<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                   FORM 10-Q


(Mark One)
[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

For the quarterly period ended  MARCH 31, 1999
                               -------------------------------------------------

                                      OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
     EXCHANGE COMMISSION ACT OF 1934

For the transition period from _____________________ to ________________________
Commission file number  1-6339
                       ------------

                         GREATE BAY CASINO CORPORATION
--------------------------------------------------------------------------------
            (Exact name of Registrant as specified in its charter)
            
           DELAWARE                                        75-1295630
------------------------------------------     ---------------------------------
     (State or other jurisdiction of                    (I.R.S. Employer
     incorporation or organization)                    Identification No.)
 
 C/O ADVANCED CASINO SYSTEMS CORPORATION 
      200 DECADON DRIVE, SUITE 100
    EGG HARBOR TOWNSHIP, NEW JERSEY                          08234
------------------------------------------     ---------------------------------
 (Address of principal executive offices)                 (Zip Code)
 
(Registrant's telephone number, including area code)     (609) 441-0704
                                                     ---------------------------

                               (NOT APPLICABLE)
--------------------------------------------------------------------------------
  (Former name, former address and former fiscal year, if changed since last
                                   report.)

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

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.

             CLASS                            OUTSTANDING AT MAY 12, 1999
---------------------------------       ----------------------------------------
   Common Stock, $.10 par value                     5,186,627 shares

                                       1
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

PART I: FINANCIAL INFORMATION
-----------------------------

INTRODUCTORY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------

   Greate Bay Casino Corporation, a Delaware corporation, and its subsidiaries
("GBCC") are engaged in the operation and management of casino properties.
GBCC's principal operations consist of ownership of the Sands Hotel and Casino
located in Atlantic City, New Jersey (the "Sands") and management and consulting
contracts with gaming facilities located in Aurora, Illinois (the "Aurora
Casino") and Tunica County, Mississippi (the "Tunica Casino").  GBCC's common
stock is listed on the OTC Bulletin Board Service under the symbol "GEAAQ".
Prior to December 31, 1996, Hollywood Casino Corporation ("HCC", a Delaware
corporation) owned approximately 80% of the outstanding common stock of GBCC.
HCC distributed such stock to its shareholders; as a result, approximately 36%
of GBCC's outstanding stock is owned by certain general partnerships and trusts
controlled by Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt and by
other family members (collectively, the "Pratt Family").  The Pratt Family also
owns approximately 54% of HCC.  HCC owns the Aurora Casino and the Tunica
Casino.

   On January 5, 1998, GB Holdings, Inc. ("Holdings"), at the time a wholly
owned subsidiary of GBCC, together with Holdings' wholly owned subsidiaries,
Greate Bay Hotel and Casino, Inc. ("GBHC") and GB Property Funding Corp. ("GB
Property Funding"), filed petitions for relief under Chapter 11 of the United
States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy
Court for the District of New Jersey (the "Bankruptcy Court").  Each company
continues to operate in the ordinary course of business, as set forth in the
Bankruptcy Code, and each company's executive officers and directors remain in
office, subject to the jurisdiction of the Bankruptcy Court.  On January 11,
1999, the Bankruptcy Court terminated the debtors' exclusive right to file a
plan of reorganization.  No plan of reorganization has been formally presented
by  the debtors or any other party.  Effective on December 31, 1998, GBCC's
ownership of Holdings was reduced to 79%.

   The filings of such petitions constitute a default under the indenture for
$85 million principal amount of 11 5/8% senior notes due 2004 (the "PRT Funding
Notes") issued by PRT Funding Corp. ("PRT Funding") and guaranteed by Pratt
Casino Corporation ("PCC"), both wholly owned, indirect subsidiaries of GBCC.
Accordingly, the outstanding principal amount of the PRT Funding Notes has
accelerated and is currently due and payable.  PRT Funding deferred payment of
interest due on the April 15 and October 15, 1998 and April 15, 1999 interest
payment dates.  On October 22, 1998, PRT Funding paid to the bondholders an
amount equal to a single semiannual interest payment ($4.9 million) while
negotiations to restructure the notes continued.  In connection with the
Restructuring (as defined below), PRT Funding paid deferred interest amounting
to $6.8 million to the bondholders on April 30, 1999.

   On April 28, 1999, PCC, PRT Funding, New Jersey Management, Inc. ("NJMI", a
PCC subsidiary) GBCC, HCC and the holders of substantially all of the PRT
Funding Notes entered into a voting agreement which provides for the
restructuring of the PRT Funding Notes (the "Restructuring").  The agreement
provides for HCC to acquire the stock of PCC, the parent of PRT Funding, from
GBCC for nominal consideration.  When acquired by HCC, PCC's assets will consist
of its limited partnership interest in a management contract for the Aurora
Casino and a consulting contract for the Tunica Casino and its liabilities will
consist of a newly issued promissory note in the principal amount of $40.3
million payable to the Trustee for the PRT Funding noteholders.  The voting
agreement provides for HCC to immediately discharge the promissory note.

   As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC.  Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.

   The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization.  Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations.

                                       2
<PAGE>
 
   As a result of the Chapter 11 filings by Holdings, GB Property Funding and
GBHC, GBCC's control over the filing subsidiaries is subject to supervision of
the Bankruptcy Court and GBCC does not expect to have ownership or operating
control of such subsidiaries after reorganization.  Furthermore, as the result
of a settlement agreement reached by GBCC and Holdings during September 1998,
GBCC no longer participates in the management of the Sands.  Accordingly,
Holdings, GB Property Funding and GBHC are no longer included on the
accompanying consolidated balance sheets.  As more fully explained in Note 1 of
the Notes to Consolidated Financial Statements, during the period from January
1, 1998 through June 30, 1998, the operations of Holdings and its subsidiaries
were accounted for by GBCC under the equity method of accounting.  As a result
of GBCC no longer controlling the operations of the Sands, the continued
expectation that ownership control of Holdings will only be temporary and the
September 1998 settlement agreement which resolved certain significant
uncertainties, GBCC's investment in Holdings and its subsidiaries as well as
certain amounts due to Holdings were revalued to a zero basis effective on July
1, 1998.  Accordingly, for periods subsequent to June 30, 1998, GBCC is
accounting for its investment in Holdings under the cost method of accounting.

   The consolidated financial statements as of March 31, 1999 and for the three
month periods ended March 31, 1999 and 1998 have been prepared by GBCC without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission.  In the opinion of management, these consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the consolidated financial position of
GBCC as of March 31, 1999 and the results of its operations and cash flows for
the three month periods ended March 31, 1999 and 1998.

   Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in GBCC's 1998 Annual Report on Form 10-K.

                                       3
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                                    ASSETS

<TABLE>
<CAPTION>
                                                      MARCH 31,
                                                         1999      DECEMBER 31,
                                                     (UNAUDITED)       1998
                                                     -----------   ------------
<S>                                                  <C>           <C>
Current Assets:
 Cash and cash equivalents                           $11,590,000    $10,616,000
 Accounts receivable                                     248,000        367,000
 Inventories                                             441,000        378,000
 Due from affiliates                                   1,483,000      1,303,000
 Refundable deposits and other
  current assets                                         955,000        938,000
                                                     -----------    -----------
 
  Total current assets                                14,717,000     13,602,000
                                                     -----------    -----------
 
Investment in Limited Partnership                      3,109,000      3,104,000
                                                     -----------    -----------
 
Property and Equipment:
 Operating equipment                                     890,000      1,564,000
 Less - accumulated depreciation                        (454,000)    (1,100,000)
                                                     -----------    -----------
 
  Net property and equipment                             436,000        464,000
                                                     -----------    -----------
 
Other Assets:
 Due from affiliates, net of valuation allowances      2,546,000      2,767,000
 Other assets                                                  -          9,000
                                                     -----------    -----------
 
  Total other assets                                   2,546,000      2,776,000
                                                     -----------    -----------
 
                                                     $20,808,000    $19,946,000
                                                     ===========    ===========
</TABLE>

    The accompanying introductory notes and notes to consolidated financial
     statements are an integral part of these consolidated balance sheets.

                                       4
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS

                     LIABILITIES AND SHAREHOLDERS' DEFICIT

<TABLE>
<CAPTION>
                                               MARCH 31,
                                                  1999        DECEMBER 31,
                                              (UNAUDITED)         1998
                                             --------------  --------------
<S>                                          <C>             <C>
Current Liabilities:
 Current maturities of long-term debt        $  85,000,000   $  85,000,000
 Borrowings from affiliate                       6,750,000       6,750,000
 Accounts payable                                1,332,000       2,232,000
 Accrued liabilities -
  Salaries and wages                               120,000         235,000
  Interest                                      11,482,000       8,780,000
  Other                                            127,000         239,000
 Other current liabilities                         341,000         296,000
                                             -------------   -------------
 
  Total current liabilities                    105,152,000     103,532,000
                                             -------------   -------------
 
Long-Term Debt                                  36,318,000      35,040,000
                                             -------------   -------------
 
Commitments and Contingencies
 
Shareholders' Deficit:
 Common stock, $.10 par value per
  share; 10,000,000 shares authorized;
  5,186,627 shares issued and outstanding          519,000         519,000
 Additional paid-in capital                     75,212,000      75,212,000
 Accumulated deficit                          (196,393,000)   (194,357,000)
                                             -------------   -------------
 
  Total shareholders' deficit                 (120,662,000)   (118,626,000)
                                             -------------   -------------
 
                                             $  20,808,000   $  19,946,000
                                             =============   =============
</TABLE>

    The accompanying introductory notes and notes to consolidated financial
     statements are an integral part of these consolidated balance sheets.

                                       5
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                                 MARCH 31,
                                                        -------------------------
                                                            1999         1998
                                                        -----------   -----------
<S>                                                     <C>           <C> 
Revenues:
 Computer services                                      $ 1,903,000   $   999,000
 Management and consulting fees                             300,000     1,466,000
 Other                                                            -        17,000
                                                        -----------   -----------
 
  Total revenues                                          2,203,000     2,482,000
                                                        -----------   -----------
 
Expenses:
 Computer services                                        1,016,000       130,000
 General and administrative                               1,318,000       925,000
 Depreciation and amortization                               44,000        28,000
                                                        -----------   -----------
 
  Total expenses                                          2,378,000     1,083,000
                                                        -----------   -----------
 
 (Loss) income from operations                             (175,000)    1,399,000
                                                        -----------   -----------
 
Non-operating income (expense):
 Interest income                                            212,000       238,000
 Interest expense                                        (3,980,000)   (4,089,000)
 Equity in earnings of Limited Partnership                2,022,000     1,920,000
 Equity in earnings of GB Holdings, Inc.                          -     2,869,000
 Restructuring costs                                        (82,000)      (60,000)
                                                        -----------   -----------
 
  Total non-operating (expense) income, net              (1,828,000)      878,000
                                                        -----------   -----------
 
(Loss) income before income taxes                        (2,003,000)    2,277,000
 Income tax provision                                       (33,000)       (2,000)
                                                        -----------   -----------
 
Net (loss) income                                       $(2,036,000)  $ 2,275,000
                                                        ===========   ===========
 
Basic and diluted net (loss) income per common share          $(.39)         $.44
                                                        ===========   ===========
</TABLE>

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

                                       6
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                           -------------------------
                                                              1999          1998
                                                           -----------   -----------
<S>                                                        <C>           <C> 
OPERATING ACTIVITIES:
 Net (loss) income                                         $(2,036,000)  $ 2,275,000
 Adjustments to reconcile net (loss) income to net cash
  provided by operating activities:
  Depreciation and amortization, including
   accretion of debt discount                                1,322,000     1,170,000
  Provision for doubtful accounts                                    -         7,000
  Equity in earnings of Limited Partnership                 (2,022,000)   (1,920,000)
  Distributions received from Limited Partnership            2,017,000     2,159,000
  Equity in earnings of GB Holdings, Inc.                            -    (2,869,000)
  Deferred income tax provision (benefit)                        6,000      (320,000)
  Decrease (increase) in accounts receivable                   119,000       (30,000)
  Increase in accounts payable and
   other accrued liabilities                                 1,441,000     2,687,000
  Net change in other current assets and liabilities           (41,000)     (786,000)
  Net change in other noncurrent assets and liabilities         10,000      (124,000)
                                                           -----------   -----------
 
     Net cash provided by operating activities                 816,000     2,249,000
                                                           -----------   -----------
 
INVESTING ACTIVITIES:
 Purchases of property and equipment                           (16,000)      (30,000)
 Collections on notes receivable                               174,000       154,000
                                                           -----------   -----------
 
   Net cash provided by investing activities                   158,000       124,000
                                                           -----------   -----------
 
FINANCING ACTIVITIES:
 Repayments of long-term debt                                        -       (13,000)
                                                           -----------   -----------
 
  Net cash used in financing activities                              -       (13,000)
                                                           -----------   -----------
 
  Net increase in cash and cash equivalents                    974,000     2,360,000
  Cash and cash equivalents at beginning of period          10,616,000     6,555,000
                                                           -----------   -----------
 
  Cash and cash equivalents at end of period               $11,590,000   $ 8,915,000
                                                           ===========   ===========
</TABLE>

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

                                       7
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


(1)  ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION

     Greate Bay Casino Corporation, a Delaware corporation, and its subsidiaries
("GBCC"), are engaged in the operation and management of casino properties.
GBCC's principal operations consist of the Sands Hotel and Casino located in
Atlantic City, New Jersey (the "Sands") and management and consulting contracts
with gaming facilities located in Aurora, Illinois (the "Aurora Casino") and
Tunica County, Mississippi (the "Tunica Casino") (see Note 6).  GBCC, through
its subsidiaries and various joint ventures, has also engaged to a lesser extent
in other hotel and casino operations in the United States and the Caribbean.

     On December 31, 1996, Hollywood Casino Corporation ("HCC"), owner of
approximately 80% of the outstanding common stock of GBCC, distributed such
stock to its shareholders.  As a result, approximately 36% of GBCC's outstanding
stock is owned by Jack E. Pratt, Edward T. Pratt, Jr. and William D. Pratt and
by certain general partnerships and trusts controlled by the Pratts and by other
family members (collectively, the "Pratt Family").  The Pratt Family also owns
approximately 54% of HCC. HCC owns the Aurora Casino and the Tunica Casino.

     Effective April 1, 1997, HCC acquired the general partnership interest in
Pratt Management, L.P. ("PML"), the limited partnership which holds the
management contract on the Aurora Casino, from PPI Corporation, a wholly owned
subsidiary of GBCC.  As a result, GBCC's investment in PML is now being
presented under the equity method of accounting (see Note 7).

     On January 5, 1998, GB Holdings, Inc. ("Holdings"), at that time a wholly
owned subsidiary of GBCC, together with Holdings' wholly owned subsidiaries, GB
Property Funding Corp. ("GB Property Funding") and Greate Bay Hotel and Casino,
Inc. ("GBHC"), filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court
for the District of New Jersey (the "Bankruptcy Court").  Each company continues
to operate in the ordinary course of business, as set forth in the Bankruptcy
Code, and each company's executive officers and directors remain in office,
subject to the jurisdiction of the Bankruptcy Court.  On January 11, 1999, the
Bankruptcy Court terminated the debtors' exclusive right to file a plan of
reorganization.  No plan of reorganization has been formally presented by the
debtors or any other party.   Effective on December 31, 1998, GBCC's ownership
of Holdings was reduced to 79% (see Note 9).

     As a result of the Chapter 11 filings, GBCC's control over the filing
subsidiaries is subject to supervision of the Bankruptcy Court and GBCC does not
expect to have ownership or operating control of such subsidiaries after
reorganization.  Prior to July 7, 1998, New Jersey Management, Inc. ("NJMI"), a
wholly owned subsidiary of GBCC, was responsible for the operations of the Sands
under a management agreement with GBHC (see Note 6).  On May 22, 1998, GBHC
filed a motion with the Bankruptcy Court seeking to reject the existing
management agreement with NJMI.  A substitute agreement (the "Interim
Agreement") was entered into on June 27, 1998 and approved by the Bankruptcy
Court on July 7, 1998. Under the Interim Agreement, NJMI continued to provide
certain agreed upon services to GBHC until September 28, 1998.  Furthermore, as
the result of a settlement agreement reached by GBCC and Holdings during
September 1998 (see Note 9), GBCC no longer controls the management of the
Sands. Accordingly, Holdings, GB Property Funding and GBHC are no longer
included on the accompanying consolidated balance sheets.  During the period
from January 1, 1998 through June 30, 1998, the operations of Holdings and its
subsidiaries were accounted for under the equity method of accounting (see 

                                       8
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


Note 8). As a result of GBCC no longer controlling the operations of the Sands,
the expectation that ownership control of Holdings will only be temporary and
the September 1998 settlement agreement which resolved certain significant
uncertainties, GBCC's investment in Holdings and its subsidiaries as well as
certain amounts due to Holdings (see Note 3) were revalued to a zero basis
effective on July 1, 1998. Accordingly, for periods subsequent to June 30, 1998,
GBCC is accounting for its investment in Holdings under the cost method of
accounting.

   The accompanying consolidated financial statements have been prepared
assuming that GBCC will continue as a going concern.  As discussed above,
certain affiliates of GBCC filed for Chapter 11 bankruptcy protection on January
5, 1998.  The affiliate filings under Chapter 11 have resulted in a default
under the indenture for $85,000,000 principal amount of 11 5/8% senior notes due
2004 (the "PRT Funding Notes") issued by PRT Funding Corp. ("PRT Funding"), an
indirect, wholly owned subsidiary of GBCC.  Accordingly, the outstanding
principal amount of the PRT Funding Notes has accelerated and is currently due
and payable.  Pratt Casino Corporation ("PCC"), a wholly owned subsidiary of
GBCC and guarantor of the PRT Funding Notes, does not have sufficient assets to
satisfy the outstanding amounts applicable to the PRT Funding Notes.  PRT
Funding deferred payment of interest due on the April 15 and October 15, 1998
and April 15, 1999 interest payment dates.  On October 22, 1998, PRT Funding
paid to the bondholders an amount equal to a single semiannual interest payment
($4,941,000) while negotiations to restructure the PRT Funding Notes continued.
In connection with the Restructuring (as defined below) PRT Funding paid
deferred interest amounting to $6,768,000 to the bondholders on April 30, 1999.

   On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the restructuring of the PRT Funding Notes (the "Restructuring").
The agreement provides for HCC to acquire the stock of PCC, the parent of PRT
Funding, from GBCC for nominal consideration.  When acquired by HCC, PCC's
assets will consist of its limited partnership interest in a management contract
for the Aurora Casino and a consulting contract for the Tunica Casino and its
liabilities will consist of a newly issued promissory note in the principal
amount of $40,329,000 payable to the Trustee for the PRT Funding noteholders.
The voting agreement provides for HCC to immediately discharge the promissory
note.

   As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC.  Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.

   The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization.  Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations.  There can be no assurance at this time that the
Restructuring will be successfully completed.

   After consummation of the Restructuring, GBCC's only significant remaining
operating activity will be the development, installation and maintenance of
casino systems by its wholly owned subsidiary, 

                                       9
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


Advanced Casino Systems Corporation ("ACSC"). GBCC and its subsidiaries will
continue to have debt outstanding to HCC consisting of (i) demand notes and
accrued interest thereon totaling $8,763,000 at March 31, 1999 (see Notes 3 and
6) and (ii) a 14 7/8% secured promissory note due 2006 in the amount of
$36,318,000 at March 31, 1999 (see Note 4). The current level of ACSC's
operations is not sufficient to provide debt service on the HCC obligations and,
consequently, GBCC will be insolvent after the Restructuring. GBCC has commenced
discussions with HCC to restructure its obligations; however, there can be no
assurance at this time that such discussions will result in a restructuring of
GBCC's obligations with HCC.

     The insolvency of GBCC raises substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.

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

     In June 1998, the FASB issued a new statement, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), effective for fiscal years
beginning after June 15, 1999.  SFAS 133 requires, among other things, that
derivatives be recorded on the balance sheet at fair value.  Changes in the fair
value of derivatives may, depending on circumstances, be recognized in earnings
or deferred as a component of shareholders' equity until a hedged transaction
occurs.  GBCC does not believe the adoption of SFAS 133 will have a significant
impact on its financial position or results of operations.

     The consolidated financial statements as of March 31, 1999 and for the
three month periods ended March 31, 1999 and 1998 have been prepared by GBCC
without audit. In the opinion of management, these consolidated financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the consolidated financial position of
GBCC as of March 31, 1999 and the results of its operations and cash flows for
the three month periods ended March 31, 1999 and 1998.

(2)  NET (LOSS) INCOME PER COMMON SHARE -

     Basic earnings per common share is calculated by dividing the net (loss)
income by the weighted average number of shares of common stock outstanding.
Diluted earnings per common share is calculated for periods in which income from
continuing operations was earned by dividing the components of net income by the
weighted average number of shares of common stock and potential common shares
outstanding.  All potential common shares are excluded from the calculation of
diluted net loss per share for periods during which a loss was incurred because
the effect of their inclusion would be antidilutive.

                                       10
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


     For each of the three month periods ended March 31, 1999 and 1998, there
were no potential common shares outstanding and basic and diluted (loss) income
per share were the same. The weighted average number of shares of common stock
used in the calculation of both basic and diluted (loss) income per share was
5,186,627 for each of the three month periods ended March 31, 1999 and 1998.

(3)  BORROWINGS FROM AFFILIATES

     GBCC and its subsidiaries had outstanding affiliate borrowings from HCC of
$6,750,000 as of both March 31, 1999 and December 31, 1998.  During the third
quarter of 1996, GBCC borrowed $6,500,000 from HCC on a demand basis with
interest at the rate of 13 3/4% per annum payable quarterly commencing October
1, 1996; such funds were loaned by GBCC to GBHC for working capital purposes on
the same terms.  On September 2, 1998, the working capital loans to GBHC were
cancelled as part of a settlement agreement among GBCC and Holdings, together
with certain of their subsidiaries, and HCC (see Note 9).  In addition, a
$250,000 loan from HCC with interest at the rate of 14% per annum payable
semiannually was due on April 1, 1998; to date, such payment has not been made.

(4)  LONG-TERM DEBT AND PLEDGE OF ASSETS

     The January 5, 1998 filings for relief under Chapter 11 of the Bankruptcy
Code by Holdings, GB Property Funding and GBHC (see Note 1) constitute a default
under the indenture for the PRT Funding Notes.  Accordingly, the outstanding
principal amount of the PRT Funding Notes has accelerated, is currently due and
payable and is classified as current on the accompanying consolidated balance
sheets.

<TABLE>
<CAPTION>
                                                       MARCH 31,    DECEMBER 31,
                                                          1999          1998
                                                      ------------  ------------
 <S>                                                  <C>           <C>
 11 5/8% senior notes, due 2004 (a)                   $ 85,000,000  $ 85,000,000
 14 7/8% secured promissory note, due 2006, net of
   discount of $11,285,000 and $12,563,000,
   respectively (b)                                     36,318,000    35,040,000
                                                      ------------  ------------
 
     Total indebtedness                                121,318,000   120,040,000
   Less - current maturities                            85,000,000    85,000,000
                                                      ------------  ------------
 
     Total long-term debt                             $ 36,318,000  $ 35,040,000
                                                      ============  ============
</TABLE>

_________________

(a)  On February 17, 1994, PRT Funding issued the PRT Funding Notes.  Interest
     on the PRT Funding Notes accrues at the rate of 11 5/8% per annum, payable
     semiannually commencing October 15, 1994.  The PRT Funding Notes are
     redeemable at the option of the issuer, in whole or in part, on or after
     April 15, 1999 at stated redemption prices ranging up to 104.36% of par
     plus accrued 

                                       11
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


     interest. The indenture for the PRT Funding Notes contains various
     provisions which, among other things, restrict the ability of certain
     subsidiaries of GBCC to pay dividends to GBCC, to merge, consolidate or
     sell substantially all of their assets or to incur additional indebtedness
     beyond certain limitations. The PRT Funding Notes will be replaced by a new
     note to be issued by PCC as part of the Restructuring (see Note 1).

(b)  On February 17, 1994, PPI Funding Corp., a subsidiary of GBCC, issued
     $40,524,000 discounted principal amount of new deferred interest notes (the
     "PPI Funding Notes") to HCC in exchange for the $38,779,000 principal
     amount of 15 1/2% unsecured notes (the "PCPI Notes") held by HCC and issued
     by PCPI Funding Corp., another subsidiary of GBCC.  The PPI Funding Notes
     were discounted to yield interest at the rate of 14 7/8% per annum and had
     a face value of $110,636,000.  Subsequent principal payment by PPI Funding
     Corp. reduced the maturity value of the notes to $98,353,000 at December
     31, 1996.  During the second quarter of 1997, HCC assigned $13,750,000
     undiscounted principal amount of the PPI Funding Notes to PPI Corporation
     as consideration, in part, for HCC's acquisition of the general partnership
     interest in PML (see Note 6).  Such assignment reduced the maturity value
     of the notes to $84,603,000.  At December 31, 1997, an additional
     $37,000,000 undiscounted face value ($23,631,000 discounted value) of the
     PPI Funding Notes was forgiven by HCC, further reducing the maturity value
     to $47,603,000.  Because of the continued affiliation of HCC and GBCC, the
     forgiveness of debt was reflected by GBCC as a credit to paid-in capital
     during 1997.  Payment of interest on the PPI Funding Notes is deferred
     through February 17, 2001 at which time interest will become payable
     semiannually, with the unpaid principal balance due on February 17, 2006.
     The PPI Funding Notes are collateralized by a pledge of all of the common
     stock of a subsidiary of GBCC.

     Scheduled payments of long-term debt as of March 31, 1999, exclusive of the
PRT Funding Notes which are currently in default and accelerated, are
$47,603,000 in 2006.

     No interest was paid during the three month period ended March 31, 1999.
Interest paid amounted to $10,000 during the three month period ended March 31,
1998.

                                       12
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


(5)  INCOME TAXES

     GBCC's provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                             THREE MONTHS ENDED
                                                 MARCH 31,
                                           ----------------------
                                              1999        1998
                                           ----------  ----------
<S>                                        <C>         <C>
Federal income tax (provision) benefit:
 Current                                   $ (25,000)  $(270,000)
 Deferred                                    377,000     654,000
State income tax (provision) benefit:
 Current                                      (2,000)    (52,000)
 Deferred                                    161,000     461,000
 Valuation allowance                        (544,000)   (795,000)
                                           ---------   ---------
 
                                           $ (33,000)  $  (2,000)
                                           =========   =========
</TABLE>

     GBCC paid federal income taxes totaling $25,000 and $270,000 during the
three month periods ended March 31, 1999 and 1998, respectively. GBCC paid no
state income taxes during the three month period ended March 31, 1999; GBCC paid
state income taxes totaling $2,000 during the three month period ended March 31,
1998.

     Federal and state income tax provisions or benefits are based upon
estimates of the results of operations for the current period and reflect the
nondeductibility for income tax purposes of certain items, including meals and
entertainment and certain other expenses. Deferred taxes are computed based on
the expected future tax effects of differences between the financial statement
and tax bases of assets and liabilities, using enacted tax rates. Deferred
income taxes result primarily from differences in the bases of investments in
subsidiaries and in outstanding obligations between financial and federal tax
reporting purposes and from the use of the allowance method rather than the
direct write-off method for doubtful accounts.

     As a result of the distribution of GBCC's stock by HCC to its shareholders
at December 31, 1996, GBCC is no longer included in HCC's consolidated federal
income tax return. In addition, as a result of a settlement agreement entered
into in September 1998 (see Note 9), Holdings and its subsidiaries are no longer
included in the consolidated tax return of GBCC for periods subsequent to
December 31, 1998. As of March 31, 1999, GBCC and its subsidiaries, exclusive of
Holdings and its subsidiaries, have net operating loss carryforwards ("NOL's")
totaling approximately $35,300,000 for federal income tax purposes, most of
which do not begin to expire until the year 2005. Additionally, GBCC and its
subsidiaries have various tax credits available totaling approximately
$2,030,000, most of which expire by the year 2004. Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"),
requires that the tax benefit of such NOL's, credit carryforwards and deferred
tax assets resulting from temporary differences be recorded as an asset and, to
the extent that management can not 

                                       13
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


assess that the utilization of such asset is more likely than not, a valuation
allowance should be recorded. Due to the continued availability of NOL's
originating in prior years and uncertainties regarding GBCC's ability to
continue as a going concern, management is unable to determine that realization
of such asset is more likely than not and, thus, has provided valuation
allowances for substantially all of the deferred tax assets for all periods
presented. The remaining deferred tax assets represent state timing differences
expected to be utilized and are included in other current assets on the
accompanying consolidated balance sheets.

     The components of the net deferred tax asset are as follows:

<TABLE>
<CAPTION>
                                            MARCH 31,    DECEMBER 31,
                                              1999           1998
                                          -------------  -------------
<S>                                       <C>            <C>
Deferred tax assets:
 Net operating loss carryforwards         $ 12,821,000   $ 11,946,000
 Allowance for doubtful accounts               130,000        130,000
 Investment and other tax credits            2,030,000      2,339,000
 Investment in consolidated subsidiary       2,866,000      2,866,000
 Other liabilities and accruals                 87,000        113,000
 Deferred financing costs                    1,372,000      1,374,000
 Other                                         242,000        242,000
                                          ------------   ------------
 
Deferred tax asset                          19,548,000     19,010,000
Valuation allowance                        (19,505,000)   (18,961,000)
                                          ------------   ------------
 
                                          $     43,000   $     49,000
                                          ============   ============
</TABLE>

     Sales or purchases of GBCC common stock by certain five percent
stockholders, as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), can cause a "change of control", as defined in Section 382 of the Code,
which would limit the ability of GBCC to utilize these loss carryforwards in
later tax periods. Should such a change of control occur, the amount of annual
loss carryforwards available for use would most likely be substantially reduced.
Future treasury regulations, administrative rulings or court decisions may also
effect GBCC's future utilization of its loss carryforwards.

     The Internal Revenue Service is currently examining the consolidated
federal income tax returns of HCC for the years 1993 through 1996 in which GBCC
was included. Management believes that the results of such examination will not
have a material adverse effect on the consolidated financial position or results
of operations of GBCC.

(6)  TRANSACTIONS WITH RELATED PARTIES

     PML, a limited partnership wholly owned through March 31, 1997 by GBCC,
earns management fees pursuant to a management agreement with Hollywood Casino -
Aurora, Inc. ("HCA"), an HCC  

                                       14
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


subsidiary. Such fees include a base management fee equal to 5% of the Aurora
Casino's operating revenues (as defined in the agreement) subject to a maximum
of $5.5 million annually, and an incentive fee equal to 10% of gross operating
profit (as defined in the agreement to generally include all revenues, less
expenses other than depreciation, interest, amortization and taxes). Effective
as of April 1, 1997, HCC acquired the general partnership interest in PML from
PPI Corporation, a wholly owned subsidiary of GBCC.

   HCC issued a five-year note in the original amount of $3,800,000 and assigned
$13,750,000 undiscounted principal amount ($7,597,000 discounted value) of PPI
Funding Notes (see Note 4) and $350,000 of accrued interest due from GBCC to PPI
Corporation in exchange for the general partnership interest in PML.  The
$3,800,000 note is payable in monthly installments of $83,000, including
interest at the rate of 14% per annum, commencing on May 1, 1997, with
additional quarterly variable principal payments commencing on July 1, 1997 in
an amount equal to the general partner's share of quarterly cash distributions,
as defined, from PML.  The remaining note balances at March 31, 1999 and
December 31, 1998 are $2,662,000 and $2,836,000, respectively.  Of those
balances, $668,000 and $622,000 are included in current amounts due from
affiliates at March 31, 1999 and December 31, 1998, respectively. Interest
income on the note from HCC amounted to $94,000 and $116,000, respectively,
during the three month periods ended March 31, 1999 and 1998.  Accrued interest
receivable of $32,000 and $34,000, respectively, is included in amounts due from
affiliates on the accompanying consolidated balance sheets at March 31, 1999 and
December 31, 1998.

   Prior to May 1, 1998, NJMI was responsible for the operations of the Sands
under a management agreement with GBHC.  NJMI was entitled to receive annually
(i) a basic consulting fee of 1.5% of "adjusted gross revenues," as defined, and
(ii) incentive compensation of between 5% and 7.5% of gross operating profits in
excess of certain stated amounts should annual "gross operating profits," as
defined, exceed $5,000,000.  On May 22, 1998, GBHC filed a motion with the
Bankruptcy Court seeking to reject the existing management agreement with NJMI.
The Interim Agreement was entered into on June 27, 1998 and was approved by the
Bankruptcy Court on July 7, 1998.  Under the Interim Agreement, effective as of
May 1, 1998 and terminating on September 28, 1998, NJMI continued to provide
certain agreed upon services to GBHC at a monthly fee of $165,000 of which
$122,000 was paid on a monthly basis in arrears and the remaining $43,000 was
deferred and is to be paid upon confirmation of GBHC's plan of reorganization by
the Bankruptcy Court.  All management fees terminated upon the granting of
GBHC's motion to reject the management contract by the Bankruptcy Court on
September 28, 1998.  As a consequence of the September 1998 settlement agreement
(see Note 9), GBCC and GBHC may no longer assert claims against each other with
respect to the operation of the management contract and, with the passage of
time, the cancellation thereof.

   Fees earned by NJMI under the management agreement and Interim Agreement
amounted to $1,166,000 for the three months ended March 31, 1998.  Management
fees receivable from the Sands at both March 31, 1999 and December 31, 1998
amounted to $267,000 net of a valuation allowance of 

                                       15
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


$115,000. Of the amount receivable at March 31, 1999 and December 31, 1998,
$30,000, net of the aforementioned valuation allowance, which was earned prior
to GBHC's bankruptcy filing, is included in noncurrent due from affiliates on
the accompanying consolidated balance sheets and is subject to terms of a
reorganization plan which requires confirmation by the Bankruptcy Court (see
Note 9).

   Pursuant to a consulting agreement which expires in December 2003 with
Hollywood Casino -Tunica, Inc. ("HCT"), the HCC subsidiary which owns and
operates the Tunica Casino, a subsidiary of GBCC receives monthly consulting
fees of $100,000.  Total fees earned for each of the three month periods ended
March 31, 1999 and 1998 amounted to $300,000.

   HCC and its subsidiaries allocate certain general and administrative costs to
GBCC and its subsidiaries pursuant to  services agreements.  Net allocated costs
and fees charged to GBCC and its subsidiaries by HCC and its subsidiaries
amounted to $157,000 and $296,000, respectively, during the three month periods
ended March 31, 1999 and 1998.  Net amounts due to HCC and its subsidiaries
amounted to $49,000 and $239,000 at March 31, 1999 and December 31, 1998,
respectively.

   ACSC provides computer, marketing and other administrative services to HCC
and its subsidiaries and to GBHC.  Computer services provided  include hardware,
software and operator support and, for the most part, such services are billed
by ACSC at its direct cost plus expenses incurred.  ACSC and HCT entered into a
Computer Services Agreement dated as of January 1, 1994 and renewed through
December 31, 1999 to provide such services and to license or sublicense to HCT
computer software necessary to operate HCT's casino, hotel and related
facilities and business operations.  HCT pays ACSC for such equipment and
licenses such software at amounts and on terms and conditions that ACSC provides
to unrelated third parties.  HCT also pays ACSC a fixed license fee of $33,600
per month.  ACSC's billings to HCC and its subsidiaries for such services
amounted to $289,000 and $297,000 for the three month periods ended March 31,
1999 and 1998, respectively.  Unpaid charges to HCC and its subsidiaries
included in due from affiliates on the accompanying consolidated balance sheets
at March 31, 1999 and December 31, 1998 amounted to $166,000 and $122,000,
respectively.  Billings to GBHC amounted to $232,000 and $148,000 for the three
month periods ended March 31, 1999 and 1998, respectively.  Unpaid charges to
GBHC included in due from affiliates on the accompanying consolidated balance
sheets at March 31, 1999 and December 31, 1998 amounted to $353,000 and
$251,000, respectively.  Such receivables from GBHC were partially offset by
amounts due to GBHC by ACSC totaling $242,000 at both March 31, 1999 and
December 31, 1998.

   Interest expense with respect to borrowings from HCC is set forth below:

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED
                                                MARCH 31,
                                       -------------------------
                                         1999            1998
                                       -------------  ----------
<S>                                    <C>            <C>
PPI Funding Notes (Note 4)                $1,278,000  $1,142,000
Short-term borrowings (Note 3)               232,000     232,000
</TABLE>

                                       16
<PAGE>
 
                 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


     During 1994, a GBCC subsidiary issued $40,524,000 discounted principal
amount of PPI Funding Notes in exchange for the PCPI Notes held by HCC (see Note
4). Accretion of interest on the PPI Funding Notes is included in the
outstanding note payable balance at March 31, 1999 and December 31, 1998.

     Interest accrued on short-term borrowings (see Note 3) amounting to
$2,013,000 and $1,781,000, respectively, at March 31, 1999 and December 31, 1998
is included in interest payable on the accompanying consolidated balance sheets.

     GBHC issued a promissory note in the amount of $10,000,000 on February 17,
1994 to PRT Funding.  Such note accrues interest at the rate of 14 5/8% per
annum and is payable semiannually commencing on August 17, 1994.  The principal
amount of the note is due on February 17, 2005.  During the first quarter of
1997, GBHC also borrowed $5,000,000 from PCC for working capital purposes.  Such
borrowing accrues interest at the rate of 14 5/8% per annum payable semiannually
commencing July 15, 1997.   In accordance with certain provisions of the
September 1998 settlement agreement with GBCC (see Note 9), GBHC preserves
whatever rights of offset, if any, it might have with respect to an advance made
by GBHC to a GBCC subsidiary in the amount of $5,672,000 against the $10,000,000
and $5,000,000 loans described above.  As a result of (i) GBHC no longer being
included as a consolidated subsidiary and (ii) GBHC's filing under Chapter 11
making prospects for ultimate collection doubtful, the notes, together with
accrued interest of $6,200,000 and $5,652,000, respectively, are fully reserved
on the accompanying consolidated balance sheets at March 31, 1999 and December
31, 1998.

     During the third quarter of 1996, GBCC loaned $6,500,000 to GBHC for
working capital purposes. Such advance accrues interest at the rate of 13 3/4%
per annum, payable quarterly commencing October 1, 1996. An additional
$1,500,000 was loaned to GBHC during the first quarter of 1997 on the same
terms. Repayment of such advances and the payment of the related interest are
subject to terms of a reorganization plan which requires confirmation by the
Bankruptcy Court and to approval by the New Jersey Casino Control Commission
(the "Casino Commission"). For the same reasons cited in the previous paragraph,
the total advances to GBHC of $8,000,000, together with the related interest
receivable of $1,496,000, were reflected as an adjustment to GBCC's negative
investment in Holdings at December 31, 1997. On September 2, 1998, the working
capital loans to GBHC were cancelled as part of a settlement agreement among
GBCC and Holdings, together with certain of their subsidiaries, and HCC (see
Note 9).

(7)  INVESTMENT IN PRATT MANAGEMENT, L.P.

     Effective as of April 1, 1997, HCC acquired the general partnership
interest in PML (see Notes 1 and 6) from PPI Corporation. PML earns management
fees from the Aurora Casino and incurs operating and other expenses with respect
to its management thereof. The general partner receives 99% of the first $84,000
of net income earned by the partnership each month and 1% of any income earned
above such amount. PML earned management fees amounting to $2,600,000 and
$2,546,000, respectively, during the three month periods ended March 31, 1999
and 1998. PML also incurred operating and other expenses amounting to $307,000
and $357,000, respectively, during the three month periods ended March 31, 1999
and 1998.

                                       17
<PAGE>
 
                 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


(8)  EQUITY IN EARNINGS OF GB HOLDINGS, INC.

     As discussed in Note 1, the operations of Holdings and its subsidiaries
were accounted for under the equity method of accounting for the six month
period from January 1, 1998 through June 30, 1998. Due to the significance of
Holdings' operations, summarized consolidated results of operations of Holdings
for the three month period ended March 31, 1998 are set forth below.
Transactions with Holdings and its subsidiaries are included in Note 6.

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED
                                            MARCH 31, 1998
                                          -------------------
<S>                                       <C>
 
Net revenues                                     $55,613,000
                                                 -----------
 
Departmental expenses                             45,285,000
General and administrative expenses                3,981,000
Depreciation and amortization                      2,899,000
                                                 -----------
 
   Total operating expenses                       52,165,000
                                                 -----------
 
Income from operations                             3,448,000
                                                 -----------
 
Interest, net                                        494,000
Gain on disposal of assets                            28,000
                                                 -----------
 
   Total non-operating income                        522,000
                                                 -----------
 
Income before taxes and other item                 3,970,000
Income tax provision                                       -
                                                 -----------
 
Income before other items                          3,970,000
Reorganization and other related costs            (1,101,000)
                                                 -----------
 
Net income                                       $ 2,869,000
                                                 ===========
</TABLE>

(9)  LITIGATION

     SUBSIDIARY CHAPTER 11 FILINGS AND RELATED LITIGATION -

     On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief under Chapter 11 of the Bankruptcy Code.  Each company continues to
operate in the ordinary course of business, as set forth in the Bankruptcy Code,
and each company's executive officers and directors remain in office, subject to
the jurisdiction of the Bankruptcy Court.  On January 11, 1999, the Bankruptcy
Court terminated the debtors' exclusive right to file a plan of reorganization.
No plan of reorganization has been formally presented by the debtors or any
other party.

                                       18
<PAGE>
 
                 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


   As a result of the default and automatic acceleration under the indenture for
the PRT Funding Notes, the holders of the PRT Funding Notes could initiate
judicial proceedings to enforce their claims for payment; however, no such
proceedings have been initiated.  On April 28, 1999, PCC, PRT Funding, NJMI,
GBCC, HCC and the holders of substantially all of the PRT Funding Notes entered
into a voting agreement with HCC which provides for the Restructuring of the PRT
Funding Notes.  The agreement provides for HCC to acquire the stock of PCC, the
parent of PRT Funding, from GBCC for nominal consideration.  When acquired by
HCC, PCC's assets will consist of its limited partnership interest in a
management contract for the Aurora Casino and a consulting contract for the
Tunica Casino and its liabilities will consist of a newly issued promissory note
in the principal amount of $40,329,000 payable to the Trustee for the PRT
Funding noteholders.  The voting agreement provides for HCC to immediately
discharge the promissory note.

   As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC.  Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.

   The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization.  Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations.

   On May 22, 1998, GBHC filed a motion with the Bankruptcy Court seeking to
reject the management agreement with NJMI (see Note 6).  The Interim Agreement
was entered into and approved by the Bankruptcy Court on July 7, 1998 and the
motion to reject the management agreement was approved by the Bankruptcy Court
on September 28, 1998.  As a consequence of the September 1998 settlement
agreement described below, GBCC and GBHC may no longer assert claims against
each other with respect to the operation of the management contract and, with
the passage of time, the cancellation thereof.

   On July 27, 1998, GBHC filed an action in the Bankruptcy Court against GBCC,
certain affiliates of GBCC and Jack E. Pratt, Edward T. Pratt, Jr. and William
D. Pratt as directors of GBCC and former directors of GBHC (collectively, the
"GBCC Parties"), which alleged, among other things, usurpation of corporate
opportunities of GBHC and breach of fiduciary duty with respect to GBHC in
connection with the acquisition of certain land parcels in Atlantic City, New
Jersey.  The action sought, among other things, to enjoin the GBCC Parties from
transferring the land parcels to third parties and to require that the land
parcels be conveyed to GBHC.  The action also sought to enjoin GBCC from using
the tax NOL's of GBHC.

   On September 2, 1998, the GBCC Parties reached a settlement with GBHC which
was approved by the Bankruptcy Court.  The terms of the settlement agreement
provided, among other things, (i) that the GBCC Parties convey the land parcels
and related mortgage note to GBHC in exchange for a cash payment equal to the
GBCC Parties' cost in such land parcels with an additional $500,000 payment due
upon confirmation of a plan of reorganization by the Bankruptcy Court and (ii)
that GBHC be included in the 

                                       19
<PAGE>
 
                 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


consolidated federal income tax return of GBCC for 1997 and 1998 enabling GBCC
to utilize GBHC's tax NOL's. The agreement also provided that on or before
December 31, 1998, GBCC would cause Holdings and its subsidiaries to be
deconsolidated from the GBCC federal income tax return by means of transferring
21% of the stock ownership of Holdings to an unconsolidated entity. Such
transfer was accomplished effective as of December 31, 1998. In addition, the
settlement agreement also allowed GBHC to offset its working capital loan from
GBCC in the amount of $8,000,000 together with interest accrued thereon (see
Note 6) against a claim asserted by GBHC against GBCC under the existing tax
allocation agreements.

   GBCC licenses the "Sands" name under a license agreement dated as of May 19,
1987, which rights are sublicensed to GBHC.  The license agreement has a term of
99 years and requires a royalty payment of the greater of 1.5% of gross room
charges, as defined in the agreement, payable monthly, or $100,000 per calendar
year.  The license agreement may be terminated by either party in the event of a
material breach, bankruptcy, suspension of normal business operations or certain
other actions by the other party. GBCC intends to terminate the license
agreement as a result of the licensor's suspension of normal business operations
evidenced by the destruction of the Sands Hotel and Casino in Las Vegas in 1996.
Pursuant to the terms of the sublicense agreement, termination of the license
agreement results in automatic termination of the sublicense agreement.  GBCC
filed a motion with the Bankruptcy Court to allow GBCC's termination of the
license agreement and the resulting termination of the sublicense agreement; the
Bankruptcy Court denied such motion.  As a result, GBCC may not be able to
terminate the license agreement, although the Bankruptcy Court may, at some
future time, allow GBCC to do so.  If unable to terminate the license agreement,
GBCC may remain liable for future royalty payments.  GBCC filed an appeal to the
decision of the Bankruptcy Court on March 10, 1999.

   On April 22, 1999, GBHC filed a motion with the Bankruptcy Court seeking to
disallow NJMI's pre-petition claims (see Note 6).  The motion to disallow is
scheduled to be heard by the Bankruptcy Court on May 24, 1999.

   PLANET HOLLYWOOD LITIGATION -

   Planet Hollywood International, Inc., a Delaware corporation, and Planet
Hollywood (Region IV), Inc., a Minnesota corporation (collectively, "PHII"),
filed a complaint in the United States District Court for the Northern District
of Illinois, Eastern Division on July 29, 1996 against HCC, HCA and a member of
the Pratt Family (collectively, the "Original Hollywood Defendants").  The
Original Hollywood Defendants filed with the Court on September 18, 1996 an
answer to PHII's lawsuit, along with numerous counterclaims against PHII, Robert
Earl and Keith Barish (collectively, the "PHII Defendants").  PHII filed with
the Court on January 21, 1997, an amendment to their complaint which, among
other things, added HCT (together with the Original Hollywood Defendants, the
"Hollywood Defendants") and GBCC as defendants.  The Original Hollywood
Defendants filed with the Court on February 4, 1997, and GBCC and HCT filed with
the Court on February 20, 1997, answers and counterclaims to such amended
complaint.

   In its lawsuit, PHII alleges, among other things, that the Hollywood
Defendants and GBCC have, in opening and operating the Hollywood Casino concept,
infringed on PHII's trademark, service mark and 

                                       20
<PAGE>
 
                 GREATE BAY CASINO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                                  (UNAUDITED)


trade dress and have engaged in unfair competition and deceptive trade
practices. In their counterclaims, the Hollywood Defendants and GBCC allege,
among other things, that the PHII Defendants have, through their planned use of
their mark in connection with casino services, infringed on certain of HCC's
service marks and trade dress and have engaged in unfair competition.

     Given the uncertainties inherent in litigation, no assurance can be given
that the Hollywood Defendants and GBCC will prevail in this litigation; however,
the Hollywood Defendants and GBCC believe that PHII's claims are without merit
and intend to defend their position and pursue their counterclaims vigorously.
The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of the uncertainties described
above.

     OTHER LITIGATION -
 
     On October 8, 1998, GBCC and HCC filed a complaint in the District Court of
Dallas County, Texas against Arthur Andersen LLP, GBCC and HCC's former
independent accountants, and selected partners alleging negligent advice and
breach of contract with respect to the tax consequences resulting from the spin-
off of GBCC's stock to HCC's shareholders on December 31, 1996.  The lawsuit is
currently in the initial stages of discovery.

(10) RECLASSIFICATIONS

     Certain reclassifications have been made to the prior year's consolidated
financial statements to conform to the 1999 consolidated financial statement
presentation.

                                       21
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES


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


   This Quarterly Report on Form 10-Q contains forward-looking statements about
the business, results of operations, cash flows, financial condition and
prospects of GBCC.  The actual results could differ materially from those
indicated by the forward-looking statements because of various risks and
uncertainties including, among other things, changes in competition, economic
conditions, tax regulations, state regulations applicable to the gaming industry
in general or GBCC in particular, and other risks indicated in GBCC's filing
with the Securities and Exchange Commission.  Such risks and uncertainties are
beyond management's ability to control and, in many cases, can not be predicted
by management.  When used in this Quarterly Report on Form 10-Q, the words
"believes", "estimates", "anticipates" and similar expressions as they relate to
GBCC or its management are intended to identify forward-looking statements.

LIQUIDITY AND CAPITAL RESOURCES

   OPERATING ACTIVITIES

   GBCC and its subsidiaries conduct three major business activities.  These
activities may be grouped by company as follows: (i) GBCC, PPI Corporation and
their direct, wholly owned subsidiaries, (ii) PCC and NJMI and (iii) Holdings
and GBHC.

   GBCC, PPI Corporation and their direct subsidiaries have provided management
personnel for GBCC's non-casino operations.  ACSC, a subsidiary of PPI
Corporation, licenses casino information technology systems to HCC's casino
facilities, the Sands and non-affiliated casino companies.  As a result of
GBCC's exit from non-casino hotel operations, ACSC's operations have become the
most significant source of liquidity for GBCC, PPI Corporation and their direct
subsidiaries.  The results of ACSC's operations for the three month periods
ended March 31, 1999 and 1998 are set forth below:

<TABLE>
<CAPTION>
                                          THREE MONTHS ENDED
                                               MARCH 31,
                                        ----------------------
                                        1999            1998
                                        ------------  --------
<S>                                     <C>           <C>
Computer service revenues                $1,903,000   $999,000
 
Computer service expenses                 1,016,000    130,000
General and administrative                  886,000    444,000
Depreciation and amortization                44,000     28,000
                                         ----------   --------
 
                                          1,946,000    602,000
                                         ----------   --------
 
(Loss) income from operations            $  (43,000)  $397,000
                                         ==========   ========
</TABLE>

   The decrease in operating income in the first quarter of 1999 from the same
period in 1998 is due to increased salaries and relatively fixed overhead costs
associated with ACSC's sales of information technology products to unaffiliated
third parties (see "Results of Operations" below).

                                       22
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES


          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (CONTINUED)


   PCC and NJMI provide management and consulting services or invest in entities
which provide such services to affiliates which own hotel and casino properties.
Prior to 1998, cash flow from such activities, specifically the limited
partnership interest in PML held by PCC, the Tunica Consulting Contract and the
Sands Management Contract were sufficient to meet debt service obligations on
the PRT Funding Notes ($9.9 million annually) and, when permitted by the PRT
Funding Note indenture, on the Junior Subordinated Notes.

   As a consequence of the Chapter 11 filings by Holdings, GB Property Funding
and GBHC on January 5, 1998, PRT Funding is in default on the $85 million
principal amount of PRT Funding Notes which, together  with accrued interest,
accelerated and became immediately due and payable.  The bankruptcy filing of
GBHC also permitted it to reject the Sands Management Agreement, an important
source of funds for debt service on the PRT Funding Notes.  Management of GBHC
requested modification to the fee arrangement under the Sands management
agreement and reserved its right to reject the agreement.  A modified agreement
was entered into effective May 1, 1998 and expired on September 28, 1998 which
reduced the monthly fee to $165,000 compared to an average monthly fee of
$532,000 during the same period in 1997.  GBHC's motion to reject the management
agreement was approved by the Bankruptcy Court on September 28, 1998.  As a
consequence of the September 1998 settlement agreement (see Note 9 of the Notes
to Consolidated Financial Statements), GBCC and GBHC may no longer assert claims
against each other with respect to the operations of the management contract
and, with the passage of time, the cancellation thereof.  PCC does not have the
financial resources or the capacity to borrow sufficient cash to satisfy the $85
million principal amount of the PRT Funding Notes which have accelerated.  PRT
Funding deferred payment of interest due on the April 15 and October 15, 1998
and April 15, 1999 interest payment dates.  On October 22, 1998, PRT Funding
paid to the bondholders an amount equal to a single semiannual interest payment
($4.9 million) while negotiations to restructure the PRT Funding Notes
continued.  In connection with the Restructuring, PRT Funding paid deferred
interest amounting to $6.8 million to the bondholders on April 30, 1999.

   On April 28, 1999, PCC, PRT Funding, NJMI, GBCC, HCC and the holders of
substantially all of the PRT Funding Notes entered into a voting agreement which
provides for the Restructuring of the PRT Funding Notes.  The agreement provides
for HCC to acquire the stock of PCC, the parent of PRT Funding, from GBCC for
nominal consideration.  When acquired by HCC, PCC's assets will consist of its
limited partnership interest in a management contract for the Aurora Casino and
a consulting contract for the Tunica Casino and its liabilities will consist of
a newly issued promissory note in the principal amount of $40.3 million payable
to the Trustee for the PRT Funding noteholders.  The voting agreement provides
for HCC to immediately discharge the promissory note.

   As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC.  Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.

   The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization.  Such
plan will require approval by the bankruptcy court as well as by various gaming
regulatory organizations. There can be no assurance at this time that the
Restructuring will be successfully completed.

                                       23
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES


          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (CONTINUED)


   After consummation of the Restructuring, GBCC's only significant remaining
operating activity will be the development, installation and maintenance of
casino systems by ACSC.  GBCC and its subsidiaries will continue to have debt
outstanding to HCC consisting of (i) demand notes (the "GBCC Notes") and accrued
interest thereon totaling approximately $8.8 million at March 31, 1999 and (ii)
a 14 7/8% secured promissory note due 2006 (the "PPI Funding Notes") in the
amount of approximately $36.3 million at March 31, 1999 (see "Financing
Activities" below).  The current level of ACSC's operations is not sufficient to
provide debt service on the HCC obligations and, consequently, GBCC will be
insolvent after the Restructuring.  GBCC has commenced discussions with HCC to
restructure its obligations; however, there can be no assurance at this time
that such discussions will result in a restructuring of GBCC's obligations with
HCC.

   The insolvency of GBCC raises substantial doubt about its ability to continue
as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
 
   Holdings and GBHC own the Sands Hotel and Casino in Atlantic City.  Prior to
1996, the Sands' cash flow was sufficient to meet debt service obligations and
fund a substantial portion of annual capital expenditures.  The Sands also used
short-term borrowings to fund seasonal cash needs for certain capital projects.
During 1996 and 1997, declines in operating cash flow at the Sands resulted in
the need for periodic financial assistance from PCC and GBCC in order to meet
debt service obligations.  Substantial additional financial assistance would
have been required to make the January 15, 1998 principal and interest payments
due on the 10 7/8% First Mortgage Notes.

   GBHC was unable to obtain additional borrowings from affiliates or other
sources and, accordingly, on January 5, 1998, Holdings, GB Property Funding and
GBHC filed petitions seeking protection under Chapter 11 of the Bankruptcy Code.

   As a result of these filings, the Sands has sufficient cash flow to continue
normal operations while it seeks to develop a plan of reorganization for
submission to its creditors and the Bankruptcy Court.  On January 11, 1999, the
Bankruptcy Court terminated the debtors' exclusive right to file a plan of
reorganization.  No plan of reorganization has been formally presented by the
debtors or any other party. Capital expenditures, other than normal recurring
capital expenditures in the ordinary course of business, will require prior
approval of the Bankruptcy Court.  The Bankruptcy Court has approved a $13.6
million, two-year capital expenditure program including $7.1 million for rooms
renovations and $6.5 million for the replacement of slot machines.  There can be
no assurance at this time that GBHC's plan of reorganization, when submitted,
will be accepted by its creditors or the Bankruptcy Court.  In any event, it is
not anticipated that GBCC will retain a substantial equity position in Holdings
as a result of a reorganization and, accordingly, it is not anticipated that the
Holdings group will contribute significantly to the future cash flows of the
GBCC consolidated group.

   FINANCING ACTIVITIES

   During 1994, GBCC issued $40.5 million discounted principal amount of
deferred interest notes (the "PPI Funding Notes") to HCC in exchange for $38.8
million principal amount of 15 1/2% notes issued by another GBCC subsidiary and
held by HCC.  Effective as of April 1, 1997, HCC acquired from PPI Corporation
the general partnership interest in PML, which holds the Aurora Management
contract.  The

                                       24
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES


          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (CONTINUED)


acquisition price for the general partnership interest included a note in the
amount of $3.8 million and the assignment of $7.6 million discounted amount of
the PPI Funding Notes to PPI Corporation. Annual principal and interest payments
by HCC on the $3.8 million note approximate the general partner's share of
annual partnership distributions which are now being made to HCC. During 1997,
HCC forgave $23.6 million discounted principal amount of the PPI Funding Notes.
The remaining PPI Funding Notes have a maturity value of $47. 6 million. Payment
of interest on the PPI Funding Notes is deferred through February 17, 2001 at
which time interest will become payable semiannually with the unpaid balance due
on February 17, 2006.

   During the third quarter of 1996, GBCC borrowed $6.5 million from HCC which
accrues interest at the rate of 13 3/4% per annum payable quarterly commencing
October 1, 1996 (the "GBCC Notes"). GBCC loaned such funds to GBHC on similar
terms.  The loans to GBHC together with the related interest were cancelled as
part of a settlement agreement approved by the Bankruptcy Court on September 2,
1998.

   As previously described, GBCC has commenced discussions with HCC to
restructure its obligations; however, there can be no assurance at this time
that such discussions will result in a restructuring of GBCC's obligations with
HCC.

   CAPITAL EXPENDITURES AND OTHER INVESTMENTS

   Property and equipment additions during the three month period ended March
31, 1999 totaled $16,000; management anticipates that capital expenditures
during the remainder of 1999, consisting only of ongoing equipment replacements
and enhancements at ACSC, will not be significant.

RESULTS OF OPERATIONS

   GENERAL

   As a result of the filings by Holdings, GB Property Funding, and GBHC, GBCC's
control over the filing subsidiaries is subject to the supervision of the
Bankruptcy Court.  GBCC does not expect to have ownership or operating control
of such subsidiaries after reorganization.  Accordingly, the accompanying
consolidated statement of operations for the three month period ended March 31,
1998 reflects the operations of the filing subsidiaries under the equity method
of accounting.  For the three month period ended March 31, 1999, however, the
accompanying consolidated statement of operations reflects the operations of
Holdings and its subsidiaries under the cost method of accounting.

                                       25
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES


          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (CONTINUED)


   REVENUES

   Total revenues of GBCC declined $279,000 (11.2%) during the three month
period ended March 31, 1999 compared to the prior year period.  Computer
services revenues provided by ACSC, a GBCC subsidiary that provides computer
hardware and software to the gaming industry, increased $904,000 (90.5%) during
the three month period ended March 31, 1999 compared to the same period of 1998.
Such increase results from a significant installation contract for ACSC's slot
monitoring system.  The increase was more than offset, however, by the
termination of the Sands Management Contract in September 1998 which generated
management fees of $1.2 million during the first quarter of 1998.

   COMPUTER SERVICES EXPENSES

   Computer services expenses increased $886,000 (681.5%) during the three month
period ended March 31, 1999 compared to the three month period ended March 31,
1998.  Such increase is primarily attributable to increased hardware and
installation costs associated with the aforementioned system installation
contract.

   GENERAL AND ADMINISTRATIVE EXPENSES

   GBCC's general and administrative expenses increased by $393,000 (42.5%)
during the three month period ended March 31, 1999 compared to the 1998 period.
The increase is primarily due to an increase in salaries and overhead costs
incurred in connection with ACSC's increased marketing efforts to sell its
information technology products to unaffiliated third parties.

   DEPRECIATION AND AMORTIZATION

   Depreciation and amortization expense for the first quarter of 1999 increased
by $16,000 (57.1%) compared to the same period of 1998 due to an expansion of
office space by ACSC.

   INTEREST

   Interest income decreased $26,000 (10.9%) during the first quarter of 1999
compared to the same period during 1998.  All interest income earned by GBCC on
loans and advances to Holdings and its subsidiaries for periods subsequent to
the January 5, 1998 bankruptcy filings is being reserved.  Interest expense did
not change significantly during 1999 compared to the prior year period.

   EQUITY IN EARNINGS OF LIMITED PARTNERSHIP

   Effective February 17, 1994, PCC acquired the limited partnership interest in
PML, a limited partnership which earns management fees from the operation of the
Aurora Casino.  The Agreement of Limited Partnership of PML provides for
distributions to PCC of 1% of the first $84,000 of net income earned by PML each
month and 99% of any net income earned above such amount, with all remaining
income distributed to the general partner.  PCC's equity in the earnings of PML
increased $102,000 (5.3%) during the first quarter of 1999 from the same period
of 1998.  The 1999 increase reflects improved management fees earned by PML
which are based, in part, on the operating results of the Aurora Casino.

                                       26
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES


          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (CONTINUED)


   EQUITY IN EARNINGS OF GB HOLDINGS, INC.

   GBCC's equity in the earnings of Holdings' for the three month period ended
March 31, 1998 amounted to $2.9 million.  As a result of GBCC no longer
controlling the operations of the Sands, the expectation that control of
Holdings will only be temporary and the September 1998 settlement agreement
which resolved certain significant uncertainties, GBCC's investment in Holdings
and its subsidiaries as well as certain intercompany balances with Holdings were
revalued to a zero basis effective July 1, 1998. Accordingly, GBCC is no longer
recognizing equity in the earnings of Holdings and its subsidiaries.

   RESTRUCTURING COSTS

   Restructuring costs increased $22,000 (36.7%) during the three month period
ended March 31, 1999 as compared to the same period of 1998 due to professional
fees and other corporate overhead costs in connection with the default of the
PRT Funding Notes and efforts to consummate the Restructuring (see "Liquidity
and Capital Resources - Operating Activities").

   INCOME TAX PROVISION

   As a result of a settlement agreement entered into in September 1998 (see
Note 9 of Notes to Consolidated Financial Statements), Holdings and its
subsidiaries are no longer included in the consolidated tax return of GBCC for
periods subsequent to December 31, 1998.  Due to the continued availability of
NOL's originating in prior years and uncertainties regarding GBCC's ability to
continue as a going concern, management is unable to determine that realization
of deferred tax assets resulting from NOL's and temporary differences is more
likely than not.  Accordingly, under the provisions of Statement of Financial
Accounting Standards No. 19, "Accounting for Income Taxes", GBCC has provided
valuation allowances for substantially all of the deferred tax assets at March
31, 1999 and December 31, 1998.  The remaining deferred tax assets represent
state timing differences expected to be utilized.

   On July 27, 1998 GBHC filed an action in the Bankruptcy Court against GBCC,
certain affiliates of GBCC and Jack E. Pratt, Edward T. Pratt, Jr. and William
D. Pratt as directors of GBCC and former directors of GBHC (collectively, the
"GBCC Parties"), which sought, among other things, to enjoin GBCC from using the
tax NOL's of GBHC.  On September 2, 1998, the GBCC Parties reached a settlement
with GBHC which was approved by the Bankruptcy Court.  The terms of the
settlement agreement provided, among other things, that GBHC be included in the
consolidated federal income tax return of GBCC for 1997 and 1998 enabling GBCC
to utilize GBHC's tax NOL's.  The agreement also provided that on or before
December 31, 1998, GBCC would cause Holdings and its subsidiaries to be
deconsolidated from the GBCC federal income tax return by means of transferring
21% of the stock ownership of Holdings to an unconsolidated entity.  Such
transfer was accomplished effective as of December 31, 1998.

   YEAR 2000 COMPLIANCE

   In the year 2000, computer programs that have date sensitive software may
recognize a date using "00" as the year 1900 rather than 2000.  Such an error
could result in a system failure or miscalculations causing disruptions of
operations including, among other things, a temporary inability to process
transactions or engage in similar normal business activities.

                                       27
<PAGE>
 
                GREATE BAY CASINO CORPORATION AND SUBSIDIARIES


          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS (CONTINUED)


   Management has initiated a program to prepare the Company's computer systems
and applications for the year 2000.  Such program includes the use of both
internal and external resources to test and, if necessary, modify or replace
software applications.  The costs of acquiring, testing and converting such
systems are expected to be minimal.  Management expects its Year 2000 date
conversion projects to be completed on a timely basis.  The Company has also
initiated formal communication with its significant suppliers to determine the
extent to which its information systems are vulnerable to those third parties'
failure to resolve their Year 2000 issues. While there can be no assurance that
the Company and its suppliers and customers will fully resolve the Year 2000
issues, neither the estimated cost nor the outcome of the Year 2000 problem is
expected to have a material impact on the Company's operations, liquidity or
financial position.

   INFLATION

   Management believes that in the near term, modest inflation, together with
competition for qualified and experienced personnel, will continue to cause
increases in operating expenses, particularly labor and employee benefits costs.

   SEASONALITY AND OTHER FLUCTUATIONS

   The Aurora Casino experiences some seasonality due to severe winter weather,
and, as a result, management fees earned by GBCC have fluctuated with such
seasonality.  In addition, the Aurora Casino's operations may fluctuate due to a
number of factors, including chance.  Such seasonality and fluctuations may
materially affect GBCC's results of operations.

                                       28
<PAGE>
 
PART II:  OTHER INFORMATION
---------------------------

ITEM 1.  LEGAL PROCEEDINGS

   On January 5, 1998, Holdings, GB Property Funding and GBHC filed petitions
for relief under Chapter 11 of the Bankruptcy Code.  Each company continues to
operate in the ordinary course of business, as set forth in the Bankruptcy Code,
and each company's executive officers and directors remain in office, subject to
the jurisdiction of the Bankruptcy Court.  On January 11, 1999 the Bankruptcy
Court terminated the debtors' exclusive right to file a plan of reorganization.
As of May 12, 1999, no reorganization plan has been formally presented by the
debtors or any other party.

   As a result of the default and automatic acceleration under the indenture for
the PRT Funding Notes, the holders of the PRT Funding Notes could initiate
judicial proceedings to enforce their claims for payment.  On April 28, 1999,
PCC, PRT Funding, NJMI, GBCC, HCC and the holders of substantially all of the
PRT Funding Notes entered into a voting agreement which provides for the
Restructuring of the PRT Funding Notes.  The agreement provides for HCC to
acquire the stock of PCC, the parent of PRT Funding, from GBCC for nominal
consideration.  When acquired by HCC, PCC's assets will consist of its limited
partnership interest in a management contract for the Aurora Casino and a
consulting contract for the Tunica Casino and its liabilities will consist of a
newly issued promissory note in the principal amount of $40,329,000 payable to
the Trustee for the PRT Funding noteholders.  The voting agreement provides for
HCC to immediately discharge the promissory note.

   As part of the Restructuring, holders of the PRT Funding Notes would also
receive 100% of the beneficial interest in a liquidating trust which would hold
the remaining assets (except for the stock of Holdings) of PCC and its
subsidiaries not acquired by HCC.  Such assets would consist primarily of claims
against Holdings, GB Property Funding and GBHC in their Chapter 11 proceedings.

   The successful completion of the Restructuring will require that PCC, PRT
Funding and NJMI file for protection under Chapter 11 with the above
transactions included as part of a pre-negotiated plan of reorganization.  Such
plan will require approval by the bankruptcy court as well as by the various
gaming regulatory organizations.

   GBCC licenses the "Sands" name under a license agreement dated as of May 19,
1987, which rights are sublicensed to GBHC.  The license agreement has a term of
99 years and requires a royalty payment of the greater of 1.5% of gross room
charges, as defined in the agreement, payable monthly, or $100,000 per calendar
year.  The license agreement may be terminated by either party in the event of a
material breach, bankruptcy, suspension of normal business operations or certain
other actions by the other party. GBCC intends to terminate the license
agreement as a result of the licensor's suspension of normal business operations
evidenced by the destruction of the Sands Hotel and Casino in Las Vegas in 1996.
Pursuant to the terms of the sublicense agreement, termination of the license
agreement results in automatic termination of the sublicense agreement.  GBCC
filed a motion with the Bankruptcy Court to allow GBCC's termination of the
license agreement and the resulting termination of the sublicense agreement; the
Bankruptcy Court denied such motion.  As a result, GBCC may not be able to
terminate the license agreement, although the Bankruptcy Court may, at some
future time, allow GBCC to do so.  If unable to terminate the license agreement,
GBCC may remain liable for future royalty payments.  GBCC filed an appeal to the
decision of the Bankruptcy Court on March 10, 1999.

   On April 22, 1999, GBHC filed a motion with the Bankruptcy Court seeking to
disallow NJMI's pre-petition claims.  The motion to disallow is scheduled to be
heard by the Bankruptcy Court on May 24, 1999.

                                       29
<PAGE>
 
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     As a result of the filings discussed in Item 1. above, $182,500,000
principal amount of 10 7/8% First Mortgage Notes issued by GB Property Funding
are in default. Principal payments of $2,500,000 each due on January 15 and July
15, 1998 and on January 15, 1999 were not made. Under an order of the Bankruptcy
Court permitting the disposition of furniture and equipment in the ordinary
course of business, any payments received by GBHC for the sale of such assets,
which are part of the security for the 10 7/8% First Mortgage Notes, must be
remitted to the Trustee for the 10 7/8% First Mortgage Notes as reductions to
the outstanding principal. As of May 12, 1999, $361,000 has been remitted to the
Trustee from the proceeds on the sale of equipment. The accrual of interest on
the 10 7/8% First Mortgage Notes for periods subsequent to the filings has been
suspended; such interest on a contractual basis amounts to approximately
$36,330,000 as of May 12, 1999.

     The default on the 10 7/8% First Mortgage Notes also resulted in a default
under the indenture for the $85,000,000 11 5/8% Unsecured Senior Notes issued by
PRT Funding Corp. and guaranteed by Pratt Casino Corporation.  Accordingly, the
maturity of the PRT Funding Notes has accelerated.  On October 22, 1998, PRT
Funding paid to the bondholders an amount equal to a single semiannual interest
payment ($4,941,000) while negotiations to restructure the notes continued.  In
connection with the Restructuring, PRT Funding paid deferred interest amounting
to $6,768,000 to the bondholders on April 30, 1999.  Interest due on such notes,
exclusive of compound interest on amounts in arrears, amounts to $5,682,000 as
of May 12, 1999.

ITEM 6.(A) - EXHIBITS

10.1 Voting Agreement dated as of April 28, 1999 among GBCC, PCC, PRT Funding
     Corp., NJMI, HCC and the Consenting Holders of PRT Funding Notes.

ITEM 6.(B) - REPORTS ON FORM 8-K

     The Registrant did not file any reports on Form 8-K during the quarter
ended March 31, 1999. The Registrant filed its Annual Report on Form 10-K for
the year ended December 31, 1998 with the Securities and Exchange Commission on
March 31, 1999.

                                       30
<PAGE>
 
SIGNATURES
----------

   Pursuant to the requirements 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.

                                          GREATE BAY CASINO CORPORATION



Date: May 12, 1999                      By: /s/ John C. Hull
      -------------------                   ------------------------------------
                                                John C. Hull
                                                Chief Executive Officer

                                       31