<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549


                                    FORM 10-Q


                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                     THE SECURITIES AND EXCHANGE ACT OF 1934



For Quarter Ended January 31, 1998              Commission File Number O-7607
                  ----------------                                     ------



                            FAIR GROUNDS CORPORATION
              ----------------------------------------------------
             (Exact name of registrant as specified in its charter)



         Louisiana                                      72-0361770
-------------------------------------------------------------------------------
(State or other jurisdiction                         (I.R.S. Employer 
of incorporation or organization)                    Identification No.)


1751 Gentilly Blvd., New Orleans, LA                       70119
-------------------------------------------------------------------------------
(Address of principal executive offices)                (Zip Code)


Registrant's telephone number including area code       (504) 944-5515
                                                        --------------

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



Indicate by a check mark whether the registrant (1) has filed all reports 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 report(s)), and (2) has been subject to such filing requirements
for the past 90 days.

            x      Yes               No
           ---                   ---

         468,580 Common Shares were outstanding as of March 1, 1998.

<PAGE>   2

                            FAIR GROUNDS CORPORATION

                                      INDEX

<TABLE>
                                                                                                     Page
PART I.   FINANCIAL INFORMATION
<S>       <C>                                                                                        <C>
          Item 1.  Financial Statements

                   Balance Sheet, January 31, 1998 (Unaudited)
                   and Balance Sheet, October 31, 1997 .........................................      1

                   Statements of Operations and Retained
                   Earnings for the Three Months Ended
                   January 31, 1998 and 1997 (Unaudited) .......................................      3

                   Statements of Cash Flows for the Three
                   Months Ended January 31, 1998 and 1997
                   (Unaudited) .................................................................      6

                   Notes to Financial Statements for the Three
                   Months Ended January 31, 1998 (Unaudited)....................................      8

          Item 2.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations  ........................................     14


PART II.  OTHER INFORMATION

          Item 1.   Legal Proceedings...........................................................     20

          Item 6.   Exhibits and Reports on Form 8-K............................................     20


SIGNATURES          ............................................................................     21
</TABLE>



<PAGE>   3


                                     PART I
                              FINANCIAL INFORMATION


<PAGE>   4



                            FAIR GROUNDS CORPORATION
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                 (Unaudited)
                                                 January 31,       October 31,
                                                    1998              1997
                                                 -----------       -----------
<S>                                              <C>               <C>         
ASSETS

CURRENT ASSETS
      Cash and cash equivalents                  $  6,848,597      $  5,192,756
      Cash and cash equivalents
           - restricted                                 3,681         2,643,702
      Accounts receivable                           3,369,459         1,348,530
      Mutuel settlements                              888,459            38,892
      Investment Securities
           - available for sale                        95,128           592,878
      Inventory                                       199,886            95,303
      Prepaid expenses                              1,381,479           353,167
                                                 ------------      ------------

           Total Current Assets                    12,786,689        10,265,228
                                                 ------------      ------------

OTHER ASSETS                                          123,012           125,516
                                                 ------------      ------------

PROPERTY, PLANT AND EQUIPMENT
      Buildings and improvements                   41,868,309        40,587,514
      Land improvements                             4,340,935         4,340,935
      Automotive equipment                            863,701           849,201
      Machinery and equipment                       2,336,143         2,365,837
      Furniture and fixtures                          326,898           326,898
                                                 ------------      ------------

           Total                                   49,735,986        48,470,385

      Less: accumulated depreciation
           and amortization                       (14,568,000)      (14,057,590)
                                                 ------------      ------------

      Depreciable property - net                   35,167,986        34,412,795
      Land                                          3,286,281         3,286,281
                                                 ------------      ------------

      Property, plant and
           equipment - net                         38,454,267        37,699,076
                                                 ------------      ------------

           TOTAL ASSETS                          $ 51,363,968      $ 48,089,820
                                                 ============      ============
</TABLE>


(Continued)


                                      -1-
<PAGE>   5


                            FAIR GROUNDS CORPORATION
                           BALANCE SHEETS (CONTINUED)

<TABLE>
<CAPTION>
                                                                             (Unaudited)
                                                                             January 31,           October 31,
                                                                                1998                  1997
                                                                            ------------           -----------
<S>                                                                         <C>                    <C>         
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
      Notes payable                                                         $    987,799           $  5,318,903
      Accounts payable                                                         1,770,972              1,097,655
      Construction contract payable                                                   --              1,156,726
      Accrued liabilities:
           Deferred purses                                                     6,112,262              7,425,179
           Host track fees                                                       519,318                416,516
           Uncashed mutuel tickets                                               484,368                364,246
           Deferred income taxes                                                 204,906                204,906
           Other                                                                 306,938                319,944
      Deferred revenues                                                          868,543                140,840
      Income taxes payable                                                       121,000                121,000

           Total Current Liabilities                                          11,376,106             16,565,915
                                                                            ------------           ------------

DEFERRED INCOME TAXES                                                         13,008,436              9,846,104
                                                                            ------------           ------------

           Total Liabilities                                                  24,384,542             26,412,019
                                                                            ------------           ------------

COMMITMENTS AND CONTINGENCIES                                                         --                     --
                                                                            ------------           ------------

STOCKHOLDERS' EQUITY
      Capital stock - no par value;
           authorized 600,000 shares,
           469,940 shares issued and
           468,580 shares outstanding                                          1,525,092              1,525,092
      Additional paid-in-capital                                               1,936,702              1,936,702
      Retained earnings                                                       23,554,029             18,254,654
      Unrealized loss on investment
           securities - available for sale                                          (872)                (3,122)
                                                                            ------------           ------------

           Total                                                              27,014,951             21,713,326

      Less:  treasury stock at cost,
           1,360 shares                                                          (35,525)               (35,525)
                                                                            ------------           ------------

           Total Stockholders' Equity                                         26,979,426             21,677,801
                                                                            ------------           ------------

           TOTAL LIABILITIES AND
                STOCKHOLDERS' EQUITY                                        $ 51,363,968           $ 48,089,820
                                                                            ============           ============
</TABLE>


See accompanying notes to financial statements.

                                      -2-
<PAGE>   6


                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
              For the Three Months Ended January 31, 1998 and 1997
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                              1998                     1997
                                                                            46 Days of              47 Days of
                                                                            Live Racing             Live Racing
                                                                            -----------            ------------
<S>                                                                         <C>                    <C>         
REVENUES
      Pari-mutuel commissions                                               $  6,809,274           $  5,940,071
      Breakage                                                                   142,005                120,387
      Uncashed mutuel tickets                                                     70,948                 87,046
                                                                            ------------           ------------

           Total                                                               7,022,227              6,147,504

      Less: pari-mutuel tax                                                      888,660                753,563
                                                                            ------------           ------------

      Commission income                                                        6,133,567              5,393,941

      Host track fees                                                          2,100,529              1,746,186
                                                                            ------------           ------------

           Total Mutuel Income                                                 8,234,096              7,140,127

      Concessions                                                                824,618                502,796
      Video poker (net)                                                          402,701                328,860
      Admissions (net of taxes)                                                  447,122                 76,594
      Programs and forms                                                         461,550                415,180
      Miscellaneous                                                              148,245                 94,512
      Parking                                                                     23,370                 10,409
                                                                            ------------           ------------

           Total Operating Revenues                                           10,541,702              8,568,478
                                                                            ------------           ------------

RACING EXPENSES
      Purses                                                                   2,655,941              2,260,402
      Salaries and related taxes
           and benefits                                                        2,325,050              1,753,970
      Contracts and services                                                     735,836                728,437
      Host track fees                                                            599,097                504,600
      Depreciation                                                               510,410                458,220
      Cost of sales - concessions                                                265,724                199,982
      Utilities                                                                  255,654                163,686
      Repairs and maintenance                                                    214,875                109,342
      Program paper, forms and other
           supplies                                                              580,453                480,900
      Advertising and promotion                                                  337,268                237,139
      Rent                                                                        96,456                 73,299
      Miscellaneous                                                              133,091                 90,555
                                                                            ------------           ------------

           Total Racing Expenses                                               8,709,855              7,060,532
                                                                            ------------           ------------
</TABLE>


(Continued)

                                      -3-
<PAGE>   7


                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (CONTINUED)
              For the Three Months Ended January 31, 1998 and 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                               1998                   1997
                                                                            46 Days of              47 days of
                                                                            Live Racing             Live Racing
                                                                            ------------           ------------
<S>                                                                         <C>                    <C>         
GENERAL AND ADMINISTRATIVE EXPENSES
      Salaries and related taxes
           and benefits                                                     $    281,400           $    243,247
      Insurance                                                                  219,118                238,157
      Property taxes                                                             142,216                102,103
      Legal, audit and director fees                                             187,675                403,871
      Contract services                                                           91,214                 65,503
      Office expenses                                                            142,378                101,473
      Loan closing fees                                                           24,042                      -
      Miscellaneous                                                               86,111                 37,027
                                                                            ------------           ------------

           Total General and
           Administrative Expenses                                             1,174,154              1,191,381
                                                                            ------------           ------------

INCOME FROM OPERATIONS                                                           657,693                316,565

OTHER INCOME (EXPENSE)
      Interest expense                                                             3,024               (218,179)
      Interest income                                                             50,989                 24,539
      Litigation settlement                                                            -                268,125
      Video poker tax relief                                                           -              1,195,238
                                                                            ------------           ------------

INCOME BEFORE PROVISION FOR INCOME
       TAXES                                                                     711,706              1,586,288

      Provision for income taxes                                                 263,331                539,338
                                                                            ------------           ------------

INCOME BEFORE EXTRAORDINARY ITEM                                                 448,375              1,046,950

EXTRAORDINARY ITEM - GAIN FROM FIRE
      (NET OF $2,849,000 OF RELATED
      DEFERRED INCOME TAXES IN 1998)                                           4,851,000                      -
                                                                            ------------           ------------

NET INCOME                                                                  $  5,299,375           $  1,046,950

RETAINED EARNINGS, BEGINNING OF
       PERIOD                                                                 18,254,654              8,481,440
                                                                            ------------           ------------

RETAINED EARNINGS, END OF
      PERIOD                                                                $ 23,554,029           $  9,528,390
                                                                            ============           ============
</TABLE>


                                      -4-
<PAGE>   8


                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (CONTINUED)
              For the Three Months Ended January 31, 1998 and 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                               1998                   1997
                                                                            46 Days of             47 days of
                                                                            Live Racing            Live Racing
                                                                            -----------            -----------
<S>                                                                         <C>                    <C>        
CASH DIVIDENDS PER SHARE                                                    $          -           $         -
                                                                            ============           ===========

WEIGHTED AVERAGE NUMBER OF
      SHARES OUTSTANDING                                                    $    468,580           $   468,580
                                                                            ============           ===========

NET INCOME PER SHARE                                                        $      11.31           $      2.23
                                                                            ============           ===========
</TABLE>








See accompanying notes to financial statements.


                                      -5-
<PAGE>   9


                            FAIR GROUNDS CORPORATION
                            STATEMENTS OF CASH FLOWS
              For the Three Months Ended January 31, 1998 and 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                1998                   1997
                                                                            ------------           ------------
<S>                                                                         <C>                    <C>         
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                                            $  5,299,375           $  1,046,950
                                                                            ------------           ------------
      Adjustments to reconcile net income
           to net cash used for operating
           activities:
           Depreciation                                                          510,410                458,220
           Deferred income taxes                                               3,162,332                520,001
           Gain from fire                                                     (7,700,000)                     -
           Change in assets and liabilities:
           (Increase) decrease in:
                Accounts receivable                                           (2,870,496)            (2,735,080)
                Inventory                                                       (104,583)               (28,222)
                Refundable income taxes
                Accounts receivable
                     - insurance proceeds
                Prepaid expenses                                              (1,028,312)              (152,619)
                Restricted cash                                                2,640,021                  5,830

           Increase (decrease) in
                Accounts payable and
                     accrued liabilities                                         883,236                688,912
                Contracts payable                                             (1,156,726)                     -
                Deferred revenue                                                 727,703                829,733
                Deferred purses                                               (1,312,917)            (1,402,409)
                                                                            ------------           ------------

                     Total adjustments                                        (6,249,332)            (1,815,634)
                                                                            ------------           ------------

           Net cash used for
                operating activities                                            (949,957)              (768,684)
                                                                            ------------           ------------

CASH FLOWS FROM (USED FOR)
      INVESTING ACTIVITIES
           Capital expenditures                                               (1,265,601)               (64,812)
           Deposits                                                                2,504                (20,000)
           Proceeds from maturity of
                securities-available for sale                                    500,000                      -
           Purchase of investment
                securities                                                             -                 (3,681)
           Proceeds from fire litigation
                settlements                                                    7,700,000                      -
                                                                            ------------           ------------
           Net cash provided by (used for)
                investing activities                                           6,936,903                (88,493)
                                                                            ------------           ------------
</TABLE>



(Continued)

                                      -6-
<PAGE>   10


                            FAIR GROUNDS CORPORATION
                      STATEMENTS OF CASH FLOWS (CONTINUED)
              For the Three Months Ended January 31, 1998 and 1997
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                1998                   1997
                                                                            ------------           ------------
<S>                                                                         <C>                     <C>        
CASH FLOWS FROM FINANCING ACTIVITIES
      Loan proceeds                                                         $  2,133,740            $         -
      Principal repayments on loans                                           (7,298,178)            (3,968,416)
      Advances from third party                                                1,000,000              1,000,000
      Repayments to third party                                                 (166,667)              (166,667)
                                                                            ------------           ------------

      Net cash used for
           financing activities                                               (4,331,105)            (3,135,083)
                                                                            ------------           ------------

NET INCREASE (DECREASE) IN CASH
   AND CASH EQUIVALENTS                                                        1,655,841             (3,992,260)

CASH AND CASH EQUIVALENTS AT
      BEGINNING OF PERIOD                                                      5,192,756              6,264,934
                                                                            ------------           ------------

CASH AND CASH EQUIVALENTS AT
      END OF PERIOD                                                         $  6,848,597           $  2,272,674
                                                                            ============           ============

SUPPLEMENTAL DISCLOSURES:

      Interest paid                                                         $     23,058           $    218,179
                                                                            ============           ============
</TABLE>










(Continued)


                                      -7-
<PAGE>   11


                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              For the Three Months Ended January 31, 1998 and 1997
                                   (Unaudited)



NOTE 1 - COMMITMENTS AND CONTINGENCIES

Fire Related Litigation

The Company has been a party to a number of legal proceedings which have arisen
as a result of the December 1993 fire or in connection with the Company's
efforts to collect insurance proceeds after the fire. The following is a brief
description of such fire-related proceedings:

Travelers Litigation

           On May 14, 1994, the Company filed an action in the 24th Judicial
           Court in the State of Louisiana against Travelers Indemnity Company
           of Illinois ("Travelers") and others. The Company contends that the
           insurance policy provided by Travelers provides the Company with
           blanket coverage in the amount of $24.2 million in excess of the $10
           million of underlying coverage. Accordingly, the Company maintains
           that Travelers is liable for the difference between $24.2 million and
           the approximately $9.5 million already paid, plus statutory penalties
           of 10% of the amount not paid, interest, attorney's fees and costs.
           The Company further contended that the insurance agent and the
           insurance broker who arranged for the insurance were liable to the
           Company for any damages sustained including any damages sustained
           because the amount of coverage is less than that claimed by the
           Company. Travelers' position is that its liability under such policy
           is limited to the amount which has already been paid.

           In November 1996, the Company entered into a joint settlement with
           the insurance agent and broker pursuant to which the insurance agent
           and broker agreed to pay a total of $10,000,000 to the Company. Such
           amount was placed in escrow until April 9, 1997, when the Company
           utilized such funds in connection with the closing of its
           construction financing previously reported. The settlement agreement
           includes a "Mary Carter" provision whereby the insurance agent and
           broker are entitled to share in any recovery that the Company may
           eventually obtain from Travelers in that litigation.


                                      -8-
<PAGE>   12


                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              For the Three Months Ended January 31, 1998 and 1997
                             (Unaudited) (Continued)


NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

           The Company's action against Travelers was tried in September 1997
           and the trial court has taken the matter under advisement.

ADT Litigation

           In December 1994, the Company filed an action in the Civil District
           Court for the Parish of Orleans, State of Louisiana against ADT
           Security Systems, Mid-South, Inc., the company which provided and
           maintained the fire alarm system at the race track, and other
           defendants. The complaint sought unspecified damages, not otherwise
           compensated for by insurance, that were allegedly caused by the
           negligence of one or more of the defendants. The Company's three fire
           insurers and a third party's insurance company, which insured the
           operator of the video poker machines, intervened in the suit
           asserting subrogation claims against the same defendants.

           In late 1996, the Company and the three insurance companies entered
           into settlements with certain defendants, specifically the
           manufacturer of a lighting ballast and an architect. After division
           of the settlement proceeds among the Company and the three insurance
           companies and the payment of various litigation expenses, the Company
           received approximately $268,000. The remainder of the case was tried
           before a jury commencing in March 1997 and resulted in an award in
           favor of the Company and the intervening insurance companies of
           approximately $49.8 million in the aggregate against ADT, plus
           interest. The Company was awarded approximately $31.8 million plus
           interest. The judgment was appealed by ADT. In June 1997, the
           insurance company that insured the first layer of ADT's liability
           tendered approximately $9.3 million in partial settlement of the
           action. In August 1997, after a dispute with the intervening insurers
           over the division of these funds was resolved, the Company received
           approximately $4 million after litigation expenses. In December 1997,
           the Company received another $7.7 million in partial settlement of
           this action.

           Travelers, Royal, and the insurance company which insured the
           operator of the video poker machines at the



                                      -9-
<PAGE>   13

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              For the Three Months Ended January 31, 1998 and 1997
                             (Unaudited) (Continued)


NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

           Fair Grounds Race Course filed an action in April 1997 in the U.S.
           District Court for the Eastern District of Louisiana against the
           Company, seeking a declaratory judgment that a contract existed among
           the parties governing the distribution of funds recovered in the
           litigation against ADT described above. The Company denies that any
           such contract was ever executed, but that if a contract was formed,
           it was breached in numerous respects by the insurance companies.
           During 1997, the parties entered into a partial settlement agreement
           pursuant to which they agreed, among other things, that the matter
           would be heard in state court in April 1998. The Company believes
           that the amount of funds held in escrow as a result of the settlement
           in the ADT litigation described above will be sufficient to fund any
           obligations of the Company which may arise in connection with the
           foregoing litigation.

United National Litigation

           The Company was a defendant, along with its general liability
           insurance carrier, United National Insurance Company ("United
           National"), in a civil action filed in December 1994 in the United
           States District Court for the Eastern district of Louisiana by St.
           Paul Mercury Insurance Company ("St. Paul"), the insurer of the
           computerized betting equipment at the race track. St. Paul alleged
           that it was subrogated to its insured's rights to collect damages and
           that it paid approximately $1,175,000 to its insured for the loss of
           equipment in the fire. Subsequently, United National filed a
           declaratory judgment action against the Company, wherein it sought to
           deny coverage for St. Paul's subrogation claim. The Company filed a
           counterclaim against United National, seeking coverage for the St.
           Paul claim as well as payment for various other fire-related claims
           previously denied by United National. This action was consolidated
           for trial with the suit filed by St. Paul against the Company.

           Both United National and the Company moved for summary judgment on
           the question of whether the exclusion relied on by United National to
           deny coverage for the


                                      -10-

<PAGE>   14

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              For the Three Months Ended January 31, 1998 and 1997
                             (Unaudited) (Continued)


NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

           various claims applied or not. In 1996, the District Court ruled that
           the policy exclusions relied upon by United National did not apply to
           the claim asserted by St. Paul and to claims made by various jockeys
           and valets that were previously paid by the Company. United National
           subsequently appealed this decision to the United States Fifth
           Circuit Court of Appeals, which held that the claim was covered.

           In May 1997, the St. Paul suit was settled pursuant to an agreement
           whereby ADT agreed to pay an undisclosed sum and United National, as
           the Company's insurer, agreed to pay $275,000.

As to the pending matters described above, there can be no assurance that the
Company will be successful in any of its claims or defenses. Accordingly, no
assurance can be given that additional recoveries of insurance proceeds, if any,
will reimburse the Company adequately for the loss or destruction of its
property in the fire.

Other Litigation

In 1996, a suit filed in U.S. District Court in Baton Rouge by Livingston Downs
Racing Association ("Livingston") naming the Company and other defendants in an
antitrust/civil RICO suit alleging the Company participated in a conspiracy to
prevent the plaintiff from entering the live racing, off-track betting and video
poker markets. This suit is currently in early discovery stages. Management of
the Company believes the action is without merit. Livingston had previously
filed a series of other legal actions against the Company which were resolved in
the Company's favor.

A suit was also filed in 1996 by Livingston against the Company and the State of
Louisiana seeking a judgment that the State off-track betting law is
unconstitutional. The trial court ruled in the plaintiff's favor. The case was
appealed to the Louisiana Supreme Court which overturned the ruling on December
2, 1997. Livingston Downs has requested a rehearing which has not yet been ruled
upon. The Company believes it has no monetary exposure in this suit.

A suit was filed in 1996 by the Louisiana Horsemen's Benevolent and Protective
Association ("HBPA") against the Company, the State of Louisiana, and all other
pari-mutuel wagering facilities operating in Louisiana. The HBPA is seeking a
larger portion of video poker


                                      -11-

<PAGE>   15

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              For the Three Months Ended January 31, 1998 and 1997
                             (Unaudited) (Continued)


NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

proceeds. The Company believes it is currently in compliance with the guidelines
established by the Louisiana State Police Gaming Division which regulates
compliance with the State video poker law. The Company believes it will prevail
in this suit. The amounts in question in this suit have not yet been calculated,
but amounts could be substantial.

Except as described above, there are no material pending legal proceedings,
other than ordinary routine litigation incidental to its business, to which the
Company is a party or of which any of its property is the subject.

NOTE 2 - NOTES PAYABLE

In April 1997, the Company and FNBC agreed to a loan of $5,221,725 for use in
completing construction. This loan provided for monthly payments of interest,
with the entire principal balance outstanding due on October 31, 1998. From
August 1997 through October 1997, the Company borrowed a portion of such funds
and utilized the loan proceeds for construction. The balance, which represents
the difference between the aggregate loan amount and amounts disbursed for
construction purposes, remained in a restricted escrow account maintained by
FNBC at October 31, 1997. In December 1997, the loan was repaid in full using
additional proceeds received from ADT settlements as further discussed in Note
4.

When the loan was repaid, all restricted escrowed balances were released by
FNBC. Certain unrestricted funds are still on deposit with FNBC and will be used
for future construction and retainage payments.

NOTE 3 - ADVANCE

In January 1998, the Company received an advance of $1,000,000 from Video
Services, Inc., which the Company began to repay in six equal monthly
installments beginning in January 1998. Such amount is included in notes payable
at January 31, 1998.

NOTE 4 - LITIGATION SETTLEMENT

In December 1997, the Company reached a settlement with ADT and subsequently
received $7.7 million. Such amount has been recorded as an extraordinary item,
net of applicable income taxes, for the three months ended January 31, 1998. See
Note 1 for additional discussion of the ADT litigation.


                                      -12-
<PAGE>   16


                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
              For the Three Months Ended January 31, 1998 and 1997
                             (Unaudited) (Continued)


NOTE 5 - LEASE

The Company entered into a new agreement with Autotote Limited on November 21,
1997 whereby Autotote Limited is to provide wagering services for the Company
until November 20, 2002, including all computer and other related services to
carry out the totalisator function for the Company. The Company has agreed to
pay Autotote Limited 0.0039% of the total pari-mutuel handle of the Company,
plus fixed equipment rental fees for certain equipment provided by Autotote. The
minimum to be paid to Autotote during each year of the agreement is $200,000.

NOTE 6 - NEW BUILDING FACILITIES

In November 1997, the Company substantially completed and opened its new
grandstand and clubhouse facilities in time for the commencement of the current
racing season. The building had a cost in excess of $30 million and will be
depreciated over its expected useful life.


                                      -13-
<PAGE>   17


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED JANUARY 31, 1998 AND 1997

GENERAL

RESULTS OF OPERATIONS

FISCAL 1998 COMPARED TO FISCAL 1997

Revenues. During the quarters ended January 31, 1998 and 1997, the Company
derived its pari-mutuel income by conducting live racing meets of 46 and 47 days
during each quarter, respectively, and in the operation of its tele-tracks for
off-track wagering. During each such quarter, the Company operated tele-tracks
in New Orleans at the Fair Grounds Race Course and on Bourbon Street, and at
locations in Jefferson, Lafourche, St. Bernard and St. John Parishes, Louisiana.
Through Finish Line Management, the Company operates tele-track facilities in
Terrebonne, St. Tammany, and Jefferson Parishes, Louisiana that were formerly
operated by Jefferson Downs.

For the quarter ended January 31, 1998, the Company reported total in-state
pari-mutuel wagering of $30,270,439 compared to $30,536,974 for the quarter
ended January 31, 1997.

Comparative pari-mutuel wagering and attendance figures for the quarters ended
January 31, 1998 and 1997 are as follows:


<TABLE>
<CAPTION>
                                                                             For the Quarter Ended January 31,
                                                                                1998                   1997
                                                                            ------------           ------------
<S>                                                                         <C>                    <C>         
Pari-mutuel wagering:
   On-track handle                                                          $ 13,211,435           $ 10,711,021
   Off-track handle                                                           17,059,004             19,825,953
                                                                            ------------           ------------
   Total in-state wagering                                                  $ 30,270,439           $ 30,536,974
                                                                            ============           ============
   Out-of-state simulcast
      handle                                                                $120,829,901           $ 87,339,414
                                                                            ============           ============
Total Attendance                                                                 127,617                140,927
                                                                            ============           ============
</TABLE>

The $2,500,414, or 23%, increase in on-track handle is the result of the opening
of the Company's new grandstand and clubhouse facilities in November 1997,
immedicately prior to the start of the current racing meet. In the prior year,
the Company utilized temporary facilities built after the December 1993 fire.


                                      -14-

<PAGE>   18

The Company believes the $2,766,949, or 14%, decrease in off-track handle is
primarily the result of some patrons who formerly attended the Company's
tele-tracks now attending the Company's new racing facilities, therefore
shifting the handle on-track where the Company earns higher revenues.

The $33,490,487 or 38.3% increase in out-of-state handle is the result of
continued efforts to telecast the Company's races to new out-of-state markets.
During the quarter ended January 31, 1998, New York increased its simulcasting
of the Company's races with a handle of approximately $22 million in the current
fiscal quarter compared to only $3 million in fiscal 1997. This accounted for
most of the increase.

For the quarter ended January 31, 1998, the Company reported net income of
$5,299,375 compared to net income of $1,046,950 in the quarter ended January 31,
1997. This increase is primarily the result of additional litigation settlements
received and an increase in mutuel income compared to the quarter ended January
31, 1997, partially offset by an increase in racing expenses over the previous
comparable quarter. In addition, no video poker tax relief was received in the
quarter ended January 31, 1998. These are described in more detail below.

As a result of the increase in total wagering, the Company's operating revenues
increased by $1,973,224, or 23%, from the comparable quarter in 1997. This
included increases of $869,203, or 14.6%, in pari-mutuel commissions, $370,528,
or 483.8%, in admissions, $354,343, or 20.3%, in host track fees, $321,822, or
64%, in concessions, $73,841, or 22.5%, in net video poker revenues, and
$118,584 or 16.3%, in various other operating revenues. The grand opening of the
Company's new grandstand and clubhouse facility in November 1997, prior to the
commencment of the current racing meet, accounted for a significant portion of
the increases in such operating revenues. This increase was partially offset by
increased pari-mutuel taxes of $135,097, or 17.9%.

Racing Expenses. Total racing expenses increased by $1,649,323, or 23.4%, over
the comparable quarter in 1997, primarily as a result of increases in purses,
racing salaries and benefits, cost of sales-concessions, utilities, host track
fees, repairs and maintenance, advertising and promotion and program paper,
forms and other supplies, arising from the increased pari-mutuel handle and
attendance at the new racing facilities. There was also an increase in
depreciation expense of $52,190 over the prior fiscal quarter due to the opening
of the new racing facilities.

General and Administrative Expenses. General and administrative expenses for the
quarter ended January 31, 1998 decreased $17,227,


                                      -15-


<PAGE>   19

or 1.4%, from the previous comparable quarter primarily due to a decrease in
legal fees resulting from the conclusion of certain fire related litigation and
a decrease in insurance expense as a result of renegotiated premiums and
coverages. This decrease was partially offset by an increase in administrative
salaries, property taxes, contract services, office expense, and other expenses
for the quarter ended January 31, 1998 which was primarily the result of the
opening of the new racing facilities.

Other Income (Expenses). Total other income (expense) decreased $1,215,710, or
95.7% primarily as a result of the loss of video poker franchise fee relief in
fiscal 1998. In the fiscal 1997 quarter, such relief totaled $1,195,238. Because
the Company has paid the balance outstanding under the Loan Agreement previously
described, there will be no franchise fee relief available to the Company in the
current fiscal year and thereafter.

Extraordinary Item. During the fiscal quarter ended January 31, 1998, the
Company received settlement payments in connection with the fire related
litigation described herein in the aggregate of $7.7 million. These proceeds are
reported net of related deferred income taxes of $2,849,000.

LIQUIDITY AND CAPITAL RESOURCES

General

Cash and cash equivalents increased $1,665,841 during the quarter ended January
31, 1998 compared to a decrease of $3,992,260 during the quarter ended January
31, 1997. The increase in cash and cash equivalents in the current quarter was
the result of cash provided by investing activities of $6,936,903, partially
offset by cash used for financing activities of $4,331,105, and cash used for
operating activities of $949,957. Investing activities were primarily related to
the fire litigation proceeds received and the payment of the Company's
construction obligations. Financing activities were primarily related to the
receipt and repayment of the Company's short-term borrowings related to
construction.

As of January 31, 1998, the Company had received cumulatively, since the
December 1993 fire, approximately $41.8 million of insurance proceeds resulting
from fire loss claims submitted to the Company's insurance carriers or in
litigation settlements, including the settlement that is subject to the Mary
Carter agreement discussed elsewhere herein.

In December 1997, the Company entered into a settlement with ADT and its excess
coverage insurers, pursuant to which the Company was paid $37 million and agreed
to indemnify ADT and its insurers



                                      -16-
<PAGE>   20


against the judgment creditor claims of the intervening insurers. A portion of
this money was released from escrow and has been recorded as revenue by the
Company. The remaining portion of the settlement funds remains in escrow pending
resolution of the insurer's claims.

In connection with the receipt of the settlement proceeds described herein, the
Company recognized an extraordinary gain for the quarter ended January 31, 1998
of $4.85 million, which is net of deferred income taxes of $2.85 million. As a
result of this and other settlements received, the Company has a total deferred
tax liability of approximately $13.3 million. This deferred tax liability is to
be paid over approximately 39 years in accordance with IRS regulations.

The Company's new main grandstand and racing facility was substantially
completed in November 1997 and was opened for the start of its current race
meet. The total cost of constructing the facility through January 31, 1998 was
approximately $30 million. Of such amount, approximately $1.3 million was spent
during the quarter ended January 31, 1998. Funds to complete the construction
are being provided by litigation settlements and operations. No further
financing needs are expected for building construction.

All of the Company's indebtedness to FNBC, which was incurred in connection with
the construction of the new facility, has been repaid. As a result, the video
poker franchise fee relief which was made available to the Company by
legislation enacted in 1994, is no longer available to the Company. During the
last four fiscal years, the Company received approximately $5.5 million in the
aggregate in franchise fee relief.

The Company believes that its existing cash and cash from operations will be
adequate to fund operations for the next 12 months. For the longer term, it is
difficult to determine what effect the anticipated change from the temporary
tent facilities to the new permanent facility will have on both operating income
and expenses. While the Company's new facility will have a positive effect on
attendance and wagering on track, there can be no assurance as to continued
increases in patronage or handle. The Company has engaged in discussions with
FNBC concerning entering into an ongoing credit facility; however, no such
facility has been obtained, and there can be no assurance that any such
financing will be available on terms acceptable to the Company.

Year 2000 Compliance

The Company has commenced a review of its data processing and other equipment to
determine if it is currently year 2000 compliant. It


                                      -17-

<PAGE>   21
has also made inquiries to third party vendors as to their compliance. The
Company's accounting software is not yet year 2000 compliant, but the Company
has received verbal commitments from its vendor that a compliant version is
available. The most significant third party data processing vendor used by the
Company is Autotote, which carries out the totalisator function. Autotote has
not yet communicated to the Company as to its year 2000 compliance. The Company
does not currently believe it will require significant financial resources to
become year 2000 compliant.

Impact of Inflation

To date, inflation has not had a material effect in the Company's operations.




                                      -18-
<PAGE>   22



                                     PART II
                                OTHER INFORMATION


<PAGE>   23




Item 1.          Legal Proceedings.

For a description of material developments during the quarter ended January 31,
1998 in legal proceedings to which the Company is a party, see Note 1,
"Commitments and Contingencies," and Note 5, "Subsequent Events," in the Notes
to Financial Statements which are set forth in Part I of this Form 10-Q and
incorporated herein by reference.


Item 6.          Exhibits and Reports on Form 8-K

<TABLE>
<CAPTION>
Exhibit No.      Description
-----------      -----------
<S>              <C>
   27            Financial Data Schedule (filed electronically only)
</TABLE>







                                      -20-
<PAGE>   24


                                   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.




                                                 FAIR GROUNDS CORPORATION
                                         --------------------------------------
                                                      (Registrant)


Date: April 6, 1998                      By: /s/ Bryan G. Krantz
     ----------------------                  ----------------------------------
                                             Bryan G. Krantz
                                             President



Date: April 6, 1998                      By:  /s/ Gordon M. Robertson
     ----------------------                   ---------------------------------
                                              Gordon M. Robertson
                                              Chief Financial Officer


                                       21