LADY LUCK BETTENDORF, L.C.

                        CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1998 AND 1997
             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. and subsidiary  (the  "Company")  (an Iowa limited  liability
company)  as of  December  31,  1998  and  1997,  and the  related  consolidated
statements of operations,  changes in members' equity and cash flows for each of
the  three  years  in the  period  ended  December  31,  1998.  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
subsidiary as of December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three  years in the period  ended  December
31, 1998, in conformity with generally accepted accounting principles.




ARTHUR ANDERSEN LLP

Las Vegas, Nevada
January 29, 1999



<PAGE>

                           LADY LUCK BETTENDORF, L.C.
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1998 AND 1997


                                     ASSETS
                                                        1998          1997
                                                    -----------   -----------
CURRENT ASSETS:
  Cash and cash equivalents.....................    $ 5,620,000   $ 3,839,000
  Accounts receivable, net of allowance for
    doubtful accounts of $103,000 and                   246,000        27,000
    $141,000, respectively..................
  Inventories...............................            432,000       105,000
  Prepaid expenses and other current assets.            572,000       665,000
                                                    -----------   -----------
    Total current assets....................          6,870,000     4,636,000
                                                    -----------   -----------

PROPERTY AND EQUIPMENT:
  Buildings.................................         38,818,000     6,335,000
  Leasehold improvements....................          5,358,000     4,755,000
  Furniture, fixtures and equipment.........         13,960,000     8,178,000
                                                    -----------   -----------
                                                     58,136,000    19,268,000
  Less: accumulated depreciation............         (5,474,000)   (3,311,000)
                                                    -----------   -----------
                                                     52,662,000    15,957,000
  Construction in progress..................             65,000     9,502,000
                                                    -----------   -----------
    Total property and equipment, net.......         52,727,000    25,459,000
                                                    -----------   -----------

  Other assets..............................            750,000       854,000
                                                    -----------   -----------

TOTAL ASSETS................................        $60,347,000   $30,949,000
                                                    ===========   ===========





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




<PAGE>


                           LADY LUCK BETTENDORF, L.C.
                     CONSOLIDATED BALANCE SHEETS (continued)
                        AS OF DECEMBER 31, 1998 AND 1997


                         LIABILITIES AND MEMBERS' EQUITY
                                                        1998            1997
                                                     -----------     -----------
CURRENT LIABILITIES:
  Current portion of capital leases ............     $   124,000     $    91,000
  Current portion of long-term debt ............       2,390,000       1,262,000
  Accounts payable .............................       1,058,000         481,000
  Accounts payable-affiliates ..................         187,000         707,000
  Construction and retention payables ..........            --         3,102,000
  Accrued gaming taxes .........................         318,000         723,000
  Accrued progressive and slot club      
    activities..................................         861,000         694,000
  Other accrued liabilities ....................       3,216,000       1,887,000
                                                     -----------     -----------
    Total current liabilities ..................       8,154,000       8,947,000

COMMITMENTS AND CONTINGENCIES

  Long-term capital leases, less current 
    portion.....................................         290,000          48,000
  Long-term debt, less current portion .........      23,080,000       3,329,000
                                                     -----------     -----------
    Total liabilities ..........................      31,524,000      12,324,000
                                                     -----------     -----------

Members' equity ................................      28,823,000      18,625,000
                                                     -----------     -----------

TOTAL LIABILITIES AND MEMBERS' EQUITY ..........     $60,347,000     $30,949,000
                                                     ===========     ===========





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


<PAGE>


                           LADY LUCK BETTENDORF, L.C.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


                                       1998            1997            1996
                                   ------------    ------------    ------------
REVENUES:
  Casino ......................... $ 80,916,000    $ 69,338,000    $ 62,202,000
  Hotel ..........................    1,210,000              --              --
  Food and beverage ..............    6,221,000       5,470,000       5,680,000
  Other ..........................    1,095,000         883,000         664,000
                                   ------------    ------------    ------------
    Gross revenues ...............   89,442,000      75,691,000      68,546,000
  Less: promotional allowances ...   (4,934,000)     (4,079,000)     (3,344,000)
                                   ------------    ------------    ------------
    Net revenues .................   84,508,000      71,612,000      65,202,000
                                   ------------    ------------    ------------

COSTS AND EXPENSES:
  Casino .........................   21,525,000      18,343,000      16,080,000
  Hotel ..........................      762,000              --              --
  Food and beverage ..............    1,932,000       1,537,000       2,413,000
  Gaming and admission taxes .....   20,081,000      18,023,000      15,731,000
  Management fees - affiliates ...    2,292,000       1,569,000       1,117,000
  Marine operations ..............    2,498,000       2,372,000       2,340,000
  Selling, general and 
     administrative...............   15,543,000      15,145,000      12,766,000
  Rental expenses - affiliates ...    4,202,000       5,819,000       6,222,000
  Other expenses .................      724,000         519,000         945,000
  Depreciation and amortization ..    2,369,000       1,489,000       1,156,000
  Pre-opening expenses ...........    1,157,000              --              --
                                   ------------    ------------    ------------
    Total costs and expenses .....   73,085,000      64,816,000      58,770,000
                                   ------------    ------------    ------------
    Operating income .............   11,423,000       6,796,000       6,432,000
                                   ------------    ------------    ------------

Other income (expense):
  Interest income ................      142,000         139,000          51,000
  Interest expense, net ..........   (1,052,000)        (81,000)       (301,000)
  Loss on sale of assets .........     (315,000)             --              --
                                   ------------    ------------    ------------

NET INCOME ....................... $ 10,198,000    $  6,854,000    $  6,182,000
                                   ============    ============    ============


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


<PAGE>


                           LADY LUCK BETTENDORF, L.C.
              CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



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

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

Net income............................   5,099,000    5,099,000   10,198,000
                                       -----------  -----------  -----------

Balance at December 31, 1998.......... $14,412,000  $14,411,000  $28,823,000
                                       ===========  ===========  ===========


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

<PAGE>


                           LADY LUCK BETTENDORF, L.C.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



                                            1998         1997          1996
                                        -----------  ------------   -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income........................... $10,198,000  $  6,854,000   $ 6,182,000
  Adjustments to reconcile net
    income to net cash provided by
    operating activities:
    Depreciation and amortization......   2,369,000     1,489,000     1,156,000
    Loss on sale of assets.............     315,000             -             -
    Pre-opening expenses...............   1,157,000             -             -
    (Increase) decrease in operating
     assets:
      Accounts receivable, net.........    (219,000)      (17,000)       96,000
      Inventories......................    (327,000)       20,000       (50,000)
      Prepaid expenses and other         
        current assets.................      93,000        16,000      (289,000)
    Increase (decrease) in operating
     liabilities:
      Accounts payable (including           
       affiliates).....................      57,000      (699,000)      694,000
      Accrued gaming taxes.............    (405,000)      113,000        76,000
      Accrued progressive and slot       
       club activities.................     167,000       104,000        14,000
      Other accrued liabilities........   1,329,000       727,000      (313,000)
                                        -----------  ------------   -----------
Net cash provided by operating          
  activities...........................  14,734,000     8,607,000     7,566,000
                                        -----------  ------------   -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Property and equipment additions..... (28,354,000)  (14,335,000)   (2,089,000)
  (Decrease) increase in construction
    and retention payables.............  (3,102,000)    3,102,000             -
  Pre-opening costs....................  (1,157,000)            -             -
  Other assets, net....................      58,000      (854,000)            -
                                        -----------  ------------   -----------
Net cash used in investing 
   activities.......................... (32,555,000)  (12,087,000)   (2,089,000)
                                        -----------  ------------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from borrowings.............  23,049,000     3,893,000       645,000
  Payments on debt and capital         
    leases.............................  (3,447,000)   (1,693,000)   (3,572,000)
                                        -----------  ------------   -----------
Net cash provided by (used in)         
     financing activities..............  19,602,000     2,200,000    (2,927,000)
                                        -----------  ------------   ----------- 


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

<PAGE>


                           LADY LUCK BETTENDORF, L.C.
               CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



                                            1998         1997          1996
                                        -----------  ------------   -----------
NET INCREASE IN CASH AND CASH
    EQUIVALENTS........................   1,781,000    (1,280,000)    2,550,000
CASH AND CASH EQUIVALENTS:
  Beginning of period..................   3,839,000     5,119,000     2,569,000
                                        ----------   ------------   -----------
  End of period........................  $5,620,000  $  3,839,000   $ 5,119,000
                                        ===========  ============   ===========

SUPPLEMENTAL DISCLOSURE:
  Cash paid for interest net of
    amounts capitalized of $505,000,
    $114,000, and $100,000 for 1998,   
    1997 and 1996, respectively........  $  608,000   $   81,000    $  301,000
                                        ===========   ==========    ==========

Supplemental Schedule of Non-Cash Investing and Financing Activities:

The Company entered into several  contracts with  manufacturers for the purchase
of slot machines and other  equipment  which totaled  approximately  $1,552,000,
$177,000  and $67,000  for the years ended  December  31,  1998,  1997 and 1996,
respectively.

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 financial
                                  statements.

<PAGE>


                           LADY LUCK BETTENDORF, L.C.
                   NOTES TO CONSOLDIATED FINANCIAL STATEMENTS
                                DECEMBER 31, 1998


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.  Under the terms of the
Articles of Organization,  the Company's term will expire in 2065. BRDC and LLQC
each contributed $3,000,000 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.
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.  The Board of Directors of LLBMC is comprised of
the managers of the Company.

      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  operations  consist of a 30,000  square foot casino with
approximately  50 table and card  games and 1,157  slot  machines  within  three
floors of a gaming vessel,  which is  approximately  300 feet by 100 feet, a 256
room hotel, buffet style restaurant,  gift shop,  commercial center, sports bar,
500 space parking garage and a land based entertainment area for parties, shows,
and special  events.  The first floor has a Las Vegas casino  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'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 has  substantially  completed a $39,500,000  expansion project
pursuant to its master plan. During 1998, the Company completed a 256 room hotel
and an overpass that allows vehicles to cross over active railroad  tracks.  The
Company  completed a 500 car parking garage in 1997.  Financing for this project
was 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,  a related party, for $5,000,000  signed on June 23, 1997, of which
$1,250,000 was drawn and fully repaid during 1998,  and a development  agreement
signed on June 17, 1997 with the City of Bettendorf which secured  $7,500,000 of
tax incremental  financing.  The balance of the expansion  project has been paid
from the Company's cash on hand.  The planned  marina remains under  development
and is not expected to require additional financing to pay for its completion.

      During the year ended  December 31, 1998,  approximately  $17,500,000  was
drawn from the Rock Island Bank, N. A. mortgage and the Company repaid  $200,000
of principal.  Additionally,  $7,500,000 of tax  incremental  financing has been
funded by the City of Bettendorf through a development  agreement dated June 17,
1997.




<PAGE>


AGREEMENTS

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

      The Company  entered into an agreement,  which was amended in August 1998,
with the City of Bettendorf (the "City"),  a municipal  corporation of the State
of Iowa, for the purpose of developing a gaming operation in the City. In return
for certain conditions, the City endorsed and supported the Company in obtaining
an Iowa gaming license.  The Company is in compliance with the conditions of the
agreement and related amendment 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  commercial  center  improvements  so that the
     commercial  center would be opened for  business on or before  September 1,
     1996 (See Note 8). A portion of the commercial center was opened in October
     1995 for the holiday season.  As part of the hotel project discussed above,
     the Company has opened approximately 25,000 square feet of banquet, kitchen
     and convention space and anticipates  utilizing the remaining 66,000 square
     feet for a restaurant, office space and other facilities.

c.   Under the  original  agreement,  which was in effect until August 31, 1998,
     the Company  paid a  development  fee to the City of 2% on  adjusted  gross
     receipts  exceeding  $35,000,000 but not to exceed  $44,000,000 during each
     twelve month period starting on the day gaming operations began,  April 21,
     1995. The maximum revenues subject to the 2% fee were $9,000,000  resulting
     in maximum  percentage  based fees of $180,000.  Additionally,  the Company
     paid a fee equal to $.50 per passenger under the original agreement.

d.   Under the amended agreement, effective as of September 1, 1998, the Company
     is to pay weekly, a development fee, in lieu of the previous 2% of adjusted
     gross receipts and $.50 fee per passenger,  to the City of Bettendorf.  The
     new  development  fee equals  1.65% of  adjusted  gross  receipts  with the
     minimum annual fee of $1,020,000. The minimum annual fee shall terminate at
     the  Company's  option for any year  during  which any of  certain  defined
     conditions  subsequently  occur  which  result in a  decrease  of  adjusted
     receipts  to  less  than  $64,000,000.  The  minimum  annual  fee  was  not
     terminated as of December 31, 1998.

e.   If the  Company so elects to  terminate  the minimum  annual fee,  the City
     shall have the  corresponding  option to elect to  receive  for such year a
     Development Fee as computed under the original agreement as noted above.

The Company has accrued  City gaming fees of $26,000 and $165,000 as of December
31, 1998 and 1997, respectively.


<PAGE>

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

      The Company  entered  into an  agreement  with the City 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 includes the  construction of a 256 room waterfront  hotel, a
railroad overpass for vehicular access, a downtown riverfront parking center for
500 cars,  improved area for public parking and a marina with seasonal transient
docking facilities. As part of this agreement, the City issued $9,500,000 in tax
incremental  financing bonds (the "TIF Bonds"),  $7,500,000 of which was used by
the Company to construct the overpass, parking garage, related site improvements
and pay for disruption damages caused by construction of the overpass. To enable
financing of the City's obligations,  the Company will pay incremental  property
taxes on the  developed  property  assessed  at a  valuation  of not  less  than
$32,000,000 until the TIF Bonds mature. In the event that the taxes generated by
the project and other qualifying  developments in the redevelopment  district do
not fund the repayment of the total TIF Bonds prior to their scheduled maturity,
the Company will pay the City $0.25 per person for each person entering the boat
until  the  remaining  balance  has been  repaid.  The  City  agreed  to  accept
conveyance of the overpass from Lady Luck upon its  completion.  The cost of the
overpass,  parking  garage,  site  improvements  and disruption  damages did not
exceed  the  financing  from  the City of  Bettendorf.  Costs  incurred  through
December 31, 1998 related to this project are $7,400,000.

      In the event that the  construction of the marina is not completed  before
April 1,  1999,  unless  completion  is  restricted  beyond  the  control of the
Company,  the Company will pay the City $100,000 per month until the project has
been completed.  As of December 31,1998, the Company has incurred  approximately
$65,000 of costs related to the marina and anticipates that, if constructed, the
marina will cost an additional  amount not in excess of $1,000,000.  The Company
is currently  pursuing the necessary  licenses for development of the marina. As
approvals for the licenses are pending environmental evaluations and flood plain
analyses,  the continued  development of the marina is beyond the control of the
Company.

      Pursuant to the  agreement,  the Company has paid an agreed upon amount of
$200,000 for damages which have been awarded to certain businesses  disrupted by
the overpass construction.

     In addition,  the Company is responsible in 1999 for  demolishing the Plaza
building at 1823 State Street and  preparing  the site for donation  back to the
City. The Company estimates this process will cost $200,000.

Riverbend Regional Authority "Operator's Contract dated August 11, 1994"

      The Company  entered into an agreement,  which was amended in August 1998,
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.


<PAGE>

b.   Under the  original  agreement,  which was in effect until August 31, 1998,
     the Company  paid 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 were paid weekly.

     If the  adjusted  gross gaming  receipts  exceeded  $44,000,000  during any
     twelve  month  period  starting  on the day gaming  operations  began,  the
     Company was required to pay RRA 2% of any such excess. The Company exceeded
     this  level  in  1997  and  1996,  and  began  to  make  these   additional
     contributions weekly until April 21, 1998 and 1997, respectively.

c.   Under the amended agreement, commencing on September 1, 1998 and continuing
     for the term of the  contract,  the Company shall pay a fee to RRA equal to
     4.1%  of the  adjusted  gross  receipts.  In  order  to  assist  RRA in its
     budgeting  and grant  process,  subject to the  following  conditions,  the
     Company is to pay the RRA a minimum  annual fee of  $3,000,000  (the "Floor
     Amount").  The Floor  Amount  will be  reconciled  on an annual  basis from
     September  1 through  August 31 of each  year with any  deficiency  due and
     payable on September 10, with the  deficiency  calculated as the difference
     between the Floor Amount and the  accumulated  weekly  percentage  fee. The
     Floor Amount shall be  automatically  terminated  for any year during which
     any of certain  defined  conditions  subsequently  occur which  result in a
     decrease of adjusted gross receipts to less than $64,000,000.

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

The Company  has accrued RRA gaming fees of $50,000 and  $398,000 as of December
31, 1998 and 1997, respectively.

Lady Luck Casino, Inc. "Casino Management Agreement dated September 30, 1994"

      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 the  agreement  was  amended  and  Lady  Luck  Gaming
Corporation  ("LLGC")  (the  "Management   Company"),  a  Delaware  corporation,
replaced LLCI as the manager of the casino, effective January 1, 1996. Andrew H.
Tompkins,  International Marco Polo Services, Inc. ("IMPSI"),  formerly known as
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 IMPSI,
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 $6,379,000, $2,328,000 and $1,885,000 for the years ended December
31, 1998,  1997 and 1996,  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
consolidated  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  casino  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  revenues  (as  defined),  will be paid  to the  Management  Company.
     Effective  June 1996,  the management fee was reduced by $37,500 per month.
     The  management  fees incurred  during the periods ended December 31, 1998,
     1997 and 1996 were  approximately  $2,292,000,  $1,569,000 and  $1,117,000,
     respectively.  The outstanding  and unpaid  management fees at December 31,
     1998 and 1997, were approximately $196,000 and $81,000, 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, 1998 and 1997,  the casino
     bank  account had a book  balance of  approximately  $76,000 and  $656,000,
     respectively.  At December  31,  1998,  approximately  $706,000 of cash was
     transferred to the casino in anticipation of heightened  casino activity at
     year-end.  This cash was transferred back to the bank immediately after the
     year-end holiday. LLGC has indicated that this transaction does not violate
     the provisions of the Management  Agreement.  Accordingly,  the Company has
     constructively  maintained $500,000 of cash for working capital purposes at
     December 31, 1998.

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:

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

      This requirement has been  constructively  met as the Company has made and
      paid for  replacements  and  capital  improvements  from the  casino  bank
      account,  in excess of the  approximately  $3,070,000 and $2,080,000  that
      were required to be funded as of December 31, 1998 and 1997, respectively.


<PAGE>


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 the State of Iowa.

            The Company  receives a  significant  amount of their  revenues from
      patrons within 50 miles of the property.  If economic  conditions in these
      areas  were to decline  materially  or  additional  casino  licenses  were
      awarded in these locations,  the Company's  results of operations could be
      materially affected.


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 an 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.
          Depreciation  is computed using 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 4).

     f.   Revenue Recognition - In accordance with gaming industry practice, the
          Company  recognizes  casino  revenues  as  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 the hotel,  convention and
          banquet facilities,  food,  beverage,  entertainment and the gift shop
          are   recognized   at  the  time  the  related   service  or  sale  is
          performed/made.

<PAGE>

     g.   Promotional  Allowances - The retail value of food, beverage and other
          items provided on a complimentary basis to customers without charge is
          included  in  gross   revenues  and  then   deducted  as   promotional
          allowances.   The  estimated  cost  of  providing  these   promotional
          allowances is included in casino  departmental  expenses for the years
          ended December 31, 1998, 1997 and 1996 as follows:

                                            1998          1997          1996
                                         ----------    ----------    ----------
            Hotel...................     $  276,000    $        -    $        -
            Food and beverage.......      4,279,000     3,392,000     2,981,000
            Other...................        563,000       593,000       465,000
                                         ----------    ----------     ---------
                 Total..............     $5,118,000    $3,985,000    $3,446,000
                                         ==========    ==========    ==========

     h.   Slot Patron  Incentive  Estimates - The Company provides slot patrons'
          incentives  based on the dollar  amount of play on slot  machines.  An
          accrual has been  established  based on an estimate of the outstanding
          value of these  incentives,  utilizing  the age and prior  history  of
          redemptions.  This amount is reflected  as a current  liability in 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 $1,380,000,  $1,497,000,  and $1,399,000
          in 1998, 1997 and 1996, 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 charged to
          expense in the period each project commenced operations.  Statement of
          Position  98-5,  "Reporting on the Costs of Start-Up  Activities,"  is
          effective  for fiscal  years  beginning  after  December  15, 1998 and
          requires  that all  pre-opening/start-up  activities  be  expensed  as
          incurred. The Company has adopted this Statement of Position effective
          January 1, 1999 and will expense future pre-opening costs as incurred.

     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.


<PAGE>

4.    DEBT

      At December 31, 1998 and 1997, long-term debt consisted of the following:

                                                           1998         1997
                                                       -----------  -----------
a.    Atronic Casino  Technology LTD, LLC - $521,000
      non interest bearing note; principal payments
      of $43,721 per month; due in September 1999;  
      collateralized  by gaming equipment............. $   363,000  $         -

b.    Aristocrat, Inc. - $224,000 non interest
      bearing note; principal payments of $14,529 per
      month; for twelve months; due in July  1999;
      collateralized  by  gaming equipment............      94,000            -

c.    WMS Gaming, Inc. - $429,000 non interest
      bearing note; principal payments of $37,508 per
      month; due in June 1999; collateralized by
      gaming equipment................................     205,000            -

d.    Rock Island Bank, N. A. - $17,500,000 loan;
      interest at 7.93% per annum which re-sets 
      after 5 years; principal and interest payments
      of $211,729 per month; due October  2008;
      collateralized  by certain land improvements
      including the hotel.............................  17,308,000            -

e.    Northwest Bank and Trust Co. - $3,200,000  loan;
      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 $1,100,000 by affiliates
      of BRDC.........................................           -    1,100,000

f.    Sigma Note - $87,000 note; imputed interest of
      8%; payment of $3,716 per month for eighteen
      months; due in March 1998; collateralized by
      gaming equipment................................           -       11,000

g.    Rock Island Bank Loan - $312,000  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

h.    Tax Incremental Financing Payable - Interest
      of approximately 6.7%; payments made through
      incremental property taxes to the City of
      Bettendorf until paid in full, maturity 
      no later than 2011..............................   7,500,000    3,329,000

                                                        25,470,000    4,591,000
                  Less: current portion                 (2,390,000)  (1,262,000)
                                                       -----------  -----------
                  Total long-term debt                 $23,080,000  $ 3,329,000
                                                       ===========  ===========
<PAGE>

      The Company 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 was provided  through the second mortgage on the hotel,
future  dockside  retail  facilities  and commercial  space.  The loan was for a
period of five years.  The loan was  interest  bearing at a rate of 12% over the
life of the loan. The agreement  required 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 could 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.  The Company drew down and fully  repaid  approximately
$1,250,000 in 1998.

      The  mortgage  agreement  with Rock  Island  Bank,  N. A. for  $17,500,000
provides for, among other things,  restrictions on the Company's ability to make
payments  on the CTC debt in excess  of 45% of the  Company's  operating  income
after  interest  expense (as determined in accordance  with  generally  accepted
accounting  principles).  Additionally,  upon  payment  in full of the CTC  debt
(which occurred in 1998), the Company may not declare,  make or become obligated
to make any  distribution  (except for payments  for services or goods  actually
provided)  to any of its  Members  in excess of 45% of the  Company's  operating
income after  interest  expense (as  determined  in  accordance  with  generally
accepted accounting principles).

      Scheduled  maturities  of  long-term  debt  for  each of the  years  ended
December 31, are as follows:

                  1999.............................   $ 2,390,000
                  2000.............................     1,858,000
                  2001.............................     2,006,000
                  2002.............................     2,162,000
                  2003.............................     2,324,000
                  Thereafter.......................    14,730,000
                                                      -----------
                        Total......................   $25,470,000
                                                      ===========

<PAGE>

5.    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%. In September  1998, the Company  entered into
two five-year capital lease agreements for certain operating equipment with fair
market  values  of  $284,000  and  $90,000  at  interest  rates  of 8% and  10%,
respectively.  The future lease  payments  under the leases,  together  with the
present value of the lease payments,  consisted of the following at December 31,
1998:

         1999.................................    $  138,000
         2000.................................        86,000
         2001.................................        87,000
         2002.................................        86,000
         2003.................................        65,000
                                                  ----------
         Minimum lease payments................      462,000
         Less amounts representing interest....      (48,000)
                                                  ----------
                                                  $  414,000
                                                  ==========

6.    OTHER ACCRUED LIABILITIES

      Other accrued liabilities consist of the following as of December 31:

                                                        1998          1997
                                                    ----------    ----------
      Accrued salaries, vacation and bonuses....    $  800,000    $  717,000
      Accrued management fees - affiliates......       196,000        81,000
      Accrued advertising - affiliates..........       111,000       109,000
      Accrued property taxes....................       260,000       269,000
      Other.....................................     1,849,000       711,000
                                                    ----------    ----------
         Total other accrued liabilities........    $3,216,000    $1,887,000
                                                    ==========    ==========


7.    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 are required to be demolished before December 31, 1999,
at an  estimated  cost of $200,000,  including  environmental  remediation.  The
Company entered into an agreement with a related party to purchase slot machines
totaling approximately $51,000 in 1998.



<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 was provided through the hotel,  future dockside retail  facilities and
commercial  facility.  The  loan was for a period  of five  years.  The loan was
interest bearing at 12% over the life of the loan (see Note 4). The Company drew
down and fully repaid approximately $1,250,000 in 1998.

      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.  The Company has not executed this option as
      of December 31, 1998.

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, expiring in May
      2000,  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  lease term for its appraised  fair market  value.  The
      Company has not executed this option as of December 31, 1998.

c.    Equipment - The Company had entered into a long-term  operating lease with
      Lady Luck Gaming Finance Corporation to lease equipment. The lease was 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 a
      negotiated amount of $712,000.

d.    Parking - The  Company is in  negotiation  with Green  Bridge  Company,  a
      related  party,  to  secure  additional  leased  land for the  purpose  of
      providing parking for customers and employees.  It is anticipated that the
      value  of this  additional  parking  will not  exceed  $20,000  per  month
      retroactive to September 1, 1998. The term of this lease is anticipated to
      be month-to-month.


8.    COMMERCIAL CENTER DEVELOPMENT

      In October 1995,  the Company  completed  construction  of a 91,000 square
foot commercial  center.  Effective August 1998, the Company  completed a 25,000
square foot  banquet,  kitchen and  convention  facility  within the  commercial
center.  The Company  anticipates  utilizing the remaining  square footage for a
restaurant, office space and other facilities. It is anticipated that the office
space will be  completed  in April  1999 and the  restaurant  by Fall 1999.  The
Company anticipates hiring a consultant to locate other tenants;  utilization of
the  remaining  space is  contingent  upon  the  determination  of the  specific
tenants.  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.



<PAGE>


9.    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 adverse effect on the financial position or the results
of operations of the Company.

10.   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, 1998, are as follows:

                  1999.............................   $ 4,347,000
                  2000.............................     4,246,000
                  2001.............................     4,215,000
                  2002.............................     4,204,000
                  2003.............................     4,203,000
                  Thereafter.......................    71,163,000
                                                      -----------
                        Total......................   $92,378,000
                                                      ===========

     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.