<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE FISCAL YEAR ENDED DECEMBER
         31, 1996

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934 (NO FEE REQUIRED) FOR THE TRANSITION PERIOD 
         FROM _______  TO________

                           Commission File No. 0-22482

                    INNOVATIVE GAMING CORPORATION OF AMERICA
             (Exact name of registrant as specified in its charter)

          MINNESOTA                                  41-1713864
(State or other jurisdiction                      (I.R.S. Employer
of incorporation or organization)                Identification No.)

     4750 TURBO CIRCLE
        RENO, NEVADA                                   89502
(Address of principal executive offices)             (Zip Code)

                                 (702) 823-3000
              (Registrant's telephone number, including area code)


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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01
par value

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

                              Yes  X      No      
                                  ---        ---

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

As of March 17, 1997, 6,476,515 shares of the Registrant's Common Stock were
outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant on such date, based upon the last sale price of
the Common Stock as reported on the Nasdaq National Market on March 17, 1997,
was $30,040,365. For purposes of this computation, affiliates of the Registrant
are deemed only to be the Registrant's executive officers and directors and
Grand Casinos, Inc.

                       DOCUMENTS INCORPORATED BY REFERENCE

PART III - Portions of the Registrant's definitive proxy statement in connection
with the annual meeting of the shareholders to be held on May 30, 1997, are
incorporated by reference into Items 10 through 13, inclusive.



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ITEM 1 . BUSINESS

Innovative Gaming Corporation of America ("IGCA") and its wholly owned operating
subsidiary, Innovative Gaming, Inc. ("IGI"), together (the "Company"), develop,
manufacture, market and distribute innovative group participation and other
specialty gaming machines to the gaming industry. The Company manufactures and
distributes multi-station blackjack, craps, and roulette gaming machines under
the names of BJ Blitz TM, Hot Shot Dice TM, Lightning Strike Roulette TM, Live
Video Blackjack TM, Live Video Craps TM, Live Video Roulette TM and Supersuits
Progressive Blackjack TM to certain gaming markets worldwide. Additionally, the
Company developed and anticipates marketing in 1997, Bonus Streak TM , a video
bonus game which operates in conjunction with a slant top spinning reel slot
machine. The Company is also developing and/or enhancing single player and group
participation gaming machines for future introductions.

Historically, the Company's primary target markets have been gaming
jurisdictions in North America, including casinos on Indian land and in the
states of Arizona, Louisiana, Mississippi, Minnesota and South Carolina, and in
Europe, through distributors. Subsequent to obtaining regulatory game approvals
in early 1997, the Company has commenced marketing its products in Colorado and
Nevada. The Company's Australian distributor is in the process of obtaining
technical approvals of the Company's products in New South Wales, Australia,
where, upon approval, the Company's products will be marketed through such
distributor.

The Company expects that its gaming machines will appeal to:

-   Casinos/Clubs seeking to enhance the entertainment experience by providing
    new and unique forms of gaming.

-   Casinos/Clubs located in jurisdictions that do not allow live versions of
    certain games.

-   Casinos/Clubs seeking to educate potential casino game players in a less
    intimidating setting with lower minimum bet requirements than their live
    game counterparts.

-   Casinos/Clubs seeking to reduce labor and training costs.

-   Casino operators/clubs who are attracted by the security and operating
    controls provided by fully-automated machines.

BUSINESS STRATEGY

The Company's goal is to develop, manufacture and market unique and innovative
group participation and other specialty gaming machines that are not offered by
traditional slot machine suppliers and manufacturers. The Company believes that
it will be able to implement its strategy because of the following factors:

-   Innovative Products. The Company has developed and currently markets
    innovative group video gaming machines that are not presently offered by
    other manufacturers in the regulated primary gaming markets such as Nevada.

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-   Marketing/Regulatory Advantages. Certain jurisdictions permit video
    versions of games that are not allowed in the live format.

-   Operational Advantages. The Company anticipates that its gaming machines
    will help casinos improve security and operational controls and reduce
    labor costs.

-   Financing Assistance. The Company may lease its machines directly to the
    casino operators or assist casino operators to locate sources of financing
    to purchase the Company's products. The Company also may enter into lease
    participation agreements, where allowable, under which the Company receives
    a portion of the income generated by each machine.

PRODUCTS

The Company currently manufactures and markets three primary platforms of group
participation video gaming machines: blackjack, craps and roulette. The Company
has also developed and manufactured additional game software such as Supersuits
Progressive Blackjack to run on an existing platform. Additionally, the Company
has developed a video bonus game built in conjunction with existing slant top
spinning reel slot machines.

BJ Blitz and Live Video Blackjack are electronic audio/video group participation
blackjack games. Each blackjack machine consists of a central "dealer" and five
"player" stations that face the dealer in a semicircle, in the same
configuration as a live action blackjack table. The dealer and each player
station have video display screens. The dealer screen displays the cards as they
are shuffled and dealt, and the dealer's hand. The electronic dealer directs the
action with spoken instructions, and indicators flash on the video display
screen of the player whose turn it is to bet. Each player station has lighted
controls that the players can push to hit, stand, bet, double down, split or buy
insurance. Between games, players can also push buttons to display the rules and
the odds. The machines incorporate electronically generated voices, sound
effects, lights and music into the game.

Management believes that its craps machine is the first entirely electronic
group participation video craps game in the world. Hot Shot Dice and Live Video
Craps consist of a rectangular table that is approximately half the size of a
live action craps table, with a lighted canopy. Each table accommodates six
players, two on each side, and one at each end. Except for a border that
contains the player controls, the table consists of two large video display
screens that reproduce a craps table top. Each player has a hand-sized trackball
that the player rotates with his palm to roll the dice. The trackball also
controls a video "hand" that the player moves around the playing field to place
stacks of video "chips" in the appropriate spot to place his bets. The odds are
displayed as the hand passes over each betting spot on the field. Each player
has his own distinctly-colored video hand and chips. The video rolling dice are
superimposed on the playing field and the roll of the dice responds to the force
and direction with which the player spins the track ball. The game incorporates
sound effects such as rolling dice, and visual effects such as a croupier rake
that wipes away chips, in addition to electronically-generated voices, music and
flashing lights.

Management believes its roulette machine is the first entirely electronic group
participation video roulette game in the world. Lightning Strike Roulette and
Live Video Roulette consist of a rectangular table that is

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approximately half the size of a live action roulette table. The table
accommodates five players, two on each side and an additional player at one end.
The other end of the table has a stand-up cabinet that incorporates a 29-inch
video monitor that employs the most advanced computer graphics available in the
industry today. On the top of the cabinet, a simulated roulette wheel is
displayed that incorporates rotating lights coordinated with the play of the
game. Except for a border that contains the player controls, the table consists
of two large video display screens that reproduce a roulette table betting
field. Each player has a hand-sized trackball that the player rotates with his
palm to control a video hand that the player moves around the playing field to
place stacks of video "chips" in the appropriate spot to place his bets. The
odds are displayed as the hand passes over each betting spot on the field. Each
player has his own distinctly colored video hand and chips. The cabinet video
monitor displays sharp, 3 dimensional graphics of rotating dealers, roulette
wheel action, betting, instructional game play features, and game summary data.

BONUS STREAK. Bonus Streak is used in conjunction with a slant top spinning reel
slot machine. The video bonus game utilizes the industry's first active, high
resolution LCD display. When players catch the Bonus Streak symbol on the reel
slot, they qualify for bonus play. Bonus play starts with 7 cards dealt face up
on the LCD display. If there are any matching cards (two 4's, two jacks, etc.),
bonus play ends and the player receives a first level award. If there are no
matching cards, the player advances to the next award level. Play continues to
subsequent award levels until there is a match or 13 unique cards are displayed,
at which time the top bonus jackpot is awarded. Bonus Streak has not yet been
approved in any gaming jurisdiction. Upon approval in Nevada, the Company
anticipates it will place Bonus Streak in gaming locations on a participation
basis wherein the Company will receive a percentage of the games' net win at
percentages similar to those received by other specialty game suppliers. This
participation amount will be shared with the manufacturer of the slant top
spinning reel slot machine. Under an agreement with IGT, as the supplier of the
slant top slot machines, the Company will share equally in the net revenues
received from the locations until IGT receives its sales price, after which the
Company receives 90% and IGT receives 10% of the net revenues.

MANUFACTURING AND SUPPLY ARRANGEMENTS

The Company's primary products are assembled at its production facility in Reno,
Nevada, utilizing various parts and components from a large base of vendors. The
Company has historically utilized one of its suppliers to facilitate the flow of
a significant portion of its parts and components from a Japanese vendor. The
Company is not obligated to purchase parts and components from any specific
vendor and is not subject to any minimum purchase requirements. On February 2,
1996, the Company negotiated fixed pricing for a minimum of two years for
specific electronic components with its Japanese suppliers in its efforts to
reduce product cost. With certain electronic parts solidified by contract, the
Company is utilizing a more domestic base of vendors for the balance of
components to reduce the reliance on exchange rate sensitivities and to
negotiate more competitive prices on required components. Except for certain
electronic components purchased from a Japanese vendor, the Company has
identified alternate sources of supply for significant parts and components
should any of its current vendors fail to meet order requirements by the
Company.

INTELLECTUAL PROPERTY

On February 2, 1996, the Company acquired the balance of all remaining
intellectual property including patents, trademarks, picture rights and
copyrights for its games from its Japanese suppliers in exchange

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for an aggregate 225,000 shares of IGCA common stock. The Company has exclusive
ownership and licenses pertaining to its blackjack, craps, roulette and
Supersuits Progressive Blackjack in gaming markets worldwide.

IGCA TM, BJ Blitz TM, Hot Shot Dice TM, Lightning Strike Roulette TM, Live Video
Blackjack TM, Live Video Craps TM, Live Video Roulette TM, Bonus Streak TM and
Supersuits TM are all trademarks of Innovative Gaming Corporation of America.
The Company has either Federally registered or applied for Federal registration
of these trademarks.

The Company believes that the technical know-how, trade secrets and creative
skills of its employees and contract personnel are substantial rights of the
Company. The Company requires customers, employees, contract personnel and other
significant contacts of the Company who have access to proprietary information
concerning the Company's products to sign non-disclosure agreements. The Company
relies on such agreements, other security measures, and trade secret law to
protect such proprietary information. No assurance can be given that pending
applications for intellectual property will be granted. There also can be no
assurance that patents or other intellectual property rights will not be
infringed, or that others will not develop technology that will not violate
these rights.


DISTRIBUTORSHIP ARRANGEMENTS

The Company distributes and/or anticipates to distribute its products both
directly to gaming markets and through licensed distributors. In certain
jurisdictions the Company may use an existing licensed distributor to sell its
products pursuant to any necessary Tribal or regulatory transaction approvals.

The Company has a nonexclusive distributorship agreement with Sodak Gaming, Inc.
("Sodak") to market and distribute the Company's products (i) in those limited
geographic areas in the United States (except for the States of Minnesota and
Nevada) and Canada wherever North American Indian, "aboriginal," or "Native
People" (indigenous to Canada) gaming is or becomes permitted during the term of
the distributorship agreement, and (ii) in the states of North Dakota, South
Dakota and Wyoming. At Sodak's option, Sodak may also distribute the Company's
games in any and all non-Indian gaming jurisdictions in which Sodak obtains
exclusive distribution rights from International Game Technology, the world's
largest slot machine manufacturer. The agreement expires August 1998, but may be
renewed for successive one-year terms upon the agreement of Sodak and the
Company on the terms and conditions set forth in the distributorship agreement
or such other terms and conditions as Sodak and the Company may agree, and may
be terminated by either party under certain circumstances. Pursuant to the
agreement, the Company has agreed to sell its products to Sodak at the Company's
then current retail price less a distributor's discount.

The Company also has an exclusive distributorship agreement with Drew
Distributing ("Drew") to market and distribute the Company's products on all
non-Indian land in South Carolina. Under this agreement, Drew was granted a
three-year exclusive license, expiring in October 1997. The agreement may be
renewed for successive one-year terms upon the agreement of Drew and the Company
on the terms and conditions set forth in the distributorship agreement, or such
other terms and conditions as Drew and the Company may agree, and may be
terminated by either party under certain circumstances.

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In February 1996, the Company entered into an exclusive distribution agreement
with Aristocrat Leisure Industries of New South Wales, Australia for the
marketing and distribution of games in Australia, New Zealand, Papua New Guinea,
Taiwan, New Caledonia, Malaysia, the Philippines and Singapore (hereinafter
"Australasia"). The Company has granted Aristocrat an initial five year
exclusive license expiring February 2001 to distribute its blackjack, craps and
roulette games to all legalized Australasia video gaming jurisdictions. Pursuant
to the agreement, the Company has agreed to sell its games at discounted
distributor's pricing in exchange for a minimum purchase quantity of 100 units
per year, with a rolling six month sales materials forecast. Aristocrat has
submitted the Company's blackjack, and roulette games for technical approval
with New South Wales, Australia gaming authorities. Aristocrat may not
distribute games prior to receipt of any and all necessary regulatory approvals.

In March 1996, the Company entered into exclusive agreements with Ludi S.F.M.
and with S.A.M. Eurusa for the exclusive distribution of the Company's games in
France, Monaco, Morocco, Tunisia and Italy. Ludi and Eurusa are affiliated
entities. Under the agreement, Ludi and Eurusa have been granted three-year
exclusive licenses, expiring March 1999, to distribute the Company's blackjack,
craps and roulette games, subsequent to any and all regulatory approvals. The
agreements may be renewed for successive one-year terms upon the agreement of
the parties and on the terms and conditions set forth in the distribution
agreements or such other terms and conditions as the parties may agree and may
be terminated by either party under certain circumstances. Pursuant to the
agreement, the Company has agreed to sell its games to Ludi and Eurusa at the
Company's then current retail price less a distributor's discount.

In December 1996, the Company entered into an exclusive agreement with Bally
Gaming International ("Bally") for the exclusive distribution of the Company's
games in certain European countries. Under the agreement, Bally has been granted
three-year exclusive license, expiring December 1999, to distribute the
Company's blackjack, craps and roulette games in specified European countries.
Bally may not distribute games prior to receipt of any and all necessary
regulatory approvals. The agreement provides an automatic renewal annually after
the original term and may be terminated by either party under certain
circumstances.

In January 1997, the Company entered into a three-year exclusive agreement with
Vista Gaming Corporation ("Vista") for the distribution and service of the
Company's products in Colorado. However, if Vista does not distribute on lease
at least 20 machines after six months and/or 35 machines after one year, this
agreement will revert to a non-exclusive distributorship. The lease rates will
be comparable to lease rates charged by other specialty game suppliers. The
agreement provides for automatic renewal annually after the original term and
may be terminated by either party under certain circumstances.

SIGNIFICANT CUSTOMERS

During fiscal 1996, a substantial portion of the Company's sales were to three
customers. Sodak accounted for 23.7% of sales, Bally Gaming International
accounted for 32.2% of sales and Otimex accounted for 37.0% of sales. The
Company has an agreement with Grand Casinos, Inc. ("GCI") whereby casinos owned
or managed by GCI may purchase up to 125 of the Company's video gaming machines
for a price substantially lower than what the Company charges in related
markets. The Company made minimal parts sales and no video gaming machine sales
to GCI during 1996.



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COMPETITION

Many gaming equipment companies, several of which are large and
well-established, supply the casino and video lottery industries with video
gaming machines and other gaming equipment. Management believes that Aristocrat,
Bally Gaming International, Inc., International Game Technology and Universal
Distributing of Nevada, Inc. are among the largest and most-established gaming
machine suppliers. Management believes that none of these companies currently
offer group video gaming machines that are similar to the Company's
multi-station products. However, Sega Enterprises, Inc. and Sigma Games
distribute multiplayer gaming and amusement machines. There can be no assurance
that these competitors, or another competitor, will not develop gaming machines
that are similar to the Company's gaming machines in the future.


REGULATION

GENERAL - The manufacture, sale and distribution of gaming machines are subject
to various federal, state, county, tribal and/or municipal laws, regulations and
ordinances, which are administered by the relevant regulatory agency or agencies
in each jurisdiction (the "Regulatory Authorities"). These laws, regulations and
ordinances vary from jurisdiction to jurisdiction, but primarily concern the
responsibility, financial stability and character of gaming equipment
manufacturers and distributors, as well as persons financially interested or
involved with gaming equipment manufacturers and distributors. Furthermore,
regulations also require various technical standards and specifications approval
and adherence, which are conducted by state and/or private laboratories. There
are substantial similarities in the basic provisions which are described below.
In the future, Regulatory Authorities may also significantly curtail or
eliminate gaming in jurisdictions that currently or hereafter allow gaming.

In addition to the jurisdictions which currently allow casino gaming, the
Company anticipates doing business in other jurisdictions which may authorize
casino gaming in the future, and in jurisdictions which have legalized casino
gaming but have not adopted regulations. The Company cannot predict the nature
of the regulatory scheme in any such jurisdiction.

INDIAN GAMING - The operation of gaming on Indian land, including the terms and
conditions of contracts to sell or lease gaming equipment to Indian tribes, is
subject to the Indian Gaming Regulatory Act of 1988 ("IGRA"), which has
delegated oversight responsibility to the Bureau of Indian Affairs (the "BIA")
and the National Indian Gaming Commission ("NIGC"), and also is subject to the
provisions of statutes relating to contracts with Indian tribes, which are
administered by the BIA. The regulations and guidelines under which the BIA and
the National Indian Gaming Commission will administer IGRA are incomplete and
evolving. IGRA is subject to interpretation by the Secretary of the Interior and
the NIGC and may be subject to judicial and legislative clarification or
amendment.

The NIGC is empowered to inspect and audit all Indian gaming facilities, to
conduct background checks on all persons associated with Indian gaming, to hold
hearings, issue subpoenas, take depositions, adopt regulations and to assess
fees. Civil penalties for violations of IGRA, and/or other applicable law, may
be imposed. In addition, IGRA provides for criminal penalties for illegal gaming
on Indian land and for theft from Indian gaming facilities.

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IGRA classifies games that may be played on Indian land into three categories.
Class I gaming includes traditional Indian games and private social games
engaged in as a part of; or in connection with, tribal ceremonies or
celebrations. These games, under IGRA, are regulated exclusively by the
respective tribes.

Class II gaming includes bingo and, additionally, pulltabs, lotto, punch boards,
tip jars, instant bingo, and other games similar to bingo, if those games are
played at a location where bingo is played. Class II gaming explicitly excludes
electronic or electromechanical facsimiles of any games of chance or slot
machines of any kind. This classification is also reserved for tribal
regulation, but under federal oversight. Class II gaming is permitted on Indian
land if: (i) the state in which the Indian gaming is located permits such gaming
for any purpose by any person, (ii) the gaming is not otherwise specifically
prohibited on Indian land by federal law, (iii) the gaming is conducted in
accordance with a tribal ordinance which has been approved by the Chairman of
the NIGC (provided that gaming may be conducted under unapproved ordinances or
resolutions adopted prior to the enactment of IGRA unless and until such
ordinances or resolutions are disapproved by the Chairman), (iv) an Indian tribe
has sole proprietary interest and responsibility for the conduct of gaming
(subject to certain exceptions), (v) the primary management officials, key
employees and the facility are tribally licensed; and (vi) several other
specified requirements are met, including the existence of any adequate system
which ensures background investigations are conducted on primary management
officials, all contracts for supplies, services or concessions in excess of
$25,000 annually are subject to independent audit and the construction and
maintenance of the gaming facility is conducted in a manner which adequately
protects the environment and the public health and safety.

Class III gaming includes all other forms of gaming, such as video casino games
(e.g., video slots, video blackjack), slot machines, table games (e.g.,
blackjack, craps, roulette), and other gaming (e.g., sports betting and
parimutuel wagering). The machines manufactured and distributed by the Company
are classified as Class III gaming devices. Class III gaming is permitted on
Indian land only if such activity is: (i) authorized by a tribal ordinance
meeting the requirements of IGRA and approved by the Chairman of the NIGC
(provided that gaming may be conducted under unapproved ordinances or
resolutions adopted prior to the enactment of IGRA unless and until such
ordinances or resolutions are disapproved by the Chairman), (ii) located in a
state that permits gaming defined as Class III by any person for any purpose,
(iii) governed by requirements similar to those described for Class II gaming,
and (iv) conducted in compliance with the terms of a written tribal-state
compact entered into between the Indian tribe and the state in which the subject
gaming is located and which has been approved by the Secretary.

TRIBAL ORDINANCES - Under IGRA, except to the extent otherwise provided in a
tribal-state compact, Indian tribal governments have primary regulatory
authority over gaming on land within the tribe's jurisdiction Therefore, persons
engaged in gaming activities, including the Company, are subject to the
provisions of tribal ordinances and regulations regarding gaming. Such
ordinances and regulations must be consistent with IGRA and with any applicable
tribal-state gaming compact, and cannot impose criminal penalties upon
non-Indians. However, the civil remedies imposed by such tribal government
regulations, if otherwise valid, will likely apply to the Company and its
employees and customers. Tribal ordinances also require participants involved in
Indian gaming enterprises to obtain tribal licenses. The Company as a
manufacturer/distributor of gaming equipment is usually required to obtain a
tribal license before making any equipment sales. Management companies and their
officers, directors and significant shareholders are also subject to licensing
requirements. Tribes have great discretion to deny such licenses, fail to renew
current licenses or revoke such licenses. An Indian tribe has the right to
revoke any tribal gaming ordinance and, pursuant to such revocation, render
Class III gaming illegal on the lands of the tribe.


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The Company must also comply with regulations promulgated pursuant to the tribal
state compacts entered into between the State and the particular Indian tribe.
These compacts vary significantly from state to state.

Indian tribes are sovereign nations with their own courts and governmental
Systems. The Company intends to seek waivers of Sovereign immunity, where
appropriate, from tribes with whom the Company does business although there can
be no assurance that such waivers will be obtained.

UNITED STATES CODE SECTION 81 - Title 25, Section 81 of the United States Code
states that no agreement shall be made by any person with any tribe of Indians,
or individual Indians not citizens of the United States, for the payment or
delivery of any money or other thing of value . . . in consideration of services
for said Indians relative to their lands . . . unless such contract or agreement
be executed and approved" by the Secretary or his or her designee. An agreement
or contract for services relative to Indian lands which fails to conform with
the requirements of Section 81 will be void and unenforceable. All money or
other thing of value paid to any person by any Indian or tribe for or on his or
their behalf, on account of such services, in excess of any amount approved by
the Secretary or his or her authorized representative will be subject to
forfeiture.

The Company has sold and intends to sell gaming machines directly to Indian
tribes. The Company has not submitted its past gaming machine sales contracts
with Indian tribes to the Secretary for approval for a number of reasons. In the
Company's opinion, its sales contracts are not for services. The Company
believes it is engaged in the sale of goods, namely gaming machines, and
therefore Section 81 does not apply to its activities. The Company also believes
that its sales of gaming machines are not "relative to Indian lands." Although
the gaming machines ultimately may be used on Indian lands, the Company believes
the machines themselves are not related to Indian land. The Company intends to
continue its practice of not submitting its sales contracts to the Secretary for
approval. The position of regulatory authorities relative to approval of
contracts of this kind has not been clear.

NEVADA

The manufacture and distribution of gaming devices in Nevada are subject to: (i)
the Nevada Gaming Control Act and the regulations promulgated thereunder
(collectively, the "Nevada Act"); and (ii) various local regulations. Generally,
gaming activities may not be conducted in Nevada unless licenses are obtained
from the Nevada Gaming Commission (the "Nevada Commission"), the Nevada State
Gaming Control Board (the "Nevada Board"), and appropriate county and municipal
licensing agencies. The Nevada Commission, the Nevada Board, and the various
county and municipal licensing agencies are collectively referred to as the
"Nevada Gaming Authorities."

The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) to provide a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company.


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Manufacturer and distributor licenses require the periodic payment of fees and
taxes and are not transferable. No person may become a stockholder of, or
receive any percentage of profits from, the Company without first obtaining
licenses and approvals from the Nevada Gaming Authorities. IGCA is registered by
the Nevada Commission as a publicly traded corporation ("Registered
Corporation") and IGI, the operating subsidiary of the IGCA, was granted all
requisite licenses in May 1996 to manufacture gaming devices used in Nevada and
to distribute such devices, subsequent to technical product approvals. As such,
the Company is required periodically to submit detailed financial and operating
reports to the Nevada Commission and furnish any other information that the
Nevada Commission may require.

The Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, the Company in order to determine
whether such individual is suitable or should be licensed as a business
associate of a gaming licensee. Officers, directors and certain key employees of
IGI must file applications with the Nevada Gaming Authorities and are required
to be licensed by the Nevada Gaming Authorities. Officers, directors and key
employees of IGCA who are actively and directly involved in the gaming
activities of IGI may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application for
licensing or a finding of suitability for any cause they deem reasonable. A
finding of suitability is comparable to licensing, and both require submission
of detailed personal and financial information followed by a thorough
investigation. The applicant for licensing or a finding of suitability must pay
all the costs of the investigation. Changes in licensed positions must be
reported to the Nevada Gaming Authorities and in addition to their authority to
deny an application for a finding of suitability or licensure, the Nevada Gaming
Authorities have jurisdiction to disapprove a change in a corporate position.

If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or to continue having a relationship with the
Company, the companies involved would have to sever all relationships with such
person. In addition, the Nevada Commission may require the Company to terminate
the employment of any person who refuses to file appropriate applications.
Determinations of suitability or of questions pertaining to licensing are not
subject to judicial review in Nevada.

The Company is required to submit detailed financial and operating reports to
Nevada Gaming Authorities. Substantially all material loans, leases, sales of
securities and similar financing transactions by the Company, must be reported
to or approved by the Nevada Commission.

If it was determined that the Nevada Act was violated by IGI, the gaming
licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition,
IGI, IGCA and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Limitation, conditioning or suspension of any gaming license could
(and revocation of any gaming license would) materially adversely affect the
Company.

Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
State of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.

                                     - 10 -


<PAGE>   11
The Nevada Act requires any person who acquires more than 5% of the Company's
voting securities to report the acquisition to the Nevada Commission. The Nevada
Act requires that beneficial owners of more than 10% of the Company's voting
securities apply to the Nevada Commission for a finding of suitability within
thirty days after the Chairman of the Nevada Board mails a written notice
requiring such filing. Under certain circumstances, an "institutional investor,"
as defined in the Nevada Act, which acquires more than 10% but not more than 15%
of the Company's voting securities, may apply to the Nevada Commission for a
waiver of such finding of suitability if such institutional investor holds the
voting securities for investment purposes only. An institutional investor shall
not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Company, any change in the Company's corporate charter, bylaws,
management, policies or operations of the Company or any of its gaming
affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for investment
purposes only. Activities that are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting on all
matters voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.

Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board, may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the common stock of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is subject to
disciplinary action if after it receives notice that a person is unsuitable to
be a stockholder or to have any other relationship with the Company, the Company
(i) pays that person any dividend or interest upon voting securities of the
Company, (ii) allows that person to exercise, directly or indirectly, any voting
right conferred through securities held by that person, (iii) pays remuneration
in any form to that person for services rendered or otherwise, or (iv) fails to
pursue all lawful efforts to require such unsuitable person to relinquish his
voting securities for cash at fair market value. Additionally, the Clark County
Liquor and Gaming Licensing Board has taken the position that they have the
authority to approve all persons owning or controlling the stock of any
corporation controlling a gaming license.

The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file an application, be investigated and
found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.


                                     - 11 -


<PAGE>   12
The Company is required to maintain a current stock ledger in Nevada that may be
examined by the Nevada Gaming Authorities at any time. If any Securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company is also required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require the Company's stock certificates to bear a legend indicating
that such securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on the Company.

The Company may not make a public offering of any securities without the prior
approval of the Nevada Commission if the securities or the proceeds therefrom
are intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful.

Changes in control of the Company through merger, consolidation, stock or asset
acquisitions, management or consulting agreements, or any act or conduct by a
person whereby he obtains control, may not occur without the prior approval of
the Nevada Commission. Entities seeking to acquire control of a Registered
Corporation must satisfy the Nevada Board and the Nevada Commission concerning a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process of the transaction.

The Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environmental for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Company's
board of directors in response to a tender offer made directly to the Registered
Corporation's stockholders for the purpose of acquiring control of the
Registered Corporation.

Any person who is licensed, required to be licensed, registered, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are also required to comply with certain
reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by

                                     - 12 -


<PAGE>   13
the Nevada Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fail to conduct the
foreign gaming operation in accordance with the standards of honesty and
integrity required of Nevada gaming operations, engage in activities that are
harmful to the State of Nevada or its ability to collect gaming taxes and fees,
or employ a person in the foreign operation who has been denied a license or a
finding of suitability in Nevada on the ground of personal unsuitability.

OTHER JURISDICTIONS.

Each of the other jurisdictions in which the Company does business requires
various licenses, permits and approvals in connection with the manufacture
and/or distribution of gaming devices typically involving restrictions similar
in most respects to those of Nevada.

UNITED STATES - FEDERAL - The Federal Gambling Devices Act of 1962 (the "Federal
Act") makes it unlawful for a person to manufacture, deliver or receive gaming
machines and components thereof across interstate lines unless that person has
first registered with the Attorney General of the United States. The Company is
so registered and must renew its registration annually. In addition, various
recordkeeping and equipment identification requirements are imposed by the
Federal Act. Violation of the Federal Act may result in seizure or forfeiture of
equipment, as well as other penalties.






                                     - 13 -


<PAGE>   14
ITEM 2. PROPERTIES

The Company leases approximately 53,100 square feet of warehouse and office
space in Reno, Nevada for its main facility, which includes administrative,
sales, manufacturing and warehousing operations. The rent under the lease, which
expires in October 2001, is approximately $229,000 in 1997, with provisions for
annual rent increases. The Company also leases approximately 2,400 square feet
of office and warehouse space in Las Vegas, Nevada for sales and service
operations. The rent under the lease, which expires in July 1999, is
approximately $26,000 annually.


ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any material litigation and is not aware of any
threatened litigation that would have a material adverse effect on its business.


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

No matter was submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year ended December 31, 1996.


                      EXECUTIVE OFFICERS OF THE REGISTRANT

EDWARD G. STEVENSON, AGE 50, has been the President, Chief Executive Officer,
and a director of the Company since February 1996. Prior to joining the Company,
Mr. Stevenson served as the President and Chief Operating Officer of Little Six,
Inc. d/b/a Mystic Lake Casino in Minneapolis, from January 1995 to March 1996.
From 1988-1991 and from October 1992 to January 1995, Mr. Stevenson was the
President of CMS International/Summit Casinos of Reno, Nevada. From June 1991 to
October 1992, Mr. Stevenson served as president of gaming operations for
International Game Technology and from 1982 through 1987 served in various posts
as chief operating officer and general counsel of Harvey's Resort Hotel/Casino
in Stateline, Nevada.

SCOTT H. SHACKELTON, AGE 47, has been Vice President, Chief Financial Officer
and Secretary since June 1996. Prior to joining the Company, Mr. Shackelton
served as Vice President, Controller and Treasurer of International Game
Technology from December 1981 to May 1996. Mr. Shackleton held various positions
at Harrah's Hotels/Casinos from 1974 to 1981, with his last position being
assistant controller.



                                     - 14 -


<PAGE>   15
                                     PART II

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


                           PRICE RANGE OF COMMON STOCK

Since May 28, 1993, the date of the Company's initial public offering, through
September 20, 1994, the Company's Common Stock was traded on NASDAQ Small-Cap
Market under the ticker symbol "IGCA". On September 21, 1994 the Company's
Common Stock began trading on the NASDAQ National Market.

The following table summarizes the high and low prices per share of the Common
Stock for the periods indicated as reported on the NASDAQ SmallCap Market or the
NASDAQ National Market:

<TABLE>
<CAPTION>
                                                                   HIGH                  LOW
                                                                   ----                  ---
<S>                                                               <C>                  <C>  
FYE 12/31/95
First Quarter                                                     $6.75                $4.00
Second Quarter                                                     8.91                 4.88
Third Quarter                                                      9.50                 7.13
Fourth Quarter                                                     9.50                 7.00

FYE 12/31/96
First Quarter                                                    $11.75                $7.25
Second Quarter                                                    11.13                 8.00
Third Quarter                                                      8.75                 5.38
Fourth Quarter                                                     8.88                 4.75
</TABLE>


The Company has never declared or paid any dividends on its Common Stock, and
the Board of Directors presently intends to retain all earnings, if any, for use
in the Company's business for the foreseeable future. Any future determination
as to declaration and payment of dividends will be made at the discretion of the
Board of Directors. The terms of the Company's previously outstanding Series B
Convertible Preferred Stock prohibited the Company from paying cash dividends to
common stockholders.

On March 17, 1997, the last reported sale price for the Common Stock was $5.56
per share. As of March 17, 1997, the Company had approximately 135 record
holders of Common Stock.








                                     - 15 -


<PAGE>   16
ITEM 6.  SELECTED FINANCIAL DATA

The following is a summary of certain consolidated statement of operations, cash
flow and balance sheet information for the Company as of and for the years ended
July 31, 1993 and 1994, the five months ended December 31, 1994, and the years
ended December 31, 1995 and 1996. The following financial information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
of Innovative Gaming Corporation of America and Subsidiary (in thousands except
per share data).


<TABLE>
<CAPTION>
                                       For the Year      For the Year       For the Five     For the Year     For the Year
                                          Ended              Ended          Months Ended         Ended           Ended
                                       December 31,    December 31, 1995    December 31,       July 31,         July 31,
                                           1996                                 1994             1994             1993
                                      --------------   ------------------   ------------     ------------     -------------
<S>                                            <C>               <C>                  <C>          <C>                <C> 
Statement of operations data:
  Net sales                                    $2,664            $6,352               $470         $8,910             $396
  Gross profit                                    529             1,589                199          3,825               71
  Operating income (loss)                      (6,592)           (2,765)            (2,179)           751             (860)
  Net income (loss)                            (6,179)           (2,114)            (1,129)         1,028             (838)
  Net income (loss) per
     common share                              (0.97)             (0.38)            (0.20)            .19            (0.26)

Balance sheet data (end of period):
  Working capital                             $11,996           $16,039            $17,616        $20,049           $7,882
  Total assets                                 15,976            18,929             21,417         23,682            9,457
  Long-term debt (net of
     current maturities)                            -                 -                  5             21               44
  Redeemable preferred stock                        -                 -                983            975              955
  Total stockholders' equity                   15,450            18,531             19,693         21,851            7,443
</TABLE>









                                     - 16 -


<PAGE>   17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

The following discussion and this Form 10-K contain forward-looking statements
that involve risks and uncertainties relating to future events. Actual events or
the Company's results may differ materially from those discussed in such
forward-looking statements. Factors that might cause actual results to differ
from those indicated by such forward-looking statements include, but are not
limited to, failure or delay in obtaining gaming regulatory approvals, delays in
developing or manufacturing new products, decline in demand for gaming products
or reduction in the growth rate of new markets, changing economic conditions,
approval of pending patent applications or infringement upon existing patents,
the effects of regulatory and governmental actions, customer acceptance of the
Company's products, need for additional financing and increased competition.

OVERVIEW - The Company was formed in 1991 to develop, manufacture, market and
distribute group participation and other specialty video gaming machines. The
Company manufactures, distributes and markets BJ Blitz TM, Hot Shot Dice TM,
Lightning Strike Roulette TM and Supersuits Progressive Blackjack TM to certain
gaming markets worldwide. Since inception, the Company has focused most of its
resources on the development of games, the regulatory approval process and the
sale and installation of its games.

RELATIONSHIP WITH GRAND CASINOS, INC. - The Company and Grand Casinos, Inc.
("GCI") have entered into an agreement which allows casinos owned or managed by
GCI or its affiliates to purchase up to 125 of the Company's video gaming
machines at prices substantially lower than the price the Company charges
unrelated parties. Pursuant to this agreement, the Company has sold 42 blackjack
machines, 11 craps machines and 8 roulette machines to casinos either owned or
managed by GCI. No machine sales were made to GCI 1996.

REGULATION - The Company distributes its products both directly to the gaming
marketplace and through licensed distributors. The Company is currently licensed
and/or has the necessary regulatory approvals as a gaming product manufacturer
and distributor in Nevada, Colorado, Mississippi, Louisiana, Minnesota, Arizona,
Quebec and the Atlantic Lottery (four Canadian Maritime provinces). In certain
jurisdictions, the Company has received technical game approval and may use an
existing licensed distributor to sell its products pursuant to any necessary
tribal or regulatory transaction approvals. As of March 1997, technical game
approvals are being sought by the Company and/or its distributor in New South
Wales, Australia, Quebec and the Atlantic Lottery. The Company intends to apply
for necessary licenses or approvals in other jurisdictions both domestically and
internationally where Class III gaming is permitted.

DISTRIBUTORS - The Company has granted Sodak Gaming, Inc. a multi-year
non-exclusive license to distribute the Company's products to North American
Indian casinos (excluding the states of Minnesota and Nevada) and to non-Indian
casinos in the states of North Dakota, South Dakota and Wyoming. The Company has
also granted Drew Distributing a multi-year exclusive license to distribute
Company's multi-station products in South Carolina.

On February 7, 1996, the Company entered into a five-year distribution agreement
with Aristocrat Leisure Industries of New South Wales, Australia to exclusively
market and distribute the Company's multi-

                                     - 17 -


<PAGE>   18
station products in Australia, New Zealand and surrounding gaming markets. On
March 5, 1996, the Company entered into a three-year exclusive distribution
agreement with Ludi S.F.M. of France and its related entity Eurusa, to market
and distribute the Company's multi-station products to select western European
gaming markets. On December 4, 1996, the Company entered into a three-year
exclusive distribution agreement with Bally Gaming International to market and
distribute the Company's multi-station products in specified European countries.
On January 21, 1997, the Company granted a three-year exclusive distribution
license to Vista Gaming Corporation to distribute and service the Company's
multi-station products in Colorado.

OTHER - On February 2, 1996, the Company completed the acquisition of all
remaining patents, trademarks, copyrights and other intellectual property
related to its games from its principal supplier. The Company also signed an
agreement to receive favorable pricing on key game components for a two-year
period, which is expected to lower its per game manufacturing costs.

FISCAL YEAR - On December 14, 1994, the Company changed its fiscal year end from
July 31 to December 31. This change created a transitional period which began on
August 1, 1994 and ended on December 31, 1994. The Company has not recast
comparative prior period information to conform with the current period since it
does not believe such recasting is meaningful or cost-effective. The period
which is most nearly comparable to the year ended December 31, 1995 is the year
ended July 31, 1994. The Company does not believe that there are any material
trends, seasonal or otherwise, or other factors which would effect the
comparison of the two periods. All references herein to years are to fiscal
years unless otherwise indicated.


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,1996 COMPARED TO THE YEAR
ENDED DECEMBER 31,1995.


For the year ended December 31, 1996, the Company reported a net loss of
$6,179,000, or $.97 per share, compared to a net loss of $2,198,000, or $.38 per
share, for the year ended December 31, 1995. For the prior year period, results
from operations have been adjusted for preferred stock accretion and preferred
stock dividends paid. The increased loss in 1996 was primarily due to: i) a one
time restructuring charge of $1,716,000, ii) lower sales volume and iii) higher
selling, general and administrative expenses.

SALES, COST OF SALES AND GROSS PROFIT

Sales declined to $2,664,000 in 1996 compared to $6,352,000 in 1995, due to a
decrease in unit sales from 94 in 1995 to 33 in 1996. In 1995 the Company
entered into the markets of Arizona, Wisconsin, North Carolina and South
Carolina, where 72 units were sold. Delays in acquiring required gaming licenses
in key gaming jurisdictions limited the markets available to sell the Company's
products in 1996. The Company has subsequently been granted technical game
approval of its blackjack machine in Colorado and its three multi-player video
machines Nevada, and the Company is pursuing placement of its products in those
jurisdictions, which management believes will result in increased revenues. The
Company, through its distributor, is also pursuing game approval in the key
jurisdiction of Australia.

The gross margin in 1996 was 19.8% compared to 25.0% in 1995. In 1996, all of
the games sold by the Company were to distributors, which yield lower gross
margins than direct sales.

                                     - 18 -


<PAGE>   19
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expenses for the year ended December 31,
1996 increased $1,051,000 to $5,405,000 compared to $4,354,000 for the year
ended December 31, 1995. This expense increase was primarily due to higher
product engineering and development expense related to preparing the Company's
products for introduction into new jurisdictions, and increased payroll
expenses.

INTEREST INCOME

In the year ended December 31, 1996, interest income decreased $83,000 to
$568,000 compared to $651,000 in the year ended December 31, 1995. The decrease
in interest income was due to a decrease in notes receivable and investments in
interest bearing accounts.

RESTRUCTURING COSTS

The Company recognized $1,716,000 in restructuring costs, which included
expenses relating to inventory write downs, the Company's relocation to Reno and
management transition. As part of the restructuring, management focused on the
product lines it felt were necessary to provide the salability, manufacturing
capability, and ultimately the profit margins necessary to achieve and sustain
future growth. As part of this process the Company wrote down certain of its
inventory. All anticipated expenses related to the relocation and restructuring
were accrued in the quarter ended June 30, 1996. During the relocation process,
the Company maintained operations in both Reno, Nevada and Plymouth, Minnesota
for over two months, which resulted in duplication of various expenses.
Additionally, the Company incurred a loss upon the sale and disposal of unusable
office equipment, computer equipment and leasehold improvements when moving out
of the Plymouth office.

PROVISION FOR INCOME TAXES

The Company recorded a $155,000 provision for income taxes during the second
quarter of 1996 to provide a full valuation allowance on its deferred tax asset
relating to its net operating loss carry forwards.


RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR
ENDED JULY 31, 1994.


As discussed above, on December 14, 1994, the Company changed its fiscal year.
The Company believes comparison of results of operations to the five-month
transition period ended December 31, 1994 is not appropriate. Accordingly, the
Company has chosen the fiscal year ended July 31, 1994 as the most appropriate
period for comparison. During the five month transition period ended December
31, 1994, the Company reported at net loss of $1,170,000 or $.20 per share.

For the year ended December 31, 1995, the Company reported a net loss of
$2,198,000 or $.38 per share compared to net income of $928,000 or $.19 per
share for the fiscal year ended July 31, 1994. For each period, results from
operations have been adjusted for preferred stock accretion and preferred stock

                                     - 19 -


<PAGE>   20
dividends paid. Earnings decreased due to lower sales volumes, a lower gross
margin, a $649,000 charge for an inventory valuation allowance and higher
selling, general and administrative expenses in anticipation of expanding
markets.

SALES, COST OF SALES AND GROSS PROFIT

Sales declined $2,558,000 during the year ended December 31, 1995 compared to
the year ended July 31, 1994. The following table summarizes product sales:

<TABLE>
<CAPTION>
                                    Year ended December     Year ended
                                         31, 1995         July 31, 1994
                                    -------------------   -------------
<S>                                      <C>                <C>       
             Sales revenue               $6,352,000         $8,910,000
                                         ==========         ==========
             Unit sales:                                  
                Blackjack                        76                 78
                Craps                             2                 53
                Roulette                         16               --
                                         ----------         ----------
                   Total units                   94                131
                                         ==========         ==========
             Total units sold to GCI              8                 44
                                         ==========         ==========
</TABLE>


Gross profit for 1995 was $1,589,000 or 25.0% of sales compared to $3,825,000 or
42.9% of sales for the 1994 fiscal year. Gross profit decreased in part due to
higher cost of game components resulting from unfavorable changes in Yen
exchange rates. Also, per game sales prices were lower in 1995 due to a higher
percentage of sales through distributors which resulted in reduced selling
prices. Gross profits are expected to remain lower than historical levels until
the effects of the new supplier agreements are fully realized and regulatory
approvals in new gaming jurisdictions are obtained.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative expense for the year ended December 31, 1995
increased $1,280,000 to $4,354,000 compared to $3,074,000 during fiscal year
1994. The increase is attributable primarily to increases in corporate office
expenses in anticipation of expanded markets and product development expenses.

INTEREST INCOME

Interest income for the year December 31, 1995 was $651,000 compared to $377,000
for fiscal year 1994. Interest income increased due to larger amounts invested
in interest bearing accounts, including interest bearing notes receivable from
the sale of product.






                                     - 20 -


<PAGE>   21
LIQUIDITY AND CAPITAL RESOURCES

The Company has a $1,000,000 standby letter of credit/revolving credit
arrangement to facilitate acquisition of components and supplies from foreign
vendors. As of December 31, 1996, the full amount available was utilized.
The facility is collateralized by a $1,000,000 in short-term investments.

On October 20, 1994, the Company's Board of Directors authorized the Company to
repurchase up to 500,000 shares of its currently outstanding common stock from
time to time on the open market or in privately negotiated transactions,
depending on market conditions. As of December 31, 1996, the Company had
repurchased 248,500 shares at prices ranging from $3.56 to $6.08 per share. No
shares were repurchased in 1996.

The Company had $5,959,000, $8,749,000 and $5,796,000 in cash, cash equivalents
and available-for-sale securities as of December 31, 1996, December 31, 1995,
and December 31, 1994, respectively. The Company believes that its cash and cash
equivalents, available-for-sale securities, restricted investments and
additional financing capacity will be sufficient to meet the Company's current
liquidity and capital requirements. These resources and cash generated from
operations are expected to meet the Company's long-term capital requirements. To
adequately finance its expansion, the Company may issue additional equity or
debt securities. The Company had no long-term debt as of December 31, 1996.

Gains and losses on foreign currency transactions are recognized currently in
earnings. The Company's revenues from foreign markets are expected to increase
in the future, further subjecting the Company to the effects of fluctuations in
exchange rates. The Company does not consider this to be a significant risk at
this time.

SUBSEQUENT EVENTS - TECHNICAL GAME APPROVALS

The Company announced on February 4, 1997, that it had received technical game
approval for it multi-station blackjack machine from Colorado regulatory
authorities.

On February 20, 1997, the Nevada Gaming Commission granted the Company unanimous
approval of its Hot Shot DiceTM machine for use in Nevada casinos. On March 20,
1997, the Nevada Gaming Commission also granted the Company approval of its
Blackjack BlitzTM and Lightning Strike RouletteTM machines for use in Nevada
casinos. In Nevada, the Company anticipates placing these machines on a
"participation" basis wherein the Company will receive a percentage of the
games' net win at percentages similar to those received by other specialty game
suppliers in casino locations.











                                     - 21 -


<PAGE>   22
ITEM 8.  FINANCIAL STATEMENTS



                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Innovative Gaming Corporation of America:

We have audited the accompanying consolidated balance sheets of Innovative
Gaming Corporation of America and Subsidiary as of December 31, 1996 and 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the years ended December 31, 1996 and 1995, the five months ended
December 31, 1994 and the year ended July 31, 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Innovative Gaming
Corporation of America and Subsidiary as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years ended December
31, 1996 and 1995, the five months ended December 31, 1994 and the year ended
July 31, 1994 in conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying schedule is presented for purposes
of complying with the Securities and Exchange Commission rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.



                                         ARTHUR ANDERSEN LLP

Las Vegas, Nevada
February 14, 1997





                                     - 22 -


<PAGE>   23
             INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
                           Consolidated Balance Sheets
                        (In Thousands, Except Share Data)

<TABLE>
<CAPTION>
                                                                                                   As of December 31,
                                                                                             ----------------------------
                                                                                               1996                1995
                                                                                             --------            --------
<S>                                                                                          <C>                 <C>     
                                                   ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                                                  $  2,993            $    897
  Available-for-sale securities                                                                 2,966               7,852
  Restricted investments                                                                        1,000                 542
  Accounts receivable, net of allowances of $75 and $70                                           483                 116
  Current portion of notes receivable, net of allowances of $73 and $ -                           177                 873
  Inventories                                                                                   4,729               5,806
  Prepaid expenses and other                                                                      174                 351
                                                                                             --------            --------
     Total current assets                                                                      12,522              16,437

NOTES RECEIVABLE, less current portion                                                           --                   951
PROPERTY AND EQUIPMENT, net                                                                       653                 359
DEFERRED INCOME TAXES, net                                                                        720                 854
INTANGIBLES, net                                                                                2,081                 328
                                                                                             --------            --------

                                                                                             $ 15,976            $ 18,929
                                                                                             ========            ========

                                    LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                                           $    246            $    335
  Accrued liabilities                                                                             254                  58
  Notes payable                                                                                    26                   5
                                                                                             --------            --------

     Total current liabilities                                                                    526                 398
                                                                                             --------            --------

COMMITMENTS AND CONTINGENCIES (Note 9)

STOCKHOLDERS' EQUITY:
  Common stock, $.01 par value, 100,000,000 shares authorized,
   6,476,515 and 4,968,915 shares issued and outstanding                                           65                  50
  Class B non-voting common stock, $.01 par value,
   1,025,000 shares authorized, 0 and 1,025,000 issued and outstanding                           --                    10
  Additional paid-in capital                                                                   24,951              21,858
  Accumulated deficit                                                                          (9,559)             (3,380)
  Unearned compensation                                                                          --                   (10)
  Net unrealized gain (loss) on available-for-sale securities                                      (7)                  3
                                                                                             --------            --------

     Total stockholders' equity                                                                15,450              18,531
                                                                                             --------            --------

                                                                                             $ 15,976            $ 18,929
                                                                                             ========            ========
</TABLE>
                 The accompanying notes are an integral part of
                       these consolidated balance sheets.

                                     - 23 -



<PAGE>   24
             INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
                      Consolidated Statements of Operations
                      (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                  For the Year   For the Year    For the Five   For the Year
                                                                     Ended          Ended        Months Ended      Ended
                                                                   December 31,  December 31,    December 31,     July 31,
                                                                       1996          1995            1994           1994
                                                                     -------        -------        -------        -------
<S>                                                                  <C>            <C>            <C>            <C>    
NET SALES                                                            $ 2,664        $ 6,352        $   470        $ 8,910

COST OF SALES                                                          2,135          4,763            271          5,085
                                                                     -------        -------        -------        -------

    Gross profit                                                         529          1,589            199          3,825


SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                           5,405          4,354          2,378          3,074
RESTRUCTURING COSTS                                                    1,716           --             --             --
                                                                     -------        -------        -------        -------

    Operating income (loss)                                           (6,592)        (2,765)        (2,179)           751

INTEREST INCOME, net                                                     568            651            298            377
                                                                     -------        -------        -------        -------

    Income (loss) before income taxes                                 (6,024)        (2,114)        (1,881)         1,128

PROVISION (BENEFIT) FOR INCOME TAXES                                     155           --             (752)           100
                                                                     -------        -------        -------        -------

   Net income (loss)                                                  (6,179)        (2,114)        (1,129)         1,028

PREFERRED STOCK DIVIDENDS                                               --               67             33             80

PREFERRED STOCK ACCRETION                                               --               17              8             20
                                                                     -------        -------        -------        -------

  Net income (loss) attributable to common shareholders              ($6,179)       ($2,198)       ($1,170)       $   928
                                                                     =======        =======        =======        =======

INCOME (LOSS) PER COMMON SHARE
 AND COMMON SHARE EQUIVALENTS

  Primary and fully diluted                                          ($ 0.97)       ($ 0.38)       ($ 0.20)       $  0.19
                                                                     =======        =======        =======        =======

  Weighted average common and
   common equivalent shares outstanding                                6,356          5,856          5,964          5,600
                                                                     =======        =======        =======        =======
</TABLE>


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

                                     - 24 -
<PAGE>   25
             INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
                 Consolidated Statements of Stockholders' Equity
                                 (In Thousands)




<TABLE>
<CAPTION>
                                                                                                               Unrealized
                                                        Class B Non-Voting                                   Gain/(Loss) on
                                     Common Stock          Common Stock      Additional                         Available-
                                  -------------------   -------------------   Paid-in  Accumulated   Unearned    for-sale
                                   Shares     Amount     Shares     Amount    Capital    Deficit   Compensation Securities  Total
                                  --------   --------   --------   --------   --------   --------  ------------ ---------- -------
<S>                                  <C>     <C>          <C>       <C>        <C>       <C>        <C>            <C>     <C>    
BALANCE, July 31, 1993               4,355   $     44         --    $    --    $ 8,426   $   (940)  $    (86)      $ --    $ 7,444
  Common stock issued upon
   exercise of warrants, net of    
   executory costs of $164           1,522         15         --         --     12,759         --         --         --     12,774
  Stock options and warrants
   exercised                           130          1         --         --        661         --         --         --        662
  Stock option compensation
   earned                               --         --         --         --         --         --         44         --         44
  Preferred stock dividends
   paid                                 --         --         --         --         --        (80)        --         --        (80)
  Preferred stock accretion
   adjustment                           --         --         --         --         --        (20)        --         --        (20)
  Net income                            --         --         --         --         --      1,028         --         --      1,028
                                  --------   --------   --------   --------   --------   --------   --------   --------   --------

BALANCE, July 31, 1994               6,007         60         --         --     21,846        (12)       (42)        --     21,852
  Common stock repurchase
   and retirement                     (199)        (2)        --         --       (995)        --         --         --       (997)
  Common stock exchanged for
   Class B common stock             (1,025)       (10)     1,025         10         --         --         --         --         --
  Stock option compensation
   earned                               --         --         --         --         --         --          8         --          8
  Preferred stock dividends
   paid                                 --         --         --         --         --        (33)        --         --        (33)
  Preferred stock accretion
   adjustment                           --         --         --         --         --         (8)        --         --         (8)
  Net loss                              --         --         --         --         --     (1,129)        --         --     (1,129)
                                  --------   --------   --------   --------   --------   --------   --------   --------   --------

BALANCE, December 31, 1994           4,783         48      1,025         10     20,851     (1,182)       (34)        --     19,693
  Common stock repurchase
   and retirement                      (50)        (1)        --         --       (202)        --         --         --       (203)
  Preferred stock conversion            59          1         --         --        249         --         --         --        250
  Stock options and warrants
   exercised                           177          2         --         --        966         --         --         --        968
  Unearned compensation
   adjustments                          --         --         --         --         (6)        --         24         --         18
  Unrealized gain on
   available-for-sale securities        --         --         --         --         --         --         --          3          3
  Preferred stock dividends
   paid                                 --         --         --         --         --        (67)        --         --        (67)
  Preferred stock accretion
   adjustment                           --         --         --         --         --        (17)        --         --        (17)
  Net loss                              --         --         --         --         --     (2,114)        --         --     (2,114)
                                  --------   --------   --------   --------   --------   --------   --------   --------   --------

BALANCE, December 31, 1995           4,969         50      1,025         10     21,858     (3,380)       (10)         3     18,531
  Class B common stock exchange
    for common stock                 1,025         10     (1,025)       (10)        --         --         --         --         --
  Stock options and warrants
   exercised                           258          3         --         --      1,014         --         --         --      1,017
  Common stock issued for
   purchase of intangible assets       225          2         --         --      2,079         --         --         --      2,081
  Unearned compensation
   adjustments                          --         --         --         --         --         --         10         --         10
  Unrealized loss on
   available-for-sale securities        --         --         --         --         --         --         --        (10)       (10)
  Net loss                              --         --         --         --         --     (6,179)        --         --     (6,179)
                                  --------   --------   --------   --------   --------   --------   --------   --------   --------

BALANCE, December 31, 1996           6,477   $     65         --   $     --   $ 24,951   $ (9,559)  $     --   $     (7)  $ 15,450
                                  ========   ========   ========   ========   ========   ========   ========   ========   ========
</TABLE>

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

                                     - 25 -

<PAGE>   26
             INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
                      Consolidated Statements Of Cash Flows
                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                            For the Year   For the Year   For the Five  For the Year
                                                                               Ended          Ended       Months Ended      Ended
                                                                            December 31,   December 31,   December 31,    July 31,
                                                                                1996           1995           1994           1994
                                                                              --------       --------       --------       --------
<S>                                                                           <C>            <C>            <C>            <C>     
OPERATING ACTIVITIES:
  Net loss                                                                    ($ 6,179)      ($ 2,114)      ($ 1,129)      $  1,028
   Adjustments to reconcile net loss to
    cash flows from operating activities -
   Depreciation and amortization                                                   566            338            142            136
   Stock option compensation earned                                                 10             17              8             44
   Loss on sale of assets                                                          103              -              -              -
   Deferred income taxes                                                           134              -           (752)           (31)
   Provision for inventory obsolescence                                          1,308            649              -              -
   Provision for bad debts                                                          78             70              -              -
   Changes in operating assets and liabilities:
     Accounts and notes receivable                                               1,202          1,388          2,379         (5,777)
     Inventories                                                                  (232)           802         (1,936)        (4,407)
     Prepaid expenses and other                                                    177           (251)           162            247
     Accounts payable and accrued expenses                                         107           (308)          (100)            58
                                                                              --------       --------       --------       --------
     Net cash provided by (used for) operating activities                       (2,726)           591         (1,226)        (8,702)
                                                                              --------       --------       --------       --------
INVESTING ACTIVITIES:
  Purchases of available-for-sale securities                                    (5,936)       (15,092)        (1,004)        (3,125)
  Proceeds from sale of available-for-sale securities                           10,350         10,800              -          5,805
  Payment on covenant not to compete                                               (92)             -              -              -
  Proceeds from sale of property and equipment                                      45              -              -              -
  Purchases of property and equipment                                             (583)          (107)           (29)          (366)
                                                                              --------       --------       --------       --------

     Net cash provided by (used for) investing activities                        3,784         (4,399)        (1,033)         2,314
                                                                              --------       --------       --------       --------

FINANCING ACTIVITIES:
  Net payments on line of credit                                                     -              -              -           (371)
  Proceeds from financing agreements                                                26              -              -              -
  Payments on long-term obligations                                                 (5)           (34)           (15)           (22)
  Redemption of Series A Preferred Stock                                             -           (750)             -              -
  Preferred stock dividends paid                                                     -            (67)           (33)           (80)
  Net proceeds from sale of common stock                                         1,017            967              -         13,287
  Payments on repurchase of common stock                                             -           (203)          (996)             -
                                                                              --------       --------       --------       --------

     Net cash provided by (used for) financing activities                        1,038            (87)        (1,044)        12,814
                                                                              --------       --------       --------       --------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                 2,096         (3,895)        (3,303)         6,426

CASH AND CASH EQUIVALENTS, beginning of period                                     897          4,792          8,095          1,669
                                                                              --------       --------       --------       --------

CASH AND CASH EQUIVALENTS, end of period                                      $  2,993       $    897       $  4,792       $  8,095
                                                                              ========       ========       ========       ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
  Cash paid for interest                                                      $      3       $      5       $      2       $     14
                                                                              ========       ========       ========       ========
  Cash paid for income taxes                                                  $      4       $     55       $     59             $-
                                                                              ========       ========       ========       ========
  Noncash transactions:
     Series B Preferred Stock converted to common stock                             $-       $    250             $-             $-
                                                                              ========       ========       ========       ========
     Exchange of common stock for intangible assets                           $  2,081             $-             $-             $-
                                                                              ========       ========       ========       ========
</TABLE>

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

                                     - 26 -
<PAGE>   27
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)


1.       NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

NATURE OF BUSINESS

Innovative Gaming Corporation of America ("the Company") was incorporated in the
State of Minnesota on September 19, 1991. The Company is in the business of
developing, manufacturing and distributing gaming equipment.

USE OF ESTIMATES

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

REGULATION

The manufacture, distribution and sale of the Company's products are regulated
by various jurisdictions and entities, including requirements to obtain licenses
and product approval. The Company is presently seeking licenses and product
approval in several jurisdictions. Failure to successfully obtain licenses,
approvals, or meet other regulatory requirements could materially impact the
expansion and future operation of the Company.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Innovative Gaming
Corporation of America and its wholly owned subsidiary, Innovative Gaming, Inc.
All significant intercompany transactions have been eliminated.

FISCAL YEAR-END TRANSITION PERIOD PRESENTATION

On December 14, 1994, the Company changed its fiscal year-end from July 31 to
December 31. This change created a transitional period which began on August 1,
1994, and ended on December 31, 1994.

CASH AND CASH EQUIVALENTS

The Company considers all financial instruments which are highly liquid and have
original maturities of three months or less to be cash and cash equivalents
which are readily convertible to cash. Cash equivalents consist primarily of
demand deposits.

                                     - 27 -


<PAGE>   28
RESTRICTED INVESTMENTS

At December 31, 1996, $1.0 million of investments were pledged as collateral
against certain bank credit arrangements.

PROPERTY AND EQUIPMENT

Property and equipment are carried at cost with depreciation provided for using
the straight-line method over the useful lives of the assets or the lease term,
whichever is shorter. Maintenance, repairs and minor renewals are expensed when
incurred.

<TABLE>
<CAPTION>
                                                   Useful Life             1996        1995
                                                   -----------             ----        ----
<S>                                                <C>                     <C>         <C> 
      Office equipment                             5 years                 $250        $359
      Display Games                                5 years                  142           -
      Manufacturing equipment                      5 years                  240         162
      Leasehold improvements                       Life of lease            224          24
                                                                           ----        ----
        Total property and equipment                                        856         545
        Less:  Accumulated Depreciation                                    (203)       (186)
                                                                           ----        ----
            Total property and equipment, net                              $653        $359
                                                                           ====        ====
</TABLE>


INVENTORIES

Inventories are recorded at the lower of cost or market value. Cost is
determined according to the first-in, first-out accounting method. Inventories
consisted of the following at December 31:

<TABLE>
<CAPTION>
                                             1996         1995
                                            -------      -------
<S>                                         <C>          <C>    
              Game components and parts     $ 6,269      $ 6,455
              Work in process                   128         --
              Finished goods                    225         --
              Inventory reserves             (1,893)        (649)
                                            -------      -------
                 Total inventories, net     $ 4,729      $ 5,806
                                            =======      =======
</TABLE>

INTANGIBLES

The Company amortizes intangibles on a straight line basis over their estimated
economic lives.

REVENUE RECOGNITION

Revenue from the sale of product is recognized upon transfer of title and risk
of loss to the customer. Deposits received from customers in advance of delivery
are deferred until the revenue is recognized.

During 1996, a majority of the Company's sales were to three distributors. These
three distributors accounted for 37%, 32% and 24% of sales, respectively. During
1995, a majority of the Company's sales were to three customers. One customer
accounted for 14% of sales and two of the Company's distributors accounted for
41% and 16% of sales, respectively. During the year ended July 31, 1994, a
majority of the

                                     - 28 -


<PAGE>   29
Company's sales were to three customers. Grand Casinos, Inc. accounted for 26%
of sales and two of the Company's distributors accounted for 23% and 34% of
sales, respectively. For the years ended December 31, 1996 and 1995, and July
31, 1994, no other distributors or customers accounted for greater than 10% of
sales.

RESEARCH AND DEVELOPMENT COSTS

The Company engages in the development of new and existing products. Research
and development costs are expensed as incurred. The Company expensed
approximately $1,132, $476, $263 and $136 for the years ended December 31, 1996
and 1995, the five months ended December 31, 1994 and the year ended July 31,
1994, respectively.

RESTRUCTURING COSTS

In 1996, the Company recognized $1,716 of restructuring costs, which included
expenses related to the Company's relocation to Reno, Nevada, management
transition and product focus.

INCOME TAXES

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, (Accounting for Income Taxes) ["Statement 109"],
whereby deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the year in which those temporary
differences are expected to be removed or settled. Under Statement No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.

To the extent the amount deductible for income tax purposes from stock option
plans exceeds the amount charged to operations for financial statement purposes,
the related tax benefits are credited to capital stock when realized.

INCOME (LOSS) PER COMMON SHARE

Income (loss) per common share is determined by dividing income available to
common stockholders by the weighted average number of common share and common
share equivalents outstanding during each period. Common share equivalents
include the dilutive effects of options, warrants and convertible redeemable
preferred stock which are assumed to be exercised or converted into common
shares at the beginning of the periods if they are dilutive.

FOREIGN CURRENCY TRANSACTIONS

Transactions which occur in currencies other than U.S. dollars are translated to
U.S. dollars for financial reporting purposes. Gains and losses from this
process are recorded in the results of operations.


                                     - 29 -



<PAGE>   30
LONG-LIVED ASSETS

During 1995, the Company adopted Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of' ("Statement No.121"). Statement No.121 establishes
accounting standards for the recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles and goodwill either to be
held or disposed. In management's opinion, the adoption of Statement No. 121 did
not have a material impact on the Company's financial position or results of
operations.

Long-lived assets, including intangibles, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. For assets which produce future cash flows, an
estimate of undiscounted future cash flows is compared to the carrying amount to
determine if an impairment exists. For assets which do not produce quantifiable
future cash flows, such as intangibles, impairment is measured at the enterprise
level. If an asset is determined to be impaired, the loss is measured based on
quoted market prices in an active market, if available. If quoted market prices
are not available, the estimate of fair market value is based on the best
information available, including considering prices for similar assets and the
results of valuation techniques to the extent available.

RECLASSIFICATIONS

Certain accounts in the prior year financial statements have been reclassified
for comparative purposes to conform with the presentation in the current year
financial statements. These reclassifications had no effect on previously
reported net income or stockholders' equity.

2.       RELATIONSHIP WITH GRAND CASINOS, INC.:

Grand Casinos, Inc. ("GCI") is in the business of managing and developing
casinos. Two officer /directors of GCI are also directors of the Company. The
Company has agreed to sell up to 125 machines to GCI under the terms of a
discount machine agreement at significantly reduced prices for the purpose of
testing, evaluating and marketing the Company's products. Through December 31,
1996, the Company has sold 61 machines to GCI, pursuant to the agreement.

3.       AVAILABLE-FOR-SALE SECURITIES:

The Company classifies all investments which are not cash equivalents as
available-for-sale securities with all gross unrealized gains or losses included
as a separate component of equity. There were no material gross unrealized gains
or losses at either December 31, 1996 or 1995.

Available-for-sale securities at December 31, 1996 and 1995, consisted of United
States government and corporate securities and certificates of deposit.
Available-for-sale securities at December 31, 1996, were reported at fair value,
and consisted of government and corporate debt securities and certificates of
deposit with an amortized cost of $2,966 and no significant gross unrealized
holding gains or losses. All available-for-sale securities are due within one
year of December 31, 1996, except for $750 and $100 government debt securities,
which are due in July 1998 and December 1998, respectively. The market value of
the portfolio was $7,852 at December 31, 1995, with no significant gross
unrealized holding


                                     - 30 -


<PAGE>   31
gains or losses. Proceeds from the sale of available-for-sale securities were
$10,350 for the year ended December 31, 1996, $10,800 for the year ended
December 31, 1995, $0 for the five months ended December 31, 1994 and $5,805 for
the year ended July 31, 1994.


4.       NOTES RECEIVABLE:

The Company has granted certain customers extended payment terms under sales
contracts. These contracts are generally for terms of one to five years and are
collateralized by the equipment sold. The notes carry interest at rates ranging
from 10% to 13%. The balance due on notes receivable as of December 31, 1996 was
$177, net of reserve for doubtful accounts of $73. All notes mature within
twelve months.

The financial instruments that subject the Company to concentrations of credit
risk consist principally of accounts and notes receivable. Accounts and notes
receivable are concentrated in specific legalized gaming jurisdictions. At
December 31, 1996, the following concentrations of credit risk existed:

<TABLE>
<S>                                                  <C>
                       Germany                       50%
                       Holland                       29%
                       North Carolina and Other      21%
                                                    ---
                           Total                    100%
                                                    ===
</TABLE>


5.       INTANGIBLE ASSETS:

Intangible assets consisted of the following at December 31:

<TABLE>
<CAPTION>
                                                  Useful Life            1996         1995
                                                  -----------          ---------      -----
<S>                                               <C>                  <C>            <C>  
     Covenant not to compete                      18 months            $       -      $ 273
     Product patent rights                        5 to 10 years            2,332        250
     Nevada distribution rights                   10 years                   250        250
                                                                       ---------      -----
        Total intangible assets                                            2,582        773
        Less: accumulated amortization                                      (501)      (445)
                                                                       ---------      -----
              Total intangible assets, net                             $   2,081      $ 328
                                                                       =========      =====
</TABLE>

On February 2, 1996, the Company acquired the balance of all remaining
intellectual property including patents, trademarks, picture rights and
copyrights for its games from its Japanese suppliers in exchange for an
aggregate 225,000 shares of IGCA common stock.

6.       FINANCING ARRANGEMENTS:

The Company has a standby letter of credit/revolving credit facility primarily
to facilitate the acquisition of component parts and supplies. At December 31,
1996, the Company had a $1,000 standby letter of credit/revolving credit
facility with a bank that was secured by a $1,000 certificate of deposit, which
is included in the accompanying balance sheets as restricted investments. At
December 31, 1996, the full amount available was utilized. There were no amounts
outstanding on such facility at December 31, 1995.

                                     - 31 -


<PAGE>   32
7.       STOCKHOLDERS' EQUITY:

INITIAL PUBLIC OFFERING/REDEMPTION OF CLASS A WARRANTS

In June 1993, the Company completed an initial public offering of 1,523,750
Units consisting of 1,523,750 shares of common stock and 1,523,750 Redeemable
Class A Warrants at an offering price of $5.75 per Unit and received net
proceeds of $7,426. In April 1994, the Company received net proceeds of $12,774
from the exercise of 1,522,110 Redeemable Class A Warrants at $8.50 per share.
Remaining Redeemable Class A Warrants were redeemed.

In connection with the initial public offering, the Company sold a Unit Purchase
Option to its principal underwriter to purchase up to 125,000 Units for $6.90
per Unit expiring in 1998. No Units have been acquired under this option through
December 31, 1996.

PREFERRED STOCK

In April 1993, the Company sold 7,500 shares of Redeemable Non-Voting Series A
Preferred Stock, 2,500 shares of Convertible Redeemable Non-Voting Series B
Preferred Stock, 150,000 Redeemable Warrants to purchase common stock at a price
of $4.00 per share, and the right to designate 100,000 shares of outstanding
common stock for registration for resale at the Company's expense. Both Series A
and Series B Preferred Stocks required the Company to pay a cumulative mandatory
dividend at the annual rate of $8.00 per share. On October 2, 1995, the Series A
Preferred Stock was redeemed for its stated value of $750 and the 2,500 shares
of Series B Convertible Redeemable Preferred Stock were converted into 58,822
shares of common stock.


STOCK REPURCHASE PLAN

On October 20, 1994, the Company's Board of Directors authorized the Company to
repurchase up to 500,000 shares of its outstanding common stock from time to
time on the open market or in privately negotiated transactions. As of December
31, 1996, the Company had repurchased 248,500 shares at prices ranging from
$3.56 to $6.08 per share, for total consideration of $1,199. No shares were
repurchased in 1996.

ISSUANCE AND EXCHANGE OF CLASS B STOCK

On October 20, 1994, the Company issued 1,025,000 shares of its Class B
Non-Voting Common Stock in exchange for 1,025,000 shares of common stock held by
Grand Casinos, Inc. ("GCI"). On December 1, 1995, the Company and GCI amended
their earlier agreement to provide that if the Company did not receive certain
approvals from the Nevada Gaming Commission ("the Nevada Approvals") on or
before December 31, 1995, GCI would, subject to approval of the Minnesota
Commissioner of Commerce, exchange its 1,025,000 shares of Class B non-voting
common stock for 1,025,000 shares of the Company's common stock. The Company did
not receive the Nevada Approvals on or before December 31, 1995. On March 21,
1996, GCI converted 1,025,000 shares of Class B non-voting common stock into
1,025,000 shares of the Company's common stock.


                                     - 32 -


<PAGE>   33
At the time of the original exchange, the Company granted GCI certain
registration rights and the option to purchase 102,500 shares of common stock at
$7.00 per share, increased the number of games GCI may purchase under the
existing discount machine purchase agreement by 50 games (up to an aggregate 125
games) and entered into a transition plan with respect to Board of Directors'
positions based upon the timing of the Company's receipt of regulatory
approvals.

STOCK OPTIONS AND WARRANTS

The Company has a Stock Option and Compensation Plan (the "Plan"), pursuant to
which options and other awards to acquire an aggregate of 1,100,000 shares of
the Company's common stock may be granted. Stock options, stock appreciation
rights, restricted stock, other stock and cash awards may be granted under the
Plan. The Plan is administered by a stock option committee which has the
discretion to determine the number and purchase price of shares subject to stock
options (which may be below the fair value of the common stock on the date
thereof), the term of each option and the time or times during its term when the
option becomes exercisable. Options are generally exercisable in equal amounts
over a five-year period from the date of grant. During 1995 and 1994, the
exercise prices of certain options ranging from $6.00 to $15.75 were reduced to
$4.00 (fair market value on the date of repricing). On October 8, 1996, the
exercise prices of certain options ranging from $7.00 to $11.50 were reduced to
$4.75 (fair market value on the date of repricing).

The Company accounts for the Plan under APB Opinion No. 25 "Accounting for Stock
Options Issued to Employees", under which no compensation cost has been
recognized. FASB Statement No. 123 "Accounting for Stock-Based Compensation" was
issued by the FASB in 1995 and, if fully adopted, changes the methods for
recognition of cost on plans similar to that of the Company. Adoption of FASB
Statement No. 123 is optional, however, pro forma disclosures as if the Company
had adopted the cost recognition method are required. Had compensation cost for
the Plan been determined consistent with FASB Statement No. 123, the Company's
results of operations and earnings per share would have been changed to the
following pro forma amounts:

<TABLE>
<CAPTION>
                                                                        1996            1995
                                                                        ----            ----
<S>                                            <C>                     <C>            <C>
          Net loss:                            As reported             $(6,179)       $(2,114)
                                               Pro forma               $(6,520)       $(2,132)
          Primary and fully-diluted EPS:       As reported             $(0.97)        $(0.38)
                                               Pro forma               $(1.03)        $(0.38)
</TABLE>

Because the Statement No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma comparison
cost may not be representative of that to be expected in future years.







                                     - 33 -


<PAGE>   34
A summary of the status of the Plan at December 31, 1996, 1995 and 1994, and
changes during the periods then ended is presented in the table and narrative
below:
<TABLE>
<CAPTION>
                                December 31, 1996             December 31, 1995            December 31, 1994
                            --------------------------    --------------------------    ------------------------
                                             Wtd Avg                      Wtd Avg                      Wtd Avg
                                Number       Ex Price         Number      Ex Price         Number     Ex Price
                            ------------- ------------    ------------- ------------    ----------- ------------
<S>                         <C>               <C>         <C>               <C>         <C>              <C>    
Outstanding at beginning    
  of period                     352,600        $3.99          510,200        $4.56          500,200      $4.57
Granted                         540,500         4.75           45,000         4.61           10,000       4.00
Exercised                      (207,600)        3.94         (176,600)        5.48                -          -
Forfeited                       (79,000)        4.16          (26,000)        5.38                -          -
                            -------------                 -------------                 -----------
Outstanding at end of        
  period                         606,600       $4.67          352,600        $3.99          510,200      $4.56
                            -------------                 -------------                 -----------
Exercisable at end of        
  period                         131,000       $4.52          133,100        $3.89          205,000      $5.09
Weighted average fair
value of options granted
                                  $2.95                       $2.69                         $2.69
</TABLE>

As of December 31, 1996, 540,500 of the 606,500 options outstanding have
exercise prices of $4.75, with a weighted average remaining contractual life of
9.77 years. An additional 52,000 options have an exercise price of $4.00 and a
weighted average remaining contractual life of 7.32 years. The remaining 14,000
options have an exercise price of $4.25 and a weighted average remaining
contractual life of 8.05 years. Of the exercisable options, 91,000 have an
exercise price of $4.75 and 40,000 have an exercise price of $4.00. The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for the
1996 grants: risk-free interest rate of 10.0 percent; expected dividend yield of
0.0 percent; expected lives of 5 years; expected volatility of 61.8 percent.

The Company has issued stock purchase warrants with a variety of terms and
conditions. During 1996, the exercise prices of certain warrants were reduced
from $11.00 and $15.00 to $10.00 and $13.00, respectively.

The following summarizes stock purchase warrant transactions during the period:

<TABLE>
<CAPTION>
                                                             Number       Exercise Prices
                                                           ---------     ----------------
<S>                                                        <C>           <C>  
                   Outstanding July 31, 1994                 400,000        $4.00 - $8.50
                     Granted                                 352,500         7.00 - 15.00
                     Exercised                              (100,000)                4.00
                                                           ---------     ----------------
                   Outstanding December 31, 1994             652,500         4.00 - 15.00
                     Granted                                       -                    -
                     Exercised                                     -                    -
                     Canceled/Expired                              -                    -
                                                           ---------     ----------------
                   Outstanding December 31, 1995             652,500         4.00 - 15.00
                     Granted                                       -                    -
                     Exercised                               (50,000)                4.00
                     Canceled/Expired                              -                    -
                                                           ---------     ----------------
                   Outstanding December 31, 1996             602,500       $6.90 - $13.00
                                                           =========     ================
</TABLE>

                                     - 34 -


<PAGE>   35
At December 31, 1996, 602,500 warrants were exercisable. The warrants expire at
various dates through September, 2001.

8.       INCOME TAXES:

Provision for income taxes consists of the following components:

<TABLE>
<CAPTION>
                                      For the Year     For the Year     For the Five    For the Year
                                          Ended           Ended         Months Ended        Ended
                                      Dec. 31, 1996   Dec. 31, 1995    Dec. 31, 1994    July 31, 1994
                                      -------------   -------------    -------------    -------------
<S>                                       <C>               <C>             <C>            <C>  
Current:
   Federal                                $  21             $--             $  --          $ 106
   State                                     --              --                --             25
                                          -----             ---             -----          -----
      Total current expense                  21              --                --            131
Deferred                                    134              --              (752)           (31)
                                          -----             ---             -----          -----
      Total provision  (benefit)          $ 155             $--             ($752)         $ 100
                                          =====             ===             =====          =====
</TABLE>


The tax effects of temporary differences giving rise to the deferred items are
as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                       1996       1995
                                                     -------    -------
<S>                                                  <C>        <C>    
       Deferred tax assets:
          Net operating loss carryforwards           $ 3,354    $   970
          Inventory reserves                           1,261        657
          Other                                          691         63
                                                     -------    -------
             Total deferred tax assets                 5,306      1,690
          Valuation allowance                         (4,586)      (836)
                                                     -------    -------
             Deferred tax assets, net of allowance   $   720    $   854
                                                     =======    =======
</TABLE>


In accordance with Statement No. 109, the gross deferred tax asset at December
31, 1996, of $5,306, has been reduced by a valuation allowance of $4,586,
resulting in a net deferred tax asset of $720. The valuation allowance reduces
the deferred tax asset to an amount which management believes is more likely
than not to be realized.

At December 31, 1996, the Company has approximately $8,385 of net operating loss
carryforwards for federal income tax purposes. These losses expire beginning
2009. The use of approximately $1,250 of these losses is limited to
approximately $250 per year for the next five years because the loss was
generated in a short tax year.








                                     - 35 -


<PAGE>   36
9.       COMMITMENTS AND CONTINGENCIES:

OPERATING LEASES

The Company has entered into certain noncancelable operating lease agreements
related to office and warehouse space and equipment. Total lease expense under
operating leases was $222, $124, $60 and $68 for the years ended December 31,
1996 and 1995, the five months ended December 31, 1994, and the year ended July
31, 1994, respectively. The minimum annual rental commitments under operating
leases are as follows for the years ending December 31:

<TABLE>
<S>                                                       <C> 
                   1997                                     $272
                   1998                                      279
                   1999                                      299
                   2000                                      297
                   2001                                      254
                                                          ------
                      Total                               $1,401
                                                          ======
</TABLE>




LITIGATION

The Company is involved in legal actions in the ordinary course of its business.
While no reasonable estimates of potential liability can be determined,
management believes that such legal actions will be resolved without a material
effect on the Company's financial position or results of operations.

EMPLOYMENT CONTRACTS

The Company has employment contracts with various officers with remaining terms
ranging from one to three years at amounts approximating their current levels of
compensation. The Company's remaining aggregate commitment at December 31, 1996,
under such contracts is approximately $1,238. These agreements may also include
additional compensation to officers related to sales commission bonuses that
could be equal to two percent of the Company's sales.

10.      DISTRIBUTORSHIP AGREEMENTS:

In February 1996, the Company entered into an exclusive distribution agreement
with Aristocrat Leisure Industries of New South Wales, Australia for the
marketing and distribution of games in Australia, New Zealand, Papua New Guinea,
Taiwan, New Caledonia, Malaysia, the Philippines and Singapore (hereinafter
"Australasia"). The Company has granted Aristocrat an initial five year
exclusive license expiring February 2001 to distribute its blackjack, craps and
roulette games to all legalized Australasia video gaming jurisdictions. Pursuant
to the agreement, the Company has agreed to sell its games at discounted
distributor's pricing in exchange for a minimum purchase quantity of 100 units
per year, with a rolling six month sales materials forecast. Aristocrat has
submitted the Company's blackjack, and roulette games for technical approval
with New South Wales, Australia gaming authorities. Aristocrat may not
distribute games prior to receipt of any and all necessary regulatory approvals.


                                     - 36 -


<PAGE>   37
In March 1996, the Company entered into exclusive agreements with Ludi S.F.M.
and with S.A.M. Eurusa for the exclusive distribution of the Company's games in
France, Monaco, Morocco, Tunisia and Italy. Ludi and Eurusa are affiliated
entities. Under the agreement, Ludi and Eurusa have been granted three-year
exclusive licenses, expiring March 1999, to distribute the Company's blackjack,
craps and roulette games, subsequent to any and all regulatory approvals. The
agreements may be renewed for successive one-year terms upon the agreement of
the parties and on the terms and conditions set forth in the distribution
agreements or such other terms and conditions as the parties may agree and may
be terminated by either party under certain circumstances. Pursuant to the
agreement, the Company has agreed to sell its games to Ludi and Eurusa at the
Company's then current retail price less a distributor's discount.

The Company also has exclusive or nonexclusive distributorship agreements with
Bally Gaming International, Drew Distributing, Sodak Gaming, Inc. and Vista
Gaming Corporation.










                                     - 37 -


<PAGE>   38
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY

                 Schedule II - Valuation and Qualifying Accounts
                                 (In Thousands)
 
<TABLE>
<CAPTION>
Description                                          Balance      Charged to    Amount      Balance
-----------                                       Beginning of     Cost and     Written     End of
                                                     Period        Expenses        Off      Period
                                                  ------------    ----------    --------    --------
<S>                                                   <C>            <C>         <C>          <C>
Reserve for inventory obsolescence:

  For the five months ended 12/31/94                   $ -            $ -         $ -          $ -

  For the year ended 12/31/95                            -            649           -          649

  For the year ended 12/31/96                          649          1,308          64        1,893
</TABLE>


<TABLE>
<CAPTION>
Description                                          Balance      Charged to    Amount      Balance
-----------                                       Beginning of     Cost and     Written     End of
                                                     Period        Expenses        Off      Period
                                                  ------------    ----------    --------    --------
<S>                                                   <C>            <C>         <C>          <C>
Allowance for doubtful notes and accounts receivable:

  For the five months ended 12/31/94                   $ -            $ -         $ -          $ -

  For the year ended 12/31/95                            -             70           -           70

  For the year ended 12/31/96                           70             78           -          148
</TABLE>


                                     - 38 -


<PAGE>   39
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

No change of accountants or disagreements on any matters of accounting
principals or practices or Financial Statement disclosures have occurred.






                                     - 39 -



<PAGE>   40
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information beginning immediately following the caption "Election of
Directors" to, but not including, the caption "Executive Compensation" in the
Company's Proxy Statement, to be filed with the Securities and Exchange
Commission within 120 days after the close of the Company's year ended December
31, 1996 and forwarded to stockholders prior to the Company's 1997 Annual
Meeting of Shareholders (the "1997 Proxy Statement"), is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

The information in the 1997 Proxy Statement beginning immediately following the
caption "Executive Compensation" to, but not including, the caption
"Compensation Committee Interlocks and Insider Participation," is incorporated
herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


The information in the 1997 Proxy Statement beginning immediately following the
caption "Voting Securities and Principal Holders Thereof " to, but not
including, the caption "Election of Directors," is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information in the 1997 Proxy Statement under the caption "Certain
Transactions" is incorporated herein by reference.



                                     - 40 -


<PAGE>   41
                                                      PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Financial Statements:

<TABLE>
<CAPTION>
                                                                                                    Page
                                                                                                    ----
<S>                                                                                                  <C>
Report of Independent Public Accountants   . . . . . . . . . . . . . . . . . . . . . . . . . .       22

Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . . . . . . . . . .       23

Consolidated Statements of Operations for the years ended December 31, 1996 and 1995, the five
months ended December 31, 1994 and the year ended July 31, 1994 . . .                                24

Consolidated Statements of Stockholders' Equity  for the years ended December 31, 1996 and
1995,  the five months ended December 31, 1994 and the year ended July 31, 1994 . . . . . . .        25

Consolidated Statements of  Cash Flows for the years ended December 31, 1996 and 1995,  the
five months ended December 31, 1994 and the year ended July 31, 1994  . . . . . . . . . . . .        26

Notes to the Consolidated Financial Statements  . . . . . . . . . . . . . . . . . . . . . . .        27
</TABLE>



                                     - 41 -


<PAGE>   42
(a)(3) Exhibits

<TABLE>
<S>      <C>
3.1      Articles of Incorporation, as amended*
3.2      Bylaws*
10.1     1992 Stock Option and Compensation Plan, as amended** +
10.2     Non-exclusive Distributorship Agreement between Innovative Gaming, Inc. and Sodak Gaming, Inc.
         dated August 23, 1993**
10.3     Agreement by and between the Company and Grand Casinos, Inc., dated as of July 28,
         1994 **
10.4     Agreement between the Company and NANAO dated as of January 21, 1994*
10.5     Agreement between the Company and IREM, dated as of January 22, 1994*
10.6     Exclusive Distributorship Agreement by and among the Company, Drew
         Distributing and Hugh Andrews, dated as of January 24, 1994*
10.7     Employment Agreement between the Company and Edward G. Stevenson dated February 15, 1996***
10.8     Option Agreement between the Company and Edward G. Stevenson dated February 15, 1996***
10.9     Exclusive Distributorship Agreement between the Company and Aristocrat Leisure Industries
         PTY LTD dated February 7, 1996*** 
10.10    Assignment between the Company, NANAO and IREM dated February 2, 1996*** 
10.11    Parts Supply Agreement between the Company and IREM dated February 2,1996***
10.12    Agreement between the Company and H Square Corporation dated April 26, 1996***
10.13    Preferred Stock Redemption Agreement between the Company and D. Bradly Olah
         Dated October 2, 1995*** 
10.14    Second Amendment to Share Exchange Agreement between the Company and Grand Casinos, Inc. 
         dated December 1, 1995*** 
10.15    Exclusive Distributorship Agreement between the Company and Ludi S.F.M. dated March 5, 1996*** 
10.16    Exclusive Distributorship Agreement between the Company and S.A.M. EURSA dated March 5, 1996*** 
10.17    Fourth Amendment to Letter of Credit Agreement between the Company and First Bank National Association, 
         dated December 1, 1996 
10.18    Product Development and Revenue Sharing Agreement between the Company and IGT, dated November 18, 1996
10.19    Sublease agreement between the Company and Thomas & Betts Corporation, dated May 14, 1996 
10.20    Lease agreement between the Company and Dermody Properties, dated July 9, 1996
21       List of Subsidiaries*
23.1     Consent of Arthur Andersen LLP 
23.2     Consent of Arthur Andersen LLP 
27       Financial Data Schedule - which is only submitted electronically to the Securities and Exchange Commission 
         for EDGAR information purposes.
</TABLE>

*      Incorporated herein by reference to the Registrant's Registration
       Statement on Form SB-2 (Fi1e No. 33-61492C.)

**     Incorporated herein by reference to the Registrant's Registration
       Statement on Form SB-2 (Fi1e No.33-70450).

***    Incorporated herein by reference to the Registrant's Report on Form 10-K
       for the year ended December 31, 1995

+      Agreement relates to Executive Compensation

                                     - 42 -


<PAGE>   43
(b) Reports on Form 8-K.

         No current Reports on Form 8-K were filed by the Company during the
fourth quarter ended December 31, 1996.












                                     - 43 -


<PAGE>   44
                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                      INNOVATIVE GAMING CORPORATION OF AMERICA
                                      Registrant



Date: March  24, 1997          By:    /s/ Edward G. Stevenson
                                 -----------------------------------------------
                                      Name:   Edward G. Stevenson
                                      Title: President



In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on
March 24, 1997.




<TABLE>
<CAPTION>
                  Name                                Title
                  ----                                -----


<S>                                                   <C>
    /s/ Edward G. Stevenson                           President, Chief Executive Officer and Director
------------------------------------------             (principal executive officer)
         Edward G. Stevenson                           


     /s/ Scott Shackelton                             Vice President-Finance, Chief Financial Officer
------------------------------------------             (principal accounting officer)
         Scott Shackelton                              


       /s/ Lyle Berman                                Director
------------------------------------------
         Lyle Berman


      /s/ Stanley M. Taube                            Director
------------------------------------------
         Stanley M. Taube
</TABLE>



                                     - 44 -