<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 July 31, 1999                  Commission File Number O-7607
                  -------------                                         ------



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



<TABLE>
<S>                                                                            <C>

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

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


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 September 1, 1999.


<PAGE>   2


                            FAIR GROUNDS CORPORATION

                                      INDEX


<TABLE>
<CAPTION>
                                                                                                                Page
                                                                                                               -----
<S>            <C>                                                                                              <C>
PART I.        FINANCIAL INFORMATION

               Item 1.        Financial Statements

                              Balance Sheet, July 31, 1999 (Unaudited)
                              and Balance Sheet, October 31, 1998                                                 3

                              Statements of Operations and Retained
                              Earnings for the Three Months Ended
                              July 31, 1999 and 1998 (Unaudited)                                                  5

                              Statements of Operations and Retained
                              Earnings for the Nine Months Ended
                              July 31, 1999 and 1998 (Unaudited)                                                  8

                              Statements of Cash Flows for the Nine
                              Months Ended July 31, 1999 and 1998
                              (Unaudited)                                                                        11

                              Notes to Financial Statements for the Nine
                              Months Ended July 31, 1999 and 1998 (Unaudited)                                    13

               Item 2.        Management's Discussion and Analysis of Financial
                              Condition and Results of Operations                                                19

PART II.       OTHER INFORMATION

               Item 1.        Legal Proceedings                                                                  31

               Item 4.        None

               Item 6.        Exhibits and Reports on Form 8-K                                                   32


SIGNATURES
</TABLE>


                                      -1-
<PAGE>   3

                                     PART I

                              FINANCIAL INFORMATION



                                      -2-
<PAGE>   4


                            FAIR GROUNDS CORPORATION
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                          (Unaudited)
                                            July 31,          October 31,
                                             1999                1998
                                          ------------       ------------
<S>                                       <C>                <C>
ASSETS

CURRENT ASSETS
      Cash and cash equivalents           $  7,662,561       $  7,577,730
      Cash and cash equivalents
           - restricted                        125,665            118,218
      Accounts receivable                      631,969          1,078,638
      Mutuel settlements                            --            139,964
      Inventory                                121,983            118,357
      Prepaid expenses                       1,867,349            437,322
      Deferred Taxes                            59,940             59,940
                                          ------------       ------------

           Total Current Assets             10,469,467          9,530,169
                                          ------------       ------------

OTHER ASSETS                                   271,802            283,411
                                          ------------       ------------

PROPERTY, PLANT AND EQUIPMENT
      Buildings and improvements            44,054,580         43,870,295
      Land improvements                      4,321,672          4,348,135
      Automotive equipment                     963,243            931,424
      Machinery and equipment                2,679,060          2,432,433
      Furniture and fixtures                   394,118            366,575
                                          ------------       ------------

           Total                            52,412,673         51,948,862

      Less: accumulated depreciation
           and amortization                (17,372,131)       (15,904,346)
                                          ------------       ------------

      Depreciable property - net            35,040,542         36,044,516
      Land                                   3,286,281          3,286,281
                                          ------------       ------------

      Property, plant and
           equipment - net                  38,326,823         39,330,797
                                          ------------       ------------

           TOTAL ASSETS                   $ 49,068,092       $ 49,144,377
                                          ============       ============
</TABLE>



(Continued)

                                      -3-
<PAGE>   5


                            FAIR GROUNDS CORPORATION
                           BALANCE SHEETS (CONTINUED)

<TABLE>
<CAPTION>
                                          (Unaudited)
                                            July 31,          October 31,
                                             1999                1998
                                          ------------       ------------
<S>                                       <C>                <C>
      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
      Notes payable                       $    193,750       $     46,894
      Accounts payable                         187,227          1,493,409
      Construction contract payable                 --             58,732
      Accrued liabilities:
           Deferred purses                   4,991,134          7,930,825
           Host track fees                     429,372            374,251
           Mutuel settlements                  171,563                 --
           Uncashed mutuel tickets             475,612            446,786
           Other                               268,413            369,135
      Deferred revenues                        237,610            275,701
      Income taxes payable                   1,996,720            450,185
                                          ------------       ------------

           Total Current Liabilities         8,951,401         11,445,918
                                          ------------       ------------

DEFERRED INCOME TAXES                        7,043,865          7,043,865
                                          ------------       ------------

           Total Liabilities                15,995,266         18,489,783
                                          ------------       ------------

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                     29,646,557         27,228,325
                                          ------------       ------------

           Total                            33,108,351         30,690,119

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

           Total Stockholders' Equity       33,072,826         30,654,594
                                          ------------       ------------

           TOTAL LIABILITIES AND
                STOCKHOLDERS' EQUITY      $ 49,068,092       $ 49,144,377
                                          ============       ============
</TABLE>


See accompanying notes to financial statements.


                                      -4-
<PAGE>   6



                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                For the Three Months Ended July 31, 1999 and 1998
                                   (Unaudited)


<TABLE>
<CAPTION>
                                             1999                1998
                                          ------------       ------------
<S>                                       <C>                <C>
REVENUES
      Pari-mutuel commissions             $  5,202,953       $  5,070,392
      Breakage                                 141,970            116,358
      Uncashed mutuel tickets                  267,610            273,736
                                          ------------       ------------

           Total                             5,612,533          5,460,486

      Less: pari-mutuel tax                    678,765            705,371
                                          ------------       ------------

           Total Mutuel Income               4,933,768          4,755,115

      Concessions                              295,583            311,058
      Video poker (net)                        416,584            406,499
      Admissions(net of taxes)                  73,032             77,598
      Programs and forms                       318,532            393,507
      Miscellaneous                            283,098            167,595
                                          ------------       ------------

           Total Operating Revenues          6,320,597          6,111,372
                                          ------------       ------------

RACING EXPENSES
      Purses                                 1,936,626          1,830,360
      Salaries and related taxes
           and benefits                      1,730,864          1,293,228
      Contracts and services                   437,302            293,121
      Host track fees                          831,271            799,421
      Depreciation                             484,341            524,480
      Cost of sales - concessions               89,431            125,948
      Utilities                                223,855            291,923
      Repairs and maintenance                  145,506            196,256
      Programs, forms and other
           supplies                            324,599            373,140
      Advertising and promotion                373,885            367,361
      Rent                                     101,579             68,960
      Miscellaneous                             67,742            214,729
                                          ------------       ------------

           Total Racing Expenses          $  6,747,001       $  6,378,927
                                          ------------       ------------
</TABLE>

(Continued)


                                      -5-
<PAGE>   7

                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (CONTINUED)
                For the Three Months Ended July 31, 1999 and 1998
                                   (Unaudited)


<TABLE>
<CAPTION>
                                              1999               1998
                                          ------------       ------------
<S>                                       <C>                <C>
GENERAL AND ADMINISTRATIVE EXPENSES
      Salaries and related taxes
           and benefits                   $    373,965       $    442,383
      Insurance                                241,632            195,186
      Property taxes                           244,680            224,071
      Legal, audit and director fees           359,250            187,625
      Contracts and services                    33,027             25,155
      Office expenses                           96,458             41,468
      Miscellaneous                             83,468             47,362
                                          ------------       ------------

           Total General and
           Administrative Expenses           1,432,480          1,163,250
                                          ------------       ------------

NET LOSS FROM OPERATIONS                    (1,858,884)        (1,430,805)

OTHER INCOME (EXPENSE)
      Jazz and Heritage Festival Income        193,674            863,842
      Interest expense                          (6,712)                --
      Interest income                           45,403             37,391
                                          ------------       ------------

Loss Before Benefit For Income Taxes
and Extraordinary Item                      (1,626,519)          (529,572)

      Benefit for income taxes                (662,994)          (580,600)
                                          ------------       ------------

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM
      (per share - 1999 - ($2.06),
      1998 - $.11)                            (963,525)            51,028

Extraordinary item - gain from fire                 --          1,452,000
                                          ------------       ------------
      (net of $748,000 taxes in 1998)
NET INCOME (Loss) (per share
      1999 - ($2.06), 1998 - $3.21)       $   (963,525)      $  1,503,028

RETAINED EARNINGS, BEGINNING OF
PERIOD                                    $ 30,610,082       $ 24,342,817

RETAINED EARNINGS, END OF PERIOD          $ 29,646,557       $ 25,845,845
                                          ============       ============
</TABLE>


                                      -6-
<PAGE>   8

                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (CONTINUED)
                For the Three Months Ended July 31, 1999 and 1998
                                   (Unaudited)


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

WEIGHTED AVERAGE NUMBER OF
      SHARES OUTSTANDING                    468,580           468,580
                                       ============      ============
</TABLE>


                                      -7-

<PAGE>   9


                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                       For the Nine Months Ended July 31,
                                  1999 and 1998
                                   (Unaudited)

<TABLE>
<CAPTION>
                                              1999               1998
                                          ------------       ------------
<S>                                       <C>                <C>
REVENUES
      Pari-mutuel commissions             $ 20,881,549       $ 19,463,106
      Breakage                                 578,369            422,432
      Uncashed mutuel tickets                  441,634            406,596
                                          ------------       ------------

           Total                            21,901,552         20,292,134

      Less: pari-mutuel tax                 (2,626,526)        (2,579,406)
                                          ------------       ------------

      Commission income                     19,275,026         17,712,728
      Host track fees                       10,311,004          7,284,312
                                          ------------       ------------

           Total Mutuel Income              29,586,030         24,997,040

      Concessions                            2,045,898          1,949,611
      Video poker (net)                      1,295,708          1,248,880
      Admissions(net of taxes)                 647,019            690,959
      Parking                                   56,606             43,287
      Programs and forms                     1,188,800          1,274,771
      Miscellaneous                            935,555            470,931
                                          ------------       ------------

           Total Operating Revenues         35,755,616         30,612,479
                                          ------------       ------------

RACING EXPENSES
      Purses                                12,748,240         10,549,397
      Salaries and related taxes
           and benefits                      6,403,511          5,642,517
      Contracts and services                 2,331,287          1,803,313
      Host track fees                        2,477,603          2,337,305
      Depreciation                           1,464,857          1,486,909
      Cost of sales - concessions              659,576            667,721
      Utilities                                722,611            852,279
      Repairs and maintenance                  520,760            636,118
      Programs, forms and other
           supplies                          1,486,922          1,451,062
      Advertising and promotion              1,105,582            926,752
      Rent                                     266,292            244,232
      Miscellaneous                            526,551            518,653
                                          ------------       ------------

           Total Racing Expenses          $ 30,713,792       $ 27,116,258
                                          ------------       ------------
</TABLE>

(Continued)

                                      -8-

<PAGE>   10


                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (CONTINUED)
                For the Nine Months Ended July 31, 1999 and 1998
                                   (Unaudited)



<TABLE>
<CAPTION>
                                              1999               1998
                                          ------------       ------------
<S>                                       <C>                <C>
GENERAL AND ADMINISTRATIVE EXPENSES
      Salaries and related taxes
           and benefits                   $  1,577,235       $  1,051,800
      Insurance                                657,713            671,630
      Property taxes                           724,550            585,764
      Legal, audit and director fees           795,897            561,356
      Loan closing costs                            --             24,042
      Contracts and services                    97,321            142,864
      Office expenses                          252,726            341,722
      Miscellaneous                          1,274,084            281,341
                                          ------------       ------------

           Total General and
           Administrative Expenses           5,379,526          3,660,519
                                          ------------       ------------

NET LOSS FROM OPERATIONS                      (337,702)          (101,298)

OTHER INCOME (EXPENSE)
      Jazz and Heritage Festival Income      1,248,320          1,390,536
      Interest expense                         (17,021)           (12,509)
      Interest income                          114,923            100,897

INCOME  BEFORE PROVISION FOR INCOME
TAXES AND EXTRAORDINARY ITEM                 1,008,520          1,434,159

Provision for income taxes                     511,676            376,968
                                          ------------       ------------

INCOME BEFORE EXTRAORDINARY ITEM
      (per share - 1999 - $1.06,
      1998 - $2.26)                            496,844          1,057,191

Extraordinary item - gain from fire
      (net of $1,593,312 and $3,366,000
      of taxes in 1999 and 1998,
      respectively)                          2,389,968          6,534,000
                                          ------------       ------------

NET INCOME (per share
      1999 - $6.16, 1998 - $16.20)        $  2,886,812       $  7,591,191

RETAINED EARNINGS, BEGINNING OF
PERIOD                                    $ 27,228,325       $ 18,254,654
</TABLE>


                                      -9-


<PAGE>   11

                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (CONTINUED)
                For the Nine Months Ended July 31, 1999 and 1998
                                   (Unaudited)

<TABLE>
<CAPTION>
                                              1999               1998
                                          ------------       ------------
<S>                                       <C>                <C>
DIVIDENDS PAID                                (468,580)                --

RETAINED EARNINGS, END OF PERIOD          $ 29,646,557       $ 25,845,845
                                          ============       ============


CASH DIVIDENDS PER SHARE                  $       1.00       $       NONE
                                          ============       ============

WEIGHTED AVERAGE NUMBER OF
      SHARES OUTSTANDING                       468,580            468,580
                                          ============       ============
</TABLE>


See accompanying notes to financial statements


                                      -10-

<PAGE>   12

                            FAIR GROUNDS CORPORATION
                            STATEMENTS OF CASH FLOWS
                For the Nine Months Ended April 31, 1999 and 1998
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                     1999              1998
                                                 ------------      ------------
<S>                                              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net income                                 $  2,886,812      $  7,591,191
                                                 ------------      ------------
      Adjustments to reconcile net income
           to net cash used for
           operating activities:
           Extraordinary item -
                gain from fire                     (3,983,280)       (9,900,000)
           Depreciation                             1,464,857         1,486,909
           Deferred income taxes                           --         3,635,528
           Change in assets and liabilities:
           (Increase) decrease in:
                Accounts receivable                   586,633           635,007
                Inventory                              (3,656)           13,326
                Prepaid expenses                   (1,429,997)         (483,695)
                Restricted cash                        (7,447)               --
           Increase (decrease) in
                Accounts payable and
                     accrued liabilities           (1,180,220)         (923,133)
                Deferred revenue                      (38,091)         (155,360)
                Deferred purses                    (2,939,691)       (2,599,495)
                Income taxes payable                1,546,535          (121,000)
                Uncashed mutuel tickets                28,826           120,375
                Contracts payable                     (58,732)               --

                     Total adjustments             (6,041,263)       (8,251,538)
                                                 ------------      ------------

           Net cash used for operating
                activities                         (3,127,451)         (660,347)
                                                 ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES
           Proceeds from litigation
                settlement                          3,983,280         9,900,000
           Capital expenditures                      (460,883)       (4,147,589)
           Decrease in deposits                        11,609             7,503
           Proceeds provided by sale of
                investment securities                      --           596,000
           Decrease in restricted cash                     --         2,525,484
                                                 ------------      ------------

           Net cash provided by investing
                activities                          3,534,006         8,881,398
                                                 ------------      ------------
</TABLE>

(Continued)

                                      -11-
<PAGE>   13


                            FAIR GROUNDS CORPORATION
                      STATEMENTS OF CASH FLOWS (CONTINUED)
                For the Nine Months Ended July 31, 1999 and 1998
                                   (Unaudited)


<TABLE>
<CAPTION>
                                              1999               1998
                                          ------------       ------------
<S>                                       <C>                <C>
CASH FLOWS FROM FINANCING ACTIVITIES
      Loan proceeds                       $    346,131       $    110,650
      Principal repayments on loans           (199,275)        (5,318,903)
      Advances from third party              1,000,000          1,000,000
      Repayments to third party             (1,000,000)        (1,000,000)
      Dividends paid                          (468,580)                --
                                          ------------       ------------

Net cash used for
      financing activities                    (321,724)        (6,571,391)
                                          ------------       ------------

NET INCREASE(DECREASE)IN CASH
   AND CASH EQUIVALENTS                         84,831         (2,546,197)

CASH AND CASH EQUIVALENTS AT
      BEGINNING OF PERIOD                    7,577,730          6,264,934
                                          ------------       ------------

CASH AND CASH EQUIVALENTS AT
      END OF PERIOD                       $  7,662,561       $  3,718,737
                                          ============       ============

SUPPLEMENTAL DISCLOSURES:

      Interest paid                       $     17,021       $    391,182
                                          ============       ============


      Income taxes paid                   $  1,283,000       $         --
                                          ============       ============
</TABLE>




                                      -12-
<PAGE>   14

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 that were concluded during the nine
months ended July 31, 1999 or have not yet been concluded:

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 which had been paid at that time (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 it had
previously 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 included a "Mary Carter" provision whereby the liability insurers of
the insurance agent and broker would be entitled to share in the Company's
recovery from Travelers in that litigation.

The Company's action against Travelers was tried in September 1997, and in April
1998, the trial court entered judgment in

                                      -13-

<PAGE>   15

NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

favor of the Company and against Travelers, awarding the Company $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. In August 1998, the Court denied all post
trial motions and certified the judgment as being immediately appealable. The
court later fixed the amount of attorney's fees at $75,000. Appeals by both the
Company and Travelers are now pending before the state court of appeals. Under
the Mary Carter provision, the Company is entitled to the following: (i) 100% of
the first $1.0 million recovered and 100% of any recovery from $3.0 million to
$4.0 million; (ii) 57.214437% of any recovery from $10.0 million to $14,674,474;
and (iii) 85% of any recovery in excess of $14,674,474.

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 sought
damages 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 destroyed in the
fire, 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 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. In March 1997, a jury trial was held on the remaining
claims and resulted in an award in favor of the Company and the subrogated
insurance companies of approximately $49.8 million in the aggregate in damages
against ADT, plus interest, of which approximately $31.8 million, plus interest,
was awarded to the Company and the balance to the subrogated insurance
companies, including approximately $4.25 million to the Company's primary
property insurer. The judgment was appealed to the Court of Appeals of
Louisiana, Fourth Circuit, by ADT, the Company and

                                      -14-

<PAGE>   16

NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

three of the subrogated insurance companies. In June 1997, the insurance company
that insured the initial layer of ADT's liability tendered approximately $9.3
million in partial settlement of the action. After a dispute with the subrogated
insurers over the division of these funds was resolved in August 1997, the
Company received approximately $4 million of those proceeds after litigation
expenses.

In December 1997, the Company entered into a settlement with ADT and ADT's
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 four subrogated insurers. In December 1997, the Company received $7.7
million of such funds net of litigation expenses, and the balance of the
settlement funds was placed in escrow pending resolution of the subrogation
claims. In July 1998, the Company settled the subrogation claims of three of the
four insurers, as well as an action filed in April 1997 in United States
District Court for the Eastern District of Louisiana by those three insurers
against the Company seeking a declaratory judgement that a contract had been
entered into by the parties respecting the distribution of funds recovered in
the ADT litigation. Under the terms of this settlement, the three insurers
received a total of $12.97 million from the funds in escrow. At that time, the
Company received an additional $2.2 million from the funds in escrow, net of
litigation expenses. Approximately $6.3 million was held in escrow pending
resolution of the claims between the Company and its primary property insurer.

In September 1998, the Court of Appeals, among other things, reversed the trial
court's award of $4.25 million to the Company's primary property insurer on its
subrogation claim, concluding that the trial court had erred in making that
award to the insurer when the Company had not been fully compensated for its
property loss. This decision rendered moot the remainder of the appeals. The
insurer appealed this decision to the Louisiana Supreme Court which denied the
appeal. In February and March 1999, the Company received additional funds
totaling $3.79 million, net of litigation expenses, constituting the final
distribution of the funds held in escrow.

                                      -15-

<PAGE>   17

NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 the discovery stages,
and the Company has filed a motion for summary judgment. Livingston had
previously filed a series of other legal actions against the Company which were
resolved in the Company's favor. Management believes that Livingston's claims in
this case are without merit. However, there is no assurance that the Company
will successfully defend all of Livingston's claims. Because the amount in
question has not yet been determined but could be substantial and because there
is no assurance that there will be insurance coverage or that it will be
adequate, as discussed below, the failure of the Company to prevail in this
lawsuit could have a material adverse effect on the Company's operations,
financial condition and cash flows.

In a declaratory judgment action related to the Livingston suit brought by
insurers for the Company and several of its affiliates, which case has been
consolidated with the suit filed by Livingston, on January 14, 1999 the U. S.
District Court granted the Company's motion for summary judgment, finding that
coverage exists under certain of the Company's insurance policies for claims
asserted by Livingston and that the insurers have a duty to defend. The insurers
have filed a motion for new trial that is pending in the U. S. District Court.
There is no assurance that the motion for new trial will be denied or, if
denied, that the decision of the U. S. District Court will be affirmed on appeal
or that the insurance policies will provide sufficient coverage to indemnify the
Company fully.

A suit was filed in 1996 by the Louisiana Horsemen's Benevolent and Protective
Association ("LHBPA"), an association of horsemen organized to promote the
dissemination of information on issues critical to horsemen and the exchange of
ideas and information, against the Company, the State of Louisiana, and all
other pari-mutuel wagering facilities operating in Louisiana. The LHBPA is
seeking a larger portion of video poker proceeds on the grounds that the State
of Louisiana and the horse racing tracks in

                                      -16-

<PAGE>   18

NOTE 1 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Louisiana have misinterpreted a Louisiana statute specifying the amount of
revenues from video poker machines at pari-mutuel wagering facilities that are
to be used as purse supplements. Management believes that the Company is in
compliance with the Louisiana statute and the guidelines established by the
Louisiana State Police Gaming Division, which regulates compliance with the
State of Louisiana video poker law, and that the Company has sufficient defenses
to all claims. However, there is no assurance that the Company will successfully
defend the LHBPA's claims. Because the amount in question could be substantial,
the failure by the Company to prevail in this lawsuit could have a material
adverse effect on the Company's operations, financial condition and cash flows.

In July 1997, Evelyn Allen and other present or former security or concessions
employees of the Company filed an action in the United States District Court in
New Orleans claiming that the plaintiffs were entitled, under the Fair Labor
Standards Act, to overtime differential pay for hours worked over 40 in each
work week from July 1994 to July 1997. Two of the plaintiffs also sought to
recover damages for alleged retaliatory discharge. In December 1998, the Company
and the plaintiffs reached a settlement agreement and in May 1999 the Company
paid the plaintiffs $100,000 in full settlement of all claims for overtime pay.
The retaliatory discharge claims were tried in December 1998. At the conclusion
of evidence, the court dismissed those claims. In August 1999, the plaintiffs
were awarded attorneys fees in the amount of $65,000 which have been paid by the
Company.

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 - ADVANCE

In January 1999, the Company received a non-interest bearing advance of
$1,000,000 from Video Services, Inc. This advance was repaid in full in six
equal monthly installments beginning in February 1999.

                                      -17-
<PAGE>   19

NOTE 3 - RECLASSIFICATION

In the three months and the nine months ended July 31, 1999, host track fee
income was reported at its contractual rate of approximately 3% of the betting
handle. In the prior comparable periods, host track fee income was shown net of
related purse expenses. The July 31, 1998 host track fees and related purse
expenses have been reclassified to conform to the current three months and nine
months presentations. This reclassification has no effect on the earnings for
the three months or nine months ended July 31, 1998.

NOTE 4 - GUARANTY FEE

In March 1999, the Company, as approved by its Board of Directors, paid to Marie
G. Krantz a guaranty fee in the amount of $988,789, which was computed on the
basis of the Company's outstanding reconstruction indebtedness during the period
set forth below, for her guaranty of, and pledge of personal assets to secure,
the Company's reconstruction debt from 1995 through completion of construction
in late 1997. Such fee is included General and Administrative Expenses -
Miscellaneous for the nine months ended July 31, 1999.


                                      -18-

<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 JULY 31, 1999 AND 1998


         Revenues. During the fiscal quarters ended July 31, 1999 and 1998, the
         Company derived its pari-mutuel income from the operation of its
         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
         Corporation, an affiliated company, the Company operated tele-track
         facilities in Terrebonne, St. Tammany and Jefferson Parishes,
         Louisiana.

         For the fiscal quarter ended July 31, 1999, the Company reported total
         pari-mutuel wagering of $25,835,364 compared to $25,026,636 in the same
         quarter in fiscal 1998.

         Comparative pari-mutuel wagering and attendance figures for the
         quarters ended July 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                1999                            1998
                             ----------                      ----------
<S>                          <C>                             <C>
Pari-mutuel wagering:
   Off-track handle          25,835,364                      25,026,636
                             ----------                      ----------

Total Attendance                117,459                         113,427
                             ==========                      ==========
</TABLE>


         The Company attributes the $808,728, or 3.2%, increase in off-track
         handle primarily to increased attendance at the teletracks.

         With the increase in off-track teletrack handle, the Company's
         operating revenues in the quarter ended July 31, 1999 increased by
         $209,225, or 3.4%, from the prior comparable fiscal quarter. This
         included increases of $132,561, or 2.6%, in pari-mutuel commissions,
         $25,612, or 22%, in breakage, $10,085, or 2.5%, in video poker
         revenues, $21,042, or 6.8%, in net concession sales, and $115,503, or
         68.9%, in miscellaneous revenues.


                                      -19-

<PAGE>   21

         Miscellaneous revenue increased primarily as a result of additional
         promotional fee revenue received in the current fiscal quarter. In
         addition, the Company also reported approximately $30,000 in special
         event sales that did not occur in the prior comparable fiscal quarter.

         These increases were partially offset by decreases in concessions,
         admissions, and forms and programs revenues. Admissions are no longer
         being collected at the Company's teletrack in Lafourche Parish.
         Programs and forms sales and related costs decreased as a result of the
         continued decline of racing forms sales. Management believes racing
         form sales are being replaced by the sales of less expensive racing
         programs.

         Racing Expenses. Total racing expenses for the quarter ended July 31,
         1999 increased $368,074, or 5.8%, over the prior comparable fiscal
         quarter, partially as a result of the increased pari-mutuel activities.
         These included an increase of $106,266, or 5.8%, in purses. Other
         increases included salaries and related taxes and benefits, contracts
         and services, host track fees, advertising and promotions, and rent.
         Salaries and related taxes and benefits increased, in part, due to the
         payment of approximately $130,000 in back wages in connection with the
         previously reported settlement of claims for overtime pay. The increase
         was also due, in part, to salary adjustments made during the current
         year period. These increases were partially offset by decreases in
         utilities, repairs and maintenance, programs, forms and other supplies
         and miscellaneous expenses. Certain repairs and maintenance costs were
         higher in the prior comparable fiscal quarter due to costs associated
         with the move to, and the first year operations in, the new facilities.
         The rent increase in the current fiscal quarter represents a
         retroactive rent increase at the Bourbon Street teletrack.

         In the prior comparable fiscal quarter, miscellaneous expense included
         breeders' awards of approximately $130,000. The breeders' awards this
         year were approximately $122,000 and were included in the fiscal
         quarter ended April 30, 1999.


                                      -20-

<PAGE>   22

         General and Administrative Expenses. General and administrative
         expenses increased by $269,230, or 23.1%, in the current fiscal quarter
         primarily as a result of an increase in insurance, property taxes,
         contracts and services, office expenses, miscellaneous expenses and
         legal fees relating to ongoing litigation discussed elsewhere herein.
         These increases were partially offset by a decrease in salaries and
         related taxes and benefits.

         Other Income (Expense). Other income decreased in the current fiscal
         quarter by $655,481, or 72.7%, primarily as a result of a $670,168
         decrease in Jazz and Heritage Festival income. The decrease in Jazz and
         Heritage Festival income was primarily attributable to a timing
         difference, with two days of the 1999 Jazz and Heritage Festival
         falling in the third quarter of fiscal 1999 compared to four days of
         the 1998 Jazz and Heritage Festival falling in the third quarter of
         fiscal 1998.

         Extraordinary Item. During fiscal quarter ended July 31, 1998, the
         Company received settlement payments in connection with the fire
         related litigation previously reported in the aggregate amount of $2.2
         million. These proceeds were reported net of related taxes of
         approximately $748,000. No settlement proceeds were received in the
         quarter ended July 31, 1999.

         Income Taxes. For the fiscal quarter ended July 31, 1999 income tax
         benefit was $662,994 compared to an income tax benefit of $580,600 in
         the comparable quarter in fiscal 1998. The difference between periods
         reflects changes in pretax income and changes in deferred tax assets
         and liabilities between the respective periods.

         Net Income (Loss). The Company reported a loss of ($963,525) for the
         fiscal quarter ended July 31, 1999 compared to net income of $1,503,028
         for the fiscal quarter ended July 31, 1998. Excluding the extraordinary
         item discussed above, net income in the quarter ended July 31, 1998 was
         $51,028.



                                      -21-

<PAGE>   23

   COMPARISON OF THE NINE MONTHS ENDED JULY 31, 1999 AND 1998

         Revenues. During the nine months ended July 31, 1999 and 1998, the
         Company derived its pari-mutuel income by conducting live racing 88
         days during each nine month period and in the operation of its
         tele-tracks for off-track wagering. During each such period, in
         addition to live racing conducted at the Fair Grounds Race Course in
         New Orleans, 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 Corporation, an affiliated company, the
         Company operated tele-track facilities in Terrebonne, St. Tammany, and
         Jefferson Parishes, Louisiana.

         For the nine months ended July 31, 1999, the Company reported total
         in-state pari-mutuel wagering of $104,372,668 compared to $98,467,254
         in the same period in fiscal 1998.

         Comparative pari-mutuel wagering and attendance figures for the nine
         months ended July 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                             1999                1998
                                          ------------       ------------
<S>                                       <C>                <C>
Pari-mutuel wagering:
   On-track handle                        $ 27,412,562       $ 25,789,351
   Off-track handle                         76,960,106         72,677,903
                                          ------------       ------------
   Total in-state wagering                $104,372,668       $ 98,467,254
                                          ============       ============

   Out-of-state simulcast handle          $321,342,925       $219,770,183
                                          ============       ============

Total On-Track Attendance                      453,925            479,044
                                          ============       ============
</TABLE>


         The Company attributes the $1,623,211, or 6.3%, increase in the
         on-track handle in the current nine month period primarily to additions
         to the amenities provided by the new racing facility and the improved
         quality of racing resulting from increased purses paid during the
         fiscal 1999 race meet.

         The Company believes that the $4,282,203, or 5.9%, increase in
         off-track handle is primarily due to the Company transmitting better
         simulcasting signals and to

                                      -22-

<PAGE>   24

         higher quality horses racing in the Company's fiscal 1999 live racing
         meet. The $101,572,742, or 46.2%, increase in out-of-state handle is
         believed to be the result of those same factors. In addition, during
         the fiscal 1999 race meet the Company's races were sometimes
         simulcasted to locations that do not generally receive simulcasts of
         the Company's races because certain other tracks were unable to race
         due to severe winter weather, thus increasing the Company's
         simulcasting handle. During the nine months ended July 31, 1999, the
         Company experienced significant handle increases from California and
         New York. These two markets accounted for approximately $46.4 million
         or 46% of the handle increase.

         With the increase in total handle, the Company's operating revenues in
         the nine months ended July 31, 1999 increased by $5,143,137, or 16.8%,
         from the prior period. This included increases of $1,418,443 or 7.3%,
         in pari-mutuel commissions, $155,937, or 36.9%, in breakage, $96,287,
         or 4.9%, in concessions, $3,026,692, or 41.5%, in host track fees,
         $46,828, or 3.7%, in video poker revenues, $13,319, or 30.8%, in
         parking revenues, and $527,624, or 1.29%, in miscellaneous revenues,
         which included approximately $150,000 of promotional fee revenues paid
         by third parties who advertise in the Company's racing program plus
         $135,000 of promotional fees paid to the Company by its video poker
         operator. In addition, also included in miscellaneous revenues is group
         sales and special events revenues held at the Company's facilities
         which are approximately $88,000 more than the prior comparable fiscal
         quarter. These increases were partially offset by a $43,940, or 6.4%,
         decrease in admissions revenues and a $85,971, or 6.7%, decrease in
         programs and forms revenue. Admissions are no longer collected at the
         Company's teletrack in Lafourche Parish. Programs and forms revenues
         have decreased as a result of a continued decline of racing form sales.
         Management believes racing form sales are being replaced by the sales
         of less expensive racing programs.

                                      -23-

<PAGE>   25

         Racing Expenses. Total racing expenses increased $3,597,534, or 13.3%,
         over the prior period, primarily as a result of the increased
         pari-mutuel activities. This increase included an increase of
         $2,198,843, or 20.8%, in purses. Other increases included salaries and
         related taxes and benefits, contracts and services, programs, forms and
         other supplies, advertising and promotions, host track fees paid by the
         Company and miscellaneous racing expenses. These increases were
         partially offset by decreases in utilities and repairs and maintenance,
         which were higher in the prior period as a result of the move to the
         new facilities.

         General and Administrative Expenses. General and administrative
         expenses increased by $1,719,007, or 46.9%, in the current nine month
         period primarily as a result of increased salaries due to performance
         bonuses paid in the second fiscal quarter to key personnel, increased
         property taxes, and increased legal fees relating to ongoing litigation
         discussed elsewhere herein. Miscellaneous expenses increased in the
         current nine month period as a result of a payment of guaranty fee of
         $988,789 paid to Marie G. Krantz for her guaranty of, and pledge of
         personal assets to secure, the Company's reconstruction debt from 1995
         through completion in late 1997. These increases were partially offset
         by decreases in insurance costs due to lower property and general
         liability premiums, decreased contracts and services, and decreased
         office expenses.

         Other Income (Expense). Other income decreased in the nine months ended
         July 31, 1999 by $132,702, or 9%, as a result of a $142,216 decrease in
         Jazz and Heritage Festival income. The decrease in Jazz and Heritage
         Festival income was primarily attributable to a $25,000 increase of the
         festival sponsorship fee, a decrease in infield food sales compared to
         the 1998 festival, and increased cost of goods sold at the 1999
         festival.

         Extraordinary Items. During the nine months ended July 31, 1999, the
         Company received settlement payments in connection with the fire
         related litigation previously reported in the aggregate amount of $3.98
         million. These proceeds were reported net of related taxes of

                                      -24-


<PAGE>   26

         approximately $1.59 million. In the comparable prior fiscal year
         period, settlements totaled $7.7 million and were reported net of $2.85
         million of related taxes.

         Income Taxes. For the nine months ended July 31, 1999 income tax
         expense was $511,676, compared to income tax expense of $376,968 for
         the comparable nine months in fiscal 1998. The difference between
         periods reflects changes in pretax income and deferred tax assets and
         liabilities between the respective periods.

         Net Income. The Company reported net income of $2,886,812 for the nine
         months ended July 31, 1999 compared to $7,591,191 for the nine months
         ended July 31, 1998. Excluding the extraordinary items discussed above,
         net income in the current nine month period was $496,844 compared to
         $1,057,191 in the nine month period ended July 31, 1998.

LIQUIDITY AND CAPITAL RESOURCES

         General

         Cash and cash equivalents increased $84,831 during the nine months
         ended July 31, 1999, compared to a decrease of $2,546,197 during the
         nine months ended July 31, 1998. The increase in cash and cash
         equivalents in fiscal 1999 was the result of cash provided by investing
         activities of $3,534,006, partially offset by cash used in operating
         activities of $3,127,451, and cash used for financing activities of
         $321,724.

         Cash provided from investing was primarily from proceeds from fire
         litigation settlements described elsewhere herein. Cash used in
         operations was primarily due to the payment of purses during the
         Company's live racing meet. Cash used by financing was primarily the
         result of dividends paid on the Company's stock partially offset by
         short term financing proceeds.

         As of July 31, 1999, the Company had received cumulatively, since the
         December 1993 fire, approximately $48 million, before taxes, of
         insurance proceeds resulting from fire loss claims submitted to


                                      -25-

<PAGE>   27

         the Company's insurance carriers or in litigation settlements. 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 and
         furnishing the facility, including the tele-track facility at the Fair
         Grounds Race Course that was completed in late 1994, through July 31,
         1999 was in excess of $35 million.

         On April 14, 1998, the Company entered into a working capital line of
         credit agreement with First National Bank of Commerce (now Bank One)
         for a term of one year. The line of credit is for $2.5 million with
         interest at 8% on amounts outstanding. The credit agreement has been
         extended beyond April 14, 1999 but a new credit agreement has not been
         entered into with Bank One. The Company has had discussions with other
         lenders about entering into a credit agreement with them. There is no
         assurance that the Company will enter into a new credit agreement with
         Bank One or any other lender. There were no amounts drawn down or
         outstanding on this line of credit during the nine months ended July
         31, 1999.

         The Company believes that the combination of existing cash, cash from
         future operations, any additional amounts received in the fire-related
         litigation, funds available under its working capital line of credit,
         and the Company's increased capacity to incur short-term and long-term
         indebtedness, if necessary, will be sufficient to fund the Company's
         cash requirements for the foreseeable future. As a result of the fire
         insurance and other litigation settlements received, the Company has a
         total net deferred tax liability of approximately $7.04 million at July
         31, 1999. The deferred tax liability is to be paid over approximately
         39 years in accordance with Internal Revenue Service regulations. The
         Company intends to fund these future tax obligations through
         operations.

         Year 2000 Compliance

         A significant part of the Company's operations are dependent on
         computer systems and applications. These

                                      -26-
<PAGE>   28

         systems are either owned by the Company or are provided under contract
         by third party technology or other service providers. If these systems
         are not year 2000 compliant, the Company could experience system
         failures or miscalculations leading to disruption of business
         operations.

         In fiscal 1998 the Company began, and has now substantially completed,
         its assessment of its data processing functions to determine if they
         are year 2000 compliant. The Company formed a task force which has
         assisted in its assessment of year 2000 readiness. Based in part on
         that assessment, in fiscal 1998 the Company purchased and installed an
         updated version of its accounting software that its vendor states is
         year 2000 compliant and has now substantially completed the process of
         testing that compliance.

         The Company has also made inquiries to third party providers as to
         their compliance and has obtained assurances from certain vendors, as
         well as other race tracks with which the Company interfaces, as to
         their year 2000 readiness. The Company's plant and equipment, as well
         as the providers of services to the plant and equipment, have also been
         questioned to determine whether they are year 2000 ready. The services
         of those providers, including electrical and telephone services, are
         essential to the Company's ability to operate. The Company's most
         significant third party technology services provider is Autotote, which
         performs the totalisator functions for the Company. The Company's
         contract with Autotote provides that the services are to be year 2000
         compliant. The Company has been advised that the totalisator functions
         provided by Autotote are year 2000 compliant. However, if, in fact,
         Autotote is not compliant, the Company's operations could be adversely
         affected until another provider of the totalisator function can be
         found. The Company's video services are provided by a third party
         provider, which is an affiliate of Autotote, and are also important to
         the Company's operations. These services include the production of the
         telecast signal at the Fair Grounds Race Course and distribution to the
         Company's tele-tracks and to other wagering facilities


                                      -27-

<PAGE>   29

         within and outside Louisiana. The Company has worked with such provider
         to ensure that the software applications that provide the graphical
         enhancements and other distinguishing features to the telecast signals
         are year 2000 compliant. The Company has been informed that most of
         those applications are year 2000 compliant and has been assured that
         the remaining applications will soon be year 2000 ready. The video
         poker devices at the Company's facilities are provided by another third
         party provider. The Company has been advised that such equipment is now
         year 2000 compliant. The failure of certain third party providers to
         complete their year 2000 resolution process could materially impact the
         Company. As a result, the Company will consider developing business
         relationships with alternative providers as necessary and if available.

         To date, the Company has incurred costs of approximately $50,000,
         including the cost and time of Company employees, to address year 2000
         issues. The Company has substantially completed its assessment of its
         facility, data processing and other equipment and believes that the
         total costs associated with its efforts to prepare for year 2000 will
         not have a material adverse effect on the Company's financial condition
         or business operations. The Company expects to complete its assessment
         of year 2000 compliance by the end of September 1999 and to complete
         any necessary remediation of critical systems by October 31, 1999. The
         Company has not yet completed a contingency plan addressing failure to
         be year 2000 ready.

         Impact of Inflation

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

                                      -28-

<PAGE>   30



                                     PART II

                                OTHER INFORMATION


                                      -29-
<PAGE>   31




Item 1. Legal Proceedings.

For a description of material developments during the quarter ended July 31,
1999 in the Company's legal proceedings 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.

For a description of material developments during the first two quarters of
fiscal 1999 in the Company's legal proceedings, see the Company's Forms 10-Q for
the quarters ended January 31, 1999 and April 30, 1999.

Item 6. Exhibits and Reports on Form 8-K

    Exhibit 27  Financial Data Schedule (Filed electronically only)



                                      -30-
<PAGE>   32


                                   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:   September 14, 1999                   By: /s/ Bryan G. Krantz
     -----------------------                   ---------------------------------
                                                     Bryan G. Krantz
                                                     President


Date:   September 14, 1999                   By:  /s/ Gordon M. Robertson
     -----------------------                    --------------------------------
                                                      Gordon M. Robertson
                                                      Chief Financial Officer

                                      -31-