.P. (collectively "High River") was
           more favorable than the restructuring proposal contained in the
           amended investment agreement and plan of reorganization. The
           restructuring proposal presented by High River did not provide the
           Company with any opportunity to invest in or otherwise participate
           in the ownership of reorganized Stratosphere.

           On July 31, 1997, the Company announced that the members of the
           Company's Board of Directors who had also been members of
           Stratosphere's Board of Directors had resigned from their positions
           as Stratosphere board members. Accordingly, no director or officer
           of the Company is a director or officer of Stratosphere.

           On October 9, 1997, the Company announced that it had been unable to
           reach an agreement with the holders of a significant portion of
           Stratosphere's first mortgage for a consensual reorganization of
           Stratosphere involving the Company's participation. The Company also
           announced that it had informed Stratosphere that the Company had no
           intention of participating in any Stratosphere plan of
           reorganization. The Company has terminated the amended investment
           agreement with Stratosphere entered into on June 20, 1997.

           In connection with the issuance of Stratosphere's First Mortgage
           Notes, the Company delivered a Standby Equity Commitment pursuant to
           which the Company agreed, under the terms and conditions described
           in the Standby Equity Commitment, to purchase up to $20 million of
           additional equity in Stratosphere during each of the first three
           years Stratosphere is operating (as defined in the Standby Equity
           Commitment) to the extent Stratosphere's consolidated cash flow (as
           defined in the Standby Equity Commitment) during each of such years
           does not reach $50 million. As a result of Stratosphere's bankruptcy
           filing and the application of federal bankruptcy laws, the Company
           has contended that the enforceability of the Standby Equity
           Commitment is in question.

                                     - 11 -

<PAGE>   12


                      GRAND CASINOS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)

           STRATOSPHERE CORPORATION (CONTINUED)

           This issue is currently the subject of litigation in Stratosphere's
           Chapter 11 bankruptcy proceedings and in U.S. District Court in
           Nevada.  See Part II - Item 1.  Legal Proceedings of this Form 10-Q.

           LOAN GUARANTY AGREEMENTS

           The Company has guaranteed two loan and security agreements entered
           into by the Tunica-Biloxi Tribe of Louisiana for $14.1 million for
           the purpose of financing casino equipment and for $16.5 million for
           the purpose of purchasing a hotel and additional casino equipment.
           The agreements extend through 1998 and 2000, respectively, and as of
           September 28, 1997, the amounts outstanding were $4.0 million and
           $14.0 million, respectively.

           The Company has also guaranteed loan and security agreements entered
           into by the Coushatta Tribe of Louisiana for $22.3 million for the
           purpose of financing casino equipment.  The agreements are for three
           years and have various maturity dates through 1998, and as of
           September 28, 1997, the amounts outstanding were $5.8 million. In
           addition, on May 1, 1997, the Company entered into a guaranty
           agreement related to a loan agreement entered into by the Coushatta
           Tribe of Louisiana in the amount of $25.0 million, for the purpose
           of constructing a hotel and acquiring additional casino equipment.
           The guaranty will remain in effect until the loan is paid.  The loan
           term is approximately five years.

           The Company has entered into a master hotel development agreement
           with Casino Resource Corporation for the Grand Casino Hinckley Inn
           adjacent to Grand Casino Hinckley.  The Company has guaranteed the
           mortgage for the hotel which had an unpaid principal balance of $2.5
           million as of September 28, 1997.

           The Company has provided a limited guaranty for the purpose of
           financing Stratosphere Corporation hotel and casino equipment
           subject to a maximum limitation amount of $8.7 million.

           OTHER

           The Company is a defendant in various pending litigation.  In
           management's opinion, the ultimate outcome of such litigation will
           not have a material adverse effect on the results of operations or
           the financial position of the Company.  See Part II - Item 1.  Legal
           Proceedings of this Form 10-Q.

                                     - 12 -


<PAGE>   13



                      GRAND CASINOS, INC. AND SUBSIDIARIES
       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                            RESULTS OF OPERATIONS
                                  (UNAUDITED)



NOTE 8   SUBSEQUENT EVENTS

         On September 30, 1997 the Company closed on $100 million in bank
         financing.  The 5-year Revolving Senior Secured Capital Lease Term
         Loan Facility will be used for the continued development of Grand
         Casino Tunica, located in northern Mississippi, and Grand Casino
         Gulfport, located in Gulfport, Mississippi, as well as other general
         corporate purposes.  As of November 7, 1997, no advances relating to
         this financing had been made.

         On October 14, 1997, the Company closed on a $115.0 million, 9.0%,
         seven year, Senior Unsecured Note offering.  The proceeds from the
         offering will be used to refinance an existing bank capital lease in
         approximately the same amount (see Note 6).  The Senior Notes will
         rank pari passu in right of payment with all senior indebtedness and
         senior in right of payment to all subordinated indebtedness.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         OVERVIEW

         The Company develops, constructs and manages land-based and dockside 
         casinos.  The Company's revenues are derived from the Company-owned 
         casinos of Grand Casino Biloxi, Grand Casino Gulfport, and Grand Casino
         Tunica, and from management fee income from Grand Casino Mille Lacs, 
         Grand Casino Hinckley, Grand Casino Avoyelles, and Grand Casino 
         Coushatta.

         Pursuant to the Mille Lacs, Hinckley, Avoyelles, and Coushatta
         management contracts, the Company receives a fee based on the net
         distributable profits (as defined in the contracts) generated by Grand
         Casino Mille Lacs, Grand Casino Hinckley, Grand Casino Avoyelles, and
         Grand Casino Coushatta.  The management agreement for Grand Casino 
         Mille Lacs will expire in April 1998, and will not be renewed.  No     
         decision has been made with respect to renewal of the management
         agreement for Grand Casino Hinckley, which expires in June 1999.

         The Company commenced operations in August 1990, and opened its
         Company-owned casinos, Grand Casino Gulfport, Grand Casino Biloxi 
         and Grand Casino Tunica in May 1993, January 1994 and June 1996,
         respectively.

                                     - 13 -



<PAGE>   14



                         GRAND CASINOS, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                               RESULTS OF OPERATIONS
                                    (UNAUDITED)

           OVERVIEW (CONTINUED)

           Therefore, the Company's limited operating history may not be
           indicative of the Company's future performance.  In addition, a
           comparison of results from year to year may not be meaningful due to
           the opening of new facilities during such years.  The Company's
           growth strategy contemplates expanding existing operations and
           establishing additional gaming operations.

           The successful implementation of this growth strategy is contingent
           upon the satisfaction of various conditions and the occurrence of
           certain events, including obtaining governmental approvals and
           increased competition, many of which are beyond the control of the
           Company.  The Company expects that Grand Casino Biloxi and Grand
           Casino Gulfport may be affected by the addition of new competition
           on the Mississippi Gulf Coast.  The following discussion and
           analysis should be read in conjunction with the consolidated
           financial statements and notes thereto included in the Company's
           Annual Report on Form 10-K for the year ended December 29, 1996.

           Revenues from owned and operated casinos are calculated in
           accordance with generally accepted accounting principles and are
           presented in a manner consistent with industry practice.  Net
           distributable profits from Grand Casino Mille Lacs, Grand Casino
           Hinckley, Grand Casino Avoyelles, and Grand Casino Coushatta are
           computed using a modified cash basis of accounting in accordance
           with the management contracts.  The effect of the use of the
           modified cash basis of accounting is to accelerate the write-off of
           capital equipment and leased assets, which thereby impacts the
           timing of net distributable profits.

           RESULTS OF OPERATIONS

           NINE MONTHS ENDED SEPTEMBER 28, 1997 COMPARED TO THE NINE MONTHS
           ENDED SEPTEMBER 29, 1996

           Earnings Per Common Share and Net Earnings

           Earnings per common share for the nine months ended September 28,
           1997 were $1.27 versus $.94 for the prior year's comparable period
           based upon weighted average common shares outstanding of 43.3
           million and 43.0 million for the nine month periods ended September
           28, 1997 and September 29, 1996, respectively.


                                     - 14 -


<PAGE>   15


                        GRAND CASINOS, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                                RESULTS OF OPERATIONS
                                     (UNAUDITED)

           Earnings Per Common Share and Net Earnings (Continued)

           Net earnings for the nine months ended September 28, 1997 increased
           $14.5 million to $55.1 million.  Net earnings for the comparable
           period in the prior fiscal year included a $14.7 million loss
           related to unconsolidated affiliates, whereas net earnings for the
           nine months ended September 28, 1997 includes only a $.7 million
           loss related to unconsolidated affiliates.  An increase of $11.8
           million in interest expense is offset by less preopening expense and
           improved operating results at Grand Casino Tunica.

           Gross Revenues

           Grand Casino Biloxi, Grand Casino Gulfport, and Grand Casino Tunica
           generated $348.1 million in gross casino revenue and $85.3 million
           in gross hotel, food, beverage, retail and entertainment revenue
           during the nine months ended September 28, 1997.  During the nine
           months ended September 29, 1996, Grand Casino Tunica, Grand Casino
           Biloxi and Grand Casino Gulfport generated $264.0 million in gross
           casino revenue and $61.0 million in gross food, beverage, and retail
           revenue.  The increase in gross revenues is primarily related to
           Grand Casino Tunica which contributed $141.3 million of gross
           revenues for the nine months ended September 28, 1997 compared to
           $38.0 million for the same period in 1996.  Grand Casino Tunica was
           open all of 1997 compared to being open approximately one quarter in
           1996.  Combined gross revenues for Grand Casino Biloxi and Grand
           Casino Gulfport increased $5.1 million for the nine months ended
           September 28, 1997 compared to the same period in the prior year.
           For the nine months ended September 28, 1997, management fees were
           approximately even with management fees for the same period in the
           prior year.

           Net Revenues

           Net revenues for the Company increased $97.0 million for the nine
           months ended September 28, 1997 compared to the same period in the
           prior year.  The increase in net revenues is primarily due to Grand
           Casino Tunica, which contributed net revenues of $128.3 million
           during the nine months ended September 28, 1997 compared to $35.1
           million during the nine months ended September 29, 1996.  Grand
           Casino Tunica was open all of 1997 compared to being open
           approximately one quarter in 1996. In addition, combined net
           revenues of Grand Casino Biloxi and Grand Casino Gulfport increased
           $3.5 million for the nine months ended September 28, 1997 compared
           to the same period in the prior year.

                                     - 15 -


<PAGE>   16


                         GRAND CASINOS, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                                RESULTS OF OPERATIONS
                                     (UNAUDITED)


           Net Revenues (Continued)


           The Company implemented a new marketing campaign in 1997 for Grand
           Casino Biloxi and Grand Casino Gulfport.  This campaign has
           increased the level of play, however, it has made only a slight
           impact on win due to lower win percentages in table games and slots.
           The increase in net revenues for Grand Casino Biloxi and Grand
           Casino Gulfport has principally been due to non-gaming revenues.

           Costs and Expenses

           Total costs and expenses increased $80.3 million from $265.9 million
           for the nine months ended September 29, 1996 to $346.2 million for
           the nine months ended September 28, 1997.

           Casino expenses were $121.0 million for the nine months ended
           September 28, 1997 compared to $90.2 million for the comparable
           period last year.  The increase of $30.8 million was comprised of
           additional casino expenses for Grand Casino Tunica in the amount of
           $26.4 million.  Grand Casino Tunica was open all of 1997, compared
           to being open approximately one quarter in 1996. The casino expenses
           for Grand Casino Biloxi and Grand Casino Gulfport increased $4.4
           million for the nine months ended September 28, 1997 compared to the
           same period in the prior year.  The increase was principally a
           result of additional complimentaries and labor to service and
           attract guests.  Food and beverage expenses increased $6.8 million
           to $25.3 million during the nine-month period ended September 28,
           1997, $4.7 million of which related to Grand Casino Tunica being
           open all of 1997 compared to approximately one quarter in 1996.

           Selling, general, and administrative expenses increased $30.8
           million from $102.5 million for the nine months ended September 29,
           1996 to $133.3 million for the nine months ended September 28, 1997.
           Grand Casino Tunica's selling, general, and administrative expenses
           increased $32.6 million from the nine months ended September 29,
           1996 to the nine months ended September 28, 1997.  In addition,
           combined selling, general, and administrative expenses for Grand
           Casino Biloxi and Grand Casino Gulfport increased slightly from 1996
           to 1997 ($.5 million).  Corporate expense decreased $2.8 million
           from the nine months ended September 29, 1996 to the nine months
           ended September 28, 1997 as a result of corporate reorganization
           plans implemented in late 1996.


                                     - 16 -
     

<PAGE>   17



                       GRAND CASINOS, INC. AND SUBSIDIARIES
           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                               RESULTS OF OPERATIONS
                                    (UNAUDITED)



           Other


           Interest income decreased by $4.0 million to $9.5 million for the
           nine months ended September 28, 1997 from the comparable period last
           year.  This decrease is primarily attributable to lower cash
           balances due to construction at Grand Casino Biloxi and Grand Casino
           Tunica.  Interest expense increased by $11.8 million to $33.6
           million for the nine months ended September 28, 1997 compared to
           $21.7 million for the nine months ended September 29, 1996.  The
           increase is the result of a reduction in capitalized interest
           relating to the construction at Grand Casino Tunica and interest
           expense incurred under the $120 million Senior Secured Term Loan.
           Capitalized interest was $6.3 million and $14.1 million for the nine
           months ended September 28, 1997 and September 29, 1996,
           respectively.

           THREE MONTHS ENDED SEPTEMBER 28, 1997 COMPARED TO THE THREE MONTHS
           ENDED SEPTEMBER 29, 1996

           Earnings Per Common Share and Net Earnings

           Earnings per common share for the three months ended September 28,
           1997 were $.51 versus $.08 for the prior year's comparable period
           based upon weighted average common shares outstanding of 43.6
           million and 42.8 million for the three month periods ended September
           28, 1997 and September 29, 1996, respectively.  Net earnings
           increased $18.7 million to $22.2 million for the three months ended
           September 28, 1997 compared to the same period in the prior year.

           The increase in net earnings is attributable to no loss from
           Stratosphere for the three months ended September 29, 1997, and
           preopening expenses at Grand Casino Tunica in 1997.  During the
           three months ended September 29, 1996, equity in loss of
           unconsolidated affiliates was $10.9 million, whereas, for the three
           months ended September 29, 1997 it was $.5 million.  Grand Casino
           Tunica expensed $5.2 million in preopening costs for the three
           months ended September 29, 1996 compared to $.3 million for the same
           period in 1997.






                                     - 17 -


<PAGE>   18


                       GRAND CASINOS, INC. AND SUBSIDIARIES
        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                              RESULTS OF OPERATIONS
                                   (UNAUDITED)



        Gross Revenues
        
        Grand Casino Biloxi, Grand Casino Gulfport, and Grand Casino Tunica 
        generated $125.8 million in gross casino revenue and $31.3 million in 
        gross hotel, food, beverage, retail, and entertainment revenue during 
        the three months ended September 28, 1997.  During the three months 
        ended September 29, 1996, Grand Casino Tunica, Grand Casino Biloxi and 
        Grand Casino Gulfport generated $109.4 million in gross casino revenue 
        and $24.5 million in gross hotel, food, beverage and  retail revenue.

        The increase in gross revenues is primarily attributable to the opening
        of Grand Casino Tunica which contributed $54.7 million of gross revenues
        for the three months ended September 28, 1997 compared to $33.0 million
        for the same period in 1996.  Combined gross revenues for Grand Casino
        Biloxi and Grand Casino Gulfport increased $1.5 million for the three
        months ended September 28, 1997 compared to the same period in the prior
        year.  Management fees were approximately even for the three months
        ended September 28, 1997 compared to the same period in the prior year.

        Net Revenues

        Net revenues for the Company increased $20.9 million for the three
        months ended September 28, 1997 compared to the same period in the      
        prior year.  The increase in net revenues is primarily due to Grand
        Casino Tunica, which contributed net revenues of $49.7 million during
        the three months ended September 28, 1997, compared to $30.3 million
        during the three months ended September 29, 1996.  In addition, combined
        net revenues of Grand Casino Biloxi and Grand Casino Gulfport increased
        $.8 million for the three months ended September 28, 1997 compared to
        the same period in the prior year.

        Costs and Expenses

        Total costs and expenses increased $9.3 million from $113.7 million     
        for the three months ended September 29, 1996 to $123.0 million for the
        three month period ended September 28, 1997.  Casino expenses were $43.0
        million for the three month period ended September 28, 1997 compared to
        $39.5 million for the comparable period in 1996.



                                     - 18 -
        


<PAGE>   19



                     GRAND CASINOS, INC. AND SUBSIDIARIES
       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                            RESULTS OF OPERATIONS
                                  (UNAUDITED)




           Costs and Expenses (Continued)




           The increase of $3.5 million was comprised of additional casino
           expenses for Grand Casino Tunica in the amount of $2.6 million and a
           combined increase for Grand Casino Biloxi and Grand Casino Gulfport
           of $.9 million for the three months ended September 28, 1997
           compared to the same period in the prior year.  Food and beverage
           expenses decreased $.2 million to $8.8 million for the three month
           period ended September 28, 1997.  Selling, general, and
           administrative expenses increased $7.7 million from $40.6 million
           for the three months ended September 29, 1996 to $48.4 million for
           the three months ended September 28, 1997.

           Grand Casino Tunica's selling, general, and administrative expenses
           increased $5.3 million from the three months ended September 29,
           1996 to the three months ended September 28, 1997.  In addition,
           combined selling, general, and administrative expenses for Grand
           Casino Biloxi and Grand Casino Gulfport increased $2.5 million from
           the three months ended September 29, 1996 to the three months ended
           September 28, 1997.  Corporate expenses for the three months ended
           September 28, 1997 decreased slightly from the same period in 1996.

           Other

           Interest income decreased by $1.2 million to $2.8 million for the
           three months ended September 28, 1997.  This decrease is primarily
           attributable to lower cash balances due to construction at Grand
           Casino Biloxi and Grand Casino Tunica.  Interest expense decreased
           by $.2 million to $11.0 million for the three months ended September
           28, 1997 compared to $11.2 million for the three months ended
           September 29, 1996.  The decrease is the result of an increase in
           capitalized interest relating to the construction at Grand Casino
           Tunica and Grand Casino Biloxi, which is offset by interest expense
           on additional advances under the $120 million Senior Secured Term
           Loan.  Capitalized interest was $2.6 million and $1.0 million for
           the three months ended September 28, 1997 and September 29, 1996,
           respectively.





                                     - 19 -
           


<PAGE>   20



                     GRAND CASINOS, INC. AND SUBSIDIARIES
       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                            RESULTS OF OPERATIONS
                                  (UNAUDITED)



           CAPITAL RESOURCES AND LIQUIDITY

           As of September 28, 1997, the Company had cash and cash equivalents
           of $140.3 million.  For the nine months ended September 28, 1997,
           capital expenditures were $144.1 million compared to $261.5 million 
           for the comparable period in the prior year.  The majority of        
           expenditures for the nine months ended September 28, 1997, related
           to additional construction at Grand Casino Biloxi and Grand Casino
           Tunica.  Based on the projected cash generated from operations,
           current cash and cash equivalents, and available credit facilities,
           the Company believes it will have sufficient resources to fund
           operations and proposed capital expenditures during the next twelve
           months.

           Pursuant to the Company's covenants related to the $450.0 million
           First Mortgage Notes and the $115.0 million Senior Notes, the
           Company is restricted from paying cash dividends and must maintain
           certain financial ratios.  Because of such restrictions and to
           provide funds for the growth of the Company, no cash dividends are
           expected to be paid on common shares in the foreseeable future.

           FORWARD-LOOKING STATEMENTS

           Certain information included in this Form 10-Q and other materials
           filed or to be filed by the Company with the Securities and Exchange
           Commission (as well as information included in oral statements or
           other written statements made or to be made by the Company) contains
           statements that are "forward-looking" under the Federal Private
           Securities Litigation Reform Act of 1995.

           Forward-looking statements are those which include statements
           regarding projections, plans and objectives, and future economic
           performance, together with statements regarding any assumptions
           pertaining to such projections, plans and objectives, and future
           economic performance.  While these forward-looking statements
           reflect the best judgment of the Company, based on information
           available on the date of this Form 10-Q, such statements are all
           subject to risks and uncertainties that could cause actual results
           to vary from the forward-looking statements made in this Form 10-Q.
           Those variances could be significant.



                                     - 20 -



<PAGE>   21


                     GRAND CASINOS, INC. AND SUBSIDIARIES
       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
                            RESULTS OF OPERATIONS
                                  (UNAUDITED)



           FORWARD-LOOKING STATEMENTS (CONTINUED)

        Such forward-looking statements involve risks and uncertainties that
        could significantly affect future results, and accordingly, such results
        may differ from those expressed in any forward-looking statements made
        by or on behalf of the Company.   These risks and uncertainties 
        include, but are not limited to, those relating to development and
        construction activities, dependence on existing management, leverage and
        debt service (including sensitivity to fluctuations in interest rates),
        changes in competitive conditions, domestic or global economic
        conditions, changes in federal or state tax laws or the administration
        of such laws and changes in gaming laws or regulations (including the
        legalization of gaming in certain jurisdictions).  In addition to any
        specific risks and uncertainties mentioned or discussed in this Form
        10-Q, the risks and uncertainties discussed in detail in the Company's
        1996 Form 10-K, provide information which should be considered in
        evaluating any of the Company's forward-looking statements.  In
        addition, you should be aware that the facts and circumstances which
        exist when any forward-looking statements are made and on which those
        forward-looking statements are based, may significantly change in the
        future, thereby rendering obsolete the forward-looking statements on
        which such facts and circumstances were based.




















                                     - 21 -

<PAGE>   22


                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION



ITEM 1.  LEGAL PROCEEDINGS

         The following descriptions are summaries of the status of each of the
         following legal proceedings as of November 1, 1997.  More complete
         information may be obtained by reviewing the court files pertaining to
         such actions.

         COHEN - FEDERAL ACTION

         In April 1994, Harvey Cohen brought an action in the United States
         District Court for the District of Nevada -- Harvey Cohen, et. al. v.
         Stratosphere Corporation, et. al. - Case No. CV-S-94-00334 DWH (LRL)
         -- against various defendants, including Grand Casinos Resorts, Inc.
         ("Resorts"), a wholly owned subsidiary of the Company.  Cohen alleges
         federal securities law violations and various state law claims in
         connection with the initial public offering (the "IPO") for
         Stratosphere Corporation ("Stratosphere"). Cohen brought the action as
         a class action, and alleges that the defendants deprived the
         plaintiffs of the opportunity  to purchase Stratosphere common stock
         in the IPO.

         In April 1995, the federal district court dismissed the action.  In
         May 1995, the plaintiffs filed a notice of appeal of the dismissal
         with the United States Court of Appeals for the Ninth Circuit.  The
         appeal -- Case No. CA 95-16098 -- was subsequently briefed and argued,
         and in June 1997, the Appeals Court issued its decision affirming the
         district court's dismissal of the action.  Because the plaintiffs did
         not request reconsideration or review of the Appeals Court's decision
         by the applicable deadline, the district court's dismissal of the
         action is final.

         COHEN - STATE ACTION

         In August 1995, Harvey Cohen brought an action in the District Court
         for Clark County, Nevada -- Harvey J. Cohen, et. al. v. Stratosphere
         Corporation, et. al. - Case No. A349985 -- against various defendants,
         including Grand Casinos Resorts, Inc., a wholly owned subsidiary of
         the Company.  Cohen brought the action as a class action, and makes
         substantially the same claims as made in the federal action brought by
         Cohen and described above.

         The state action has, by agreement of the parties, been stayed pending
         a decision in the federal court action.  The Company intends to
         request that the state action be dismissed.


                                     - 22 -



<PAGE>   23


                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)




           CALIFORNIA VIDEO POKER LITIGATION

           In April 1996, three plaintiffs brought an action in the Superior
           Court of California, County of San Diego -- Tom Payne, et. al. v.
           Aztar Corporation, et. al. - Case No. 698592 -- against several
           defendants, including the Company.  The plaintiffs alleged that the
           defendants participated in fraudulent and misleading conduct
           intended to induce plaintiffs to play video poker machines based on
           false beliefs regarding how such machines operate, and that the
           defendants' alleged conduct violates various provisions of
           California law.  The plaintiffs sought to have the action certified
           a class action, compensatory and punitive damages and other relief.

           The defendants submitted various motions to dismiss the action,
           including a motion by the Company based on the claim that the
           California court does not have jurisdiction over the Company.

           In March 1997, the court required the plaintiffs to file a
           complaint stating more clearly the basis on which the plaintiffs
           claim the defendants violated California law.  In April 1997, the
           plaintiffs filed an amended complaint.  The amended complaint
           included allegations that the defendants directed advertisements to
           California residents that included false statements regarding video
           poker machines.

           The Company continued to assert that the California courts do not
           have jurisdiction over the Company, and, therefore submitted a
           motion to dismiss the action with respect to the Company.

           Certain of the defendants in the action - - not including the
           Company - - submitted a motion to dismiss based on a claim that the
           U.S. Constitution precludes California courts from considering the
           plaintiffs' claims against those defendants.  Before the court ruled
           on the Company's jurisdictional motion, the court granted the other
           defendants' constitutional motion. The Company has been advised that
           the plaintiffs intend to appeal the dismissal order.





                                     - 23 -




<PAGE>   24



                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)




           CALIFORNIA VIDEO POKER LITIGATION (CONTINUED)

           In October 1997, the plaintiffs and the defendants who submitted
           jurisdictional motions to dismiss (including the Company) entered
           into an agreement pursuant to which the plaintiffs' claims against
           those defendants will be dismissed.  If the plaintiffs' appeal is
           unsuccessful, the constitutional dismissal will apply to all
           defendants in the action - - including the Company.  If the
           plaintiff's appeal is successful, the plaintiffs will have the
           right to reinstate their claims against all of the defendants.  If
           the plaintiffs reinstate their claims against the Company, the
           Company will be free to reinstate its jurisdictional motion to
           dismiss.

           SLOT MACHINE LITIGATION - NEVADA

           In April 1994, William H. Poulos brought an action in the United
           States District Court for the Middle District of Florida, Orlando
           Division -- William H. Poulos, et. al. vs. Caesars World, Inc. et.
           al. - Case No. 39-478-CIV-ORL-22 -- in which various parties
           (including the Company) alleged to operate casinos or be slot
           machine manufacturers were named as defendants.  The plaintiff
           sought to have the action certified as a class action.

           A subsequently filed action -- William Ahearn, et. al. vs. Caesars
           World, Inc., et. al. - Case No. 94-532-CIV-ORL-22 -- made similar
           allegations and was consolidated with the Poulos action.

           Both actions included claims under the federal
           Racketeering-Influenced and Corrupt Organizations Act and under
           state law, and sought compensatory and punitive damages.  The
           plaintiffs claimed that the defendants are involved in a scheme to
           induce people to play electronic video poker and slot machines
           based on false beliefs regarding how such machines operate and the
           extent to which a player is likely to win on any given play.

           In December 1994, the consolidated actions were transferred to the
           United States District Court for the District of Nevada.

           In September 1995, Larry Schreier brought an action in the United
           States District Court for the District of Nevada -- Larry Schreier,
           et. al. vs. Caesars World, Inc., et. al. - Case No.
           CV-S-95-00923-DWH (RJJ).


                                     - 24 -





<PAGE>   25
                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)


           SLOT MACHINE LITIGATION - NEVADA (CONTINUED)

           The plaintiffs' allegations in the Schreier action were similar to
           those made by the plaintiffs in the Poulos and Ahearn actions,
           except that Schreier claimed to represent a more precisely defined
           class of plaintiffs than Poulos or Ahearn.

           In December 1996, the court ordered the Poulos, Ahearn and Schreier
           actions consolidated under the title William H. Poulos, et. al. vs.
           Caesars World, Inc., et. al. - Case No. CV-S-94-1126 - DAE (RJJ) -
           (Base File), and required the plaintiffs to file a consolidated and
           amended complaint.  In February 1997, the plaintiffs filed a
           consolidated and amended complaint.

           In March 1997, various defendants (including the Company) filed (i)
           motions to dismiss the amended complaint, and (ii) motions to stay
           the consolidated action pending consideration of the plaintiff's
           allegations by various gaming regulatory authorities.  As of
           November 1, 1997, the Company has not received notice of a decision
           regarding any of such motions.

           STRATOSPHERE SECURITIES LITIGATION - FEDERAL

           In August 1996, a complaint was filed in the United States District
           Court for the District of Nevada -- Michael Caesar, et. al. v.
           Stratosphere Corporation, et. al. -- against Stratosphere
           Corporation and others, including the Company.  The complaint was
           filed as a class action, and sought relief on behalf of
           Stratosphere shareholders who purchased their stock between
           December 19, 1995 and July 22, 1996.  The complaint included
           allegations of misrepresentations, federal securities law
           violations and various state law claims.

           In August through October 1996, several other nearly identical
           complaints were filed by various plaintiffs in the United States
           District Court for the District of Nevada.  Those complaints
           include the following:



                                     - 25 -

<PAGE>   26




                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)



STRATOSPHERE SECURITIES LITIGATION - FEDERAL (CONTINUED)


o    Regina Peltz, et. al. v. Stratosphere Corporation, et. al.

o    Robert Stengel, et. al. v. Stratosphere Corporation, et. al.

o    Robert Johnson, et. al. v. Stratosphere Corporation, et. al.

o    David Vallee, et. al. v. Stratosphere Corporation, et. al.

o    Anthony L. Poli, et. al. v. Stratosphere Corporation, et. al.

o    Darrell Russell and Gail Russell, et. al. v. Stratosphere Corporation, 
     et. al.

o    Mitchell Gordon, et. al. v. Stratosphere Corporation, et. al.

o    James J. Enright, Jr. v. Stratosphere Corporation, et. al.



The defendants in the above actions submitted motions requesting that all of 
the actions be consolidated.  Those motions were granted on January 15, 1997, 
and the consolidated action is entitled In Re:  Stratosphere Corporation
Securities Litigation - Master File No. CV-S-96-00708 PMP (RLH).

In February 1997, the plaintiffs filed a consolidated and amended complaint 
naming various defendants, including the Company and certain officers and 
directors of the Company.  The amended complaint includes claims under federal 
securities laws and Nevada laws based on acts alleged to have occurred between 
December 19, 1995 and July 26, 1996.

In February 1997, various defendants, including the Company and the     
Company's officers and directors named as defendants, submitted motions to
dismiss the amended complaint on various grounds, including the Company's claim
that the amended complaint failed to state a valid cause of action against the
Company and the Company's officers and directors.




                                     - 26 -



<PAGE>   27



                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)


           STRATOSPHERE SECURITIES LITIGATION - FEDERAL (CONTINUED)

           In May 1997, the court issued an order dismissing the action.  The
           original dismissal order did not allow the plaintiffs to amend
           their complaint in an attempt to state a valid cause of action.

           In June 1997, the plaintiffs asked the court to reconsider its
           dismissal order.  In July 1997, the court amended its dismissal
           order to provide that the amended complaint was dismissed, but that
           the plaintiffs could submit a second amended complaint by August
           22, 1997.

           In August 1997, the plaintiffs filed a second amended complaint.
           In September 1997, certain of the defendants, including the Company
           and the Company's officers and directors named as defendants,
           submitted motions to dismiss the second amended complaint on
           various grounds, including the Company's claim that the second
           amended complaint fails to state a valid cause of action against
           the Company and those officers and directors.

           STRATOSPHERE SECURITIES LITIGATION - STATE

           In August 1996, a complaint was filed in the District Court for
           Clark County, Nevada -- Victor M. Opitz, et. al. v. Robert E.
           Stupak, et. al. - Case No. A363019 -- against various defendants,
           including the Company.  The complaint seeks relief on behalf of
           Stratosphere Corporation shareholders who purchased stock between
           December 19, 1995 and July 22, 1996.  The complaint alleges
           misrepresentations, state securities law violations and other state
           claims.

           The Company and certain defendants submitted motions to (i)
           dismiss, or (ii) stay the state court proceedings pending
           resolution of the federal court actions described above.  The court
           has stayed further proceedings pending the proceedings in federal
           district court In Re: Stratosphere Securities Litigation.

           GRAND SECURITIES LITIGATION - FEDERAL

           In September and October 1996, two actions (Joel Blake, et. al. v.
           Grand Casinos, Inc., et. al. and Robert D. Marcus, et. al. v. Grand
           Casinos, Inc., et. al.) were filed by Company Shareholders  in the
           United States District Court for the District of Minnesota against
           the Company and certain of the Company's directors and officers.

                                     - 27 -




<PAGE>   28



                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)


           GRAND SECURITIES LITIGATION - FEDERAL (CONTINUED)

           The complaints allege misrepresentations, federal securities law
           violations and other claims in connection with the Stratosphere
           project.

           The actions have been consolidated In Re:  Grand Casinos, Inc.
           Securities Litigation - Master File No. 4-96-890 -- and the
           plaintiffs filed a consolidated complaint.  The defendants have
           submitted a motion to dismiss the consolidated complaint.  The
           court heard arguments regarding the motion in May 1997, but as of
           November 1, 1997, the Company has not received notice of a decision
           regarding the motion to dismiss.

           MICHAELS COMPANY OF NEVADA

           In December 1996, a complaint was filed in the United States
           District Court for the District of Nevada -- Michaels Company of
           Nevada v. Grand Casinos, Inc., et. al. - Case No. CV-S-96-01006-PMP
           (RLH) -- against the Company and others, including certain
           directors and officers of the Company.  The complaint alleges that
           the Company improperly withdrew from an agreement to finance and
           develop a potential Indian-owned gaming project in California.

           The complaint seeks lost profits that which the plaintiff claims it
           would have received had the Company not withdrawn. The Company
           believes that it had legitimate business reasons to withdraw from
           the proposed project.

           The Company and the other defendants have submitted answers denying
           the allegations of the complaint.  The parties to the action then
           began discovery.

           In October 1997, plaintiff and the defendants signed a settlement
           agreement pursuant to which the complaint will be dismissed.

           DERIVATIVE ACTION

           In February 1997, certain shareholders of the Company brought an
           action in  the Hennepin County, Minnesota District Court  -- Lloyd
           Drilling, et. al. v. Lyle Berman, et. al. - Court File No.
           MC97-002807 --  against certain officers and directors of the
           Company.  The plaintiffs allege that those officers and directors
           breached certain fiduciary duties to the shareholders of the
           Company as a result of certain transactions involving the
           Stratosphere project.
                                     - 28 -



<PAGE>   29





                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)

           DERIVATIVE ACTION (CONTINUED)

           The Company's Board of Directors appointed an independent special
           litigation committee to evaluate whether the Company should pursue
           the claims against the officers and directors.

           The Company's officers and directors named as defendants in the
           action have filed an answer to the complaint.  The special
           litigation committee asked the court stay discovery in the action 
           pending completion of the special litigation committee's evaluation. 
           Discovery has been stayed pending the special litigation committee's
           evaluation.  As of November 1, 1997, the special litigation
           committee is conducting its evaluation.

           STRATOSPHERE VACATION CLUB LITIGATION

           In late April, 1997, the Company and Grand Casinos Resorts, Inc.
           ("Resorts"), a wholly-owned subsidiary of the Company, were served
           with a summons and a second amended complaint in an action in
           District Court in Clark County, Nevada -- Richard Duncan, et. al.
           vs. Bob and Jane Doe Stupak, et. al. - Case No. A370127.  The
           plaintiffs allege that the defendants, including the Company and
           Resorts, engaged in acts that which constitute "consumer fraud"
           under Nevada law in connection with vacation packages which the
           defendants claim to have purchased from Bob Stupak.  The plaintiffs
           also allege "unjust enrichment", breach of contract and other
           claims under Nevada law. The plaintiffs seek to pursue their claims
           as a class action, and ask for various remedies including
           compensatory damages and punitive damages.

           The Company has submitted a motion to dismiss the complaint as it
           pertains to Company and Resorts.  The court denied the motion to
           dismiss.  Discovery has been commenced.

           STRATOSPHERE NOTEHOLDER COMMITTEE BANKRUPTCY COURT ACTION

           In June 1997, the Official Committee of Noteholders (the
           "Committee") in the Chapter 11 bankruptcy proceeding for
           Stratosphere Corporation ("Stratosphere") pending in the United
           States Bankruptcy Court for the District of Nevada (the "Bankruptcy
           Court") filed a motion by which the Committee sought Bankruptcy
           Court approval for assumption (on behalf of Stratosphere's
           bankruptcy estate) of the March 1995 Standby Equity Commitment (the
           "Standby Equity Commitment") between Stratosphere and the Company.

                                     - 29 -



<PAGE>   30





                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)



           STRATOSPHERE NOTEHOLDER COMMITTEE BANKRUPTCY COURT ACTION
           (CONTINUED)

           In the motion, the Committee seeks Bankruptcy Court authorization to
           compel the Company to fund up to $60 million in "capital
           contributions" to Stratosphere over three years, based on the
           Committee's claim that such "contributions" are required by the
           Standby Equity Commitment.

           Both the Company and Stratosphere opposed the Committee's motion.
           The Bankruptcy Court held a preliminary hearing on the Committee's
           motion in June 1997, and set evidentiary hearings in December 1997
           on the issues raised by the Committee's motion and the Company's
           opposition to that motion.

           The Company has asserted, in its opposition to the Committee's
           motion, that the Standby Equity Commitment is not enforceable in the
           Stratosphere bankruptcy proceeding as a matter of law.

           Discovery is ongoing with respect to some of the factual issues
           raised by the Committee's motion and the Company's opposition to
           that motion.  Accordingly, the Bankruptcy Court has not issued a
           definitive ruling regarding the Committee's motion.

           STANDBY EQUITY COMMITMENT LITIGATION

           In September 1997, the successor trustee (the "Stratosphere
           Trustee") under the indenture pursuant to which Stratosphere
           Corporation issued Stratosphere Corporation's first mortgage notes
           filed a complaint in the United States District Court for the
           District of Nevada - - IBJ Schroeder Bank & Trust Company, Inc. vs.
           Grand Casinos, Inc. - File No. CV-S- 97-01252-DWH (RJJ) - - naming
           the Company as defendant.

           The complaint alleges that the Company failed to perform under a
           Standby Equity Commitment entered into between Stratosphere
           Corporation and the Company in connection with Stratosphere
           Corporation's issuance of such first mortgage notes in March 1995.
           The complaint seeks an order compelling specific performance of what
           the Committee claims are Grand's obligations under the Standby
           Equity Commitment. The Stratosphere Trustee filed the complaint in
           its alleged capacity as a third party beneficiary under the Standby
           Equity Commitment.


                                     - 30 -





<PAGE>   31


                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)



        STANDBY EQUITY COMMITMENT LITIGATION (CONTINUED)

        The complaint was served on the Company on October 6, 1997. The
        Company has yet not responded to the complaint.

        The Company has, however, asserted in previous filings with the United 
        States Securities and Exchange Commission (and continues to assert) 
        that as a result of Stratosphere's bankruptcy filing and the 
        application of bankruptcy laws, the enforceability of the Standby 
        Equity Commitment is in question.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a)  Exhibit No.

                 4.1  Second Amendment to Indenture, dated as of September 16, 
                      1997, by and among Grand Casinos, Inc., Grand Casinos
                      Resorts, Inc., Grand Casinos of Mississippi, Inc. -
                      Gulfport, Grand Casinos of Mississippi, Inc. - Biloxi,
                      Grand Casinos Biloxi Theater, Inc., Mille Lacs Gaming
                      Corporation, Grand Casinos of Louisiana, Inc. -
                      Tunica-Biloxi, Grand Casinos of Louisiana, Inc. -
                      Coushatta, GCA Acquisition Subsidiary, Inc., BL
                      Development Corp., BL Resorts I, Inc., GCG Resorts I,
                      Inc., Grand Casinos Nevada I, Inc., and Firstar Bank of
                      Minnesota, N.A.

                 4.2  Third Amendment to Indenture, dated as of September 25, 
                      1997, by and among Grand Casinos, Inc., Grand Casinos
                      Resorts, Inc., Grand Casinos of Mississippi, Inc. -
                      Gulfport, Grand Casinos of Mississippi, Inc. - Biloxi,
                      Grand Casinos Biloxi Theater, Inc., Mille Lacs Gaming
                      Corporation, Grand Casinos of Louisiana, Inc. -
                      Tunica-Biloxi, Grand Casinos of Louisiana, Inc. -
                      Coushatta, GCA Acquisition Subsidiary, Inc., BL
                      Development Corp., BL Resorts I, Inc., GCG Resorts I,
                      Inc., Grand Casinos Nevada I, Inc., BL Resorts I, LLC,
                      GCG Resorts I, LLC and Firstar Bank of Minnesota, N.A.





                                     - 31 -




<PAGE>   32


                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)



           (a)  Exhibit No.  (Continued)

                 4.3  Indenture, dated as of October 16, 1997, between Grand 
                      Casinos, Inc., the Guarantors and Firstar Bank of
                      Minnesota, N.A.  (Incorporated herein by reference to
                      Exhibit 4.1 to the Company's Registration Statement on
                      Form S-4, as amended, File No. 333-39009.)

                 4.4  Registration Rights Agreement, dated as of October 16, 
                      1997, between Grand Casinos, Inc., the Guarantors and
                      Donaldson, Lufkin & Jenrette Securities Corporation. 
                      (Incorporated herein by reference to Exhibit 4.3 to the
                      Company's Registration Statement on Form S-4, as amended,
                      File No. 333-39009.)

                 10.1 Participation Agreement, dated as of September 29, 1997, 
                      by and among BL Resorts I, LLC, GCG Resorts I, LLC,
                      Grand Casinos, Inc. and its Subsidiaries Listed on
                      Schedule I, as Guarantors, Hancock Bank, the Persons
                      Listed on Schedule II, as Lenders, Societe Generale, The
                      Sumitomo Bank, Limited, and Wells Fargo Bank, National
                      Association, as Co-Agents, the Mitsubishi Trust and
                      Banking Corporation, as Lead Manager, and BA Leasing &
                      Capital Corporation, as Arranger and Administrative
                      Agent, including Appendix.

                 10.2 Master Lease Agreement and Deed of Trust, dated as of 
                      September 29, 1997, between Hancock Bank and BL Resorts 
                      I, LLC and GCG Resorts I, LLC.

                 10.3 Reducing Revolving Loan Agreement, dated as of September 
                      29, 1997, among Hancock Bank, BA Leasing & Capital        
                      Corporation, Societe Generale, The Sumitomo Bank,
                      Limited, and Wells Fargo Bank, National Association, The
                      Mitsubishi Trust and Banking Corporation, and the Persons
                      named on Schedule I, as Lenders.

                 10.4 Trust Agreement, dated as of September 29, 1997, between 
                      BL Resorts I, LLC and GCG Resorts I, LLC, and Hancock 
                      Bank.





                                     - 32 -












<PAGE>   33
                      GRAND CASINOS, INC. AND SUBSIDIARIES
                                    PART II
                               OTHER INFORMATION
                                  (CONTINUED)



           (a)  Exhibit No.  (Continued)


                 10.5 Guaranty, dated as of September 29, 1997 of Grand 
                      Casinos, Inc., and its Subsidiaries named therein in
                      favor of the Beneficiaries named therein.

                 10.6 Purchase Agreement, dated as of October 9, 1997, by and 
                      among Grand Casinos, Inc., the Guarantors and Donaldson,  
                      Lufkin & Jenrette Securities Corporation. (Incorporated
                      herein by reference to Exhibit 10.1 to the Company's
                      Registration Statement on Form S-4, as amended, File No.
                      333-39009.)

                 27   Financial Data Schedule

           (b)   No reports on Form 8-K were filed during the quarterly period
                 ended September 28, 1997.



























                                     - 33 -


<PAGE>   34



                                   SIGNATURES




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



Dated:  November 12, 1997  GRAND CASINOS, INC.
                           ----------------------------
                           Registrant



                           By/ S /THOMAS J. BROSIG
                           ----------------------------
                           Thomas J. Brosig, President



                           / S / TIMOTHY J. COPE
                           ----------------------------
                           Timothy J. Cope
                           Executive Vice President and
                           Chief Financial Officer















                                    - 34 -