<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549


                                   FORM 10-Q


[ X ]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
                                       
                                       
                      FOR THE PERIOD ENDED JUNE 30, 1997


Commission File Number 0-22334


                      LODGENET ENTERTAINMENT CORPORATION
            -----------------------------------------------------
            (Exact name of registrant as specified in its charter)
                                       
                                       
                DELAWARE                                     46-0371161
     -------------------------------                ----------------------------
     (State or other jurisdiction of                (I.R.S. Employer
     incorporation or organization)                       Identification Number)


              808 WEST AVENUE NORTH, SIOUX FALLS, SOUTH DAKOTA 57104
     --------------------------------------------------------------------------
     (Address of Principal Executive  Offices)                 (ZIP code)


                                (605)  330-1330
                        -------------------------------
                        (Registrant's telephone number,
                             including area code)


                               (not applicable)
               -------------------------------------------------
                       (Former name, former address and
               former fiscal year, if changed since last report)



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

     At  August 4, 1997, there were 11,217,201 shares outstanding of the
Registrant's common stock, $0.01 par value.



THIS REPORT CONTAINS A TOTAL OF 20 PAGES, EXCLUDING EXHIBITS. THE EXHIBIT 
INDEX APPEARS ON PAGE 19.



<PAGE>

                      LODGENET ENTERTAINMENT CORPORATION

                                   FORM 10-Q
                                     INDEX
<TABLE>

                                                                                        Page
                                                                                         No.
                                                                                        ----

PART I.  FINANCIAL INFORMATION

<S>                                                                                     <C>
Item 1 -- Financial Statements:
  Consolidated Balance Sheets as of  December 31, 1996 and June 30, 1997 (Unaudited)......3
  Consolidated Statements of Operations (Unaudited) for
     the Three and Six Months Ended June 30, 1996 and 1997................................4
  Consolidated Statements of Cash Flows (Unaudited) for
     the Six Months Ended June 30, 1996 and 1997..........................................5
  Notes to Consolidated Financial Statements..............................................6
Item 2 -- Management's Discussion and Analysis of the Results of Operations...............8

PART II.  OTHER INFORMATION

Item 1 -- Legal Proceedings..............................................................19
Item 2 -- Changes in Securities..........................................................19
Item 3 -- Defaults Upon Senior Securities................................................19
Item 4 -- Submission of Matters to a Vote of Security Holders............................19
Item 5 -- Other Information..............................................................19
Item 6 -- Exhibits and Reports on Form 8-K...............................................19

SIGNATURES...............................................................................20

</TABLE>

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS -- CERTAIN STATEMENTS IN 
THIS QUARTERLY REPORT ON FORM 10-Q CONSTITUTE "FORWARD-LOOKING STATEMENTS" 
WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE 
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.  WHEN USED IN THIS QUARTERLY 
REPORT, THE WORDS "EXPECTS," "ANTICIPATES," "ESTIMATES," "BELIEVES," "NO 
ASSURANCE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH 
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND 
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE THE COMPANY'S 
ACTUAL PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE 
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH 
FORWARD-LOOKING STATEMENTS.  IN ADDITION TO THE RISKS AND UNCERTAINTIES 
DISCUSSED IN THIS QUARTERLY REPORT, SUCH FACTORS INCLUDE, AMONG OTHERS, THE 
FOLLOWING:  THE IMPACT OF COMPETITION AND CHANGES TO THE COMPETITIVE 
ENVIRONMENT FOR THE COMPANY'S PRODUCTS AND SERVICES, CHANGES IN TECHNOLOGY, 
RELIANCE ON STRATEGIC PARTNERS, UNCERTAINTY OF LITIGATION, CHANGES IN 
GOVERNMENT REGULATION AND OTHER FACTORS DETAILED,  FROM TIME TO TIME, IN THE 
COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.  THESE 
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF THIS QUARTERLY 
REPORT.  THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO 
RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS 
CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH 
REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH 
ANY SUCH STATEMENT IS BASED.

_______
  As used herein (unless the context otherwise requires) "LodgeNet",  "the
Company" and/or "the Registrant" means LodgeNet Entertainment Corporation and
its majority-owned subsidiaries.


                                       2
<PAGE>

                        PART I -- FINANCIAL INFORMATION
                                       
                      LODGENET ENTERTAINMENT CORPORATION
                          CONSOLIDATED BALANCE SHEETS
                         (Dollar amounts in thousands)



                                                     December 31,     June 30,
                                                        1996            1997
                                                     -----------     -----------
                      Assets                                         (Unaudited)
Current assets:
  Cash and cash equivalents                           $ 86,177         $ 34,436
  Accounts receivable, net of allowance for 
   doubtful accounts                                    18,428           21,470
  Prepaid expenses and other                             1,935            6,481
                                                      --------         --------
     Total current assets                              106,540           62,387

Property and equipment, net                            164,157          193,616
Debt issuance costs, net of accumulated amortization     8,509            8,238
Other assets, net                                          562            4,558
                                                      --------         --------
                                                      $279,768         $268,799
                                                      --------         --------
                                                      --------         --------

        Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable                                    $ 16,775         $ 15,649
  Current portion of long-term debt                        425              567
  Accrued expenses                                       4,596            5,912
                                                      --------         --------
                                                        21,796           22,128

Deferred revenue                                         2,956            3,750
Long-term debt                                         179,233          179,454
Minority interest in consolidated subsidiary               231              155
                                                      --------         --------
     Total liabilities                                 204,216          205,487
                                                      --------         --------

Stockholders' equity:
  Common stock, $0.01 par value, 20 million shares 
   authorized; 11,125,369 shares outstanding at 
   December 31, 1996 and 11,213,437 shares 
   outstanding at June 30, 1997                            111              112
  Additional paid-in capital                           120,539          120,669
  Accumulated deficit                                  (45,098)         (57,469)
                                                      --------         --------
     Total stockholders' equity                         75,552           63,312
                                                      --------         --------
                                                      $279,768         $268,799
                                                      --------         --------
                                                      --------         --------







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

                                       3
<PAGE>

                      LODGENET ENTERTAINMENT CORPORATION
               CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
               (Amounts, except per share amounts, in thousands)


<TABLE>

                                                 Three Months Ended          Six Months Ended
                                                       June 30,                  June 30,
                                                --------------------       --------------------
                                                  1996         1997         1996         1997
                                                -------      -------       -------     --------
<S>                                             <C>          <C>           <C>         <C>
Revenue:
 Guest Pay                                      $19,979      $28,119       $37,561     $ 53,686
 Free-to-guest                                    2,046        2,105         4,191        4,271
 Other                                            1,081        2,908         1,722        4,831
                                                -------      -------       -------     --------
   Total revenue                                 23,106       33,132        43,474       62,788
                                                -------      -------       -------     --------

Direct costs:
 Guest Pay                                        7,921       10,604        14,760       20,330
 Free-to-guest                                    1,581        1,628         3,265        3,363
 Other                                              824        2,106         1,415        3,462
                                                -------      -------       -------     --------
   Total direct costs                            10,326       14,338        19,440       27,155
                                                -------      -------       -------     --------
Gross profit                                     12,780       18,794        24,034       35,633
                                                -------      -------       -------     --------

Operating expenses:
 Guest Pay operations                             3,575        5,006         6,738        9,699
 Selling, general and administrative              3,363        4,727         6,212        9,783
 Depreciation and amortization                    7,157       10,495        13,330       20,190
                                                -------      -------       -------     --------
   Total operating expenses                      14,095       20,228        26,280       39,672
                                                -------      -------       -------     --------

Operating loss                                   (1,315)      (1,434)       (2,246)      (4,039)
Interest expense, net                             2,078        4,302         4,000        8,366
                                                -------      -------       -------     --------

Loss before income taxes                         (3,393)      (5,736)       (6,246)     (12,405)
Provision for income taxes                            2           20            22           30
                                                -------      -------       -------     --------

Net loss                                        $(3,395)     $(5,756)      $(6,268)    $(12,435)
                                                -------      -------       -------     --------
                                                -------      -------       -------     --------

Net loss per common share                       $ (0.38)     $ (0.51)      $ (0.77)    $  (1.10)
                                                -------      -------       -------     --------
                                                -------      -------       -------     --------
Weighted average shares                           8,856       11,262         8,131       11,263
                                                -------      -------       -------     --------
                                                -------      -------       -------     --------
</TABLE>





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


                                       4
<PAGE>
                        LODGENET ENTERTAINMENT CORPORATION
                CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
                          (Dollar amounts in thousands)


                                                            Six Months Ended
                                                                 June 30,
                                                         ----------------------
                                                           1996         1997
                                                         --------      --------
Operating activities:
 Net loss                                                $ (6,268)     $(12,435)
 Adjustments to reconcile net loss to net cash
 provided by operating activities:
   Depreciation and amortization                           13,330        20,190
   Minority interest                                         -              (76)
   Change in current assets and liabilities:
     Accounts receivable                                   (3,876)       (2,990)
     Prepaid expenses and other                              (709)       (4,546)
     Accounts payable                                       2,011        (1,239)
     Accrued expenses and deferred revenue                  1,882         2,110
     Other                                                   -             (150)
                                                         --------      --------
Net cash provided by operating activities                   6,370           864
                                                         --------      --------

Investing activities:
 Property and equipment additions                         (41,743)      (48,417)
 Purchase of Cable TV operation                              -           (4,562)
                                                         --------      --------
                                                          (41,743)      (52,979)
                                                         --------      --------

Financing activities:
 Proceeds from long-term debt                                 650           509
 Debt issuance costs                                       (1,169)         -
 Repayments of long-term debt                                 (48)         (254)
 Borrowings under revolving credit facility                25,858          -
 Repayments of revolving credit facility                  (25,858)         -
 Proceeds from issuance of common stock                    44,635          -
 Stock option activity                                         36           131
                                                         --------      --------
Net cash provided by financing activities                  44,104           386
                                                         --------      --------

Effect of exchange rates on cash                                1           (12)
                                                         --------      --------

Increase (decrease) in cash and cash equivalents            8,732       (51,741)

Cash and equivalents at beginning of period                 2,252        86,177
                                                         --------      --------

Cash and equivalents at end of period                    $ 10,984     $  34,436
                                                         --------      --------
                                                         --------      --------
Supplemental cash flow information:
 Cash paid for interest                                  $  3,464      $  8,088
                                                         --------      --------
                                                         --------      --------


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


                                       5
<PAGE>

                      LODGENET ENTERTAINMENT CORPORATION
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 -- Basis of Presentation

     The  accompanying consolidated financial statements as of June 30, 1997, 
and for the three and six month periods ended June 30, 1996 and 1997, have 
been prepared by LodgeNet Entertainment Corporation (the "Company"), without 
audit, pursuant to the rules and regulations of the Securities and  Exchange 
Commission (the "Commission").  The information furnished in the accompanying 
consolidated financial statements reflects all adjustments, consisting only 
of normal recurring adjustments, which, in the opinion of management, are 
necessary for a fair presentation of such financial statements.

     Certain information and footnote disclosures, normally included in 
financial statements prepared in accordance with generally accepted 
accounting principles, have been condensed or omitted pursuant to the rules 
and regulations of the Commission.   Although the Company believes that the 
disclosures are adequate to make the information presented herein not 
misleading, it is recommended that these unaudited consolidated financial 
statements be read in conjunction with the more detailed information 
contained in the Company's Annual Report on Form 10-K for 1996, as filed with 
the Commission.  The results of operations for the three and six month 
periods ended June 30, 1997 are not necessarily indicative of the results of 
operations for the full year.

     The consolidated financial statements include the accounts  of LodgeNet 
Entertainment Corporation and its majority-owned subsidiaries.  All 
significant inter-company accounts and transactions have been eliminated in 
consolidation.

Note 2 -- Property and Equipment, net

     Property and equipment was comprised as follows at (in thousands of 
dollars):


                                           December 31,    June 30,
                                              1996          1997
                                            --------      --------
     Land, building and equipment           $ 15,914      $ 19,614
     Free-to-guest equipment                   7,369         9,277
     Cable television equipment                5,291         7,458
     Guest Pay systems:
       Installed                             173,607       197,822
       System components                      23,290        30,819
       Software costs                          6,266         6,963
     Building construction in progress         2,528         8,373
                                            --------      --------
                                             234,265       280,326
     Less-depreciation and amortization      (70,108)      (86,710)
                                            --------      --------
     Property and equipment, net            $164,157      $193,616
                                            --------      --------
                                            --------      --------


Note 3 -- Net Loss Per Common Share

     The net loss per common share was computed using the weighted average 
number of shares outstanding and, where applicable, outstanding warrants and 
options.


                                       6
<PAGE>

Note 4 -- Effect of Recently Issued Accounting Pronouncements

     During March 1997, the Financial Accounting Standards Board released
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share", which requires the disclosure of basic earnings per share and diluted
earnings per share.  The Company will adopt SFAS 128 at the end of 1997 and
anticipates that it will have no effect on previously reported earnings per
share.

Note 5 -- Reclassifications

     Certain amounts have been reclassified to conform to the 1997
presentation.  Such reclassifications had no effect on previously reported
results of operations or stockholders' equity.


                                       7
<PAGE>

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

                                   OVERVIEW

LODGING INDUSTRY SERVICES

     Guest Pay Services -- The growth that the Company has experienced has
principally resulted from its rapid expansion of guest pay-per-view services,
which the Company began installing in 1986.  In May 1992, the Company
introduced and began installing its on-demand Guest Pay service.  It has been
the Company's experience that rooms featuring the "on-demand" Guest Pay service
generate significantly more revenue and gross profit per room than comparable
rooms having only the scheduled format.

     The Company's Guest Pay revenues depend on a number of factors, including
the number of rooms equipped with the Company's systems, Guest Pay buy rates,
hotel occupancy rates, the popularity, selection and pricing of the Company's
program offerings and the length of time programming is available to the
Company prior to its release to the home video and cable television markets.
The primary costs of providing Guest Pay services are (i) license fees paid to
studios for non-exclusive distribution rights to recently-released major motion
pictures, (ii) nominal one-time license fees paid for independent films, which
are duplicated by the Company for distribution to its operating sites, (iii)
license fees for video games and other services and (iv) the commission
retained by the hotel.  Guest Pay operating expenses include costs of system
maintenance and support, in-room marketing, video tape duplication and
distribution, data retrieval, insurance and personal property taxes.

     The Company also provides video games and interactive multimedia
entertainment and information services through its Guest Pay systems.  Services
include folio review, video check-out, in-room printers and guest satisfaction
surveys. In 1993 the Company entered into a seven-year non-exclusive license
agreement with Nintendo of America to provide hotels with a network-based Super
Nintendo-Registered Trademark- video game playing system.

     Free-to-guest Services --  In addition to Guest Pay services, the Company
provides cable television programming for which the hotel, rather than its
guests, pays the charges.  Free-to-guest services include the satellite
delivery of various programming channels through a satellite earth station,
which generally is owned or leased by the hotel.  For free-to-guest services
the hotel pays the Company a fixed monthly charge per room for each programming
channel provided.  The Company obtains its free-to-guest programming pursuant
to multi-year agreements and pays a fixed monthly fee per room.  Such fixed
monthly fees vary from time to time, depending on incentive programs that may
be provided by the programming networks.

RESIDENTIAL INDUSTRY SERVICES

     In January 1996, the Company formed ResNet Communications, Inc. ("ResNet")
for the purpose of extending the Company's proprietary B-LANsm system
architecture and operational expertise into the Multi-family Residential Unit
("MDU") market.  In October 1996, TCI Satellite, an affiliate of TCI, agreed to
invest up to $40 million in ResNet in exchange for up to a 36.99% interest in
ResNet and agreed to provide ResNet with long-term access to DBS signals for
the MDU market on a nationwide basis.  The Company believes that the MDU
business has financial and technological requirements similar to those of the
Company's lodging industry business.  ResNet began installations of its first
systems during the quarter ended September 30, 1996.  During the quarter ended
March 31, 1997, ResNet purchased, for approximately $4.6 million, the assets
and contracts of a private cable television operation with approximately 11,000
passings in the Detroit metropolitan area.  The results of ResNet's operations
during the three months ended June 30, 1997 were not material to the Company's
consolidated results of operations.


                                       8
<PAGE>

LODGING ROOM BASE

     During the three months ended June 30, 1997, the Company installed 32,531
new Guest Pay rooms, equipped 35,433 rooms with its Nintendo game system, and
installed 11,823 free-to-guest rooms.  From June 30, 1996 through June 30,
1997, the Company has installed 129,604 new Guest Pay rooms, equipped 150,811
rooms with its Nintendo game system, and installed 46,277 free-to-guest rooms;
representing increases of 38.6%, 61.9% and 17.4%, respectively, in its
installed room bases.  The Company's base of installed rooms was comprised as
follows at June 30:

                                         1996                1997
                                  ----------------     ----------------
                                   Rooms       %        Rooms       %
                                  -------    -----     -------    -----
     Guest Pay rooms:
       Scheduled                   51,521     15.4%     34,383      7.4%
       On-demand                  284,102     84.6%    430,844     92.6%
                                  -------    -----     -------    -----
                                  335,623    100.0%    465,227    100.0%
                                  -------    -----     -------    -----
                                  -------    -----     -------    -----

     Nintendo game system rooms   243,658              394,469
                                  -------              -------
                                  -------              -------
     Free-to-guest rooms          266,150              312,427
                                  -------              -------
                                  -------              -------

                             RESULTS OF OPERATIONS
                   THREE MONTHS ENDED JUNE 30, 1996 AND 1997

Revenue Analysis

     The Company's total revenue for the second quarter of 1997 increased
43.4%, or $10.0 million, in comparison to the second quarter of 1996.  The
following table sets forth the components of the Company's revenue for the
quarter ending June 30 (dollar amounts in thousands):


                            1996                1997
                     ------------------  ------------------
                              Percent of          Percent of
                                 Total               Total
                      Amount   Revenues   Amount   Revenues
                     -------  ----------  -------  ----------
     Guest Pay       $19,979     86.5%   $28,119     84.9%
     Free-to-guest     2,046      8.9%     2,105      6.4%
     Other             1,081      4.7%     2,908      8.8%
                     -------    -----    -------    -----
     Total revenue   $23,106    100.0%   $33,132    100.0%
                     -------    -----    -------    -----
                     -------    -----    -------    -----


     Guest Pay Revenue -- Guest Pay revenues increased 40.7%, or $8.1 million,
in the second quarter of 1997 in comparison to the same quarter of 1996.  This
increase was primarily the result of a 42.2% increase in the average number of
installed Guest Pay rooms, which offset a slight decline in average monthly
revenue per room.  The following table sets forth information in regard to
average monthly revenue per installed Guest Pay room for the quarter ending
June 30:


                                           1996     1997
                                          ------   ------
Average monthly revenue per room:
 Movie revenue                            $18.47   $17.89
 Video game/information service             2.80     3.17
                                          ------   ------
   Total per Guest Pay room               $21.27   $21.06
                                          ------   ------
                                          ------   ------


                                       9
<PAGE>

     Average movie revenue per room, for all Guest Pay rooms, was impacted by 
lower average buy rates and lower hotel occupancy rates, and partially offset 
by the effect of higher average movie prices; all in comparison to the year 
earlier period. The comparative decrease in buy rates is attributed to a 
relatively less popular selection of newly-released major motion pictures in 
the current quarter as compared to the year earlier period. The slight 
increase in average movie price is due to price increases in certain Guest 
Pay rooms; the Company's movie prices are generally $7.95 or $8.95.

     Average video game and information service revenue per room increased 
primarily as a result of the increase in the average number of rooms with 
video game services installed.  On a per-room basis, average monthly video 
game revenues were $2.20 and $2.19 during the quarters ended June 30, 1997 
and 1996, respectively.  The Company had installed its video game service in 
394,469 and 243,658 Guest Pay rooms as of June 30, 1997 and 1996, 
respectively.

     Free-to-guest Revenue -- Free-to-guest revenues increased 2.9%, or 
$59,000, in the second quarter of 1997 as compared to the same quarter of 
1996. The comparative increase in revenues resulted from the 17.4% increase 
in the number of installed free-to-guest rooms since June 30, 1996, which 
offset lower average revenue per room.  The Company had 312,427 and 266,150 
free-to-guest rooms installed at June 30, 1997 and 1996, respectively.

     Other Revenue -- Revenue from other sources, such as the sale of 
televisions, system equipment, service parts and labor, and miscellaneous 
free-to-guest programming materials, increased by $1.8 million or 169%, in 
the second quarter of 1997 as compared to the same quarter of 1996.  The 
increase was attributable to increased sales of system equipment, increased 
service-related revenues, increased television sales and cable television 
service revenues.

Expense Analysis

     Direct Costs -- The following table sets forth information in regard to 
the Company's direct costs and gross profit margin for the quarter ending 
June 30 (dollar amounts in thousands):


                                   1996           1997
                                 -------        -------
     Direct costs:
      Guest Pay                  $ 7,921        $10,604
      Free-to-guest                1,581          1,628
      Other revenue                  824          2,106
                                 -------        -------
     Total direct costs          $10,326        $14,338
                                 -------        -------
                                 -------        -------

     Gross profit margin:
      Guest Pay                     60.4%          62.3%
      Free-to-guest                 22.7%          22.7%
      Other revenue                 23.8%          27.6%
      Overall (composite)           55.3%          56.7%


     Guest Pay direct costs increased 33.9%, or $2.7 million, in the second 
quarter of 1997 as compared to the year earlier quarter.  Since Guest Pay 
direct costs (primarily studio license fees, video game license fees and the 
commission retained by the hotel) are primarily based on related revenue, 
such direct costs tend to vary more or less directly with revenue.  As a 
percentage of revenue, such costs decreased from 39.6% in the second quarter 
of 1996 to 37.7% in the current quarter.  The relative decrease in Guest Pay 
direct costs (as a percentage of revenue) reflects lower movie-related costs 
due to proportionately less revenue from newly-released motion pictures, 
partially offset by the cost-related effect of increased video game revenue 
(which generally has a higher direct cost on a percentage of revenue basis 
than movies) in the Guest Pay revenue mix.

     Free-to-guest direct costs increased 3.0% or $47,000 in the second 
quarter of 1997 as compared to the year earlier quarter.  As a percentage of 
free-to-guest revenue, free-to-guest direct costs were 77.3% in the second 
quarter of each of 1997 and 1996.


                                       10
<PAGE>

     Direct costs associated with other revenue increased 156% to $2.1 
million in the second quarter of 1997 from $824,000 in the year earlier 
quarter.  As a percentage of related revenues, such direct costs decreased to 
72.4% of other revenue in the current quarter versus 76.2% in the second 
quarter of 1996, primarily reflecting the effect of the increased equipment 
sales and cable television service revenues discussed above.

     The Company's overall gross profit increased 47.1%, or $6.0 million, to 
$18.8 million in the second quarter of 1997 on a 43.4% increase in revenues 
in comparison to the same period in the prior year.  The Company's overall 
gross profit margin was 56.7% in the current quarter, as compared to the year 
earlier 55.3%.

     Operating Expenses -- The following table sets forth information in 
regard to the Company's operating expenses for the quarter ending June 30 
(dollar amounts in thousands):


                                          1996                 1997
                                    ------------------  --------------------
                                            Percent of            Percent of
                                              Total                 Total
                                     Amount  Revenues    Amount    Revenues
                                    ------- ----------  -------   ----------
Guest Pay operations                $ 3,575   15.5%     $ 5,006     15.1%
Selling, general and administrative   3,363   14.6%       4,727     14.3%
Depreciation and amortization         7,157   31.0%      10,495     31.7%
                                    -------   ----      -------     ----
   Total operating expenses         $14,095   61.0%     $20,228     61.1%
                                    -------   ----      -------     ----
                                    -------   ----      -------     ----


     Guest Pay operations expense increased 40.0%, or $1.4 million, from $3.6 
million in the comparable quarter of the previous year.  This increase is 
primarily attributable to the 42.2% increase in the average number of 
installed Guest Pay rooms in the current period as compared to the year 
earlier quarter. Per average installed Guest Pay room, such expenses averaged 
$3.52 per month in the current quarter as compared to $3.81 per month in the 
same quarter of 1996. The comparative decrease on a per-room basis was 
primarily the result of lower service and support expenses.

     Selling, general and administrative expenses increased 40.1%, or $1.4 
million, from $3.4 million in the second quarter of 1996.  The increase 
reflects the effects of  increased litigation-related expenses, an increase 
in the number of development and administrative personnel and increased 
facilities-related expenses.  As a percentage of revenue, such expenses were 
14.3% in the current quarter as compared to 14.6% in the year earlier quarter.

     Depreciation and amortization expenses increased 46.6% to $10.5 million 
in the second quarter of 1997 from $7.2 million in the year earlier quarter.  
This increase is directly attributable to the increases in the number of 
installed Guest Pay and game service equipped rooms previously discussed, 
associated software and other capitalized costs such as service vans, 
equipment and computers that are related to the increased number of rooms in 
service since the year-earlier quarter.

     Operating Loss -- The Company's operating loss, as a result of the 
factors previously discussed, was $(1.4) million in the current quarter as 
compared to $(1.3) million in the same quarter of 1996.

     Interest Expense -- Interest expense, net of interest income, increased 
to $4.3 million in the current quarter from $2.1 million in the comparable 
quarter of 1996 due to increases in long-term debt to fund the Company's 
continuing expansion of its business.  Long-term debt increased from $63.3 
million at June 30, 1996 to $180.0 million at June 30, 1997.  Average 
principal amount of long-term debt (excluding amounts under the revolving 
facility) outstanding, during the quarter ended June 30, 1997, was 
approximately $180 million (at an average interest rate of approximately 
10.5%) as compared to an average principal amount outstanding of 
approximately $73 million (at an average interest rate of approximately 
10.6%) during the comparable period of 1996.

     Net Loss -- For the reasons previously discussed, the Company's net loss 
increased to $(5.8) million in the second quarter of 1997 from a net loss of 
$(3.4) million in the same quarter a year earlier.

     EBITDA -- As a result of increasing revenues from Guest Pay services, and
the other factors previously discussed, EBITDA (defined as "earnings before
interest, income taxes, depreciation and amortization") increased 55.1% to $9.1
million in the second quarter of 1997 as compared to $5.8 million in the second
quarter of 1996.  


                                       11
<PAGE>

EBITDA as a percentage of total revenues was 27.3% in the current quarter as 
compared to 25.3% in the same quarter of 1996.  EBITDA is included herein 
because it is a widely accepted financial indicator used by certain investors 
and financial analysts to assess and compare companies on the basis of 
operating performance.  EBITDA is not intended to represent an alternative to 
net income (as determined in accordance with generally accepted accounting 
principles) as a measure of performance, but management believes that it does 
provide an important additional perspective on the Company's operating 
results and the Company's ability to service its long-term debt and to fund 
the Company's continuing growth.












                                       12
<PAGE>

                             RESULTS OF OPERATIONS
                    SIX MONTHS ENDED JUNE 30, 1996 AND 1997


Revenue Analysis

     The Company's total revenue for the first six months of 1997 increased
44.4%, or $19.3 million, in comparison to the same period in 1996.  The
following table sets forth the components of the Company's revenue for the six
months ended June 30 (dollar amounts in thousands):


                            1996                1997
                     ------------------- -------------------
                              Percent of          Percent of
                                 Total               Total
                      Amount   Revenues   Amount   Revenues
                     -------  ---------- -------  ----------
     Guest Pay       $37,561     86.4%   $53,686     85.5%
     Free-to-guest     4,191      9.6%     4,271      6.8%
     Other             1,722      4.0%     4,831      7.7%
                     -------    -----    -------    -----
     Total revenue   $43,474    100.0%   $62,788    100.0%
                     -------    -----    -------    -----
                     -------    -----    -------    -----


     Guest Pay Revenue -- Guest Pay revenues increased 42.9%, or $16.1 
million, in the first six months of 1997 in comparison to the same period of 
1996.  This increase was primarily the result of a 44.7% increase in the 
average number of installed Guest Pay rooms, which offset a slight decline in 
average monthly revenue per room.  The following table sets forth information 
in regard to average monthly revenue per installed Guest Pay room for the six 
months ended June 30:


                                           1996     1997
                                          ------   ------
     Average monthly revenue per room:
       Movie revenue                      $18.49   $17.77
       Video game/information service       2.64     3.11
                                          ------   ------
         Total per Guest Pay room         $21.13   $20.88
                                          ------   ------
                                          ------   ------


     Average movie revenue per room, for all Guest Pay rooms, was impacted by 
lower average buy rates and lower hotel occupancy rates, and partially offset 
by the effect of higher average movie prices. The comparative decrease in buy 
rates is attributed to a relatively less popular selection of newly-released 
major motion pictures in the current period as compared to a year earlier. 
The slight increase in average movie price is due to price increases in 
certain Guest Pay rooms; the Company's movie prices are generally $7.95 or 
$8.95.

     Average video game and information service revenue per room increased 
primarily as a result of the increase in the average number of rooms with 
video game services installed.  On a per-room basis, average monthly video 
game revenues were $2.17 and $2.04 during the six months ended June 30, 1997 
and 1996, respectively.  The Company had installed its video game service in 
394,469 and 243,658 Guest Pay rooms as of June 30, 1997 and 1996, 
respectively.

     Free-to-guest Revenue -- Free-to-guest revenues increased 1.9%, or 
$80,000, in the first six months of 1997 as compared to the same period of 
1996.  The comparative increase in revenues resulted from the 14.7% increase 
in the number of installed free-to-guest rooms since June 30, 1996, which 
offset lower average revenue per room.  The Company had 312,427 and 266,150 
free-to-guest rooms installed at June 30, 1997 and 1996, respectively.

     Other Revenue -- Revenue from other sources, such as the sale of 
televisions, system equipment, service parts and labor, and miscellaneous 
free-to-guest programming materials, increased by $3.1 million or 181%, in 
the first six months of 1997 as compared to the same period of 1996.  The 
increase was attributable to increased sales of 


                                       13
<PAGE>

system equipment, increased service-related revenues, increased television 
sales and cable television service revenues.

Expense Analysis

     Direct Costs -- The following table sets forth information in regard to 
the Company's direct costs and gross profit margin for the six months ended 
June 30 (dollar amounts in thousands):


                                   1996           1997
                                 -------        -------
     Direct costs:
      Guest Pay                  $14,760        $20,330
      Free-to-guest                3,265          3,363
      Other revenue                1,415          3,462
                                 -------        -------
     Total direct costs          $19,440        $27,155
                                 -------        -------
                                 -------        -------

     Gross profit margin:
      Guest Pay                     60.7%          62.1%
      Free-to-guest                 22.1%          21.3%
      Other revenue                 17.8%          28.3%
      Overall (composite)           55.3%          56.8%


     Guest Pay direct costs increased 37.7%, or $5.6 million, in the first 
six months of 1997 as compared to the same period of 1996.  Since Guest Pay 
direct costs (primarily studio license fees, video game license fees and the 
commission retained by the hotel) are primarily based on related revenue, 
such direct costs tend to vary more or less directly with revenue.  As a 
percentage of revenue, such costs decreased from 39.3% in the first six 
months of 1996 to 37.9% in the current period.  The relative decrease in 
Guest Pay direct costs (as a percentage of revenue) reflects lower 
movie-related costs due to proportionately less revenue from newly-released 
motion pictures, partially offset by the cost-related effect of increased 
video game revenue (which generally has a higher direct cost on a percentage 
of revenue basis than movies) in the Guest Pay revenue mix.

     Free-to-guest direct costs increased 3.0% or $98,000 in the first six 
months of 1997 as compared to the same period of 1996.  As a percentage of 
free-to-guest revenue, free-to-guest direct costs increased to 78.7% from 
77.9% in the year-earlier period.  The relative increase in free-to-guest 
direct costs (as a percentage of revenue) resulted from higher costs for both 
premium and non-premium programming in 1997, and to a lesser extent to a 
slightly higher proportion of non-premium programming in the mix of 
programming services delivered.
     
     Direct costs associated with other revenue increased 145% to $3.5 
million in the first six months of 1997 from $1.4 million in the year earlier 
period. As a percentage of related revenues, such direct costs decreased to 
71.7% of other revenue in the current six month period versus 82.2% in the 
first six months of 1996, primarily reflecting the effect of the increased 
equipment sales and cable television service revenues discussed above.

     The Company's overall gross profit increased 48.3%, or $11.6 million, to 
$35.6 million in the first six months of 1997 on a 44.4% increase in revenues 
in comparison to the same period in the prior year.  The Company's overall 
gross profit margin was 56.8% in the current six month period, as compared to 
the year earlier 55.3%.
     
     Operating Expenses -- The following table sets forth information in 
regard to the Company's operating expenses for the six months ended June 30 
(dollar amounts in thousands):


                                       14


<PAGE>


                                           1996                 1997
                                    ------------------  --------------------
                                            Percent of            Percent of
                                              Total                 Total
                                     Amount  Revenues    Amount    Revenues
                                    ------- ----------  -------   ----------
Guest Pay operations                $ 6,738   15.5%     $ 9,699     15.4%
Selling, general and administrative   6,212   14.3%       9,783     15.6%
Depreciation and amortization        13,330   30.7%      20,190     32.2%
                                    -------   ----      -------     ----
   Total operating expenses         $26,280   60.4%     $39,672     63.2%
                                    -------   ----      -------     ----
                                    -------   ----      -------     ----


     Guest Pay operations expense increased 40.0%, or $1.4 million, from $3.6 
million in the comparable quarter of the previous year.  This increase is 
primarily attributable to the 47.4% increase in the average number of 
installed Guest Pay rooms in the current period as compared to the year 
earlier quarter. Per average installed Guest Pay room, such expenses averaged 
$3.65 per month in the current quarter as compared to $3.79 per month in the 
same quarter of 1996. The comparative decrease on a per-room basis was 
primarily the result of lower service and support expenses.

     Selling, general and administrative expenses increased 57.5%, or $3.6 
million, from $6.2 million in the first half of 1996.  The increase reflects 
the effects of substantially increased litigation-related expenses ($1.4 
million during the first half of 1997 as compared to $.3 million during the 
first half of 1996), an increase in the number of development and 
administrative personnel and increased facilities-related expenses.  As a 
percentage of revenue, such expenses were 15.6% in the current six month 
period as compared to 14.3% in the year earlier period.

     Depreciation and amortization expenses increased 51.5% to $20.2 million 
in the first half of 1997 from $13.3 million in the year earlier period.  
This increase is directly attributable to the increases in the number of 
installed Guest Pay and game service equipped rooms previously discussed, 
associated software and other capitalized costs such as service vans, 
equipment and computers that are related to the increased number of rooms in 
service since the year-earlier quarter.

     Operating Loss -- The Company's operating loss, as a result of the 
factors previously discussed, was $(4.0) million in the current six month 
period as compared to $(2.2) million in the same period of 1996.

     Interest Expense -- Interest expense, net of interest income, increased 
to $8.4 million in the current half year from $4.0 million in the comparable 
period of 1996 due to increases in long-term debt to fund the Company's 
continuing expansion of its business.  Long-term debt increased from $63.3 
million at June 30, 1996 to $180.0 million at June 30, 1997.  Average 
principal amount of long-term debt outstanding during the six months ended 
June 30, 1997, was approximately $180 million (at an average interest rate of 
approximately 10.5%) as compared to an average principal amount outstanding 
of approximately $71 million (at an average interest rate of approximately 
10.6%) during the comparable period of 1996.

     Net Loss -- For the reasons previously discussed, the Company's net loss 
increased to $(12.4) million in the first half of 1997 from a net loss of 
$(6.3) million in the same period a year earlier.

     EBITDA -- As a result of increasing revenues from Guest Pay services, 
and the other factors previously discussed, EBITDA increased 45.9% (on a 
44.4% increase in revenues) to $16.2 million in the first half of 1997 as 
compared to $11.1 million in the first half of 1996.  EBITDA as a percentage 
of total revenues was 25.7% in the current period as compared to 25.5% in the 
same period of 1996.

                                  SEASONALITY

     The Company's operating results from its lodging activities are subject 
to fluctuation depending upon hotel occupancy rates and buy rates, among 
other factors.  Typically, occupancy rates are higher during the second and 
third calendar quarters than in the first and fourth quarters due to seasonal 
travel patterns.


                                       15
<PAGE>

             FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

     On September 15, 1994, the Company issued $28 million principal amount 
of 9.95% Senior Notes to three insurance companies in a private placement. On 
April 13, 1995, concurrently with certain amendments to the Note Purchase 
Agreement, the Company issued $5 million principal amount of 10.35% Senior 
Notes under such agreement in a private placement to certain holders of the 
9.95% Senior Notes. As part of the transaction in which the Company issued 
its 10.25% Senior Notes (discussed further below) the Company redeemed the 
9.95% and 10.35% Senior Notes in their entirety, which represented a use of 
proceeds of approximately $28.9 million in principal amount, plus accrued 
interest, and a make-whole premium of approximately $2.8 million.

     On August 9, 1995, the Company issued $20 million principal amount of 
its 11.5% Senior Subordinated Notes due July 15, 2005 (the 11.5% Senior 
Notes) to three insurance companies in a private placement. On October 4, 
1995, the Company issued an additional $10 million principal amount of such 
11.5% Senior Notes to the same purchasers and under identical terms and 
conditions.  In connection with the issuance of its 10.25% Senior Notes, the 
Company and the holders of the 11.5% Senior Notes amended the terms of the 
11.5% Senior Notes to provide that such notes rank PARI PASSU with, and to 
have substantially the same covenants as, the 10.25% Senior Notes. The 11.5% 
Senior Notes are unsecured and bear interest at the fixed rate of 11.5%, 
payable semi-annually.  Mandatory annual principal payments of $6 million 
commence July 15, 2001.

     Net proceeds of the August 9, 1995 issue of the 11.5% Senior Notes, net 
of original issue discount and issuance-related expenses, were approximately 
$18.1 million, and were used to (i) repay $10.0 million outstanding under the 
Company's then existing revolving facility and (ii) provide funding for 
capital expenditures to expand the Company's guest pay services business. The 
net proceeds from the October 4, 1995 issue of  the 11.5% Senior Notes, net 
of original issue discount and issuance-related expenses, were approximately 
$9.2 million and provided additional capital to fund the expansion of the 
Company's guest pay services business.

     In connection with the December 19, 1996 issuance of its 10.25% Senior 
Notes, the Company repaid all of the outstanding borrowing under its then 
bank credit facility, approximately $20.4 million, and amended and restated 
such facility. The amended and restated bank credit facility (the 1997 
Facility) provides for total lending commitments of $100.0 million (which can 
be increased to $175.0 million with the consent of NatWest Bank) and contains 
certain covenants, including the maintenance of certain financial ratios, 
limitations on the incurrence of additional indebtedness, limitations on the 
incurrence of certain liens, limitations on certain payments or distributions 
in respect of the common stock and provisions for acceleration of principal 
repayment in certain circumstances.  The Company was in compliance with all 
such covenants as of June 30, 1997.  The 1997 Facility is secured by (i) a 
first priority security interest in all of the Company's and certain of its 
subsidiaries' tangible and intangible assets and (ii) a guarantee by ResNet 
of all amounts advanced to it by the Company.  Amounts borrowed under the 
1997 Facility bear interest at either (i) LIBOR plus from 1.25% to 2.00% or 
(ii) the greater of (a) the NatWest Bank prime rate plus from .25% to 1.00% 
or (b) the federal funds rate plus from .75% to 1.50%, depending on the 
Company's total leverage, as defined in the agreement.  The banks' commitment 
under the 1997 Facility is subject to a scheduled reduction of 15% beginning 
in December 1998 and annually thereafter as follows: December 1999 -- 20%; 
December 2000 -- 20%; December 2001 -- 20%; and December 2002 -- 25%.

     On May 23, 1996, the Company sold 3,680,000 shares of the Company's 
Common Stock for net proceeds of approximately $44.6 million. Such proceeds 
were used to repay approximately $25.9 million of borrowings then outstanding 
under the Existing Credit Facility, and to provide working capital for the 
continuing expansion of the Company's lodging and residential business.

     On October 21, 1996, the Company and ResNet entered into agreements with 
TCI Satellite pursuant to which TCI Satellite acquired a 4.99% equity 
interest in ResNet for a purchase price of $5.4 million in cash (the "Stock 
Payment") and agreed to provide ResNet with long-term access to a DBS signal 
on a nationwide basis. In addition, TCI Satellite agreed to advance up to 
$34.6 million to ResNet during the five years ending October 21, 2001, under 
a convertible note agreement (the "TCI Convertible Note") to purchase DBS 
equipment. The TCI Convertible Note is subject to mandatory conversion into a 
maximum 32.0% equity interest in ResNet at such time as conversion is not 
restricted by FCC regulations. The TCI Convertible Note is unsecured, payable 
solely in shares of ResNet's common stock, non-recourse to the Company, and 
subordinated to all present and future borrowings by ResNet including any 
borrowings from the Company by ResNet. Interest accrues (generally at TCI's 
average 


                                       16
<PAGE>

borrowing rate) on amounts outstanding under the TCI Convertible Note, but 
such interest is not payable in cash (and does not increase the equity 
interest into which the TCI Convertible Note will be converted).

     On December 19, 1996, the Company issued $150 million, principal amount, 
of unsecured 10.25% Senior Notes (the Notes) in a private offering in 
accordance with Rule 144A of The Securities Act of 1933, as amended (the 
Securities Act).  The proceeds of the Notes, which were issued at par, after 
placement fees and offering expenses, were approximately $143.2 million. 
Approximately $31.7 million of such proceeds was used to redeem the 
outstanding principal amounts of the 9.95% and 10.35% Senior Notes and to 
prepay all outstanding amounts under the Company's then revolving credit 
facility, both as previously discussed.  The remaining proceeds, 
approximately $91.1 million, were invested in highly liquid, interest-bearing 
securities pending their use for funding capital expenditures to expand the 
Company's lodging and residential businesses.  On April 11, 1997, the Company 
filed a registration statement to effect an offer to exchange the Notes for 
identical Notes registered under the Securities Act of 1933, as amended.

     The Company has incurred operating and net losses due in large part to 
the depreciation, amortization and interest expenses related to the capital 
required to expand its lodging and residential businesses. The growth of the 
Company's business requires substantial indebtedness to finance expansion of 
its lodging and multi-family residential businesses. The Company expects that 
losses will increase as the Company implements its expansion strategy. 
Historically, cash flow from operations has not been sufficient to fund the 
cost of expanding the Company's business and to service existing 
indebtedness. Capital expenditures were approximately $53 million during the 
first six months of 1997, and net cash provided by operating activities was 
approximately $.9 million.

     Depending on the rate of growth of its lodging and residential 
businesses and other factors, the Company expects to incur capital 
expenditures of between approximately $35 to $45 million during the remainder 
of 1997 and anticipates capital expenditures of between approximately $75 to 
$90 million for 1998, and substantial amounts thereafter. The actual amount 
and timing of the Company's capital expenditures in these periods will vary 
(and such variations could be material) depending upon the number of new 
contracts for services entered into by the Company, the costs of 
installations and other factors; however, this is a forward-looking statement 
and there can be no assurance in this regard. In addition, the 1997 Facility 
limits the amount of the Company's annual capital expenditures to a certain 
base amount plus the amounts of certain additional financing.

     The Company believes that the net proceeds from the 10.25% Senior Notes, 
the funds to be provided by TCI Satellite, its operating cash flows and 
borrowings permitted under the 1997 Facility will be sufficient to fund the 
Company's cash requirements for 12 to 18 months; however, this is a 
forward-looking statement and there can be no assurance in this regard.  
After such time, the Company may incur additional amounts of indebtedness.  
If the Company's plans or assumptions change, if its assumptions prove to be 
inaccurate or if the Company experiences unanticipated costs or competitive 
pressures, the Company may be required to seek additional capital sooner than 
currently anticipated. There can be no assurance that the Company will be 
able to obtain financing, or, if such financing is available, that the 
Company will be able to obtain it on acceptable terms. Failure to obtain 
additional financing, if needed, could result in the delay or abandonment of 
some or all of the Company's expansion plans.

EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     During March 1997, the Financial Accounting Standards Board released 
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings 
per Share", which requires the disclosure of basic earnings per share and 
diluted earnings per share.  The Company will adopt SFAS 128 at the end of 
1997 and anticipates that it will have no effect on previously reported 
earnings per share.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS -- CERTAIN STATEMENTS IN 
THIS QUARTERLY REPORT ON FORM 10-Q CONSTITUTE "FORWARD-LOOKING STATEMENTS" 
WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS AMENDED, AND THE 
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.  WHEN USED IN THIS QUARTERLY 
REPORT, THE WORDS "EXPECTS," "ANTICIPATES," "ESTIMATES," "BELIEVES," "NO 
ASSURANCE," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY SUCH 
FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND 
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS, WHICH MAY CAUSE THE COMPANY'S 
ACTUAL PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM ANY FUTURE 
RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH 
FORWARD-LOOKING STATEMENTS.  IN


                                       17
<PAGE>

ADDITION TO THE RISKS AND UNCERTAINTIES DISCUSSED IN THIS QUARTERLY REPORT, 
SUCH FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING:  THE IMPACT OF COMPETITION 
AND CHANGES TO THE COMPETITIVE ENVIRONMENT FOR THE COMPANY'S PRODUCTS AND 
SERVICES, CHANGES IN TECHNOLOGY, RELIANCE ON STRATEGIC PARTNERS, UNCERTAINTY 
OF LITIGATION, CHANGES IN GOVERNMENT REGULATION AND OTHER FACTORS DETAILED,  
FROM TIME TO TIME, IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE 
COMMISSION.  THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE OF 
THIS QUARTERLY REPORT.  THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR 
UNDERTAKING TO RELEASE PUBLICLY ANY UPDATES OR REVISIONS TO ANY 
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE 
COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, 
CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS BASED.












                                       18
<PAGE>

                         PART II -- OTHER INFORMATION

ITEM 1 -- LEGAL PROCEEDINGS

     On February 16, 1995, On Command Video Corporation  filed a lawsuit in 
Federal District Court for the Northern District of California asserting 
patent infringement by the Company relating to its on-demand video system.  
The complaint requests an unspecified amount of damages and injunctive 
relief. The Company filed an answer and counterclaim to the lawsuit on April 
17, 1995, denying the claims, asserting affirmative defenses and asserting a 
counterclaim for declaratory relief.  The Company is currently engaged in 
litigation with respect to this matter however, as of August 11, 1997 no 
trial date is scheduled.  Based on the advice of special patent counsel and 
technical experts retained by the Company, as well as the Company's 
independent analysis, the Company believes that the claims of infringement 
are unfounded. The Company has and will continue to vigorously defend itself 
in this matter.  Patent litigation is especially complex, both as to factual 
allegations and the legal interpretation of patent claims, which makes such 
lawsuits difficult to assess with certainty. While the Company and its patent 
counsel believe the Company has a number of defenses available, which, if 
properly considered, would eliminate or minimize any liability for the 
Company, an unexpected unfavorable resolution, depending on the amount and 
timing, could adversely affect the Company.  Although the outcome of any 
litigation cannot be predicted with certainty, the Company believes that the 
ultimate disposition of this matter will not have a material adverse effect 
on the Company's business or financial condition.

     From time to time, the Company is subject to other litigation arising in 
the course of its business.  As of the date hereof, in the opinion of 
management, the resolution of such other litigation will not have a material 
adverse effect upon the Company's business or financial condition.

ITEM 2 -- CHANGES IN SECURITIES

     Not applicable.

ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

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

     Not applicable.

ITEM 5 -- OTHER INFORMATION

     Not applicable.

ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K

     A.  EXHIBITS:
     
          Exhibit 11.1 -- Statement Regarding Computation of  Net Loss Per
          Common Share.
     
     B.  REPORTS ON FORM 8-K:
     
          The Company filed no Reports on Form 8 - K during the three months
          ended June 30, 1997.


                                       19
<PAGE>

                      LODGENET ENTERTAINMENT CORPORATION

                                   FORM 10-Q



                                  SIGNATURES



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

                              LODGENET ENTERTAINMENT CORPORATION
                              ----------------------------------
                                        (Registrant)



Date:  August 11, 1997                   / S /  TIM C. FLYNN
                              -------------------------------------
                              Tim C. Flynn
                              President and Chief Executive Officer
                              (Principal  Executive Officer)




Date:  August 11, 1997                   / S /  JEFFREY T. WEISNER
                              --------------------------------------------
                              Jeffrey T. Weisner
                              Vice President - Finance
                              (Principal Financial and Accounting Officer)




                                       20