<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 April 30, 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 Identification No.)
of incorporation or organization)

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 June 1, 1998.

<PAGE>   2

                            FAIR GROUNDS CORPORATION

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----

<S>            <C>            <C>                                                                              <C>
PART I.        FINANCIAL INFORMATION

               Item 1.        Financial Statements

                              Balance Sheet, April 30, 1998 (Unaudited)
                              and Balance Sheet, October 31, 1997 ........................................        1

                              Statements of Operations and Retained
                              Earnings for the Three Months Ended
                              April 30, 1998 and 1997 (Unaudited) ........................................        3

                              Statements of Operations and Retained
                              Earnings for the Six Months Ended
                              April 30, 1998 and 1997 (Unaudited).........................................        6

                              Statements of Cash Flows for the Six
                              Months Ended April 30, 1998 and 1997
                              (Unaudited) ................................................................        9

                              Notes to Financial Statements for the Six
                              Months Ended April 30, 1998 (Unaudited).....................................       11

               Item 2.        Management's Discussion and Analysis of Financial
                              Condition and Results of Operations  .......................................       17


PART II.       OTHER INFORMATION

               Item 1.        Legal Proceedings...........................................................       25

               Item 4.        Submission of Matters to a Vote of Security
                              Holders.....................................................................       25

               Item 6.        Exhibits and Reports on Form 8-K............................................       25


SIGNATURES                    ............................................................................       26
</TABLE>   




<PAGE>   3

                                     PART I
                             FINANCIAL INFORMATION


<PAGE>   4




                                             FAIR GROUNDS CORPORATION
                                                  BALANCE SHEETS

<TABLE>
<CAPTION>
                                                 (Unaudited)
                                                   April 30,        October 31,
                                                     1998              1997
                                                 ------------      ------------
<S>                                              <C>               <C>         
ASSETS

CURRENT ASSETS
      Cash and cash equivalents                  $  2,680,784      $  5,192,756
      Cash and cash equivalents
           - restricted                                89,988         2,643,702
      Accounts receivable                           1,753,507         1,348,530
      Mutuel settlements                              328,721            38,892
      Investment Securities
           - available for sale                       204,569           592,878
      Inventory                                       163,214            95,303
      Prepaid expenses                                940,600           353,167
                                                 ------------      ------------

           Total Current Assets                     6,161,383        10,265,228
                                                 ------------      ------------

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

PROPERTY, PLANT AND EQUIPMENT
      Buildings and improvements                   42,923,776        40,587,514
      Land improvements                             4,340,935         4,340,935
      Automotive equipment                            863,701           849,201
      Machinery and equipment                       2,475,774         2,365,837
      Furniture and fixtures                          326,898           326,898
                                                 ------------      ------------

           Total                                   50,931,084        48,470,385

      Less: accumulated depreciation
           and amortization                       (15,020,017)      (14,057,590)
                                                 ------------      ------------

      Depreciable property - net                   35,911,067        34,412,795
      Land                                          3,286,281         3,286,281
                                                 ------------      ------------

      Property, plant and
           equipment - net                         39,197,348        37,699,076
                                                 ------------      ------------

           TOTAL ASSETS                          $ 45,481,743      $ 48,089,820
                                                 ============      ============
</TABLE>


(Continued)


                                       -1-

<PAGE>   5

                            FAIR GROUNDS CORPORATION
                           BALANCE SHEETS (CONTINUED)

<TABLE>
<CAPTION>
                                              (Unaudited)
                                               April 30,      October 31,
                                                 1998            1997
                                             ------------    ------------
<S>                                          <C>             <C>         
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
      Notes payable                          $     94,341    $  5,318,903
      Accounts payable                            748,224       1,097,655
      Construction contract payable                    --       1,156,726
      Accrued liabilities:
           Deferred purses                      1,252,703       7,425,179
           Host track fees                        453,832         416,516
           Uncashed mutuel tickets                595,040         364,246
           Deferred income taxes                2,975,906         204,906
           Other                                  321,297         319,944
      Deferred revenues                           500,000         140,840
      Income taxes payable                        121,000         121,000
                                             ------------    ------------

           Total Current Liabilities            7,062,343      16,565,915
                                             ------------    ------------

DEFERRED INCOME TAXES                          10,650,692       9,846,104
                                             ------------    ------------

           Total Liabilities                   17,713,035      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                        24,342,817      18,254,654
      Unrealized loss on investment
           securities - available for sale           (378)         (3,122)
                                             ------------    ------------

           Total                               27,804,233      21,713,326

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

           Total Stockholders' Equity          27,768,708      21,677,801
                                             ------------    ------------

           TOTAL LIABILITIES AND
                STOCKHOLDERS' EQUITY         $ 45,481,743    $ 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 April 30, 1998 and 1997
                                   (Unaudited)


<TABLE>
<CAPTION>
                                           1998          1997
                                        42 Days of    41 Days of
                                       Live Racing   Live Racing
                                       -----------   -----------

<S>                                    <C>           <C>
REVENUES
      Pari-mutuel commissions          $ 7,583,440   $ 6,301,649
      Breakage                             164,069       142,724
      Uncashed mutuel tickets               61,912            --
                                       -----------   -----------

           Total                         7,809,421     6,444,373

      Less: pari-mutuel tax                985,375       814,184
                                       -----------   -----------

      Commission income                  6,824,046     5,630,189
      Host track fees                    2,061,935     1,534,413
                                       -----------   -----------

           Total Mutuel Income           8,885,981     7,164,602

      Concessions                          813,935       484,204
      Video poker (net)                    439,680       351,267
      Admissions (net of taxes)            166,239        71,101
      Programs and forms                   419,714       463,925
      Miscellaneous                        154,503       109,130
      Parking                               20,505        10,172
                                       -----------   -----------

           Total Operating Revenues     10,900,557     8,654,401
                                       -----------   -----------

RACING EXPENSES
      Purses                             2,941,248     2,357,557
      Salaries and related taxes
           and benefits                  2,024,239     1,612,486
      Contracts and services               774,356       763,723
      Host track fees                      938,787       606,553
      Depreciation                         453,129       314,414
      Cost of sales - concessions          276,049       196,813
      Utilities                            304,702       211,478
      Repairs and maintenance              224,987        87,143
      Program paper, forms and other
           supplies                        497,469       449,819
      Advertising and promotion            222,123       328,835
      Rent                                  78,816        81,157
      Miscellaneous                        169,723       229,453
                                       -----------   -----------

           Total Racing Expenses         8,905,628     7,239,431
                                       -----------   -----------
</TABLE>


(Continued)


                                       -3-

<PAGE>   7

                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (CONTINUED)
               For the Three Months Ended April 30, 1998 and 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                               1998             1997
                                            42 Days of       41 days of
                                           Live Racing      Live Racing
                                           ------------    ------------

<S>                                        <C>             <C>
GENERAL AND ADMINISTRATIVE EXPENSES
      Salaries and related taxes
           and benefits                    $    328,017    $    225,723
      Insurance                                 257,326         230,890
      Property taxes                            219,477          99,156
      Legal, audit and director fees            186,056         259,375
      Loan closing costs                             --              --
      Contract services                          26,495          43,430
      Office expenses                           157,876         103,279
      Miscellaneous                             147,868          76,308
                                           ------------    ------------

           Total General and
           Administrative Expenses            1,323,115       1,038,161
                                           ------------    ------------

INCOME FROM OPERATIONS                          671,814         376,809

OTHER INCOME (EXPENSE)
      Jazz and Heritage Festival Income         526,694         172,316
      Loss on sale of equity investments             --              --
      Interest expense                          (20,239)       (153,253)
      Interest income                            17,223          25,156
      Video poker tax relief                         --           6,412
      Insurance settlement                       56,553              --
                                           ------------    ------------

INCOME BEFORE PROVISION FOR INCOME
       TAXES AND EXTRAORDINARY ITEM           1,252,045         427,440

      Provision for income taxes                463,257         145,327
                                           ------------    ------------

INCOME BEFORE EXTRAORDINARY ITEM
      (per share - 1998 - $1.68,
      1997 - $.60)                              788,788         282,113

EXTRAORDINARY ITEM - GAIN FROM FIRE
      (NET OF TAXES)                                 --       6,600,000
                                           ------------    ------------

NET INCOME (per share - 1998 - $1.68,
      1997 - $14.64)                       $    788,788    $  6,882,113

RETAINED EARNINGS, BEGINNING OF
       PERIOD                                23,554,029       9,528,390
                                           ------------    ------------

RETAINED EARNINGS, END OF
      PERIOD                               $ 24,342,817    $ 16,410,503
                                           ============    ============

CASH DIVIDENDS PER SHARE                   $       NONE    $       NONE
                                           ============    ============
</TABLE>


                                      -4-

<PAGE>   8

                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (CONTINUED)
               For the Three Months Ended April 30, 1998 and 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                               1998            1997
                                            42 Days of      41 days of
                                           Live Racing     Live Racing
                                           ------------    ------------

<S>                                        <C>             <C>    
WEIGHTED AVERAGE NUMBER OF
      SHARES OUTSTANDING                        469,940         469,940
                                           ============    ============
</TABLE>


See accompanying notes to financial statements.


                                       -5-

<PAGE>   9


                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (CONTINUED)
                For the Six Months Ended April 30, 1998 and 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                           1998          1997
                                        87 Days of    88 days of
                                       Live Racing   Live Racing
                                       -----------   -----------

<S>                                    <C>           <C>        
REVENUES
      Pari-mutuel commissions          $14,392,714   $12,241,720
      Breakage                             306,074       263,111
      Uncashed mutuel tickets              132,860        87,046
                                       -----------   -----------

           Total                        14,831,648    12,591,877

      Less: pari-mutuel tax              1,874,035     1,567,747
                                       -----------   -----------

      Commission income                 12,957,613    11,024,130
      Host track fees                    4,162,464     3,280,599
                                       -----------   -----------

           Total Mutuel Income          17,120,077    14,304,729

      Concessions                        1,638,553       987,000
      Video poker (net)                    842,381       680,127
      Admissions (net of taxes)            613,361       147,695
      Parking                               43,875        20,581
      Programs and forms                   881,264       879,105
      Miscellaneous                        302,748       203,642
                                       -----------   -----------

           Total Operating Revenues     21,442,259    17,222,879
                                       -----------   -----------

RACING EXPENSES
      Purses                             5,597,189     4,617,959
      Salaries and related taxes
           and benefits                  4,349,289     3,337,730
      Contracts and services             1,510,192     1,492,160
      Host track fees                    1,537,884     1,111,153
      Depreciation                         963,539       772,634
      Cost of sales - concessions          541,773       396,795
      Utilities                            560,356       375,164
      Repairs and maintenance              439,862       196,485
      Program paper, forms and other
           supplies                      1,077,922       930,719
      Advertising and promotion            559,391       565,974
      Rent                                 175,272       154,456
      Miscellaneous                        302,814       348,734
                                       -----------   -----------

           Total Racing Expenses        17,615,483    14,299,963
                                       -----------   -----------
</TABLE>


(Continued)


                                      -6-

<PAGE>   10

                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (CONTINUED)
                For the Six Months Ended April 30, 1998 and 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                               1998            1997
                                            87 Days of      88 days of
                                           Live Racing     Live Racing
                                          ------------    ------------

<S>                                       <C>             <C>         
GENERAL AND ADMINISTRATIVE
      Salaries and related taxes
           and benefits                   $    609,417    $    468,970
      Insurance                                476,444         469,047
      Property taxes                           361,693         201,259
      Legal, audit and director fees           373,731         663,246
      Loan closing fees                         24,042              --
      Contracts and services                   117,709         108,933
      Office expenses                          300,254         204,752
      Miscellaneous                            233,979         113,335
                                          ------------    ------------
           Total General and
           Administrative Expenses           2,497,269       2,229,542
                                          ------------    ------------

INCOME FROM OPERATIONS                       1,329,507         693,374

OTHER INCOME (EXPENSE)
      Jazz and Heritage Festival income        526,694         172,316
      Video poker tax relief                        --       1,175,095
      Litigation settlement                         --         268,125
      Interest expense                         (17,215)       (371,432)
      Interest income                           68,212          76,250
      Insurance settlement                      56,553              --
                                          ------------    ------------

INCOME BEFORE INCOME TAXES
      AND EXTRAORDINARY ITEM                 1,963,751       2,013,728

      Provision for income taxes               726,588         684,668
                                          ------------    ------------

NET INCOME BEFORE EXTRAORDINARY ITEM
      (per share - 1998 - $2.63,             1,237,163       1,329,060
       1997 - $2.83)

Extraordinary item - gain from fire
      (net of $2,849,000 and $3,400,000
       of taxes, respectively                4,851,000       6,600,000
                                          ------------    ------------

NET INCOME (per share 1998 - $12.96,
      1997 - $16.87)                      $  6,088,163    $  7,929,060

RETAINED EARNINGS,
      BEGINNING OF PERIOD                   18,254,654       8,481,443
                                          ------------    ------------


RETAINED EARNINGS, END OF PERIOD          $ 24,342,817    $ 16,410,503
                                          ============    ============
</TABLE>


(Continued)


                                      -7-
<PAGE>   11

                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                For the Six Months Ended April 30, 1998 and 1997
                                   (Unaudited)

<TABLE>
<CAPTION>
                                               1998            1997
                                            87 Days of      88 days of
                                           Live Racing     Live Racing
                                          ------------    ------------

<S>                                       <C>             <C>         
CASH DIVIDENDS PER SHARE                  $       NONE    $       NONE
                                          ============    ============

WEIGHTED AVERAGE NUMBER OF
      SHARES OUTSTANDING                       469,940         469,940
                                          ============    ============
</TABLE>


See accompanying notes to financial statements.


                                      -8-

<PAGE>   12

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



<TABLE>
<CAPTION>
                                                   1998            1997
                                               ------------    ------------

<S>                                            <C>             <C>         
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                               $  6,088,163    $  7,929,060
                                               ------------    ------------

      Adjustments to reconcile net income
           to net cash used for
           operating activities:
           Extraordinary item -
                gain from fire                   (7,700,000)    (10,000,000)
           Depreciation                             963,539         772,634
           Deferred income taxes                  3,575,588       4,084,668
           Change in assets and liabilities:
           Increase in:
                Accounts receivable                (694,806)       (760,949)
                Inventory                           (67,911)        (13,143)
                Prepaid expenses                   (587,433)        (39,027)
           Increase (decrease) in
                Accounts payable and
                     accrued liabilities            (79,968)        414,499
                Deferred revenue                         --          (6,000)
                Deferred purses                  (6,172,476)     (5,294,937)
                                               ------------    ------------



                     Total adjustments          (10,763,467)    (10,842,255)
                                               ------------    ------------

           Net cash used for
                operating activities             (4,675,304)     (2,913,195)
                                               ------------    ------------

CASH FLOWS FROM
      INVESTING ACTIVITIES
           Proceeds from litigation
                settlement                        7,700,000      10,000,000
           Capital expenditures                  (3,618,537)       (702,917)
           Deposits                                   2,504         (25,000)
           Decrease (increase) in restricted
                cash for construction             2,553,714      (6,033,473)
           Proceeds provided by sale of
                investment securities               391,053              --
                                               ------------    ------------

           Net cash provided by investing
                activities                        7,028,734       3,238,610
                                               ------------    ------------
</TABLE>


(Continued)


                                      -9-

<PAGE>   13

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


<TABLE>
<CAPTION>
                                           1998            1997
                                       ------------    ------------

<S>                                    <C>             <C>         
CASH FLOWS FROM FINANCING ACTIVITIES
      Loan proceeds                    $         --    $  6,778,275
      Principal repayments on loans      (5,224,562)    (13,261,514)
      Advances from third party           1,000,000       1,000,000
      Repayments to third party            (640,840)       (666,667)
                                       ------------    ------------

      Net cash used for
           financing activities          (4,865,402)     (6,149,906)
                                       ------------    ------------

NET DECREASE IN CASH
   AND CASH EQUIVALENTS                  (2,511,972)     (5,824,491)

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

CASH AND CASH EQUIVALENTS AT
      END OF PERIOD                    $  2,680,784    $    440,443
                                       ============    ============

SUPPLEMENTAL DISCLOSURES:

      Interest paid                    $     17,215    $    371,432
                                       ============    ============
</TABLE>


(Continued)


                                      -10-

<PAGE>   14

                            FAIR GROUNDS CORPORATION
                      NOTES TO FINANCIAL STATEMENTS For the
                    Six Months Ended April 30, 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 contended that the
           insurance policy provided by Travelers provided the Company with
           blanket coverage in the amount of $24.2 million in excess of the $10
           million of underlying coverage. Accordingly, the Company maintained
           that Travelers was liable for the difference between $24.2 million
           and the amount already paid (approximately $9.5 million), 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 liability insurers of
           the insurance agent and broker are entitled to share in any recovery
           that the Company may eventually obtain from Travelers in that
           litigation.


                                      -11-

<PAGE>   15


                            FAIR GROUNDS CORPORATION
                      NOTES TO FINANCIAL STATEMENTS For the
                    Six Months Ended April 30, 1998 and 1997
                                   (Unaudited)


NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

           In April 1998, the Court entered judgment in favor of the Company and
           against Travelers, awarding the Company an additional $2,410,905 in
           business interruption insurance, legal interest on that sum from May
           13, 1994 until paid, statutory penalties in the amount of $222,128
           and attorney's fees in an amount to be set by the Court. Both the
           Company and Travelers have filed post-trial motions, which are
           presently pending. Under the Mary Carter agreement referenced above,
           the liability insurers of the agent and broker are entitled to share
           in this award. The Company estimates that its portion of the award,
           when paid, will be approximately $1.5 million to $2 million,
           depending upon the amount of interest accrued and attorney's fees
           awarded. However, due to the uncertainty of the amount and timing of
           the receipt of this award, no accrual has been recorded in the April
           30, 1998 financial statements.

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. ("ADT"), the company which provided
           and maintained the fire alarm system at the race track, and other
           defendants. The complaint seeks 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


                                      -12-
<PAGE>   16

                            FAIR GROUNDS CORPORATION
                      NOTES TO FINANCIAL STATEMENTS For the
                    Six Months Ended April 30, 1998 and 1997
                                   (Unaudited)


NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

           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, the
           Company and three of the intervening property insurers. 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. After a dispute with the intervening insurers over the
           division of these funds was resolved, in August 1997, the Company
           received approximately $4 million after litigation expenses.

           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 against the
           judgment creditor claims of the intervening insurers. A substantial
           portion of such settlement funds has been placed in escrow pending
           resolution of such insurers' claims; however, the Company received
           another $7.7 million of such funds in December 1997.

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


                                      -13-
<PAGE>   17

                            FAIR GROUNDS CORPORATION
                      NOTES TO FINANCIAL STATEMENTS For the
                    Six Months Ended April 30, 1998 and 1997
                                   (Unaudited)


NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 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. The Company's claim
           against United National is presently awaiting assignment of a trial
           date.

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


                                      -14-
<PAGE>   18

                            FAIR GROUNDS CORPORATION
                      NOTES TO FINANCIAL STATEMENTS For the
                    Six Months Ended April 30, 1998 and 1997
                                   (Unaudited)


NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 was 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 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 of Louisiana video poker
law. While the Company believes it will prevail in this suit, the amounts in
question in this suit have not yet been calculated but 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.


                                      -15-
<PAGE>   19

                            FAIR GROUNDS CORPORATION
                     NOTES TO FINANCIAL STATEMENTS For the
                    Six Months Ended April 30, 1998 and 1997
                                  (Unaudited)


NOTE 2 - LINE OF CREDIT

On April 14, 1998, the Company entered into a working capital line of credit
agreement with First National Bank of Commerce. The line of credit is for $2.5
million with interest at 8% on amounts outstanding. All amounts outstanding plus
accrued interest are due on April 14, 1999. In addition, the Company is to make
monthly payments of accrued unpaid interest on May 14, 1998 and monthly
thereafter until paid in full.

There were no amounts drawn down or outstanding on this line of credit during
the six months ended April 30, 1998.

The line of credit is secured by a commercial guaranty by Finish Line Management
Corporation and a collateral mortgage given by the Company dated November 30,
1995, with all related amendments.


                                      -16-
<PAGE>   20

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

RESULTS OF OPERATIONS

COMPARISON OF THE THREE MONTHS ENDED APRIL 30, 1998 AND 1997


Revenues. During the quarters ended April 30, 1998 and 1997, the Company derived
its pari-mutuel income by conducting live racing meets of 42 and 41 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 April 30, 1998, the Company reported total in-state
pari-mutuel wagering of $50,980,608 compared to $44,832,911 for the quarter
ended April 30, 1997.

Comparative pari-mutuel wagering and attendance figures for the quarters ended
April 30, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                           For the Quarter Ended April 30,

                                1998          1997
                             -----------   -----------

<S>                          <C>           <C>        
Pari-mutuel wagering:
   On-track handle           $12,577,916   $ 9,489,733
   Off-track handle           38,402,692    35,343,178
                             -----------   -----------
   Total in-state wagering   $50,980,608   $44,832,911
                             ===========   ===========

   Out-of-state simulcast
      handle                 $98,940,282   $78,488,187
                             ===========   ===========

Total Attendance                 179,022       141,341
                             ===========   ===========
</TABLE>

The $3,088,183, or 33%, increase in on-track handle is the result of the opening
of the Company's new grandstand and clubhouse facilities in November 1997,
immediately prior to the start of the current fiscal year live racing meet. In
the prior year, the Company utilized temporary facilities built after the
December 1993 fire.

The Company believes the $3,059,514, or 8.7%, increase in off-track 


                                      -17-
<PAGE>   21

handle is primarily the result of the Company's increased emphasis on better
simulcasting signals.

The $20,452,095, or 26%, increase in out-of-state handle is the result, in part,
of continued efforts to telecast the Company's races to new out-of-state
markets. During the quarter ended April 30, 1998, significant increases in
handle from Kentucky, Pennsylvania, Texas and Las Vegas were recorded. The
Company believes that such increases indicate an appreciation of the improved
quality of the Company's racing in those markets.

For the quarter ended April 30, 1998, the Company reported net income of
$788,788 compared to net income of $6,882,113, including an extraordinary gain
of $6,600,000, net of taxes, attributable to fire litigation settlements, in the
quarter ended April 30, 1997. Income before extraordinary item in the current
quarter increased $506,675 over income before extraordinary item in the previous
fiscal quarter primarily as a result of increased pari-mutuel activities further
discussed below.

As a result of the increase in total wagering, the Company's operating revenues
increased by $2,246,156, or 26%, from the comparable quarter in fiscal 1997.
This included increases of $1,281,791, or 20.3%, in pari-mutuel commissions,
$527,522, or 34.4%, in host track fees, $329,731, or 68.9%, in concessions, and
$88,413, or 25.2%, in net video poker revenues. The opening of the Company's new
grandstand and clubhouse facility in November 1997, prior to the start of the
current fiscal year live 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 $171,191, or 21.0%.

Racing Expenses. Total racing expenses increased by $1,666,197, or 23%, over the
comparable quarter in fiscal 1997, primarily as a result of increases in purses,
racing salaries and benefits, cost of sales-concessions, utilities, host track
fees, repairs and maintenance, 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 $138,715 over
the prior year fiscal quarter due to the opening of the new grandstand and
clubhouse facilities. These increases were partially offset by decreases in
advertising and miscellaneous expenses.

General and Administrative Expenses. General and administrative expenses for the
quarter ended April 30, 1998 increased $284,954, or 27.4%, from the prior year
comparable quarter primarily due to an increase in administrative salaries,
property taxes, office expenses, and miscellaneous expenses for the quarter 
ended April 


                                      -18-
<PAGE>   22

30, 1998, which was primarily the result of the opening of the new racing
facilities. This was partially offset by a reduction of legal fees due to the
conclusion of much of the fire litigation of the Company as also discussed
elsewhere herein.

Other Income (Expense). Total other income (expense) increased $529,600, or
104.6%, primarily as a result of increased Jazz and Heritage Festival income,
due to good weather during the current year's festival compared to a rainy
weekend in the prior year's festival. In addition, there was a reduction of
interest expense in the current fiscal quarter due to the FNBC loan being
repaid.

Extraordinary Item. During the fiscal quarter ended April 30, 1997, the Company
received settlement payments in connection with the fire related litigation, as
described elsewhere herein, in the aggregate of $6,600,000 million, which was
net of deferred income taxes of $3.4 million. There were no extraordinary items
reported in the current fiscal quarter.

COMPARISON OF THE SIX MONTHS ENDED APRIL 30, 1998 AND 1997

Revenues. During the six months ended April 30, 1998 and 1997, the Company
derived its pari-mutuel income by conducting live racing meets of 87 and 88
days, respectively, and in the operation of its tele-tracks for off-track
wagering. During each six-month period, 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 six months ended April 30, 1998, the Company reported total in-state
pari-mutuel wagering of $99,302,551 compared to $90,371,291 for the six months
ended April 30, 1997.

Comparative pari-mutuel wagering and attendance figures for the six months ended
April 30, 1998 and 1997 are as follows:


                                      -19-
<PAGE>   23

<TABLE>
<CAPTION>
                           For the Six Months Ended April 30

                                 1998           1997
                             ------------   ------------

<S>                          <C>            <C>         
Pari-mutuel wagering:
   On-track handle           $ 25,789,351   $ 20,200,754
   Off-track handle            73,513,200     70,170,537
                             ------------   ------------
   Total in-state wagering   $ 99,302,551   $ 90,371,291
                             ============   ============

   Out-of-state simulcast
      handle                 $219,770,183   $165,823,806
                             ============   ============

Total Attendance                  365,617        282,268
                             ============   ============
</TABLE>

The $5,588,597 increase in the on-track handle is primarily due to the opening
of the new facility in November 1997.

The Company believes that the $3,342,663 increase in off-track handle is
primarily due to an increased emphasis on better simulcasting signals. The
$53,946,377, or 32.5%, increase in out-of-state handle is the result, in part,
of continued efforts to telecast the Company's races to new out-of-state
markets. During the six months ended April 30, 1998, New York took full cards
from the Company through the end of January increasing the New York handle by
$21 million over the same period last year plus significant handle increases
from Kentucky, Pennsylvania, Texas and Las Vegas.

For the six months ended April 30, 1998, the Company reported net income before
income taxes and extraordinary item of $1,963,751 compared to net income before
income taxes and extraordinary item of $2,013,728, including video poker
franchise fee relief of $1,175,095, for the six months ended April 30, 1997. The
Company reported net income of $6,088,163 for the six months ended April 30,
1998 compared to net income of $7,929,060 for the previous comparable six
months. These operations are further discussed below.

As a result of the increase in total wagering, the Company's operating revenues
increased by $4,219,380, or 24.5%, from the comparable six months in 1997. This
included increases of $2,150,994, or 17.6%, in pari-mutuel commissions,
$881,865, or 26.9%, in host track fees, $162,254, or 23.9%, in video poker
revenue, and $465,666, or 31.5%, in admissions revenue.

Racing Expenses. Total racing expenses increased by $3,315,520, or 23.2%, over
the comparable six months in 1997, primarily as a result of increases in purses,
racing salaries, contracts and services, host track fees, and program paper,
forms and other 


                                      -20-
<PAGE>   24

supplies, arising out of increased pari-mutuel handle. Depreciation expense
increased by of $190,905, or 24.7%, due to the opening of the grandstand and
clubhouse facilities.

General and Administrative Expenses. General and administrative expenses for the
six months ended April 30, 1998 increased $267,727, or 12%, from the prior year
comparable six months. The increase was a result of an increase in salaries and
related taxes and benefits, property taxes, miscellaneous expenses, and office
expenses primarily due to the opening of the new grandstand and clubhouse
facilities, partially offset by a decrease in legal, audit and directors fees
resulting from settling most of the Company's fire related litigation.

Other Income (Expenses). Total other income decreased $533,610 from the prior
year comparable six months primarily as a result of a decrease of $1,175,095 in
video poker franchise fee relief, as discussed elsewhere herein, partially
offset by an increase in the current year period of $354,378 in Jazz and
Heritage Festival income due to the improved weather during this year's festival
compared to the prior year's festival and a decrease in the current year period
of $354,217 of interest expense due to the repayment of the FNBC loans.

Extraordinary Items. During the six months ended April 30, 1998, the Company
recorded an extraordinary item of $4,851,000, which was net of $2,849,000 of
deferred income taxes, as a result of a fire litigation settlement with ADT.
During the six months ended April 30, 1997, the Company recorded an
extraordinary item of $6,600,000, which was net of $3,400,000 of deferred income
taxes, as a result of a litigation settlement with the Company's insurance agent
and broker.

LIQUIDITY AND CAPITAL RESOURCES

General

Cash and cash equivalents decreased $2,511,972 during the six months ended April
30, 1998, compared to a decrease of $5,824,491 during the six months ended April
30, 1997. The decrease in cash and cash equivalents in the current period was
the result of cash used in operations of $4,675,304 and cash used for financing
activities of $4,865,402, partially offset by cash provided from investing
activities of $7,828,734. Cash used in operations was primarily due to the
payment of purses during the live racing meet. Cash used in financing activities
related primarily to the repayment of short-term borrowings related to
construction. The cash provided by investing activities was primarily related to
the receipt of proceeds from a fire litigation settlement discussed 


                                      -21-
<PAGE>   25

elsewhere herein, partially offset by construction expenditures for the
Company's new facilities.

As of April 30, 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 addition to such payments, 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, which was deposited in escrow, and agreed to
indemnify ADT and its insurers 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 insurers' claims.

In connection with the receipt of the settlement proceeds described herein, the
Company recognized an extraordinary gain for the six months ended April 30, 1998
of approximately $4.85 million, which is net of deferred income taxes of
approximately $2.85 million. As a result of this and other settlements received,
the Company has a total deferred tax liability of approximately $13.6 million.
This deferred tax liability is to be paid over approximately 39 years in
accordance with IRS regulations.

In April 1998, in connection with the ongoing fire litigation, the court entered
judgment in favor of the Company and against Travelers, awarding the Company an
additional $2,410,905 in business interruption insurance, legal interest on the
sum from May 13, 1994 until paid, statutory penalties in the amount of $222,128
and attorney's fees in an amount to be set by the court. Both the Company and
Travelers have filed post-trial motions, which are presently pending. Under the
Mary Carter agreement referred to above, the liability insurers of the agent and
broker are entitled to share in this award. The Company estimates that its
portion of the award, when paid, will be approximately $1.5 million to $2
million, depending upon the amount of interest accrued and attorney's fees
awarded.

The Company's new main grandstand and racing facility was substantially
completed in November 1997 and was opened for the start of the Company's 1997-98
live racing meet. The total cost of constructing the facility through April 30,
1998 was approximately $31 million. Of such amount, approximately $2.5 million
was spent during the six months ended April 30, 1998. The Company has funds 


                                      -22-
<PAGE>   26

on hand to pay for final construction settlements. 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 and the Company has no
significant indebtedness remaining relating to construction of those facilities.
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.

On April 14, 1998, the Company entered into a working capital line of credit
agreement with First National Bank of Commerce. The line of credit is for $2.5
million with interest at 8% on amounts outstanding. All amounts outstanding plus
accrued interest are due on April 14, 1999. In addition, the Company will make
monthly payments of accrued unpaid interest on May 14, 1998 and monthly
thereafter until paid in full.

There were no amounts drawn down or outstanding on this line of credit during
the six months ended April 30, 1998. The line of credit is secured by a
commercial guarantee by Finish Line Management Corporation and a collateral
mortgage note dated November 30, 1995 with all related amendments.

The Company believes that its existing cash and cash from operations, together,
if necessary, with funds drawn under the Company's new working capital line of
credit, will be adequate to fund operations for the next 12 months. The Company
believes that the operation of its new grandstand and clubhouse facilities will
continue to have a positive effect on attendance and wagering on- track and that
anticipated increases in operating income will more than offset the loss of the
video poker franchise fee relief. In addition, the Company believes that the
funds held in escrow, as a result of certain litigation settlements, will be
sufficient to satisfy the Company's obligations associated with the insurers'
pending claims against the Company. Accordingly, the Company believes that the
combination of existing cash, cash from operations, the funds now held in escrow
which remain after the satisfaction of the insurers' pending claims and the
Company's increased capacity to incur short-term or long-term indebtedness, if
necessary, will be sufficient to operate the Company over the longer term.

Year 2000 Compliance

The Company is continuing to review its data processing and other 


                                      -23-
<PAGE>   27

equipment to determine if it is currently year 2000 compliant. It has also made
inquiries to third party vendors as to their compliance. The Company has
recently purchased an updated version of its accounting software that its vendor
claims is year 2000 compliant. Such system will be tested once it is installed.
The most significant third party data processing vendor used by the Company is
Autotote, which carries out the totalisator function.

The Company's most recent contract with Autotote indicates that the services
will be year 2000 compliant. 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.

FORWARD-LOOKING STATEMENTS

The statements in this Management's Discussion and Analysis that are
forward-looking are based upon current expectations, and actual results may
differ materially. Therefore, the inclusion of such forward-looking information
should not be regarded as a representation by the Company that the objectives or
plans of the Company will be achieved. Such statements include, but are not
limited to, the Company's expectations regarding attendance, in-state and out-of
state handle, simulcasting, future revenues, future expenses, future operating
income and net income, the outcome of pending litigation and future liquidity
and capital resources. Words such as "anticipates," "believes," "expects,"
"estimated" and variations of such words and similar expressions are intended to
identify such forward-looking statements. Forward-looking statements contained
herein involve numerous risks and uncertainties, and there are a number of
factors that could cause actual results to differ materially including, but not
limited to, the following: changing economic, market and business conditions,
the ability of the Company to compete effectively for top horses and trainers
necessary to field high-quality horse racing; the ability of the Company to grow
its share of the interstate simulcast market; a substantial change in allocation
of live racing days; the impact of competition from alternative gaming
(including riverboat casinos and lotteries) and other sports and entertainment
options in those markets in which the Company operates; and the Company's
success in attracting new patrons and generating additional revenue for purses.


                                      -24-
<PAGE>   28

                                     PART II
                                OTHER INFORMATION



<PAGE>   29

Item 1.          Legal Proceedings.

For a description of material developments during the three months ended April
30, 1998 in legal proceedings to which the Company is a party, see Note 1,
"Commitments and Contingencies," in the Notes to Financial Statements which are
set forth in Part I of this Form 10-Q and incorporated herein by reference.

Item 4.          Submission of Matters to a Vote of Security Holders

At the annual meeting of shareholders held on March 17, 1998, the Company's
shareholders elected directors and also ratified the Board of Directors'
appointment of Rebowe & Company, Certified Public Accountants (A Professional
Corporation), as independent accountants, with 350,384 shares voted for
ratification, no shares voted against and no abstentions. The voting with
respect to the nominees for election as directors was as follows:


<TABLE>
<CAPTION>
                             Votes

                        -----------------
Nominee                 For      Withheld   Abstentions
-------                 ---      --------   -----------

<S>                   <C>        <C>        <C>
Katherine F. Duncan   349,784       120         0

Richard Katcher       349,904         0         0

Bryan G. Krantz       349,904         0         0

Marie G. Krantz       349,904         0         0

Ronald S. Maestri     349,784       120         0

Charmaine R. Morel    349,904         0         0

Wayne E. Thomas       349,784       120         0
</TABLE>


Item 6.          Exhibits and Reports on Form 8-K

         Exhibit 27 Financial Data Schedule (Filed electronically only)


                                      -25-

<PAGE>   30

                                   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: June 12, 1998                    By: /s/ Bryan G. Krantz
     ----------------------------         --------------------------------------
                                           Bryan G. Krantz
                                           President


Date: June 12, 1998                    By: /s/ Gordon M. Robertson
     ----------------------------         --------------------------------------
                                           Gordon M. Robertson
                                           Chief Financial Officer


                                      -26-