UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549
                                    _________

                                    FORM 10-K

            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 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. 0-22436
<TABLE>
<S>                                      <C>                                                                 <C>
            Delaware                                  Lady Luck Gaming Corporation                                88-0295602
(State or other jurisdiction of          (Exact name of Registrant as specified in its charter)                (I.R.S. employer
 incorporation or organization)                                                                              identification number)
</TABLE>

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

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

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

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

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

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

     The aggregate  market value of the Common Stock,  $.001 par value,  held by
non-affiliates  of the registrant,  Lady Luck Gaming  Corporation,  on March 10,
1998,  based on the closing  sale price as reported  by NASDAQ  National  Market
System,  was  approximately  $10,900,148.  Shares of Common  Stock  held by each
officer and director  and by each person who owns 5% or more of the  outstanding
Common  Stock  have  been  excluded  in that  such  persons  may be deemed to be
affiliates.  This  determination  of  affiliate  status  is  not  necessarily  a
conclusive determination for other purposes.

     As of March 10, 1998, 29,285,698 shares of the registrant, Lady Luck Gaming
Corporation's, Common Stock, $.001 par value, were outstanding.

     The  registrant,  Lady Luck Gaming  Corporation's,  proxy statement for its
1998 Annual Meeting of Shareholders  is  incorporated  by reference  herein into
Part III of this Form 10-K.

                                        1
<PAGE>
                                     PART I

ITEM 1.           BUSINESS.

     All statements  contained herein that are not historical  facts,  including
but  not  limited  to,  statements  regarding  the  Company's  current  business
strategy,  the Compan's prospective joint ventures,  asset sales and expansions
of  existing  projects,  and the  Company's  plans for  future  development  and
operations,   are  based  upon  current   expectations.   These  statements  are
forward-looking  in nature  and  involve  a number  of risks and  uncertainties.
Generally,  the words  "anticipates,"  "believes,"  "estimates,"  "expects"  and
similar  expressions  as they  relate  to the  Company  and its  management  are
intended to  identify  forward  looking  statements.  Actual  results may differ
materially.  Among  the  factors  that  could  cause  actual  results  to differ
materially are the following:  the availability of sufficient capital to finance
the Company's  business plan on terms  satisfactory to the Company;  competitive
factors,  such as legalization of gaming in jurisdictions from which the Company
draws  significant  numbers of patrons  and an increase in the number of casinos
serving  the markets in which the  Company's  casinos  are  located;  changes in
labor, equipment and capital costs; the ability of the Company to consummate its
contemplated  joint ventures on terms  satisfactory to the Company and to obtain
necessary  regulatory approvals therefor;  changes in regulations  affecting the
gaming  industry;  the  ability  of the  Company  to comply  with its  Indenture
covering  the  First  Mortgage  Notes  due  2001  (the  "2001  Notes");   future
acquisitions   or  strategic   partnerships;   general   business  and  economic
conditions;  and other  factors  described  from  time to time in the  Company's
reports filed with the Securities and Exchange Commission. The Company wishes to
caution  readers  not  to  place  undue  reliance  on any  such  forward-looking
statements,  which statements are made pursuant to the Private Litigation Reform
Act of 1995 and, as such, speak only as of the date made.


General

     The  operations  of Lady  Luck  Gaming  Corporation  ("LLGC"),  a  Delaware
corporation, and its subsidiaries (collectively the "Company") primarily include
those of LLGC,  Lady Luck  Gaming  Finance  Corporation  ("LLGFC"),  a  Delaware
corporation;  Lady  Luck  Mississippi,  Inc.  ("LLM"),  Lady Luck  Biloxi,  Inc.
("LLB"),  Lady Luck Gulfport,  Inc. ("LLG"),  Lady Luck Vicksburg,  Inc. ("LLV")
Magnolia Lady, Inc. ("MLI"),  Old River Development,  Inc. ("ORD") and Lady Luck
Tunica (LLT),  each a Mississippi  corporation  (collectively  the  "Mississippi
Companies");  Lady Luck Central  City,  Inc.,  formerly  Gold Coin  Incorporated
("LLCC"), a Delaware corporation; Lady Luck Kimmswick, Inc. ("LLK"), a 93% owned
Missouri  corporation;   Lady  Luck  Quad  Cities,  Inc.  ("LLQC"),  a  Delaware
corporation; and, L.L. Gaming Reservations,  Inc. ("LLGR") a Nevada corporation.
The Company also owns an interest in a joint venture with Bettendorf  Riverfront
Development  Company  ("BRDC") and  previously  owned an  investment  in a joint
venture with Bally's Entertainment Corp. ("Bally's").

     The Company directly or indirectly owns and operates  dockside,  land-based
and  riverboat   casinos  and  related   projects  in  recently  created  gaming
jurisdictions.  As of December  31,  1997,  the Company  owns and  operates  one
dockside casino and a hotel in Natchez, Mississippi ("Lady Luck Natchez" and the
"River Park Hotel",  respectively),  one dockside casino in Biloxi,  Mississippi
("Lady Luck  Biloxi");  two  dockside  casinos,  one hotel and an  entertainment
complex in Coahoma  County,  Mississippi  ("Lady Luck Rhythm & Blues",  "Country
Casino",  the "Rhythm & Blues Hotel" and the "Pavilion") and one hotel in nearby
Helena,  Arkansas (the "Riverbluff Hotel") (collectively the "Lady Luck Rhythm &
Blues/Country  Casino  Complex");  and,  through a 50% owned joint  venture (the
"Bettendorf Joint Venture"), a riverboat casino in Bettendorf,  Iowa ("Lady Luck
Bettendorf") (collectively the "Operating Properties").  Effective September 30,
1997,  the Company  sold its 35% equity  investment  in a dockside  casino and a
hotel in northern Tunica County,  Mississippi ("Bally's Saloon & Gambling Hall")
to Bally's; and, effective February 19, 1998, the Company sold substantially all
of the assets related to its land-based,  limited stakes casino in Central City,
Colorado ("Lady Luck Central City") (collectively the "Casinos Sold").

     The Company  also has  dockside  or  riverboat  casino  projects in various
stages  of  development  in  Kimmswick,   Missouri  (the  "Missouri   Project"),
Vicksburg,   Mississippi  (the  "Vicksburg  Project")  and  has  applied  for  a
destination  gaming  license in  Vancouver,  British  Columbia  (the  "Vancouver
Project")  (collectively the "Development  Stage Projects").  As of December 31,
1997, the Company has net remaining capitalized  investments of $2.9 million and
$8.2 million,  after any project  development  cost write-downs and reserves and
other  losses to date,  respectively,  in the  Missouri  Project  and  Vicksburg
Project. The Company has not capitalized any costs with respect to the Vancouver
Project.

     The  Company is also in the  pre-development  stage of a casino  project in
Scott City, Missouri (the "Pre-development  Stage Project").  As of December 31,
1997,  the Company has invested  $1.0 million of capital in the  Pre-development
Stage

                                        1
<PAGE>

Project  (which was  expensed  each year as  incurred)  and does not  anticipate
investing additional material amounts of capital prior to licensing.

     The Company owns and leases a cruising vessel and certain gaming  equipment
to Lady Luck Bettendorf. The Company has reached an agreement to sell the gaming
equipment  to Lady Luck  Bettendorf  effective  January  1,  1998.  The  Company
operates  a  central  reservations  center  in  Phoenix,   Arizona  which  books
reservations for the Company's hotels.

     Previously,  the Company had planned to  construct  and operate a casino in
Gulfport,  Mississippi  (the "Gulfport  Project").  However,  due to  increased
competition in the Gulfport gaming market, in 1997 the Company suspended further
development  of the  Gulfport  Project.  Prior  to  suspension  of the  Gulfport
Project,  certain  leases were  executed,  all of which the  Company  intends to
cancel at the earliest date permitted pursuant to the lease agreements.


Operating Casinos

     Lady Luck Rhythm & Blues,  Country  Casino and the Pavilion.  MLI commenced
dockside  gaming  operations  of Lady  Luck  Rhythm & Blues on June 27,  1994 in
Coahoma County, Mississippi,  commenced operation of an adjacent 173- room hotel
on August 16, 1994,  commenced gaming operations of Country Casino and operation
of the  Pavilion on May 21, 1996 and  acquired  and took over  operation  of the
120-room  Riverbluff Hotel in Helena,  Arkansas on July 3, 1996. Coahoma County,
Mississippi  is  located  approximately  120 miles  southeast  of  Little  Rock,
Arkansas and 60 miles southwest of Memphis,  Tennessee,  on the Mississippi side
of the Helena Bridge,  which crosses the Mississippi River and connects Arkansas
and Mississippi.  Lady Luck Rhythm & Blues has a Las Vegas-style  Rhythm & Blues
theme  and  is  constructed  on  two  adjacent  barges.   One  barge  has  three
restaurants,  while the other barge,  together with the Las Vegas-style  Country
themed Country Casino barge,  has 58,000 square feet of gaming space. The gaming
space includes,  as of December 31, 1997,  approximately 1,333 slot machines, 50
table games,  six poker tables,  a casino  lounge and a full service  restaurant
under construction. The Pavilion consists of approximately 25,000 square feet of
entertainment  and event space,  two movie theaters,  an arcade and a logo shop.
Based upon operating results,  these combined  operations are currently the most
profitable of the Operating Casinos.

     During 1997, construction began on a full service restaurant to replace the
existing food court in Country  Casino because  management  believes the further
development of Country Casino as a destination property will further enhance the
combined  operations of the Lady Luck Rhythm & Blues/Country  Casino Complex. In
order to meet peak demand,  and enhance access to Country Casino, MLI intends to
modify  traffic  patterns  and  add  additional  paved  parking  areas  for  360
automobiles  and 15  tractor-trailers  in 1998. In addition,  site-work began in
late  1997 for a hotel  next to the  Country  Casino;  however,  there can be no
assurance  that the  Company  will  ultimately  construct  such  hotel or obtain
necessary financing on acceptable terms for such construction.  MLI also intends
to make various other  improvements  in 1998 such as remodeling  portions of the
casino  and  installing  a new  property-wide  PBX  system  for  more  efficient
communications and lower operating costs.

     Lady Luck Natchez.  Lady Luck Natchez commenced  operations on February 26,
1993.  This  dockside  casino  is  located  on  the  Mississippi  River  at  the
intersection  of  Highway  61,  a  north-south   highway   connecting   Natchez,
Mississippi and Memphis,  Tennessee,  and Highway 84, an east-west highway which
runs  parallel  to and is  between  Interstates  10 and 20.  Lady  Luck  Natchez
consists of a three story  dockside  facility with  approximately  14,300 square
feet of gaming  space and access to 500  dedicated  parking  spaces.  The gaming
space, as of December 31, 1997,  features 624 slot machines,  16 table games and
four poker  tables.  LLM  purchased  the River Park Hotel,  a 147-room  hotel in
Natchez, on April 15, 1996.

     The Company has remodeled  portions of the River Park Hotel,  including the
replacement  of certain  furniture and equipment.  Lady Luck Natchez  intends to
complete  various  improvements and renovations  during 1998 including:  (i) the
addition of a gourmet restaurant located in close proximity to the casino;  (ii)
remodeling of the casino and buffet;  (iii) refurbishing of certain rooms at the
River Park Hotel;  and (iv) the addition of 260 parking  spaces  within  walking
distance of the casino.

     Lady  Luck  Bettendorf.   Lady  Luck  Bettendorf  commenced  operations  on
April 21, 1995. Lady Luck Bettendorf is located on a leased parcel of land which
is adjacent to Interstate 74 on the Mississippi  River (the "Bettendorf  Site").
The Bettendorf Site is approximately six miles from its primary competitor,  the
Presidents  Landing  Casino in Davenport,  Iowa,  which  together with Lady Luck
Bettendorf  comprised  approximately  89% of the  gaming  market in that area in
1997. Lady

                                        2
<PAGE>
Luck  Bettendorf  consists of an  approximately  30,000  square foot casino on a
riverboat  gaming  vessel  which is  approximately  300 feet by 100 feet.  Other
related  facilities  include a restaurant,  gift shop, a  showroom/entertainment
area for parties and special events. As of December 31, 1997, the casino has 941
slot  machines,  37 table  games and seven poker  tables.  The vessel has gaming
operations on three floors. The first floor has a 19th century Iowa river theme,
the second  floor has a sports  theme and the poker room is on the third  floor.
The vessel is certified for 2,500 passengers including crew.

     The  Company  is  currently  expanding  Lady Luck  Bettendorf  at a cost of
approximately  $39.5  million.   Construction  of  the  initial  phase  of  such
expansion,  which includes a 260-room hotel with a fully enclosed walkway to the
riverboat casino,  an indoor pool and fitness center and restaurant  facilities,
began June 23, 1997 and is scheduled  to be  completed  in the Fall of 1998.  In
conjunction with this expansion, the City of Bettendorf,  Iowa will provide $7.5
million of the funds necessary to complete various  infrastructure  improvements
including a 500-space parking garage, a 30-50 slip marina and a traffic overpass
to improve access. The project financing is non-recourse to the Company.

     BRDC is leasing certain real property to the Bettendorf Joint Venture.  The
Company owns and leases a cruising  vessel and certain gaming  equipment to Lady
Luck  Bettendorf  for  approximately  $189,000 and $122,000,  respectively,  per
month. These leases were determined based upon arms-length  negotiations between
the Company and BRDC.  The  equipment was sold to the  Bettendorf  Joint Venture
effective January 1, 1998 for its fair market value of $712,000.

     All net profits and losses from all operations of Lady Luck  Bettendorf are
allocated  equally  between  the  Company  and BRDC.  The  Company has also been
granted  the  right to manage  Lady Luck  Bettendorf  pursuant  to a  management
agreement for a fee equal to 2% of gross  revenues plus 7% of EBITDA (as defined
therein) not to exceed 4% of annual  casino gross  revenue (as defined  therein)
generated  by Lady Luck  Bettendorf,  less  $37,500  per  month.  BRDC  provides
consulting services to the Company concerning licensing, staffing and management
of the marine aspects of the gaming vessel and any land based  development.  All
consulting  fees paid to BRDC (which  will be based upon Lady Luck  Bettendorf's
gross  revenues  and  will not  exceed  $325,000  annually)  will be paid by the
Company out of its management fee. The Bettendorf Joint Venture is operated by a
group  of four  managers.  Each  of BRDC  and the  Company  have  appointed  two
managers. Most management decisions,  including capital calls and distributions,
are determined by a majority of the managers.

     Lady Luck Biloxi.  Lady Luck Biloxi  commenced  operations  on December 13,
1993. Biloxi is a beach resort town on the Gulf of Mexico. The casino has had an
Asian theme and is located  adjacent to Highway 90,  approximately 60 miles east
of New Orleans,  Louisiana.  Lady Luck Biloxi  consists of a two story  dockside
facility with  approximately  21,000 square feet of gaming space. As of December
31, 1997, the gaming space includes 667 slot machines and 19 table games.  Other
amenities include a coffee shop/buffet, a lounge bar, a gourmet restaurant and a
logo shop.

     The Company  commenced a renovation  of Lady Luck Biloxi in late 1997 which
will include a change in its theme from Asian to a beach theme.  In addition the
Company  is  revising  its master  plan for the  property,  and  seeking a joint
venture partner to complete the project.

     The revised master plan for the Biloxi project envisions a redevelopment of
the  existing  site,  including  a  300+  room  hotel,  restaurant,  retail  and
entertainment  mall, and 1,000 car parking  garage,  to be developed on the gulf
side of Beach Boulevard.  Gaming space would be increased on the existing barge.
Total  estimated  costs are  approximately  $60.0  million.  While  the  Company
continues to explore various  alternatives  for the  redevelopment of the Biloxi
property,  there can be no assurances that a satisfactory  joint venture will be
consummated or that the Company will obtain requisite financing.


Development Stage Projects

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

     The  Missouri  Project.  The first two phases of the  project,  as planned,
include a  land-based  hotel and  casinos  onboard  two  separate  vessels  (the
"Missouri  Project").  The proposed site is located on an approximately  45-acre
parcel of land in Jefferson  County,  Missouri,  approximately 25 miles south of
St. Louis (the "Kimmswick Site").

                                        3
<PAGE>
     In 1997,  LLK and Davis  Gaming  Company II  ("Davis")  mutually  agreed to
dissolve an agreement of general  partnership to form a joint venture to operate
the Missouri  Project because the State of Missouri had not issued the project a
gaming  license on or prior to May 31,  1997.  The  Missouri  Gaming  Commission
investigates applicants at its discretion and there can be no assurance that the
Company's  application will be actively reviewed in future periods. LLK retained
the rights to the Kimmswick Site and owns the Missouri Project's assets.

     As of  December  31,  1997,  the Company has  expended  approximately  $8.5
million on the Missouri  Project,  consisting of approximately  $6.0 million for
construction of a partially  completed  cruising vessel and  approximately  $2.5
million in other related  development  costs.  The net  investment  remaining is
approximately  $3.0 million  after  project  development  cost  write-downs  and
reserves and other losses. The partially  completed cruising vessel intended for
the  Missouri  Project  could be used  without  the  cruising  equipment  if not
required.  However,  due to this potential  design change and the Company having
halted construction activity,  completion of the vessel pursuant to the original
contract terms might not be possible.  The Missouri Project is estimated to cost
an additional $93.1 million to complete development of the first two phases. The
proposed project has received the appropriate zoning approval from the Jefferson
County  Planning  Commission and has received a U.S. Army Corps of Engineers 404
permit. However, an amendment to the permit might be necessary due to changes in
the proposed project design subsequent to receiving the permit.

     During 1997, the Company  continued its efforts towards obtaining a license
for the Missouri Project and provided updated information to the Missouri Gaming
Commission. However, there can be no assurance that the Company will be selected
or obtain such approvals from the Missouri Gaming Commission.  While the Company
intends to continue seeking license approval by the Missouri Gaming  Commission,
the eventual  development  of the  Missouri  Project may also be subject to: (i)
satisfactory  resolution of a November  1997 Missouri  Supreme Court ruling that
several existing Missouri gaming facilities are illegal due to not being located
upon the  Mississippi or Missouri rivers (the Kimmswick Site is located upon the
Mississippi  River,  but  resolution  of the decision  could delay  selection of
additional applicants for licensing  investigation;  (ii) the selection of three
new Missouri Gaming  Commission  members,  which the Company believes may not be
overly  familiar with the Company's  application;  (iii) gaming  revenues in the
major metropolitan areas of Missouri have not increased commensurate with recent
increases  in capacity,  causing  fears of  competitive  saturation;  and,  (iv)
regulatory  factors,  including loss limits which have  generally  caused gaming
operations to underperform  relative to facilities in neighboring  jurisdictions
without such restrictions.

     The Vicksburg Project.  The development as planned will include a riverboat
casino, an approximate 200-room hotel, an 800-car parking garage, and additional
amenities (the "Vicksburg  Project").  The Vicksburg  Project is expected to be
located on  approximately  23.9 acres of land owned by the  Company  immediately
south of the I-20 bridge along the Mississippi  River, with access to Washington
Street, in Vicksburg, Mississippi (the "Vicksburg Site").

     During 1997, the Company  entered into an agreement (the  "Horseshoe  Joint
Venture  Agreement") with Horseshoe  Gaming,  LLC  ("Horseshoe") to form a joint
venture to complete and operate the  Vicksburg  Project.  Under the terms of the
joint venture agreement:  (i) the Vicksburg Project will be operated by a wholly
owned  subsidiary of Horseshoe;  (ii) Horseshoe  will own an equity  interest of
75%, with LLV holding the remaining 25%; and, (iii) the partners will contribute
real property and other previously  acquired assets with a combined  agreed-upon
value of approximately $42.0 million.

     A gaming license was granted to LLV on August 18, 1994 and has subsequently
been renewed.  As of December 31, 1997,  the Company has invested  approximately
$14.4  million in the  Vicksburg  Project  with a net  investment  remaining  of
approximately  $8.2 million  after  project  development  cost  write-downs  and
reserves  for  assets  which  may not be  usable  in the  project  as  currently
contemplated.  Management's  estimate  of net  realizable  value is  based  upon
assumptions  regarding future economic,  market and gaming regulatory conditions
including the viability of the Vicksburg  Site for the  development  of a casino
project.  Changes in these  assumptions could result in changes in the estimated
net realizable value of the property. The total cost of the project is initially
estimated to be approximately $100.0 million including the agreed- upon value of
contributed assets.

     The  consummation of the  transactions  contemplated by the Horseshoe Joint
Venture  Agreement are subject to the  fulfillment  of several  conditions  (the
"Conditions), including but not limited to, the partners' future agreement as to
the scope and cost of the project,  required regulatory approval, and completion
of project financing. The Horseshoe Joint Venture Agreement may be terminated by
LLV or Horseshoe as of April 1, 1998 (the "Termination  Date") if the Conditions
are not satisfied or waived as of the  Termination  Date or without  cause.  The
Company does not believe that all of the Conditions  will be satisfied  prior to
the Termination Date. While the Company does not currently intend to

                                        4
<PAGE>
terminate the Horseshoe Joint Venture Agreement,  there can be no assurance that
LLV or Horseshoe  will not  terminate the  Horseshoe  Joint  Venture  Agreement.
Furthermore,  there  can be no  assurance  that if  consummated,  that the joint
venture will be successful.

     In addition,  during the fourth  quarter of 1996,  the  Mississippi  Gaming
Commission  (the  "Commission")  found a proposed  casino  site on the Big Black
River unsuitable.  The Big Black River is located about 13 miles from Vicksburg,
between  Vicksburg and Jackson,  the major  population base from which Vicksburg
casinos draw.

     An affected  landowner on the Big Black River sued the Commission  after it
rejected the site,  and in the fourth quarter of 1997, a circuit court found the
site  suitable.  The  Commission and City of Vicksburg have appealed the circuit
court decision to the State Supreme Court.

     Casino  developments on the Big Black River could  significantly  adversely
affect operating casinos in Vicksburg, as well as the viability of the Vicksburg
Project.  While the Company believes that, based on previous rulings in favor of
the  Mississippi  Gaming  Commission,  the Big  Black  River  will  not be found
suitable  for casino  development,  it will be some time  before a ruling  comes
forth,  and there can be no  assurances  that the circuit  court  ruling will be
overturned.

     Lady Luck Vancouver.  The Company had previously  entered into a management
agreement with the Coquitlam Band to develop and manage a gaming  facility to be
located  on tribal  land  approximately  eight  miles from  downtown  Vancouver,
British Columbia, Canada. This agreement has been mutually terminated.

     The Province of British  Columbia (the  "Province"),  through its Lotteries
Advisory Committee (the "LAC") subsequently sent to interested parties a Request
for Proposal ("RFP") relating to a planned  expansion of gaming in the Province.
The gaming expansion is intended to include  destination-style  casinos, limited
to 30 table games and 300 slots, with the slot machines being provided and owned
by the  Province.  Bingo  halls  may  also  be  included  in the  projects.  The
Provincial  government will  participate in the revenue and net income generated
by  gaming  operations,  with an  initial  licensing  period  of ten  years.  In
addition, local host governments will participate in the net income generated by
projects in their respective jurisdictions for providing requisite services.

     The Company  responded to the RFP during the fourth quarter of 1997, with a
proposed  project to be developed on Tsawwassen  First Nation Band Reserve lands
(the "Vancouver  Project"),  located about 20 miles south of downtown Vancouver.
The  Vancouver  Project,  which is  expected  to cost  approximately  $25.0-30.0
million,  includes a 55,000 square foot gaming and entertainment facility and an
11,000  square  foot  Aboriginal   cultural   center,   all  to  be  located  on
approximately  20 acres.  The  proposed  gaming  facility  will also  include an
800-seat bingo hall.

     The LAC has been  reviewing  the  various  responses  to the  RFP,  and has
informed the Company that its response has successfully been  short-listed.  The
Company is negotiating a development  agreement with the Tsawwassen First Nation
as host community, and expects to have it completed during the second quarter of
1998.  The Company  believes  that the LAC will make  selections  of  successful
proponents during the second quarter of 1998. After a proponent is selected,  it
then  must  negotiate  the  various  operating  agreements  with the  Provincial
government and obtain financing for the project. While the Company believes that
it may be selected for a gaming license, there can be no assurances that it will
be selected,  nor that agreements with the Tsawwassen  First Nation and Province
of British  Columbia can be  successfully  negotiated  or that  financing can be
obtained.  As of December  31,  1997,  the Company  has  invested  approximately
$500,000 of capital in these  projects  (which was expensed  when  incurred) and
does not anticipate  investing  additional  material amounts of capital prior to
licensing.


Pre-development Stage Project

     The Scott City Project.  The Company is in the  pre-development  stage of a
casino project in Scott City,  Missouri.  Scott City is approximately  150 miles
south of St. Louis,  Missouri,  along  Interstate 55. The project is expected to
consist of a gaming  vessel,  a 200-room  hotel,  an outlet  mall,  an  athletic
complex and an 18-hole golf course (the "Scott City Project").

     The Company has been endorsed by, and entered into a  development  contract
with,  the City of Scott City to be the  exclusive  casino  operator for a three
year period in Scott City. The Company has filed an application for a gaming

                                        5
<PAGE>
license with respect to the Scott City  Project.  However,  the Missouri  Gaming
Commission  investigates  applicants  at  its  discretion  and  there  can be no
assurance that the Company will be selected for licensing.

     In addition,  during 1997, the Company let options on property intended for
the  development  of the  Scott  City  Project  expire.  This  was  based on the
uncertainty  as to whether  the site  would be found  suitable  by the  Missouri
Gaming Commission.  The Company has elected to pursue  identification of another
site that would be found suitable by the Missouri Gaming Commission, but has yet
to identify and control a site.  There can be no assurance that the Company will
find a suitable site for the Scott City Project.

     As of  December  31,  1997,  the Company has  invested  approximately  $1.0
million of capital in this project  (which was expensed when  incurred) and does
not  anticipate  investing  additional  material  amounts  of  capital  prior to
licensing.  The  Company  estimates  that  the  Scott  City  Project  will  cost
approximately $65.0 million to complete.


Casino Operations Sold

     Lady  Luck  Central   City.   Effective   February  19,  1998,   LLCC  sold
substantially all of its real property and operating assets to the holder of its
mortgage note in exchange for  forgiveness of the note which, as of December 31,
1997,  had a  $2,750,000  balance.  The sale  resulted in a loss of  $7,287,000,
including reserves for certain remaining real property leases.

     The Bally's Joint Venture.  The Company entered into an agreement effective
September 30, 1997 to sell its 35% minority interest in Bally's Saloon, Gambling
Hall and Hotel in Tunica, Mississippi to Hilton Hotels Corporation, the owner of
the  property.  Pursuant to a  Partnership  Interest  Redemption  Agreement,  on
November 3, 1997, the Company received  $15,250,000 cash. The sale resulted in a
loss of $1,912,000 which  represents the difference  between the sales price and
the Company's net  investment in the Bally's Joint Venture and related assets at
the time of sale.


Marketing

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

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

     As the markets  surrounding  the Company's  Operating  Casinos  continue to
mature, the Company has expanded its focus to encompass the surrounding  tourist
markets of each Operating Casino. The Company utilizes and continuously monitors
the effectiveness of direct mail, television advertising, newspapers, billboards
and tourist  magazines placed in the surrounding areas to increase the Operating
Casinos' visibility and to promote the image that these casinos are part of the

                                        6
<PAGE>
history and romance of  riverboats  of the past.  Management  believes  that the
advent of casino gaming will increase the current  length of a tourist's stay as
well as increase the number of tourists into some areas.  The Company also works
with local  organizations  with the goal of promoting  the areas to increase the
number of tourists.


License Agreements

     Effective January 1, 1996, the Company entered into several agreements with
certain  entities  controlled by Mr.  Tompkins,  Chairman of the Board and Chief
Executive  Officer of the Company  replacing  other  agreements  which were less
favorable to the Company.  Under a marketing agreement (the "License Agreement")
with  International  Marco  Polo  Services,  Inc.,  formerly  known as Lady Luck
Casino, Inc. ("IMPSI"),  a corporation owned and controlled by Mr. Tompkins, the
Company pays an annual  licensing fee with respect to the Lady Luck name and the
mailing list developed by Gemini,  Inc.  ("Gemini"),  a subchapter S corporation
wholly owned by Mr.  Tompkins which does business as Lady Luck  Casino/Hotel  in
Las Vegas, Nevada, to IMPSI. The licensing fee is equal to the greater of (a) 9%
of the  Company's  EBITDA  (calculated  as  EBITDA  of the  Company  and all its
subsidiaries and joint ventures (multiplied, in the case of the Bettendorf Joint
Venture  and  the  Missouri  Project  by the  interest  owned  by the  Company),
excluding, among other things, all revenues and expenses arising from any casino
or  casino/hotel  for which the Company is not the  operator  and which does not
utilize the mailing list or Lady Luck name and excluding revenues from the lease
of equipment owned by the Company to third parties or unconsolidated  entities),
and (b) $1,700,000 per year (as adjusted based on the U.S.  Consumer Price Index
Urban Annual Percent Change as published by the U.S.  Department of Labor Bureau
of Labor and  Statistics  from year to year (the "Consumer  Price  Index").  The
Company has agreed to use the Lady Luck name on all existing and future  casinos
which it  operates.  The License  Agreement  provides  that during any period of
default in the payment of  principal  of or interest  on the  Company's  11 7/8%
First Mortgage Notes due 2001 (the "2001 Notes"),  the Company will not pay (but
will  accrue on its books) any  licensing  fee due to IMPSI.  For the year ended
December  31,  1997,  the  licensing  fees  payable to IMPSI by the Company were
approximately $2,989,000.

     Pursuant to an office lease with Gemini, the Company pays Gemini the sum of
$300,000 per year as adjusted  based on the Consumer  Price Index for  corporate
office  facilities and certain  services with respect to such  corporate  office
facilities.  In  addition,  the Company  reimburses  Gemini for the  approximate
retail  value of rooms,  food and  beverages,  and other  items  provided to the
Company by Gemini.  Net rent expense and items reimbursable to Gemini during the
year ended December 31, 1997 were $408,000.

     Marco  Polo  International   Marketing,   Inc.  ("MPIM"),  a  wholly  owned
corporation of Mr. Tompkins, provides marketing services to the Company pursuant
to a services agreement between MPIM and the Company.  Mr. Uboldi, the Company's
President  and Chief  Operating  Officer  and  director of the  Company,  is the
president  of MPIM.  Net  marketing  services  received by the Company from MPIM
during the year ended December 31, 1997 for certain allocated payroll, overhead,
direct advertising and marketing costs were $748,000.

     With respect to the Bettendorf Joint Venture, pursuant to an assignment and
assumption  agreement  between  IMPSI and the  Company,  IMPSI  assigned  to the
Company its rights to receive a management  fee for services  performed  for the
Bettendorf Joint Venture and to assign its obligation to pay part of that fee to
its joint venture partner.


Employees

     As of December 31, 1997,  the Company had  approximately  3,100  employees:
approximately  1,100  employees at Lady Luck Rhythm & Blues,  Country Casino and
the Pavilion,  approximately  470 employees at Lady Luck Natchez,  approximately
820 employees at Lady Luck Bettendorf,  approximately 590 employees at Lady Luck
Biloxi,  approximately  90 employees at Lady Luck Central City, and  anticipates
employing  up to 300 to 800  employees  at each of the other  Development  Stage
Projects.  The Company's employees are currently non-union.  The Company has not
experienced any work stoppages and believes its relations with its employees are
good.






                                        7
<PAGE>
Competition

     The Company  believes the gaming markets in which it currently  operates or
intends to develop projects are extremely competitive and expects them to become
even  more  competitive.  The  Company  competes  in  these  gaming  markets  by
attempting to develop locations within such markets which are more accessible to
potential customers and through its sales and marketing efforts described above.

     There is a  substantial  risk  that the  supply  of  gaming  facilities  in
Mississippi  will  exceed  the demand for  gaming,  which  could have a material
adverse  effect on the  Company's  operating  results.  As of December 31, 1997,
there were a total of 30 licensed and operating  dockside  gaming  facilities in
Mississippi,  consisting  of nine in  Tunica,  nine in  Biloxi  (one  opened  in
December 1997), two in Gulfport,  four in Vicksburg,  one in Hancock County, one
in  Coahoma  County,  one in Natchez  and three in  Greenville.  One  additional
dockside  casino  is  licensed  and  under  construction  in  Biloxi.  Increased
competition  including the opening of another  competing casino in December 1997
in Biloxi,  caused LLB's revenues to decline significantly and its operations to
become   unprofitable   since  that  time.  In  addition,   DeSoto  County,  the
northwestern-most  Mississippi  County and  nearest  to  Memphis,  could,  under
existing state law, vote to authorize  gaming  activities.  The voters of DeSoto
County have voted against legalized gaming on three occasions,  most recently in
November,  1996.  However,  local  referenda  can be  held  during  presidential
election  years,  and no assurance can be given that gaming will not be approved
in DeSoto  County in  future  elections.  Additionally,  in  Arkansas,  a gaming
referendum,  which, if passed,  would have legalized  certain forms of gaming at
certain locations, was defeated in November of 1996. If gaming were legalized in
certain areas of Arkansas or, to a lesser  extent,  in DeSoto  County,  it could
have a material  adverse  effect on the  Company's  Coahoma  County  facilities.
Furthermore,  the Choctaw  Indian  Tribe  negotiated a compact with the State of
Mississippi and has opened a land-based casino located within  approximately 100
miles to the east of Jackson,  Mississippi  which has affected Lady Luck Natchez
and, if developed, could affect the Vicksburg Project.

     Lady Luck Bettendorf  faces  competition  from two other  riverboats in the
Quad Cities  area,  including  riverboats  in  Davenport,  Iowa and Rock Island,
Illinois.  However,  Lady Luck  Bettendorf  has  increased its share of the Quad
Cities, Iowa market from approximately 44% during 1996 to 46% during 1997. In an
effort to further solidify its position, the Company is currently expanding Lady
Luck Bettendorf.

     One of the reasons that the Company sold the assets of LLCC was because the
operations of Lady Luck Central City were  negatively  impacted  during the last
year from increased competition from certain nearby casinos.

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

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

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

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




                                        8
<PAGE>
Seasonality and Weather

     Even if the  Company  is able to expand  into other  jurisdictions,  it may
remain dependent on a relatively small number of dockside facilities. A flood or
other severe weather condition could cause the Company to lose the use of one or
more dockside  facilities for an extended  period.  Flooding on the  Mississippi
river and adverse  weather  conditions  caused Lady Luck Natchez to close on two
occasions  in 1997 for a total of  approximately  18 days  which  closings  also
caused  lingering   disruptive  effects  for  a  period  after  each  reopening.
Additionally,  due to its  location  on the Gulf of Mexico,  Lady Luck Biloxi is
especially vulnerable to damage from hurricanes. The inability to use a dockside
facility during any period could have a material adverse effect on the Company's
financial results.

     Seasonal  revenue  fluctuations may occur at the casinos in Mississippi and
Iowa.


Regulatory Matters

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

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

     Mississippi Gaming Regulations

     The ownership and operation of a gaming  business in Mississippi is subject
to extensive laws and regulations,  including the Mississippi Gaming Control Act
passed  in  June 1990  (the   "Mississippi   Act")  and  the  regulations   (the
"Mississippi  Regulations")  promulgated  thereunder by the  Mississippi  Gaming
Commission and  Mississippi  Tax  Commission  which are empowered to oversee and
enforce the Mississippi Act. Gaming in Mississippi can be legally conducted only
on vessels of a certain minimum size in navigable  waters in counties  bordering
the  Mississippi  River or in  waters  of the  State of  Mississippi  (so-called
dockside gaming) which lie adjacent and to the south (principally in the Gulf of
Mexico) of the Counties of Hancock,  Harrison, and Jackson, and only in counties
in Mississippi  in which the  registered  voters have not voted to prohibit such
activities.  The  voters in  Jackson  County,  the  southeastern-most  county of
Mississippi,

                                        9
<PAGE>
and DeSoto County, south of Memphis, Tennessee, have voted to prohibit gaming in
such counties.  Gaming may also be legally conducted on Native-American lands in
Mississippi as regulated in part by the Federal Indian Gaming  Regulatory Act of
1988,  which  activity is not subject to the  Mississippi  Act.  Presently,  the
Mississippi  Band of  Choctaws  operates  a land based  casino at a location  in
East-Central Mississippi.

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

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

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

     The Company is also  subject to certain  audit and record  keeping laws and
regulations,  primarily  intended to ensure compliance with the Mississippi Act,
including  compliance  with the  provisions  relating  to the payment of license
fees. The Mississippi Gaming Commission, through the power to regulate licenses,
has the power to impose additional restrictions on the holders of the securities
of the Company,  at any time. The Company is required to provide the Mississippi
Gaming  Commission  with notice of any changes in  directors  or  officers.  The
Mississippi Gaming Commission requires that any CEO, president, CFO or secretary
of the  Company  or  its  subsidiaries  be  found  suitable.  In  addition,  the
Mississippi Gaming

                                       10
<PAGE>
Commission  requires that any other director or officer of the Company who has a
substantial involvement with gaming or a significant  administrative supervisory
role of the gaming operations be found suitable.  These suitability findings may
be made after such  individuals  take office as directors or officers.  However,
the Mississippi  Gaming  Commission may require that the Company sever relations
with  individuals  if they are not  found  suitable.  In  addition,  during  the
pendency of any  suitability  finding,  the  Mississippi  Gaming  Commission may
require  that  such  individuals  not  act as  directors  or  officers.  Messrs.
Tompkins,  Uboldi,  Reid and Tombari have been found suitable by the Mississippi
Gaming Commission.

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

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

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

     Iowa Gaming Regulations

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

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

     On August 11, 1994,  the Riverbend  Regional  Authority,  a  not-for-profit
corporation  organized  for the  purpose  of  facilitating  riverboat  gaming in
Bettendorf,  Iowa (the "Authority"),  entered into an agreement (the "Operator's
Contract") with the Bettendorf  Joint Venture  authorizing the Bettendorf  Joint
Venture to operate riverboat gaming  operations in Bettendorf.  The initial term
of the Operator's  Contract is for three years. The Bettendorf Joint Venture has
the right to renew the  contract  for  succeeding  three year periods as long as
Scott County voters approve gaming in the jurisdiction.  The Company's intent is
to renew the Operator's Contract effective April 1998. The enabling  legislation
gives  each  county the  opportunity  to hold a  referendum  on whether to allow
casino gaming within its  boundaries.  Such a referendum  was passed on April 7,
1994  with  80%  voting  in favor of  passage  and  casino  gaming  was  thereby
authorized  in  Bettendorf  for a period of nine years from the issuance date of
the  license.  Another  referendum  cannot be held until  2002 and if  approved,
subsequent  referenda  will  occur at 8 year  intervals.  Under  the  Operator's


                                       11
<PAGE>
Contract,  the Bettendorf  Joint Venture pays the Authority $1 per passenger for
the first 500,000  passengers in any year and $1.50 for each passenger in excess
of  500,000.  The per  passenger  admission  charge is  increased  by 1/2 of the
Consumer  Price  Index for each three year  extension  period of the  Operator's
Contract.  The Bettendorf  Joint Venture also pays the Authority an amount equal
to 2% of the net gaming win in excess of $35,000,000  and less than  $44,000,000
in any year.

     Further,  pursuant to statute,  the Bettendorf Joint Venture must pay a fee
to the City  equal to $.50 per  passenger.  On March 5,  1998,  the Iowa  Gaming
Commission  authorized  the renewal of the  Bettendorf  Joint  Venture's  gaming
license.  The license is for an additional term of one year commencing  April 1,
1998, is not  transferrable  and will need to be renewed in March of 1999 and at
the end of each renewal period thereafter.

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

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

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

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

     If it were  determined  that gaming laws were  violated by a licensee,  the
gaming  licenses  held by such  licensee  could be  limited,  made  conditional,
suspended or revoked. In addition,  the Bettendorf Joint Venture and the persons
involved  could be subject to substantial  fines for each separate  violation of
the Iowa Gaming Laws at the discretion of the Iowa

                                       12
<PAGE>
Gaming Commission. Limitations, conditioning or suspension of any gaming license
could (and  revocation  of any gaming  license  would)  have a material  adverse
effect on the operations of the Bettendorf Joint Venture.

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

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

     If required by any gaming authority or if the Company reasonably determines
that ownership of any of the Company's securities,  including the 2001 Notes, by
any person or entity will either materially  preclude,  interfere with, threaten
or delay the issuance of, or  jeopardize  the  maintenance  and existence of any
gaming  or  liquor  license,  or  result  in  the  imposition  of  significantly
burdensome terms or conditions on such license,  the Indenture covering the 2001
Notes  provides  that the  Company  will have  certain  rights to redeem them or
require their sale.

     Missouri Gaming Regulations

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

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

     The  Missouri  Gaming Law imposes  operational  requirements  on  riverboat
operators,  including a charge of $2 per gaming customer that licensees must pay
to the Missouri  Gaming  Commission,  a minimum  payout  requirement  of 80% for
gambling  devices,  a 20% tax on adjusted gross receipts,  prohibitions  against
lending to gaming  customers  (except  for the use of credit  cards and  cashing
checks) and a  requirement  that each  licensee  reimburse  the Missouri  Gaming
Commission

                                       13
<PAGE>
for all costs of any Missouri Gaming  Commission  staff necessary to protect the
public on the licensee's  boat.  Licensees  must also submit  audited  quarterly
financial  reports to the  Missouri  Gaming  Commission  and pay the  associated
auditing  fees.  The  Missouri  Gaming Law provides for a loss limit of $500 per
person per  excursion.  Although the Missouri  Gaming Law currently  provides no
limit on the amount of riverboat space that may be used for gaming, the Missouri
Gaming  Commission  is  empowered to impose such space  limitations  through the
adoption  of rules and  regulations.  Additionally,  United  States  Coast Guard
safety  regulations  could  affect  the  amount of  riverboat  space that may be
devoted to gaming. The Missouri Gaming Commission will ultimately  determine the
location,  number and type of  excursion  boats in any city or county  which has
approved riverboat  gambling,  such city or county approval being a prerequisite
to  riverboat  gambling  in such city or  county.  Any city or county  which has
recommended  riverboat  gambling is to submit a plan outlining,  inter alia, the
number of boats to be licensed, the recommended licensee(s), and the community's
economic  development or impact and affirmative action plan. By regulation,  the
plan is to be submitted  within 30 days after the filing of an application for a
license in that city or county.  With  respect to the  availability  of dockside
gaming,  the Missouri Gaming  Commission is empowered to determine on a city and
county-specific  basis where such gaming is appropriate  and shall be permitted.
All other boats must cruise unless  authorized by the Missouri Gaming Commission
for  continuous   dockside  gaming.   The  Missouri  Gaming  Law  also  includes
requirements as to the form of riverboats, which must resemble Missouri's or the
local city's or county's riverboat history to the extent practicable and include
certain  non-gaming  amenities.  An excursion  gambling boat is now defined as a
boat,  ferry or other floating  facility.  The Missouri  Gaming Law also imposes
annual  licensing  requirements  on  suppliers  of  gaming  equipment  or  other
suppliers to riverboat operators.

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

 Non-Gaming Regulations

     The Company is subject to certain  federal,  state and local  environmental
protection,  health and safety laws,  regulations  and ordinances  that apply to
businesses  generally,  such as the Clean  Air Act,  the Clean  Water  Act,  the
Resource  Conservation  and Recovery Act, CERCLA,  the  Occupational  Safety and
Health Act, and similar state statutes.

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

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

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

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



                                       14
<PAGE>
ITEM 2.       PROPERTIES.

     The Company has various  property  leases and options to lease property and
owns barges  upon which  dockside  casinos  have been or are  anticipated  to be
constructed. The Company (i) owns two parcels of property at the site where Lady
Luck Biloxi is located and leases  several other  properties at such site;  (ii)
owns certain property including the Vicksburg Site; (iii) leases various land in
Natchez and owns the  property  where the River Park Hotel is located;  (iv) has
entered into the Coahoma  County lease and purchased  the  leasehold  associated
with the property  where the Riverbluff  Hotel is located;  (v) has entered into
various  leases  in  Gulfport;  (vi) has  entered  into an  option  to lease the
Kimmswick  Site.  All rental  payments  under  these  leases,  other than rental
payments under the Coahoma  County  leases,  are calculated on a fixed base rent
adjusted  in  accordance  with  increases  in the  Consumer  Price Index up to a
maximum of 3% in any given year. Rental payments under the Coahoma County leases
are 5.5% of the annual Gross  Revenues (as defined in such leases).  The Company
owns nine barges, one of which is in Natchez,  one of which is in Biloxi,  three
of which are intended for use in the  construction of the Vicksburg  Project and
four of which are in Coahoma  County.  The Company  also owns a cruising  gaming
vessel  which  is  being  leased  to  the  Bettendorf   Joint  Venture  and  has
approximately $6.0 million invested in a partially finished cruising vessel. The
Company  leases and has an  obligation  to  acquire  property  in Central  City,
Colorado (subsequent to December 31, 1997 the Company acquired a portion of this
leased  property).  Certain  of  the  Company's  properties  are  encumbered  by
mortgages and other  security  agreements for the benefit of holders of the 2001
Notes.  Additionally,  the Company has granted liens on certain of its owned and
leased properties to the sellers or lessors of such properties, including a plot
of land adjacent to Lady Luck Biloxi, the property where the River Park Hotel is
located and purchased  the  leasehold  interest  where the  Riverbluff  Hotel is
located. The Company leases its corporate offices in Las Vegas, Nevada. Refer to
Item 1. Business for additional information related to the Company's properties.


ITEM 3.           LEGAL PROCEEDINGS.

      Shareholder Class Action Lawsuits

     The Company has been named as a defendant in a purported  shareholder class
action lawsuit alleging violations by the Company of the Securities Exchange Act
of  1933  and  the  Securities   Exchange  Act  of  1934  for  alleged  material
misrepresentations   and  omissions  in  connection   with  the  Company's  1993
prospectus and initial  public  offering of Common Stock.  The complaint  seeks,
inter alia, injunctive relief,  rescission and unspecified compensatory damages.
In addition to the Company,  the complaint  also names as  defendants  Andrew H.
Tompkins,  Chairman and Chief Executive Officer of LLGC, Alain Uboldi,  Director
and Chief Operating Officer of LLGC,  Michael Hlavsa, the former Chief Financial
Officer of LLGC, Bear Stearns & Co., Inc. and Oppenheimer & Co., Inc., who acted
as lead  underwriters for the initial public offering.  The Company has retained
outside counsel to respond to the complaint. On October 8, 1997, the Company was
served  with an order of the court  dismissing  all of the  Plaintiff's  Section
10(b) and eleven of the  Plaintiff's  sixteen  Section 11, 12 and 15 allegations
with prejudice for failing to adequately  state a claim.  The court also ordered
the Plaintiffs to and the Plaintiffs have filed an amended  complaint  regarding
the five Section 11, 12 and 15 claims which were not dismissed  with  prejudice.
While the outcome of this matter  cannot  presently be  determined,  the Company
believes based in part on advice of counsel, that it has meritorious defenses.

      Greek Lawsuits

     The Company and certain of its joint venture  partners  (the  "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism  before  the Greek  Multi-Member  Court of First  Instance.  The  action
alleges that the Defendants  failed to make certain  payments in connection with
the gaming license bid process for Patras,  Greece.  The payments the Company is
alleged  to have been  required  to make  aggregate  approximately  2.1  billion
drachma  (which was  approximately  $7.3  million as of March 6, 1998 based upon
published  exchange  rates).  Although it is difficult to determine  the damages
being sought from the lawsuit,  the action may seek damages up to such aggregate
amount. The cases are still in their preliminary stages and their outcome cannot
be predicted with any degree of certainty;  however, the Company believes, based
in part on advice of counsel, that it has meritorious defenses.

     A Greek architect filed an action against the Company  alleging that he was
retained  by the  Company to provide  professional  services  with  respect to a
casino in  Loutraki,  Greece.  The  plaintiff in such action  sought  damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter.  The Greek
Court entered judgment against the Company in the amount of approximately

                                       15
<PAGE>
87.1 million drachma (which was approximately $301,000 as of March 6, 1998 based
upon  published  exchange  rates) plus  interest.  The Company has  appealed the
Court's decision. During the fourth quarter of 1997, the Company's Greek counsel
informed  the Company that it is more likely than not that the  appellate  court
will not overturn the Athens Court of First Instance's  decision.  A reserve has
been provided during the fourth quarter of 1997; however, the Company intends to
continue to defend itself in this matter.

      Other Matters

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

     During November 1996, LLCC entered into a Memorandum of Understanding  (the
"Memorandum") with BWCC, Inc., which does business as Bullwhackers-Central  City
("Bullwhackers").  The  Memorandum  provided for a combination of the respective
companies'  gaming  establishments  which  currently  operate on  adjacent  real
property in Central City. As a result of the Memorandum,  the parties negotiated
and purportedly executed a definitive Operating Agreement and Lease Agreement in
September 1997. During the fourth quarter of 1997, Bullwhackers refused to honor
such   definitive   agreements  and  the  Company  has  commenced  suit  against
Bullwhackers accordingly.


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

     No matters were submitted to a vote of  security-holders of LLGC during the
fourth quarter of 1997.




                                       16
<PAGE>
PART II

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

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

<TABLE>
<CAPTION>
                                                      Nasdaq Daily Sales Price


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


<S>                                                                                              <C>                    <C>

1997

1st quarter                                                                                      2.125                  1.688
2nd quarter                                                                                      1.875                  1.500
3rd quarter                                                                                      2.125                  1.188
4th quarter                                                                                      1.625                  0.750


1996

1st quarter                                                                                      2.219                  1.625
2nd quarter                                                                                      4.625                  2.000
3rd quarter                                                                                      4.313                  2.438
4th quarter                                                                                      3.000                  1.750
</TABLE>

     As of March 10, 1998, LLGC had  approximately  555 holders of record of its
common stock.

     LLGC did not pay any cash dividends on its common stock in 1996 or 1997 and
has no intention of paying cash dividends on its common stock in the foreseeable
future. In addition, the Indenture covering the 2001 Notes provides restrictions
on the Company's ability to pay dividends on its common stock (See Note 5 to the
Company's Consolidated Financial Statements).

                                       17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Years ended December 31,                                             1997        1996         1995         1994       1993
---------------------------------------------------------------  ----------- ------------ ------------ ----------- -----------
<S>                                                              <C>         <C>          <C>          <C>         <C>
Gross revenues                                                   $   170,474 $    174,234 $    158,411 $   125,134 $    81,124
Promotional allowances                                               (13,183)     (12,527)      (8,821)     (7,979)     (4,313)
Net revenues                                                         157,291      161,707      149,590     117,155      76,811
Casino expenses                                                       57,301       56,806       49,703      41,859      21,492
Food and beverage costs and expenses                                   6,644        6,928        8,582       7,215       2,982
Hotel expenses                                                         2,236        1,925        1,667         652           -
Other operating expenses                                                 258          282          310         574         194
Selling, general and administrative                                   52,939       53,786       49,539      51,926      21,722
Related party management/license fees                                  1,384        2,317        5,520       2,471       2,894
Depreciation and amortization                                         12,886       11,289        9,694       7,067       2,478
Reserve for loss on sale of assets                                     7,621            -            -           -           -
Pre-opening expense                                                        -          247            -       2,970       6,769
Litigation claims                                                        700        1,100            -           -           -
Project development cost write-downs and reserves                      7,784          404          509      15,635           -
Asset impairment write-down                                           20,698            -            -           -           -
Loss on sale of investment in unconsolidated affiliate                 1,912            -            -           -           -
Abandonment loss                                                           -            -            -       9,344           -
Operating income (loss)                                              (15,072)      26,623       24,066     (22,558)     18,280
Other (expense)                                                      (21,390)     (20,415)     (19,204)    (15,393)     (2,729)
Income (loss) before income tax and extraordinary items              (36,462)       6,208        4,862     (37,951)     15,551
Net income (loss)                                                    (36,511)       6,139        6,718     (35,665)      3,810
Net cash provided by (used in) operating activities                   10,114       13,492       17,083       8,590      22,935
--------------------------------------------------------------- ------------ ------------ ------------  ----------- ----------

At December 31,                                                      1997         1996        1995         1994         1993
---------------------------------------------------------------  ----------- ------------ ------------  ----------- ----------
Cash and cash equivalents                                        $    19,552  $    15,490  $    22,148  $    28,914 $   18,351
Restricted cash                                                       15,388            -        8,858        7,847          -
Current assets                                                        41,930       19,523       35,219       44,679     22,327
Property and equipment, net                                          128,375      173,119      155,664      170,345     91,116
Total assets                                                         185,306      223,718      217,281      226,963    122,975
Current liabilities                                                   22,258       19,892       23,702      216,954     42,200
Total liabilities                                                    199,072      200,973      200,675      221,137     85,369
Series A mandatory cumulative redeemable preferred stock              18,402       16,430       14,669       13,097     11,693
Stockholders' equity (deficit)                                       (32,168)       6,315        1,937       (7,271)    25,913
Working capital (deficit)                                             19,672         (369)      11,517     (172,275)   (19,873)
---------------------------------------------------------------  ----------- ------------ ------------  ----------- ----------

</TABLE>

                                       18
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------  ----------- ------------  -----------  -----------  -----------
Years ended December 31,                                             1997         1996         1995         1994         1993
                                                                 ----------- ------------  -----------  -----------  -----------
Thousands, except per share amounts and employees

<S>                                                              <C>         <C>          <C>           <C>           <C>
Selected Data
Basic and diluted net income (loss) per share
      Before extraordinary item                                  $    (1.25) $      0.21  $      0.15   $     (1.45)  $     0.43
      Extraordinary item                                                  -            -         0.08          0.04        (0.28)
      Applicable to common stockholders                               (1.31)        0.15         0.18         (1.47)        0.12
Pro Forma earnings per share (unaudited)                                  -            -            -             -         0.11
Shares used in computing net income per share                        29,285       29,285       28,952        25,300       24,664
Shares outstanding at year end                                       29,285       29,285       29,285        27,285       24,793
Cash dividends declared per common share                                  -            -            -             -            -
Common Stock - High                                              $     2.13  $      4.63  $      2.81   $     13.75   $    19.00
Common Stock - Low                                               $     0.75  $      1.63  $      1.50   $      2.25   $     7.25
Common Stock - Year end                                          $     1.00  $      1.88  $      1.63   $      2.59   $    10.75
Number of employees                                                   3,100        2,950        2,850         2,100        2,330
---------------------------------------------------------------  ----------- ------------ -----------  ------------  -----------
</TABLE>

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


                                       19
<PAGE>
ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

     All statements  contained herein that are not historical  facts,  including
but  not  limited  to,  statements  regarding  the  Company's  current  business
strategy,  the Company's prospective joint ventures,  asset sales and expansions
of  existing  projects,  and the  Company's  plans for  future  development  and
operations,   are  based  upon  current   expectations.   These  statements  are
forward-looking  in nature  and  involve  a number  of risks and  uncertainties.
Generally,  the words  "anticipates,"  "believes,"  "estimates,"  "expects"  and
similar  expressions  as they  relate  to the  Company  and its  management  are
intended to  identify  forward  looking  statements.  Actual  results may differ
materially.  Among  the  factors  that  could  cause  actual  results  to differ
materially are the following:  the availability of sufficient capital to finance
the Company's  business plan on terms  satisfactory to the Company;  competitive
factors,  such as legalization of gaming in jurisdictions from which the Company
draws  significant  numbers of patrons  and an increase in the number of casinos
serving  the markets in which the  Company's  casinos  are  located;  changes in
labor, equipment and capital costs; the ability of the Company to consummate its
contemplated  joint ventures on terms  satisfactory to the Company and to obtain
necessary  regulatory approvals therefor;  changes in regulations  affecting the
gaming  industry;  the  ability  of the  Company  to comply  with the  Company's
Indenture covering the First Mortgage Notes due 2001 (the "2001 Notes");  future
acquisitions   or  strategic   partnerships;   general   business  and  economic
conditions;  and other  factors  described  from  time to time in the  Company's
reports filed with the Securities and Exchange Commission. The Company wishes to
caution  readers  not  to  place  undue  reliance  on any  such  forward-looking
statements,  which statements are made pursuant to the Private Litigation Reform
Act of 1995 and, as such, speak only as of the date made.

     The  operations  of Lady  Luck  Gaming  Corporation  ("LLGC"),  a  Delaware
corporation, and its subsidiaries (collectively the "Company") primarily include
those of LLGC,  Lady Luck  Gaming  Finance  Corporation  ("LLGFC"),  a  Delaware
corporation;  Lady  Luck  Mississippi,  Inc.  ("LLM"),  Lady Luck  Biloxi,  Inc.
("LLB"),  Lady Luck Gulfport,  Inc. ("LLG"),  Lady Luck Vicksburg,  Inc. ("LLV")
Magnolia Lady, Inc. ("MLI"),  Old River Development,  Inc. ("ORD") and Lady Luck
Tunica (LLT),  each a Mississippi  corporation  (collectively  the  "Mississippi
Companies");  Lady Luck Central  City,  Inc.,  formerly  Gold Coin  Incorporated
("LLCC"), a Delaware corporation; Lady Luck Kimmswick, Inc. ("LLK"), a 93% owned
Missouri  corporation;   Lady  Luck  Quad  Cities,  Inc.  ("LLQC"),  a  Delaware
corporation; and, L.L. Gaming Reservations,  Inc. ("LLGR") a Nevada corporation.
The Company also owns an interest in a joint venture with Bettendorf  Riverfront
Development  Company  ("BRDC") and  previously  owned an  investment  in a joint
venture with Bally's Entertainment Corp. ("Bally's").


Results of Operations

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

     For the years ended December 31, 1997 and 1996,  gross  revenues  decreased
from $174.2  million to $170.5  million,  a decrease of $3.7  million or 2%. The
decrease  was  primarily  due to the Lady  Luck  Rhythm &  Blues/Country  Casino
Complex's  revenues and operating results being materially  adversely  affected,
during  the third  quarter  of 1997,  by a  temporary  closure  by the  Arkansas
Department of  Transportation  of the Helena Bridge which provides the principle
access from its primary customer market.  Other causes of the decrease  include:
(i) two closures of Lady Luck Natchez for a total of  approximately  18 days due
to  flooding  on the  Mississippi  river and adverse  weather  conditions  which
closings  also  caused  lingering  disruptive  effects  for a period  after each
reopening; (ii) declines in table games revenues at each wholly owned subsidiary
due to  decreases  in the  amounts  wagered  at each  of  these  properties  and
decreases  in the  percentage  of wagers won by Lady Luck  Natchez and Lady Luck
Biloxi;  (iii) the addition of two competitive  casinos and a significant number
of hotel  rooms by MLI's  competitors;  (iv) a  deteriorating  local  economy in
Natchez,  Mississippi and decreasing  customer  headcounts at LLM; (v) a growing
disparity in relation to its  competitors in the amenities  which LLB is able to
offer its  customers  such as on-site hotel rooms for table games  players;  and
(vi)  operational  changes  and an absence of  capital  improvements  at LLCC in
addition to increased  competition  from certain nearby casinos.  The effects of
these items were partially offset by: (i) an increase in the Company's equity in
net  income  of  unconsolidated  affiliates;  (ii) a full year of  operation  of
Country Casino  adjacent to Lady Luck Rhythm & Blues in 1997 which had opened on
May 21,  1996;  (iii) an  increase  in LLB's  slot  machine  revenues  due to an
increase in the amounts wagered;  (iv) LLM's purchase of the River Park Hotel on
April 15, 1996; and (v) MLI's  acquisition of the 120-room  Riverbluff  Hotel in
Helena, Arkansas on July 3, 1996.

                                       20
<PAGE>
     Access  to the  Lady  Luck  Rhythm &  Blues/Country  Casino  Complex's  two
casinos,  hotel and pavilion was severely  restricted from July 16, 1997 through
August 3, 1997. On July 16, 1997, a barge with a large boom  attachment  hit the
Helena  Bridge which  crosses the  Mississippi  River and connects  Arkansas and
Mississippi.  The resulting  structural damage to the bridge caused the Arkansas
Department  of  Transportation  to close the bridge  until  August 4, 1997.  The
bridge  provides  access to MLI's  Arkansas  customers  upon  which it is highly
dependent.  Gross  revenues of Lady Luck Rhythm &  Blues/Country  Casino Complex
since the bridge's  reopening  indicate a successful  recovery evidenced by a 6%
increase in its gross  revenues for the fourth  quarter of 1997  compared to the
fourth  quarter of 1996. The adverse  effects  during the bridge's  closure were
partially offset by a full year of operation of Country Casino in 1997 which had
opened  May 21,  1996.  The net  effect of these  changes  and the  addition  of
competitive  facilities described more fully below resulted in gross revenues at
the Lady Luck Rhythm & Blues/Country  Casino Complex decreasing to $94.3 million
during the year ended December 31, 1997 from $95.2 million during the year ended
December 31, 1996, a decrease of $900,000 or 1%. MLI's  largest area of decrease
during these  comparative  years was table games.  Primarily due to decreases in
the amounts  wagered on table games,  gross table games revenues  decreased $1.7
million for the year ended December 31, 1997 from the prior year.  This decrease
was offset  partially by an increase in food and  beverage  revenues of $900,000
primarily  due  to  increased  food  and  beverage  furnished  to  customers  as
complimentaries. These increases in complimentaries were a necessary response to
the additional competitor facilities added in 1996 as described above.

     Slot machine,  table games and food and beverage  revenues  decreased  $1.0
million,  $1.2 million and $500,000, or 4%, 26% and 16%,  respectively,  at Lady
Luck Natchez during the year ended December 31, 1997 compared to the prior year.
In  addition to the adverse  effects of  flooding on the  Mississippi  river and
other adverse weather conditions,  which twice closed its operations for a total
of  approximately  18 days  during the year ended  December  31, 1997 and caused
lingering disruptive effects for a period after each reopening,  these decreases
were due to a deteriorating local economy in Natchez, Mississippi. The decreases
in gross  casino  revenues,  while  primarily  due to  decreases  in the amounts
wagered, were also due to declines in the win percentages from 1996 to 1997. The
amounts  wagered may have also  decreased in part due to fewer  rooms,  food and
beverage furnished to customers on a complimentary  basis during the comparative
periods.  This  decrease in  complimentary  food and beverage was a  significant
factor in the decline in gross food and beverage revenues.

     Lady Luck Bilox's gross revenues  increased $400,000 during the year ended
December 31, 1997 compared to 1996. This increase occurred primarily between the
three month periods ended March 31, 1997 and March 31, 1996 during which time an
8% increase in the average  number of slot  machines  and a 20%  increase in the
average daily net win per slot machine increased Lady Luck Biloxi's slot machine
revenues by $1.2 million. This increase in slot machine revenues was primarily a
result of  increased  marketing  expenditures  and  increased  food and beverage
furnished as complimentaries to customers during that time. The increase in slot
machine  revenues was offset  partially by decreases in table game revenues each
quarter during the year ended December 31, 1997 compared to the respective prior
year  quarters.  These  declines in table games  revenues were  primarily due to
decreases  in total  amounts  wagered  which  has been  caused  in part due to a
growing  disparity in the amenities  which LLB is able to offer its customers in
relation to its competitors, some of which are able to offer on-site hotel rooms
and  entertainment.  LLB  experienced a significant  decrease in gross  revenues
since  the  opening  of  additional   competitive   facilities  in  its  market,
principally the opening of Imperial Palace in December 1997,  which  competitive
trend is expected to continue.

     LLCC's slot machine revenues  declined $1.1 million between the years ended
December  31,  1997 and 1996.  This  decrease  was due to both a decrease in the
total  amount  wagered  on slot  machines  and a  decrease  in the  related  win
percentage.  During these  comparative  periods,  LLCC's total amount wagered on
slot machines  decreased 17%.  LLCC's  decreases were due in part to operational
changes,  an absence of  capital  improvements  at the  facility  and  increased
competition  from certain  nearby  casinos.  Subsequent to December 31, 1997 and
effective  February 19, 1998, LLCC sold its real property and  substantially all
operating  assets to the holder of its mortgage note in exchange for forgiveness
of the note which, as of December 31, 1997, had a $2,750,000  balance.  The sale
resulted in a loss of $7,287,000, recognized during 1997, including reserves for
certain remaining real property leases.

     The  Company's  equity  in net  income  of  the  Bettendorf  Joint  Venture
increased $300,000,  or 11%, during the year ended December 31, 1997 compared to
the prior year. This increase is primarily due to a 13% increase in slot machine
revenues.  The Bettendorf Joint Venture's  increase in slot machine revenues was
due to an increase in both the  average  daily net win per slot  machine and the
average number of slot machines in operation as further  described in the tables
that follow below.


                                       21
<PAGE>
     The Company's  equity in net income of the Bally's Joint Venture  increased
$600,000  during the nine month period ended  September 30, 1997 (the  effective
date the Company's 35% partnership interest was sold to Bally's) compared to the
year ended December 31, 1996. As the interest was sold during 1997, a comparison
of results between years is not meaningful. Furthermore, the Company's equity in
net  income  for the year  ended  December  31,  1996  reflects  a $1.2  million
deduction  for the  Company's  share of  pre-opening  expenses  while  none were
recognized during the nine month period ended September 30, 1997.

     Casino operating  expenses  company-wide as a percentage of casino revenues
increased  from 39% in the year ended December 31, 1996 to 41% in the year ended
December  31,  1997,   primarily  due  to  the  following:   (i)  severe  access
restrictions  at the  Lady  Luck  Rhythm &  Blues/Country  Casino  Complex,  the
temporary  closings of Lady Luck Natchez and the  decreases  in casino  revenues
from most gaming areas of the Company's  other wholly owned  subsidiaries  which
caused fixed costs and certain  variable  costs which could not  immediately  be
eliminated  to be spread over a lower  revenue  base;  (ii) a 1% increase in the
cost of complimentary  rooms, food and beverage furnished to casino customers in
relation to casino revenues; (iii) an increase in table games payroll expense at
each  property in relation to table games  revenue,  and (iv)  increases in slot
machine  rentals,  slot  department  special events and cash incentives for slot
machine players in relation to slot revenues.

     Food and beverage costs and expenses,  prior to  reclassifying  the cost of
complementaries,  as a percentage of related revenues increased from 90% for the
year ended December 31, 1996 to 93% for the year ended December 31, 1997, due to
an  increase in labor costs at Lady Luck  Natchez and  increases  in the cost of
sales in  relation to revenues at each  property.  These  increases  were offset
partially  by a decrease  in labor costs in relation to revenues at the Rhythm &
Blues/Country Casino Complex.

     Gross  room  revenues  for the River Park  Hotel and the  Riverbluff  Hotel
increased 10% and 167%,  respectively,  and decreased 16% for the 173-room hotel
adjacent  to Lady Luck  Rhythm & Blues  during  years  ended  December  31, 1997
compared with the prior year. However,  these comparisons are not for equivalent
periods  because  LLM  purchased  the River  Park Hotel on April 15,  1996,  MLI
acquired the 120-room  Riverbluff Hotel in Helena,  Arkansas on July 3, 1996 and
access  to MLI's  173-room  hotel  adjacent  to Lady  Luck  Rhythm  & Blues  was
temporarily restricted during the current year period as described above.

     Selling, general and administrative expenses as a percentage of total gross
revenues  remained a constant  31% during the years ended  December 31, 1996 and
1997. A significant  reduction in rent paid by the Rhythm & Blues/Country Casino
Complex was offset by increases in casino marketing expenditures at MLI, LLM and
LLB primarily  related to direct mail, other advertising or promotions and group
sales,  and  increases  in  facility  expenses at MLI for  utilities,  security,
insurance and property taxes.  MLI's increase in facility  expense was primarily
due to the  addition  of  Country  Casino.  Rent paid by MLI  decreased  because
percentage rents under the lease during the current year were reduced due to the
temporary  access  restriction.  In addition,  rent was greater  during the five
month  period  ended May 31, 1996  compared to the  corresponding  current  year
period due to an additional  fixed monthly  rental expense of $150,000 which was
required  to be paid prior to the  opening of  Country  Casino on May 26,  1996.
Subsequent to May 31, 1996,  the fixed rent was replaced with a percentage  rent
which has been less than the fixed rent.

     Operating (loss) income was ($15.1) million and $26.6 million for the years
ended  December  31,  1997 and 1996,  respectively.  In  addition to the changes
described above,  this $41.7 million decrease in operating income was due to the
following:  (i) $7.6 million  reserve in 1997 for the loss on the sale of assets
as described  below;  (ii) project  development cost write-downs and reserves in
1997 of $7.8 million as described below;  (iii) a $20.7 million asset impairment
write-down in 1997 as described  below;  (iv) a $1.9 million loss on the sale of
investment in  unconsolidated  affiliate in 1997 as described  below; (v) a $1.6
million  increase in  depreciation  expense  during the current  year  primarily
related to the acquisition of the River Park Hotel and Riverbluff  Hotel and the
opening of Country Casino and the Pavilion each during 1996; and, (vi) decreased
hotel operating margins. The effects of these items were partially offset by the
following:  (i) a  $400,000  reduction  in  litigation  claims;  (ii) a $900,000
decrease in related party  management fees from lower  operating  results during
the current year; and (iii) the absence of $200,000 of pre-opening expense which
was recognized during 1996 in conjunction with the opening of Country Casino and
the Pavilion.

     Effective  February  19,  1998,  LLCC  sold  substantially  all of its real
property and operating assets to the holder of its mortgage note in exchange for
forgiveness of the $2.8 million note and the assumption of certain  liabilities.

                                       22
<PAGE>
During 1997,  the Company  recorded a reserve of $7.3 million to write-down  the
assets held for sale to fair market  value less  closing  costs,  to reserve for
operating  losses in 1998 prior to the  effective  sale date and to reserve  for
estimated  future lease payments and write-downs on its parking lot leases which
were not assumed by the purchaser of the assets sold.

     An agreement has been  reached,  pursuant to an existing  gaming  equipment
lease,  to sell to the  Bettendorf  Joint Venture the gaming  equipment that the
venture has been leasing from the Company since April 1995. The gaming equipment
will be sold for its  negotiated  value of $712,000 as of December 31, 1997. The
$358,000  reserve  for loss on sale of assets  represents  the net book value in
excess of  negotiated  value as of  December  31,  1997.  The sale is  effective
January 1, 1998.

     During 1997,  the Company  wrote down  various  project  development  costs
totaling approximately $7.8 million due to changes in regulatory,  political and
competitive environments and other factors.

     The first write-down related to the Missouri Project. The State of Missouri
investigates applicants at its discretion and there can be no assurance that the
Company's  application will be actively reviewed in future periods.  In November
1997, the Missouri  Supreme Court ruled that several  existing  Missouri  gaming
projects are illegal due to their  locations not being upon the  Mississippi  or
Missouri rivers.  In addition,  certain current  operators in Missouri have been
experiencing poor operating  results.  These  uncertainties have resulted in the
Company recording a $2.3 million project development write- down in 1997 related
to the Missouri  Project of the remaining  balance of its  pre-opening and other
development costs and a $3.0 million  write-down of construction in progress for
a portion of the partially  completed cruising vessel which, if not used for the
Missouri  Project,  could  be sold or  possibly  used  in a  future  development
project.  These  valuations are based on assumptions  regarding  expected future
economic, market and gaming regulatory conditions.  Changes in these assumptions
could result in further  changes in the  estimated net  realizable  value of the
partially completed cruising vessel.

     The  second   write-down  was  related  to  the  Vicksburg   Project.   The
consummation of the  transactions  contemplated by the agreements are subject to
the  fulfillment of several  conditions  (the  "Conditions"),  including but not
limited  to,  the  partners'  future  agreement  as to the scope and cost of the
project,  required regulatory approval, and completion of project financing. The
Horseshoe  Joint  Venture  Agreement may be terminated by LLV or Horseshoe as of
April 1, 1998 (the  "Termination  Date") if the  Conditions are not satisfied or
waived as of the Termination Date or without cause. The Company does not believe
that all of the  conditions  will be satisfied  prior to the  Termination  Date.
While the Company does not currently  intend to terminate  the  Horseshoe  Joint
Venture  Agreement,  there can be no assurance  that LLV or  Horseshoe  will not
terminate the Horseshoe Joint Venture  Agreement.  Furthermore,  there can be no
assurance  that if  consummated,  that the  joint  venture  will be  successful.
Additionally,  a  determination  that  certain  assets  may not be usable in the
Vicksburg Project as currently contemplated resulted in a $2.3 million write-off
of construction in progress.  Management's  estimate of net realizable  value is
based upon assumptions  regarding future economic,  market and gaming regulatory
conditions  including the viability of the Vicksburg Site for the development of
a casino project.  Changes in these  assumptions  could result in changes in the
estimated net realizable value of the property.

     Additionally, the Company had previously planned to construct and operate a
casino in  Gulfport,  Mississippi  (the  "Gulfport  Project").  However,  due to
increased  competition  in the  Gulfport  gaming  market,  in 1997  the  Company
suspended  further  development  of the  Gulfport  Project and is not  currently
engaged in negotiating  either an agreement to sell or develop these leaseholds.
The  Company  intends to cancel  these  leases at the  earliest  date  allowable
pursuant to the lease  agreements.  During 1997, the Company  provided a project
development reserve of approximately  $162,000 to fully reserve remaining future
minimum lease payments net of estimated  sublease  rentals for the remaining LLG
leases.  Reserves of  approximately  $350,000 and $600,000 had  previously  been
provided during 1996 and 1995, respectively.

     Lastly, during 1997, the Company provided reserves of approximately $50,000
related to its  investment in Lady Luck New Mexico  ("LLNM") for a total reserve
related to LLNM,  including 1996 and 1995 reserves,  of approximately  $250,000.
The Company received $200,000 cash during the year for its remaining  investment
balance.

     The Company evaluated the recoverability of LLB's long-lived assets in 1996
due to  recurring  operating  losses.  Based on the criteria  established  under
Financial Accounting Standards Board Statement No. 121 ("SFAS 121"), the Company
continued to evaluate LLB's long-lived assets for impairment.  During the fourth
quarter of December 31, 1997, pursuant to SFAS 121 the Company recorded an asset
impairment  write-down of $20.7  million.  The Company  considered  the marginal
historical  operating  results and the  significant  downturn  in the  operating
results of LLB since the opening of  additional  competitive  facilities  in its
market,  principally  the  opening  of  Imperial  Palace in  December  1997,  an
indicator

                                       23
<PAGE>
of impairment. In performing its review for recoverability, the Company compared
the  projected  undiscounted  future cash flows to the  carrying  value of LLB's
long-lived  assets.  The net carrying  value of LLB's  long-lived  assets before
write-down were $31.5 million at December 31, 1997. As the net carrying value of
long-lived  assets exceeded the estimated  undiscounted  future cash flows,  the
Company was required to recognize an impairment  loss and write-down  long-lived
assets to their fair market  value of $10.8  million.  Fair value became the new
cost basis for the impaired assets and previously  accumulated  depreciation was
eliminated. As active market quotations were not available, the Company measured
fair value by discounting estimated cash flows. Considerable management judgment
was  necessary to estimate  discounted  future cash flows.  Accordingly,  actual
results could vary significantly from such estimates.

     The Company entered an agreement  effective  September 30, 1997 to sell its
35%  minority  interest in Bally's  Saloon,  Gambling  Hall and Hotel in Tunica,
Mississippi to Hilton Hotels Corporation,  the majority owner and manager of the
property.  The  sale  resulted  in a loss of  $1,912,000  which  represents  the
difference  between the sales price and the net  investment in the Bally's Joint
Venture  and related  assets.  In 1995,  the  Company had  provided a reserve of
$350,000 relating to its investment in the Bally's Joint Venture.

     The net (loss)  applicable to common  stockholders  was ($38.5)  million or
($1.31) per share for the year ended December 31,  1997 compared with net income
applicable  to common  stockholders  of $4.4  million or $0.15 per share for the
year ended December 31, 1996.  This $42.9 million or $1.46 per share decrease in
net income applicable to common stockholders was primarily due to the following:
(i) the $41.7  million  decrease  in  operating  income as  described  above;  a
$500,000 decrease in other  non-operating  income;  (iii) a $200,000 increase in
preferred stock dividends caused by compounding  return on dividends not paid in
cash;  (iv) a $200,000  increase  in net  interest  expense due  primarily  to a
decrease  in  interest  capitalized  in the  current  year;  and (v) a  $200,000
decrease  in  interest  income due to greater  cash  invested  in the prior year
before the opening of Country Casino.


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

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

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

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


                                       24
<PAGE>
     The Bally's Joint Venture,  which was formed March 31, 1995,  included only
hotel operations until the December 18, 1995 opening of the casino. During 1996,
the Company's equity in net income of unconsolidated affiliates from the Bally's
Joint Venture was $700,000,  after  deducting the Company's share of pre-opening
expenses of $1.1  million,  a net increase of $1.6  million  over the  Company's
$900,000  equity in net loss of  unconsolidated  affiliates  in the nine  months
ended December 31, 1995.

     During  1996,  the  Company's  equity  in  net  income  of   unconsolidated
affiliates  from the Bettendorf  Joint Venture was $3.1 million,  an increase of
$3.3 million over the Company's  $200,000  equity in net loss of  unconsolidated
affiliates in 1995. The Company's  $200,000 loss for 1995 reflects the deduction
of the Company's share of pre-opening expenses of $1.2 million upon commencement
of operations on April 21, 1995 and the completion of the outlet mall later that
year.  In  addition,  for the leasing of a gaming  vessel and  equipment  to the
Bettendorf  Joint  Venture,  the Company  recognized  revenue of $3.8 million in
1996, a $1.3 million increase over the $2.5 million of revenue recognized during
the period from commencement of operations through December 31, 1995.

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

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

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

     Despite an increase in selling,  general and  administrative  expenses from
$49.5  million in 1995 to $53.8  million in 1996,  they  remained  constant as a
percentage  of gross  revenues  for both 1995 and 1996 at 31%.  The $4.3 million
increase in expense is primarily due to the  following:  (i) an increase of $2.2
million for marketing  expenses  primarily related to the Country Casino and the
Pavilion,  (ii) $2.1 million for the BRDC Obligation and  Management/License Fee
Overhead  Costs in connection  with,  and,  effective  January 1, 1996,  the New
Marketing  Agreements,(iii) a $1.3 million increase in rent, utilities and other
expenses  related  to the new  Country  Casino,  Pavilion,  River Park Hotel and
Riverbluff  Hotel  operations,  and (iv)  $200,000 due to reserving  the cost of
demolishing certain  pre-existing  structures at the Vicksburg Site during 1996,
offset  partially  by: (i) a  $600,000  reduction  in fees and costs,  from $1.7
million in 1995 to $1.1  million in 1996,  related  to the  solicitation  of the
amendments and waivers of continuing  defaults  under the Indenture  relating to
the 2001 Notes which was completed in March 1996, and (ii) a $600,000  reduction
in development costs due to focusing development efforts.

     Related party  management/license  fees  decreased from $5.5 million during
1995 to $2.3  million  during  1996,  a decrease  of $3.2  million or 58%.  This
decrease was due to the Company  entering into the New  Marketing  Agreements in
replacement of the Old Management Agreements as described above offset partially
by   certain   abatements   totaling   $700,000   deducted   in  1996  from  the
management/license  fees the Company received from the Bettendorf Joint Venture.
In  addition,  under  the New  Marketing  Agreements,  the BRDC  Obligation  and
Management/License  Fee  Overhead  Costs  totaling  $2.1 million are included in
selling,  general and administrative  expense for 1996, while, in 1995, the cost
of these

                                       25
<PAGE>
items was the  responsibility of related parties,  wholly-owned by Mr. Tompkins,
pursuant to the Old Management Agreements.

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

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

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


     Certain Risks and Uncertainties

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

     There is a  substantial  risk  that the  supply  of  gaming  facilities  in
Mississippi  will  exceed  the demand for  gaming,  which  could have a material
adverse  effect on the  Company's  operating  results.  As a result of increased
competition  (including the opening of another competing casino in December 1997
in Biloxi),  Lady Luck Biloxi became  unprofitable on an operating basis causing
revenues to decline  significantly since that time. In addition,  DeSoto County,
the  northwestern-most  Mississippi County and nearest to Memphis,  could, under
existing  state law, vote to authorize  gaming  activities  which would increase
competition.  The voters of DeSoto County have voted against legalized gaming on
three occasions,  most recently in November,  1996. However, local referenda can
be held during  presidential  election years, and no assurance can be given that
gaming will not be approved in DeSoto County in future elections.  Additionally,
in Arkansas, a gaming referendum, which, if passed, would have legalized certain
forms of gaming at certain  locations,  was  defeated in  November  of 1996.  If
gaming were  legalized in certain areas of Arkansas or, to a lesser  extent,  in
DeSoto County,  it could have a material adverse effect on the Company's Coahoma
County  facilities  which  generate  a  significant  portion  of  the  Company's
consolidated  revenues and operating  income.  Furthermore,  the Choctaw  Indian
Tribe negotiated a compact with the State

                                       26
<PAGE>
of Mississippi and has opened a land-based  casino located within  approximately
100  miles to the east of  Jackson,  Mississippi  which has  affected  Lady Luck
Natchez and, if developed,  could affect the Vicksburg Project. The Company also
competes with gaming facilities nationwide. It is also possible that substantial
local and nationwide  competition could cause the supply of gaming facilities to
exceed the demand for gaming. Additionally, certain of the Company's competitors
have more gaming industry experience, larger operations or significantly greater
financial  and other  resources  than the  Company.  Given  these  factors it is
possible that  substantial  competition  could have a material adverse effect on
the Company's future results of operations.

     The  Lady  Luck  Rhythm  &  Blues/Country  Casino  Complex's  revenues  and
operating  results in 1997 were  materially  adversely  affected  by a temporary
closure by the Arkansas Department of Transportation of the Helena Bridge. These
casinos are highly dependent on patronage by residents of Arkansas.  A change in
general economic conditions,  future closure of the Helena Bridge, or the extent
and nature of regulations  enabling  casino gaming in Arkansas  could  adversely
effect these casinos' future operating results.

     The Company's computers may not be year 2000 compliant. The year 2000 issue
is the result of computer  programs  being  written using two digits rather than
four to define the  applicable  year,  which may result in systems  failures and
disruptions  to operations  at January 1, 2000.  The Company has not yet made an
assessment  of the systems  which will be affected,  but is developing a plan to
evaluate and remediate the year 2000 issue.  This  remediation plan will include
assessing the Company's inventory of year 2000 issues,  contacting the suppliers
of certain of their systems to determine the timing of applicable upgrades,  and
implementing the year 2000 upgrades which are currently  available.  The Company
will continue to evaluate its vulnerability in the case of suppliers' failure to
remediate their respective year 2000 issues.  The Company has not yet determined
whether  the effect of the  remediation  could have a material  effect on future
financial results.

     The Company is highly leveraged (see Liquidity and Capital  Resources below
for additional information).

                                       27
<PAGE>
Operating Casinos

     Dollar  amounts  shown in the  following  tables  for gross  revenues,  net
revenues, management/license fee and operating income are in millions. Operating
margin is calculated as operating income divided by net revenues.

<TABLE>
<CAPTION>
                                                Lady Luck Rhythm & Blues/Country Casino Complex (a)

                                                                                            % Increase     % Increase
                                                                                            (Decrease)     (Decrease)
                                                            Year ended December 31,          1997 vs.        1996 vs.
                                                        1997         1996         1995         1996           1995
<S>                                                   <C>          <C>          <C>             <C>             <C>
                  Gross revenues...................   $ 94.3       $ 95.2       $ 87.6           (1)             9
                  Net revenues.....................     86.8         88.9         83.1           (2)             7
                  Management/license fee                 3.0          3.1          3.1           (3)             -
                  Operating income.................     19.5         22.9         27.5          (15)           (17)
                  Operating margin.................      22%          26%          33%           (4)pts         (7)pts

                  Average daily net win per
                      table game...................     $602         $820       $1,186         (27)            (31)
                  Average number of tables
                      in operation.................       50           43           32          16              34
                  Average daily net win per
                      slot machine.................     $143         $169         $224         (15)            (25)
                  Average number of slot
                      machines in operation........    1,343        1,141          797          18              43
</TABLE>

____________________

     (a)  County  Casino  and  the  Pavilion  opened  May 21,  1996;  therefore,
comparisons may not be meaningful.

<TABLE>
<CAPTION>
     Lady Luck Natchez

                                                                                            % Increase     % Increase
                                                                                            (Decrease)     (Decrease)
                                                            Year ended December 31,          1997 vs.       1996 vs.
                                                        1997         1996         1995         1996           1995
<S>                                                    <C>          <C>          <C>           <C>             <C>
                  Gross revenues...................    $30.6        $33.3        $30.9          (8)              8
                  Net revenues.....................     28.4         30.4         29.0          (7)              5
                  Management/license fee                 1.0          1.1         1.1           (9)              -
                  Operating income.................      2.6          4.4          5.7         (41)            (23)
                  Operating margin.................       9%          14%          20%          (5)pts          (6)pts

                  Average daily net win per
                      table game...................     $612         $765         $764         (20)              -
                  Average number of tables
                      in operation.................       16           17           19          (6)            (11)
                  Average daily net win per
                      slot machine.................     $103         $109         $116          (6)             (6)
                  Average number of slot
                      machines in operation........      616          584         537            5               9
</TABLE>




                                       28
<PAGE>
<TABLE>
<CAPTION>
     Lady Luck Bettendorf (a)

                                                                                             % Increase   % Increase
                                                                                            (Decrease)     (Decrease)
                                                           Year ended December 31,            1997 vs.      1996 vs.
                                                        1997         1996         1995         1996           1995
<S>                                                   <C>          <C>          <C>             <C>          <C>
                  Gross revenues...................   $ 75.7       $ 68.5       $ 38.1           11              80
                  Net revenues.....................     71.6         65.2         36.5           10              79
                  Management/license fee...........      1.6          1.1          0.8           45              38
                  Operating income.................      6.8          6.4         (0.1)           6           6,500
                  Operating margin.................       9%          10%           -            (1)pt           10pts

                  Average daily net win per
                      table game...................     $701         $717         $853          (2)            (16)
                  Average number of tables
                      in operation.................       38           36           33           6               9
                  Average daily net win per
                      slot machine.................     $180         $173         $141           4              23
                  Average number of slot
                      machines in operation........      903          824          788          10               5
</TABLE>

____________________

     (a) Lady Luck Bettendorf is 50% owned by LLQC. The Company  includes 50% of
its net income as equity in net income of affiliates  using the equity method of
accounting.

<TABLE>
<CAPTION>
     Lady Luck Biloxi

                                                                                            % Increase    % Increase
                                                                                            (Decrease)    (Decrease)
                                                        Year ended December 31,              1997 vs.       1996 vs.
                                                     1997          1996        1995            1996           1995
<S>                                                  <C>         <C>         <C>             <C>              <C>
                  Gross revenues...................  $31.9       $ 31.5      $ 31.0               1              2
                  Net revenues.....................   28.9         28.7        29.1               1             (1)
                  Management fee...................    1.1          1.1         1.1               -              -
                  Operating (loss).................  (23.6)        (1.1)       (1.4)         (2,045)            21
                  Operating margin.................   (82)%         (4)%        (5)%            (78)pts          1pt

                  Average daily net win
                      table game...................   $567         $610        $604              (7)             1
                  Average number of
                      tables in operation..........     21           23          26              (9)           (12)
                  Average daily net win per
                      slot machine.................    $92          $92         $89               -              3
                  Average number of slot
                      machines in operation........    669          630         590               6              7

</TABLE>


                                       29
<PAGE>
<TABLE>
<CAPTION>
     Lady Luck Central City

                                                                                            % Increase        % Increase
                                                                                            (Decrease)        (Decrease)
                                                            Year ended December 31,          1997 vs.           1996 vs.
                                                        1997         1996         1995         1996              1995
<S>                                                     <C>          <C>          <C>          <C>                <C>
                  Gross revenues...................     $5.1         $6.5         $6.9          (22)               (6)
                  Net revenues.....................      4.7          6.1          6.4          (23)               (5)
                  Management fee...................      0.2          0.2          0.3            -               (33)
                  Operating (loss).................     (9.1)        (1.2)        (1.2)        (658)                -
                  Operating margin.................     (194)%        (20)%       (19)%        (174)pts            (1)pt

                  Average daily net win per
                      table game...................      $90         $132         $165          (32)              (20)
                  Average number of tables
                      in operation.................        6            6            6            -                 -
                  Average daily net win per
                      slot machine.................      $38          $50          $45          (24)               11
                  Average number of slot
                      machines in operation........      300          294          341            2               (14)
</TABLE>


Liquidity and Capital Resources

     During the year ended  December  31,  1997,  the  Company  generated  $10.1
million in cash from  operations.  Cash flow from operations and cash on hand at
the beginning of the year were the primary sources of cash during the year ended
December 31, 1997.  The primary uses of cash and non-cash  resources  during the
year ended December 31, 1997, other than operating expenditures, include:

     A.   $3.6  million  cash  for  the  purchase  of  property  and  equipment,
          including  the cost of  remodeling  a portion of the River Park Hotel,
          Lady Luck Rhythm & Blues and Lady Luck Biloxi.

     B.   $3.9 million cash for payment of debt and slot contracts.

     C.   $700,000  for the  acquisition  of slot  machines  and other assets by
          certain subsidiaries for the incurrence of indebtedness.

     LLCC did not generate  positive  operating  cash flow during the year ended
December 31, 1997.  Due primarily to debt service  requirements  on an equipment
note payable and a mortgage  note,  LLCC required cash infusions of $1.2 million
during the year ended  December  31, 1997 and is expected to require  additional
cash infusions of $700,000 in 1998 for: (i) operating cash  shortfalls  prior to
the sale on February 19, 1998;  (ii)  liabilities  remaining as of the effective
sale date of LLCC's real property and operating  assets;  and, (iii) payments on
the  remaining  parking  lot  leases  including  the  purchase  of these lots as
required by the contracts,  a portion of which shall be financed by the sellers.
Subsequent to December 31, 1997, LLCC acquired a portion of this leased property
with the  remainder to be acquired in 1999.  LLCC will require  additional  cash
infusions related to these leases in periods beyond 1998 for lease, purchase and
debt service.

     Additional  casino and hotel capacity has been added in close  proximity to
LLB and additional casino and hotel capacity are currently under construction in
Biloxi.  The opening of these  facilities has had and, the Company  believes the
opening of the facilities under  construction,  will have an adverse effect upon
LLB's operating  results.  The complete extent of the long-term effects on LLB's
results of operations  cannot  presently be estimated.  The Company  expects LLB
will require cash infusions in 1998 of an undetermined amount.

     The Bettendorf Joint Venture is currently constructing an expansion project
pursuant  to its  master-plan  at a cost of  approximately  $39.5  million.  The
project,  which  began  construction  June 23,  1997,  is  planned to include an
approximately  260 room hotel  with a fully  enclosed  walkway to the  riverboat

                                       30
<PAGE>
casino,  a 30-50 slip  marina,  a 500-car  parking  garage and a bypass over the
nearby railroad to improve access.  The project financing is non-recourse to the
Company and includes a $17.5  million bank first  mortgage  note, a $5.0 million
second  mortgage  from an  affiliated  company of BRDC,  and $7.5 million in tax
increment financing from the City of Bettendorf to be repaid from property taxes
and in exchange for deeding the overpass to the City of Bettendorf.  The cost of
the  overpass  is not  expected  to  exceed  such  financing  from  the  City of
Bettendorf.  The balance of the expansion  project's cost is to be paid from the
Bettendorf  Joint  Venture's  cash on  hand.  The  project  is  scheduled  to be
completed  in  the  Fall  of  1998.   The  Company  does  not  expect  any  cash
distributions from the Bettendorf Joint Venture during 1998.

     Pursuant to a Partnership  Interest  Redemption  Agreement,  on November 3,
1997, the Company  received  $15,250,000  cash for its investment in the Bally's
Joint Venture after it received certain regulatory approvals. In accordance with
the indenture (the "Indenture")  covering the 2001 Notes (as defined below), the
Company has 180 days after  receiving the  $15,250,000  to invest the money in a
Related Business (as defined in the Indenture).  If the Company does not make an
investment or does not invest the $15,250,000 in a Related  Business before such
time, under certain circumstances,  the Company must make an offer to repurchase
a  portion  of the 2001  Notes at a price of 101% of par for the  amount  of the
proceeds that was not invested in a Related Business. The cash has been invested
since it was  received and has  accumulated  to  $15,388,000  as of December 31,
1997.  Accordingly,  this  cash has been  classified  as  Restricted  Cash as of
December 31, 1997.

     Lady Luck  Rhythm & Blues  could add up to 250 hotel  rooms  which would be
located  adjacent  to  Country  Casino.  Up to $6.0  million of the cost of such
additional  hotel rooms including site  preparation and related  construction is
permitted  by the  Indenture  covering  the 2001  Notes to be funded by  secured
non-recourse  indebtedness;  however,  there  can  be  no  assurance  that  such
financing would be available, or if available,  will be on terms satisfactory to
the  Company.  In addition,  MLI intends to complete  various  improvements  and
renovations during 1998 including: (i) remodeling portions of the Rhythm & Blues
Casino;  (ii) modify traffic patterns and adding  additional paved parking areas
for 360 automobiles and 15 tractor-trailers; (iii) site-work for the hotel rooms
described  above;  and, (iv) a new  property-wide  PBX system for more efficient
communications  and  lower  operating  costs.  Such  capital   expenditures  are
currently estimated to not to exceed approximately $2.0 million.

     Lady Luck  Natchez is required  under its current  lease to move its casino
barge several  hundred feet to another  docking  facility on land subject to the
existing lease by February  1998.  Management has not relocated the casino barge
and is continuing  negotiations with the lessor to allow the casino to remain in
its current  location.  Should such lease  amendment  not be  available on terms
satisfactory  to the  Company,  the cost of  relocating  the barge is  currently
estimated not to exceed $1.0 million. In addition,  Lady Luck Natchez intends to
complete  various  improvements and renovations  during 1998 including:  (i) the
addition of a gourmet restaurant located in close proximity to the casino;  (ii)
remodeling of the casino and buffet;  (iii) refurbishing of certain rooms at the
River Park Hotel;  and (iv) the addition of 260 parking  spaces  within  walking
distance  or close  proximity  of the  casino.  Such  capital  expenditures  are
currently estimated to be approximately $1.5 million.

     Lady Luck Biloxi is exploring  remodeling options to better position itself
within the  Mississippi  Gulf Coast gaming market.  Such remodeling of the barge
and adjoining beach area are currently estimated not to exceed $1.0 million.

     Various amounts of cash and non-cash  resources may be used during 1998 for
other capital improvements, expansions or acquisitions which cannot currently be
estimated and may be contingent  upon market  conditions and other  factors.  If
significant  cash or other  resources  become  available,  the  Company may make
additional capital expenditures. In any case, the amount of capital expenditures
will be  based  upon  cash  available  and  market  conditions  at the  time any
commitment is made.

     The  Company may also  repurchase  a portion of the 2001 Notes from time to
time in early satisfaction of any required  repurchase  expected pursuant to the
Indenture or otherwise,  the amount of which and the timing of repurchase cannot
currently be estimated and is dependent on adequate cash availability and market
conditions.  The Company  anticipates that it will not repurchase any portion of
the 2001 Notes in 1998 other than from a portion of the  proceeds  from the sale
of  its  interest  in  the  Bally's  Joint  Venture  or  in  connection  with  a
refinancing.

     The  Company has begun to explore  various  options to  refinance  the 2001
Notes.  However,  there can be no  assurance  the Company  will  continue  these
pursuits  and,  if  pursued,  that  terms  acceptable  to  the  Company  can  be
negotiated.

                                       31
<PAGE>
     The Company has an  agreement  for the  construction  of a cruising  gaming
vessel in the amount of $16.0 million and as of December 31, 1997, approximately
$6.0 million has been paid under this contract and approximately $1.9 million is
included in construction  payables.  It is anticipated  that this vessel will be
utilized  by  LLK.  However,  construction  has  been  discontinued  and  is not
anticipated  to resume until such time as LLK is selected for  investigation  by
the State of Missouri with regard to its gaming license application.

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

     The Company has been named as a defendant in a purported  shareholder class
action lawsuit alleging violations by the Company of the Securities Exchange Act
of  1933  and  the  Securities   Exchange  Act  of  1934  for  alleged  material
misrepresentations   and  omissions  in  connection   with  the  Company's  1993
prospectus and initial  public  offering of Common Stock.  The complaint  seeks,
inter alia, injunctive relief,  rescission and unspecified compensatory damages.
In addition to the Company,  the complaint  also names as  defendants  Andrew H.
Tompkins,  Chairman and Chief Executive Officer of LLGC, Alain Uboldi,  Director
and Chief Operating Officer of LLGC,  Michael Hlavsa, the former Chief Financial
Officer of LLGC, Bear Stearns & Co., Inc. and Oppenheimer & Co., Inc., who acted
as lead  underwriters for the initial public offering.  The Company has retained
outside counsel to respond to the complaint. On October 8, 1997, the Company was
served  with an order of the court  dismissing  all of the  Plaintiff's  Section
10(b) and eleven of the  Plaintiff's  sixteen  Section 11, 12 and 15 allegations
with prejudice for failing to adequately  state a claim.  The court also ordered
the Plaintiffs to and the Plaintiffs have filed an amended  complaint  regarding
the five Section 11, 12 and 15 claims which were not dismissed  with  prejudice.
While the outcome of this matter  cannot  presently be  determined,  the Company
believes based in part on advice of counsel, that it has meritorious defenses.

     The Company and certain of its joint venture  partners  (the  "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism  before  the Greek  Multi-Member  Court of First  Instance.  The  action
alleges that the Defendants  failed to make certain  payments in connection with
the gaming license bid process for Patras,  Greece.  The payments the Company is
alleged  to have been  required  to make  aggregate  approximately  2.1  billion
drachma  (which was  approximately  $7.3  million as of March 6, 1998 based upon
published  exchange  rates).  Although it is difficult to determine  the damages
being sought from the lawsuit,  the action may seek damages up to such aggregate
amount. The cases are still in their preliminary stages and their outcome cannot
be predicted with any degree of certainty;  however, the Company believes, based
in part on advice of counsel, that it has meritorious defenses.

     A Greek architect filed an action against the Company  alleging that he was
retained  by the  Company to provide  professional  services  with  respect to a
casino in  Loutraki,  Greece.  The  plaintiff in such action  sought  damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter.  The Greek
Court entered judgment  against the Company in the amount of approximately  87.1
million drachma (which was approximately $301,000 as of March 6, 1998 based upon
published  exchange  rates) plus interest.  The Company has appealed the Court's
decision.  During  the fourth  quarter  of 1997,  the  Company's  Greek  counsel
informed  the Company that it is more likely than not that the  appellate  court
will not overturn the Athens Court of First Instance's  decision.  A reserve has
been provided during the fourth quarter of 1997; however, the Company intends to
continue to defend itself in this matter.

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


                                       32
<PAGE>
     During November 1996, LLCC entered into a Memorandum of Understanding  (the
"Memorandum") with BWCC, Inc., which does business as Bullwhackers-Central  City
("Bullwhackers").  The  Memorandum  provided for a combination of the respective
companies'  gaming  establishments  which  currently  operate on  adjacent  real
property in Central City. As a result of the Memorandum,  the parties negotiated
and purportedly executed a definitive Operating Agreement and Lease Agreement in
September 1997. During the fourth quarter of 1997, Bullwhackers refused to honor
such   definitive   agreements  and  the  Company  has  commenced  suit  against
Bullwhackers accordingly.

     The Company is highly  leveraged.  As of December 31, 1997,  the  Company's
total  indebtedness  was  approximately  $181.3  million  and its  stockholders'
deficit was approximately  $32.2 million.  This level of indebtedness could have
important  consequences to stockholders.  While management  believes the Company
will have  sufficient  cash flow to meet its debt service and other cash outflow
requirements  and maintain  compliance  with the  covenants of the  Indenture as
supplemented, to  the extent that a substantial  portion of the  Company's  cash
flow from operations  remains dedicated to the payment of principal and interest
on its indebtedness,  such cash flow is not available for other purposes such as
general  operations,  maintenance and improvement of casino and hotel facilities
or expansion of existing sites or into other gaming  markets.  Furthermore,  the
Company's  ability to obtain  additional  financing  in the  future for  working
capital,  capital  expenditures or acquisitions may be limited and the Company's
level of  indebtedness  could limit its flexibility in planning for, or reacting
to, changes in its industry.

     The Company is subject to certain  federal,  state and local  environmental
protection,  health and safety laws,  regulations  and ordinances  that apply to
businesses  generally,  such as the Clean  Air Act,  the Clean  Water  Act,  the
Resource  Conservation  and Recovery Act, CERCLA,  the  Occupational  Safety and
Health Act, and similar state statutes.

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

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

     The Company is  considering  an  amendment  to the Amended  Certificate  of
Incorporation  of the Company in order to enable the Company to effect a reverse
stock split at an as yet undetermined ratio and a corresponding  increase in the
par value of the Company's Common Stock.


Impact of Inflation

     Absent changes in competitive and economic conditions or in specific prices
affecting the industry,  management  does not expect that  inflation will have a
significant impact on the Company's operations. Changes in specific prices (such
as fuel and transportation prices) relative to the general rate of inflation may
have a material effect on the hotel-casino industry.  There has been no material
impact from inflation during the periods covered by the  accompanying  financial
statements.


Seasonality and Weather

     A flood or other severe weather  condition  could cause the Company to lose
the use of one or more dockside facilities for an extended period. The inability
to use a  dockside  facility  during any  period  could have a material  adverse
effect on the Company's  financial  results.  Seasonal revenue  fluctuations may
occur at the Company's  existing and proposed  casinos in Mississippi,  Iowa and
Missouri.

                                       33
<PAGE>
ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.


<TABLE>
<CAPTION>
                                             INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<S>                                                                                                  <C>
Report of Independent Public Accountants........................................................     35
Consolidated Balance Sheets as of December 31, 1997 and 1996....................................     36
Consolidated Statements of Operations for the years ended December 31, 1997, 1996
   and 1995.....................................................................................     38
Consolidated Statements of Mandatory Cumulative Redeemable Preferred Stock and
   Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995....................     40
Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996
   and 1995.....................................................................................     41
Notes to Consolidated Financial Statements......................................................     44

</TABLE>


                                       34
<PAGE>







                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of Lady Luck Gaming Corporation:

We have audited the accompanying consolidated balance sheets of Lady Luck Gaming
Corporation (a Delaware  corporation)  and  subsidiaries as of December 31, 1997
and 1996,  and the related  consolidated  statements  of  operations,  mandatory
cumulative  redeemable  preferred stock and stockholders'  equity and cash flows
for each of the  three  years in the  period  ended  December  31,  1997.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Lady Luck Gaming Corporation
and  subsidiaries  as of December  31,  1997 and 1996,  and the results of their
operations  and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.



                                                     ARTHUR ANDERSEN LLP

Las Vegas, Nevada
February 25, 1998

                                       35
<PAGE>
<TABLE>
<CAPTION>
                                                   LADY LUCK GAMING CORPORATION
                                                    CONSOLIDATED BALANCE SHEETS
                                         As of December 31, 1997 and 1996 (in thousands)

                                                               ASSETS


                                                                         1997                      1996
<S>                                                                <C>                     <C>
Current assets:
     Cash and cash equivalents................................     $          19,552       $            15,490
     Restricted cash..........................................                15,388                         -
     Accounts receivable......................................                   786                     1,276
     Inventories..............................................                   957                     1,198
     Assets held for sale.....................................                 2,791                         -
     Prepaid expenses.........................................                 2,456                     1,559
         Total current assets.................................                41,930                    19,523

Property and equipment:
     Land and land improvements...............................                17,974                    26,604
     Building and improvements................................                95,472                   113,500
     Furniture, fixtures and equipment........................                36,279                    50,306
                                                                             149,725                   190,410
     Less accumulated depreciation............................               (26,525)                  (28,736)
                                                                             123,200                   161,674
     Construction in progress.................................                 5,175                    11,445
         Total property and equipment, net                                   128,375                   173,119

Other assets:
     Pre-opening costs........................................                     -                     1,353
     Deferred financing fees and costs, net of
         accumulated amortization of $3,347 and
         $2,482 as of December 31, 1997 and 1996,
         respectively.........................................                 2,740                     3,605
     Investment in unconsolidated affiliates, net                              9,313                    21,449
     Other....................................................                 2,948                     4,669
                                                                              15,001                    31,076
TOTAL ASSETS..................................................       $       185,306         $         223,718
</TABLE>
















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

                                       36
<PAGE>
<TABLE>
<CAPTION>
                                                    LADY LUCK GAMING CORPORATION
                                              CONSOLIDATED BALANCE SHEETS (continued)
                                                  As of December 31, 1997 and 1996
                                         (in thousands, except share and per share amounts)

                                                LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                         1997                      1996
<S>                                                               <C>                        <C>
Current liabilities:
     Current portion of long-term debt........................    $            4,481         $           3,385
     Accrued interest.........................................                 1,846                     1,825
     Accounts payable.........................................                 5,178                     4,416
     Construction payables....................................                 1,957                     1,957
     Accrued property taxes...................................                 1,375                     1,753
     Other accrued liabilities................................                 7,421                     6,556
         Total current liabilities............................                22,258                    19,892

Long-term debt:
     Mortgage notes payable...................................               173,500                   173,500
     Other long-term debt.....................................                 3,314                     7,581
         Total long-term debt.................................               176,814                   181,081
              Total liabilities...............................               199,072                   200,973

Commitments and contingencies (Notes 14, 15, 16 and 17)

Series A mandatory cumulative redeemable preferred
     stock, $42.44 and $37.89, respectively per share
     liquidation value, 1,800,000 shares authorized,
     433,638 shares issued and outstanding                                    18,402                    16,430

Stockholders' equity:.........................................
     Common stock, $.001 par value, 75,000,000 shares
         authorized, 29,285,698 shares issued and
         outstanding as of December 31, 1997
         and 1996.............................................                    29                        29
     Additional paid-in capital...............................                31,382                    31,382
     Accumulated deficit......................................               (63,579)                  (25,096)
         Total stockholders' equity...........................               (32,168)                    6,315
TOTAL LIABILITIES AND
     STOCKHOLDERS' EQUITY.....................................        $      185,306           $       223,718

</TABLE>













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

                                       37
<PAGE>
<TABLE>
<CAPTION>
                                                    LADY LUCK GAMING CORPORATION
                                               CONSOLIDATED STATEMENTS OF OPERATIONS
                                        For the Years Ended December 31, 1997, 1996 and 1995
                                         (in thousands, except share and per share amounts)


                                                          1997                       1996                     1995
<S>                                                  <C>                      <C>                     <C>
Revenues:
     Casino....................................      $     138,860            $       143,886         $       138,412
     Food and beverage.........................             17,152                     16,928                  14,556
     Hotel.....................................              4,216                      3,948                   2,635
     Equity in net income (loss) of
         unconsolidated affiliates.............              4,724                      3,815                  (1,137)
     Other.....................................              5,522                      5,657                   3,945
         Gross revenues........................            170,474                    174,234                 158,411
         Less: Promotional
              allowances.......................            (13,183)                   (12,527)                 (8,821)
         Net revenues..........................            157,291                    161,707                 149,590

Costs and expenses:
     Casino....................................             57,301                     56,806                  49,703
     Food and beverage.........................              6,644                      6,928                   8,582
     Hotel.....................................              2,236                      1,925                   1,667
     Other.....................................                258                        282                     310
     Selling, general and
         administrative........................             52,939                     53,786                  49,539
     Related party management/license
         fees..................................              1,384                      2,317                   5,520
     Depreciation and amortization                          12,886                     11,289                   9,694
     Reserve for loss on sale of assets........              7,621                          -                       -
     Pre-opening expenses......................                  -                        247                       -
     Litigation claims.........................                700                      1,100                       -
     Project development cost write-
         downs and reserves....................              7,784                        404                     509
     Asset impairment write-down...............             20,698                          -                       -
     Loss on sale of investment in
         unconsolidated affiliate..............              1,912                          -                       -
         Total costs and expenses..............            172,363                    135,084                 125,524

Operating income (loss)........................            (15,072)                    26,623                  24,066

Other income (expense):
     Interest income...........................                878                      1,073                   1,237
     Interest expense, net.....................            (22,407)                   (22,170)                (20,058)
     Other.....................................                139                        682                    (383)
                                                           (21,390)                   (20,415)                (19,204)

Income (loss) before income tax
     (provision) benefit and
      extraordinary items......................            (36,462)                     6,208                   4,862

</TABLE>



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

                                       38
<PAGE>
<TABLE>
<CAPTION>
                                                      LADY LUCK GAMING CORPORATION
                                            CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
                                          For the Years Ended December 31, 1997, 1996 and 1995
                                           (in thousands, except share and per share amounts)

                                                             1997                       1996                      1995

<S>                                                    <C>                        <C>                      <C>
Income (loss) before income tax
     (provision) benefit and
      extraordinary items...................           $   (36,462)               $     6,208              $      4,862

Income tax (provision)......................                   (49)                       (69)                     (401)
Income (loss) before extraordinary
     items..................................               (36,511)                     6,139                     4,461
Extraordinary gain on early
     extinguishment of debt.................                     -                          -                     2,257

NET INCOME (LOSS)...........................               (36,511)                     6,139                     6,718

Preferred stock dividends...................               ( 1,972)                    (1,761)                   (1,572)
Income (loss) applicable to
     common stockholders....................           $   (38,483)               $     4,378              $      5,146

BASIC AND DILUTED NET INCOME
     (LOSS) PER SHARE

     Before extraordinary items and
         preferred stock dividends..........           $     (1.25)               $      0.21              $       0.15
     Extraordinary items....................           $         -                $         -              $       0.08
     Applicable to common stockholders                 $     (1.31)               $      0.15              $       0.18

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

</TABLE>




















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

                                       39
<PAGE>
<TABLE>
<CAPTION>
                                                      LADY LUCK GAMING CORPORATION
                               CONSOLIDATED STATEMENTS OF MANDATORY CUMULATIVE REDEEMABLE PREFERRED STOCK
                                                   AND STOCKHOLDERS' EQUITY (DEFICIT)
                                          For the Years Ended December 31, 1997, 1996 and 1995
                                                             (in thousands)

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

<S>                                       <C>             <C>         <C>           <C>           <C>               <C>
Balance at December 31, 1994........      $  13,097       27,285      $     27      $27,322       $  (34,620)       $    (7,271)

Accrued preferred stock
    dividends.......................          1,572            -             -            -           (1,572)            (1,572)

Common stock issued for debt........              -        2,000             2        4,060                -              4,062

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

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

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

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

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

Accrued preferred stock
    dividends  .....................          1,972            -             -            -           (1,972)            (1,972)

Net income (loss)...................              -            -             -            -          (36,511)           (36,511)

Balance at  December 31, 1997.......      $  18,402       29,285      $     29      $31,382       $  (63,579)       $   (32,168)

</TABLE>



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

                                       40
<PAGE>
<TABLE>
<CAPTION>
                                                      LADY LUCK GAMING CORPORATION
                                                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          For the Years Ended December 31, 1997, 1996 and 1995
                                                             (in thousands)


                                                                    1997                  1996                 1995
<S>                                                          <C>                    <C>                   <C>
Cash flows from operating activities:
   Net income (loss)...............................          $      (36,511)        $       6,139         $      6,718
   Adjustments to reconcile net income
      (loss) to net cash provided by
      (used in) operating activities:
        Depreciation and amortization..............                  12,886                11,289                9,694
        Amortization of bond offering
          fees and costs...........................                     865                   865                  910
        Reserve for loss on sale of assets.........                   7,621                     -                    -
        Pre-opening expenses.......................                       -                   247                    -
        Project development cost write-downs
          and reserves.............................                   7,784                   404                  509
        Asset impairment write-down................                  20,698                     -                    -
        Loss on sale of investment in
          unconsolidated affiliate.................                   1,912                     -                    -
        Gain on early extinguishment of debt.......                       -                     -               (2,257)
        (Gain) loss on sale of assets..............                       -                  (404)                 533
        Equity in net (income) loss of
          unconsolidated affiliates................                  (4,724)               (3,815)               1,137
   (Increase) decrease in assets:
        Accounts receivable........................                     490                  (275)                 210
        Inventories................................                     202                  (313)                 (89)
        Prepaid expenses...........................                    (992)                  111                  637
        Income tax receivable......................                       -                     -                2,308
   Increase (decrease) in liabilities:
        Accrued interest...........................                      21                  (501)              (4,178)
        Accounts payable...........................                     762                 1,176               (3,492)
        Other accrued liabilities..................                    (900)               (1,431)               4,443
Net cash provided by operating activities..........                  10,114                13,492               17,083

Cash flows from investing activities:
   Purchase of property and equipment..............                  (3,622)              (21,524)             (10,752)
   Construction payables...........................                       -                (1,169)              (6,681)
   Investment in unconsolidated affiliates.........                  15,250                   (15)              (2,163)
   Pre-opening costs...............................                       -                  (500)                (427)
   Restricted cash.................................                 (15,388)                8,858               (1,011)
   Other assets....................................                   1,621                  (449)                 104
Net cash used in investing activities..............                  (2,139)              (14,799)             (20,930)

</TABLE>








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

                                       41
<PAGE>
<TABLE>
<CAPTION>

                                                      LADY LUCK GAMING CORPORATION
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                          For the Years Ended December 31, 1997, 1996 and 1995
                                                             (in thousands)

                                                                    1997                 1996                 1995

<S>                                                         <C>                   <C>                   <C>
Cash flows from financing activities:
   Net proceeds from borrowings....................                   -                     40                2,219
   Payments on debt and slot contracts.............              (3,913)                (5,391)              (5,138)
Net cash (used in) provided by financing
   activities......................................              (3,913)                (5,351)              (2,919)


Net (decrease) increase in cash and cash
   equivalents.....................................               4,062                 (6,658)              (6,766)
Cash and cash equivalents,
   beginning of year...............................              15,490                 22,148               28,914
Cash and cash equivalents, end of year.............         $    19,552           $     15,490          $    22,148


Supplemental disclosures of cash flow
   information :
      Cash paid during the year for:
      Interest (net of amount capitalized
        of $289, $514 and $762 in 1997,
        1996 and 1995, respectively)...............         $    21,521           $    21,806           $    22,563
Income taxes paid (received).......................         $        80           $       225           $    (2,103)

</TABLE>






















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


                                       42
<PAGE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:

The liquidation value of the Series A mandatory cumulative  redeemable preferred
stock increased by approximately $1,972,000, $1,761,000 and $1,572,000 in unpaid
accrued  dividends  for the  years  ended  December  31,  1997,  1996 and  1995,
respectively.

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

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

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

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

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

The Company entered into several  contracts with  manufacturers for the purchase
of  slot  machines  and  other  assets  which  totaled  approximately  $743,000,
$3,780,000  and $111,000 for the years ended  December 31, 1997,  1996 and 1995,
respectively.
































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

                                       43
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



     1. The Company and Basis of Presentation

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

     LLGC and LLGFC were  formed in February  1993.  LLM began  dockside  casino
operations  on February 26, 1993 in Natchez,  Mississippi  and acquired and took
over operation of the 147-room River Park Hotel in Natchez, Mississippi on April
15, 1996;  LLCC opened on May 28, 1993 and sold its real  property and operating
assets and ceased operations effective February 19, 1998 (see Note 9); LLB began
dockside  casino  operations on December 13, 1993 in Biloxi,  Mississippi;  MLI,
which does  business  as Lady Luck  Rhythm & Blues,  commenced  dockside  gaming
operations on June 27, 1994 in Coahoma County, Mississippi,  commenced operation
of a 173-room hotel on August 16, 1994,  commenced gaming  operations of Country
Casino and the Pavilion on May 21, 1996 and acquired and took over  operation of
the 120- room Riverbluff Hotel in Helena,  Arkansas on July 3, 1996; LLQC formed
a joint venture with BRDC (the  "Bettendorf  Joint Venture") to operate a casino
in Bettendorf,  Iowa which  commenced  operation on April 21, 1995 (see Note 4);
ORD commenced  operation of a 240-room hotel on August 24, 1994,  contributed it
to the Bally's  Joint  Venture in March 1995 and sold its equity  investment  to
Bally's  effective  September 30, 1997 (see Note 4); and, LLGR began operating a
central  reservations  center for the Company's hotels September 3, 1996. All of
the other Mississippi Companies and LLK are in various stages of development and
have no operating history.


     2. Certain Risks and Uncertainties

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

     A significant portion of the Company's  consolidated revenues and operating
income  are  generated  by the  Company's  Coahoma  County,  Mississippi  casino
operations.  These  casinos are highly  dependent  on  patronage by residents in
Arkansas. A change in general economic conditions,  closure of the Helena Bridge
or a change in the extent and nature of  regulations  enabling  casino gaming in
Arkansas could adversely affect these casinos' future operating results.




                                       44
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



     3. Summary of Significant Accounting Policies

     (a)   Principles of Consolidation

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

     (b)   Use of Estimates

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual results could differ from these estimates.  Among the
estimates  made by management  are the  evaluations  of the fair market value of
Lady  Luck  Biloxi  using  discounted  cash  flows  pursuant  to SFAS  121,  the
recoverability  of the carrying  values of the land held for development and the
projects under development by LLV and LLK (See Notes 10 and 11).

     (c)   Cash and Cash Equivalents

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

     (d)   Restricted Cash

     Restricted  cash  consists of amounts held in escrow and cash  specifically
restricted to be used in accordance  with the terms of the Indenture  related to
the 2001 Notes (See Note 4).

     (e)   Inventories

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

     (f)   Assets Held for Sale

     Assets  held for sale  include  the  current  book  value of  assets  to be
disposed of subsequent  to year end, net of the estimated  loss on sale of these
assets. These assets relate to LLCC (See Note 9).

     (g)   Property and Equipment

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

           Land improvements......................................   15-25 years
           Buildings and improvements.............................   15-30 years
           Furniture, fixtures and equipment......................     5-7 years


                                       45
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



     When  equipment  has been  fully  depreciated,  its  cost  and the  related
accumulated  depreciation are eliminated from the respective accounts.  Gains or
losses arising from dispositions are reported as other income or expense.  Costs
of major  improvements  are  capitalized,  while  costs of  normal  repairs  and
maintenance are charged to expense as incurred.

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

     (h)   Investment in Unconsolidated Affiliates

     The Company accounts for its investment in 50% or less owned joint ventures
using  the  equity  method of  accounting.  Under the  equity  method,  original
investments  are  recorded  at cost  and  adjusted  by the  Company's  share  of
earnings,   losses  and   distributions   of  these  joint  ventures.   No  cash
distributions  have been made since inception and management does not anticipate
any will be made during 1998.

     (i)   Pre-Opening Costs

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

     (j)   Development Costs

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

     (k)   Deferred Financing Fees and Costs

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

     (l)   Revenue Recognition

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

     (m)   Advertising

     Advertising costs are expensed the first time such  advertisement  appears.
Total  advertising  costs (including  direct mail marketing) were  approximately
$1,737,000, $1,635,000 and $1,201,000 in 1997, 1996 and 1995, respectively.

     (n)   Income Taxes

     The Company  follows the  provisions  of Statement of Financial  Accounting
Standards  ("SFAS") No. 109 "Accounting for Income Taxes." SFAS No. 109 requires
the recognition of deferred tax assets and  liabilities for the  consequences of
temporary  differences  between  amounts  reported for  financial  reporting and


                                       46
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



income tax purposes.  SFAS No. 109 requires  recognition of a future tax benefit
of net operating loss  carryforwards and certain other temporary  differences to
the extent that realization of such benefit is more likely than not;  otherwise,
a valuation  allowance is applied.  Included in the calculation of the Company's
deferred tax assets and  liabilities  and the  provision for income taxes is the
equity in net income of the  Bettendorf  Joint  Venture  and the  Bally's  Joint
Venture at their respective ownership interests.

     (o)   Net Income (Loss) Per Share

     In 1997, the Company adopted  Statement of Financial  Accounting  Standards
No. 128  "Earnings Per Share" ("SFAS No.  128").  SFAS No. 128  establishes  new
accounting standards for the computation and financial statement presentation of
earnings  per share  data.  Basic  income per share of common  stock is computed
based on the  number of  weighted-average  shares of  common  stock  outstanding
during  the  period.   Diluted  income  per  share  of  common  stock  would  be
anti-dilutive;  thus,  there is no  difference  between  the basic  and  diluted
earnings  per share  disclosure.  Pursuant  to SFAS No.  128,  all prior  period
presentations must be restated. There was no material effect on the earnings per
share calculations as a result of these restatements.

     (p)   Fair Value of Financial Instruments

     The fair value of the Company's  financial  instruments  approximates their
recorded values at December 31, 1997 and 1996, except for the Company's mortgage
notes payable,  the fair market values of which,  based on quoted market prices,
were  approximately  $177.0 million and $175.0 million,  respectively.  The fair
values are not  necessarily  indicative of the amounts the Company could realize
in a current market exchange.

     (q)   Long-lived Assets

     Long-lived assets,  which are not to be disposed of, including property and
equipment,   are  reviewed  for  impairment   whenever   events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of the  asset  may  not be
recoverable. Assets are grouped and evaluated for impairment at the lowest level
for which there are identifiable cash flows that are largely  independent of the
cash flows of other groups of assets.  The Company deems an asset to be impaired
if a projection of undiscounted  future operating cash flows directly related to
the asset, including disposal value if any, is less than its carrying amount. If
an asset is  determined  to be  impaired,  the loss is measured as the amount by
which the  carrying  amount of the  asset  exceeds  fair  value.  Fair  value is
measured  based on quoted market  prices in active  markets,  if  available.  If
quoted  market  prices are not  available,  the Company  measures  fair value by
discounting estimated cash flows.  Considerable management judgment is necessary
to estimate discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates. During the fourth quarter of 1997, management
determined that the carrying value of LLB's long-lived  assets had been impaired
(See Note 11).

     (r)   Reclassifications

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


     4.           Investment in Unconsolidated Affiliates

     The  Company's  investments  in joint  ventures  with BRDC and  Bally's are
accounted  for under the equity  method and the  Company's  portion of income or


                                       47
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



loss from the joint  ventures  is  included  in Equity in Net  Income  (Loss) of
Unconsolidated   Affiliates  in  the  accompanying  Consolidated  Statements  of
Operations for the years ended December 31, 1997, 1996 and 1995.

     Bettendorf Joint Venture

     In December 1994, the Company entered into a joint venture (the "Bettendorf
Joint  Venture") with BRDC to complete and operate a casino in Bettendorf,  Iowa
("Lady Luck Bettendorf").  The joint venture agreement required that the Company
and BRDC each contribute cash to the Bettendorf Joint Venture of $3.0 million in
return for a 50% ownership interest.  In addition,  BRDC is leasing certain real
property to the  Bettendorf  Joint Venture at a lease rate equal to $150,000 per
month.  The Company is leasing a gaming vessel with a cost of $21,635,000  and a
carrying  value net of  accumulated  depreciation  as of  December  31,  1997 of
$20,000,000  to the  Bettendorf  Joint  Venture for  approximately  $189,000 per
month, which amount was determined based upon arms-length  negotiations  between
the Company and BRDC and the Company's cost of capital at the time. In addition,
the Company has been leasing certain gaming  equipment with a cost of $3,705,000
and a carrying value net of accumulated  depreciation as of December 31, 1997 of
$712,000  ($1,070,000  less $358,000  reserve for loss on sale of assets) to the
Bettendorf Joint Venture,  as discussed below,  for  approximately  $122,000 per
month,  its fair market rental value. An agreement has been reached  pursuant to
the gaming  equipment lease to sell the gaming equipment to the Bettendorf Joint
Venture at its negotiated  value as of December 31, 1997.  The $358,000  reserve
for loss on sale of assets represents the net book value in excess of negotiated
value as of  December  31,  1997.  The sale is  effective  January 1, 1998.  The
Company's  rental  income  relating to the gaming  vessel lease was  $2,266,000,
$2,187,000 and $1,707,000 for the years ended December 31, 1997,  1996 and 1995,
respectively. The Company's rental income relating to the gaming equipment lease
was  $1,465,000,  $1,649,000 and $833,000 for the years ended December 31, 1997,
1996 and 1995, respectively.

     Lady  Luck  Bettendorf  commenced  operations  on April 21,  1995.  All net
profits and losses from all  operations  of Lady Luck  Bettendorf  are allocated
equally  between  the  Company  and  BRDC.  Effective  January  1, 1996 with the
replacement of the Old Management  Agreements by the Marketing  Agreements  (see
Note 15),  the  Company  has also  been  granted  the right to manage  Lady Luck
Bettendorf  with  substantially  the  same  terms  and  fees  as  the  Company's
wholly-owned  casinos,  less  $37,500  abated  per  month,  with up to  $325,000
annually of the fees received by the Company paid to BRDC as consultants.

     Lady Luck Bettendorf  incurred management fees for the years ended December
31, 1997 and 1996 as follows (in  thousands):  December  31, 1997 1996 Lady Luck
Bettendorf management fees, net of $37,500 monthly abatement $ 1,569 $ 1,117

     The  Bettendorf  Joint  Venture is currently  constructing  a $39.5 million
expansion project pursuant to its master-plan (See Note 17).



                                       48
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



     Summarized balance sheet information for the Bettendorf Joint Venture as of
December 31, 1997 and 1996 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                             December 31, 1997          December 31, 1996
<S>                                                           <C>                          <C>
         Current assets                                       $        4,758               $      5,935
         Other                                                           732                          -
         Property and equipment, net                                  25,459                     12,435
           Total assets                                       $       30,949               $     18,370

         Current liabilities                                  $       12,276               $      5,492
         Long-term liabilities                                            48                      1,107
         Members' equity                                              18,625                     11,771
           Total liabilities and
              members' equity                                 $       30,949               $     18,370
</TABLE>

     Summarized  results of operations for the Bettendorf Joint Venture for each
of the two years ended  December 31, 1997 and 1996 and the period from April 21,
1995,  commencement of operations,  through December 31, 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
                                                      1997                    1996                    1995
<S>                                                <C>                    <C>                     <C>
         Net revenues                              $   71,612             $    65,202             $    36,475
         Costs and expenses                            64,758                  59,020                  36,886
         Net income (loss)                         $    6,854             $     6,182             $      (411)
</TABLE>

     The  Bettendorf  Joint  Venture's  net loss for 1995  includes  pre-opening
expenses of $2.5 million.

     A summary of changes in the Company's  investment in the  Bettendorf  Joint
Venture  for each of the two  years  ended  December  31,  1997 and 1996 and the
period from April 21, 1995,  commencement  of operations,  through  December 31,
1995 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                      1997                    1996                     1995
<S>                                               <C>                   <C>                       <C>
         Beginning investment                     $     5,886           $      2,795              $        -
         Contributed capital                               -                      -                    3,000
         Equity in net income (loss)
           of unconsolidated affiliate                  3,427                  3,091                    (205)
         Ending investment                        $     9,313           $      5,886             $     2,795
</TABLE>

     Included in Retained  Earnings is $6,313,000 of  undistributed  earnings of
the Bettendorf Joint Venture.


     Bally's Joint Venture

     The Company entered an agreement  effective  September 30, 1997 to sell its
35%  minority  interest in Bally's  Saloon,  Gambling  Hall and Hotel in Tunica,
Mississippi to Hilton Hotels Corporation, the majority owner and manager of the

                                       49
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



property  (the  "Partnership  Interest  Redemption  Agreement").  The  sale  has
resulted in a loss of $1,912,000  which  represents the  difference  between the
sales  price and the net  investment  in the Bally's  Joint  Venture and related
assets.

     Pursuant to the Partnership Interest Redemption  Agreement,  on November 3,
1997, the Company received $15,250,000 in cash for its investment in the Bally's
Joint Venture after it received certain regulatory approvals. In accordance with
the  Indenture  covering the 2001 Notes (the  "Indenture"),  the Company has 180
days after receiving the  $15,250,000 to invest the money in a Related  Business
(as defined in the  Indenture).  If the Company does not make an  investment  or
does not invest the $15,250,000 in a Related  Business  before such time,  under
certain circumstances, the Company must make an offer to repurchase a portion of
the 2001 Notes at a price of 101% of par for the amount of the proceeds that was
not  invested in a Related  Business.  The cash has been  invested  since it was
received  and  has   accumulated   to  $15,388,000  as  of  December  31,  1997.
Accordingly,   this  cash  has  been   classified  as  restricted   cash  as  of
December 31, 1997.

     Summarized  balance sheet  information  for the Bally's Joint Venture as of
September 30, 1997 (the effective date of the sale of the Company's 35% interest
in  the  Bally's  Joint  Venture)  and  December  31,  1996  is as  follows  (in
thousands):
<TABLE>
<CAPTION>
                                                     September 30, 1997         December 31, 1996
<S>                                                        <C>                      <C>
           Current assets                                  $    11,099              $     8,630
           Property and equipment, net                          49,226                   51,537
           Other assets                                            868                    1,041
              Total assets                                 $    61,193              $    61,208

           Current liabilities                             $     6,567              $     7,279
           Long-term liabilities                                 5,238                    6,994
           Partners' capital                                    49,388                   46,935
              Total liabilities and
                  partners' capital                        $    61,193               $   61,208
</TABLE>

     Summarized results of operations for the Bally's Joint Venture for the nine
months ended September 30, 1997 (the effective date of the sale of the Company's
35% interest in the Bally's Joint Venture), the year ended December 31, 1996 and
the period from formation of the Bally's Joint Venture on March 31, 1995 through
December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                1997                 1996                1995
<S>                                                        <C>                   <C>                 <C>
              Net revenues                                  $    48,836          $    70,093         $     6,963
              Costs and expenses                                 45,129               67,976               9,676
              Net income (loss)                             $     3,707          $     2,117         $    (2,713)
</TABLE>

     Net income (loss) of the Bally's Joint Venture for the year ended  December
31, 1996 and the period  from  formation  through  December  31,  1995  includes
pre-opening expenses of $3.3 million and $700,000, respectively.



                                       50
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



     A summary of changes  in the  Company's  investment  in the  Bally's  Joint
Venture for the nine months ended  September 30, 1997 (the effective date of the
sale of the Company's 35% interest in the Bally's Joint Venture), the year ended
December 31, 1996 and the period from  formation of the Bally's Joint Venture on
March 31, 1995 through December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                             1997               1996                  1995
<S>                                                    <C>                 <C>                   <C>
         Beginning investment                          $    15,563         $    14,824           $        -
         Capital contribution                                    -                   -               15,756
         Equity in net income (loss)
           of unconsolidated affiliate                       1,297                 724                 (932)
         Loss on sale of equity investment                  (1,912)                  -                    -
         Other                                                 302                  15                    -
         Proceeds from sale of investment                  (15,250)                  -                    -
         Ending investment                             $         -         $    15,563           $   14,824
</TABLE>


     5. Long-Term Debt

     At December 31, 1997 and 1996,  long-term  debt  consisted of the following
(in thousands):
<TABLE>
<CAPTION>
                                                                                   1997                  1996
<S>                                                                            <C>                   <C>
               11 7/8% First Mortgage Notes; quarterly
                   Payments of interest only; due March 2001;
                   collateralized by substantially all assets of the
                   Company and guaranteed by LLGC (the "2001
                   Notes")................................................     $  173,500            $  173,500

               Note payable to a corporation; monthly payments of
                   interest only at 10%; principal due July 2001,
                   collateralized by a deed of trust (See Note 9)                   2,750                 2,750

               Note payable to a corporation; annual payments of
                   principal of $119 plus accrued interest at 8%;
                   due June 2003; collateralized by a land deed of
                   trust..................................................            714                   833

               Notes payable to corporations; monthly payments of
                   principal and interest at rates up to prime plus
                   7%; due through May 1998 secured by the
                   equipment..............................................          1,122                 3,589

               Mortgage note payable to a corporation; quarterly
                   payments of principal and interest at prime plus
                   1 1/2% based on a 20 year amortization; due
                   April 2006; collateralized by a deed of trust..........          2,773                 2,925

                                       51
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



               Note payable to a corporation; quarterly payments
                   of principal and accrued interest at 9%; due
                   October 1998, collateralized by a deed of trust.........           110                   385

               Other.......................................................           326                   484
                                                                                  181,295               184,466

               Less: current portion.......................................        (4,481)               (3,385)
                   Total long-term debt....................................    $  176,814             $ 181,081
</TABLE>


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

     The 2001 Notes bear  interest  at the rate of 11-7/8%  per annum  effective
retroactive  to October 15,  1995 (prior to that time they bore  interest at the
rate of 10-1/2% per  annum).  Interest on the 2001 Notes held by each holder who
consented  to the  certain  amendments  and  waivers  in 1996  will  be  payable
quarterly  on each March 1, June 1,  September 1 and  December 1, so long as the
2001 Notes are  outstanding  (interest  on the notes held by each holder who did
not  consent  to  the  Amendments  and  Waivers  will  continue  to  be  payable
semi-annually on March 1 and September 1). In addition, the Company is obligated
within  180 days  after the end of each year,  commencing  with the year  ending
December  31,  1996,  to  purchase  on the open  market,  or to make an offer to
purchase  from the holders at par,  2001 Notes with a principal  amount equal to
Excess Cash Flow (as defined in the Indenture) for such year,  provided that the
Company will be able to credit  towards the amount of 2001 Notes  required to be
purchased in any year any amount of 2001 Notes it has purchased since January 1,
1996 which it has not previously  used as a credit in any prior year.  There was
no Excess Cash Flow for the years ended  December 31, 1997 and 1996. The Company
believes it is in compliance with the Indenture, as amended and supplemented, as
of December 31, 1997 and 1996.

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


1998............................................                  $   4,481
1999............................................                        283
2000............................................                        277
2001............................................                    173,778
2002............................................                        279
Thereafter......................................                      2,197
        Total...................................                  $ 181,295


     6. Mandatory Cumulative Redeemable Preferred Stock

     LLGC has  authorized  1,800,000  shares  of Series A  Mandatory  Cumulative
Redeemable  Preferred  Stock.  Holders of Series A are  entitled to a compounded
cumulative  preference  dividend each quarter.  The current dividend is 11.5% of
the liquidation  preference per share per annum, payable or accrued in quarterly


                                       52
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



installments.  Dividends of approximately $1,972,000,  $1,761,000 and $1,572,000
were accrued on the Series A preferred stock during the years ended December 31,
1997,  1996  and  1995,  respectively.  The  Series  A also  requires  mandatory
redemption on or before December 31, 2013.


     7. Stockholders' Equity

     Common stock of LLGC consists of 75,000,000  authorized shares. On February
27,  1995,  the  Company  exchanged  2,000,000  shares of its  common  stock for
$6,500,000 of the 2001 Notes. The Company  recognized an  extraordinary  gain on
such  exchange  of  $2,257,000  for the year  ended  December  31,  1995,  which
represented  the  difference  between  the  amount  of  debt  exchanged,  net of
unamortized  issue  costs,  and the  market  price of the common  stock.  Due to
available  net  operating  loss  carry  forwards,  (See Note 12),  no income tax
provision was recognized on the extraordinary gain.


     8. Promotional Allowances

     The retail value of food,  beverages and rooms provided on a  complimentary
basis to  customers  without  charge are  included  in gross  revenues  and then
deducted as  promotional  allowances.  The  estimated  costs of providing  these
promotional  allowances  are  included in casino  departmental  expenses for the
years ended December 31, 1997, 1996, and 1995, as follows (in thousands):

<TABLE>
<CAPTION>
                                                                1997                1996              1995
<S>                                                            <C>                 <C>               <C>
Food and beverage.................................             $ 9,347             $8,370            $6,201
Hotel and other...................................                 906                800               439
        Total.....................................             $10,253             $9,170            $6,640

</TABLE>

     9. Reserve for Loss on Sale of Lady Luck Central City Assets

     Effective  February  19,  1998,  LLCC  sold  substantially  all of its real
property and operating assets to the holder of its mortgage note in exchange for
forgiveness of the $2.8 million note and the assumption of certain  liabilities.
During 1997,  the Company  recorded a reserve of $7.3 million to write-down  the
assets  held for sale to fair  market  value less  closing  costs,  reserve  for
operating  losses in 1998 prior to the  effective  sale date and to reserve  for
estimated  future lease payments and write-downs on its parking lot leases which
were not  assumed by the  purchaser  of the assets  sold.  Accordingly,  the net
assets of LLCC have been  classified  as Assets Held for Sale as of December 31,
1997.


     10. Project Development Cost Write-Downs

     During 1997,  the Company  wrote down  various  project  development  costs
totaling approximately $7.8 million due to changes in regulatory,  political and
competitive environments and other factors.

     The first write-down related to the Missouri Project. The State of Missouri
investigates applicants at its discretion and there can be no assurance that the
Company's  application will be actively reviewed in future periods.  In November
1997, the Missouri  Supreme Court ruled that several  existing  Missouri  gaming
projects are illegal due to their  locations not being upon the  Mississippi  or
Missouri rivers.  In addition,  certain current  operators in Missouri have been


                                       53
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



experiencing poor operating  results.  These  uncertainties have resulted in the
Company recording a $2.3 million project  development write- down in 1997 of the
remaining  balance of its  pre-opening  and other  development  costs and a $3.0
million  write-down of  construction  in progress for a portion of the partially
completed cruising vessel which, if not used for the Missouri Project,  could be
sold or possibly used in a future development project. Nevertheless,  management
estimates that the fair value of this partially  completed  cruising  vessel was
approximately  50% of its net  book  value.  These  valuations  are  based  upon
assumptions  regarding  expected future economic,  market and gaming  regulatory
conditions.  Changes in these assumptions could result in further changes in the
estimated net realizable value of the partially completed cruising vessel.

     The  second   write-down  was  related  to  the  Vicksburg   Project.   The
consummation  of the  transactions  contemplated  by the Horseshoe Joint Venture
Agreement  are  subject  to  the   fulfillment   of  several   conditions   (the
"Conditions"),  including but not limited to, the partners'  future agreement as
to the  scope  and  cost  of the  project,  required  regulatory  approval,  and
completion of project  financing.  The Horseshoe Joint Venture  Agreement may be
terminated by LLV or Horseshoe as of April 1, 1998 (the  "Termination  Date") if
the Conditions are not satisfied or waived as of the Termination Date or without
cause. The Company does not believe that all of the Conditions will be satisfied
prior to the Termination  Date.  While the Company does not currently  intend to
terminate the Horseshoe Joint Venture Agreement,  there can be no assurance that
LLV or Horseshoe  will not  terminate the  Horseshoe  Joint  Venture  Agreement.
Furthermore,  there  can be no  assurance  that if  consummated,  that the joint
venture will be successful.  Additionally,  a determination  that certain assets
may not be usable in the Vicksburg Project as currently contemplated resulted in
a $2.3 million write-off of construction in progress.  Management's  estimate of
net realizable value is based upon assumptions regarding future economic, market
and gaming regulatory  conditions  including the viability of the Vicksburg Site
for the  development of a casino  project.  Changes in these  assumptions  could
result in changes in the estimated net realizable value of the property.

     Additionally, the Company had previously planned to construct and operate a
casino in Gulfport,  Mississippi (the "Gulfport Project").  However, in 1997 the
Company  suspended  further  development  of  the  Gulfport  Project  and is not
currently  engaged in  negotiating  either an agreement to sell or develop these
leaseholds.  The Company  intends to cancel these  leases at the  earliest  date
allowable pursuant to the lease agreements.  During 1997, the Company provided a
project development reserve of approximately $162,000 to fully reserve remaining
future  minimum  lease  payments  net of  estimated  sublease  rentals  for  the
remaining  LLG leases.  Reserves of  approximately  $350,000  and  $600,000  had
previously been provided during 1996 and 1995, respectively.

     Lastly, during 1997, the Company provided reserves of approximately $50,000
related to its  investment in Lady Luck New Mexico  ("LLNM") for a total reserve
related to LLNM,  including 1996 and 1995 reserves,  of approximately  $250,000.
The Company received $200,000 cash during the year for its remaining  investment
balance.


     11. Asset Impairment Write-Down

     The Company evaluated the recoverability of LLB's long-lived assets in 1996
and 1997 due to recurring  operating  losses  based on the criteria  established
under  Financial  Accounting  Standards  Board  Statement  No. 121 ("SFAS 121").
During the fourth quarter of 1997, pursuant to SFAS 121, the Company recorded an
impairment  write-down to LLB's long-lived assets of $20.7 million.  The Company
considered the historical  operating results and the significant downturn in the
operating results of LLB since the opening of additional  competitive facilities
in its market,  principally  the opening of Imperial Palace in December 1997. In
performing  its review for  recoverability,  the Company  compared the projected
undiscounted  future cash flows to the carrying value of LLB's long-lived assets
of  $31.5  million  as of  December  31,  1997.  As the net  carrying  value  of
long-lived  assets exceeded the estimated  undiscounted  future cash flows,  the
Company was required to recognize an impairment  loss and write-down  long-lived
assets to their fair market  value of $10.8  million.  Fair value became the new
cost basis for the impaired assets and previously  accumulated  depreciation was


                                       54
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



eliminated. As active market quotations were not available, the Company measured
fair value by discounting estimated future cash flows.  Considerable  management
judgment was necessary to estimate  discounted  future cash flows.  Accordingly,
actual results could vary significantly from such estimates.


     12. Income Taxes

     The net  deferred tax asset  (liability)  as of December 31, 1997 and 1996,
are as follows (in thousands):

<TABLE>
<CAPTION>

                                                                     1997              1996
<S>                                                               <C>               <C>
Deferred Tax Asset
     Net operating loss carry-forward..........................   $   20,798        $  15,480
     Excess of tax over book basis of assets due to
        write down of assets...................................       14,778            2,161
     Unconsolidated affiliates.................................            -              605
     Deposits..................................................          525              525
     Other.....................................................        1,691            2,059
                                                                      37,792           20,830
     Less:  valuation allowance................................      (19,167)          (7,055)

     Net deferred tax asset....................................       18,625           13,775
Deferred Tax Liability
     Excess of tax depreciation over book......................      (15,896)         (11,913)
     Unconsolidated affiliates................................          (417)               -
     Other.....................................................       (2,312)          (1,862)

     Net deferred tax liability................................      (18,625)         (13,775)
Net............................................................    $       -        $       -
</TABLE>

     SFAS No. 109 requires recognition of the future tax benefit of these assets
to the extent realization of such benefits is more likely than not, otherwise, a
valuation  allowance  is  applied.  At December  31, 1997 and 1996,  the Company
determined that $19,167,000 and $7,055,000 respectively, of tax benefits did not
meet the  realization  criteria  because of the  Company's  history of operating
results.   Accordingly,  a  valuation  allowance  was  applied  to  reserve  the
applicable deferred tax assets.




                                       55
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


The following  summarizes the components of the income tax  (provision) for
the years ended December 31, 1997, 1996 and 1995 (in thousands):

<TABLE>
<CAPTION>
                                                                 1997             1996             1995

<S>                                                           <C>               <C>               <C>
Current....................................................   $        (49)     $        (69)     $      (196)
Deferred...................................................              -                 -             (205)
      Income Tax  (Provision)..............................   $        (49)     $        (69)     $      (401)
</TABLE>


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

     A reconciliation of the "expected" income tax (provision)  benefit assuming
a 35% federal  statutory  rate to the income tax  provision  for the years ended
December 31, 1997, 1996 and 1995 is as follows (in thousands):


<TABLE>
<CAPTION>
                                                                         1997                1996                 1995
<S>                                                                   <C>                 <C>                <C>
"Expected" income tax  (provision) ...........................        $   (2,701)         $   (2,173)        $  (2,492)
Nondeductible items...........................................              (329)                (59)             (278)
Net operating loss carryforward...............................             2,981               2,163             2,369
  Income Tax  (Provision).....................................        $      (49)         $      (69)        $    (401)
</TABLE>

     At  December  31,  1997  and  1996,  the  Company  had net  operating  loss
carryforwards available for income tax purposes of approximately $59,000,000 and
$44,000,000, respectively, which expire from 2009 to 2011.


     13. Stock Option Plan

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

     During the years ended  December  31, 1997,  1996 and 1995,  0, 177,000 and
43,000 stock options were granted, respectively, at exercise prices ranging from
$2.50 to $3.12 per share. During 1997, 1996 and 1995, no options expired or were
exercised; 80,000, 10,000 and 252,000 options were canceled, respectively.

     The Company  accounts  for the Stock  Option  Plan under APB No. 25,  under
which no compensation  cost has been recognized.  Had compensation cost for this
plan been determined consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based  Compensation" (SFAS No. 123) the Company's
net income and earnings per share would have been reduced to the  following  pro
forma amounts:


                                       56
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997

<TABLE>
<CAPTION>

                                                                                           Years Ended December 31,
                                                                                    1997             1996           1995
                                                                                                  (In thousands)

<S>                                                                               <C>               <C>            <C>
        Net income (loss) applicable to common stockholders
              as reported.........................................                $(38,483)         $4,378         $5,146

        Pro Forma.................................................                $(38,997)         $4,054         $5,021

        Basic and diluted net income (loss) per share as
              reported............................................                 $ (1.31)          $0.15          $0.18
        Pro Forma.................................................                 $ (1.33)          $0.14          $0.17
</TABLE>

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

     The options granted to date to various employees and outside directors vest
ratably  over 5 years,  with an  expiration  10 years from the date of issuance.
Option  prices  were  equal  to or  greater  than  market  value  on the date of
issuance,  and at December 31,  1997,  the  weighted-average  issue price of the
options was $2.64.  The fair value of each option grant is estimated on the date
of grant  using  the  Black-Scholes  option  pricing  model  with the  following
weighted-average  assumptions;  risk-free  interest rates of 5.4%, 6.5% and 6.5%
for 1997, 1996 and 1995, respectively;  expected lives of 5 years for 1997, 1996
and 1995 and expected  volatility of 213, 185 and 153 percent for 1997, 1996 and
1995,  respectively.  There are no expected  dividend  yields in 1997,  1996 and
1995.

     A summary  of the  status of the stock  option  plan and  weighted  average
exercise  prices ("WAEP") at December 31, 1997, 1996 and 1995 and changes during
the years then ended is presented in the table below:

<TABLE>
<CAPTION>

                                                                                Years Ended December 31,
                                                                  1997                     1996                         1995

                                                        Number of                  Number of                  Number of
                                                         Shares        WAEP         Shares        WAEP         Shares        WAEP

<S>                                                         <C>        <C>            <C>         <C>            <C>        <C>
        Outstanding at beginning of year                    491        $2.91          324         $3.12          533        $3.12
        Granted                                               -            -          177          2.53           43         3.12
        Forfeited/Canceled                                  (80)        3.04         ( 10)         3.12         (252)        3.12
        Outstanding at end of year                          411         2.88          491          2.91          324         3.12
        Exercisable at year end                             175         3.10          121          3.12          118         3.12

        Weighted average fair value of options                         $2.07                      $2.02                     $1.93
</TABLE>


     14. Employment Agreements

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


                                       57
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



with the  Agreements,  Mr. Uboldi and Mr. Reid would  receive life,  disability,
accident and health insurance benefits  substantially  similar to those they are
receiving  immediately  prior to their  termination  for a 36-month period after
such termination.




                                       58
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



     15. Related Party Transactions

     Effective January 1, 1996, the Company entered into several agreements with
certain  entities  controlled by Mr.  Tompkins,  Chairman of the Board and Chief
Executive  Officer of the Company.  Under a marketing  agreement  (the  "License
Agreement") with International Marco Polo Services, Inc., formerly known as Lady
Luck Casino, Inc. ("IMPSI"), a corporation owned and controlled by Mr. Tompkins,
the Company pays an annual  licensing fee with respect to the Lady Luck name and
the  mailing  list  developed  by  Gemini,  Inc.  ("Gemini"),   a  subchapter  S
corporation  wholly  owned by Mr.  Tompkins  which  does  business  as Lady Luck
Casino/Hotel in Las Vegas,  Nevada,  to IMPSI. The licensing fee is equal to the
greater of (a) 9% of the Company's  EBITDA  (calculated as EBITDA of the Company
and all its  subsidiaries  and joint  ventures  (multiplied,  in the case of the
Bettendorf  Joint Venture and the Missouri  Project by the interest owned by the
Company),  excluding, among other things, all revenues and expenses arising from
any casino or  casino/hotel  for which the Company is not the operator and which
does not utilize the mailing list or Lady Luck name and excluding  revenues from
the lease of equipment  owned by the Company to third parties or  unconsolidated
entities),  and (b) $1,700,000 per year (as adjusted based on the U.S.  Consumer
Price Index Urban Annual Percent  Change as published by the U.S.  Department of
Labor  Bureau of Labor and  Statistics  from year to year (the  "Consumer  Price
Index").  The Company has agreed to use the Lady Luck name on all  existing  and
future casinos which it operates. The License Agreement provides that during any
period of default in the payment of principal of or interest on the Company's 11
7/8% First Mortgage Notes due 2001, the Company will not pay (but will accrue on
its  books) any  licensing  fee due to IMPSI.  Licensing  fees for 1997 and 1996
totaled approximately $2,989,000 and $3,433,000, respectively.

     In addition, LLGC: (i) pays Gemini the sum of $300,000 per year as adjusted
based  on  the  Consumer  Price  Index  for  corporate  office   facilities  and
certain services  with respect to such corporate  office  facilities,  which for
1997 and 1996 totaled approximately  $310,000 and $300,000,  respectively;  (ii)
reimburses a related party of LLGC, wholly-owned by Mr. Tompkins, which performs
marketing  services on the Company's behalf,  for certain  allocated  marketing,
payroll, overhead and other costs, which for 1997 and 1996 totaled approximately
$788,000 and $659,000;  and, (iii) will no longer receive  reimbursement  from a
wholly-owned corporation of Mr. Tompkins for the salary and benefits paid to Mr.
Tompkins  as  Chairman  of  the  Board  and  Chief  Executive  Officer  of  LLGC
(collectively the "Management/License Fee Overhead Costs").

     Certain  transactions  have  occurred  between  the  Company and Marco Polo
International  Marketing,  Inc. ("Marco Polo"),  Gemini,  Inc.  ("Gemini"),  and
IMPSI, all companies  wholly owned and controlled by Mr.  Tompkins.  The Company
has incurred,  on behalf of IMPSI and Marco Polo in accordance  with  management
agreements,  which were in force prior to January 1, 1996,  expenses for certain
individuals'  salaries,  wages  and  benefits  which  were  reimbursed  by those
entities in the amount of $668,000  for the year ended  December  31,  1995.  In
addition,  the Company incurred $49,000,  $7,000 and $30,000 of expenses for the
years ended December 31, 1997, 1996 and 1995,  respectively,  which were related
to marketing and other expenses and were reimbursed by Gemini.

     The Company  reimbursed  expenses in the amount of  $219,000,  for the year
ended December 31, 1995,  related to direct advertising and marketing costs that
were paid for by Marco  Polo.  In  addition,  the Company  incurred  $40,000 and
$14,000 of expenses  related to marketing and other costs which were  reimbursed
by Marco Polo for the years ended December 31, 1997 and 1996, respectively.  The
Company also reimbursed  Gemini for the approximate  retail value of rooms, food
and beverage, and other items provided to the Company by Gemini in the amount of
$147,000, $129,000, and $146,000 for the years ended December 31, 1997, 1996 and
1995, respectively.




                                       59
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



     16. Litigation

     Shareholder Class Action Lawsuits

     The Company has been named as a defendant in a purported  shareholder class
action lawsuit alleging violations by the Company of the Securities Exchange Act
of  1933  and  the  Securities   Exchange  Act  of  1934  for  alleged  material
misrepresentations   and  omissions  in  connection   with  the  Company's  1993
prospectus and initial  public  offering of Common Stock.  The complaint  seeks,
inter alia, injunctive relief,  rescission and unspecified compensatory damages.
In addition to the Company,  the complaint  also names as  defendants  Andrew H.
Tompkins,  Chairman and Chief Executive Officer of LLGC, Alain Uboldi,  Director
and Chief Operating Officer of LLGC,  Michael Hlavsa, the former Chief Financial
Officer of LLGC, Bear Stearns & Co., Inc. and Oppenheimer & Co., Inc., who acted
as lead  underwriters for the initial public offering.  The Company has retained
outside counsel to respond to the complaint. On October 8, 1997, the Company was
served  with an order of the court  dismissing  all of the  Plaintiff's  Section
10(b) and eleven of the  Plaintiff's  sixteen  Section 11, 12 and 15 allegations
with prejudice for failing to adequately  state a claim.  The court also ordered
the Plaintiffs to and the Plaintiffs have filed an amended  complaint  regarding
the five Section 11, 12 and 15 claims which were not dismissed  with  prejudice.
While the outcome of this matter  cannot  presently be  determined,  the Company
believes based in part on advice of counsel, that it has meritorious defenses.

     Greek Lawsuits

     The Company and certain of its joint venture  partners  (the  "Defendants")
are defendants in a lawsuit brought by the country of Greece and its Minister of
Tourism  before  the Greek  Multi-Member  Court of First  Instance.  The  action
alleges that the Defendants  failed to make certain  payments in connection with
the gaming license bid process for Patras,  Greece.  The payments the Company is
alleged  to have been  required  to make  aggregate  approximately  2.1  billion
drachma  (which was  approximately  $7.3  million as of March 6, 1998 based upon
published  exchange  rates).  Although it is difficult to determine  the damages
being sought from the lawsuit,  the action may seek damages up to such aggregate
amount. The cases are still in their preliminary stages and their outcome cannot
be predicted with any degree of certainty;  however, the Company believes, based
in part on advice of counsel, that it has meritorious defenses.

     A Greek architect filed an action against the Company  alleging that he was
retained  by the  Company to provide  professional  services  with  respect to a
casino in  Loutraki,  Greece.  The  plaintiff in such action  sought  damages of
approximately $800,000. On July 29, 1996, the Company's Greek counsel was served
with a decision by the Athens Court of First Instance in such matter.  The Greek
Court entered judgment  against the Company in the amount of approximately  87.1
million drachma (which was approximately $301,000 as of March 6, 1998 based upon
published  exchange  rates) plus interest.  The Company has appealed the Court's
decision.  During  the fourth  quarter  of 1997,  the  Company's  Greek  counsel
informed  the Company that it is more likely than not that the  appellate  court
will not overturn the Athens Court of First Instance's  decision.  A reserve has
been provided during the fourth quarter of 1997; however, the Company intends to
continue to defend itself in this matter.



                                       60
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



     Other Matters

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

     During November 1996, LLCC entered into a Memorandum of Understanding  (the
"Memorandum") with BWCC, Inc., which does business as Bullwhackers-Central  City
("Bullwhackers").  The  Memorandum  provided for a combination of the respective
companies'  gaming  establishments  which  currently  operate on  adjacent  real
property in Central City. As a result of the Memorandum,  the parties negotiated
and purportedly executed a definitive Operating Agreement and Lease Agreement in
September 1997. During the fourth quarter of 1997, Bullwhackers refused to honor
such   definitive   agreements  and  the  Company  has  commenced  suit  against
Bullwhackers accordingly.


     17. Commitments and Contingencies

     Lease Commitments

     LLGC on its own or through its operating  subsidiaries,  has entered into a
series of leases and options to lease in various locations where it is operating
or intends to develop and operate dockside casinos. The leases are primarily for
a term of 40 years from the date of execution  and are  cancelable at the option
of LLGC with a maximum period of notice of 60 days with the exception of certain
leases entered into by LLB and LLG which are  cancelable  upon six months notice
on the fifth  anniversary of the  commencement  date of such leases and upon six
months notice on any fifth  anniversary date thereafter.  In addition,  LLGC, on
its own or through its operating subsidiaries,  has entered into certain options
to either lease or purchase  additional  property in other  states.  Most of the
leases  are  contingent  upon  regulatory  approval  of the lease and all leases
contain certain periodic rent adjustments. Rent expense incurred under operating
leases was  approximately  $7,885,000,  $8,934,000  and $8,380,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.

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


     1998..............................................              $ 3,216
     1999..............................................                2,518
     2000..............................................                2,461
     2001..............................................                2,181
     2002..............................................                2,181
     Thereafter........................................               31,982
                  Total................................              $44,539



                                       61
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



Construction Commitments

     Bettendorf Joint Venture

     The Bettendorf Joint Venture is currently constructing an expansion project
pursuant  to its  master-plan  at a cost of  approximately  $39.5  million.  The
project,  which  began  construction  June 23,  1997,  is  planned to include an
approximately  260 room hotel  with a fully  enclosed  walkway to the  riverboat
casino, 30-50 slip marina, a 500-car parking garage and a bypass over the nearby
railroad to improve access. The project financing is non-recourse to the Company
and includes a $17.5  million bank first  mortgage  note, a $5.0 million  second
mortgage from an affiliated  company of BRDC,  and $7.5 million in tax increment
financing  from the City of Bettendorf  to be repaid from property  taxes and in
exchange  for deeding the  overpass to the City of  Bettendorf.  The cost of the
overpass is not expected to exceed such  financing  from the City of Bettendorf.
The balance of the expansion  project's  cost is to be paid from the  Bettendorf
Joint  Venture's  cash on hand.  The project is scheduled to be completed in the
Fall of 1998.

     Service Marine Vessel

     The  Company  has  entered  into an  agreement  for the  construction  of a
cruising  gaming  vessel in the amount of $16.0  million and as of December  31,
1997,  approximately  $6.0  million has been  expended  under this  contract and
approximately  $1.9 million is included in construction  payables.  Construction
has been  discontinued  and is not  anticipated  to resume  until such time as a
suitable development project proceeds.

     Natchez Site

     Lady Luck  Natchez is required  under its current  lease to move its casino
barge several  hundred feet to another  docking  facility on land subject to the
existing lease by February 1998. Management is continuing  negotiations with the
lessor to allow the casino to remain in its current location.  Should such lease
amendment  not be available on terms  satisfactory  to the Company,  the cost of
relocating the barge is currently estimated not to exceed $2.0 million.

     Development Stage Projects

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

     Kimmswick, Missouri

     The first two phases of the project, as planned, include a land-based hotel
and casinos  onboard two separate  vessels  (the  "Missouri  Project").  LLK has
entered into an option to lease the Kimmswick Site. The proposed site is located
on an  approximately  45-acre  parcel  of land in  Jefferson  County,  Missouri,
approximately 25 miles south of St. Louis (the "Kimmswick Site").

     In 1997,  LLK and Davis  Gaming  Company II  ("Davis")  mutually  agreed to
dissolve an agreement of general  partnership to form a joint venture to operate
the Missouri  Project because the State of Missouri had not issued the project a
gaming  license on or prior to May 31,  1997.  The  Missouri  Gaming  Commission
selects applicants at its discretion for investigation  prior to licensing.  LLK
retained  the  rights  to the  Kimmswick  Site and owns the  Missouri  Project's
assets.


                                       62
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



     The Missouri  Project is estimated to cost an  additional  $93.1 million to
complete  development of the first two phases. The proposed project has received
the appropriate  zoning approval from the Jefferson  County Planning  Commission
and has  received a U.S.  Army Corps of  Engineers  404 permit.  However,  a new
permit  might  be  necessary  due to  changes  in the  proposed  project  design
subsequent to receiving the permit.

     During 1997, the Company  continued its efforts towards obtaining a license
for the Missouri Project and provided updated information to the Missouri Gaming
Commission.  However, the Missouri Gaming Commission  investigates applicants at
its  discretion  and  has not  yet  selected  the  Company  to be  investigated.
Furthermore,  there can be no  assurance  that the  Company  will be selected or
obtain such approvals  from the Missouri  Gaming  Commission.  While the Company
intends to continue seeking license approval by the Missouri Gaming  Commission,
the eventual  development  of the  Missouri  Project may also be subject to: (i)
satisfactory  resolution of a November  1997 Missouri  Supreme Court ruling that
several existing Missouri gaming facilities are illegal due to not being located
upon the  Mississippi or Missouri rivers (the Kimmswick Site is located upon the
Mississippi  River,  but  resolution  of the decision  could delay  selection of
additional applicants for licensing  investigation;  (ii) the selection of three
new Missouri Gaming  Commission  members,  which the Company believes may not be
overly  familiar with the Company's  application;  (iii) gaming  revenues in the
major metropolitan areas of Missouri have not increased commensurate with recent
increases  in capacity,  causing  fears of  competitive  saturation;  and,  (iv)
regulatory   factors,   including  loss  limits  have  generally  caused  gaming
operations to underperform  relative to facilities in neighboring  jurisdictions
without such restrictions.

     The Vicksburg Project

     The development as planned will include a riverboat  casino, an approximate
200-room  hotel,  an 800-car  parking  garage,  and  additional  amenities  (the
"Vicksburg  Project").  The  Vicksburg  Project  is  expected  to be  located on
approximately  23.9 acres of land owned by the Company  immediately south of the
I-20 bridge along the Mississippi  River,  with access to Washington  Street, in
Vicksburg, Mississippi.

     During 1997, the Company  entered into an agreement (the  "Horseshoe  Joint
Venture  Agreement") with Horseshoe  Gaming,  LLC  ("Horseshoe") to form a joint
venture to complete and operate the  Vicksburg  Project.  Under the terms of the
joint venture agreement:  (i) the Vicksburg Project will be operated by a wholly
owned  subsidiary of Horseshoe  Gaming,  LLC; (ii)  Horseshoe will own an equity
interest of 75%,  with LLV holding the remaining  25%;  and,  (iii) the partners
will  contribute  real  property  and other  previously  acquired  assets with a
combined agreed-upon value of approximately $42.0 million.

     A gaming license was granted to LLV on August 18, 1994 and has subsequently
been renewed.  As of December 31, 1997,  the Company has invested  approximately
$14.4  million in the  Vicksburg  Project  with a net  investment  remaining  of
approximately  $8.2 million  after  project  development  cost  write-downs  and
reserves  for  assets  which  may not be  usable  in the  project  as  currently
contemplated.  Management's  estimate  of net  realizable  value is  based  upon
assumptions  regarding future economic,  market and gaming regulatory conditions
including the viability of the Vicksburg  Site for the  development  of a casino
project.  Changes in these  assumptions could result in changes in the estimated
net realizable value of the property. The total cost of the project is initially
estimated to be approximately  $100.0 million including the agreed-upon value of
contributed assets.

     The  consummation of the  transactions  contemplated by the Horseshoe Joint
Venture  Agreement are subject to the  fulfillment  of several  conditions  (the
"Conditions"),  including but not limited to, the partners'  future agreement as
to the  scope  and  cost  of the  project,  required  regulatory  approval,  and
completion of project  financing.  The Horseshoe Joint Venture  Agreement may be
terminated by LLV or Horseshoe as of April 1, 1998 (the  "Termination  Date") if
the Conditions are not satisfied or waived as of the Termination Date or without
cause. The


                                       63
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997



Company does not believe that all of the Conditions  will be satisfied  prior to
the Termination  Date.  While the Company does not currently intend to terminate
the Horseshoe  Joint Venture  Agreement,  there can be no assurance  that LLV or
Horseshoe will not terminate the Horseshoe Joint Venture Agreement. Furthermore,
there can be no assurance  that if  consummated,  that the joint venture will be
successful.

     In addition,  during the fourth  quarter of 1996,  the  Mississippi  Gaming
Commission found a proposed casino site on the Big Black River  unsuitable.  The
Big Black River is located about 13 miles from Vicksburg,  between Vicksburg and
Jackson, the major population base from which Vicksburg casinos draw.

     An affected  landowner  on the Big Black  River sued the Gaming  Commission
after it rejected the site,  and in the fourth  quarter of 1997, a circuit court
found the site suitable. The Mississippi Gaming Commission and City of Vicksburg
have appealed the circuit court decision to the State Supreme Court.

     Casino  developments on the Big Black River could  significantly  adversely
affect operating casinos in Vicksburg, as well as the viability of the Vicksburg
Project.  While the Company believes that, based on previous rulings in favor of
the  Mississippi  Gaming  Commission,  the Big  Black  River  will  not be found
suitable  for casino  development,  it will be some time  before a ruling  comes
forth,  and there can be no  assurances  that the circuit  court  ruling will be
overturned.

     Lady Luck Vancouver

     The Company had previously,  in the pre-development  stage,  entered into a
management  agreement  with the  Coquitlam  Band to develop  and manage a gaming
facility to be located on tribal land  approximately  eight miles from  downtown
Vancouver,   British  Columbia,   Canada.   This  agreement  has  been  mutually
terminated.

     The Province of British  Columbia (the  "Province"),  through its Lotteries
Advisory Committee (the "LAC") subsequently sent to interested parties a Request
for Proposal ("RFP") relating to a planned  expansion of gaming in the Province.
The gaming expansion is intended to include  destination-style  casinos, limited
to 30 table games and 300 slots, with the slot machines being provided and owned
by the  Province.  Bingo  halls  may  also  be  included  in the  projects.  The
Provincial  government will  participate in the revenue and net income generated
by  gaming  operations,  with an  initial  licensing  period  of ten  years.  In
addition, local host governments will participate in the net income generated by
projects in their respective jurisdictions for providing requisite services.

     The Company  responded to the RFP during the fourth quarter of 1997, with a
proposed  project to be developed on Tsawwassen  First Nation Band Reserve lands
(the "Vancouver  Project"),  located about 20 miles south of downtown Vancouver.
The Vancouver Project,  which is expected to cost  approximately  $25.0 to $30.0
million,  includes a 55,000 square foot gaming and entertainment facility and an
11,000  square  foot  Aboriginal   cultural   center,   all  to  be  located  on
approximately  20 acres.  The  proposed  gaming  facility  will also  include an
800-seat bingo hall.

     The LAC has been  reviewing  the  various  responses  to the  RFP,  and has
informed the Company that its response has successfully been  short-listed.  The
Company is negotiating a development  agreement with the Tsawwassen First Nation
as host community, and expects to have it completed during the second quarter of
1998.  The Company  believes  that the LAC will make  selections  of  successful
proponents during the second quarter of 1998. After a proponent is selected,  it
then  must  negotiate  the  various  operating  agreements  with the  Provincial
government and obtain financing for the project. While the Company believes that
it may be selected for a gaming license, there can be no assurances that it will
be selected,  nor that agreements with the Tsawwassen  First Nation and Province
of British  Columbia can be  successfully  negotiated  or that  financing can be
obtained.  As of December  31,  1997,  the Company  has  invested  approximately
$500,000 of capital in these  projects  (which was expensed  when  incurred) and
does not anticipate  investing  additional  material amounts of capital prior to
licensing.


                                       64
<PAGE>
                          LADY LUCK GAMING CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997





     Environmental Matters

     The Company is subject to certain  federal,  state and local  environmental
protection,  health and safety laws,  regulations  and ordinances  that apply to
businesses  generally,  such as the Clean  Air Act,  the Clean  Water  Act,  the
Resource  Conservation  and Recovery Act, CERCLA,  the  Occupational  Safety and
Health Act, and similar state statutes.

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

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

     Leverage

     The Company is highly  leveraged.  As of December 31, 1997,  the  Company's
total  indebtedness  was  approximately  $181.3  million  and its  stockholders'
deficit was approximately  $32.2 million.  This level of indebtedness could have
important  consequences to stockholders.  While management  believes the Company
will have  sufficient  cash flow to meet its debt service and other cash outflow
requirements  and maintain  compliance  with the  covenants of the  Indenture as
supplemented, to  the extent that a substantial  portion of the  Company's  cash
flow from operations  remains dedicated to the payment of principal and interest
on its indebtedness,  such cash flow is not available for other purposes such as
general  operations,  maintenance and improvement of casino and hotel facilities
or expansion of existing sites or into other gaming  markets.  Furthermore,  the
Company's  ability to obtain  additional  financing  in the  future for  working
capital,  capital  expenditures or acquisitions may be limited and the Company's
level of  indebtedness  could limit its flexibility in planning for, or reacting
to, changes in its industry.




                                       65
<PAGE>

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

Not applicable


PART III

     The Board of Directors of LLGC has  established  June 3, 1998 as the annual
meeting date of shareholders.


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The  information  required  by this Item will be set forth in LLGC's  Proxy
Statement for the 1998 Annual Meeting of Shareholders of LLGC, which information
is incorporated by reference herein.


ITEM 11.  EXECUTIVE COMPENSATION

     The  information  required  by this Item will be set forth in LLGC's  Proxy
Statement for the 1998 Annual Meeting of Shareholders of LLGC, which information
is incorporated by reference herein, excluding the Stock Price Performance Graph
and the Compensation/Stock Option Committee Report on Executive Compensation.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The  information  required  by this Item will be set forth in LLGC's  Proxy
Statement for the 1998 Annual Meeting of Shareholders of LLGC, which information
is incorporated by reference herein.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required  by this Item will be set forth in LLGC's  Proxy
Statement for the 1998 Annual Meeting of Shareholders of LLGC, which information
is incorporated by reference herein.


ITEM 14.          EXHIBITS AND REPORTS ON FORM 8-K

     (a)(1)       Financial Statements.

         Included in Part II of this Report:

         Report of Independent Accountants
         Consolidated Balance Sheets as of December 31, 1997 and 1996
         Consolidated Statements of Operations -- for the years ended
            December 31, 1997, 1996 and 1995
         Consolidated Statements of Mandatory Cumulative Redeemable Preferred
            Stock and Stockholders'
               Equity (Deficit) -- for the years ended December 31, 1997, 1996
                   and 1995 Consolidated Statements of Cash Flows -- for the
                   years ended December 31, 1997, 1996 and 1995
                          Notes to Consolidated Financial Statements



                                       66
<PAGE>
     (a)(2) Financial Statement Schedules.



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

         Report of Independent Accountants
         Consolidated Balance Sheets as of December 31, 1997 and 1996
         Consolidated Statements of Operations -- for the years ended
             December 31, 1997 and 1996 and the period from April 21, 1995
             (commencement of operations) to December 31, 1995
         Condolidated Statements of Members' Equity (Deficit) -- for the years
             ended December 31, 1997 and 1996 and the period from April 21, 1995
             (commencement of operations) to December 31, 1995
         Consolidated Statements of Cash Flows -- for the years ended
             December 31, 1997, 1996 and the period from April 21, 1995
             (commencement of operations) to December 31, 1995
         Notes to Consolidated Financial Statements


     (a)(3) Exhibits.

Exhibit
Number             Description of Exhibits

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

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

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

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

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

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

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

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

                                       67
<PAGE>
4.7  Leasehold Deed of Trust,  Assignment of Rents and Security  Agreement dated
     as of February  17, 1994 by and among Lady Luck Tunica,  Inc.,  as Trustor,
     Jim B.  Tohill,  as  Trustee,  and First  Trust  National  Association,  as
     Beneficiary. Incorporated by reference to Exhibit 4.7 to the Form 10-K.

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       68
<PAGE>
4.22 Stockholders Agreement dated as of April 1, 1993 by and among the Lady Luck
     Gaming  Corporation,  Andrew H. Tompkins and all current  stockholders  and
     warrant holders of Lady Luck Gaming Corporation.  Incorporated by reference
     to Exhibit 4.14 to the Form S-1.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       69
<PAGE>
10.7 Lease in Gulfport,  Mississippi  dated October 1, 1993 by and between Coast
     Materials Company and Lady Luck Gulfport, Inc. Incorporated by reference to
     Exhibit 10.15 to the Form 10-K.

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       70
<PAGE>
10.22$2,300,000  Promissory Note of Gold Coin Incorporated dated April 28, 1993.
     Incorporated by reference to Exhibit 10.14 to the Form S-1.

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

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

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

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

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

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

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

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

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

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

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

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


                                       71
<PAGE>
10.35Amended  and  Restated  Joint  Venture  Agreement  by and  among  Old River
     Development,   Inc.,  D.J.  Brata,  Bally's  Operator,   Inc.,  a  Delaware
     corporation,  Bally's Tunica,  Inc., a Mississippi  corporation and Bally's
     Olympia Limited Partnership,  a Delaware limited partnership dated February
     24, 1995. Incorporated by reference to Exhibit 2(a) to the Form 8-K of Lady
     Luck Gaming Corporation dated February 28, 1995.

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       72
<PAGE>
10.49Contract for the  Purchase  and Sale of Real Estate and  Personal  Property
     dated as of April 12, 1996 by and between River Park Hotel Group,  Inc. and
     Lady Luck Mississippi,  Inc.  Incorporated by reference to Exhibit 10.49 to
     the  Quarterly  Report on Form 10-Q for the quarter ended March 31, 1996 of
     Lady Luck Gaming Corporation.

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

10.51Partnership  Interest Redemption Agreement dated September 30, 1997 between
     Bally's Olympia Limited Partnership,  a Delaware limited  partnership,  and
     Old River Development, Inc., a Mississippi corporation.

10.52Commercial  Contract  to Buy and Sell Real  Estate  dated  February 6, 1998
     between Gold Coin, Inc., a Delaware corporation and J.D. Carelli.

10.53Agreement for Purchase and Sale of Business  Assets dated  February 6, 1998
     between Gold Coin, Inc., a Delaware corporation and Stage Stop Gaming Hall,
     Inc.

21   Subsidiaries of Lady Luck Gaming Corporation.

27   Financial Data Schedule


(b) Reports on Form 8-K.

     Form 8-K dated October 8, 1997 relating to Item 1.

(c) Exhibits.

(d) Financial Statement Schedules

  Lady Luck Bettendorf, L.C.

<PAGE>

                           LADY LUCK BETTENDORF, L.C.

                        CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1997 AND 1996
             TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS





<PAGE>




                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



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


We have  audited  the  accompanying  consolidated  balance  sheets  of LADY LUCK
BETTENDORF,  L.C.  (the  "Company")  (an Iowa limited  liability  company) as of
December 31,   1997  and  1996,  and  the  related  consolidated  statements  of
operations,  changes in members'  equity and cash flows for the years then ended
and for the period April 21, 1995  (commencement  of operations) to December 31,
1995.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of LADY LUCK BETTENDORF,  L.C. and
subsidiaries  as of  December 31,  1997  and  1996,  and the  results  of  their
operations  and their  cash  flows for the years  then  ended and for the period
April 21, 1995 to December 31,  1995,  in  conformity  with  generally  accepted
accounting principles.




                                                      ARTHUR ANDERSEN LLP

Las Vegas, Nevada
February 25, 1998



<PAGE>
                           LADY LUCK BETTENDORF, L.C.

                           CONSOLIDATED BALANCE SHEETS

                        AS OF DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                             ASSETS                                      1997           1996

<S>                                                                   <C>            <C>
CURRENT ASSETS:
     Cash and cash equivalents                                        $3,839,000     $5,119,000
     Accounts receivable, net of allowance for doubtful
       accounts of $141,000 and $181,000, respectively                    27,000         10,000
     Inventories                                                         105,000        125,000
     Prepaid expenses and other current assets                           787,000        681,000
               Total current assets                                    4,758,000      5,935,000

PROPERTY AND EQUIPMENT:
     Buildings                                                         6,335,000              -
     Leasehold improvements                                            4,755,000      4,069,000
     Furniture, fixtures and equipment                                 8,178,000      7,042,000
                                                                      19,268,000     11,111,000
     Less: Accumulated depreciation                                   (3,311,000)    (1,822,000)
                                                                      15,957,000      9,289,000
     Construction in progress                                          9,502,000      3,146,000
             Total property and equipment, net                        25,459,000     12,435,000

     Other Assets                                                        732,000              -

     TOTAL ASSETS                                                    $30,949,000    $18,370,000
</TABLE>

















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


<PAGE>

                           LADY LUCK BETTENDORF, L.C.

                     CONSOLIDATED BALANCE SHEETS (continued)

                        AS OF DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                LIABILITIES AND MEMBERS' EQUITY:                      1997           1996

<S>                                                                   <C>            <C>
CURRENT LIABILITIES:
     Current portion of long-term debt                                $1,262,000     $1,245,000
     Current portion of capital lease                                     91,000              -
     Accounts payable                                                    345,000      1,334,000
     Accounts payable - affiliates                                       707,000        210,000
     Construction and retention payables                               3,102,000              -
     Accrued gaming taxes                                                723,000        610,000
     Accrued progressive & slot club liabilities                         694,000        590,000
     Other accrued liabilities                                         2,023,000      1,503,000
               Total current liabilities                               8,947,000      5,492,000

     Long-term capital lease, less current portion                        48,000              -
     Tax incremental financing payable                                 3,329,000              -
     Long-term debt, less current portion                                      -      1,107,000
              Total Liabilities                                       12,324,000      6,599,000


Members' Equity                                                       18,625,000     11,771,000
TOTAL LIABILITIES AND MEMBERS' EQUITY                                $30,949,000    $18,370,000
</TABLE>


















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


<PAGE>
                           LADY LUCK BETTENDORF, L.C.

                      CONSOLIDATED STATEMENTS OF OPERATIONS

  FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND FOR THE PERIOD APRIL 21, 1995
                (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995


<TABLE>
<CAPTION>

                                                              1997              1996             1995
<S>                                                        <C>               <C>             <C>
REVENUES:
     Casino                                                $69,338,000       $62,202,000     $34,807,000
     Food and beverage                                       5,470,000         5,680,000       2,933,000
     Other                                                     883,000           664,000         385,000
               Gross revenues                               75,691,000        68,546,000      38,125,000
     Less:  Promotional allowances                          (4,079,000)       (3,344,000)     (1,650,000)

               Net revenues                                 71,612,000        65,202,000      36,475,000

COSTS AND EXPENSES:
     Casino                                                 18,343,000        16,080,000       9,057,000
     Food and beverage                                       1,537,000         2,413,000       1,572,000
     Gaming and admission taxes                             18,023,000        15,731,000       8,477,000
     Management fees - affiliates                            1,569,000         1,117,000         782,000
     Marine operations                                       2,372,000         2,340,000       1,515,000
     Selling, general and administrative                    15,145,000        12,766,000       7,688,000
     Rental expense - affiliates                             5,819,000         6,222,000       3,881,000
     Other expenses                                            519,000           945,000         437,000
     Depreciation                                            1,489,000         1,156,000         676,000
     Pre-opening expenses                                            -                 -       2,467,000

             Total costs and expenses                       64,816,000        58,770,000      36,552,000

                  Operating income(loss)                     6,796,000         6,432,000         (77,000)

     Interest income                                           139,000            51,000          34,000
     Interest expense                                          (81,000)         (301,000)       (368,000)

               NET INCOME(LOSS)                            $ 6,854,000      $  6,182,000      $ (411,000)
</TABLE>


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


<PAGE>
                           LADY LUCK BETTENDORF, L.C.

              CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY

  FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND FOR THE PERIOD APRIL 21, 1995
                (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995

<TABLE>
<CAPTION>

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


<S>                                            <C>                    <C>                <C>
Contributed capital                            $3,000,000             $3,000,000         $  6,000,000
Net Loss                                         (205,000)              (206,000)            (411,000)
Balance at December 31, 1995                    2,795,000              2,794,000            5,589,000

Net Income                                      3,091,000              3,091,000            6,182,000
Balance at December 31, 1996                   $5,886,000             $5,885,000          $11,771,000

Net Income                                      3,427,000              3,427,000            6,854,000

Balance at December 31, 1997                   $9,313,000             $9,312,000          $18,625,000

</TABLE>





















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


<PAGE>
                           LADY LUCK BETTENDORF, L.C.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

  FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND FOR THE PERIOD APRIL 21, 1995
                (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995

<TABLE>
<CAPTION>

                                                                         1997            1996            1995
<S>                                                                   <C>              <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss)                                                $6,854,000       $6,182,000   $  (411,000)
              Adjustments to reconcile net income(loss) to net cash
                  provided by operating activities:
     Depreciation                                                      1,489,000        1,156,000       676,000
     Pre-opening expenses                                                      -                -     2,467,000
     (Increase) decrease in operating assets:
           Accounts receivable, net                                      (17,000)          96,000      (106,000)
           Inventories                                                    20,000          (50,000)      (75,000)
           Prepaid expenses and other current assets                    (106,000)        (289,000)     (392,000)
     Increase (decrease) in operating liabilities:
           Accounts payable (including affiliates)                      (492,000)         562,000       982,000
           Accrued gaming taxes                                          113,000           76,000       534,000
           Accrued gaming liabilities                                    104,000          155,000       656,000
           Other current liabilities                                     520,000         (322,000)    1,604,000
     Net cash provided by operating activities                         8,485,000        7,566,000     5,935,000

CASH FLOWS FROM INVESTING ACTIVITIES:
     Property and equipment additions                                 (7,979,000)      (1,362,000)   (5,049,000)
     Construction in progress                                         (6,356,000)        (727,000)   (2,419,000)
     Increase in retention payable and construction payable            3,102,000                -             -
     Pre-opening costs                                                         -                -    (2,467,000)
     Other assets                                                       (732,000)               -             -
     Net cash used in investing activities                           (11,965,000)      (2,089,000)   (9,935,000)

CASH FLOWS FROM FINANCING ACTIVITIES:
     Net proceeds from borrowings                                        564,000          645,000     2,833,000
     Payments on debt                                                 (1,693,000)      (3,572,000)   (2,264,000)
     Proceeds from tax incremental financing                           3,329,000                -             -
     Proceeds from contributed capital                                         -                -     6,000,000
     Net cash provided by (used in) financing activities               2,200,000      (2,927,000)     6,569,000
</TABLE>


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


<PAGE>
                           LADY LUCK BETTENDORF, L.C.

                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

  FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND FOR THE PERIOD APRIL 21, 1995
                (COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1995

<TABLE>
<CAPTION>

                                                                      1997            1996            1995

<S>                                                                 <C>                <C>          <C>
NET INCREASE IN CASH AND CASH                                         (1,280,000)       2,550,000     2,569,000
         EQUIVALENTS
CASH AND CASH EQUIVALENTS:
      Beginning of period                                              5,119,000        2,569,000             -
      End of period                                                 $  3,839,000       $5,119,000    $2,569,000
SUPPLEMENTAL DISCLOSURE:
      Cash paid for interest net of amounts capitalized of
$114,000, $100,000 and $50,000 for 1997, 1996 and
1995, respectively.                                                 $     81,000       $  301,000    $  368,000

</TABLE>

 Supplemental Schedule of Non-Cash Investing and Financing Activities:

The Company entered into several  contracts with  manufacturers for the purchase
of slot machines which totaled  approximately  $177,000,  $67,000 and $4,643,000
for the years ended  December 31, 1997,  1996 and the period ended  December 31,
1995.

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


















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


<PAGE>
                           LADY LUCK BETTENDORF, L.C.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1997


1. THE COMPANY AND BASIS OF PRESENTATION

     Bettendorf Riverfront Development Company, L.C. ("BRDC") and Lady Luck Quad
Cities,  Inc.  ("LLQC")  formed an Iowa  limited  liability  company,  Lady Luck
Bettendorf, L.C. (the "Company") for the purpose of operating a riverboat casino
on the  Mississippi  River based in Bettendorf,  Iowa. On October 21, 1997, Lady
Luck Bettendorf Marina Corporation  ("LLBMC"),  a wholly owned subsidiary of the
Company,  was created  for the purpose of owning the marina and parking  garage.
Under the terms of the Articles of Incorporation, the Company's term will expire
in  2065.  BRDC and LLQC  each  contributed  $3.0  million  for a 50%  ownership
interest in the Company.  All net profits and losses from all  operations of the
Company are  allocated  equally  between  LLQC and BRDC.  BRDC and LLQC are each
represented  by two  managers  with most  management  decisions  of the  Company
requiring the approval of both members.

     The Company commenced  operations on April 21, 1995. The Company is located
on a leased parcel of land which is adjacent to Interstate 74 on the Mississippi
River.  The  Company's  operation  consists of a 30,000  square foot casino on a
gaming vessel,  which is  approximately  300 feet by 100 feet, an  entertainment
area for  parties,  shows,  and special  events and, as of December  31, 1997, a
gaming area with  approximately  44 table and card games and 948 slot  machines.
The vessel has gaming  operations  on three  floors.  The first floor has a 19th
Century Iowa River theme,  the second floor has a sports theme  (including a 300
seat showroom) and the poker room is on the third floor. The vessel is certified
for  2,500  passengers  including  crew.  Other  related  facilities  include  a
restaurant,  gift shop,  commercial  center,  sports bar and  showroom and a 500
space parking  garage.  The Company's  market is  concentrated in a radius of 50
miles of the Quad  City  Area and the  Chicago  area  serviced  by  ongoing  bus
programs.

     The Company is currently  constructing  a $39.5 million  expansion  project
pursuant to its master  plan.  During the  current  year,  the  Company  secured
financing for $30 million to build a 260 room hotel,  a 500 car parking  garage,
an overpass that would allow vehicles to cross over active railroad tracks and a
30-50 slip  marina.  Financing  for this  project  has been  obtained  through a
$17,500,000  mortgage with the Rock Island Bank, N.A. signed on June 23, 1997, a
second mortgage with Cement Transportation  Corporation for $5,000,000 signed on
June 23, 1997 and a development  agreement with the City of Bettendorf to secure
$7,500,000 of tax incremental  financing signed on June 17, 1997. The balance of
the  expansion  project  is to be paid from the  Company's  cash on hand.  It is
anticipated that the project will be completed in Fall 1998.

     As of  December  31,  1997 no funds have been drawn down from either of the
mortgages however,  $3,329,000 has been funded by the City of Bettendorf through
the development agreement.  The construction of the parking garage was completed
during the year and was opened to the public on November 26, 1997.




<PAGE>
AGREEMENTS

City of Bettendorf "Development Agreement dated August 16, 1994"

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

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

     b. The Company was to use  commercially  reasonable  efforts to  facilitate
completion of the existing  shopping center  improvements so that the commercial
center would be opened for business on or before September 1, 1996 (See Note 8).
The  commercial  center was opened in October 1995 for the holiday season and is
expected to be utilized as part of the hotel project discussed above.

     c. The Company is to pay a development  fee to the City of Bettendorf of 2%
on adjusted gross receipts  exceeding  $35,000,000 but not to exceed $44,000,000
during any twelve  month  period  starting on the day gaming  operations  began,
April 21, 1995. The maximum  revenues  subject to the 2% fee would be $9,000,000
resulting in maximum fees of $180,000.  The Company has accrued fees of $165,000
and $180,000 as of December 31, 1997 and 1996, respectively.

     City of Bettendorf "Development Agreement dated June 17, 1997"

     The  Company  entered  into an  agreement  with the City of  Bettendorf,  a
municipal  corporation of the State of Iowa,  for the purpose of  redeveloping a
portion (24.6 acres) of the former J.I.  Case property and immediate  berth area
around  the Lady Luck  boat as a joint  project  to be known as "The  Bettendorf
Downtown Riverfront Project".

     This project will include the construction of a 260 room waterfront  hotel,
a railroad overpass for vehicular access, a downtown  riverfront  parking center
for 500 cars, improved area for public parking and marina and seasonal transient
docking  facilities.  Management of the project will remain with the Company. As
part of this  agreement,  the city will  issue $7.5  million in tax  incremental
financing  bonds or  notes to help in the  financing  of the  overpass,  parking
garage,  marina and related site improvements.  For the life of the bonds issued
by the city, to enable financing of the city's obligations, the Company will pay
incremental  property taxes on the developed property assessed at a valuation of
an amount of not less than $32 million. In the event that the taxes generated by
the project do not fund the payment of the debt described, then the Company will
pay the city an additional  $0.25 per person for each person  entering the boat.
The city agreed to accept  conveyance  of the  overpass  from Lady Luck upon its
completion.  The cost of the overpass, parking garage and marina is not expected
to exceed the financing from the City of Bettendorf.

     In the event that the  construction  of the marina is not completed  before
April 1, 1999 following  completion of the hotel,  the Company will pay the City
$100,000  per month  until  the  project  has been  completed.  Pursuant  to the
Development   Agreement,   the  parking  center  and  marina  improvements  were
transferred  to  LLBMC.  The Board of  Directors  of LLBMC is  comprised  of the
managers of the Company.



<PAGE>
     As part of the agreement,  the Company is also  responsible for demolishing
the Plaza building at 1823 State Street and preparing the site for donation back
to the City. The Company is also responsible for paying to the City up to 50% of
damages  which may be awarded to certain  businesses  disrupted by this project.
The Company does not expect its portion of the damages to exceed $150,000.


     Riverbend Regional Authority "Operator's Contract"

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

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

     b. The Company is to pay RRA $1.00 for each of the first 500,000 admissions
and $1.50 for each  admission  in excess  thereof  computed  on an annual  basis
commencing on the date gaming operations began,  April 21, 1995. These admission
fees are paid weekly.

     c. If the adjusted  gross gaming  receipts  exceed  $44,000,000  during any
twelve month period starting on the day gaming  operations began, the Company is
required to pay to RRA 2% of any such excess. The Company exceeded this level on
or about April 15, 1997 and began to make these additional contributions weekly.
The Company will pay these contributions weekly until April 20, 1998 (the end of
the RRA fiscal  year for this  purpose)  and has  expensed  these  contributions
evenly throughout the year.

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


     Lady Luck Casino, Inc. "Casino Management Agreement"

     The Company entered into an agreement with Andrew H. Tompkins and Lady Luck
Casino,  Inc. ("LLCI"),  a Nevada  corporation,  to manage the operations of the
Company.  In May 1996, Lady Luck Gaming  Corporation  ("LLGC") (the  "Management
Company"),  a Delaware corporation,  replaced LLCI as the manager of the casino.
Andrew  H.  Tompkins,  LLCI and  LLGC are all  affiliates  of the  Company.  The
Management Company is to supervise and control the Company's operations, provide
marketing  and  accounting  services,  allow  the use of the Lady  Luck  name in
connection  with the operations  and access to the customer list.  Cash payments
made by the Company to LLCI, LLGC and their affiliates for services  provided to
the Company or payments made on behalf of the Company for  insurance,  marketing
and  advertising   production,   medical  and  other   insurance,   401(k)  plan
contributions and other items totaled approximately  $2,328,000,  $1,885,000 and
$998,000  for the years and  period  ended  December  31,  1997,  1996 and 1995,
respectively,  excluding  management  fees  and  rental  expenses  paid to these
related  parties.  The Management  Company  believes that all expenses and costs
applicable to the Company are reflected in the accompanying financial statements
on a basis which is  representative  of what they would have been if the Company
operated on a stand-alone basis. Highlights of the agreement are as follows:

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


<PAGE>

     b.  Management  Fee - A management  fee of 2% of gaming gross  revenues (as
defined) plus 7% of earnings before income tax,  depreciation  and  amortization
(as  defined),  together not to exceed 4% of the annual casino gross revenue (as
defined),  will be paid to the Management  Company.  Effective in June 1996, the
management fee was reduced by $37,500 per month.  The  management  fees incurred
during the periods  ended  December 31, 1997,  1996 and 1995 were  approximately
$1,569,000,  $1,117,000 and $782,000,  respectively.  The outstanding and unpaid
management  fees at December 31, 1997 and 1996, were  approximately  $81,000 and
$70,000,   respectively.   BRDC  will  provide  consulting  services  concerning
licensing,  staffing,  and management of the marine aspects of the gaming vessel
and any land based  development.  The  Management  Company is to pay part of its
fee, up to $325,000 annually, to BRDC for these consulting services.

     c.  Working  Capital  Reserve - The  agreement  requires  that  $500,000 be
maintained  in a casino  bank  account (as  defined) as working  capital for all
financial  needs of the casino.  At December 31, 1997 and 1996,  the casino bank
account  had  a  book  balance  of   approximately   $656,000  and   $2,400,000,
respectively.

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

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

     Although funds have not been  segregated into a replacement  account,  this
requirement  has been  constructively  met.  The  Company  has made and paid for
replacements and capital improvements from the casino bank account, in excess of
the  approximately  $2,080,000 and $1,555,000 that should have been funded as of
December 31, 1997 and 1996, respectively.


2. CERTAIN RISKS AND UNCERTAINTIES

     The  Company's  operations  are  dependent  on the  continued  licensing or
qualification  of the Company.  Such  licensing and  qualification  are reviewed
periodically by the gaming authorities in this state.





<PAGE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a. Principles of  Consolidation  - The  consolidated  financial  statements
include the accounts of the Company and its wholly-owned subsidiary. Significant
intercompany accounts and transactions have been eliminated.

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

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

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

     e.  Property  and  Equipment - Property and  equipment  are stated at cost.
Included  in the cost of the  commercial  center,  hotel and  parking  garage is
interest incurred during the construction  period of approximately  $114,000 and
$100,000 incurred in 1997 and 1996, respectively. Depreciation is computed using
predominantly  the  straight-line  method.  Estimated useful lives for financial
reporting purposes are as follows:

           Buildings                                           40 years
           Leasehold improvements                              15-20 years
           Furniture, fixtures and equipment                   5-7 years

     Costs of major improvements are capitalized,  while costs of normal repairs
and  maintenance  are  charged to expense as  incurred.  Portions  of  property,
furniture,  fixtures and equipment are pledged as collateral  for long-term debt
(See Note 5).

     f. Revenue  Recognition - In accordance with gaming industry practice,  the
Company recognizes as casino revenues the net win from gaming activities,  which
is the  difference  between gaming wins and losses.  Casino  revenues are net of
accruals for anticipated  payouts of progressive slot jackpots and certain table
games. Such anticipated jackpot payments are reflected as current liabilities in
the accompanying balance sheets. Revenues from food, beverage, entertainment and
the  gift  shop  are  recognized  at the time  the  related  service  or sale is
performed/made.

     g.  Promotional  Allowances - The retail value of food,  beverage and other
items provided on a complimentary basis to customers without charge are included
in gross  revenues and then deducted as  promotional  allowances.  The estimated
cost  of  providing  these   promotional   allowances  are  included  in  casino
departmental  expenses for the years ended  December 31, 1997,  1996 and 1995 as
follows:



<PAGE>

                                 1997               1996            1995
Food and Beverage            $3,392,000         $2,981,000       $1,693,000
Entertainment                   545,000            415,000                -
Gift Shop                        48,000             50,000           45,000
  Total                      $3,985,000         $3,446,000       $1,738,000

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

     i.  Advertising  -  Advertising  costs are  expensed  the  first  time such
advertisement appears. Total advertising costs (including direct mail marketing)
were approximately $1,497,000, $1,399,000 and $1,050,000 in 1997, 1996 and 1995,
respectively.

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

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

     l.  Reclassifications  - Certain prior year balances have been reclassified
to conform to current year presentation and have no impact on net income.


4. PROPERTY AND EQUIPMENT

         Building consists of the following as of December 31, 1997:

            Parking Garage                                   $ 2,969,000
            Commercial Center                                  2,994,000
            Plaza Building                                       372,000
                 Total:                                      $ 6,335,000

     Included in  Construction  in Progress are costs of  $9,210,000  associated
with the 260 room hotel under construction as of December 31, 1997.



<PAGE>
5. DEBT

     At December 31, 1997 and 1996, long-term debt consisted of the following:

<TABLE>
<CAPTION>
<S>                                                                        <C>                           <C>
a.     Northwest Bank and Trust Co. - Interest of
       9.25%; principal payment of $100,000 per
       month plus interest; due on demand not
       earlier than February 1998 and no later than
       October, 1998; collateralized by gaming
       equipment and guaranteed up to $1,600,000
       in 1996 and $1,100,000 in 1997 by affiliates
       of BRDC.                                                            $   1,100,000                 $ 2,300,000

b.     Sigma Note - Imputed interest of 8%;
       payment of $3,716 per month; for eighteen
       months; due in March 1998; collateralized by
       gaming equipment.                                                          11,000                      52,000

c.     Rock Island Bank Loan - Imputed interest of
       9.25%, payment of $17,806 per month; for
       19 months; due in October 1998;
       collateralized by certain business
       improvements.                                                             151,000                           -
                                                                               1,262,000                   2,352,000
       Less:  current portion                                               (  1,262,000)                 (1,245,000)
              Total long-term debt                                         $           -                 $ 1,107,000
</TABLE>


     The Company entered into a first mortgage  agreement with Rock Island Bank,
N.A.  for a loan of  $17,500,000  on June 23, 1997.  Security has been  provided
through a pledge of the expansion  project's assets;  including a first mortgage
on the hotel, parking garage, retail center and auxiliary dockside facilities, a
collateral  assignment  of the land  lease  and a pledge  of net  revenues  from
ongoing operations.  The loan will be for the period of ten years after the date
of the hotel opening. The loan will be interest bearing at 350 basis points over
the five-year treasury rate. At December 31, 1997 no debt had been drawn down on
this facility.

     The Company has also  entered into a second  mortgage  agreement on May 27,
1997 with Cement  Transportation  Corporation  ("CTC"),  a related party, in the
amount of $5,000,000.  Security has been provided through the second mortgage on
the future hotel, dockside facilities and retail space. The loan will be for the
period of five years.  The loan will be  interest  bearing at a rate of 12% over
the life of the loan. The agreement requires the Company to pay a minimum of 45%
of its net earnings (as defined) annually until the loan is repaid. In addition,
pursuant to the agreement,  no distributions  can be made to the members,  other
than those  payments to CTC to pay off this loan until such time as the CTC loan
is paid in full.  The  first  mortgage  agreement  with  Rock  Island  Bank also
prevents  greater than 45% of net earnings to be made in any one year in respect
to the second mortgage. At December 31, 1997 no debt had been drawn down on this
facility.





<PAGE>
6. CAPITAL LEASES

     In July 1997, the Company  entered into a two-year  capital lease agreement
to purchase  certain gaming equipment with a fair market value of $130,000 at an
interest rate of 8%. In October 1997, the Company  entered into a two-year lease
agreement to purchase  certain  operating  equipment with a fair market value of
$48,000 at an interest  rate of 8%. The future lease  payments  under the lease,
together  with  the  present  value  of the  lease  payments,  consisted  of the
following at December 31, 1997:


1998                                       $  96,000
1999                                          53,000
Thereafter                                         -
Minimum lease payments                       149,000
Less amounts representing
         interest                            (10,000)
                                            $139,000


7. OTHER ACCRUED LIABILITIES

   Accrued liabilities consist of the following as of December 31,:

                                                   1997             1996
   Accrued salaries, vacation and bonuses       $  717,000      $   481,000
   Accrued management fee - affiliates              81,000           70,000
   Accrued advertising - affiliate                 109,000                -
   Accrued property taxes                          269,000          479,000
   Token and chip liability                        199,000          221,000
   Other                                           648,000          252,000
     Total accrued liabilities                  $2,023,000      $ 1,503,000


8. RELATED PARTY TRANSACTIONS

     The Company purchased property from a related party as follows:

     In order to complete the  obligations of the  Development  Agreement  dated
June 17,  1997 with the City of  Bettendorf,  the  Company  purchased  the Plaza
Building  located at 1823 State  Street  from Green  Bridge  Company,  a related
party,  for $372,000.  These premises will be demolished at an estimated cost of
$180,000 including environmental remediation before December 31, 1999.

     The Company entered into a loan facility with a related party as follows:



<PAGE>
     The Company entered into a second  mortgage  agreement on May 27, 1997 with
"Cement  Transportation  Corporation" a related party, for a loan of $5,000,000.
Security has been provided through the future hotel,  dockside  facilities,  and
retail facility. The loan will be for the period of five years after the date of
the hotel opening. The loan will be interest bearing at 12% over the life of the
loan (see Note 5).

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

     a.  Land - The  Company  has  entered  into  a  long-term  operating  lease
agreement with BRDC. The lease is for an initial term of 10 years,  expiring May
2005,  with nine 10 year  options.  The  parties  have set the lease  payment at
$150,000 per month,  based on a negotiated  value.  The Company has an option to
purchase  the land during the initial term of the lease for its  appraised  fair
market value.

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

     c.  Equipment - The Company has entered  into a long-term  operating  lease
with Lady Luck Gaming Finance  Corporation to lease equipment.  The lease is for
an initial  term of 36 months,  expiring  April  1998,  with two 1 year  renewal
options. Effective January 1, 1998, the Company exercised its option to purchase
this equipment prior to the expiration of the lease for approximately  $712,000,
the fair market value as of December 31, 1997. The lease payment of $122,000 per
month was modified in June,  1996 via a written  agreement  between the parties.
Previously, the Company had been paying $100,000 per month.


9. COMMERCIAL CENTER DEVELOPMENT

     In October 1995, the Company completed construction of a 90,000 square foot
center.  The retail center will open for operations upon completion of the hotel
facilities.  The Company's plans for the center include retail,  restaurant, and
banquet facilities in connection with the development of the full-service hotel,
on the site  adjacent  to the  center.  As the  Company  executes  these  plans,
additional tenant and other construction  costs will be incurred,  the amount of
which depends on the specific plan.  Management intends to fund these costs from
operations.


10. LITIGATION

     The Company is party to various  litigation arising in the normal course of
business. Management is of the opinion that ultimate resolution of these matters
will not have a material  effect on the  financial  position  or the  results of
operations of the Company.





<PAGE>
11. COMMITMENTS AND CONTINGENCIES

     Lease  Commitments - Future minimum lease  payments for the land,  boat and
gaming equipment required under operating leases that have non-cancelable  lease
terms in excess of one year as of December 31, 1997, are as follows:

                           1998               4,391,000
                           1999               4,265,000
                           2000               4,224,000
                           2001               4,202,000
                           2002               4,202,000
                           Thereafter        74,564,000
                           Total            $95,848,000

     Management  intends to renew the boat lease for an  additional 10 years and
the land lease for an  additional  30 years,  these  renewal  options  have been
assumed in the above disclosure.


12. SUBSEQUENT EVENTS

     a. Effective  January 1, 1998,  the Company  entered into an agreement with
Lady Luck Gaming Finance  Corporation to purchase  equipment that had previously
been leased under an operating  lease.  The purchase price was based on the fair
market value of the equipment,  which was approximately $712,000 at December 31,
1997.

     b. On January  26, 1998 the Company  drew down  $1,250,000  from its second
mortgage agreement with Cement Transportation Corporation.

     c. On February 2, 1998 and February 13, 1998, the Company  received $45,000
and $215,000,  respectively in relation to additional tax incremental  financing
from the city.

     d. On February 20, 1998,  the Company drew down  $1,870,000  from its first
mortgage agreement with the Rock Island Bank.



<PAGE>
SIGNATURES

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

LADY LUCK GAMING CORPORATION


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

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

/s/ Andrew H. Tompkins                                            March 30, 1998
Andrew H. Tompkins
(Chairman of the Board, Principal Executive Officer
      and Director)

/s/ Alain Uboldi                                                  March 30, 1998
Alain Uboldi
(President, Chief Operating Officer
      and Director)

/s/ Lawrence P. Tombari                                           March 30, 1998
Lawrence P. Tombari
(Senior Vice President, Chief Financial Officer
      and Principal Financial Officer)

/s/ James D. Bowen                                                March 30, 1998
James D. Bowen
(Vice President Finance
      and Principal Accounting Officer)

/s/ Rory J. Reid                                                  March 30, 1998
Rory J. Reid
(Senior Vice President, General Counsel,
      Secretary and Director)

/s/ Minxin Pei                                                    March 30, 1998
Minxin Pei
(Director)

/s/ Anthony J. Drexel Biddle III                                  March 30, 1998
Anthony J. Drexel Biddle III
(Director)

/s/ James A. Bilbray                                              March 30, 1998
James A. Bilbray
(Director)

/s/ Charles Brewer                                                March 30, 1998
Charles Brewer
(Director)