<PAGE>
 
                       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 for the fiscal year ended September 30, 1997 or

       Transition report pursuant to Section 13 or 15(d) of the Securities
 ----- Exchange Act of 1934

                        Commission File Number:  1-9481

 

                          SANTA FE GAMING CORPORATION
--------------------------------------------------------------------------------
            (Exact name of registrant as specified in its Charter)


            Nevada                                               88-0304348
----------------------------------                         ---------------------
   (State or other jurisdiction                              (I.R.S. Employer 
 of incorporation or organization)                          Identification No.)


 4949 N. Rancho Dr., Las Vegas, Nevada                            89130 
--------------------------------------------------------------------------------
(Address of principal Executive Office)                         (Zip Code)

Registrant's telephone number, including area code:  (702) 658-4300

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


                                                  Name of each Exchange
Title of each class:                               on which registered:
-------------------                               ---------------------
Common Stock, par value $.01 per share            American Stock Exchange
Exchangeable Redeemable Preferred Stock           American Stock Exchange

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

                                      None
                                      ----
                                (Title of Class)

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

       The number of shares of common stock outstanding as of December 19, 1997,
was 6,195,356. The market value of the common stock held by nonaffiliates of the
Registrant as of December 19, 1997, was approximately $1,887,159.  The market
value was computed by reference to the closing sales price of $.6875 per share
of common stock on the American Stock Exchange as of December 19, 1997.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Part III hereof incorporates by reference portions of the Proxy Statement for
the Annual Meeting of Stockholders to be held on March 19, 1998 (to be filed
with the Securities and Exchange Commission within 120 days after September 30,
1997).
<PAGE>
 
                  SANTA FE GAMING CORPORATION AND SUBSIDIARIES
                   ANNUAL REPORT ON FORM 10-K FOR THE FISCAL
                         YEAR ENDED SEPTEMBER 30, 1997

                               TABLE OF CONTENTS

                                     PART I
<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>        <C>                                                            <C>
                                                              
Item 1.    Business......................................................   3
              General....................................................   3
              Hotel and Casino Operations................................   3
              Development Opportunities..................................   6
              Nevada Regulations and Licensing...........................   7
Item 2.    Properties....................................................  12
Item 3.    Legal Proceedings.............................................  13
Item 4.    Submission of Matters to a Vote of Security Holders...........  15

                                    PART II
 
Item 5.    Market for the Registrants Common Stock and Related
              Security Holder Matters....................................  15
Item 6.    Selected Financial Data.......................................  16
Item 7.    Management's Discussion and Analysis of Financial              
              Condition and Results of Operations........................  16
Item 8.    Financial Statements and Supplementary Data...................  30
Item 9.    Changes in and Disagreements with Accountants on              
              Accounting and Financial Disclosure........................  62


                                    PART III

Item 10.   Directors and Executive Officers of the Registrant............  62
Item 11.   Executive Compensation........................................  62
Item 12.   Security Ownership of Certain Beneficial Owners 
              and Management.............................................  62
Item 13.   Certain Relationships and Related Transactions................  62


                                    PART IV

Item 14.   Exhibits, Financial Statement Schedules and Reports 
              on Form 8-K................................................  62
</TABLE> 
<PAGE>
 
                                     PART I

Item 1.  Business
         --------

                                    General

    Santa Fe Gaming Corporation, formerly known as Sahara Gaming Corporation,
(the "Company" or "Santa Fe Gaming"), a publicly traded Nevada corporation, is
the successor corporation of two affiliates, Sahara Resorts and Sahara Casino
Partners, L.P., which combined in a business combination in September, 1993.
The Company's primary business operations are currently conducted through two
wholly owned subsidiary corporations, Santa Fe Hotel Inc. ("SFHI") and Pioneer
Hotel Inc. ("PHI") (the "Operating Companies").  SFHI owns and operates the
Santa Fe Hotel and Casino (the "Santa Fe"), located in Las Vegas, Nevada, and
Pioneer  Inc. owns and operates the Pioneer Hotel & Gambling Hall (the
"Pioneer") in Laughlin, Nevada.  In addition, the Company, through an indirect
wholly owned subsidiary, owns real estate parcels on Las Vegas Boulevard and in
Henderson, Nevada, for future development opportunities.  The Company through
its wholly owned subsidiaries, Hacienda Hotel Inc., ("HHI") and Sahara Nevada
Corp., ("SNC"), owned and operated the Hacienda Resort Hotel and Casino (the
"Hacienda") and the Sahara Hotel and Casino (the "Sahara"), but sold
substantially all of the assets related to those hotel-casinos in August 1995
and October 1995, respectively.

    The principal executive office of the Company is located at 4949 N. Rancho
Dr., Las Vegas, Nevada 89130 and the telephone number is (702) 658-4300.

                          Hotel and Casino Operations

    The Company's primary business operations are in the gaming industry and are
conducted at the Santa Fe property in Las Vegas, Nevada and the Pioneer property
in Laughlin, Nevada.

Description of the Hotel-Casinos

    The Santa Fe is located on a 40-acre site in the northwest part of Las
Vegas, approximately nine miles from the north end of the Las Vegas Strip.  The
targeted customers are residents of northwest Las Vegas and, to a lesser extent,
residents of the entire Las Vegas Valley.

    The Santa Fe features 200 standard hotel rooms, an 85,000 square foot
casino, an ice skating arena, a 60-lane bowling center, three themed
restaurants, a dedicated bingo room, a race book and other public areas.
Additionally, the Santa Fe includes a coffee shop, buffet, five full service
bars and a lounge area that features live entertainment.

                                       3
<PAGE>
 
    The Pioneer is located on approximately 12 acres of land, with Colorado
River frontage of approximately 770 feet, and  is situated near the center of
Laughlin's Casino Drive.  Approximately 6 1/2  acres of the 12 acres are subject
to a 99-year ground lease which, by its terms, is scheduled to terminate in
December 2078.  One of the three motel buildings together with a portion of both
the Pioneer's casino building and a second motel building are located on land
subject to the ground lease.  The leased land lies between and separates the two
parcels of land that are held in fee.

    The Pioneer hotel-casino complex was built in 1982 in a classical western
architectural style.  The Pioneer is comprised of four buildings. The casino is
located in the main building, totaling approximately 50,000 square feet of which
approximately 21,500 square feet house the casino.  An aggregate of 417 motel
rooms are housed in the three remaining buildings.  The complex amenities
include a special events area, a coffee shop/buffet, two bars, a snack bar and a
gift shop. A partial second floor in the main building houses a gourmet
restaurant, administrative offices and banquet rooms.

Revenues

    The primary source of revenues to the Company's hotel-casinos is gaming,
which represented 79.3%, 78.6% and 61.4% in 1997, 1996 and 1995, respectively,
of total revenues, excluding gain on sale of assets, in the respective fiscal
years.  The following table sets forth information regarding the approximate
number of licensed games and gaming devices of the Santa Fe and the Pioneer as
of September 30, 1997:
<TABLE>
<CAPTION>
 
                    Santa Fe     Pioneer      Total
                    --------     -------      -----
<S>                 <C>          <C>          <C>
Slot Machines          1,774         911      2,685
Blackjack ("21")          18          13         31
Craps                      2           2          4
Roulette                   2           1          3
Poker and Pan              5           -          5
Race/Sports Book           1           -          1
Keno                       1           1          2
Bingo                      1           -          1
Other                      4           1          5
</TABLE>

    The Santa Fe's target market is primarily the residents of northwest Las
Vegas, visitors to the local area, local businesses, and hockey and bowling
leagues.  The Santa Fe emphasizes its convenient location, the southwestern
theme and its broad range of amenities, including a 60 lane bowling center and
an ice skating arena.  The occupancy rate at the Santa Fe for the last three
fiscal years was 84.6% in fiscal 1997, 93.0% in fiscal 1996, and 96.0% in fiscal
1995.

                                       4
<PAGE>
 
    The Santa Fe has an automated player tracking system,  the "Desert Fortune
Player Club",  which was established to encourage repeat business from frequent
and active slot and bingo customers.  The Desert Fortune Player Club offers
members points for slot machine and bingo play, which can be redeemed for cash
as well as food, beverage, and rooms at the Santa Fe.  The automated player
tracking system used for the Desert Fortune Player Club is designed to allow the
Santa Fe to more precisely track play,  more efficiently reward frequent
players, and to enhance management's ability to better market directly to
different segments of the Santa Fe customer base.

    The Pioneer has two predominant market segments.  A majority of Pioneer
players come from the local area around Laughlin.  The Pioneer also attracts a
drive-in market of gamblers from Southern California and Arizona.  The Pioneer's
focus is on a direct marketing strategy emphasizing the property's unique
atmosphere and attractive prices. The Pioneer has experienced a decrease in
occupied room nights in each of the last three fiscal years with an occupancy
rate of 79.6%, 84.8%, and 86.3% respectively, in fiscal years 1997, 1996, and
1995.
 
    The Pioneer has an automated slot player tracking system.  The "Round-Up
Club" at the Pioneer was established to encourage repeat business from frequent
and active slot customers.  The Round-Up Club offers members points for slot
machine play that can be redeemed for cash, as well as gifts, rooms, and food
and beverages at the Pioneer.

Management and Personnel

    At September 30, 1997, the Company employed 26 administrative personnel, and
the Santa Fe and the Pioneer employed 1,154, and 761 persons, respectively.

    SFHI is negotiating with the Teamsters, Operating Engineers, Culinary and
Bartenders unions ("Unions") with respect to a collective bargaining agreement
covering certain employees at the Santa Fe. If negotiations result in an
agreement between SFHI and the Unions, operating expenses may increase. In the
event negotiations fail to result in an agreement, the Unions may call a strike,
which would result in operating revenues being adversely affected. In either
event, there could be a material adverse effect on the results of operations and
financial condition of the Santa Fe and the Company.

    Both the Santa Fe and the Pioneer continue to be the target of a union
boycott in which the unions ask that the public not patronize the properties.
Management is unable to determine the impact, if any, of the union boycott.

Competition
 
    In Las Vegas, Nevada, hotels and gambling casinos compete primarily in three
areas: on or near the Las Vegas Strip; within downtown Las Vegas, and in the
locals market.  The Strip and downtown properties have a predominant target
market of out of 

                                       5
<PAGE>
 
town visitors, while local properties generally target residents of the Las
Vegas Valley. The Santa Fe targets and competes for the residents of northwest
Las Vegas, a growing residential community, and, to a lesser extent, the
residents of the entire Las Vegas Valley, emphasizing its convenient location,
the southwestern theme and its broad range of amenities. There has been
significant growth in the number of facilities throughout the Las Vegas Valley
catering to the local population, including several facilities within five miles
of the Santa Fe in North Las Vegas, resulting in increased competition among the
locals facilities.

     Laughlin, Nevada, located approximately 90 miles south of Las Vegas, has
ten hotel/casinos.  The gaming win in Laughlin from October 1996 through
September 1997 decreased approximately  3.6% compared with a 3.9%  decrease from
October 1995 through September 1996, according to the Nevada Gaming Control
Board.  Management believes that  the decreases are attributable primarily to
the development of legalized casinos on reservations in Arizona and Southern
California.  The decreases in gaming revenue have been coupled with an increase
in the number of hotel/casinos, including a number of Las Vegas-based entities,
making hotel-casino competition in the area intense.

    See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for further discussion of competition.

                           Development Opportunities

Henderson, Nevada

    The Company owns, through an indirect wholly owned subsidiary, an
approximately 39 acre parcel of real property in Henderson, Nevada, located in
the southeast Las Vegas Valley (See Item 2. Properties).  The Company is
evaluating the potential development of a hotel/casino and entertainment complex
on this property.   The Company has completed preliminary engineering and
architectural drawings.  Any future development is subject to, among other
things , the Company's ability to obtain necessary financing.  No assurance can
be given that the Company will obtain development financing or develop
successfully the Henderson property.

    In June 1997, the Nevada legislature adopted Senate Bill 208 ("SB 208")
which is intended to impose stricter requirements with respect to developing
resort hotels within Clark County, Nevada, before gaming licenses can be
granted.  Under SB 208, the stricter requirements will not be applicable to the
Company's proposed development of the Henderson, Nevada project provided (i) the
project has received all approvals for land use for the proposed project from
the local governing body on or before December 31, 1998, and such approvals
remain unexpired on that date, and (ii) the Nevada Gaming Commission approves a
nonrestricted gaming license for the project on or before December 31, 2002.  If
such approvals and/or licenses are not obtained by such date, the 

                                       6
<PAGE>
 
designation given to the Henderson property by the City of Henderson as being
within a gaming enterprise district would expire. In order to obtain a gaming
license after the designation as a gaming enterprise district has expired, the
Company would have to petition the City of Henderson to designate the Henderson
property as a gaming enterprise district pursuant to more stringent standards.
Notices of hearings on the petition would have to be served on all property
owners and advisory boards representing property owners within 2,500 feet of the
property line of the Henderson property. All interested parties would be allowed
to be heard at any hearing on the petition. As the petitioner, the Company would
have to prove several land use type factors have been met by clear and
convincing evidence. Approval of the petition would also require a three-fourths
vote from the governing body of the City of Henderson. If the petition is
granted, it may be appealed by an aggrieved person to the Gaming Policy
Committee (the "Committee") which is made up of the Governor and ten members who
sit either by virtue of their office within State government or as Governor
appointees. The Committee has the right to reverse the decision of the City of
Henderson.

Las Vegas, Nevada

     The Company owns, through an indirect wholly owned subsidiary, an
approximately 27-acre parcel of real property on the Las Vegas Strip, which may
be used for possible future development. In connection with the acquisition of
the property, the Company assumed an operating lease under which a water theme
park operates, which may be terminated, at any time, by the Company; however, if
it is terminated prior to 2004, the Company has agreed to pay a loan owed by the
tenant to the prior owner. (See Item 2. Properties) Any future development of
the property is subject to, among other things, the Company's ability to obtain
necessary financing. No assurance can be given that the Company will obtain
development financing or develop successfully the Las Vegas Strip property.

                        Nevada Regulations and Licencing

    The Company, PHI, and SFHI, (collectively, the "Santa Fe Group") are subject
to extensive state and local regulation by the Nevada Gaming Commission, Nevada
Gaming Control Board and in the case of PHI and SFHI, the Clark County Liquor
and Gaming Licensing Board and the City of Las Vegas, respectively,
(collectively the "Nevada Gaming Authorities").

    The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities seek (i) to prevent unsavory or unsuitable persons from having any
direct or indirect involvement with gaming at any time or in any capacity, (ii)
to establish and maintain responsible accounting practices and procedures, (iii)
to maintain effective control over the financial practices of licensees,
including establishing minimum procedures for internal fiscal affairs and the
safeguarding of assets and revenues, providing reliable 

                                       7
<PAGE>
 
record-keeping, and making periodic reports to the Nevada Gaming Authorities,
(iv) to prevent cheating and fraudulent practices, and (v) to provide a source
of state and local revenues through taxation and licensing fees. Changes in such
laws, regulations and procedures could have an adverse effect on any or all of
the members of the Santa Fe Group. Management believes the Santa Fe Group is in
compliance with regulations promulgated by the Nevada Gaming Authorities.

    Licensing and Registration.  PHI and SFHI hold Nevada State gaming licenses
    --------------------------                                                 
to operate the Pioneer and the Santa Fe.  The Company has been approved by the
Nevada Gaming Authorities to own, directly or indirectly, a beneficial interest
in the Operating Companies.

    The licenses held by members of the Santa Fe Group are not transferable.
Each issuing agency may at any time revoke, suspend, condition, limit or
restrict licenses or approvals to own a beneficial interest in an Operating
Company for any cause deemed reasonable by such agency.  Any failure to retain a
valid license or approval would have a material adverse effect on all members of
the Santa Fe Group.

    If it is determined that the Operating Companies or, when applicable, new
members of the Santa Fe Group, have violated the Nevada laws or regulations
relating to gaming, the Operating Companies or, when applicable, new members of
the Santa Fe Group, could, under certain circumstances, be fined and the
licenses of the Operating Companies or, when applicable, new members of the
Santa Fe Group, could also be limited, conditioned, revoked or suspended.  A
violation under any of the licenses held by the Company, or any of the Operating
Companies or, when applicable, new members of the Santa Fe Group, may be deemed
a violation of all the other licenses held by the Company and each of the
Operating Companies or, when applicable, new members of the Santa Fe Group.  If
the Nevada Gaming Commission does petition for a supervisor to manage the
affected casino and hotel facilities, the suspended or former licensees shall
not receive any earnings of the gaming establishment until approved by the
court, and after deductions for the costs of the supervisor's operation and
expenses and amounts necessary to establish a reserve fund to facilitate
continued operation in light of any pending litigation, disputed claims, taxes,
fees, and other contingencies known to the supervisor which may require payment.
The supervisor is authorized to offer the gaming establishment for sale if
requested by the suspended or former licensee, or without such a request after
six months after the date the license was suspended, revoked, or not renewed.

    Individual Licensing.  Stockholders, directors, officers and certain key
    --------------------                                                    
employees of corporate licensees must be licensed by the Nevada Gaming
Authorities.  An application for licensing of an individual may be denied for
any cause deemed reasonable by the issuing agency.  Changes in licensed
positions must be reported to Nevada 

                                       8
<PAGE>
 
Gaming Authorities. In addition to its authority to deny an application for an
individual license, the Nevada Gaming Authorities have jurisdiction to
disapprove a change in corporate position. If the Nevada Gaming Authorities were
to find any such person unsuitable for licensing or unsuitable to continue
having a relationship with a corporate licensee, such licensee would have to
suspend, dismiss and sever all relationships with such person. Such corporate
licensee would have similar obligations with regard to any person who refuses to
file appropriate applications, who is denied licensing following the filing of
an application or whose license is revoked. Each gaming employee must obtain a
work permit which may be revoked upon the occurrence of certain specified
events.

    Any individual who is found to have a material relationship or a material
involvement with a gaming licensee may be required to be investigated in order
to be found suitable or to be licensed.  The finding of suitability is
comparable to licensing and requires submission of detailed financial
information and a full investigation.  Key employees, controlling persons or
others who exercise significant influence upon the management or affairs of a
gaming licensee may be deemed to have such a relationship or involvement.

    Beneficial owners of more than 10% of the voting securities of a corporation
or partner interests of a partnership registered with the Nevada Gaming
Authorities that is "publicly traded" (a "Registered Entity") must be found
suitable by the Nevada Gaming Authorities, and any person who acquires more than
5% of the voting securities or partner interests, as the case may be, of a
Registered Entity must report the acquisition to the Nevada Gaming Authorities
in a filing similar to the beneficial ownership filings required by the Federal
securities laws.  Under certain circumstances an institutional investor, as such
term is defined in the regulations of the Nevada Gaming Commission and Nevada
Gaming Board ("Nevada Gaming Regulations"), that acquires more than 10% of the
Company's voting securities may apply to the Nevada Gaming Commission for a
waiver of such finding of suitability requirement.  If the stockholder 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.

    Any beneficial owner of equity or debt securities of a Registered Entity
(whether or not a controlling stockholder) may be required to be found suitable
if the relevant Nevada Gaming Authorities have reason to believe that such
ownership would be inconsistent with the declared policy of the State of Nevada.
If the beneficial owner who must be found suitable is a corporation, partnership
or trust, it must submit detailed business and financial information, including
a list of its securities.  In addition, the Clark County  Liquor and Gaming
Licensing Board has taken the position that it has the authority to approve all
persons owning or controlling more than 2% of the stock or partner interests of
a Registered Entity, including a gaming licensee or otherwise, or of any
corporation, partnership or person controlling such an entity.  The applicant is
required to pay all costs of investigation.

                                       9
<PAGE>
 
    Any stockholder found unsuitable and who beneficially owns, directly or
indirectly, any securities or partner interests of a Registered Entity beyond
such period of time as may be prescribed by the Nevada Gaming Authorities may be
guilty of a gross misdemeanor.  Any person who fails or refuses to apply for a
finding of suitability or a license within 30 days after being ordered to do so
may be found unsuitable.  A Registered Entity is subject to disciplinary action
if, after it receives notice that a person is unsuitable to be a securityholder
or partner, as the case may be, or to have any other relationship with it, such
Registered Entity (a) pays the unsuitable person any dividends or property upon
any voting securities or partner interests or makes any payments or
distributions of any kind whatsoever to such person, (b) recognizes the
exercise, directly or indirectly, of any voting rights in its securities or
partner interests by the unsuitable person, (c) pays the unsuitable person any
remuneration in any form for services rendered or otherwise, except in certain
and specific circumstances or (d) fails to pursue all lawful efforts to require
the unsuitable person to divest himself of his voting securities, including, if
necessary, the immediate purchase of the voting securities for cash at fair
market value.

    Registered Entities are required to maintain current stock ledgers, as the
case may be, in the State of Nevada that may be examined by the Nevada Gaming
Authorities at any time.  If any securities or partner interests 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 owner
unsuitable.  Record owners are required to conform to all applicable rules and
regulations of the Nevada Gaming Authorities.  Licensees also are required to
render maximum assistance in determining the identity of a beneficial owner.

    The Nevada Gaming Authorities have the power to require that certificates
representing voting securities of a corporate licensee bear a legend to the
general effect that such voting securities or partner interests are subject to
the Nevada Gaming Control Act and the regulations thereunder.  The Nevada Gaming
Authorities, through the power to regulate licensees, have the power to impose
additional restrictions on the holders of such voting securities at any time.

    Financial Responsibility.  Each of the Company and the Operating Companies
    ------------------------                                                  
is required to submit detailed financial and operating reports to the Nevada
Gaming Authorities.  Substantially all loans, leases, sales of securities and
other financial transactions entered into by the Company or the Operating
Companies must be reported to and, in some cases, approved by the Nevada Gaming
Authorities.

    Certain Transactions.  None of the Santa Fe Group may make a public offering
    --------------------                                                        
of its securities without the approval of the Nevada Gaming Commission if the
proceeds therefrom are intended to be used to construct, acquire or finance
gaming facilities in Nevada, or retire or extend obligations incurred for such
purposes.  Such approval, if 

                                       10
<PAGE>
 
given, will not constitute a recommendation or approval of the investment merits
of the securities offered. Any public offering requires the approval of the
Nevada Gaming Commission.

    Changes in control of the Company through merger, consolidation, acquisition
of assets, management or consulting agreements or any form of takeover cannot
occur without the prior investigation of the Nevada Gaming Control Board and
approval of the Nevada Gaming Commission.  The Nevada Gaming Commission may
require controlling stockholders, partners, officers, directors and other
persons having a material relationship or involvement, to be licensed.

    The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and other corporate defense
tactics that affect corporate gaming licensees in Nevada, and corporations whose
securities are publicly traded that are affiliated with those operations, may be
injurious to stable and productive corporate gaming.  The Nevada Gaming
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 or
partnership gaming operators and their affiliates; (ii) preserve the beneficial
aspects of conducting business in the corporate form; and (iii) promote a
neutral environment for the orderly governance of corporate or partnership
affairs.  Approvals are, in certain circumstances, required from the Nevada
Gaming Commission before the Company can make exceptional repurchases of voting
securities above the current market price thereof (commonly referred to as
"greenmail") and before an acquisition opposed by management can be consummated.
Nevada's gaming regulations also require prior approval by the Nevada Gaming
Commission if the Company were to adopt a plan of recapitalization proposed by
the Company's Board of Directors in opposition to a tender offer made directly
to the stockholders for the purpose of acquiring control of the Company.

    Miscellaneous.   Pursuant to recent changes in Nevada law, the Company, and
    -------------                                                              
its affiliates, including subsidiaries may engage in gaming activities outside
the State of Nevada without seeking the approval of the Nevada Gaming
Authorities provided that such activities are lawful in the jurisdiction where
they are to be conducted and that certain information regarding the foreign
operation is provided to the Nevada Gaming Board on a periodic basis.  The
Company and its Nevada-based affiliates may be disciplined by the Nevada Gaming
Commission if any of them violates any laws of the foreign jurisdiction
pertaining to the foreign gaming operation, fails to conduct the foreign gaming
operation in accordance with the standards of honesty and integrity required of
Nevada gaming operations, engages in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employs a person in
the foreign operation who had been denied a license or finding of suitability in
Nevada on the ground of personal unsuitability.

                                       11
<PAGE>
 
    License fees and taxes, computed in various ways depending on the type of
gaming involved, are payable to the State of Nevada and to the counties and
cities in which the Company and the Operating Companies' respective operations
are conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either:  (i) a percentage of the gross gaming revenues received by the casino
operation; (ii) the number of slot machines operated by the casino; or (iii) the
number of table games operated by the casino.  A casino entertainment tax is
also paid by the licensee where entertainment is furnished in connection with
the selling of food or refreshments.

    Finally, the Nevada Gaming Authorities may require that lenders to
licensees, including each holder of Notes, be investigated to determine if they
are suitable and, if found unsuitable, may require that they dispose of their
loans (including the Notes).

Item 2.  Properties
         ----------

    The Santa Fe is located on a 40-acre site in the northwest part of Las
Vegas, approximately nine miles from the north end of the Las Vegas Strip.  See
"Business--Description of the Hotel-Casinos" for more detailed information
regarding the Santa Fe. The Santa Fe property is subject to a first priority
deed of trust securing 11% First Mortgage Notes due December 2000 ("11% Notes").
As of September 30, 1997, $99.4 million principal amount of the 11% Notes remain
outstanding, and are reported in the Consolidated Balance Sheet net of
unamortized debt discount of $4.2 million and $33.1 million principal amount
held by an indirect wholly owned subsidiary of the Company.

    The Pioneer is located on approximately 12 acres of land, with Colorado
River frontage of approximately 770 feet, and is situated near the center of
Laughlin's Casino Drive. Approximately 6 1/2 acres of the 12-acre Pioneer site
is leased from an unaffiliated third party pursuant to a lease expiring in 2078.
One of the Pioneer's three motel buildings, a portion of a second motel building
and a portion of the casino building are located on the leased property. The
Pioneer property is subject to a first deed of trust securing 13 1/2% First
Mortgage Notes due December 1, 1998 ("13 1/2% Notes"). As of September 30, 1997,
$60.0 million principal amount of the 13 1/2% Notes was outstanding.

    In November 1993, SFHI acquired an approximately 22-acre parcel of property
across the street from the Santa Fe. In May 1996, the Company purchased from
SFHI the 22-acre parcel for $2.85 million, which the Company and SFHI believed
to be the fair market value of the property at the time of sale. This property
is subject to a first deed of trust securing a $1.6 million promissory note due
in December 1999. In November 1997, the Company entered into an agreement to
sell this property to a third party, subject to various contingencies. (See
"Management Discussion and Analysis - Liquidity - Corporate")

                                       12
<PAGE>
 
    In March 1994, the Company purchased a 39 acre parcel of real property in
Henderson, Nevada, located in southeast Las Vegas Valley. The Company is
evaluating the potential development of a hotel/casino and entertainment
complex. This property is subject to a first deed of trust securing $57.5
million principal amount of notes due December 15, 1999 ("SLVC Notes"). See
"Business - Development Opportunities" for more information regarding the real
property.

    In October 1995, the Company acquired 27 acres of real property located on
the Las Vegas Strip.  The property is subject to a ground lease, which may be
terminated at any time by the Company.   The Company has guaranteed payments by
the tenant of a loan owed to the prior owner of the property ("tenant loan") and
has agreed to pay the tenant loan in full in certain situations, including in
the event the lease is terminated for any reason prior to its scheduled
termination date of 2004.  The tenant loan, which is amortized through monthly
principal and interest payments through December 2004, had an outstanding
balance of $5.3 million as of September 30, 1997.  This property is subject to a
first deed of trust securing $57.5 million principal amount of SLVC Notes.
See "Business-Development Opportunities" for more information regarding the real
property.

Item 3.  Legal Proceedings
         -----------------

Poulos v. Caesar's World, Inc., et al. and Ahern v. Caesar's World, Inc., et al.

    The Company and its predecessor, Sahara Casino Partners, L.P. are defendants
in a class action lawsuit originally filed in the United States District Court
of Florida, Orlando Division, entitled Poulos v. Caesar's World, Inc., et al.,
Ahern v. Caesar's World, Inc., et al. and Schrier v. Caesar's World, Inc., et
al, along with a fourth action against cruise ship gaming operators and which
have been consolidated in a single action now pending in the United States
District Court, District of Nevada.  Also named as defendants in these actions
are many, if not most, of the largest gaming companies in the United States and
certain gaming equipment manufacturers.  Each complaint is identical in its
material allegations.  The actions allege that the defendants have engaged in
fraudulent and misleading conduct by inducing people to play video poker
machines and electronic slot machines based on false beliefs concerning how the
machines operate and the extent to which there is actually an opportunity to win
on a given play.  The complaints allege that the defendants' acts constitute
violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO")
and also give rise to claims for common law fraud and unjust enrichment, and it
seeks compensatory, special consequential, incidental and punitive damages of
several billion dollars.

    In response to the complaints, all of the defendants, including the Company
and the Partnership, filed motions attacking the pleadings for failure to state
a claim, seeking to dismiss the complaints for lack of personal jurisdiction and
venue.  As a result of those motions, the Court has required the Plaintiffs in
the four consolidated cases to file a single 

                                       13
<PAGE>
 
consolidated amended complaint. Subsequent to Plaintiffs' filing of their
consolidated amended complaint, the defendants refiled numerous motions
attacking the amended complaint upon many of the bases as the prior motions. The
Court heard the arguments on eight of those motions on November 3, 1997, and has
taken them under advisement. The Court has not indicated when it will render its
decision on those motions.

Treasure Bay - Securities Litigation

    On December 12, 1994, the Company and SFHI filed a lawsuit in the United
States District Court, District of Nevada, naming Treasure Bay officers A. Clay
Rankin III, Joe N. Hendrix and Bernie Burkholder, and former officer Francis L.
Miller as defendants in matters involving violations of Section 10(b) and Rule
10(b)-5 of the Securities Exchange Act, violation of Nevada state securities
laws, fraud and negligent misrepresentation in connection with the Company's
investment of $10 million in exchange for a 20% interest in Treasure Bay, and
the Company's guarantee of $4.5 million of Treasure Bay's indebtedness.  The
defendants have filed answers to the complaint and discovery is continuing.

    On December 15, 1994, Francis L. Miller filed a lawsuit in the Mississippi
Circuit Court, Second Judicial District, against the Company and SFHI, as well
as Paul W. Lowden and Suzanne Lowden, alleging, among other things, that the
Company made certain misrepresentations which induced Francis Miller to entrust
the management of his investments in Treasure Bay's two Mississippi casinos to
the Company and SFHI and to sell the Company and SFHI a 20% ownership interest
in Treasure Bay.  The lawsuit was subsequently amended to remove Suzanne Lowden
as a defendant.  The Company and SFHI filed a successful motion to transfer this
case to the United States District Court in Nevada.

    The United States District Court in Nevada dismissed the Francis L. Miller
lawsuit as originally filed in Mississippi Circuit Court.  The Court permitted
Mr. Miller to file the claims that he asserted in the dismissed action as
counterclaims to the lawsuit filed by the Company against Mr. Miller et al. on
December 12, 1994 in the United States District Court, District of Nevada.  The
effect of this court initiated action was to combine the two lawsuits.  The
parties to the combined litigation are currently engaged in discovery.  The
discovery process is expected to last several months.

  In addition, the Company is subject to various lawsuits relating to routine
matters incidental to its business.  The Company does not believe that the
outcome of such litigation, in the aggregate, will have a material adverse
effect on the Company.  See "Business Hotel-Casino Operations - Management and
Personnel" for discussion of several proceedings relating to labor matters.

                                       14
<PAGE>
 
Item 4.  Submission of Matters to a Vote of Security Holders
         ---------------------------------------------------

     There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1997.


                                    PART II

Item 5.  Market for Registrant's Stock and Related Security Holders Matters
         -------------------------------------------------------------------

     The Company's Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "SGM". The closing sales price of the Common Stock on
December 19, 1997, as reported by the American Stock Exchange was $.6875 per
share. The tables below set forth the high and low closing sales prices by
quarter for the fiscal years ended September 30, 1997 and 1996 for the Common
Stock, as reported by the AMEX.

<TABLE>
<CAPTION>
                              First    Second      Third      Fourth
Fiscal 1997                  Quarter   Quarter    Quarter     Quarter
-----------------------------------------------------------------------
<S>                          <C>       <C>         <C>         <C>
High                         $l 3/4      $1 5/8    $1 3/8      $1
Low                          $1 1/8      $  1/16   $ 11/16     $ 11/16
 
<CAPTION>  
                              First    Second      Third      Fourth
Fiscal 1996                  Quarter   Quarter    Quarter     Quarter
-----------------------------------------------------------------------
<S>                          <C>         <C>       <C>         <C> 
High                         $3 7/8      $4        $3 5/8      $3 1/8
Low                          $2 1/8      $2 3/8    $2 3/4      $1 3/4
</TABLE>

     The Company has never paid cash dividends on its Common Stock, nor does it
anticipate paying such dividends in the foreseeable future.

     There were approximately 7,700 stockholders as of December 16, 1997. The
number of stockholders was computed by including those stockholders whose stock
is beneficially held for them by participants in a clearing agency as of that
date.

                                      15
<PAGE>
 
Item 6.  Selected Financial Data
         -----------------------

     The table below sets forth a summary of selected financial data of the
Company for the years ended September 30 (dollars in thousands, except per share
amounts):

<TABLE>
<CAPTION>
                                      1997          1996          1995          1994         1993
                                    ---------     --------     ----------    ----------    ---------
<S>                                 <C>           <C>          <C>           <C>           <C>
Total Revenues/(1)/                 $104,989      $148,432      $251,109      $253,718     $244,765

Net Income (Loss)                                                                     
 Before Extraordinary Items,                                                          
 Net of Taxes                       $(13,713)     $  9,739      $(23,183)     $(15,739)    $ (1,090)
  Per Common Share/(3)/             $  (2.21)     $   1.57      $  (3.74)     $  (2.54)    $   (.18)

Net Income (Loss)/(2)/              $(13,133)     $ 16,160      $(23,363)     $(16,961)    $ (1,090)
  Per Common Share/(3)/             $  (2.12)     $   2.61      $  (3.77)     $  (2.74)    $  (0.18)

Cash Dividends                                                                        
  Per Common Share                       ---           ---           ---           ---          ---
Total Assets                        $216,296      $228,656      $366,638      $478,555     $395,089

Long-Term Debt                                                                        
      less current portion          $168,979      $167,687      $198,655      $379,093     $301,780
                                                                                      
Redeemable                                                                            
  Preferred Stock/(4)/              $ 20,469      $ 18,953      $ 17,521      $ 16,202     $ 14,980
----------------------------------------------------------------------------------------------------
</TABLE>

(1)  Operating results for fiscal 1996 and 1997 do not include any revenues
     attributable to the Hacienda and Sahara, which were sold in August 1995 and
     October 1995, respectively.  Fiscal 1996 includes a $40.8 million gain
     relating to the sale of substantially all of the assets of SNC.  Fiscal
     1995 includes an $8.9 million gain relating to the sale of substantially
     all the assets of HHI.
(2)  Fiscal 1997, 1996, 1995 and 1994 amounts presented include stock dividends
     on preferred shares.
(3)  Amounts have been restated to reflect a 25% common stock dividend paid in
     February 1994.
(4)  The Company declared and issued paid in kind dividends on its Exchangeable,
     Redeemable 8% Preferred Stock during fiscal years 1996 and 1995.  The
     Company did not declare dividends on its preferred stock in fiscal 1997.
     The accrued dividends of approximately $1.5 million for fiscal 1997 have
     been recorded as an increase to the preferred stock account.


Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations of the Company

Results of Operations - Fiscal 1997 Compared to Fiscal 1996
-----------------------------------------------------------

Consolidated
 
     The Company reported revenues of $105.0 million in fiscal 1997 as compared
to $107.7 million in the previous fiscal year, excluding a gain of $40.8 million
recorded on the sale of the Sahara in fiscal 1996.  The decrease in revenues is
primarily the result of a decline in revenues at the Pioneer, offset by gains in
revenues at the Santa Fe.

                                      16
<PAGE>
 
     Operating expenses decreased $7.4 million primarily as a result of
decreases of $1.9 million at the Pioneer and $3.7 million at the Santa Fe.
Operating income increased $4.7 million to $5.1 million in fiscal 1997 compared
to $400,000 in fiscal 1996 excluding the $40.8 million gain.

     The Company's interest expense decreased by $1.8 million to $22.6 million
in fiscal 1997 due to the repurchase and retirement of debt in 1997 and in 1996
principally with proceeds from the issuance of SLVC Notes.
 
     In fiscal 1997, the Company recorded an extraordinary gain of $2.1 million
after tax on the repurchase of $13.1 million principal amount of 11% Notes and
$3.5 million principal amount of 10 1/4% Subordinated Sinking Fund Debenture due
1998 ("10 1/4% Debenture"). In fiscal 1996, the Company recorded an
extraordinary gain of $7.9 million after tax on the repurchase of $25.6 million
principal amount of 11% Notes and $22.8 million principal amount of 13 1/2%
Notes.

     In the fourth quarter of fiscal 1996, the Company recorded a provision to
reduce the remaining carrying value of its investment in Treasure Bay in the
amount of approximately $2.8 million.

     The Company reported a net loss applicable to common shares of $13.1
million or $2.12 per common share in fiscal 1997 compared to net income of $16.2
million or $2.61 per common share in fiscal 1996. The net loss was $10.7 million
or $1.73 per common share in fiscal 1996 excluding the $40.8 million gain on 
sale of the Sahara Hotel and Casino. For additional information regarding
results of operations, see the discussion below by property.

     In accordance with the provisions of SFAS No. 121, management reviews on a
quarterly basis whether anticipated net cash flows will be sufficient to recover
the Company's investment in each of its properties.  At September 30, 1997, the
Company had approximately $83 million in recorded net long-lived assets and
intangibles associated with the Pioneer.  A number of factors are considered in
the evaluation of recoverability, including, but not limited to, anticipated
revenues and the duration thereof, and expected operating costs. Management
believes that such net asset balances are recoverable under the requirements of
SFAS 121, although, in light of the uncertainties discussed below under
"Pioneer" and "Liquidity-Pioneer", there can be no assurance that the results of
the evaluation of recoverability will remain the same in the future.

Santa Fe

     Revenues at the Santa Fe in fiscal 1997 were $62.7 million as compared to
$61.7 million in fiscal 1996, representing a increase of 1.7%, or $1.0 million.
Excluding a $1.2 million intercompany gain on the sale of land included in the
fiscal 1996 period, revenues 

                                      17
<PAGE>
 
increased $2.3 million. Casino revenues increased 6.1%, or $2.8 million, to
$48.4 million from $45.6 million. Hotel revenues remained relatively constant in
fiscal 1997 as a decline in occupancy was offset by an increase in the average
daily rate. Management believes that the increase in casino revenues is
primarily due to the addition of new gaming equipment in fiscal 1997 and, the
lack of new openings or significant expansions of properties in the Santa Fe's
primary market sector since May 1996. Food and beverage revenues decreased 6.9%,
or $900,000, primarily due to a change in marketing and advertising strategy
which relied less on offering discount-priced food and resulted in a decreased
volume. Management believes that results of operation have been affected by road
construction in the vicinity of the Santa Fe, which has restricted access to the
property since April 1996. The Nevada Department of Transportation has advised
the Company that construction on the overpass at Lone Mountain Road and
Interstate 95 next to the Santa Fe, which commenced in September 1997, is
scheduled to be completed in February 1998.

     Operating expenses decreased by 6.1%, or $3.7 million,  in fiscal 1997
compared to fiscal 1996.  Casino expenses increased by 5.2%, or $1.2 million,
primarily due to increased promotional costs incurred to market directly to
members of the Desert Fortune Slot Club to compete with other hotel-casinos in
the area.  This was largely offset by a decrease of $900,000, or 10.4%, in
selling, general and administrative expenses resulting from decreased general
advertising and marketing costs.  Food and beverage expenses had volume and cost
control related decreases of 16.4%, or $1.8 million, over the prior year.
Utilities and property expenses increased 51.1%, or  $2.7 million, attributable
to an increase in rent expense primarily due to operating sale/leaseback
transactions completed in fiscal 1997 and 1996 with respect to gaming equipment.
The Company recorded a loss on sale of equipment in utilities and property
expense of approximately $1.7 million in 1996 in connection with certain
sale/leaseback transactions. Decreases in depreciation and amortization expense
of 35.0%, or $2.8 million, were due to the sale of slot equipment in the 1996
fiscal year. The Company deferred an approximate $1.7 million gain during fiscal
1996 associated with other sale/leaseback transactions, which gain is being
recognized over the 36-month lease term.  Operating income increased $4.3
million to $5.7 million in 1997 from $1.4 million in 1996, excluding the $1.2
million intercompany gain and the $1.7 million charge associated with
sale/leaseback transactions in fiscal 1996.

     In the fourth quarter of 1997, revenues increased $800,000, or 5.6%, to
$15.4 million, and operating expenses (excluding the $1.7 million charge in 1996
in connection with sale/leaseback transactions) decreased $700,000, or 4.4%, to
$14.6 million compared to the same period in the prior year.  Operating income
(excluding the $1.7 million charge in 1996 in connection with sale/leaseback
transactions) increased $1.5 million to $800,000 compared to the same period in
the prior year.

     SFHI is negotiating with the Teamsters, Operating Engineers, Culinary and
Bartenders unions ("Unions") with respect to a collective bargaining agreement
covering certain employees at the Santa Fe.  If negotiations result in an
agreement between SFHI 

                                      18
<PAGE>
 
and the Unions, operating expenses may increase. In the event negotiations fail
to result in an agreement, the Unions may call a strike, which would result in
operating revenues being adversely affected. In either event, there could be a
material adverse effect on the results of operations and financial condition of
Santa Fe and the Company.

Pioneer

     Revenues at the Pioneer decreased 8.1%, or $3.6 million, to $40.8 million
from $44.4 million in fiscal 1996.  Casino revenues were $34.8 million in fiscal
1997, representing a decrease of 9.9%, or $3.8 million, compared to fiscal 1996
due primarily to a decrease in slot revenue of 9.0%, or $3.0 million.  Hotel
revenues declined $600,000 during fiscal 1997 as a result of a decline in
occupancy and the average daily rate.  Food and beverage revenues increased
approximately $1 million as a result of a volume-oriented marketing program.
The decrease in fiscal 1997 revenues is believed to be primarily due to the
competitive gaming market environment in and around Laughlin, including Indian
gaming facilities opened in Arizona and Southern California, and new casinos
opened in Las Vegas.

     Operating expenses decreased $1.9 million, or 4.5%, to $40.7 million.
Casino expenses  experienced a volume-related decrease of 8.2%, or $1.7 million.
Selling, general and administrative expenses increased 5.2%,  or $300,000,
primarily as a result of increased advertising and promotional costs.  Utilities
and property expenses decreased 5.9%, or $300,000, primarily due to a decrease
in payroll expenses.  Decreases in depreciation and amortization expenses of
5.0%, or $300,000, were related to the sale of certain gaming equipment during
the prior year.  Accordingly, operating income decreased by 94.8%, or $1.6
million, to $100,000 in fiscal 1997 from $1.7 million in fiscal 1996.

     In the fourth quarter of 1997, revenues decreased $700,000, or 7.3%,  to
$9.2 million and operating income decreased by $400,000 to a loss of $1.2
million, compared to a loss of $800,000 in the same period in the prior year.
Management believes the decrease in revenues and operating results in the fourth
quarter of fiscal 1997 compared to the fourth quarter of fiscal 1996 are the
result of continued intense competition and market deterioration in and around
the Laughlin market.

Fiscal 1996 Compared to Fiscal 1995
-----------------------------------

Consolidated

     The Company sold substantially all the assets of the Hacienda in August
1995 and of the Sahara in October 1995.  Accordingly, consolidated results of
operations for the year ended September 30, 1996 are not comparable to the same
period in the prior year.

                                      19
<PAGE>
 
     The Company reported revenues of $148.4 million in fiscal 1996 as compared
to $251.1 million in the previous fiscal year.  The decrease in revenues is the
result of decreases in casino, hotel, food and beverage and other revenues in
fiscal 1996 resulting primarily from the sales of  the Hacienda and Sahara,
which contributed $140.4 million of fiscal 1995 total revenues, partially offset
by a gain of $40.8 million recorded on the sale of the Sahara as well as
decreased revenues at the Santa Fe and Pioneer.  Revenues in the prior year
included a gain of $8.9 million recorded on the sale of the Hacienda.

     Operating expenses decreased $133.2 million, primarily as a result of the
sales of the Hacienda and Sahara.  During fiscal 1995, $126.6 million of
operating expenses were attributable to those two properties.  Operating income
increased $30.5 million to $41.2 million in 1996 from $10.6 million in 1995 due
to the $40.8 million gain on the sale of the Sahara, offset partially by
decreased operating income in fiscal 1996 at  both the Santa Fe and Pioneer.
The Company's interest expense decreased by $20.6 million to $24.4 million in
fiscal 1996 due to the retirement of debt with the proceeds of the sales of the
Hacienda and Sahara.

     In the fourth quarter of fiscal 1996, the Company recorded a provision to
reduce the remaining carrying value of its investment in Treasure Bay in the
amount of approximately $2.8 million.

     In fiscal 1996, the Company recorded an extraordinary gain of  $7.9 million
after tax on the repurchase of $25.6 million principal amount of 11% Notes and
$22.8 million principal amount of 13 1/2% Notes.  In fiscal 1995, the Company
recorded a $2.8 million after-tax gain on the repurchase of $20 million
principal amount of 13  1/2% Notes, offset by an after-tax charge of $1.7
million in connection with the repurchase of $21.5 million principal amount 11%
Notes.

     The Company reported net income applicable to common shares of $16.2
million or $2.61 per common share in fiscal 1996 compared to a loss of $23.4
million or $3.77 per common share in fiscal 1995.  For additional information
regarding results of operations, see the discussion below by property.

Santa Fe

     Revenues at the Santa Fe in fiscal 1996 were $61.7 million as compared to
$64.8 million in fiscal 1995, representing a decrease of 4.9%, or $3.1 million.
Casino revenues decreased 7.1%, or $3.5 million, to $45.6 million from $49.1
million.  Management believes that the decrease in casino revenues is primarily
due to the opening of two competing facilities within five miles of the Santa Fe
in December 1994 and July 1995,  the expansions of the two competing facilities
in April and May 1996, the opening and expansion of other casinos targeting the
local population in the Las Vegas Valley and restricted access to the property
beginning in April 1996, as a result of construction of an interchange next to
the property.

                                      20
<PAGE>
 
     Operating expenses decreased by 14.8%, or $10.5 million in fiscal 1996
compared to fiscal 1995.  The Company recorded in utilities and property
expense an approximately $1.7 million charge in connection with sale/leaseback
transactions in the 1996 fiscal year. The Company deferred an approximate $1.7
million gain during fiscal 1996 associated with sale/leaseback transactions,
which gain will be recognized over the 36-month lease term. In the prior year,
the Santa Fe recorded a $14.9 million write-down of development costs associated
with a proposed project in Parkville, Missouri.  Excluding the loss associated
with the sale/leaseback transactions in fiscal 1996 and write-down of
development costs in fiscal 1995, operating expenses increased 4.7% or $2.7
million in fiscal 1996.  Casino expenses increased by 8.3% or $1.7 million,
primarily due to increased payroll and other costs in the first three months of
fiscal 1996, associated with operating an additional 15,000 square feet of
casino space, and increased promotional costs incurred as a result of the
expanding competition in the area.  Selling, general and administrative expenses
increased 14.5%, or $1.1 million, primarily as a result of increased advertising
costs.  Rent expense increased $500,000 due to the lease of slot equipment.  A
decrease in depreciation and amortization of 11.4% or $1.0 million was due to
equipment placed in service at the opening of the Santa Fe in February 1991
being fully depreciated, and the sale of certain slot equipment.  Operating
income decreased $5.8 million or 68.9% to $2.6 million in 1996 (excluding the
$1.7 million charge in connection with sale/leaseback transactions) from $8.4
million in 1995 (excluding the $14.9 million write-down of development costs).

     In the fourth quarter of 1996, revenues decreased $200,000 or 1.0% to $14.6
million and operating expenses (excluding the $1.7 million charge in connection
with sale/ leaseback transactions) increased $900,000 or 6.2% to $15.2 million
compared to the same period in the prior year.  Accordingly, operating income
(excluding the $1.7 million charge in connection with sale/leaseback
transactions) decreased $1.0 million to a loss of $700,000 compared to the same
period in the prior year.  Additionally, operating income before depreciation
and amortization (excluding the $1.7 million charge in connection with
sale/leaseback transactions) decreased $1.5 million, or 57.0%, to $1.1 million,
compared to the same period in the prior year.  Management believes operations
in the fourth quarter were impacted primarily by the expansions of competing
facilities within five miles of the Santa Fe and restricted access to the
property as a result of construction on an interchange next to the property.

Pioneer

     Revenues at the Pioneer decreased 3.5%, or $1.6 million, to $44.4 million
from $46.0 million in fiscal 1995.  Casino revenues were $38.7 million in fiscal
1996, representing a decrease of 4.6%, or $1.9 million, compared to fiscal 1995
due primarily to a decrease in slot revenue of 6.3%, or $2.2 million.  The
decrease in fiscal 1996 revenues is believed to be primarily due to the
competitive gaming market environment in and around Laughlin, including Indian
gaming facilities opened in Arizona and Southern California, and new casinos
opened in Las Vegas.

                                      21
<PAGE>
 
     Operating expenses increased $2.2 million or 5.3% to $42.7 million. Casino
expenses  increased 0.4%, or $100,000, as volume related decreases in expenses
were offset by increased promotional expenses incurred as a result of the
competition in the area.  Food and beverage expenses had a volume related
increase of 5.4%, or $300,000. Selling, general and administrative expenses
increased $1.2 million, or 30.5%, primarily as a result of increased advertising
and promotional costs.  Increases in depreciation and amortization expenses of
$700,000, or 12.5%, were related to an expansion project completed in December
1994.  Accordingly, operating income decreased by 68.6%, or $3.8 million, to
$1.7 million in fiscal 1996 from $5.5 million in fiscal 1995.

     In the fourth quarter of 1996, revenues decreased $900,000, or 8.5%,  to
$9.9 million and operating income decreased by $1.4 million to a loss of
$800,000, compared to the same period in the prior year.  Additionally,
operating income before depreciation and amortization decreased $1.4 million or
70.2% to $600,000 compared to the same period in the last fiscal year.
Management believes the decrease in revenues and operating results in the fourth
quarter of fiscal 1996 compared to the fourth quarter of fiscal 1995 are the
result of continued intense competition and market deterioration in and around
the Laughlin market.

Liquidity and Capital Resources; Trends and Factors Relevant to Future
Operations

     As of September 30, 1997, the Company held cash and short-term investments
of $15.1 million compared to $17.5 million at September 30, 1996.  The Company's
cash used for operations was $9.9 million for the  year ended September 30, 1997
as compared to $10.2 million for the prior year.  Cash generated from investing
activities was $1.6 million and $128.9 million during the years ended September
1997 and 1996, respectively.  The 1996 period included cash of approximately
$128.5 million from the sale of the Sahara Hotel.  Cash provided from financing
activities was $6.0 million in the 1997 period compared to cash used in
financing activities of $143.9 million during 1996.  In 1996, the Company
utilized proceeds from the sale of the Sahara Hotel and from the issuance of the
SLVC Notes to retire $163.6 million of indebtedness.

     The Company's earnings before interest, taxes, depreciation, amortization
and rents ("EBITDAR") were $20.6 million and $15.7 million for the years ended
September  30, 1997 and 1996, respectively, excluding the $40.8 million gain in
1996 on the sale of assets.  In fiscal 1997, EBITDAR represents .77 times rent
and interest expense,  compared to approximately .61 times rent and interest
expense  in the prior year.  In  fiscal 1997,  the Company had approximately
$4.0 million in rent expense compared to approximately $1.2 million in fiscal
1996.  EBITDAR should not be construed as a substitute for operating income or a
better indicator of liquidity than cash flow from operating activities, which
are determined in accordance with GAAP, it is included herein to provide
additional information with respect to the ability of the Company to meet its
future debt service, capital 

                                      22
<PAGE>
 
expenditure and working capital requirements. Although EBITDAR is not
necessarily a measure of the Company's ability to fund its cash needs,
management believes that certain investors find EBITDAR to be a useful took for
measuring the ability of the Company to service its debt.

     The Company has approximately $6.6 million in current maturities of long
term debt due to third parties during the twelve-month period ending September
30, 1998, comprised primarily of  $5.5 million principal amount of 10 1/4%
Debentures  and principal amortization payments under notes payable and capital
leases.  The scheduled maturities applicable to third party debt at SFHI and PHI
during the twelve month period ending September 30, 1998 are $800,000 and
$100,000, respectively.

     The Company had $169.0 million in long-term debt, net of current maturities
and debt discount, as of September 30, 1997.  Approximately $64.8 million of
long-term debt (excluding capital leases) matures in December 1998, comprised of
$60.0 million of principal amount of 13 1/2% Notes and a $4.8 million balloon
payment due on the note payable to Sierra Construction Corp. ("Sierra
Construction") due December 1998.
 
     Although management has in the past and is currently exploring refinancing
alternatives, as well as possible dispositions or financing  of certain assets,
in order to satisfy long-term debt obligations as they become due, no assurance
can be given that the Company will be able to refinance or modify some or all of
its indebtedness or dispose of or obtain financing with respect to any assets.
Any such refinancing or modification would be subject to the Company's future
operations and the prevailing market conditions at the time of such proposed
transaction and may require the approval of the Nevada Gaming Authorities for
such financings or asset sales.  If the Company is ultimately unable to
refinance or modify any such debt prior to maturity, and/or obtain sufficient
proceeds from asset dispositions or financings to repay such debt, events of
default would occur which would lead to cross-defaults in other material
agreements of the Company including, without limitation, agreements relating to
substantially all of the outstanding long-term debt of the Company and its
subsidiaries.

     Prior to fiscal 1996, the Company generally generated sufficient cash from
operations to finance operations, meet existing debt service obligations,
complete capital improvements, maintain existing facilities, and provide working
capital.  However, beginning in fiscal year 1996, the Company expended the
balance of its restricted working capital and has, since then, sold assets and
entered into financing arrangements to generate working capital necessary to
satisfy its cash requirements.  Debt agreements restrict the distribution of
cash from PHI, SFHI and Sahara Las Vegas Corp., ("SLVC") to the Company.  Cash
flow from SFHI, PHI and SLVC is not currently, and is not expected in the
foreseeable future to be, available for distribution to the Company.  In
addition, debt agreements limit additional indebtedness of such subsidiaries.
Therefore, the Company and its subsidiaries, excluding SLVC, PHI and SFHI,
(collectively "Corporate"), must  rely 

                                      23
<PAGE>
 
on existing cash and available resources, including assets held directly and
indirectly through all subsidiaries that may be sold, to provide liquidity to
fund Corporate cash requirements. See more detailed discussion of Liquidity for
SLVC, PHI, SFHI and Corporate, below.

Liquidity - Corporate - Approximately $3.5 million of the Company's current
---------------------                                                      
assets at September 30, 1997, including approximately $2.0 million of cash and
short-term investments, was held by Corporate.

     In November 1997, Corporate entered into an agreement to sell the 22 acre
parcel located adjacent to the Santa Fe. The sale is subject to several
contingencies, and will terminate if such contingencies are not satisfied by May
1998. If the sale is completed, the Company will receive consideration of
approximately $3.6 million, comprised of $1.8 million in cash and a promissory
note in the amount of $1.8 million, of which approximately $1.6 million would be
required to retire debt against the property.

     In December 1997, Corporate amended the terms of a $5 million note payable
owed to it by SFHI to extend the maturity date until May 31, 1998.  In addition,
a $5 million revolving note facility due from SFHI also matures May 31, 1998.

     Corporate consists primarily of non-operating entities which do not
generate cash flow from operations.  Corporate's principal uses of cash are for
debt service, administrative and professional expenses of the parent company and
costs associated with the evaluation and development of proposed projects.
Corporate debt service includes payment obligations on $5.5 million principal
amount of the 10 1/4% Debentures, a $5.3 million note payable to Sierra
Construction due December 1998 and the $1.6 million loan on a 22 acre parcel of
land due December 1999.  See discussion above.

     Additional potential uses of cash by Corporate include the payment of a
guaranteed tenant loan if the Company terminates the lease to which the parcel
on Las Vegas Boulevard South is subject (which loan had an outstanding balance
of $5.3 million as of September 30, 1997) and  the payment of $750,000 to the
recreational vehicle park operator to which the Company transferred its rights
and obligations relating to Camperland recreational vehicle group contracts if
the operator chooses to relocate the Camperland membership to a mutually
acceptable new location.  Furthermore, in the event that cash at SFHI and PHI is
insufficient to meet liquidity requirements, Corporate may make contributions
or, to the extent permitted by financing arrangements, loans to either SFHI or
PHI to prevent an event of default under debt instruments to which SLVC, SFHI or
PHI is a party and which loans have been guaranteed by Corporate.  See Liquidity
-PHI, Liquidity - SFHI and Liquidity - SLVC

     Prior to fiscal 1997, the Company satisfied the semi-annual dividend
payments on its preferred stock through the issuance of paid in kind dividends.
Commencing in fiscal 

                                      24
<PAGE>
 
1997, dividends paid on the preferred stock, to the extent declared, are
required to be paid in cash. The Company is a party to financing arrangements
that restrict the Company's ability to exchange the preferred stock for
subordinated notes commencing in September 1998 and to declare and pay dividends
or make distributions with respect to the Company's capital stock, which
currently prohibit the payment of cash dividends on the preferred stock. In the
event not declared, dividends accrue on the preferred stock. The Company accrued
the semi-annual preferred stock dividends due in March and September 1997. To
the extent the Company accrues four consecutive semi-annual preferred stock
dividends, the preferred stockholders will have the right to appoint two members
to the Board of Directors at the next annual meeting of shareholders. In March
1999, the dividend rate increases to 11.0% from 8.0% and increases by 50 basis
points each semi-annual period thereafter, up to a maximum of 16%.

     Management believes that Corporate has sufficient working capital and
available resources to meet its operating requirements through the twelve month
period ending September 30, 1998, including the maturity of $5.5 million
principal amount of 10 1/4% Debentures in June 1998. However, available
resources includes proceeds that may be available from the sale of real property
and potential repayment of notes in whole or in part due from SFHI discussed
above, as well as management is exploring other alternatives to satisfy the
outstanding indebtedness on the 10 1/4% Debentures. No assurance can be given
that Corporate will have sufficient resources to pay the 10 1/4% Debentures at
maturity.

Liquidity - SFHI - At September 30, 1997, approximately  $10.2 million of the
----------------                                                             
Company's current assets, including approximately $7.6 million of cash and short
term investments, were held by SFHI.

     Results from operations at the Santa Fe for the twelve months ended
September 30, 1997 generated EBITDAR  of $14.9 million, approximately .91 times
rent and interest expense, compared to $10.6  million, excluding a $1.2 million
intercompany gain on sale of land and a $1.7 million charge in connection with
sale/leaseback transaction, of EBITDAR in 1996, or approximately .76  times rent
and interest expense.  In  fiscal 1997, the Santa Fe reported approximately $3.0
million in rent expense compared to $500,000 in fiscal 1996.  Management
believes that Santa Fe's EBITDAR in future periods may continue to be adversely
impacted as a result of increased competition in its market area and restricted
access to the property due to road construction that has been ongoing since
April 1996.   Construction on an interchange at US 95 and Rancho Road adjacent
to the property was completed in August 1997.  Construction of an overpass at
Lone Mountain Road next to the property  commenced immediately thereafter, and
is expected to be completed in February 1998.

     SFHI's principal uses of cash from operations are for operating lease
payments, interest payments on indebtedness and capital expenditures to maintain
the facility.  Santa Fe's operating expenses in fiscal 1997 include increased
rent expenses associated with 

                                      25
<PAGE>
 
sale/leaseback and lease financing transactions completed in fiscal 1997 and
1996. Interest expense in fiscal 1997 attributable to the 11% Notes decreased
when compared to fiscal 1996 as a result of the repurchase and cancellation of
$5.6 million principal amount of 11% Notes in January 1996. Effective October
1997, SFHI amended and restated most of its operating lease agreements for
gaming equipment to extend the term from 36 months to 48 months and defer
payments until August 1998, at which time the monthly lease payments will be
approximately $253,000. Capital expenditures to maintain the facility in fiscal
1998 are expected to be approximately the same that was expended in fiscal 1997.

     Management believes that, based on operations for the three and  twelve
month periods ended September 30, 1997, SFHI will have sufficient cash resources
to meet its operating expense requirements through the twelve month period
ending September 30, 1998, although no assurance can be given to that effect.
SFHI is exploring alternatives to improve liquidity, including, but not limited
to, further operating lease modifications, and possible refinancings or
modification of the 11% Notes.  To the extent that SFHI is unable to generate
sufficient cash to meet its debt service requirements, Corporate may, to the
extent of available funds, make capital contributions or make advances to SFHI.
See "Liquidity-Corporate".


Liquidity - PHI - At September 30, 1997, approximately $4.8 million of the
---------------                                                           
Company's current assets, including approximately $3.2 million of cash and short
term investments, was held by PHI.   At that date, PHI also held, through a
wholly owned subsidiary, a 39 acre parcel of real property in Henderson, Nevada
("Pioneer Subsidiary").  As of September 30, 1997, the Pioneer Subsidiary held
$200,000 of the cash and short-term investments held by the Pioneer.

     Results from operations at the Pioneer for the twelve months ended
September 30, 1997, generated EBITDAR of $7.6 million, approximately .84 times
rent and interest expense, compared with $9.3 million  of EBITDAR in fiscal 1996
or approximately .92 times rent and interest expense.  In fiscal 1997, the
Pioneer reported approximately $1.0 million in rent expense compared to $700,000
in the fiscal 1996 period.

     PHI's principal uses of cash are for lease payments, interest payments on
indebtedness and capital expenditures to maintain the facility.  Interest
expense attributable to the 13 1/2% Notes decreased to $8.1 million in fiscal
1997 as a result of the retirement of $22.8 million principal amount of 13 1/2%
Notes in January and March 1996. (See Results of Operations - Pioneer). Capital
expenditures to maintain the facility in fiscal 1998 are expected to be
approximately the same that was expended during fiscal 1997.

                                      26
<PAGE>
 
     In November 1997, the Pioneer Subsidiary sold the 39 acre parcel to SLVC
for cash consideration of $20 million.  The Pioneer Subsidiary used a portion of
the sales proceeds for expenses associated with the transaction, repaid a $5
million note secured by the property and paid a dividend of $5 million to PHI.
The remaining proceeds of approximately $10 million are held by the Pioneer
Subsidiary for general working capital.

     Management believes that, based on operations for the three and twelve
month periods ended September 30, 1997, and taking into consideration the
working capital of the Pioneer Subsidiary, PHI will have sufficient cash and
available resources to meet its operating requirements  through the twelve
months ending September 30, 1998, although no assurance can be given to that
effect.   To the extent that PHI is unable to generate sufficient cash to meet
its debt service requirements, Corporate may, to the extent of available funds,
make capital contributions or, to the extent permitted by financing
arrangements, advances to PHI. (See  "Liquidity-Corporate").  The 13 1/2% Notes
mature in December 1998.  PHI is exploring alternatives to improve liquidity and
to address the maturity of the 13 1/2% Notes, including, but not limited to,
modifications to existing lease agreements, a possible reduction of indebtedness
or refinancing or modification of the 13 1/2% Notes.   No assurance can be given
that PHI can pay the outstanding principal amount of 13 1/2% Notes at maturity.

Liquidity - SLVC - At September  30, 1997, approximately $2.4 million of the
----------------                                                            
Company's current assets, including approximately $2.3 million of cash and
short-term investments, was held by SLVC.

     In November 1997, SLVC amended and restated the agreement relating to the
SLVC Notes, pursuant to which SLVC issued an additional $22.5 million in SLVC
Notes, the proceeds of which were used as follows: (i) $2.5 million was used to
pay certain fees and expenses, and (ii) $20 million was used to purchase the
Henderson property  from the Pioneer Subsidiary.  In connection with the
amendment, SLVC disbursed $1.6 million from the collateral account securing the
SLVC Notes to pay accrued interest on the SLVC Notes to the effective date of
the amendment.

     SLVC owns the 27 acre parcel of real estate on Las Vegas Boulevard South
which is subject to a lease with a water theme park operator.  SLVC generates
minimal cash from the lease agreement after payment of property costs.  SLVC
receives interest income on $33.1 million principal amount of 11% Notes which
are held as collateral for the SLVC Notes.  SLVC's principal uses of cash on
hand, cash generated under the lease agreement, and interest income on the 11%
Notes is to satisfy principal and interest obligations on the SLVC Notes.
Additional potential uses of cash by SLVC include the redemption of $7.0 million
principal amount of SLVC Notes or, alternatively, the purchase of $7.0 million
principal amount of 11% Notes, to be pledged as collateral for the SLVC Notes,
in the event cash flow, before a maximum $2.4 million in certain operating lease
obligations at SFHI, is less than $13.5 million for any four quarter period
commencing with the four quarter period ending December 31, 1997.
 
                                      27
<PAGE>
 
     The Company is evaluating the development of a casino entertainment complex
on the 39 acre parcel of real property in Henderson, Nevada. The Company has
completed preliminary engineering and architectural drawings. Any future
development costs will be the responsibility of Corporate and any future
development is subject to, among other things , the Company's ability to obtain
necessary financing. No assurance can be given that the Company will obtain
development financing or develop successfully the Henderson property.

     Management believes that SLVC has available resources, consisting primarily
of restricted working capital and interest income on the 11% Notes held as
collateral, to meet operating and debt service requirements through the twelve
months ending September 30, 1998, although no assurance can be given to that
effect.

Related Parties - In 1991, LICO, a company wholly owned by Mr. Lowden, Chairman
---------------                                                                
of the Board, Chief Executive Officer and 54% stockholder of the Company,
borrowed $476,000 from HHI pursuant to an unsecured demand loan which bears
interest at 2% over the prime rate. The outstanding balance of the loan,
including accrued interest, was $687,000 as of September 30, 1997. The loan
amount at September 30, 1997 has been reclassified to offset compensation
amounts payable in 1998 included in Accrued and Other Liabilities in the
Consolidated Balance Sheet.

     In November 1993, Mr. Lowden and Bank of America (the "Bank") entered into
a personal loan agreement under which the principal balance of the loan is
amortized through quarterly principal payments through April 1998, with any
remaining principal balance due July 31, 1998.  At September 30, 1997, the
principal balance of the loan was approximately $927,000.  The loan is secured
by substantially all of the common stock of the Company owned by Mr. Lowden (the
"Pledged Shares").  Mr. Lowden's loan agreement provides that in the event the
market value of the Pledged Shares is less than three times the outstanding loan
balance, the bank, at its sole option, may require either an immediate reduction
in the outstanding balance or the pledging of additional collateral acceptable
to the bank such that the value of the pledged collateral is at least three
times the outstanding loan balance.  Based on the recent trading price of the
Company's common stock, the market value of the Pledge Shares is less than three
times the outstanding loan balance.  Mr. Lowden has advised the Company that
pursuant to discussions between Mr. Lowden and the Bank that  the Bank, at this
time, is not requiring a reduction in the outstanding loan balance or to provide
additional collateral.  If an event of default were to occur under Mr. Lowden's
personal loan with the bank, and if the bank acquired the Pledged Shares upon
foreclosure, Mr. Lowden's ownership of the Company's outstanding common stock
would be reduced to below 50%.  If Mr. Lowden ceases to own more than 50% of the
outstanding shares of the Company's common stock, an event of default would
result under certain of the Company's long-term indebtedness, which could result
in cross-defaults under substantially all of the Company's other long-term
indebtedness.

                                      28
<PAGE>
 
Computerized Operations and the Year 2000
-----------------------------------------

     During recent years, there has been significant global awareness raised
regarding the potential disruption to business operations worldwide resulting
form the inability of current technology to process properly the change from the
year 1999 to 2000.  Although, based on a review of its data processing,
operating and other computer-based systems, the Company does not currently
believe that it will experience any significant adverse effects or material
costs resulting therefrom, the Company cannot provide any assurance in this
regard, and any such costs or effect could materially and adversely effect the
operations of the Company.

Effects of Inflation
--------------------

     The Company has been generally successful in recovering costs associated
with inflation through price adjustments in its hotel.  Any such increases in
costs associated with casino operations and maintenance of properties may not be
completely recovered by the Company.

Private Securities Litigation Reform Act
----------------------------------------

     Certain statements in this Annual Report on Form 10-K which are not
historical facts are forward looking statements, such as statements relating to
future operating results, existing and expected competition, financing and
refinancing sources and availability and plans for future development or
expansion activities and capital expenditures.  Such forward looking statements
involve a number of risks and uncertainties that may significantly affect the
Company's liquidity and results in the future and, accordingly, actual results
may differ materially from those expressed in any forward looking statements.
Such risks and uncertainties include, but are not limited to, those related to
effects of competition, leverage and debt service,  financing and refinancing
efforts, general economic conditions, changes in gaming laws or regulations
(including the legalization of gaming in various jurisdictions) and risks
related to development and construction activities.

                                      29
<PAGE>
 
Item 8.   Financial Statements and Supplementary Data
          -------------------------------------------

                                     INDEX
                     TO CONSOLIDATED FINANCIAL STATEMENTS
                       AND FINANCIAL STATEMENT SCHEDULES

            For the Years Ended September 30, 1997, 1996, and 1995

<TABLE>
<CAPTION>
                                                             Page
                                                             ----
<S>                                                          <C>
Independent Auditors' Report.................................  31

Consolidated Balance Sheets as of
     September 30, 1997 and 1996.............................  32

Consolidated Statements of Operations for the Years Ended
     September 30, 1997, 1996, and 1995......................  33

Consolidated Statements of Stockholders' Equity for the
     Years Ended September 30, 1997, 1996, and 1995..........  34

Consolidated Statements of Cash Flows for the Years
     Ended September 30, 1997, 1996, and 1995................  35

Notes to Consolidated Financial Statements...................  36

</TABLE>

Financial Statement Schedules are omitted because of the absence of conditions
under which they are required or because the information is included in the
financial statements or the notes thereto.
 

                                       30
<PAGE>
 
                          INDEPENDENT AUDITORS' REPORT

Santa Fe Gaming Corporation:

     We have audited the accompanying consolidated balance sheets of Santa Fe
Gaming Corporation and subsidiaries (the "Company") as of September 30, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three years in the period ended September
30, 1997.  These financial statements are the responsibility of the Company's
management.  Our responsibility is to express an opinion on the 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Santa Fe Gaming Corporation and
subsidiaries as of September 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1997 in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
Las Vegas, Nevada
December 8, 1997

                                       31
<PAGE>

                  Santa Fe Gaming Corporation and Subsidiaries
                           Consolidated Balance Sheets
                        As of September 30, 1997 and 1996

<TABLE>
<CAPTION>
        ASSETS                                                                             1997                1996
--------------------------------------------------------------------------------  ------------------- ------------------- 
<S>                                                                               <C>                 <C>
Current assets:
  Cash and short-term investments                                                         $15,146,217         $17,497,824
  Accounts receivable, net                                                                    910,867           1,529,723
  Accounts receivable, officer                                                                      0             636,113
  Inventories                                                                               1,248,199           1,218,120
  Prepaid expenses & other                                                                  3,546,812           3,778,514
  Assets held for sale                                                                      1,605,000           2,424,821
                                                                                   ------------------  ------------------ 
  
Total current assets                                                                       22,457,095          27,085,115

Property and equipment:
  Land held for development                                                                36,589,065          38,194,065
  Land used in operations                                                                  29,343,886          29,343,886
  Buildings and improvements                                                               90,368,461          90,360,100
  Machinery and equipment                                                                  35,607,418          33,822,408
  Accumulated depreciation                                                                (51,157,969)        (43,308,735)
                                                                                   ------------------  ------------------ 

Property and equipment, net                                                               140,750,861         148,411,724

Goodwill                                                                                   44,641,391          46,073,869

Other assets                                                                                8,446,931           7,085,069
                                                                                   ------------------  ------------------ 

Total assets                                                                             $216,296,278        $228,655,777
                                                                                   ==================  ================== 

LIABILITIES and STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------

Current liabilities:
  Current portion of long-term debt                                                        $6,644,979          $3,770,817
  Accounts payable                                                                          5,117,059           5,757,161
  Interest payable                                                                          6,612,750           7,142,225
  Accrued and other liabilities                                                             6,525,215           9,134,856
  Debt due upon sale of assets                                                              1,559,000                   0
                                                                                   ------------------  ------------------ 

Total current liabilities                                                                  26,459,003          25,805,059

Deferred income taxes                                                                               0           2,687,751

Long-term debt - less current portion                                                     168,978,838         167,687,476

Commitments

Stockholders' Equity:
  Common stock, $.01 par value; authorized-100,000,000
    shares; issued and outstanding-6,195,356 shares                                            61,954              61,954
  Preferred stock, exchangeable, redeemable 8% cumulative,
    stated at $2.14 liquidation value, authorized-10,000,000
    shares; issued and outstanding-8,856,651 shares                                        20,469,492          18,953,233
  Additional paid-in capital                                                               51,513,504          51,513,504
  Accumulated deficit                                                                     (51,098,739)        (37,965,426)
                                                                                   ------------------  ------------------ 
      Total                                                                                20,946,211          32,563,265

  Less treasury stock - 4,875 shares, at cost                                                 (87,774)            (87,774)
                                                                                   ------------------  ------------------ 

Total stockholders' equity                                                                 20,858,437          32,475,491
                                                                                   ------------------  ------------------ 


Total liabilities and stockholders' equity                                               $216,296,278        $228,655,777
                                                                                   ==================  ================== 
</TABLE>

See the accompanying Notes to Consolidated Condensed Financial Statements.


                                      32
<PAGE>

                  Santa Fe Gaming Corporation and Subsidiaries
                      Consolidated Statements of Operations
              For the Years Ended September 30, 1997, 1996 and 1995


<TABLE>
<CAPTION>

                                                    1997             1996              1995
                                              ----------------  ---------------  ----------------
<S>                                           <C>               <C>              <C>         
Revenues:
  Casino                                          $83,217,092      $84,595,109      $148,740,793
  Hotel                                             5,817,273        6,460,613        47,885,149
  Food and beverage                                20,785,262       20,739,903        45,555,672
  Other                                             6,864,737        8,367,249        23,828,069
  Gain on sale of assets                              725,179       40,753,738         8,863,049
                                              ----------------  ---------------  ----------------

Gross revenues                                    117,409,543      160,916,612       274,872,732
  Less casino promotional allowances              (12,420,872)     (12,484,339)      (23,763,414)
                                              ----------------  ---------------  ----------------

Net operating revenues                            104,988,671      148,432,273       251,109,318
                                              ----------------  ---------------  ----------------
Operating expenses:
  Casino                                           42,196,846       43,474,270        70,578,873
  Hotel                                             1,756,065        1,806,907        17,316,036
  Food and beverage                                14,250,879       16,160,601        39,639,544
  Other                                             2,938,658        3,452,922         9,682,434
  Other expenses paid to affiliate                          0                0         3,425,007
  Selling, general and administrative              11,820,409       13,512,309        27,011,882
  Corporate expenses                                2,935,848        2,823,304         4,315,127
  Utilities and property expenses                  12,525,051       11,982,079        25,447,749
  Depreciation and amortization                    11,157,480       14,069,415        28,183,806
  Write-down of development costs                     343,780                0        14,898,317
                                              ----------------  ---------------  ----------------

Total operating expenses                           99,925,016      107,281,807       240,498,775
                                              ----------------  ---------------  ----------------

Operating income                                    5,063,655       41,150,466        10,610,543

Interest expense                                   22,607,548       24,422,302        45,017,461
Provision to reduce carrying value of
  investment in Treasure Bay                                0        2,752,405                 0
                                              ----------------  ---------------  ----------------
Income (loss) before income tax expense
  (benefit) and extraordinary item                (17,543,893)      13,975,759       (34,406,918)

Federal income tax expense (benefit)               (3,830,601)       4,236,523       (11,224,000)
                                              ----------------  ---------------  ----------------

Income (loss) before extraordinary item           (13,713,292)       9,739,236       (23,182,918)

Extraordinary item-gain on early
  extinguishment of debt, net of tax
  provision of $1,129,000 in 1997,
  $4,229,000 in 1996 and $615,000
  in 1995                                           2,096,238        7,854,707         1,141,670
                                              ----------------  ---------------  ----------------

Net income (loss)                                 (11,617,054)      17,593,943       (22,041,248)

Dividends paid or accrued on preferred shares       1,516,259        1,434,291         1,322,240
                                              ----------------  ---------------  ----------------

Net income (loss) applicable to common shares    ($13,133,313)     $16,159,652      ($23,363,488)
                                              ================  ===============  ================

Average common shares outstanding                   6,195,356        6,195,356         6,195,356
                                              ================  ===============  ================
Income (loss) per common share:
  before extraordinary item                            ($2.21)           $1.57            ($3.74)
  extraordinary item                                     0.34             1.27              0.18
  dividends on preferred shares                         (0.24)           (0.23)            (0.21)
                                              ----------------  ---------------  ----------------

Income (loss) per common share                         ($2.12)           $2.61            ($3.77)
                                              ================  ===============  ================
</TABLE>


See the accompanying Notes to Consolidated Condensed Financial Statements.


                                      33

<PAGE>

                  Santa Fe Gaming Corporation and Subsidiaries
                 Consolidated Statement of Stockholders' Equity
              For the Years Ended September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                                 Additional
                                   Common        Preferred        Paid-in        Accumulated      Treasury
                                    Stock          Stock          Capital          Deficit         Stock          Total
                                -------------  --------------  --------------  ---------------  ------------- --------------
<S>                             <C>            <C>             <C>             <C>              <C>           <C>        
Balances, October 1, 1994            $61,954     $16,201,715     $51,513,504     ($30,761,590)      ($87,774)   $36,927,809

Net loss                                                                          (22,041,248)                  (22,041,248)
Preferred stock dividend                           1,319,670                       (1,322,240)                       (2,570)
                                -------------  --------------  --------------  ---------------  ------------- --------------

Balances, September 30, 1995          61,954      17,521,385      51,513,504      (54,125,078)       (87,774)    14,883,991

Net loss                                                                           17,593,943                    17,593,943
Preferred stock dividend                           1,431,848                       (1,434,291)                       (2,443)
                                -------------  --------------  --------------  ---------------  ------------- --------------

Balances, September 30, 1996          61,954      18,953,233      51,513,504      (37,965,426)       (87,774)    32,475,491

Net income                                                                        (11,617,054)                  (11,617,054)
Preferred stock dividend 
  accrued                                          1,516,259                       (1,516,259)                            0
                                -------------  --------------  --------------  ---------------  ------------- --------------

Balances, September 30, 1997         $61,954     $20,469,492     $51,513,504     ($51,098,739)      ($87,774)   $20,858,437
                                =============  ==============  ==============  ===============  ============= ==============
</TABLE> 

See the accompanying Notes to Consolidated Condensed Financial Statements.

                                      34
<PAGE>


                  Santa Fe Gaming Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
                       September 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>

                                                                    1997            1996               1995
------------------------------------------------------------  --------------- -----------------  -----------------
<S>                                                           <C>             <C>                <C>          
Cash flows from operating activities:
Net income (loss)                                               ($11,617,054)      $17,593,943       ($22,041,248)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
   Depreciation and amortization                                  11,157,480        14,069,415         28,183,806
   Gain on sale of assets                                           (725,179)      (40,753,738)        (8,863,049)
   Write-off of development costs                                                                      14,898,317
   Gain on early extinguishment of debt                           (2,096,238)       (7,854,707)        (1,141,670)
   Provision to reduce carrying value of                 
        investments in Treasure Bay                                                  2,752,405
   Debt discount amortization                                      1,703,368         1,765,887          1,978,747
   Decrease in accounts receivable, net                              618,856         4,659,386          1,165,053
   Decrease (increase) in accounts receivable, officer               636,113           (91,071)           (44,517)
   Decrease (increase) in inventories                                (30,079)          558,307            618,836
   Decrease  in prepaid expenses & other                             231,702         1,009,110          1,660,547
   Decrease (increase) in deferred income taxes                   (3,830,601)        4,136,523        (11,224,000)
   Decrease (increase) in other assets                            (2,665,131)        2,145,494           (868,292)
   Decrease in accounts payable                                     (640,102)       (1,267,819)           (57,643)
   Decrease in interest payable                                     (529,475)       (2,374,551)        (2,072,798)
   Decrease in accrued and other liabilities                      (2,115,775)       (6,589,101)        (4,803,102)
                                                              --------------- -----------------  -----------------

Net cash used in operating activities                             (9,902,115)      (10,240,517)        (2,611,013)
                                                              --------------- -----------------  -----------------

Cash flows from investing activities:
   Proceeds from sale of subsidiary assets                                         128,508,377         80,000,000
   Proceeds from sale leaseback of equipment                                         5,000,000
   Proceeds from sale of land held for development                 3,150,000
   Decrease in restricted cash                                                                         22,984,222
   Capital expenditures                                           (1,566,035)       (4,571,140)       (27,992,380)
                                                              --------------- -----------------  -----------------

Net cash provided by investing activities                          1,583,965       128,937,237         74,991,842
                                                              --------------- -----------------  -----------------

Cash flows from financing activities:
   Cash proceeds of long-term debt                                21,675,658        20,000,000          1,800,000
   Cash paid on long-term debt                                   (15,709,115)     (163,948,828)       (87,013,400)
                                                              --------------- -----------------  -----------------

Net cash provided by (used in) financing activities                5,966,543      (143,948,828)       (85,213,400)
                                                              --------------- -----------------  -----------------

Decrease in cash and short-term investments                       (2,351,607)      (25,252,108)       (12,832,571)
Cash and short-term investments,
  beginning of year                                               17,497,824        42,749,932         55,582,503
                                                              --------------- -----------------  -----------------
Cash and short-term investments,
  end of year                                                    $15,146,217       $17,497,824        $42,749,932
                                                              =============== =================  =================
</TABLE>


See the accompanying Notes to Consolidated Condensed Financial Statements.

                                      35
<PAGE>
 
                 SANTA FE GAMING CORPORATION AND SUBSIDIARIES
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            For the years ended September 30, 1997, 1996, and 1995

1.  Basis of Presentation and General Information

     Santa Fe Gaming Corporation, formerly known as Sahara Gaming Corporation,
(the "Company" or "Santa Fe Gaming"), a publicly traded Nevada corporation, is
the successor corporation of two affiliates, Sahara Resorts and Sahara Casino
Partners, L.P., which combined in a business combination in September, 1993.
The Company's primary business operations are conducted through two wholly owned
subsidiary corporations, Santa Fe Hotel Inc. ("SFHI") and Pioneer Hotel Inc.
("PHI") (the "Operating Companies"). SFHI owns and operates the Santa Fe Hotel
and Casino (the "Santa Fe"), located in Las Vegas, Nevada, and PHI owns and
operates the Pioneer Hotel & Gambling Hall (the "Pioneer") in Laughlin, Nevada.
The Company owns real estate  through an indirect wholly owned subsidiary of the
Company, Sahara Las Vegas Corp. ("SLVC"), on Las Vegas Boulevard South and in
Henderson, Nevada, for possible development opportunities.  The Company, through
its wholly owned subsidiaries, Hacienda Hotel Inc. ("HHI") and Sahara Nevada
Corp ("SNC") previously owned and operated the Hacienda Resort Hotel & Casino
(the "Hacienda") and the Sahara Hotel & Casino (the "Sahara"), but sold
substantially all of the assets related to those hotel/casinos in August 1995
and October 1995, respectively.

2.  Summary of Significant Accounting Policies

Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of
Santa Fe Gaming and its wholly owned subsidiaries, primarily SFHI and PHI in
fiscal 1997 and 1996 and SFHI, PHI, HHI and SNC in fiscal 1995, (collectively,
the "Company").  Amounts representing the Company's investment in less than
majority-owned companies in which a significant equity ownership interest is
held are accounted for on the equity method.  All material inter-company
accounts and transactions have been eliminated in consolidation.

Cash and Short-Term Investments

     Investments which mature within 90 days from the date of purchase are
treated as cash equivalents and are included in cash and short-term investments.

Inventories

     Food, beverage, gift shop and other inventories are stated at first-in,
first-out cost, not in excess of market.

                                       36
<PAGE>
 
Property and Equipment

     Property and equipment are stated at cost.  Costs of maintenance and
repairs of property and equipment are expensed as incurred.  Costs of major
improvements are capitalized and depreciated pursuant to the standard described
below.  Gains or losses on the disposal of property and equipment are recognized
in the year of sale.  In sale/leaseback transactions of property and equipment,
gains are deferred and recognized over the lease term and losses are recognized
in the year of sale.

     Depreciation and amortization are computed by the straight-line method over
the shorter of the estimated useful lives or lease terms.  The length of
depreciation and amortization periods are for buildings and improvements 7 to 40
years and for machinery and equipment 3 to 15 years.

Pre-Opening Expenses and Capitalized Interest

     All pre-opening expenses directly related to development of gaming
operations are capitalized as incurred and included in Other Assets and expensed
within the first year of operations.  Interest costs are capitalized on funds
disbursed during the development phase of projects and expensed pursuant to
depreciation and amortization methods over the assets estimated useful file.

Goodwill

     The excess cost over the net assets of an acquired company is amortized
using the straight line method over a 40 year period.  Management periodically
evaluates the realizability of goodwill as events and circumstances indicate a
possible inability to recover the carrying amount.

Federal Income Taxes

     Deferred income taxes are provided on temporary differences between pretax
financial statement income and taxable income resulting primarily from different
methods of depreciation and amortization. The Company accounts for Income Taxes
in accordance with SFAS No. 109, Accounting for Income Taxes.

Revenue Recognition

     Casino revenue is recorded as gaming wins less losses. Revenues include the
retail amount of room, food, beverage and other services provided gratuitously
to customers. Such amounts are then deducted as promotional allowances. The
estimated cost of providing these promotional services has been reported in the
accompanying

                                       37
<PAGE>
 
consolidated financial statements as an expense of each department granting
complimentary services. The table below summarizes the departments' costs of
such services (dollars in thousands):
 
<TABLE>
<CAPTION>
                         1997     1996     1995
                        -------  -------  -------
<S>                     <C>      <C>      <C>
   Food and Beverage    $11,051  $12,114  $17,180
   Hotel                    972    1,128    3,673
   Other                    181      216      402
                        -------  -------  -------
         Total          $12,204  $13,458  $21,255
                        =======  =======  =======
</TABLE>

Indirect Expenses

     Certain indirect expenses of operating departments such as utilities and
property expense and depreciation and amortization are shown separately in the
accompanying consolidated statements of operations and are not allocated to
departmental operating costs and expenses.

Earnings Per Share

     Net income (loss) per common share is computed by dividing net income
(loss) less the amount applicable to preferred stock by the weighted average
common shares outstanding during the year.  Fully diluted earnings per common
and common equivalent share are not presented since dilution is less than 3%.

Estimates and Assumptions

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period.  Significant estimates used by the Company include estimated
useful lives for depreciable and amortizable assets, certain other estimated
liabilities and valuation reserves, and estimated cash flows in assessing the
recoverability of long-lived assets.   Actual results may differ from estimates.

Reclassification

     Certain reclassifications have been made in the 1996 and 1995 consolidated
financial statements in order to conform to the presentation used in 1997.

                                       38
<PAGE>
 
Recently Issued Accounting Standards

     The Financial Accounting Standard Board ("FASB") recently issued SFAS No.
128 "Earnings per Share".  This statement establishes standards for computing
and presenting earnings per share and is effective for financial statements
issued for periods ending after December 15, 1997.  Earlier application of this
statement is not permitted and upon adoption requires restatement (as
applicable) of all prior-period earnings per share data presented.  Management
believes that the implementation of this standard will not have a significant
impact on earnings per share.
 
     On June 30, 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income.  This statement requires companies to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position, and is effective for financial statements issued for fiscal
years beginning after December 15, 1997.  Management does not believe this new
FASB will have a material impact on their financial statements.

     On June 30, 1997, the FASB issued SFAS No. 131, Disclosure About Segments
of an Enterprise and Related Information.  This statement establishes additional
standards for segments reporting in the financial statements and is effective
for fiscal years beginning after December 15, 1997.  The Company believes the
segment information required to be disclosed under SFAS No. 131 will be more
comprehensive than previously provided, including expanded disclosure of income
statement and balance sheet items for each of its reportable segments under SFAS
No. 131.  However, the Company has not yet completed its analysis of which
operating segments it will report on.

Fair Value of Financial Instruments

     The Company estimates the fair value of its Long Term Debt and Preferred
Stock to be $161.1 million and $2.8 million, respectively, at September 30, 1997
based upon available market prices.  The Company estimates that all other
financial instruments have a fair value which approximates their recorded value.

3.  Cash and Short-Term Investments

     At September 30, 1997, approximately $7.6 million of the Company's
consolidated cash and short term investments was held by SFHI and was subject to
certain restrictions and limitations on its use, including restrictions on its
availability for distribution to the Company, by the terms of an indenture
pursuant to which $115 million principal amount of 11% First Mortgage Notes due
2000 ("11% Notes") of SFHI was issued.  As of September 30, 1997, SFHI did not
meet the conditions precedent to making a distribution to the Company.  See Note
11

                                       39
<PAGE>
 
     At September 30, 1997, approximately $3.2 million of the Company's
consolidated cash and short-term investments was held by PHI and was subject to
certain restrictions, including restrictions on its availability for
distribution to the Company, by the terms of an indenture pursuant to which the
13 1/2% First Mortgage Notes due 1998 ("13 1/2% Notes") of Pioneer Finance Corp.
were issued, the proceeds of which were loaned to PHI. As of September 30, 1997,
PHI did not meet the conditions precedent to making a distribution to the
Company. See Note 11

     At September 30, 1997, approximately $2.3 million of the Company's
consolidated cash and short-term investments was held by SLVC and was subject to
certain restrictions and limitations on its use by the terms of  $35 million
principal amount of notes due 1999 ("SLVC Notes") of SLVC was issued.  See Note
11 and 23

4.  Accounts Receivable, Net

     Accounts receivable at September 30, 1997 and 1996 consisted of the
following:

<TABLE>
<CAPTION>
                                             1997         1996
                                         ------------  -----------
<S>                                      <C>           <C>          
   Casino and hotel                       $2,467,672   $2,590,201
   Other                                     449,963    1,136,369
                                          ----------   ----------
   Sub-total                               2,917,635    3,726,570
   Less allowance for
     doubtful accounts                     2,006,768    2,196,847
                                          ----------   ----------
         Total                            $  910,867   $1,529,723
                                          ==========   ==========
</TABLE> 
 
     Changes in the allowance for doubtful accounts for the years ended
September 30, 1997, 1996 and 1995 were as follows:

<TABLE> 
<CAPTION> 
                                             1997         1996         1995
                                          ----------   ----------  ------------
     <S>                                  <C>          <C>         <C> 

     Balance, beginning of year           $2,196,847   $2,317,702  $  3,538,639
     Provision                                94,738      397,413       634,938
     Accounts written-off                   (284,817)    (518,268)  ( 1,855,875)
                                          ----------   ----------  ------------
         Balance, end of year             $2,006,768   $2,196,847  $  2,317,702
                                          ==========   ==========  ============
</TABLE>

5. Accounts Receivable, Officer

     As of September 30, 1996, included in Accounts Receivable, Officer is an
unsecured demand loan in the principal amount of $476,000, which, together with
accrued interest, totaled approximately $636,000 from HHI to a company wholly
owned by Paul W. Lowden, Chairman of the Board, Chief Executive Officer and 54%
stockholder of the Company ("LICO"). The loan from HHI to LICO bears interest at
the rate equal to 2% over the prime rate. The outstanding balance of the loan
including accrued interest was $687,000 at September 30, 1997. Pursuant to an
agreement with Mr. Lowden the loan amount at September 30, 1997 has been
reclassed to offset compensation amounts payable in 1998 included in Accrued &
Other Liabilities in the Consolidated Balance Sheet. See Note 17

                                       40
<PAGE>
 
6.  Assets Held for Sale

     In November 1997, the Company entered into an agreement to sell the 22 acre
tract of property located next to the Santa Fe for $3.6 million.  (See Notes 10
and 23). SFHI acquired the property in November 1993 for $1.6 million.  In May
1996, the Company purchased from SFHI the 22-acre parcel for $2.85 million,
which the Company and SFHI believed to be the fair market value of the property
as of such date.  The intercompany gain on sale recorded by SFHI has been
eliminated in the Consolidated Financial Statements.  See Note 23

     In November 1996, the Company sold an option to acquire a 40 acre parcel
located approximately eight miles south of the former Hacienda on Las Vegas
Boulevard South for $2.8 million. Pursuant to the option agreement, the option
holder exercised the option in February, 1997 to purchase the property for
$350,000 in additional net proceeds to the Company. The Company reported a
$730,000 gain on the sale.

7.  Land Held For Development

     In March 1994, the Company purchased for approximately $15.1 million a 39-
acre parcel of land located in Henderson, Nevada, for future development of a
proposed casino hotel complex.  At September 30, 1997 the cost to acquire the
property is reported as land held for development in the Consolidated Balance
Sheet.  In addition to costs to acquire and cost to finance the acquisition of
the property, the Company has recorded approximately $3.5 million in preliminary
engineering and development costs.  See Note 23

     In connection with the acquisition of a 27 acre parcel on Las Vegas
Boulevard South (See Note 20), the Company assumed the operating lease under
which a water theme park operates.  The lease may be terminated by the Company
at any time after December 1996. The Company has guaranteed payments by the
tenant of a loan to the prior owner of the property ("tenant loan") and has
agreed to pay the loan in full in certain situations, including in the event the
lease is terminated for any reason prior to 2004.  The tenant loan, which is
amortized through monthly principal and interest payments through December 2004,
had an outstanding balance of $5.3 million as of September 30, 1997.  Under the
terms of the lease, as amended, the water-theme park remits a base rent of
approximately $16,000 monthly plus an annual rent payment based on gross
receipts.  The 27 acre parcel was valued at approximately $22 million for
purposes of the Sahara sale  and is reported as land held for development in the
September 30, 1997 Consolidated Balance Sheet.

                                       41
<PAGE>
 
8.  Property and Equipment, Net

     In 1996, the Company completed a $5.0 million sale/leaseback transactions
with respect to gaming and other equipment at the Santa Fe. In connection with
the transactions, the Company deferred an approximate $1.7 million gain which is
being recognized over the 36 month lease term. In the fourth quarter of fiscal
1996, the Company recorded an approximate $1.7 million charge in connection with
the sale/leaseback transactions. See Notes 2 and 12

9.  Goodwill, Net

     Goodwill is net of accumulated amortization of $11.9 million and $10.4
million at September 30, 1997 and 1996, respectively. Amortization expense was
$1.4 million in 1997,1996 and 1995, respectively.

10.  Debt Due Upon Sale of Assets

     In November 1997, the Company entered into a purchase and sale agreement on
the 22 acre parcel located adjacent to the Santa Fe Hotel.  If the sale is
consumated, the Company will be required to retire debt against the property of
approximately $1.6 million. See Notes 6, 11 and 23

     In December 1996, the Company borrowed approximately $1.6 million pursuant
to a first mortgage note secured by the 22 acre parcel.  The note requires
monthly interest only payments at a 12% per annum interest rate for a three-year
term.  The Company utilized proceeds from the note to satisfy an existing first
mortgage note of $850,00 and expenses of the transactions resulting in net
proceeds of approximately $650,000.

                                       42
<PAGE>
 
11.  Long-Term Debt

     Long-term debt is presented net of unamortized debt discounts and debt
obligations owned, but not retired, by the Company. Financing agreements under
which the debt obligations were issued contain covenants and restrictions,
which, management believes it is in compliance. Long-term debt at September 30,
1997 and 1996 consisted of the following:

<TABLE>
<CAPTION>
                                                           1997              1996
                                                        ----------        ----------
<S>                                                    <C>                  <C>
   11% First Mortgage Notes,
    ("11% Notes") due 2000                             $ 62,092,196       $ 73,921,189
 
   13 1/2% First Mortgage Notes,
    ("13 1/2% Notes") due 1998                           60,000,000         60,000,000
 
   Note Purchase Agreement
    ("SLVC Notes") due 1999                              35,000,000         20,000,000
 
   10 1/4% Subordinated Sinking
    Fund Debentures ("10 1/4%
    Debentures") due 1998                                 5,233,806          8,164,667
 
   Note payable to Sierra Construction 
    Corp. ("Sierra Note"), due            
    1998; interest at prime plus 2%                       5,297,126          5,679,064
                             
 
   12 1/4% First Mortgage Note,
    ("12 1/4% Note") due 1998                             5,000,000             -0-
 
   12% First Mortgage Note
    due 1999 ("Land Note")                                     -0-             850,000
 
   Other notes payable, collateralized 
    primarily by equipment                                2,575,724          2,436,246
 
   Obligations under capital leases                         424,965            407,127
                                                       ------------       ------------
        Subtotal                                        175,623,817        171,458,293
   Less current portion                                   6,644,979          3,770,817
                                                       ------------       ------------
        Total long-term debt                           $168,978,838       $167,687,476
                                                       ============       ============
</TABLE>

                                       43
<PAGE>
 
     The scheduled maturities of long-term debt (excluding capital leases) for
the year ending September 30 are as follows:

<TABLE>
              <S>            <C>
              1998           $  6,429,103
              1999             65,394,291
              2000             40,530,576
              2001             62,338,008
              2002                 92,187
              Thereafter          414,687
                             ------------
                 Total       $175,198,852
                             ============
</TABLE>

     The 11% Notes are secured by, among other things, a first priority deed of
trust on the Santa Fe and are guaranteed by the Company.  Interest is payable
semi-annually on June 15 and December 15, at the rate of 11% per annum.  On
December 29, 1993, SFHI consummated a public offering (the "Offering") of 11,500
units, with each unit consisting of $10,000 principal of the 11% Notes and one
warrant to acquire, for no additional consideration, an additional $1,000
principal amount of the 11% Notes upon exercise no later than December 15, 1996.
Assuming all warrants were exercised on December 15, 1996, the total principal
amount of 11% Notes to be paid at maturity would have been $126.5 million and
the effective rate of interest per annum would have been 12.46%.  SFHI is
subject to certain covenants under the indenture in which the 11% Notes were
issued including, among other things, restrictions on the incurrence of
additional debt and making any loan or any distribution or dividends to any
affiliate of the Company.  See Note 3

      In August 1995, in accordance with  the indenture governing the 11% Notes,
SFHI completed an offer to repurchase for cash $21.5 million principal amount of
11% Notes at a price of $1,010 per $1,000 principal amount, plus accrued
interest (the "Repurchase Offer"), representing that principal amount that could
be purchased with funds remaining in the Parkville collateral account dedicated
to use in the development of a proposed dockside riverboat casino and received
upon liquidation of the Parkville assets.   The repurchase offer was required to
be made because the proposed casino in Parkville, Missouri that SFHI intended to
develop was not operating by June 30, 1995. As a result of the commencement of
the Repurchase Offer discussed above, warrants to acquire $11.5 million
principal amount 11% Notes were exercised resulting in $126.5 million principal
amount of 11% Notes outstanding. Upon completion of the Repurchase Offer, $105
million principal amount of 11% Notes were outstanding.  The Company recorded an
extraordinary charge to earnings in the amount of approximately $2.6 million,
less income tax benefit of $890,000, related to debt premium payments, debt
issue costs and debt discount in connection with the completed Repurchase Offer.

     In January 1996 and August 1997, the Company completed the repurchase of an
aggregate of $38.7 million principal amount of 11% Notes. The Company financed
the repurchase of debt with the net proceeds of private placements of an
aggregate of $35 million principal
                                       44
<PAGE>
 

amount of SLVC Notes issued by SLVC an indirect wholly-owned subsidiary of the
Company. Interest is payable semi-annually on June 20 and December 20. The
Company retired $5.6 million principal amount of the 11% Notes purchased and
pledged the balance of $33.1 million principal amount held by the Company as
collateral for the SLVC Notes. The SLVC Notes are secured by, among other
things, the Company's 27 acre parcel of real property on the Las Vegas Strip.
The Company recorded extraordinary gains of approximately $4.9 million after tax
related to the debt repurchase in the quarter ended March 31, 1996 and of
approximately $1.7 million after tax of $930,000 related to the debt repurchase
in the quarter ended September 30, 1997. As of September 30, 1997, $99.4 million
principal amount of the 11% Notes was outstanding, and are reported in the
Consolidated Balance Sheet, net of unamortized debt discount of $4.2 million and
$33.1 million principal amount held by the Company, all of which is pledged as
collateral for the SLVC Notes.

     In August 1997, the Company and the holders of the SLVC Notes amended the
terms of the SLVC Notes to, among other things, (i) provide for the issuance of
$15 million of SLVC Notes, (ii) provide for the deferral of a $500,000 principal
payment originally due on December 31, 1996 from June 30, 1997, until December
31, 1997, and (iii) revise a covenant requiring redemption of $7.0 million
principal amount of SLVC Notes (or alternatively the redemption of 11% Notes),
in the event cash flow (before maximum of $2.4 million lease payments) at the
Santa Fe is less than $13.5 million for any four-quarter period commencing with
the four-quarter period ending December 31, 1997.  Such obligation, if it
arises, will be reduced on a dollar-for-dollar basis to the extent that, during
the period in which the Company is so required to repurchase SLVC Notes, the
Company acquires 11% Notes and pledges such acquired 11% Notes as additional
collateral for the SLVC Notes or contributes the acquired 11% Notes to SFHI and
causes the contributed SFHI Notes to be canceled.

     The proceeds from the SLVC Notes were used, in part to: (i) In January
1996, approximately $17.5 million was used to repurchase $25.6 million principal
amount of 11% Notes of which $5.6 million was retired, (ii) In August 1997,
approximately $10.5 million was used and to repurchase $13.1 million principal
amount of 11% Notes, which are held as collateral for the SLVC Notes, (iii) $2.5
million was deposited in a cash collateral account for use for future principal
and interest payments on the SLVC Notes and (iv) the remaining balance was used
to pay for certain expenses and to make distributions to the Company.

    The 13 1/2% Notes are secured by a first deed of trust on the Pioneer and
were issued by Pioneer Finance Corp., a wholly owned subsidiary of the Company.
The 13 1/2% Notes are guaranteed by the Company.  Interest is payable semi-
annually on June 1 and December 1 at a rate of 13 1/2% per annum.  PHI is
subject to certain conditions under the indenture under which the 13 1/2% Notes
were issued, including, without limitation, restrictions on the incurrence of
additional debt and the making of any loans or distributions or dividends to
affiliates of the Company.  See Note 3

                                       45
<PAGE>
 
     In September 1995, from the proceeds of the sale of the Hacienda, the
Company acquired $20 million principal amount of 13 1/2% Notes.  The Company
recorded a extraordinary gain of $4.3 million less income tax charge of $1.5
million.  The $20.0 million principal amount of the 13 1/2% Notes acquired was
submitted to the trustee for cancellation in satisfaction in full of the
Company's sinking fund payment due in December 1996 and reduced the December
1997 sinking fund obligation to $22.75 million.  In January 1996, the Company
completed the repurchase of an aggregate of $12.5 million principal amount of 13
1/2% Notes.   In addition, in March 1996, the Company completed the repurchase
of $10.2 million principal amount of 13 1/2% Notes and accrued interest thereon
for $8.6 million.  The Company recorded an extraordinary gain of approximately
$3.0 million after tax related to the debt repurchases in the quarter ended
March 31, 1996.  The January and March repurchases were submitted to the trustee
for cancellation in satisfaction of the December 1997 sinking fund obligation.
At September 30, 1997 the outstanding balance of the 13 1/2% Notes was $60.0
million.

     The 10 1/4% Debentures have an effective interest rate of 16.9%, payable
semi-annually, and had an outstanding principal balance of $5.5 million and $9.0
million less unamortized discount of $300,000 and $800,000 on September 30, 1997
and 1996, respectively. The 10 1/4% Debentures restrict the purchase of the
Company's capital stock and payment of cash dividends on any of the Company's
capital stock to the extent of the aggregate consolidated net income of the
Company from September 30, 1982 to the end of the most recent fiscal quarter
preceding the date of declaration of the dividend.  As of September 30, 1997,
the Company did not meet conditions precedent to pay cash dividends or to
repurchase its capital stock.

     In December 1995, the Company acquired $2.6 million principal amount of 
10 1/4% Debentures which were submitted to the trustee for cancellation in
satisfaction of the sinking fund payment due in June 1996 and in reduction of
the sinking fund payment due in June 1997.   In April 1997, the Company acquired
$3.5 million principal amount of 10 1/4% Debentures.  The Company submitted $2.3
million in Debentures to the trustee for cancellation in satisfaction of the
sinking fund payment due in June 1997.  In addition, the Company submitted $1.2
million for cancellation in reduction of the balance due at maturity in June
1998.  The Company recorded a $400,000 extraordinary gain net of amortization of
debt discount and original issue cost and federal income tax of $300,000 on the
purchase which is reported in the quarter ended June 30, 1997.

     The Sierra Note  bears interest at 2% above the prime rate (10 1/2% at
September 30, 1997); payable in monthly installments of principal and interest
of $80,099 commencing December 1993 until maturity in December 1998.  At the
current interest rate, the balance due at maturity will be approximately $4.8
million.

                                       46
<PAGE>
 
     In May 1997, the Company borrowed $5.0 million at a rate of 12 1/4%
interest, payable monthly for a twelve month term, pursuant to the first
mortgage note secured by the 39 acre parcel of land located in Henderson, Nevada
(the "12 1/4% Note").  See Note 23
 
     In November 1993, the Company assumed a first mortgage note in the amount
of $850,000 secured by the 22 acre parcel of real property adjacent to the Santa
Fe. The Land Note required interest only payments at a 12% per annum interest
rate with the principal due November 1998. The Company repaid the Land Note in
December 1996 with proceeds of a new first mortgage note. See Note 10

     In June 1995, SFHI repaid $10 million against an $18 million note due to
the Company. In January 1996, SFHI repaid an additional $3 million against the
note balance. As of September 30, 1997, the principal balance was approximately
$5.0 million. The note bears interest at 12 1/8%. The note was amended in
December 1997 to extend the maturity date from December 31, 1997 to May 31,
1998. This note has been eliminated in the Consolidated Financial Statements.

     In December 1996, SFHI borrowed approximately $5.0 million from the Company
pursuant to a revolving loan note. The note bears interest at 12% and matures
May 31, 1998. As of September 30, 1997, approximately $5.0 million is
outstanding under the revolving loan note. This note has been eliminated in the
Consolidated Financial Statements.

12.  Leases

     All non-cancelable leases have been classified as capital or operating
leases. At September 30, 1997, the Company had leases for personal and real
property which expire in various years to 2078. Under most leasing arrangements,
the Company pays the taxes, insurance and the operating expenses related to the
leased property.

     At September 30, 1997 and 1996, equipment leased under capital leases are
recorded in the Consolidated Balance Sheet as follows:

<TABLE>
<CAPTION>
                                                September 30
                                            -----------------------
                                              1997         1996
                                            --------     ----------
         <S>                                <C>          <C>
         Equipment                          $995,570     $1,049,000
         Less accumulated amortization       284,394        342,000  
                                            --------     ---------- 
                Total                       $711,176     $  707,000
                                            ========     ==========
 
</TABLE>

                                       47
<PAGE>
 
     Amortization of assets leased under capital leases is included in
depreciation and amortization expense in the Consolidated Statements of
Operations.

     Future minimum lease payments as of September 30, 1997 are as follows:

<TABLE>
<CAPTION>
                                                             Capital          Operating   
                                                           -----------       ------------ 
         <S>                                               <C>               <C>          
         1998                                              $   242,401       $ 1,696,411  
         1999                                                  131,735         4,245,282  
         2000                                                   84,384         3,921,222  
         2001                                                    6,694         3,482,241  
         2002                                                    2,903           700,429  
         Thereafter                                                -0-        52,590,550  
                                                              --------       -----------  
                                                               468,117       $66,636,135  
         Less amount representing interest                      43,152       ===========  
                                                              --------                    
         Present value of minimum                                                                         
           lease payments                                     $424,965                    
                                                              ========                     
</TABLE>

     Included in future minimum operating lease payments are rental costs
associated with the real property under the lease at the Pioneer. Approximately
6 1/2 acres of the Pioneer property are subject to a 99 year ground lease,
expiring in December 2078. Under the ground lease the Company is subject to an
annual rental obligation of $700,000 per year, adjusted annually based on the
Consumer Price Index. Additionally, beginning January 1, 2004 and every ten
years, the annual rent will be adjusted to an amount equal to 10% of the fair
market value of the land subject to the ground lease, on an unimproved basis.
 
     Included in future minimum operating lease payments are rental costs
associated with the lease of gaming equipment at the Pioneer. In 1997, the
Company executed operating leases for 220 slot machines at the Pioneer. The
leases require monthly payments aggregating $44,000 for a 36 month term.

     Included in future minimum operating lease payments are rental costs
associated with the lease of gaming equipment at the Santa Fe. During 1997, the
Company amended the terms of Santa Fe operating leases entered into during
fiscal 1997 and 1996 to, among other things, extend the term of the leases from
up to 36 months to 48 months, to defer monthly payments until August 1998 and to
replace older gaming equipment with newer equipment. Santa Fe's lease payments
aggregating approximately $253,000 per month commencing in August 1998, and 
expire on August 15, 2001. See Note 23

                                       48
<PAGE>
 
13.  Stockholders' Equity
 
     In March and September of fiscal years 1996 and 1995, the Company declared
a semi-annual dividend on its Preferred Stock pursuant to the terms of the
Certificate of Designation with respect to the Preferred Stock. Each semi-annual
dividend was paid in shares of Preferred Stock in an amount equal to .04 of a
share for each share of Preferred Stock. Cash was paid in lieu of fractional
shares.

     Prior to fiscal 1997, the Company satisfied the semi-annual dividend
payments on its preferred stock through the issuance of paid-in-kind dividends.
Commencing in fiscal 1997, dividends paid on the preferred stock, to the extent
declared, must be paid in cash. No dividends were declared on the preferred
stock in fiscal 1997. Pursuant to the terms of the Certificate of Designation
with respect to the preferred stock, dividends that are not declared are
cumulative and accrue at a rate per annum equal to 8% of $2.14 for each share of
preferred stock. The accrued stock dividends have been recorded as an increase
to the preferred stock account. The Company is a party to financing arrangements
that restrict the Company's ability to declare and pay dividends or make
distributions with respect to the Company's capital stock, which currently
prohibit the payment of cash dividends on the preferred stock.
 
     At the election of the Company, the Preferred Stock is redeemable, in whole
or in part, at any time and from time to time at a redemption price equal to the
per share liquidation preference of $2.14 plus (i) an amount equal to all
accrued but unpaid dividends, whether or not declared, plus (ii) under certain
circumstances relating to asset dispositions and mergers, an additional amount
determined in accordance with the Certificate of Designation of the Preferred
Stock (the "Liquidation Preference"). Additionally, at the election of the
Company, if any shares of Preferred Stock have not been redeemed on or prior to
the tenth dividend payment date from the issuance of the Preferred Stock,
September 30, 1998, such shares may be exchanged from time to time for Junior
Subordinated Notes of the Company. The principal amount of the Junior
Subordinated Notes, if issued, will be equal to the Liquidation Preference of
the Preferred Stock for which such notes are exchanged. The Junior Subordinated
Notes will mature on September 30, 2008, and will bear interest at an annual
rate of 11%, payable semi-annually.

     Pursuant to the terms of the SLVC Notes, as amended, while the SLVC Notes
are outstanding the Company is prohibited from exercising an option to exchange
the Preferred Stock into Junior Subordinated Notes, beginning in September 1998.
 

                                       49
<PAGE>
 
14.  Stock Option Plan

     The Company has a Key Employee Stock Option Plan (the "Stock Option Plan")
providing for the grant of up to 319,375 shares of its common stock to key
employees. The Stock Option Plan provides for both incentive stock options and
non-qualified stock options. In October 1995, the Company canceled all
outstanding options and issued 153,000 options at an exercise price of $3.00 per
share. In 1996, options to acquire 6,250 were canceled. In February 1997, the
Company canceled all outstanding options and issued 146,750 options at an
exercise price of $1.50. In 1997, options to acquire 10,000 were canceled. As of
September 30, 1997, there were 136,750 options outstanding under the Stock
Option Plan. No options were exercised during fiscal years 1997, 1996 and 1995.
The outstanding options have an expiration date of February 2007.

     In December 1995, the Company adopted the 1995 Non-Employee Director Stock
Option Plan (the "Non-Employee Director Plan") which provides for the grant of
up to 100,000 shares of its common stock to the directors.  Directors are
automatically granted an option to purchase 12,500 shares of the common stock at
an exercise price equal to the market value of such shares on the date of such
election to the board.  As of September 30, 1997, there were 25,000 options
outstanding under this plan.  The outstanding options have an expiration date of
February 2007.

Accounting for stock-based compensation:
 
     In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which
is effective for fiscal years beginning after December 15, 1995.  Although SFAS
123 encourages an entity to measure compensation by applying the fair value
method of accounting for employee stock-based compensation arrangements, it
permits an entity to continue to account for employee stock-based compensation
arrangements under the provisions of Accounting Principles Board Opinion 25
("APB 25").

     The Company has elected to continue to account for stock-based compensation
in accordance with APB 25.  Under APB 25, generally only stock options that have
intrinsic value at the date of grant are considered compensatory.  Intrinsic
value represents the excess, if any, of the market price of the stock at the
grant date over the exercise price of the option.  Under SFAS 123, all stock
option grants are considered compensatory. Compensation cost is measured at the
date of grant based on the estimated fair value of the options determined using
an option pricing model.  The model takes into account the stock price at the
grant date, the exercise price, the expected life of the option, the volatility
of the stock, expected dividends on the stock and the risk-free interest rate
over the expected life of the option.

     The following table discloses Santa Fe Gaming's pro forma net income and
net income per share for 1997 and 1996 assuming compensation cost for employee
stock options had been determined using the fair value-based method prescribed
by SFAS 123. The table also discloses the weighted average assumptions used in
estimating the fair value of each option grant on the date of grant using the
Black-Scholes option pricing 

                                       50
<PAGE>
 
model, and the estimated weighted average fair value of the options granted. The
model assumes no expected future dividend payments on Santa Fe Gaming's Common
Stock for the options granted in both 1997 and 1996 (dollars in thousands,
except per share data).

<TABLE>
<CAPTION>
                                                    1997          1996                           
                                                 ----------    ------------                      
     <S>                                         <C>           <C>                                   
                                                                                                      
     Net income:                                                                                      
         As reported                             $(13,133)     $ 16,160                                
         Pro forma                                (13,169)       16,076                               
                                                                                                      
     Net income per share:                                                                            
         As reported                                (2.12)         2.61                               
         Pro forma                                  (2.13)         2.59                               
                                                                                                      
     Weighted average                                                                                 
      assumptions:                                                                                    
         Expected stock price volatility             85.0%         85.0%  
         Risk-free interest rate                      6.0%          5.8%     
         Expected option lives (in years)             4.0           4.0                               
         Estimated fair value of options         $    .98      $   1.95   
</TABLE>

15.  Federal Income Taxes
 
     The Company accounts for Income Taxes under Statement of Financial
Accounting Standards No. 109.  In accordance with SFAS No. 109, deferred income
taxes reflect the net effects of (a) temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes, and (b) operating loss and tax credits
carryforwards.  Deferred income taxes of $11.0 million were recorded as of
October 1, 1993 as a result of the purchase accounting associated with the
Company's investment in publicly traded partnership.  The Company has recognized
approximately $29.3 million in federal income tax benefit for financial
reporting purposes based on book losses.

     The expense (benefit) for income taxes attributable to pre-tax income
consisted of:

<TABLE>
<CAPTION>
 
     Year Ended September 30      1997     1996      1995
     -----------------------    --------  -------  ---------
     (Dollars in thousands)
     <S>                        <C>       <C>      <C>
     Current                    $   -0-    $  114       ---
     Deferred                     2,702     8,352  $(10,609)
                                -------    ------  --------
     Total expense (benefit)    $(2,702)   $8,466  $(10,609)
                                =======    ======  ========
</TABLE>

                                       51
<PAGE>
 
     The expense (benefit) for income taxes attributable to pre-tax income
differs from the amount computed at the federal income tax statutory rate as a
result of the following:

<TABLE>
<CAPTION>
 
     Year Ended September 30       1997       1996       1995
     --------------------------  ---------  --------  ----------
     <S>                         <C>        <C>       <C>
     (Dollars in thousands)
     Amount at statutory rate     $(3,946)   $9,121   $ (11,428)
     Goodwill                         487       487         487
     Lobbying costs                   -0-        12         -0-
     Deferred tax credits             -0-      (699)        -0-
     Other                            757      (455)        332
                                  -------    ------   ---------
                                  $(2,702)   $8,466   $ (10,609)
                                  =======    ======   =========
</TABLE>

The components of the deferred tax asset (liability) consisted of the following:

<TABLE>
<CAPTION>
 
     At September 30                               1997       1996     
                                                 -------    -------
     <S>                                         <C>        <C>        
     (Dollars in thousands)                                            
     Deferred tax  liabilities                                         
     Prepaid expenses                            $   961    $ 1,026 
     Fixed asset cost, depreciation                                    
       and amortization, net                      10,722     10,820
     Capitalized interest                            953        953
     Original issue discount                          34        240     
     Other                                         1,835      1,930 
                                                 -------    ------- 
     Gross deferred tax liabilities              $14,505    $14,969
                                                 =======    =======
 
 
     Deferred tax assets
     Net operating loss carryforward             $12,575    $10,234
     Reserves for accounts and
       contracts receivable                          577        619
     Other/Treasure Bay                              166        156
     Deferred payroll                                407        383
     Tax credits                                     780        875
                                                 -------    ------- 
     Gross deferred tax assets                    14,505     12,267
                                                 -------    ------- 
     Net deferred tax
      assets (liabilities)                       $   -0-   ($ 2,702)
                                                 =======    =======
</TABLE>
 
At September 30, 1997, the Company has a net operating loss carryforward for
regular income tax purposes of approximately $37 million, which expires by the
year 2012.  The Company has not recorded a valuation allowance to reduce the
carrying value of the deferred tax assets since these assets arose principally
from temporary differences which will reverse within the prescribed carryforward
period or will be recognized in periods corresponding to the reversal of certain
of the deferred tax liabilities.

                                       52
<PAGE>
 
16.  Benefit Plans

     The Company has a savings plan (the "Plan") qualified under Section 401(k)
of the Internal Revenue Code of 1986, as amended.  The Plan covers substantially
all of the Company's employees.  The Company's matching contributions paid in
1997, 1996 and 1995 were $96,000, $106,000, and $93,000, respectively.

     The Company contributed to multi-employer pension plans under various union
agreements to which SNC and HHI were a party.  Contributions, based on wages
paid to covered employees, were approximately  $100,000 and $1.9 million for the
years ended September 30, 1996 and 1995, respectively.  The Company's share of
any unfunded liability related to multi-employer plans, if any, is not
determinable.

17.  Related Parties
 
     LICO had borrowed $476,000  from HHI, pursuant to an unsecured demand loan.
The outstanding balance of the loan including accrued interest was approximately
$687,000 as of September 30, 1997. The demand loan to LICO bears interest at 2%
over the prime rate.  See Note 5

     LICO previously provided entertainment services to the Company.
Entertainment expense incurred for services provided by LICO was $3.4 million
for fiscal year 1995. LICO did not provide services to the Company during the
1997 or 1996 fiscal year.

     In November 1993, Mr. Lowden and Bank of America (the "Bank") entered into
a personal loan agreement under which the principal balance of the loan is
amortized through quarterly principal payments through April 1998, with any
remaining principal balance due July 31, 1998.  At September  30, 1997, the
principal balance of the loan was approximately $927,000.  The loan is secured
by substantially all of the common stock of the Company owned by Mr. Lowden (the
"Pledged Shares").  Mr. Lowden's loan agreement provides that in the event the
market value of the Pledged Shares is less than three times the outstanding loan
balance, the bank, at its sole option, may require either an immediate reduction
in the outstanding balance or the pledging of additional collateral acceptable
to the bank such that the value of the pledged collateral is at least three
times the outstanding loan balance.  Based on the recent trading price of the
Company's common stock, the market value of the Pledge Shares is less than three
times the outstanding loan balance.  Mr. Lowden has advised the Company that
pursuant to discussions between Mr. Lowden and the Bank that the Bank, at this
time, is not requiring a reduction in  the outstanding loan balance or to
provide additional collateral.  If an event of default were to occur under Mr.
Lowden's personal loan with the bank, and if the bank acquired the Pledged
Shares upon foreclosure, Mr. Lowden's ownership of the Company's outstanding
common stock would be reduced to below 50%.  If Mr. Lowden ceases to own more
than 50% of the outstanding shares of the Company's common stock, an event of
default would result under certain of the Company's long-term indebtedness,
which could result in cross-defaults under substantially all of the Company's
other long-term indebtedness, including the 13 1/2% Notes, SLVC Notes and 11%
Notes.

                                       53
<PAGE>
 
18.  Investments

Biloxi, Mississippi - Treasure Bay

     In April 1994, SFHI purchased from Treasure Bay Gaming & Resorts Inc.
("Treasure Bay") for $10.0 million approximately 20% of Treasure Bay's common
stock and 33 1/3% of Treasure Bay's preferred stock.  The Company also
unconditionally guaranteed the payment of $4.5 million of the indebtedness of
Treasure Bay incurred to finance working capital in connection with the opening
of Treasure Bay's casinos in Biloxi, Mississippi in April 1994 and in Tunica,
Mississippi in May 1994, which indebtedness the Company acquired in December
1994.  In connection with its stock purchase, SFHI entered into an agreement
with Treasure Bay to manage both properties.  However, in December 1994,
Treasure Bay notified the Company that Treasure Bay was assuming management
control of Treasure Bay's properties and alleged that the Company was in default
under the management agreement and had mismanaged the Treasure Bay properties.
On January 10, 1995, Treasure Bay and its operating subsidiary, Treasure Bay
Corp., filed for Chapter 11 relief in the United States Bankruptcy Court for the
Southern District of Mississippi.  On October 7, 1996, U.S. Bankruptcy Court
denied confirmation of Treasure Bay management's confirmation plan.  Subsequent
to the denial of Treasure Bay's confirmation plan, the entire bankruptcy case
was transferred to U.S. Bankruptcy Court of New Orleans, LA.

     In July 1997, the U.S. Bankruptcy Court of New Orleans entered an order
denying confirmation of the Company's Plan of Reorganization for Treasure Bay.
The Court simultaneously entered an order for confirmation of the Plan of
Reorganization proposed by the current debtor-in-possession of Treasure Bay.
Santa Fe Gaming recorded a $12.6 million writedown in fiscal 1994 and based on
factors relative to the bankruptcy proceedings, the Company recorded a $2.8
million pre-tax charge against income in the fourth quarter of fiscal 1996, in
connection with its investment in Treasure Bay, its guarantee related to the
working capital loan and its management contract.  See Note 19
 
Las Vegas, Nevada - Santa Fe Mining Company L.L.C.

     In February 1996, the Company acquired a 50% equity interest for $175,000
in a restaurant/tavern operation in northwest Las Vegas, Santa Fe Mining
Company, L.L.C. ("Santa Fe Mining").  The Company and its partner have
guaranteed a $850,000 loan incurred to finance construction and equipment and a
$100,000 working capital line of credit.  The restaurant/tavern opened July 1,
1996.  In August 1996, the Company received final approval for a restricted
gaming license for the Santa Fe Mining location.

     In August 1997, Santa Fe Mining converted a $100,000 working capital line
of credit into a financing commitment for a three-year fully amortizing term
loan. In addition, Santa Fe Mining entered into a three year fully amortizing
note at 11 1/2% per annum for approximately $100,000 to finance the acquisition
of slot equipment. The Company and its partner have guaranteed the above
obligations. The Company records its investment in less than majority-owned
companies in Other Assets on the Consolidated Balance Sheet and the Company's
percentage of net income or loss in Other Revenues in the Consolidated Statement
of Operations.

                                       54
<PAGE>
 
19.  Contingencies

Litigation:

     The Company and its predecessor, Sahara Casino Partners, L.P. are
defendants in a class action lawsuit originally filed in the United States
District Court of Florida, Orlando Division, entitled Poulos v. Caesar's World,
Inc., et al., Ahern v. Caesar's World, Inc., et al. and Schrier v. Caesar's
World, Inc., et al, along with a fourth action against cruise ship gaming
operators and  which have been consolidated in a single action now pending in
the United States District Court, District of Nevada.  Also named as defendants
in these actions are many, if not most, of the largest gaming companies in the
United States and certain gaming equipment manufacturers.  Each complaint is
identical in its material allegations.  The actions allege that the defendants
have engaged in fraudulent and misleading conduct by inducing people to play
video poker machines and electronic slot machines based on false beliefs
concerning how the machines operate and the extent to which there is actually an
opportunity to win on a given play.  The complaints allege that the defendants'
acts constitute violations of the Racketeer Influenced and Corrupt Organizations
Act ("RICO") and also give rise to claims for common law fraud and unjust
enrichment, and it seeks compensatory, special consequential, incidental and
punitive damages of several billion dollars.

     In response to the complaints, all of the defendants, including the Company
and the Partnership, filed motions attacking the pleadings for failure to state
a claim, seeking to dismiss the complaints for lack of personal jurisdiction and
venue.  As a result of those motions, the Court has required the Plaintiffs in
the four consolidated cases to file a single consolidated amended complaint.
Subsequent to Plaintiffs' filing of their consolidated amended complaint, the
defendants refiled numerous motions attacking the amended complaint upon many of
the bases as the prior motions.  The Court heard the arguments on eight of those
motions on November 3,1 997, and has taken them under advisement. The Court has
not indicated when it will render its decision on those motions.

     On December 12, 1994, the Company and SFHI filed a lawsuit in the United
States District Court, District of Nevada, naming Treasure Bay officers A. Clay
Rankin III, Joe N. Hendrix and Bernie Burkholder, and former officer Francis L.
Miller as defendants in matters involving violations of Section 10(b) and Rule
10(b)-5 of the Securities Exchange Act, violation of Nevada state securities
laws, fraud and negligent misrepresentation in connection with the Company's
investment of $10 million in exchange for a 20% interest in Treasure Bay, and
the Company's guarantee of $4.5 million of Treasure Bay's indebtedness.  The
defendants have filed answers to the complaint and discovery is continuing.

     On December 15, 1994, Francis L. Miller filed a lawsuit in the Mississippi
Circuit Court, Second Judicial District, against the Company and SFHI, as well
as Paul W. Lowden and Suzanne Lowden, alleging, among other things, that the
Company made certain misrepresentations which induced Francis Miller to entrust
the management of his investments in Treasure Bay's two Mississippi casinos to
the Company and SFHI and to 

                                       55
<PAGE>
 
sell the Company and SFHI a 20% ownership interest in Treasure Bay. The lawsuit
was subsequently amended to remove Suzanne Lowden as a defendant. The Company
and SFHI filed a successful motion to transfer this case to the United States
District Court in Nevada. The parties to the combined litigation are currently
in discovery. The discovery process is expected to last several months.

     The United States District Court in Nevada dismissed the Francis L. Miller
lawsuit as originally filed in Mississippi Circuit Court.  The Court permitted
Mr. Miller to file the claims that he asserted in the dismissed action as
counterclaims to the lawsuit filed by the Company against Mr. Miller et al. on
December 12, 1994 in the United States District Court, District of Nevada.  The
effect of this court initiated action was to combine the two lawsuits.  The
parties to the combined litigation are currently engaged in discovery.  The
discovery process is expected to last several months.

Other: In addition, the Company is subject to various lawsuits relating to
routine matters incidental to its business. The Company does not believe that
the outcome of such litigation, in the aggregate, will have a material adverse
effect on the Company.
 
     In October 1995, the Company entered into an agreement, subject to various
conditions, to transfer its rights and obligations under contracts with members
of Camperland, a recreational vehicle park that was located on approximately 14
acres of Hacienda property that was operated by the Company under a lease with
the new owners of the Hacienda, to an existing recreational vehicle park. In
July 1996, the Company entered into an amended agreement with the existing
recreational vehicle park. Pursuant to the amended agreement, the Company paid
approximately $2.3 million to transfer its rights and obligations under
contracts with members of Camperland. The Company is obligated to make an
additional payment of $750,000 in the event the owners of the existing park
relocate the Camperland membership to a mutually acceptable new location. The
Company received a first deed of trust on 14 acres of vacant land owned by the
existing park to secure performance by the existing park's operators in
connection with the assumption of the Camperland contracts. As a result of the
termination of the Hacienda lease prior to February 1997, the Hacienda owners
paid the Company approximately $350,000.

     On September 30, 1997, the United States Tax Court issued an adverse ruling
applicable to hotels and casinos which provide meals to employees. The IRS has
interpreted the Tax Court ruling to mean that nonqualifying employees are
required to recognize income based on the fair value of meals in excess of the
amount paid by the employee. Accordingly, employers may be liable for
withholding and payroll taxes associated with the fair value of the meals
provided to employees in excess of the amount paid by the employee. At this
time, it is uncertain whether or not the Company will be liable for withholding
and payroll taxes and penalties for failure to withhold related to the income
excluded from nonqualifying employee wages for the meals it has provided.

                                       56
<PAGE>
 
20.  Gain on Sale of Assets

     In August 1995, the Company sold substantially all of the assets of the
Hacienda for $80 million in an all cash transaction.  The Company recorded a
pre-tax gain from the sale of the Hacienda of $8.9 million.  The gain represents
the $80 million sale price offset by the carrying value of the assets sold,
estimated costs and expenses of the transaction and an estimated cost to
relocate the recreational vehicle park at the Hacienda.

     On October 2, 1995, the Company sold substantially all of the assets of the
Sahara for $128 million in cash and exchanged 22 acres of land, a portion of
which was utilized by the Sahara as a parking lot, for 27 acres of land just
south of the Sahara on Las Vegas Boulevard, on which a water theme park
currently operates.  The Company  recorded a pre-tax gain of $40.8 million in
fiscal year 1996.  The gain represents the $150 million sale price offset by
the carrying value of the assets sold, estimated cost and expenses of the
transaction, and net of the extinguishment of debt charge discussed below.
 
     In connection with the sale of the Sahara, the Company made a tender offer
to purchase for cash all outstanding 12 1/8% First Mortgage Notes due August
1996 (12 1/8% Notes") secured by a first deed of trust on the Sahara, at a price
of $1,047 per $1,000 principal amount, plus accrued interest. The Company
accepted for payment and retired $89.2 million original principal amount of 
12 1/8% Notes tendered in the offer and the Company defeased the remaining
approximately $27 million balance of 12 1/8% Notes. In November 1995, the
Company purchased and retired the remaining $27 million original principal
amount of 12 1/8% Notes that were defeased upon consummation of the sale. The
Company recorded an approximate $6.0 million charge for extinguishment of debt
against the gain on the sale of the Sahara in the quarter ended December 31,
1995.

     In November 1996, the Company sold an option to acquire a 40 acre parcel
located approximately eight miles south of the former Hacienda on Las Vegas
Boulevard South for $2.8 million.  Pursuant to the option agreement, the option
holder exercised the option in February, 1997 to purchase the property for
$350,000 in additional net proceeds to the Company.  The Company reported a
$730,000 gain on the sale.
 
21.  Write-down of Development Costs

     In June 1995, the Company recorded a $14.9 million pre-tax charge against
income in connection with its development of a proposed dockside riverboat
gaming facility in Parkville, Missouri.  The Company had incurred approximately
$16.9 million in connection with the development of the proposed Parkville
project. Of this amount, approximately $8.0 million was used to purchase a barge
vessel for the site, approximately $3.7 million represents preliminary
engineering and development expenses and approximately $5.2 million represents
capitalized interest costs.  See Note 11

                                       57
<PAGE>
 
22.  Supplemental Statements of Cash Flows Information

     Supplemental statement of cash flows information is presented below:

<TABLE>
<CAPTION>
 
                                                               1997          1996          1995     
                                                            -----------   -----------   ----------
<S>                                                         <C>           <C>           <C>        
     Operating activities:
      Cash paid during the year for interest, net of
      amount capitalized of $204,175, $0 and
      $4,693,714 for 1997, 1996, and 1995,
      respectively                                          $22,586,546   $ 25,675,648  $45,111,514
                                                            ===========   ============  ===========

 
     Cash paid during the period for income taxes:          $   100,000   $     -0-     $    -0-
                                                            ===========   ============  ===========
 
     Investing and financing activities:
      Capital lease obligations incurred in
      connection with the acquisition of
      machinery and equipment                               $   208,448   $    161,084  $    77,682
                                                            ===========   ============  ===========
 
     Long-term debt incurred in connection with
      the acquisition of machinery and equipment            $ 1,071,146   $    76,734   $ 2,533,436
                                                            ===========   ===========   ===========
 
     Preferred stock dividends at liquidation value:       
           Accrued                                          $ 1,516,259   $     -0-     $     -0-
                                                            ===========   ===========   ===========
 
           Paid                                             $     -0-     $ 1,431,848   $ 1,319,670
                                                            ===========   ===========   ===========
 
</TABLE>

23. Subsequent Events

     In November 1997, the Company amended the terms of Santa Fe operating
leases to extend the term of the leases from up to 36 months to 48 months, to
defer payment on the leases until August 1998  and to replace older gaming
equipment with new equipment. Monthly payments thereafter will be approximately
$253,000.

     In November 1997, the Company entered into an amended and restated
agreement of the SLVC Notes pursuant to which the principal amount of notes was
increased from $35 million to $57.5 million.  SLVC issued two tranches of
promissory notes, $37 million principal amount with an interest rate of 9.75%
and $20.5 million with an interest rate of 13.25%.  Certain other provisions of
the loan agreement were amended, including the elimination of any sinking fund
principal payments prior to maturity in December 1999. The additional proceeds
were used by SLVC primarily to acquire the 39 acre parcel of land in Henderson,
Nevada from its affiliate Santa Fe Valley, Inc. ("SFVI") for cash consideration
of $20 million. SFVI used approximately $5 million to repay the 12 1/4% Notes
and paid a dividend of $5 million to PHI. The balance of the proceeds of
approximately $10 million was retained by SFVI.

                                       58
<PAGE>
 
     In November 1997, the Company entered into an agreement to sell the 22 acre
parcel of land next to the Santa Fe for approximately $3.6 million.  The
agreement is subject to certain contingencies and will terminate if closing does
not occur before May 15, 1998.  At closing, the buyer may elect to pay half the
purchase price in cash, approximately $1.8 million, and execute a promissory
note in favor of the Company for the balance.  The promissory note will bear
interest at the prime rate and mature on May 15, 1998.  The promissory note may
be extended for six months at an interest rate of four percent above the prime
rate and the payment of 10% of the principal balance.

                                       59
<PAGE>


24. Supplemental Statement of Subsidiary Information -
    For The Twelve Months Ended September 30, 1997 and 1996


     The Company's primary operations are in the hotel/casino industry and in
fiscal years 1997 and 1996 were conducted through PHI and SFHI. "Other" below
includes financial information for the Company's other operations before
eliminating entries. In addition to the financial information for the twelve
months ended Septmber 30, 1997, 1996 and 1995, as set forth in the table below
(dollars in thousands), see notes 2, 5 and 7 for additional discussion of
subsidiary operations.


<TABLE>
<CAPTION>

                                    Year          PHI         SFHI          Other      Eliminations      TOTAL
                                -----------   -----------   ----------   -----------   ------------    -----------

<S>                             <C>           <C>           <C>          <C>           <C>             <C>     
Operating revenues                    1997       $40,839      $62,706        $2,972        ($1,528)      $104,989
                                              ===========   ==========   ===========   ============    ===========

                                      1996       $44,415      $61,653       $46,290        ($3,926)      $148,432
                                              ===========   ==========   ===========   ============    ===========

                                      1995       $46,034      $64,798      $145,861        ($5,584)      $251,109
                                              ===========   ==========   ===========   ============    ===========


Operating income (loss)               1997           $90       $5,678          $341        ($1,045)        $5,064
                                              ===========   ==========   ===========   ============    ===========

                                      1996        $1,729         $935       $40,603        ($2,117)       $41,150
                                              ===========   ==========   ===========   ============    ===========

                                      1995        $5,500      ($6,458)      $11,888          ($319)       $10,611
                                              ===========   ==========   ===========   ============    ===========


Interest expense                      1997        $8,102      $13,280        $2,271        ($1,045)       $22,608
                                              ===========   ==========   ===========   ============    ===========

                                      1996        $9,371      $13,476        $2,447          ($872)       $24,422
                                              ===========   ==========   ===========   ============    ===========

                                      1995       $13,765      $14,042       $17,529          ($319)       $45,017
                                              ===========   ==========   ===========   ============    ===========


Depreciation and amortization         1997        $5,583       $5,240          $334                       $11,157
                                              ===========   ==========   ===========   ============    ===========

                                      1996        $5,878       $8,063          $128                       $14,069
                                              ===========   ==========   ===========   ============    ===========

                                      1995        $5,227       $9,104       $13,853                       $28,184
                                              ===========   ==========   ===========   ============    ===========


Rents                                 1997        $1,024       $3,022                                      $4,046
                                              ===========   ==========   ===========   ============    ===========

                                      1996          $737         $455                                      $1,192
                                              ===========   ==========   ===========   ============    ===========

                                      1995          $748           $0                                        $748
                                              ===========   ==========   ===========   ============    ===========


Capital expenditures                  1997          $949       $1,422          $475                        $2,846
                                              ===========   ==========   ===========   ============    ===========

                                      1996        $1,291       $3,518       ($2,802)                       $2,007
                                              ===========   ==========   ===========   ============    ===========

                                      1995        $5,998      $18,621        $5,984                       $30,603
                                              ===========   ==========   ===========   ============    ===========


Identifiable assets                   1997      $107,629      $76,635       $33,277        ($1,245)      $216,296
                                              ===========   ==========   ===========   ============    ===========

                                      1996      $116,439      $80,156       $33,307        ($1,245)      $228,657
                                              ===========   ==========   ===========   ============    ===========

                                      1995       $97,782      $95,201      $173,655                      $366,638
                                              ===========   ==========   ===========   ============    ===========
</TABLE>

                                      60

<PAGE>
 
25.  QUARTERLY RESULTS OF OPERATIONS (Unaudited)
For the Year Ended September 30,

<TABLE>
<CAPTION>

                                          1997            1996
                                     --------------  -------------
<S>                                  <C>             <C>
Revenues
 First Quarter                        $ 25,407,839    $ 68,819,729
 Second Quarter                         27,482,291      29,087,369
 Third Quarter                          27,515,988      25,950,026
 Fourth Quarter                         24,582,553      24,575,149
                                      ------------    ------------
                                      $104,988,671    $148,432,273
                                      ============    ============
 
Operating Income (Loss)
 First Quarter                        $    571,481    $ 42,675,303
 Second Quarter                          2,984,164       2,654,433
 Third Quarter                           2,743,128        (369,839)
 Fourth Quarter                         (1,235,118)     (3,809,431)
                                      ------------    ------------
                                      $  5,063,655    $ 41,150,466
                                      ============    ============
 
Net Income (Loss)
 before extraordinary item
 First Quarter                        $ (3,470,357)   $ 23,634,041
 Second Quarter                         (1,926,611)     (2,414,444)
 Third Quarter                          (2,350,897)     (4,171,089)
  Fourth Quarter                        (5,965,427)     (7,309,272)
                                      ------------    ------------
                                      $(13,713,292)   $  9,739,236
                                      ============    ============
 
Net Income (Loss) before
 extraordinary net
 per common share
 First Quarter                        $       (.56)   $       3.81
 Second Quarter                               (.31)           (.39)
 Third Quarter                                (.38)           (.67)
 Fourth Quarter                               (.96)          (1.18)
                                      ------------    ------------
                                      $      (2.21)    $      1.57
                                      ============    ============
Net Income (Loss)
 First Quarter                        $ (3,470,357)   $ 23,634,041 
 Second Quarter                         (1,926,611)      5,440,263 
 Third Quarter                          (1,978,574)     (4,171,089)
 Fourth Quarter                         (4,241,512)     (7,309,272) 
                                      ------------    ------------
                                      $(11,617,054)   $ 17,593,943
                                      ============    ============
Net Income (Loss)
per Common Share
 First Quarter                        $       (.62)   $       3.76 
 Second Quarter                               (.37)            .82 
 Third Quarter                                (.38)           (.73)
 Fourth Quarter                               (.75)          (1.24) 
                                      ------------    ------------
                                      $      (2.12)   $       2.61
                                      ============    ============
</TABLE>

                                       61
<PAGE>
 
Item 9.  Changes in and Disagreements with Accountants on
         ------------------------------------------------
         Accounting and Financial Disclosure
         -----------------------------------

         Not applicable.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant
         --------------------------------------------------

    The information regarding the directors and executive officers of the
Company to be included in the Company's Proxy Statement for the 1998 Annual
Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference.

Item 11. Executive Compensation
         ----------------------

    The information regarding Executive Compensation to be included in the Proxy
Statement is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management
         --------------------------------------------------------------

    The information regarding Security Ownership to be included in the Proxy
Statement is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions
         ----------------------------------------------

    The information regarding Certain Relationships and Related Transactions to
be included in the Proxy Statement is incorporated herein by reference.


                                    PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
         ---------------------------------------------------------------

    (a) 1. and 2.  Financial Statements and Schedules

           The financial statements and schedules filed as part of this report
           are listed in the Index to Consolidated Financial Statements under
           Item 8.

    (b) Reports on Form 8-K filed during the last quarter of 1997.

        None

    (c) Exhibits required by Securities and Exchange Commission Regulation S-K:

                                       62
<PAGE>
 
<TABLE> 
<CAPTION> 

Exhibit
  No.                         DESCRIPTION OF EXHIBIT
-------                       ----------------------
<S>      <C> 
  3.1    Articles of Incorporation and Bylaws of the Company (Previously filed
         with the Securities and Exchange Commission as an exhibit to the
         Company's S-4 (No. 33-67864) Registration Statement on Form 10-K dated
         June 15, 1982 and incorporated herein by reference.)
    
  3.2    Certificate of Designation for Exchangeable Redeemable Preferred Stock.
         (Previously filed with the Securities and Exchange Commission as an
         exhibit to the Company's Registration Statement on Form S-4 (No. 33-
         67864) and incorporated herein by reference.)
    
  4.1    Indenture dated as of June 15, 1983 between Hacienda Resorts, Inc. and
         Valley Bank of Nevada, as Trustee, with respect to the Company's 10-
         1/4% Subordinated Sinking Fund Debentures due 1998. (Previously filed
         with the Securities and Exchange Commission as an exhibit to the
         Registration Statement of Hacienda Resorts, Inc. on Form S-1 (No. 2-
         82796) and incorporated herein by reference.)

 10.1    Form of Indenture (the "Pioneer Indenture")between Pioneer Finance, the
         Partnership and Security Pacific National Bank, as Trustee, relating to
         the 13-1/2% First Mortgage Bonds Due 1998 of Pioneer Finance (the
         "Bonds").(1)

 10.2    Form of Bonds (included as an exhibit to the Pioneer Indenture).(1)

 10.3    Form of Purchase Money Note relating to the acquisition of the Pioneer
         Hotel and Gambling Hall (the "Pioneer Acquisition") (included as an
         exhibit to the Pioneer Indenture).(1)

 10.4    Form of Purchase Money Deed of Trust relating to the Bonds (included as
         an exhibit to the Pioneer Indenture).(1)

 10.5    Form of Guaranty of the Partnership relating to the Bonds (included in
         the Pioneer Indenture).(1)

 10.6    Form of Assignment Agreement from Pioneer Finance Corp. to the Trustee
         relating to the Bonds (included as an exhibit to the Pioneer
         Indenture). (1)

 10.7    Form of Subordination Provision relating to the Bonds (included as an
         Exhibit to the Pioneer Indenture).(1)

 10.8    Form of Pari Passu Certificate relating to the Bonds (included as an
                 ---- -----                                                  
         exhibit to the Pioneer Indenture).(1)

</TABLE> 

                                       63
<PAGE>
 
<TABLE> 
<CAPTION> 

Exhibit
  No.                         DESCRIPTION OF EXHIBIT
-------                       ----------------------
<S>      <C> 
 10.9    Acquisition Agreement relating to the Pioneer Acquisition.(1)

 10.10   Pioneer Ground Lease, as amended.(1)

 10.11   Conformed Lessor's Agreement dated as of November 16, 1988 among
         Lessor, Lessee and Pioneer Operating Partnership relating to the
         Pioneer Acquisition.(1)

 10.12   Standard Form of Agreement between Owner and Contractor by and between
         Sahara Operating Partnership and Sierra Construction Corp.(3)

 10.13   Notes secured by liens on office building in Las Vegas, Nevada in the
         original principal amounts of $301,598.05, $23,337.96 and $649,063.99
         bearing interest at 10%, 11% and 13.5% per annum, respectively.(3)

 10.14   Promissory Note in the amount of $4,500,000 dated September 1, 1987
         from Sahara Las Vegas to the Partnership.(2)

 10.15   First Supplemental Indenture to Pioneer Indenture dated as of December
         21, 1990 among Pioneer Finance, and Sahara Casino Partners, L.P. and
         Security Pacific National Bank. (4)

 10.16   Promissory Note in the amount of $2,760,079 dated October 10, 1990
         executed by Santa Fe Operating Limited Partnership in favor of Deutsche
         Credit Corporation, collateralized by equipment. (5)

 10.17   Lease agreement for signage dated April 29, 1991 between SNET as Lessor
         and Santa Fe Operating Limited Partnership as Lessee. (5)

 10.18   Second Supplemental Indenture dated as of September 30, 1993 between
         Sahara Resorts, Sahara Gaming Corporation and Nevada State Bank, as
         Trustee, with respect to 10-1/4% Subordinated Sinking Fund Debentures.
         (7)

 10.19   Sahara Gaming Corporation's 1993 Key Employee Stock Option Plan. (7)

 10.20   Lease Agreement, dated May 26, 1993, between City of Parkville,
         Missouri, and Sahara Casino Partners, L.P., was previously filed with
         the Commission as Exhibit 10.86 to the Company and Santa Fe Hotel
         Inc.'s Registration Statement on Form S-1 (No. 33-70286) (8)

 10.21   Amendment to Lease Agreement, made as of September 7, 1993, by Sahara
         Casino Partners, L.P., and the City of Parkville, Missouri (8)

</TABLE> 

                                       64
<PAGE>
 
<TABLE> 
<CAPTION> 

Exhibit
  No.                         DESCRIPTION OF EXHIBIT
-------                       ----------------------
<S>      <C> 
 10.22   Second Amendment to Lease Agreement, made as of December 27, 1993, by
         Sahara Parkville, Inc. and the City of Parkville, Missouri (8)
     
 10.23   Landlord's Consent, Estoppel Certificate and Third Amendment to Lease
         Agreement, entered into on December 27, 1993, by and between the City
         of Parkville, Missouri, Sahara Parkville, Inc., IBJ Schroeder Bank &
         Trust Company, and Santa Fe Hotel Inc. (8)
     
 10.24   Fourth Amendment to Lease Agreement, made as of January 18, 1994 by
         Sahara Parkville, Inc and the City of Parkville, Missouri (8)
     
 10.25   Fifth Amendment to Lease Agreement, made as of January 18,1994, by
         Sahara Parkville, Inc. and the City of Parkville, Missouri (8)
     
 10.26   Sixth Amendment to Lease Agreement dated June 30, 1995 by Sahara
         Parkville, Inc., and the City of Parkville, Missouri. (11)

 10.27   Development Agreement by Sahara Parkville, Inc. and the City of
         Parkville, Missouri (8)
     
 10.28   Amendment to Development Agreement, dated January 18, 1994, by Sahara
         Parkville, Inc. and the City of Parkville, Missouri (8)
     
 10.29   Second Amendment to Development Agreement, dated October 28, 1994, by
         Sahara Parkville, Inc. and the City of Parkville, Missouri  (8)
     
 10.30   Third Amendment to Development Agreements dated June 30, 1995 by
         Sahara Parkville, Inc. and the City of Parkville, Missouri. (11)

 10.31   Agreement for Purchase and Sale dated as of January 10, 1995 by and
         among Hacienda Hotel Inc., Sahara Gaming Corporation, as Guarantor, and
         William G. Bennett. (9)
     
 10.32   Letter of Modification and Clarification by and between Hacienda Hotel
         Inc., Sahara Gaming Corporation, as Guarantor, and William G. Bennett
         dated March 3, 1995. (10)
     
 10.33   Assignment and Consent to Assignment of Agreement for Purchase and Sale
         dated January 10, 1995 by and among Hacienda Hotel Inc., Sahara Gaming
         Corporation, as Guarantor, and William G. Gennett to Circus Circus
         Enterprises, Inc. dated March 5, 1995. (10)

 10.34   Sale and Purchase Contract dated November 7, 1995 by and between Sahara
         Gaming Corporation and Argasy Gaming Company. (12)

</TABLE> 

                                       65
<PAGE>
 
<TABLE> 
<CAPTION> 

Exhibit
  No.                         DESCRIPTION OF EXHIBIT
-------                       ----------------------
<S>      <C> 
 10.35   Promissory Note dated June 14, 1995 issued by Santa Fe Hotel, Inc. in
         favor of Sahara Nevada Corp. (12)
     
 10.36   Hacienda Adventure Club Acquisition and Assignment Agreement dated
         September 29, 1995 by and between Hacienda Hotel, Inc. and Resort
         Marketing International and Brett Torino. (12)
     
 10.37   Camperland Responsibility Agreement dated August 31, 1995 by and among
         Hacienda Hotel, Inc., Sahara Gaming Corporation and Pinkless, Inc. (12)
     
 10.38   Assignment Agreement dated October 2, 1995 by and between Howard Hughes
         Properties, Limited Partnership and Sahara Las Vegas Corp. and Guaranty
         Agreement dated October 2, 1995 by and between Howard Hughes
         Properties, Limited Partnership and Sahara Las Vegas Corp. (12)
     
 10.39   Lease Modification Letter dated August 24, 1995 by and between Wet N'
         Wild Nevada, Inc. and Sahara Corporation. (12)
     
 10.40   Note Purchase Agreement, dated as of January 16, 1996, by and among
         Sahara Gaming Corporation, Sahara Las Vegas Corp. and SunAmerica Life
         Insurance Company. (13)

 10.41   Deed of Trust, Fixture Filing and Financing Statement and Security
         Agreement with Assignment of Rents, dated as of January 16, 1996, by
         and among Sahara Las Vegas Corp., as trustor, Stewart Title of Nevada,
         as trustee, and SunAmerica Life Insurance Company, as beneficiary. (13)
     
 10.42   Security Agreement, dated as of January 16, 1996, by and between Sahara
         Las Vegas Corp. and SunAmerica Life Insurance Company. (13)

 10.43   Guaranty, dated as of January 16, 1996, made by Sahara Gaming
         Corporation in favor of SunAmerica Life Insurance Company. (13)
     
 10.44   Master lease agreement by and between Videotronics, Inc. and Santa Fe
         Hotel Inc. dated January 31, 1996. (14)
     
 10.45   Guaranty of lease by Sahara Gaming Corporation dated January 31, 1996.
         (14)
     
 10.46   Notice, Consent and Acknowledgment of Assignment by and between
         Videotronics, Inc. (Lessor), Santa Fe Hotel, Inc. (Lessee), Sahara
         Gaming Corporation (Guarantor), PDS Financial Corporation (Assignee)
         and Miller & Schroeder Investments Corporation dated January 31, 1996.
         (14)

</TABLE> 

                                       66
<PAGE>
 
<TABLE> 
<CAPTION> 

Exhibit
  No.                         DESCRIPTION OF EXHIBIT
-------                       ----------------------
<S>      <C> 
 10.47   Master lease agreement by and between Videotronics, Inc. and Santa Fe
         Hotel, Inc. dated April 15, 1996. (14)
     
 10.48   Guaranty of lease by Santa Fe Gaming Corporation dated April 15, 1996.
         (14)
     
 10.49   Notice, Consent and Acknowledgment of Assignment by and between
         Videotronics, Inc. (Lessor), Santa Fe Hotel, Inc. (Lessee), PDS
         Financial Corporation and the Buyers dated May 9, 1996. (14)
     
 10.50   Master lease agreement by and between PDS Financial Corporation and
         Santa Fe Hotel, Inc. dated May 30, 1996. (15)
     
 10.51   Lease schedule No. 1 by and between PDS Financial Corporation and Santa
         Fe Hotel, Inc. dated May 30, 1996. (15)
     
 10.52   Purchase/Renewal option by and between PDS Financial Corporation and
         Santa Fe Hotel, Inc. dated May 30, 1996. (15)
     
 10.53   Amended and Restated Hacienda Adventure Club Acquisition and Assignment
         Agreement by and among Hacienda Hotel Inc., Resorts Marketing
         International Alpine-Oasis Membership, L.L.C. and Brett Torino dated
         July 18, 1996. (15)
     
 10.54   Guaranty of Payment and Performance (Sahara Gaming Corporation) dated
         July 18, 1996. (15)
     
 10.55   Guaranty of Payment and Performance (Oasis Las Vegas Motor Coach Park,
         L.P.) dated July 24, 1996. (15)
     
 10.56   Master lease agreement by and between CJ's Classics, Inc. and Santa Fe
         Hotel, Inc. dated August 15, 1996. (16)
     
 10.57   Lease schedule No. 1 by and between CJ's Classics, Inc. and Santa Fe
         Hotel, Inc. dated August 15, 1996. (16)
     
 10.58   Purchase/Renewal option by and between CJ's Classics, Inc. and Santa Fe
         Hotel, Inc. dated August 15, 1996. (16)

 10.59   Master lease agreement by and between CJ's Classics, Inc. and Pioneer
         Hotel, Inc. dated August 15, 1996. (16)
     
 10.60   Lease schedule No. 1 by and between CJ's Classics, Inc. and Pioneer
         Hotel, Inc. dated August 15, 1996. (16)

</TABLE> 

                                       67
<PAGE>
 
<TABLE> 
<CAPTION> 

Exhibit
  No.                         DESCRIPTION OF EXHIBIT
-------                       ----------------------
<S>      <C> 
 10.61   Purchase/Renewal option by and between CJ's Classics, Inc. and Pioneer
         Hotel, Inc. dated August 15, 1996. (16)
     
 10.62   Option Agreement by and between Santa Fe Gaming Corporation and Pat
         Clark dated November 13, 1996. (16)
     
 10.63   Master lease agreement by and between Videotronics, Inc. and Santa Fe
         Hotel Inc. dated September 16, 1996. (16)
     
 10.64   Lease Schedule No 1 by and between Videotronics, Inc. and Santa Fe
         Hotel Inc. dated September 16, 1996. (16)
     
 10.65   Purchase/renewal option by and between Videotronics, Inc. and Santa Fe
         Hotel Inc. dated September 16, 1996. (16)
     
 10.66   Guaranty of Lease (Santa Fe Gaming Corporation) dated September 16,
         1996. (16)
     
 10.67   Notice, Consent and Acknowledgment of Assignment by and between
         Videotronics, Inc. (Lessor), Santa Fe Hotel, Inc. (Lessee) and PDS
         Financial Corporation (Assignee) dated September 16, 1996. (16)
     
 10.68   Amendment to Note Purchase Agreement by and among Santa Fe Gaming
         Corporation, Sahara Las Vegas Corp. and SunAmerica Life Insurance
         Company dated as of December 27, 1996. (16)
     
 10.69   Employment Agreement by and between Santa Fe Gaming Corporation and
         Thomas K. Land dated October 1, 1996. (17)

 10.70   Sahara Las Vegas Corp. Tranche A Note due December 15, 1999, dated July
         31, 1997 (18)
     
 10.71   Casino Properties Guaranty dated July 29, 1997 (18)
     
 10.72   Sahara Resorts Guaranty dated July 29, 1997 (18)
     
 10.73   Hacienda Hawaiian Guaranty dated July 29, 1997 (18)
     
 10.74   First Amendment to Company Security Agreement dated July 29, 1997 (18)
     
 10.75   Sahara Resorts Pledge Agreement dated July 29, 1997 (18)
     
 10.76   Company Pledge Agreement dated July 29, 1997 (18)

</TABLE> 

                                       68
<PAGE>
 
<TABLE> 
<CAPTION> 

Exhibit
  No.                         DESCRIPTION OF EXHIBIT
-------                       ----------------------
<S>      <C> 
 10.77   Casino Properties Pledge Agreement dated July 29, 1997 (18)
     
 10.78   Hacienda Hawaiian Pledge Agreement dated July 29, 1997 (18)
     
 10.79   Second Amended and Restated Note Purchase Agreement dated as of
         November 25, 1997 among Registrant, SLVC and the holders named therein.
         (19)
                                
 10.80   Form of Tranche A Promissory Note. (19)
     
 10.81   Form of Tranche B Promissory Note. (19)
     
 10.82   Second Amendment to Deed of Trust, Fixture filing and Financing
         Statement and Security Agreement with Assignment of Rents executed and
         delivered on November 25, 1997 by SLVC in favor of SunAmerica Life
         Insurance Company, as Collateral Agent. (19)
     
 10.83   Second Amendment to Security Agreement executed and delivered on
         November 25, 1997 between SLVC and SunAmerica Life Insurance
         Company, as Collateral Agent. (19)
     
 10.84   Deed of Trust, Fixture Filing and Financing Statement and Security
         Agreement with Assignment of Rents executed and delivered on November
         25, 1997 by SLVC in favor of SunAmerica Life Insurance Company, as
         Collateral Agent. (19)
     
 10.85   Second Amendment to Subordination, Non-Disturbance and Attornment
         Agreement dated November 25, 1997 among SLVC, Wet 'N Wild Nevada,
         Inc. And SunAmerica Life Insurance Company, as Collateral agent. (19)
     
 10.86   Second Amendment to the Environmental Indemnity Agreement executed
         and delivered on November 25, 1997 by Registrant and SLVC in favor of
         SunAmerica Life Insurance Company, as Collateral Agent. (19)
     
 10.87   Environmental Indemnity Agreement issued by Registrant and SLVC on
         November 25, 1997 in favor of SunAmerica Life Insurance Company, as
         Collateral Agent. (19)
     
 10.88   Consent to Amendment and Restatement delivered on November 25, 1997
         by Registrant, Sahara Resorts, Casino Properties, Inc. and Hacienda
         Hawaiian Properties, Inc. (19)

</TABLE> 

                                       69
<PAGE>
 
<TABLE> 
<CAPTION> 

Exhibit
  No.                         DESCRIPTION OF EXHIBIT
-------                       ----------------------
<S>      <C> 
 10.89   Intercreditor Agreement dated as of November 25, 1997 among SunAmerica
         Life Insurance Company and Credit Suisse First Boston Mortgage Capital
         LLC. (19)
     
 22.     Subsidiaries of the Company.  (6)
     
 23.1    Consent of Deloitte & Touche LLP
     
 27.     Financial Data Schedule

</TABLE> 

                           FOOTNOTES TO EXHIBIT INDEX
                           --------------------------

(1) Previously filed with the Securities and Exchange Commission as an exhibit
    to the Registration Statement on Form S-1 (No. 33-24589) of Pioneer Finance
    Corp., the Partnership and Pioneer Operating Partnership and incorporated
    herein by reference.

(2) Previously filed with the Securities and Exchange Commission as an exhibit
    to the Partnership's Annual Report on Form 10-K for the year ended September
    30, 1987 and incorporated herein by reference.

(3) Previously filed with the Securities and Exchange Commission as an exhibit
    to the Partnership's Registration Statement on Form S-1 (No. 33-13214) and
    incorporated herein by reference.

(4) Previously filed with the Securities and Exchange Commission as an exhibit
    to post effective Amendment No. 5 to the Registration Statement on Form S-1
    (No. 33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P., Sahara
    Operating Limited Partnership, Hacienda Operating Limited Partnership, Santa
    Fe Operating Limited Partnership, as filed on April 15, 1991 and
    incorporated herein by reference.

(5) Previously filed with the Securities and Exchange Commission as an exhibit
    to post effective Amendment No. 8 to the Registration  Statement on Form S-1
    (No. 33-33031) of Sahara Finance Corp., Sahara Casino Partners, L.P., Sahara
    Operating Limited Partnership, Hacienda Operating Limited Partnership, Santa
    Fe Operating Limited Partnership, as filed December 30, 1991.

(6) Previously filed with the Securities and Exchange Commission as an exhibit
    to Amendment No. 4 to the Registration Statement on Form S-1 (No. 33-70268)
    of Sahara Gaming Corporation.

(7) Previously filed with the Securities and Exchange Commission as an exhibit
    to Sahara Gaming Corporation's Annual Report on Form 10-K for the year ended
    September 30, 1993.

                                       70
<PAGE>
 
(8)  Previously filed with the Securities and Exchange Commission as an exhibit
     to Sahara Gaming Corporation's Report on Form 10-K for the year ended
     September 30, 1994.

(9)  Previously filed with the Securities and Exchange Commission as an exhibit
     to Sahara Gaming Corporation's Report on Form 10-Q for the quarter ended
     December 31, 1994.

(10) Previously filed with the Securities and Exchange Commission as an exhibit
     to Sahara Gaming Corporation's Report on Form 10-Q for the quarter ended
     March 30, 1995.

(11) Previously filed with the Securities and Exchange Commission as an exhibit
     to Sahara Gaming Corporation's Report on Form 10-Q for the quarter ended
     June 30, 1995.

(12) Previously filed with the Securities and Exchange Commission as an exhibit
     to Sahara Gaming Corporation's Report on Form 10-K for the year ended
     September 30, 1995.

(13) Previously filed with the Securities and Exchange Commission as an exhibit
     to Sahara Gaming Corporation's Report on Form 10-Q for the quarter ended
     December 31, 1995.

(14) Previously filed with the Securities and Exchange Commission as an exhibit
     to Santa Fe Gaming Corporation's Report on Form 10-Q for the quarter ended
     March 30, 1996.

(15) Previously filed with the Securities and Exchange Commission as an exhibit
     to Santa Fe Gaming Corporation's Report on Form 10-Q for the quarter ended
     June 30, 1996.

(16) Previously filed with the Securities and Exchange Commission as an exhibit
     to Santa Fe Gaming Corporation's Report on Form 10-K for the year ended
     September 30, 1996.

(17) Previously filed with the Securities and Exchange Commission as an exhibit
     to Santa Fe Gaming Corporation's Report on Form 10-Q for the quarter ended
     December 31, 1996.
 
(18) Previously filed with the Securities and Exchange Commission as an exhibit
     to Santa Fe Gaming Corporation's Report on Form 10-Q for the quarter ended
     June 30, 1997.                              
 
(19) Previously filed with the Securities and Exchange Commission as an exhibit
     to Santa Fe Gaming Corporation's Report on Form 8-K dated December 4, 1997.

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<PAGE>
 
                                  SIGNATURES

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

                          SANTA FE GAMING CORPORATION


December 23, 1997                  By: /s/ Paul W. Lowden
                                      ------------------------------------------
                                      Paul W. Lowden, President


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

<TABLE>
<CAPTION>
 
     Signature                 Title                                 Date
     ---------                 -----                                 ----
<S>                      <C>                                   <C>
/s/ Paul W. Lowden       Chairman of the Board and President   December 23, 1997
-----------------------  (Principal Executive Officer)
Paul W. Lowden                                                                
 
/s/ William J. Raggio    Director                              December 23, 1997
-----------------------
William J. Raggio                         
 
/s/ James W. Lewis       Director                              December 23, 1997
-----------------------
James W. Lewis
 
/s/ Suzanne Lowden       Director                              December 23, 1997
-----------------------
Suzanne Lowden
 
/s/ John Delaney         Director                              December 23, 1997
-----------------------
John Delaney

/s/ Thomas K. Land       Director and Chief Financial Officer  December 23, 1997
-----------------------  (Principal Financial and Accounting 
Thomas K. Land           Officer)

</TABLE> 

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