<PAGE>   1
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

        FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
                  For the fiscal year ended December 31, 1997

                                       OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934
                      For the Transition period from to .

                         Commission file number: 0-26518

                         FITZGERALDS GAMING CORPORATION
             (Exact name of registrant as specified in its charter)

            NEVADA                                            88-0329170
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                            Identification No.)

                     301 FREMONT STREET, LAS VEGAS NV 89101
               (Address of principal executive offices) (Zip Code)

                                 (702) 388-2224
              (Registrant's telephone number, including area code)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
             Cumulative Redeemable Preferred Stock, $.01 par value
                         Common Stock Purchase Warrants
                          Common Stock, $.01 par value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period than the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |X| NO [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

             As of March 15, 1998, there was no voting stock held by
      non-affiliates of the Registrant. As of March 15, 1998, the number of
       outstanding shares of the Registrant's Common Stock was 4,012,846.

                       DOCUMENTS INCORPORATED BY REFERENCE
                        Exhibit Index located on Page 48

<PAGE>   2

                         FITZGERALDS GAMING CORPORATION
                         1997 ANNUAL REPORT ON FORM 10-K
                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
   ITEM                                                                                                        PAGE
   ----                                                                                                        ----
<S>                                                                                                              <C>
PART I............................................................................................................2

ITEM 1. BUSINESS..................................................................................................2
   General........................................................................................................2
   Operating Strategy.............................................................................................3
   Historical Development.........................................................................................4
   Properties.....................................................................................................4
   Other Gaming Assets............................................................................................8
   Competition....................................................................................................8
   Employees.....................................................................................................10
   Trade Names, Trademarks and Service Marks.....................................................................11
   Governmental Regulation.......................................................................................11
ITEM 2. PROPERTIES...............................................................................................17
ITEM 3. LEGAL PROCEEDINGS........................................................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......................................................19

PART II..........................................................................................................19

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.....................................19
ITEM 6. SELECTED FINANCIAL DATA..................................................................................21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..............................................................33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.....................34

PART III.........................................................................................................35

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT..........................................................35
ITEM 11. EXECUTIVE COMPENSATION..................................................................................39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................43
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................44

PART IV..........................................................................................................45

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.........................................45

SIGNATURES.......................................................................................................46
</TABLE>

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                                  Page 1 of 52
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                                     PART I


ITEM 1.           BUSINESS

GENERAL

Fitzgeralds Gaming Corporation (the "Company") is a diversified
multi-jurisdictional gaming holding company that owns and operates four
Fitzgeralds-brand casino-hotels, located in downtown Las Vegas, Nevada
("Fitzgeralds Las Vegas"), Reno, Nevada ("Fitzgeralds Reno"), Tunica,
Mississippi ("Fitzgeralds Tunica"), and Black Hawk, Colorado ("Fitzgeralds Black
Hawk"). In addition, the Company has an exclusive agreement through May 2000 to
manage the Cliff Castle Casino, ("Cliff Castle"), a gaming facility in Camp
Verde, Arizona, owned and operated by the Yavapai-Apache Indian Nation. The
Company markets its properties primarily to middle-market customers, emphasizing
its Fitzgeralds brand and its "Fitzgeralds Irish Luck" theme. As of December 31,
1997 the Company operated a total of 4,114 slot machines, 118 table games and
approximately 1,500 hotel rooms in its Fitzgeralds-brand properties.

In August 1997, 101 Main Street Limited Liability Company ("101 Main") issued
$38.0 million 13% First Mortgage Notes due 2000 (the "101 Main Notes"). Of the
net proceeds, 101 Main loaned $27.3 million to Fitzgeralds Black Hawk II, Inc.
("FBHI-II"), a wholly owned subsidiary of Fitzgeralds Black Hawk Inc. ("FBHI"),
to acquire the remaining 78% membership interest in 101 Main. The remainder of
the proceeds was used to retire certain existing indebtedness secured by assets
of 101 Main and for general corporate purposes. The Company, through FBHI, had
owned a 22% membership interest in 101 Main since February 1996 and had managed
Fitzgeralds Black Hawk since its opening in May 1995.

In December 1997, the Company issued $205.0 million 12 1/4% Senior Secured Notes
due 2004 (the "Senior Secured Notes"). Of the $202.6 million net proceeds, the
Company used $123.0 million to retire its 13% Senior Secured Notes due 2002 (the
"Retired Senior Secured Notes"), $5.4 million to retire its 13% Priority Secured
Notes due 1998 (the "Priority Notes"), $39.7 million to retire the 101 Main
Notes; and approximately $20.1 million to retire other secured indebtedness. Of
the remaining proceeds, $8.7 million was used for expenses of the offering and
$5.7 million was applied to accrued interest totaling approximately $10.6
million at December 30, 1997.

The Company currently conducts substantially all of its business through wholly
owned subsidiaries: Fitzgeralds Reno, Inc. ("FRI"); Fitzgeralds South, Inc.
("FSI"); and Fitzgeralds Incorporated ("FI"). FRI directly owns and operates
Fitzgeralds Reno; FSI owns and operates Fitzgeralds Las Vegas and Fitzgeralds
Tunica through wholly owned subsidiaries; and FI owns and operates Fitzgeralds
Black Hawk through wholly-owned subsidiaries, including 101 Main. FI also
manages Cliff Castle through its 85%-owned subsidiary Fitzgeralds Arizona
Management, Inc. ("FAMI"). In addition, through its 85%-owned subsidiary
Fitzgeralds New York, Inc. ("FNYI"), FI is receiving a fee in consideration of
work performed prior and subsequent to the opening of the Turning Stone Casino
in Verona (near Syracuse), New York, owned by the Oneida Indian Nation.

The Company has received an offer to purchase the Nevada Club Casino, located in
Reno, Nevada, from an unaffiliated party and closed the property in December
1997 in anticipation of the pending sale.

Unless the context otherwise requires, the "Company" refers to Fitzgeralds
Gaming Corporation and its subsidiaries. The Company was incorporated in Nevada
in 1994 to serve as a holding company. The


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executive offices of the Company are located at 301 Fremont Street, Las Vegas,
Nevada 89101; telephone (702) 388-2224; facsimile (702) 382-5562.

OPERATING STRATEGY

The Company's ongoing operating strategy is to increase profitability by
utilizing its national gaming brand and fully integrated player tracking system
to further penetrate the middle-market customer base and by capitalizing on the
competitive strengths of its four Fitzgeralds-brand properties. The Company's
operating strategy is characterized by several principal elements including:

Development of National Gaming Brand

The Company has developed a national gaming brand by using a consistent Irish
Luck theme throughout the casinos, hotels, restaurants and bars at all of its
Fitzgeralds-brand properties. The Irish Luck theme incorporates various aspects
of Irish folklore, such as leprechauns, horseshoes, four-leaf clovers, the
Blarney Stone and a pot of gold at the end of a rainbow, as well as Irish music.
The Company believes that its theme creates an exciting and comfortable
environment together with a distinctive brand identity for customers. The Irish
Luck theme allows the Company to capitalize on its belief that every casino
guest wants to feel lucky and, by associating luck with the Fitzgeralds name,
"Fitzgeralds Irish Luck" becomes unique.

Middle Market Customer Focus

The Company provides a high-quality casino entertainment experience at an
affordable price to attract the middle market guests which it believes
constitute the largest segment of potential gaming customers whom the Company
can then identify, qualify and target for direct marketing activities. The
importance of friendly and efficient service is stressed continuously through
extensive employee training. The Company's approach to business includes
personal contact with trained hosts, moderately priced food, beverages, and
lodging and the use of the Fitzgeralds Card as part of a frequent player
recognition program. The Company believes that such an approach to business
provides a comfortable, "Lucky" environment designed to promote customer
loyalty, a high rate of repeat business and the basis for the further
development of its national brand.

Emphasis on Slot Play

The Company emphasizes slot machine play, which it believes to be the fastest
growing and most profitable segment of the casino entertainment business. The
increasing popularity of slot machines is due, in part, to the continuing rapid
technological development that is resulting in the replacement of mechanical
devices with advanced interactive electronic games. These newer games offer
greater variety, higher payouts and


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longer periods of play for the casino entertainment dollar relative to simple
mechanical devices. Subject to the availability of financing, as to which there
can be no assurance, the Company intends to continue investing in
state-of-the-art machines and related equipment and systems, such as bill
acceptors, player tracking, and continue replacing older models with the most
current product offerings in an effort to maximize revenue.

HISTORICAL DEVELOPMENT

The Company and its senior management have been active in the development of
facilities in new gaming jurisdictions. The Company's senior management team has
an aggregate of over 50 years of diversified multi-jurisdictional gaming
experience in competitive markets.

The Company's ability to expand in the future will depend upon a number of
factors including, but not limited to: (i) the identification and availability
of suitable locations, and the negotiation of acceptable purchase, lease, joint
venture or other terms; (ii) the securing of required state and local licenses,
permits and approvals, which in some jurisdictions may be limited in number,
(iii) political factors; (iv) the risks typically associated with any new
construction; and (v) the availability of adequate financing on acceptable
terms, particularly in light of restrictive covenants in certain debt
instruments (relating to the Senior Secured Notes) which may limit the Company's
ability to obtain such financing. As a result, there can be no assurance that
the Company will be able to expand to any additional locations or, if such
expansion occurs, that it will be successful.

PROPERTIES

The Company currently owns and operates two Nevada properties (Fitzgeralds Las
Vegas and Fitzgeralds Reno), one Mississippi property (Fitzgeralds Tunica) and
one Colorado property (Fitzgeralds Black Hawk). In addition, the Company
manages, under a contract expiring in May 2000, an Indian-owned gaming facility
in Camp Verde, Arizona (Cliff Castle).

Fitzgeralds Las Vegas

Fitzgeralds Las Vegas is located on the city block bounded by Fremont, Carson,
Third and Fourth Streets at the Fremont Street Experience in downtown Las Vegas.
The property is accessible via Interstate 15 and US 95 and markets to Las Vegas
tourists, numbering approximately 30.4 million in 1997 and, to a lesser extent,
to the approximately 1.1 million residents of the Las Vegas valley. The 34-story
building recently underwent an approximately $19.4 million refurbishment of the
hotel and remodeling and expansion of the casino which was substantially
completed in December 1996. At December 31, 1997, the facility contained a
638-room hotel (including 14 suites) and a casino offering 1,067 slot machines,
28 table games, a 48-seat keno lounge and a sports book (operated by a third
party). Fitzgeralds Las Vegas amenities include four restaurants, three bars, an
ice cream parlor, a special events center, a gift shop and an entertainment
area. Fitzgeralds Las Vegas includes a 323-space parking structure and an
adjacent surface area parking with an additional 76 spaces.

In September 1995, the Company entered into a 13-year franchise license
agreement with Holiday Hospitality Franchising, Inc., ("HHFI") to operate the
Fitzgeralds Las Vegas hotel as a Holiday Inn commencing in July 1996. Subject to
the terms and conditions of the agreement, the Fitzgeralds Las Vegas hotel has
been included in the Holiday Inn Worldwide Reservation System and has use of
Holiday Inn copyrights, trademarks and similar proprietary rights used by other
Holiday Inn licensees. The Company is the exclusive licensee of Holiday
Inn-branded hotels within the defined territory encompassing downtown Las Vegas.
The Company pays a monthly royalty based on a percentage of Fitzgeralds Las
Vegas revenues


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from room rentals after deduction of sales and room taxes and a portion of
complimentary rooms. The Company also pays marketing, reservation and similar
fees based on such revenues or the number of rooms.

Las Vegas continues to grow rapidly and is one of the world's largest tourist
destinations. In order to more fully participate in that growth, eight downtown
gaming companies, including the Company, opened the Fremont Street Experience in
November 1995 to revitalize the central core of the downtown Las Vegas gaming
district. The Fremont Street Experience converted five blocks of Fremont Street
into a "must see" attraction that restores and enhances the intimacy and visual
excitement of downtown Las Vegas. The Fremont Street Experience includes a
pedestrian mall, shops, restaurants and entertainment beneath an approximately
1,500-foot long, 90-foot high Space Frame, which incorporates approximately 2.1
million lights to offer a number of "Sky Parade Light Shows," as well as a
number of special events and festivals. In addition, there have been extensive
sidewalk and street improvements and the construction of an approximately
1,400-space parking structure. An adjacent retail shopping block is expected to
open by the end of 1999. With its appeal to adults, together with its location
on Fremont Street, the Fremont Street Experience is distinguishable form other
Las Vegas attractions and draws both locals and tourists who might not otherwise
visit the downtown area.

Fitzgeralds Tunica

Fitzgeralds Tunica is located in north Tunica County, Mississippi, approximately
30 miles from downtown Memphis, Tennessee. Fitzgeralds Tunica is designed as an
Irish castle and is the focal point of a heavily wooded 121-acre Company-owned
site situated by the Mississippi River. The Fitzgeralds Tunica casino opened in
June 1994 at a cost of approximately $46 million. In 1996, the facility was
expanded to include a hotel and related amenities, which improvements were
substantially completed in October 1996 at a cost of approximately $34 million.
At December 31, 1997, the facility included a 507-room hotel, special events
center, indoor swimming pool and a casino offering 1,208 slot machines and 41
table games, two bars, three restaurants and a gift shop.

The Company has developed Fitzgeralds Tunica into a full-service entertainment
destination and has been able to increase and diversify its customer base by
attracting, in addition to its local customers, independent travelers,
tour-and-travel customers and guests for special events and conventions. The
Company expects that a new casino trolley system, which commenced operation in
December 1997, and a new-inter-casino connector road anticipated to open by June
1998, will increase exposure and customer traffic to Fitzgeralds Tunica by
increasing accessibility. Subject to the availability of financing or adequate
cash flow, as to which there can be no assurance, the Company also plans to
expand and improve the restaurants and casino in 1998, including the addition of
approximately 100 slot machines to meet increased weekend demand, as well as the
installation of its fully integrated player tracking system.

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Fitzgeralds Reno

Fitzgeralds Reno is located in downtown Reno on the corner of Virginia Street
and Commercial Row next to the landmark Reno Arch. Fitzgeralds Reno recently
renovated its front entrance and continues to renovate and upgrade its hotel
rooms. At December 31, 1997, the facility consisted of a 16-story, 351-room
hotel and a casino offering 863 slot machines, 32 table games, a 100 seat keno
lounge and a sports book (operated by a third party). Fitzgeralds Reno amenities
include three restaurants, three bars, an entertainment lounge and a gift shop.
Fitzgeralds Reno leases a portion of a nearby 850-space parking garage to
provide 345 parking spaces for guests. The lease expires on December 31, 1998.
Although the Company has historically been able to renew the lease on an annual
basis, the loss of the use of such parking facilities would put Fitzgeralds Reno
at a disadvantage with its competitors who have parking facilities.

The Fitzgeralds marketing strategy is to capitalize on the high level of
pedestrian traffic surrounding the facility, which is located in the heart of
downtown Reno adjacent to the landmark Reno Arch. Fitzgeralds Reno maintains
active sidewalk marketing programs aimed at attracting pedestrians into the
casino. To further increase Fitzgeralds Reno's appeal and convenience, the
Company completed construction of an enclosed temperature-controlled, themed
pedestrian bridge (the "Rainbow Skyway"), which connects the sidewalk located
across the railroad tracks near the entrance to the Eldorado Hotel and Casino to
the upgraded second floor casino of Fitzgeralds Reno. Fitzgeralds Reno guests
entering via the Rainbow Skyway step into a themed "Lucky Forest" and are
greeted at the Fitzgeralds Card Center. The second floor of the casino has been
further upgraded with the addition of new slot machines and specialty table
gaming products and a renovated restaurant in anticipation of increased traffic
flow from the Rainbow Skyway. The cost of the Rainbow Skyway was approximately
$2.3 million, of which $1.0 million was funded by the Union Pacific Railroad
with the balance being borne by the Company. The Rainbow Skyway was opened to
the public on February 7, 1998. The Rainbow Skyway was constructed over air
rights which were acquired by the Company from the Southern Pacific Railroad.
Such air rights may be subject to a claim of ownership (or claim of an ownership
interest) by the United States of America. Although the Company believes it is
unlikely that the United States of America would, in a manner adverse to the
Company, exercise any right, title, or interest it may hold or obtain in the air
rights parcel, no assurance can be made that such an exercise will not occur.

Fitzgeralds Reno is planning to continue refurbishing and upgrading the rooms
and the hotel exterior. The renovation program is expected to be funded by
internal cash flow or will be funded by a variety of lending sources. Subject to
the availability of sufficient cash flow and financing, of which there can be no
assurance, the renovation program is expected to be completed by the summer of
1998. The Company believes that the recent renovation of the front entrance and
hotel rooms will further increase visibility and improve operations. In
addition, the Company continues to upgrade its slot and specialty table game
products in conjunction with its currently installed fully integrated player
tracking system.

Fitzgeralds Black Hawk

Fitzgeralds Black Hawk is located adjacent to the entrance to the gaming area of
Black Hawk, Colorado, next to the Gilpin Casino and across the street from
Bullwhackers. Fitzgeralds Black Hawk consists of a two-story building, the
interior of which features high ceilings and other architectural details which
sets it apart visually from other Black Hawk casinos. At December 31, 1997, the
main floor casino offered 518 slot machines, 12 table games, a restaurant, a bar
and an entertainment area. The second floor is mostly unfinished and is being
partially used for offices and storage. Fitzgeralds Black Hawk also has a
400-space, all valet parking garage, adjacent to the casino, which is currently
the only covered parking in Black Hawk and which differentiates the property
from its competitors. According to the Rocky Mountain News, Denver metro
residents voted Fitzgeralds Black Hawk as having the "Best $1 Slots" and "Best
$5 Slots" and


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its restaurant as having the "best" variety, kitchen, desserts and full service
dining among the casinos located in Colorado, which allows Fitzgeralds Black
Hawk to advertise these awards and further differentiate itself from its
competitors.

The Company is currently in the process of designing a two-phased addition to
the existing Fitzgeralds Black Hawk facility. The first phase would include
expanding the existing casino and related areas, including the installation of
elevators and escalators, and building two additional floors of parking over the
existing garage ("Phase I"). The new building would occupy the adjoining empty
lot and replace two existing office buildings owned by the Company, a portion of
which is subject to leases which run through August 1998. Construction on the
Phase I expansion is expected to start in May 1998, subject to receipt of all
requisite permits and approvals, of which there can be no assurance. Although
final plans and specifications and a detailed budget for Phase I are not
currently available, constructions costs are estimated at approximately $6
million for the casino expansion, parking expansion of approximately $1.0
million, plus an additional approximately $1.5 million for gaming equipment. The
second phase would include adding approximately 70-80 hotel rooms over the
expanded garage and additional utilization of the second floor gaming area
("Phase II"). No plans or budgets for Phase II have yet been developed. The
Company has no commitments for any financing or the requisite permits, licenses
and approvals necessary for such an expansion. No assurance can be given that
such financing and approvals will be sought or received.

Cliff Castle Casino

Cliff Castle, which opened in May 1995, is a Class II and Class III gaming
facility owned by the Yavapai-Apache Indian Nation ("Yavapai Nation") on tribal
land in Camp Verde, Arizona. Camp Verde is located approximately 75 miles north
of Phoenix, 45 miles south of Flagstaff, and 25 miles southeast of Sedona,
Arizona. The 75-acre site is adjacent to Interstate 17, a major business and
tourist route linking Phoenix to Flagstaff and the Grand Canyon. At December 31,
1997, Cliff Castle offered 458 slot machines, 5 poker tables, a bar and a
restaurant.

The Company, through an 85% owned subsidiary, FAMI, currently has a management
agreement through May 2000 (subject to earlier termination under certain
circumstances) pursuant to which it manages Cliff Castle. Under the terms of the
FAMI Management Agreement, FAMI is entitled to receive a management fee based on
a percentage of Net Revenues (as defined, a figure which approximates pre-tax
income) of the casino ranging from 10% to 19%, provided that the Yavapai Nation
is entitled to receive a minimum payment of $500,000 per month ("Minimum
Payment"), which payment is guaranteed by FI. However, the FAMI Management
Agreement may be terminated by FAMI if such payment guarantee is required to be
made from a source other than the gross receipts of the casino for more than
three consecutive months. Since the opening of Cliff Castle, the Yavapai Nation
has received more than the Minimum Payment each month. The Company received
approximately $2.6 million and $3.6 million in management fees from Cliff Castle
for 1996 and 1997, respectively.

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Certain Hotel Operating Information

The following table on Fitzgeralds hotel operations is provided as additional
supplemental information:

                                              As of December 31, 1997

<TABLE>
<CAPTION>
                                                                                                            Room
                                                                                 Average                  Revenue/
                              Date       Number of   Renovation   Renovation    Occupancy     Average     Available
   Hotel      Year Built    Acquired       Rooms        Year        Amount        Rate       Room Rate      Rooms
   -----      ----------    --------       -----        ----        ------        ----       ---------      -----
<S>             <C>         <C>            <C>          <C>       <C>              <C>         <C>          <C>
Las Vegas       1979       Nov. 1987       638          1996      $3,475,835       89.7%       $38.37       $34.40
Tunica          1996         N/A           507          N/A           --           89.3%       $48.65       $43.12
Reno            1978       Dec. 1986       351        1998/99     $2,240,000       90.2%       $46.56       $42.02
</TABLE>


OTHER GAMING ASSETS

Nevada Club

The Nevada Club is located on Virginia Street across the street from Fitzgeralds
Reno. The Company has owned and operated the Nevada Club since 1988. Due to the
Company's desire to focus its Reno activities on its Fitzgeralds-brand property,
the Company has actively sought a buyer for the Nevada Club since early 1995. In
the fall of 1997, the Company received an offer to purchase the Nevada Club from
an unaffiliated party and closed the casino in December 1997 in anticipation of
the pending sale. Although it is currently anticipated that the sale will close
by June 1998, no assurance can be given that the sale will be completed.

Verona, New York

In April 1993, the Company entered into a Technical Assistance and Management
Agreement with the Oneida Indian Nation of New York to provide loans and
technical and consulting services to develop, open and manage, for five years,
Turning Stone Casino, a Class III casino in Verona (near Syracuse), New York.
The casino was opened in July 1993 under a consulting agreement with FNYI, an
85% owned subsidiary, and Mr. Philip D. Griffith, the Company's President and
Chief Executive Officer. However, prior to final approval of the Technical
Assistance and Management Agreement by the NIGC, the Oneida Nation elected in
early 1994 to self-manage the facility. In consideration of the work performed
by the Company prior and subsequent to the opening of the casino, FNYI entered
into a settlement agreement, dated as of March 30, 1995, pursuant to which FNYI
is receiving from the Oneida Indian Nation 48 monthly payments of $133,333 ($6.4
million in the aggregate), commencing retroactively as of August 1, 1994. Such
payments will cease in August 1998.

COMPETITION

There is intense competition among companies in the gaming industry, many of
which have greater name recognition and financial and marketing resources than
the Company. In addition to the regional competitors described below, the
Company competes with gaming facilities nationwide, including land-based casinos
in Nevada and Atlantic City, not only for customers but also for employees and
potential future gaming sites. The Company also competes, to some extent, with
other forms of gaming on both a local and national level, including
state-sponsored lotteries, on and off-track wagering and card parlors, among
others. The recent and continuing expansion of legalized casino gaming to new
jurisdictions throughout the United States has affected competitive conditions
faced by the Company and will continue to do so in the future.

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Nevada Operations

Fitzgeralds Las Vegas competes primarily with other downtown casino properties,
casino properties located near the Nevada/California state line and certain
facilities located on the Las Vegas Strip. The Company also believes that it
competes, to a lesser extent, with the local neighborhood casinos and
casino-hotels on the Boulder Strip and in the Laughlin market.

The Las Vegas market is highly competitive. The Company has experienced
competition from new and existing Las Vegas casino-hotels which have sought to
attract some of the same "middle-market" players and tour and travel visitors
targeted by Fitzgeralds Las Vegas. The Company anticipates continuing increased
competition for these customers. Moreover, two substantial new properties have
opened on the Las Vegas Strip within the past two years and several additional
major new projects have been announced or are under construction on or near the
Las Vegas Strip, in addition to several casinos catering to local residents.
These new properties, as well as any other major additions, expansions or
enhancements to existing properties by the Company's competitors, could have a
material adverse impact on the Company's business.

Fitzgeralds Reno encounters strong competition from other hotel and casino
facilities in the Reno area, as well as competition from gaming establishments
in other areas of Nevada and, to a lesser extent, other jurisdictions in the
United States where gaming has been legalized (including Indian gaming
establishments). Fitzgeralds Reno competes with other properties principally on
the basis of location and direct marketing.

Additional competition may come from the expansion or construction of other
hotel and casino properties or the upgrading of other existing facilities in the
Reno area. There can be no assurance that such growth will not adversely affect
the pricing policies at Fitzgeralds Reno, including the room pricing policies.

In addition, management believes that the introduction of casino gaming, or the
expansion of presently conducted gaming activities (particularly at Indian
establishments) in areas in or close to Nevada, such as California, Oregon,
Washington, Arizona or western Canada could have an adverse impact on operations
at the Company's Las Vegas and Reno properties and, depending on the nature,
location and extent of such operations, such impact could be material.

The Company's ability to maintain its competitive position in Las Vegas and Reno
will require the expenditure of sufficient funds for such items as updating slot
machines to reflect changing technology, periodic refurbishing of rooms and
public service areas and replacing obsolete equipment on an ongoing basis. There
can be no assurance that the Company will generate sufficient internal funds or
obtain sufficient additional financing to fund such expenditures.

Mississippi Operations

Fitzgeralds Tunica competes primarily with eight other dockside gaming
facilities in the Tunica area, five of which are approximately one mile north of
Fitzgeralds Tunica and three of which are approximately four miles south of
Fitzgeralds Tunica. At this time, the Company is not aware of any new entrants
to the market.

In addition to the substantial competition in the immediate vicinity of
Fitzgeralds Tunica, the Company competes with other Mississippi operations.
Additionally, the Company could face competition for Memphis, Tennessee and
Little Rock, Arkansas customers from surrounding areas. There can be no
assurance that the State of Tennessee or the State of Arkansas will not in the
future legalize casino gaming.


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                                  Page 9 of 52
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In November 1992, and again in November 1996, De Soto County, the
northwestern-most Mississippi county and the nearest to Memphis, Tennessee,
voted against authorizing gaming activities. Arkansas voters also voted against
gaming in the November 1996 election. Because Fitzgeralds Tunica is heavily
dependent upon the patronage of Memphis residents and tourists, the opening of
gaming casinos in Tennessee or in other locations closer to Memphis could
materially and adversely affect the Company's operations.

Colorado Operations

Competition is intensifying in Black Hawk. Various published reports detailing a
number of new gaming projects have been announced for Black Hawk, with
completion of one such significant project anticipated in 1998 and another in
1999. Some of these projects will be larger than Fitzgeralds Black Hawk, will be
operated by companies with greater resources and will be located at the eastern
(closest to Denver) end of Black Hawk at the first major intersection off State
Highway 119, which may give such projects a competitive advantage over
Fitzgeralds Black Hawk since they will have the initial opportunity to capture
visitors to Black Hawk and Central City from the Denver metropolitan area. The
increased competition may materially and adversely affect Fitzgeralds Black
Hawk.

Although initiatives to expand gaming venues in Colorado have thus far been
unsuccessful, initiatives, legislation or regulations could be introduced in the
future. The enactment of any initiative, legislation or regulation legalizing
gaming elsewhere in Colorado could, and if such legalized gaming was closer to
Denver would, have a material adverse effect on Fitzgeralds Black Hawk.

Indian Gaming Operations

Cliff Castle casino in Camp Verde, Arizona competes with another Indian casino
in Prescott, Arizona, approximately 30 miles away, and with other casinos
located on Indian lands around the Phoenix, Arizona area and elsewhere in the
State of Arizona, as well as with casinos in Nevada, including Laughlin and Las
Vegas. The spread of casinos on Indian lands in Arizona could result in the
approval by Arizona voters of full-scale gaming in Arizona, which would
adversely impact operations at Cliff Castle.

EMPLOYEES

As of December 31, 1997, the Company indirectly employed approximately 3,314
persons. Fitzgeralds Las Vegas employed approximately 1,000 people,
approximately 445 of whom are represented by the Culinary Workers Union, Local
No. 226 and the Bartenders Union, Local No. 165 (the "Culinary and Bartenders
Union") under a three-year contract which expired on May 31, 1997. In March
1997, the Culinary and Bartenders Union notified the Company of its intent to
seek changes and modifications in the terms and conditions of its agreement. The
Company anticipates that negotiations relating thereto will likely commence
early in 1998. In addition, three employees are represented by the United
Brotherhood of Carpenters and Joiners of America, Silver State District Council
of Carpenters, Local No. 1780, under a


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                                 Page 10 of 52
<PAGE>   12

contract which expires on July 31, 1998. Fitzgeralds Tunica, Fitzgeralds Reno
and Fitzgeralds Black Hawk employed approximately 1,043, 902 and 333 people,
respectively. None of the employees of Fitzgeralds Tunica, Fitzgeralds Reno,
Fitzgeralds Black Hawk or Cliff Castle are represented by a union. In addition,
the Company also directly employed approximately 36 people in its corporate
offices. Cliff Castle, which is managed by the Company, directly employed
approximately 302 people.

TRADE NAMES, TRADEMARKS AND SERVICE MARKS

The Company believes that its distinctive trade names, trademarks and service
marks are important to its efforts to develop a distinctive national brand
identity. Because of their importance, the Company expends considerable effort
to conceptualize, obtain, utilize and protect its trade names, trademarks and
service marks. The Company has proprietary rights in approximately 80 registered
trade names, trademarks and service marks used in connection with its businesses
and created to enhance its Irish luck theme, its gaming activities and its
association with the Fremont Street Experience, including the marks
"Fitzgeralds," "Fitz" and the "Mr. O'Lucky" character design. Registered marks
usually have perpetual life, provided that they are renewed on a timely basis
and continue to be used properly as marks. The Company also has several
non-exclusive licenses and supply agreements permitting it to utilize and offer
at its facilities a variety of casino games, gaming devices and related software
and technology which are subject to certain third-party patent, trademark and
copyright rights.

GOVERNMENTAL REGULATION

General

The ownership and operation of the Company's casino gaming facilities are
subject to various state and local regulations in the jurisdictions where they
are located. In Nevada, the Company's gaming operations are subject to the
Nevada Gaming Control Act and to the licensing and regulatory control of the
Nevada Gaming Commission, the Nevada State Gaming Control Board and various
local ordinances and regulations, including, without limitation, applicable city
and county gaming and liquor licensing authorities. In Mississippi, the Company
must register under the Mississippi Gaming Control Act and its gaming operations
are subject primarily to the licensing and regulatory control of the Mississippi
Gaming Commission and the Mississippi State Tax Commission and various local,
city and county regulatory agencies. In Colorado, the Company's gaming
operations are subject to the Limited Gaming Act of 1991, which created the
Division of Gaming within the Colorado Department of Revenue and the Colorado
Limited Gaming Control Commission to license, implement, regulate and supervise
the conduct of limited gaming. The Company's operations are also subject to the
Colorado Liquor Code, the state liquor licensing authority, and local liquor
licensing authorities. In 1996, the Colorado General Assembly enacted
legislation which abolishes the current regulatory scheme effective July 1,
2003, unless continued by subsequent enactment. If the repeal takes effect,
Colorado law provides a procedure for winding up the affairs of the Division,
public hearings, analysis and evaluation, and for determining claims by or
against the Division. The potential effect of the possible repeal is unknown,
and no replacement for the regulatory scheme has been proposed. In Arizona, as
manager of Cliff Castle, the Company's gaming operations are subject to the
jurisdiction of the National Indian Gaming Commission ("NIGC"), the Arizona
State Department of Gaming and the Yavapai-Apache Tribal Gaming Commission.

Nevada Gaming Regulation

The ownership and operation of casino gaming facilities in Nevada are subject to
the Nevada Gaming Control Act and the regulations promulgated thereunder (the
"Nevada Act") and to the licensing and regulatory control of the Nevada Gaming
Commission (the "Nevada Commission"), the Nevada State


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                                 Page 11 of 52
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Gaming Control Board (the "Nevada Board") and various local ordinances and
regulations, including, without limitation, applicable city and county gaming
and liquor licensing authorities (collectively, the "Nevada Gaming
Authorities").

The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and filing periodic reports with the
Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent
practices; and (v) providing a source of state and local revenues through
taxation and licensing fees. Change in such laws, regulations and procedures
could have an adverse effect on the Company's gaming operations.

The Company's direct and indirect subsidiaries that conduct gaming operations
are required to be licensed by the Nevada Gaming Authorities. The gaming
licenses require the periodic payment of fees and taxes and are not
transferable. The Company is registered by the Nevada Commission as a publicly
traded corporation (a "Registered Corporation") and has been found suitable to
own the stock of FSI, FRI and Nevada Club, Inc. ("NCI"). FSI is registered as an
intermediary company (an "Intermediary Company") and has been found suitable to
own the stock of FLVI, which has been licensed as a manufacturer and distributor
of gaming devices and to conduct nonrestricted gaming operations at Fitzgeralds
Las Vegas. FRI and NCI have each been licensed as a manufacturer and distributor
of gaming devices and to conduct nonrestricted gaming operations at Fitzgeralds
Reno and Nevada Club, respectively. FRI, FLVI and NCI are each a corporate
gaming licensee (a "Corporate Licensee" or individually a "Nevada Gaming
Subsidiary" and collectively the "Nevada Gaming Subsidiaries") under the terms
of the Nevada Act. No person may become a stockholder of, or receive any
percentage of profits from an Intermediary Company or a Nevada Gaming Subsidiary
without first obtaining licenses and approvals from the Nevada Gaming
Authorities. The Company, FSI and the Nevada Gaming Subsidiaries have obtained
from the Nevada Gaming Authorities the various registrations, findings of
suitability, approvals, permits and licenses required in order to engage in
gaming activities in Nevada. The following regulatory requirements are currently
applicable to the Company, FSI and the Nevada Gaming Subsidiaries, including
requirements applicable to the Company as a Registered Corporation.

The Nevada Gaming Authorities may investigate any individual who has a material
relationship to, or material involvement with, the Company, FSI or the Nevada
Gaming Subsidiaries in order to determine whether such individual is suitable or
should be licensed as a business associate of a gaming licensee. Officers,
directors and certain key employees of the Nevada Gaming Subsidiaries must file
applications with the Nevada Gaming Authorities and may be required to be
licensed or found suitable by the Nevada Gaming Authorities. Officers, directors
and key employees of the Company or FSI who are actively and directly involved
in gaming activities of the Nevada Gaming Subsidiaries may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming
Authorities may deny an application for licensing for any cause which they deem
reasonable. A finding of suitability is comparable to licensing, and both
require submission of detailed personal and financial information followed by a
thorough investigation. The applicant for licensing or a finding of suitability
must pay all the costs of the investigation. Changes in licensed positions must
be reported to the Nevada Gaming Authorities and, in addition to their authority
to deny an application for a finding of suitability or licensure, the Nevada
Gaming Authorities have jurisdiction to disapprove a change in a corporate
position.

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                                 Page 12 of 52
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If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with the Company, FSI or the Nevada Gaming Subsidiaries, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company, FSI or the Nevada
Gaming Subsidiaries to terminate the employment of any person who refuses to
file appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.

The Company, FSI and the Nevada Gaming Subsidiaries are required periodically to
submit detailed financial and operating reports to the Nevada Commission and
furnish any other information which the Nevada Commission may require.
Substantially all material loans, leases, sales of securities and similar
financing transactions by the Nevada Gaming Subsidiaries must be reported to or
approved by the Nevada Commission.

If it were determined that the Nevada Act was violated by FSI or any Nevada
Gaming Subsidiary, the registration or gaming licenses they hold could be
limited, conditioned, suspended or revoked, subject to compliance with certain
statutory and regulatory procedures. In addition, the Company, FSI, the Nevada
Gaming Subsidiaries and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the discretion of the
Nevada Commission. Further, a supervisor could be appointed by the Nevada
Commission to operate Fitzgeralds Las Vegas, Fitzgeralds Reno and Nevada Club
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for reasonable rental value of the casino) could be
forfeited to the State of Nevada. Limitation, conditioning or suspension of the
gaming licenses of the Nevada Gaming Subsidiaries or the appointment of a
supervisor could (and revocation of any gaming license would) materially
adversely affect the Company's gaming operations.

Any beneficial holder of a Registered Corporation's voting securities (or rights
to acquire such securities), regardless of the number of shares owned, may be
required to file an application, be investigated and have his suitability as a
beneficial holder of the Registered Corporation's voting securities determined
if the Nevada Commission has reason to believe that such ownership would
otherwise be inconsistent with the declared policies of the State of Nevada. The
applicant must pay all costs of investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.

The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of a Registered Corporation's voting securities to report the
acquisition to the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of a voting securities apply to the Nevada Commission
for a finding of suitability within thirty days after the Chairman of the Nevada
Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of a Registered Corporation's
voting securities may apply to the Nevada Commission for a waiver of such
finding of suitability if such institutional investor holds the voting
securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Registered Corporation, any change in the corporate charter, bylaws,
management, policies or operations of the Registered Corporation, or any of its
gaming affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Registered Corporation's voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii)


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                                 Page 13 of 52
<PAGE>   15

such other activities as the Nevada Commission may determine to be consistent
with such investment intent. If the beneficial holder of voting securities who
must be found suitable is a corporation, partnership or trust, it must submit
detailed business and financial information, including a list of beneficial
owners. The applicant is required to pay all costs of investigation.

Any person who fails or refuses to apply for a finding of suitability or a
license within 30 days after being ordered to do so by the Nevada Commission or
the Chairman of the Nevada Board, may be found unsuitable. The same restrictions
apply to a record owner if the record owner, after request, fails to identify
the beneficial owner. Any stockholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock beyond such period
of time as may be prescribed by the Nevada Commission may be guilty of a
criminal offense. The Company will be subject to disciplinary action if, after
it receives notice that a person is unsuitable to be a stockholder or to have
any other relationship with the Company or the Nevada Gaming Subsidiaries, the
Company (i) pays that person any dividend or interest upon voting securities of
the Company, (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or otherwise, or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value. Additionally, the City
of Las Vegas and the City of Reno have the authority to approve all persons
owning or controlling the stock of any corporation controlling a gaming
licensee.

The Nevada Commission may, in its discretion, require the holder of any debt or
similar security of a Registered Corporation to file applications, be
investigated and be found suitable to own the debt security of a Registered
Corporation. If the Nevada Commission determines that a person is unsuitable to
own such security, then pursuant to the Nevada Act, the Registered Corporation
can be sanctioned, including the loss of its approvals, if without the prior
approval of the Nevada Commission, it: (i) pays to the unsuitable person any
dividend, interest, or any distribution whatsoever; (ii) recognizes any voting
right by such unsuitable person in connection with such securities; (iii) pays
the unsuitable person remuneration in any form; or (iv) makes any payment to the
unsuitable person by way of principal, redemption, conversion, exchange,
liquidation, or similar transaction.

The Company is required to maintain a current stock ledger in Nevada which may
be examined by the Nevada Gaming Authorities at any time. If any securities are
held in trust by an agent or by a nominee, the record holder may be required to
disclose the identity of the beneficial owner to the Nevada Gaming Authorities.
A failure to make such disclosure may be grounds for finding the record holder
unsuitable. The Company will also be required to render maximum assistance in
determining the identity of the beneficial owner. The Nevada Commission has the
power to require the Company's stock certificates to bear a legend indicating
that the securities are subject to the Nevada Act. To date, the Nevada
Commission has not imposed such a requirement on the Company.

The Company may not make a public offering of its securities without the prior
approval of the Nevada Commission if the securities or proceeds therefrom are
intended to be used to construct, acquire or finance gaming facilities in
Nevada, or to retire or extend obligations incurred for such purposes. Such
approval, if given, does not constitute a finding, recommendation or approval by
the Nevada Commission or the Nevada Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities. Any representation to the
contrary is unlawful.

Changes in control of a Registered Corporation through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to


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                                 Page 14 of 52
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acquire control of a Registered Corporation must satisfy the Nevada Board and
Nevada Commission in a variety of stringent standards prior to assuming control
of such Registered Corporation. The Nevada Commission may also require
controlling stockholders, officers, directors and other persons having a
material relationship or involvement with the entity proposing to acquire
control, to be investigated and licensed as part of the approval process
relating to the transaction.

The Nevada legislature has declared that some corporate acquisitions opposed by
management, repurchases of voting securities and corporate defense tactics
affecting Nevada corporate gaming licensees, and Registered Corporations that
are affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming licensees and their affiliates; (ii)
preserve the beneficial aspects of conducting business in the corporate form;
and (iii) promote a neutral environment for the orderly governance of corporate
affairs. Approvals are, in certain circumstances, required from the Nevada
Commission before the Registered Corporation can make exceptional repurchases of
voting securities above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada Act also
requires prior approval of a plan of recapitalization proposed by the Registered
Corporation's Board of Directors in response to a tender offer made directly to
the Registered Corporation's stockholders for the purposes of acquiring control
of the Registered Corporation.

License fees and taxes, computed in various ways depending on the type of gaming
or activity involved, are payable to the State of Nevada and to the counties and
cities in which the Nevada licensee's respective operations are conducted.
Depending upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon either: (i) a
percentage of the gross revenues received; (ii) the number of gaming devices
operated; or (iii) the number of table games operated. A casino entertainment
tax is also paid by casino operations where entertainment is furnished in
connection with the selling or serving of food or refreshments or the selling of
merchandise. Nevada licensees that hold a manufacturer's license or a
distributor's license, such as the Nevada Gaming Subsidiaries, also pay certain
fees and taxes to the state of Nevada.

Any person who is licensed, required to be licensed, registered, required to be
registered, or is under common control with such persons (collectively,
"Licensees"), and who proposes to become involved in a gaming venture outside of
Nevada, is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation by
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, foreign Licensees are required to comply with certain
reporting requirements imposed by the Nevada Act. Such licensees are also
subject to disciplinary action by the Nevada Commission if they knowingly
violate any laws of the foreign jurisdiction pertaining to the foreign gaming
operation, fail to conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming operations, engage
in activities that are harmful to the State of Nevada or its ability to collect
gaming taxes and fees, or employ a person in the foreign operation who has been
denied a license or finding of suitability in Nevada on the ground of personal
unsuitability.

The sale of alcoholic beverages at Fitzgeralds Las Vegas, and the sale of
alcoholic beverages at Fitzgeralds Reno and Nevada Club, are subject to
licensing, control and regulation by the City of Las Vegas and the City of Reno,
respectively. All licenses are revocable and are not transferable. The agencies
involved have full power to limit, condition, suspend or revoke any such


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                                 Page 15 of 52
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license, and any such disciplinary action could (and revocation would) have a
material adverse effect on the operations of the Nevada Gaming Subsidiaries.

Arizona Gaming Regulation

In connection with its regulatory powers granted pursuant to the Tribal-State
compact, the Arizona Department of Gaming has certain enforcement powers over
the tribal casinos. The State of Arizona and the Tribes have several pending
disputes over the interpretation of certain compact provisions. In August of
1997, the Arizona Department of Gaming obtained an Opinion from the Arizona
Attorney General regarding gambling upon card games. The Arizona Department of
Gaming interpreted the Opinion to conclude that card games in Arizona are
illegal. Based on this conclusion, the Arizona Department of Gaming ordered that
the tribal casinos offering card games, with included the Cliff Castle Casino,
immediately cease the operation of all card games. The Tribes, including the
Camp Verde Yavapai-Apache Tribe, disagreed with the Arizona Department of
Gaming's interpretation of the Opinion and defied compliance with the cease and
desist order. The Tribes contend that the card games at issue constitute Class
II gaming and, therefore, are not within the State's regulatory jurisdiction and
need not be compacted pursuant to the IGRA. The Arizona Department of Gaming
served the Gila River Indian Community with a notice of its intent to invoke the
arbitration provisions of the Tribal-State compact in an effort to resolve the
dispute. The arbitration proceedings are currently pending. Until the issue is
resolved, the Arizona Department of Gaming of Gaming has advised that no
enforcement action will be taken against nay management company of a tribal
casino, including FAMI, in connection with this issue without first giving
notice to that company. At present, FAMI is deemed to be in compliance with its
obligations as a licensee.

In addition to the pending card game dispute, the Arizona Department of Gaming
is involved in litigation with two Tribes over the use of multi-player gaming
machines. The State had previously taken the position that these machines
counted as a single unit. Under the Tribal-State compacts, the Tribes are
permitted a certain number of gaming machines based upon their tribal
membership. Under this allocation system, the Camp Verde Yavapai-Apache Tribe is
permitted up to 475 machines. When a new Director assumed control of the Arizona
Department of Gaming, this position on the multi-player machines was changed.
The new Director has taken the position that the multi-player machines count as
more than one machine, depending on how many players can play the machine at the
same time. Two Arizona tribes have filed suit in Federal Court in Arizona,
contending that the machines should only count as one unit. The Cliff Castle
Casino has several multi-player machines in operation. As a result of the
State's new position on this issue, the State has advised the Camp Verde
Yavapai-Apache Tribe that it exceeded its 475-machine allotment with the
certification of several new machines. The Tribe disagrees with the State's
position and believes that, even with the new machines in operation, it is still
under the 475-machine allotment. The State has advised the Tribe that it intends
to take no enforcement action until the pending litigation involving these two
other Tribes is resolved. It is uncertain as to the outcome of this issue and
what impact, if any, it will have upon the Company.

Another lawsuit involving another Arizona Tribe (Salt River Pima-Maricopa Indian
Community) may have some impact on future tribal gaming in the State. In a
lawsuit filed in State Court by private citizens, the State Court judge ruled
that the Arizona Governor had no authority to enter into a compact with the
Tribe for certain Class III games (gaming machines and keno). The judge also
implicitly questioned the legality of the ongoing Class III gaming operations at
the various tribal casinos in Arizona. That lawsuit is currently on appeal to
the Arizona Supreme Court. At present, the decision has no effect upon the Camp
Verde Yavapai-Apache Tribe since the compact between the Tribe and the State is
deemed valid and enforceable unless or until it is held to be invalid in a final
non-appealable judgment or order of a court of competent jurisdiction. The
resolution of that lawsuit is uncertain and what impact, if any, upon the
Company is equally uncertain.

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                                 Page 16 of 52
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In August 1996, President Clinton signed a bill creating the National Gambling
Impact Study Commission ("NGISC"), composed of individuals with ties to the
gaming industry as well as individuals who are openly opposed to legalized
gaming, to examine the economic and social impact of gaming. The NGISC began a
series of hearings on June 20, 1997 and is scheduled to release a report on its
findings, together with recommended legislation and administrative action, on or
before August 3, 1998. Any additional regulation of the gaming industry
resulting from the NGISC's recommendations could have a material adverse impact
on the gaming industry, including the Company.

The Company holds all licenses and permits it needs to operate its owned and
managed facilities. Directors, officers and key employees of the Company are
required to hold individual licenses, which requirements vary from jurisdiction
to jurisdiction. Licenses and permits of gaming operations and of individual
licensees are subject to revocation or non-renewal for cause. Holders of the
Company's securities are required to secure independent licenses and permits
under certain circumstances.

ITEM 2.           PROPERTIES

Reference is made to the information contained under Item 1. Business -
Properties of Part I of this Report on Form 10-K.

ITEM 3.           LEGAL PROCEEDINGS

Matters Relating to Harolds Club, Reno, Nevada. On May 31, 1995, FRI sold the
closed Harolds Club in Reno to an unrelated publicly-traded company which
subsequently sold Harolds Club to a company, the assets of which are now under
control of the United States Bankruptcy Court for the Northern District of New
York. Pursuant to the terms of certain indemnification, assignment and
assumption and guarantee agreements executed by FRI in connection with FRI's
purchase and subsequent sale of Harolds Club, FRI is contingently obligated for
certain land lease payments in the amount of approximately $580,000 annually
plus certain property-related costs, such as taxes and insurance.

The current owner of Harolds Club has not met its obligations with respect to
the land leases, and in August 1996 each of the five land lessors filed separate
actions in the Second Judicial District Court, Washoe County, State of Nevada,
against the current owner, FRI and other non-related prior lessees under the
land leases, seeking past due rent, taxes and other property-related expenses,
as well as attorneys' fees and costs. Cross-claims for indemnification have been
asserted against FRI by the entity from which it assumed the land leases, and
FRI has asserted cross-claims against the entities that are obligated to
indemnify FRI under the various indemnification, assignment and assumption, and
guarantee agreements.

Orders granting summary judgment against FRI have been entered in four of the
actions for the aggregate sum of $1,243,220. Two orders have been reduced to
judgments in the aggregate amount of $836,150. In anticipation of the sale of
Harolds Club, the parties to each of the five land lessor actions are currently
negotiating a settlement agreement, the details of which are set forth below.
Pending the sale of Harolds Club, and subject to certain other terms and
conditions, FRI has agreed to pay monthly lease payments on two of the land
leases in the total amount of $28,977.

The current owner of Harolds Club and the five land lessors have received an
offer to purchase their respective interests in Harolds Club. The same unrelated
party has made an offer to purchase the Nevada Club for a purchase price of
$4,000,000, and in anticipation of completing the sale, the Company closed the
Nevada Club in December 1997. To facilitate the sale of both properties and
subject to terms and


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                                 Page 17 of 52
<PAGE>   19

conditions to be agreed upon between the potential purchaser and FRI, FRI has
agreed to pay the land lessors $2,125,000 in exchange for a dismissal with
prejudice of all claims against FRI arising out of FRI's purchase and subsequent
sale of Harolds Club. FRI anticipates paying $600,000 of the $2,125,000
settlement in cash, less the cumulative amount of interim monthly rental
payments ($28,977 per month),  concurrently with the closing of the Harolds Club
transaction and executing five separate promissory notes totaling $1,525,000 for
the balance. The notes will be amortized over five years with interest fixed at
the prime rate in effect at the largest financial institution in Nevada on the
date the notes are executed and will be secured by the personal guarantee of the
Chairman and Chief Executive Officer of the Company. In addition to such
guarantee, and subject to certain conditions, a prior owner of Harolds Club
named in four of the five land lessor actions has agreed to reimburse FRI
$300,000, and to provide a payment guarantee for one of the five notes as its
contribution to the settlement of the actions. Each of the notes will be
permitted to be prepaid at any time together with interest accrued to the date
of payment. The closing of the Harolds Club transaction is subject to the
receipt by FRI of the $300,000 reimbursement and the closing of the Nevada Club
sale.

Treasure Bay Bankruptcy and Road Right-of-Way. In October 1993, Fitzgeralds
Mississippi, Inc. "(FMI"), a wholly owned subsidiary of the Company and manager
of Fitzgeralds Tunica, executed a road contract (the "Contract") with Treasure
Bay Gaming and Resorts, Inc. ("Treasure Bay") to share equally the cost of
developing a road leading to the two properties (the "Roadway") and of the
acquisition of a 3.67-acre tract of land (the "Tract"). The Company believes
that it has paid its portion of such costs, although documents filed by Treasure
Bay in the Treasure Bay bankruptcy proceeding referred to below reflect its
claim that approximately $300,000 remains outstanding. Pursuant to the Contract,
the Roadway and Tract were acquired by Treasure Bay and the Roadway was
constructed providing access from Commerce Road to the Fitzgeralds Tunica and
Treasure Bay casinos. Pursuant to Treasure Bay's acquisition contract and deed,
Treasure Bay was also obligated to convey the Roadway to Tunica County within a
reasonable time after its development, and adjacent land owners and utility
companies were to be entitled to full rights of access.

Treasure Bay is currently subject to a bankruptcy proceeding pursuant to Title
11 of the United States Code (the "Bankruptcy Code"). Preliminary title reports
on the Roadway and Tract indicate that a deed of trust securing $115 million in
Treasure Bay bonds and approximately $8 million in mechanics' and materialmen's
liens are recorded against such properties. In addition, the lien of the deed of
trust is prior to the Company's easement rights over two additional tracts that
are necessary for access to the Fitzgeralds Tunica property. The holder of the
deed of trust was aware of the rights of Fitzgeralds Mississippi, Inc. ("FMI")
at the time the deed of trust was recorded. To quiet title in the Roadway and
the Tract, FMI filed an adversary proceeding against Treasure Bay and others
claiming an interest in the Roadway and the Tract. FMI's complaint seeks, among
other relief, a declaratory judgment that FMI owns an unencumbered, undivided
one-half interest in the Roadway and Tract and the avoidance of all liens on the
Roadway and Tract. In an effort to compromise and settle its tax liability on
the Roadway, Tract, and other real property it owns, in September 1996, Treasure
Bay executed a Quitclaim Deed in favor of Tunica County to convey a one-half
interest in the Tract. Prior to this conveyance, all lien-holders released their
liens against the Tract.

A Chapter 11 Plan of Reorganization (the "Plan") has been confirmed in the
Treasure Bay bankruptcy proceeding. All assets of Treasure Bay re-vested in
Treasure Bay upon confirmation of the Plan. To the best of the Company's
knowledge, with the exception of certain excluded assets (as defined in the new
indenture which is attached to the Plan), the Plan grants Treasure Bay's new
indenture trustee (as defined in the Plan) a replacement lien on substantially
all assets which it previously held as collateral. The Tract was specifically
released from the new indenture trustee's collateral as part of the compromise
of Tunica County's priority tax claim whereby Treasure Bay's one-half interest
in the Tract was conveyed to Tunica County free and clear of all liens and
security interests. To the extent Treasure Bay owns the Roadway, it appears to
be part of the collateral which re-vested in favor of its bondholders. The Plan


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                                 Page 18 of 52
<PAGE>   20

also grants a permanent easement free and clear of all liens and encumbrances on
the Roadway to a land lessor under the real property lease for the Treasure Bay
Tunica casino. With respect to the above-mentioned mechanics' and materialmen's
liens, the Plan provides that such liens, if they are deemed to be valid,
attached to the proceeds from the sale of the Treasure Bay barge and
consequently no longer constitute encumbrances on the Roadway or the Tract.

The quiet title proceeding filed by FMI against Treasure Bay and Treasure Bay's
adversarial proceeding against FMI to recover approximately $300,000 for the
cost of developing the Roadway and the Tract are still pending, and it not
possible at the present time to predict the outcome. Furthermore, there can be
no assurance that Tunica County would be prepared to accept the conveyance of
the Roadway at this time in which case FMI would continue to undertake
maintenance of the Roadway. FMI is in physical possession of and utilizing the
Roadway and Tract. The loss of access to the Roadway would require the Company
to construct a new road to its property. However, both the Bankruptcy Code and
the Mississippi law offer protection to FMI, as a purchaser in possession, in
spite of there being no recorded deeds in favor of FMI. In addition, both the
Bankruptcy Code and Mississippi law offer protection to FMI with regard to deeds
of trust recorded at a time when the holder thereof had knowledge of FMI's
claim. Accordingly, the Company believes that FMI will continue to have full
access and use of the Roadway and the Tract.

The Company is a party to various lawsuits relating to routine matters
incidental to its business. The Company does not believe that the outcome of
such litigation, individually or in the aggregate, will have any material
adverse effect on its financial condition.

ITEM 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

In connection with the issuance of the Senior Secured Notes in December 1997,
the Company solicited and received waivers under the terms of indentures and
related documents governing (i) its Retired Senior Secured Notes; (ii) its
Priority Notes; and (iii) the 101 Main Notes. The waivers enabled the Company to
redeem each issue at the specified redemption price without advance notice. In
addition, with the consent of a majority in interest of the holders of the
Company's Common Stock Purchase Warrants, the related warrant agreement, dated
as of December 19, 1995 (the "Warrant Agreement"), between the Company and The
Bank of New York (as successor in interest to First Interstate Bank of Nevada,
N.A. and Wells Fargo Bank, N.A.) was amended to provide that the Final
Separation Date for the Restricted Note Warrants (all as defined in the Warrant
Agreement) would be December 31, 1997. As a result of the amendment to the
Warrant Agreement, on December 30, 1997 a total of 703,402 Restricted Note
Warrants were redeemed by the Company in connection with the redemption of the
Retired Senior Secured Notes.

                                     PART II


ITEM 5.           MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
                  MATTERS

The Company's Common Stock is not listed or traded on any exchange. At December
31, 1997, there were approximately 28 holders of the Company's Common Stock.

--------------------------------------------------------------------------------
                                 Page 19 of 52
<PAGE>   21

The Company has not paid any cash dividends on its Common Stock to date. The
Company intends to retain all future earnings for use in the development of its
business and does not anticipate paying cash dividends (including with respect
to its Preferred Stock) in the foreseeable future. The payment of all dividends
will be at the discretion of the Company's Board of Directors and will depend
upon, among other things, future earnings, operations, capital requirements, the
general financial condition of the Company and general business conditions. The
ability of the Company or its subsidiaries to pay dividends is restricted by the
indenture governing the Senior Secured Notes and, with respect to the Common
Stock, the Certificate of Designation for the Preferred Stock. If a holder of
securities is disqualified by any gaming authorities from owning such
securities, such holder will not be permitted to receive any dividends if, and
when declared by the Company's Board of Directors with respect to such
securities. See Item 1 - Business - Governmental Regulation.







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                                 Page 20 of 52
<PAGE>   22

ITEM 6.           SELECTED FINANCIAL DATA
                         FITZGERALDS GAMING CORPORATION

                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                    DECEMBER 31
                                              ---------------------------------------------------------------
                                                   1997        1996         1995         1994         1993
                                                   ----        ----         ----         ----         ----
<S>                                            <C>          <C>          <C>          <C>          <C>
STATEMENT OF OPERATIONS DATA:
     Net Operating Revenues                    $ 179,702    $ 140,530    $ 141,397    $ 131,834    $ 110,057
     Income from Operations(1)                    13,622        3,871       13,768        1,997       10,174
     Interest Expense, Net                        25,033       18,187       14,706       10,256        6,343
     Net Income (Loss)                           (31,542)     (13,494)      (4,255)      (5,979)       4,186

OTHER DATA:
    EBITDA:(2)
        Fitzgeralds Las Vegas                  $   2,651    $   1,656    $   4,084    $   4,926    $   6,946
        Fitzgeralds Tunica                        11,744        3,790        9,934        1,505         --
        Fitzgeralds Reno                           5,462        4,596        7,009        8,345       10,500
        Fitzgeralds Black Hawk                     4,842         --           --           --           --
        Other(3)                                   4,111        2,874        1,667       (1,526)      (1,080)
                                               ---------    ---------    ---------    ---------    ---------
               Total Properties                   28,810       12,916       22,694       13,250       16,366
        Nevada Club                               (1,282)        (148)         392          506        1,384
        Harolds Club                              (1,853)        --         (1,307)      (3,489)        (805)
                                               ---------    ---------    ---------    ---------    ---------
                Total EBITDA                      25,675       12,768       21,779       10,267       16,945
        Adjustments to EBITDA(4)                   4,924          742        1,337        8,304          (82)
                                               ---------    ---------    ---------    ---------    ---------
                Adjusted EBITDA                $  30,599    $  13,510    $  23,116    $  18,571    $  16,863
                                               =========    =========    =========    =========    =========

     EARNINGS TO FIXED CHARGES:(5)                  --           --           --           --           1.5x

     NET CASH PROVIDED BY (USED IN):
        Operating Activities                   $   1,287    $     759    $   8,468    $   7,738    $   8,381
        Investing Activities                     (24,657)      (6,368)     (50,404)     (34,736)      (7,655)
        Financing Activities                      24,830         (885)      49,894       30,302          944
     DEPRECIATION AND AMORTIZATION                12,054        8,897        8,010        8,271        6,772
     CAPITAL EXPENDITURES                          3,944       57,026       14,957       46,046        6,913

BALANCE SHEET DATA:
     Cash                                      $  14,810    $  13,349    $  19,844    $  11,886    $   8,582
     Total Assets                                215,695      191,179      197,213      137,660       93,598
     Short-Term Debt                               7,591       27,750       11,226       11,619       17,065
     Long-Term Debt                              206,191      127,882      139,467      100,849       53,772
     Preferred stock, Net of Offering Costs
        and Discount                              19,631       15,489       11,953         --           --
     Stockholders' Equity (Deficiency)           (37,863)      (2,043)      16,061       11,087       14,113
</TABLE>
------------------
1    In 1997 the Company recorded an allowance of $2.2 million against the book
     value of Nevada Club assets held for sale to write such assets down to
     estimated net realizable value, and has recorded an expense of $1.9 million
     for the anticipated net settlement obligation relating to certain land
     lease payments and property-related costs arising out of the Company's
     purchase and subsequent sale in 1995 of Harolds Club. The Company sold
     Harolds Club on May 31, 1995 and, accordingly, at December 31, 1994,
     recorded an allowance of $1.4 million against the book value of assets sold
     to write such assets down to estimated realized value.
2    EBITDA, or "earnings before interest, taxes on income, depreciation, and
     amortization," is a supplemental financial measurement used by the Company
     in the evaluation of its gaming business and by many gaming industry
     analysts. EBITDA is calculated by adding depreciation and amortization
     expense to income from operations. At any property, EBITDA is calculated
     after the allocation of corporate costs. However, EBITDA should only be
     read in conjunction with all of the Company's financial data summarized
     above and its financial statements prepared in accordance with GAAP
     appearing elsewhere herein, and should not be construed as an alternative
     either to income from operations (as determined in accordance with GAAP) as
     an indication of the Company's operating performance or to cash flows from
     operating activities (as determined in accordance with GAAP) as a measure
     of liquidity. This presentation of EBITDA may not be comparable to
     similarly titled measures reported by other companies.
3    Other includes results for management fees and corporate costs not
     allocated to the core properties.
4    Adjustments to EBITDA include (i) exclusion of EBITDA for Harolds Club and
     Nevada Club for all periods presented; (ii) exclusion of business
     development expenses of Sugar Creek, Missouri of $0.4 million for 1995,
     $0.5 million for 1994 and $0.5 million for 1993; (iii) exclusion of
     pre-opening expenses of Fitzgeralds Tunica of $4.9 million for 1994; (iv)
     exclusion of write down of Nevada Club assets of


--------------------------------------------------------------------------------
                                 Page 21 of 52
<PAGE>   23

     $2.2 million for 1997; (v) exclusion of Harolds Club lease settlement of
     $1.9 million for 1997; and (vi) inclusion of $1.0 million for 1997 and $0.6
     million for 1996 in cash received by the Company as a result of its 22%
     membership in 101 Main.
5    For the Ratio of Earnings to Fixed Charges, earnings are defined as
     earnings before income taxes, interest on indebtedness, imputed interest on
     capital lease obligations and the portion of rent expense deemed to
     represent interest. Fixed charges consist of interest on indebtedness,
     imputed interest on capital lease obligations, and the portion of rent
     expense deemed to represent interest. Earnings were insufficient to cover
     fixed charges by $10.6 million, $15.5 million, $0.6 million, and $8.2
     million for the years ended December 31, 1997, 1996, 1995, and 1994
     respectively.





--------------------------------------------------------------------------------
                                 Page 22 of 52
<PAGE>   24


ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with, and is qualified in
its entirety by, the Company's Consolidated Financial Statements, including the
notes thereto, listed in Item 14(a).

OVERVIEW

Fitzgeralds Las Vegas, Fitzgeralds Tunica and Fitzgeralds Reno have been owned
and operated by the Company or its affiliates since 1987, 1994 and 1985,
respectively. Between December 1994 and February 1995, a business combination
was effected, resulting in the existing single ownership structure for the
companies operating Fitzgeralds-brand casinos. In May 1995, the Company, under
exclusive management contracts, opened two properties outside of Nevada --
Fitzgeralds Black Hawk and Cliff Castle, and in December 1995, the Company
acquired those portions of Fitzgeralds Tunica (20%) and Fitzgeralds Inc. (2%)
which it did not own. During 1996, the Company expended approximately $52.0
million to significantly renovate and expand Fitzgeralds Las Vegas and
Fitzgeralds Tunica. In August 1997, the Company acquired the 78% membership
interest in 101 Main not previously owned.

On a consolidated basis, net operating revenues (excluding Nevada Club)
increased to $173.5 million in 1997 from $134.1 million in 1996 principally as a
result of increased casino and room revenues due to the completion of the Tunica
Hotel which became fully operational in the 4th quarter of 1996, and due to the
inclusion of Fitzgeralds Black Hawk operating revenues in the Company's
consolidated results subsequent to the acquisition in August 1997 of the 78%
membership interest in 101 Main not previously owned.

In 1997 and 1996, casino operations (excluding Nevada Club) provided an average
of approximately 78.3% and 78.9% of the Company's net revenues, respectively,
and substantially all of its income from operations. Slot machine income has
been the primary component of the Company's gaming revenues, providing an
average of approximately 79.6% and 76.5% of such revenues (excluding Nevada
Club) during 1997 and 1996, respectively.

Unless otherwise noted, the narrative discussion below is focused on the
principal ongoing operating properties of the Company which include Fitzgeralds
Las Vegas, Fitzgeralds Tunica, Fitzgeralds Reno and, commencing August 15, 1997,
Fitzgeralds Black Hawk, and management fees received by FI (the "Properties").

RECENT EVENTS

On December 19, 1997 the Company issued $205 million in 12 1/4% Senior Secured
Notes. Net proceeds of the issuance of $202.6 million were used to repay
substantially all of the Company's indebtedness, including the 101 Main Notes
discussed below. An extraordinary loss of $19.2 million was recorded in
connection with the early retirement of this debt.

On August 15, 1997, the Company acquired the 78% membership interest in 101 Main
not previously owned at a purchase price of approximately $27.3 million. As a
result, the operations of Fitzgeralds Black Hawk, wholly-owned by 101 Main, are
included in the consolidated financial results of the Company commencing August
15, 1997. This purchase was financed through the issuance of the $38 million 101
Main Notes. The proceeds from the 101 Main Notes in excess of the $27.3 million
used to purchase the 78% membership interest were used to retire certain
existing indebtedness secured by assets of 101 Main

--------------------------------------------------------------------------------
                                 Page 23 of 52
<PAGE>   25

and for general corporate purposes. The 101 Main Notes were retired as part of
the December 1997 financing discussed above.








--------------------------------------------------------------------------------
                                 Page 24 of 52
<PAGE>   26

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated certain Statement of
Operations Data and Other Data for the Company's properties.


<TABLE>
<CAPTION>
                                         YEAR ENDED DECEMBER 31
                              ------------------------------------------
STATEMENT OF OPERATIONS DATA         1997          1996        1995

                                         (DOLLARS IN THOUSANDS)
<S>                               <C>          <C>          <C>
NET REVENUES:
     Fitzgeralds Las Vegas        $  46,540    $  43,483    $  42,653
     Fitzgeralds Tunica              68,734       48,748       46,466
     Fitzgeralds Reno                39,803       37,076       40,212
     Fitzgeralds Black Hawk(1)       12,692         --           --
     Other(2)                         5,695        4,791        3,509
                                  ---------    ---------    ---------
          Total Properties          173,464      134,098      132,840
     Nevada Club                      6,238        6,432        7,037
     Harolds Club                      --           --          1,520
                                  ---------    ---------    ---------
          Total                   $ 179,702    $ 140,530    $ 141,397
                                  =========    =========    =========

INCOME (LOSS) FROM OPERATIONS:
     Fitzgeralds Las Vegas        $    (498)   $    (330)   $   2,403
     Fitzgeralds Tunica               6,013         (597)       6,230
     Fitzgeralds Reno                 3,211        2,318        4,997
     Fitzgeralds Black Hawk(1)        4,215         --           --
     Other                            4,011        2,861        1,667
                                  ---------    ---------    ---------
          Total Properties           16,952        4,252       15,297
     Nevada Club                     (1,477)        (381)          97
     Harolds Club                    (1,853)        --         (1,626)
                                  ---------    ---------    ---------
          Total                   $  13,622    $   3,871    $  13,768
                                  =========    =========    =========

OTHER DATA

EBITDA(3):
     Fitzgeralds Las Vegas        $   2,651    $   1,656    $   4,084
     Fitzgeralds Tunica              11,744        3,790        9,934
     Fitzgeralds Reno                 5,462        4,596        7,009
     Fitzgeralds Black Hawk(1)        4,842         --           --
     Other(4)                         4,111        2,874        1,667
                                  ---------    ---------    ---------
         Total Properties            28,810       12,916       22,694
     Nevada Club                     (1,282)        (148)         392
     Harolds Club                    (1,853)        --         (1,307)
                                  ---------    ---------    ---------
         Total EBITDA                25,675       12,768       21,779
     Adjustments to EBITDA            4,924          742        1,337
                                  ---------    ---------    ---------
         Adjusted EBITDA          $  30,599    $  13,510    $  23,116
                                  =========    =========    =========
NET CASH PROVIDED BY (USED IN):
     Operating Activities         $   1,287    $     759    $   8,468
     Investing Activities           (24,657)      (6,368)     (50,404)
     Financing Activities            24,830         (885)      49,894
DEPRECIATION AND AMORTIZATION        12,054        8,897        8,010
CAPITAL EXPENDITURES                  3,944       57,026       14,957
 EARNINGS TO FIXED CHARGES(5)          --           --           --
</TABLE>

--------------

1    Includes operating results of Fitzgeralds Black Hawk commencing August 15,
     1997.
2    Includes fees from management agreement from Fitzgeralds Black Hawk prior
     to August 15, 1997, Cliff Castle and Turning Stone.
3    For a definition of EBITDA and Adjusted EBITDA, see Notes 2 and 4 of Notes
     to "Selected Financial Data."
4    Includes fees from management agreement from Fitzgeralds Black Hawk prior
     to August 15, 1997, Cliff Castle and Turning Stone, net of corporate
     expenses and expenses of FI.

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                                 Page 25 of 52
<PAGE>   27

5    For the Ratio of Earnings to Fixed Charges, earnings are defined as
     earnings before income taxes, interest on indebtedness, imputed interest on
     capital lease obligations, and the portion of rent expense deemed to
     represent interest. Fixed charges consist of interest on indebtedness,
     imputed interest on capital lease obligations, and the portion of rent
     expense deemed to represent interest. Earnings were insufficient to cover
     fixed charges by $10.6 million, $15.5 million, and $0.6 million for the
     years ended December 31, 1997, 1996, and 1995, respectively.


FISCAL 1997 COMPARISON TO FISCAL 1996

Operating Revenues

Total revenues for the Properties were $188.2 million and net operating revenues
for the Properties were $173.5 million for 1997, representing, respectively,
28.9% and 29.4% increases over the Properties' total revenues of $146.0 million
and net operating revenues of $134.1 million for 1996. Such increases were
largely the result of the consolidation of operating results of Fitzgeralds
Black Hawk commencing August 15, 1997, as well as the fact that the 507-room
hotel tower at Fitzgeralds Tunica (the "Tunica Hotel") did not commence
operations until August 1996 and was not fully operational until October 1996.
Therefore, 1997 results include the full year benefit of hotel revenue and
subsequent improved casino revenue at Fitzgeralds Tunica.

The Company's business can be separated into four operating departments: casino,
food and beverage, rooms and other. Casino revenues for the Properties (of which
approximately 79.6% and 76.5% of which are derived from slot machine revenues
for 1997 and 1996, respectively) increased 28.5% to $135.9 million for 1997 from
the $105.8 million recorded for 1996, due principally to the consolidation of
operating results of Fitzgeralds Black Hawk and to the opening of the Tunica
Hotel which occurred in phases from August to October 1996. Casino revenues
increased 32.0% at Fitzgeralds Tunica, due to the opening of the Tunica Hotel,
and 4.8% at Fitzgeralds Reno, due primarily to increased traffic from the
Women's International Bowling Congress (the "Bowling Tournament") held in Reno
during the first and second quarters of 1997. Casino revenue increased 6.8% at
Fitzgeralds Las Vegas due mostly to the fact that Fitzgeralds Las Vegas was
largely under construction from May through November of 1996. Casino revenue for
the Properties represented 72.2% and 72.4% of total revenues for the Properties
for 1997 and 1996, respectively. This decrease in casino revenues as a
percentage of total revenues is largely attributed to greater increases in rooms
and food and beverage revenues due to the opening of the Tunica Hotel.

Room revenues for the Properties (at 11.3% and 10.9% of total revenues for the
Properties for 1997 and 1996, respectively) increased 34.3% from 1996 due
primarily to the opening of the Tunica Hotel. Room revenues at Fitzgeralds
Tunica, at $7.8 million for 1997 are not comparable to 1996 since the Tunica
Hotel did not commence operations until August 1996 and was not fully
operational until October 1996. The Tunica Hotel operated at an average
occupancy rate of 89.3% and 81.3% for 1997 and 1996, respectively. Room revenues
increased by 2.6% at Fitzgeralds Las Vegas due to a decrease in tour-and-travel
customers who were replaced by free independent travelers typically paying a
higher average daily room rate, partially offset by lower occupancy rates, at
89.7% and 93.9% for 1997 and 1996, respectively. At Fitzgeralds Reno, room
revenues increased 7.2% due to a combination of higher daily room rates and an
increase in average occupancy rates, at 90.2% and 88.8% for 1997 and 1996,
respectively. These increases were largely due to the Bowling Tournament, and
the fully integrated player tracking system.

Food and beverage revenues for the Properties (at 11.2% and 11.7% of total
revenues for the Properties for 1997 and 1996, respectively) increased $4.1
million or 23.8% from 1996 to 1997. This increase was the result of the
inclusion of Fitzgeralds Black Hawk results of approximately $923,000, as well
as the additional food venues at Fitzgeralds Las Vegas and Fitzgeralds Tunica,
which posted gains of 16.6% and 37.9%, respectively. Food and beverage revenues
at Fitzgeralds Reno were essentially unchanged.

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                                 Page 26 of 52
<PAGE>   28

Other revenues for the Properties increased 34.7% for the year, primarily due to
the opening of the Tunica Hotel, which also resulted in increases in TV movie,
telephone and gift shop revenues and credit card commissions, and to increases
in operating performance at Cliff Castle.

Promotional allowances for the Properties increased 23.6% for the year, as a
result of increases in volumes, partially offset by improved methods to award
complimentary goods and services.

Operating Costs and Expenses

Total operating costs and expenses for the Properties increased 20.5%, to $156.5
million for 1997 from $129.8 million for 1996, primarily due to the inclusion of
operating expenses of Fitzgeralds Black Hawk of approximately $8.5 million,
increases in volume, increases in payroll costs related to the start of
operations of the Tunica Hotel and additional food venues at Fitzgeralds Las
Vegas and Fitzgeralds Tunica. Total operating expenses for the Properties were
also affected by a 36.9% increase in depreciation and amortization expense for
the Properties as renovated and expanded facilities at Fitzgeralds Las Vegas and
Fitzgeralds Tunica were put into service and a $755,000 non-recurring write down
of Nevada Club, Inc. ("NCI") assets held for sale to estimated realizable value.

Casino expenses for the Properties were $66.0 million for 1997, a 21.4% increase
from the $54.4 million for 1996 primarily as a result of increased volume and
increased personnel as well as the inclusion of expenses from Fitzgeralds Black
Hawk during 1997. Food and beverage expenses for the Properties increased 32.0%,
to $16.2 million for 1997 from $12.3 million for 1996, primarily as the result
of additional restaurants at Fitzgeralds Las Vegas and Fitzgeralds Tunica. Room
expenses for the Properties increased 29.7%, to $12.5 million for 1997 from $9.6
million for 1996, primarily as the result of the start of operations at the
Tunica Hotel. Room expense increased a modest 1.4% at Fitzgeralds Las Vegas and
decreased by 0.7% at Fitzgeralds Reno. Selling, general and administrative
expense for the Properties increased 9.6%, to $47.5 million for 1997 from $43.3
million for 1996 due mostly to increases in personnel and marketing expenses, as
explained further below.

Personnel expenses for the Properties increased 15.4%, to approximately $67.8
million for 1997 from approximately $58.8 million for 1996. This increase
resulted from the start of operations at the Tunica Hotel, as well as the need
for larger staff at the expanded Las Vegas and Tunica facilities and the
inclusion of Fitzgeralds Black Hawk personnel expenses in 1997.

Marketing expenses for the Properties, which includes advertising, promotional
material, special events and the operations of the Fitzgeralds Card, increased
11.8% for the year. The increase reflects more intensive marketing efforts at
each property undertaken in response to increasing competitive activity in each
of the markets in which the Company operates, particularly in Tunica,
Mississippi, and the inclusion of Fitzgeralds Black Hawk marketing expenses in
1997. The Company's strategy is to utilize its expanded and renovated
facilities as additional marketing elements and to continue to adjust marketing
expense levels as needed to respond to competition.

Depreciation and amortization expense of the Properties increased 36.9%, to
$11.9 million for 1997 from $8.7 million for 1996. The increase was primarily
the result of the start of depreciation of the expanded and renovated facilities
at Fitzgeralds Las Vegas and Fitzgeralds Tunica, as well as the addition of
Fitzgeralds Black Hawk depreciation and amortization.

--------------------------------------------------------------------------------
                                 Page 27 of 52
<PAGE>   29

Income from Operations

As a result of the foregoing, income from operations for the Properties
increased 298.7%, to $17.0 million for 1997 from $4.3 million for 1996.

Net Interest Expense

Interest expense for the Properties (net of interest income), increased 39.6%,
to $24.7 million for 1997 from $17.7 million for 1996, due in part to an
increase in interest expense resulting from the issuance in December 1996 of
$5.9 million aggregate principal amount of Priority Notes, as well as the
issuance in August 1997 of $38.0 million aggregate principal amount of 101 Main
Notes by 101 Main. During 1996, interest of $1.8 million was capitalized on the
construction of Fitzgeralds Las Vegas and Fitzgeralds Tunica. No interest was
capitalized during 1997.

Loss Before Income Taxes and Extraordinary Item

For the reasons described above, the Properties recorded a loss before income
taxes and extraordinary item of $8.4 million in 1997, compared to $14.1 million
loss before taxes recorded for 1996. Loss before income taxes and extraordinary
item increased at each property other than Fitzgeralds Tunica, which recorded a
$4.8 million improvement due to the benefits from the hotel becoming fully
operation in the 4th quarter of 1996.

While the Properties recorded $1.5 million in income tax benefit for 1996, no
income tax benefit or provision was recorded for 1997.

Loss Before Extraordinary Item

Loss before extraordinary item for the Properties improved to $8.4 million for
1997 from $12.7 million for 1996. This reflects a substantial improvement in
operating income at the Properties, especially Fitzgeralds Tunica, offset by an
increase in interest expense, the non-recurring write down of NCI assets held
for sale, and the absence of an income tax benefit for 1997.

Extraordinary Item and Net Loss

In connection with the Company's issuance of the Senior Secured Notes in
December 1997, an extraordinary loss of $19.2 million was recorded to reflect
the cost associated with the early retirement of certain debt of the Company.
Net loss for the properties increased to $27.6 million in 1997 as compared to
$12.7 million in 1996 reflecting the impact of the extraordinary item.

FISCAL 1996 COMPARISON TO FISCAL 1995

Operating Revenues

Total revenues for the properties increased to $146.1 million in 1996, a 1.5%
increase from the $143.9 million in 1995. Net operating revenues for the
Properties increased 1.0% to $134.1 million for 1996 from $132.8 million
recorded in 1995.

Casino revenues for the Properties decreased 1.7% to $105.8 million in 1996 from
$107.5 million in 1995. Casino revenues were nominally higher at Fitzgeralds Las
Vegas, increasing to $30.6 million in 1996 from

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                                 Page 28 of 52
<PAGE>   30

$30.4 million recorded for 1995, nominally lower at Fitzgeralds Tunica,
decreasing to $44.8 million in 1996 from $44.9 million recorded for 1995, and
were $1.9 million lower at Fitzgeralds Reno.

Food and beverage revenues for the Properties increased 3.5% to $17.0 million in
1996 from $16.5 million in 1995, principally as the result of a 25.0% increase
at Fitzgeralds Tunica, reflecting an increase in the number of food outlets
during 1996. Food and beverage revenues increased 2.3% at Fitzgeralds Las Vegas
despite suffering from significant construction-related disruptions from May
through November 1996. Fitzgeralds Reno's operations were adversely impacted by
a softer market and an increase in food and beverage capacity in the market,
resulting in a 9.4% decline in food and beverage revenue.

Room revenues increased 21.0% to $15.9 million in 1996 from $13.1 million in
1995, due to the opening of the hotel at Fitzgeralds Tunica and a 13.4% increase
in room revenues at Fitzgeralds Las Vegas partially offset by an 18.0% decline
at Fitzgeralds Reno. Fitzgeralds Tunica's hotel opened with approximately 100
rooms in July 1996 and the balance of its 507 rooms were available by October
1996. Increased revenues at Fitzgeralds Las Vegas resulted from the completion
of the renovation of all of its rooms in September 1996 and an increase in
average daily room rates throughout the year. The decline at Fitzgeralds Reno
was the result of market saturation and more intense competition for hotel
guests.

Other revenues for the Properties increased 8.2% to $7.4 million in 1996 from
$6.8 million in 1995 primarily as a result of a 36.5% increase in management
fees from Fitzgeralds Black Hawk and Cliff Castle. This was offset in part by
decreases in gift shop and miscellaneous revenues of 17.4%, 15.4% and 40.4% at
Fitzgeralds Las Vegas, Fitzgeralds Tunica, and Fitzgeralds Reno, respectively.

Promotional allowances for the Properties increased 7.7% to $12.0 million for
1996 from the $11.1 million recorded for 1995 due mostly to a 46.9% increase at
Fitzgeralds Tunica, an indication of the level of competitiveness in that
market, partially offset by a 14.3% decrease at Fitzgeralds Reno.

Operating Costs and Expenses

Operating costs and expenses for the Properties increased 10.5% to $129.8
million in 1996 from $117.5 million in 1995. Increases of 8.9% and 22.6% were
recorded at Fitzgeralds Las Vegas and Fitzgeralds Tunica, respectively, while
operating costs at Fitzgeralds Reno decreased by 1.3%.

Casino expenses for the Properties increased 4.7% to $54.4 million in 1996 from
$52.0 million in 1995. Fitzgeralds Las Vegas recorded a 4.5% increase in casino
costs, due primarily to union-mandated payroll increases, and increases in
security department payroll which is allocated in part to the casino.
Fitzgeralds Tunica recorded a 12.5% increase due to increases in volume.
Expenses at Fitzgeralds Reno declined 5.7% resulting primarily from cost control
efforts, especially in payroll.

Food and beverage expenses at the Properties increased 8.8% to $12.3 million in
1996 from $11.3 million in 1995. Fitzgeralds Las Vegas recorded a 16.0% increase
year-to-year due to union-mandated increases in compensation and early hiring of
staff for its three new restaurants. Fitzgeralds Tunica recorded a 29.2%
increase in food and beverage costs due to increases in volume and increases in
staff levels to accommodate the two additional restaurants. These were offset in
part by a 10% decline at Fitzgeralds Reno, due to lower revenues and better
controls over cost of sales.

Rooms expenses for the Properties increased 35.4% to $9.6 million in 1996 from
$7.1 million in 1995. The increase is attributable to the addition of the hotel
at Fitzgeralds Tunica, which for 1996 represented nearly 74.9% of the total
increase in costs. Union- and market-related factors at Fitzgeralds Las Vegas
increased costs 11.9% for the year. Costs at Fitzgeralds Reno were essentially
unchanged.

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                                 Page 29 of 52
<PAGE>   31

Selling, general and administrative expenses for the Properties increased 14.0%
to $43.3 million in 1996 from $38.0 million in 1995. The increase was primarily
attributable to greater marketing and special events expense at all properties,
resulting from expenditures made to increase casino traffic. Fitzgeralds Tunica
increased 25.0% from 1995 to 1996, while Fitzgeralds Las Vegas and Fitzgeralds
Reno increased of 10.7% and 5.7%, respectively.

Depreciation and amortization expense of the Properties was $8.7 million in 1996
compared to $7.4 million for 1995, an increase of 17.1%. The largest increase in
depreciation expense is accounted for by Fitzgeralds Tunica, which recorded $4.4
million in 1996 compared with $3.7 million in 1995, due to the start of
operations of the hotel in the last quarter of 1996.

Income from Operations

Income from operations for the Properties decreased 72.4%, to $4.3 million for
1996 from $15.3 million for 1995. For the various reasons described above,
income from operations for Fitzgeralds Las Vegas decreased 113.7% (from $2.4
million in 1995 to a loss of $330,000 in 1996), income from operations for
Fitzgeralds Tunica decreased 109.6% (from $6.2 million in 1995 to a loss of
$597,000 in 1996) and income from operations for Fitzgeralds Reno decreased from
$5.0 million in 1995 to $2.3 million in 1996, a 53.6% decrease. These decreases
were slightly offset by an approximately $1.1 million increase in income from
operations due to increased management fees from both Cliff Castle and
Fitzgeralds Black Hawk.

Net Interest Expense

Net interest expense for the Properties (interest expense less interest income)
rose 28.0% to $17.7 million for 1996 from the $13.8 million recorded for 1995,
due to the issuance in December 1995 of the Senior Secured Notes.

Income Before Income Taxes and Income Tax Provision

For the reasons described above, the Properties recorded loss before taxes of
$14.1 million in 1996, compared to the $811,000 in income before taxes recorded
in 1995. Income before taxes declined at each property. This was offset in part
by a $2.1 million increase in management fees at Fitzgeralds Black Hawk and
Cliff Castle due to their inclusion for the entire year in 1996 compared to only
seven months in 1995, as well as improved performance for comparable months.

Reflecting the Company's overall loss before income taxes, a tax benefit of $1.5
million was recorded in 1996, compared to a tax provision of $2.8 million in
1995. The provision in 1995 was required due to the 1995 business combination,
in which certain subsidiaries converted from S corporation status to C
corporation status. This conversion resulted in the recording of deferred tax
liabilities resulting from temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
tax purposes.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1997 the Company had unrestricted cash of $14.8 million,
compared to $13.3 million at December 31, 1996. In addition, cash set aside for
construction contingencies totaled $0.4 million. The Company's primary sources
of liquidity and cash flow in 1997 were operations, $1,287,000, distributions
from 101 Main of

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                                 Page 30 of 52
<PAGE>   32

$1 million, and issuance of debt (net of redemptions and issuance costs) of
$27.0 million. Uses of liquidity in 1997 included the purchase of the 78%
membership interest in 101 Main of $25.7 million, acquisition of property and
equipment of $3.6 million, and investment in Fremont Street Experience of
$800,000.

1997 included two major financing and investing activities. The issuance in
August 1997 of $38.0 million 101 Main Notes and subsequent purchase of the 78%
membership interest in 101 Main not previously owned, and the issuance in
December 1997 of $205 million Senior Secured Notes, the proceeds of which
were used to repay substantially all of the Company's outstanding indebtedness.
The proceeds of the 101 Main Notes totaled approximately $36 million after
issuance costs. Of this amount, $27.3 million was used to purchase the remaining
78% membership interest in 101 Main ($25.7 million net of cash acquired), and
the balance of the offering proceeds was used to repay certain existing
indebtedness secured by assets of 101 Main and for general corporate purposes.
The issuance in December 1997 of the $205 million in Notes resulted in net
proceeds to the Company of $202.6 million. These proceeds were used to repay
substantially all of the Company's outstanding indebtedness, including the
Senior Secured Notes of $123.0 million, 101 Main Notes of $39.7 million,
indebtedness secured by Fitzgeralds Reno of $20.1 million, and Priority Notes of
$5.4 million. The remainder of the proceeds was used to pay accrued interest of
$5.7 million and issuance expenses of $8.7 million. The issuance of the Notes
enabled the Company to consolidate it's various debt agreements, and to
eliminate otherwise unfavorable restrictions contained in covenants of certain
of the previously outstanding debt agreements. With certain limited exceptions,
the Company's obligations under the Notes are fully and unconditionally
guaranteed by all subsidiaries of the Company by a first priority lien on
substantially all assets of the guarantor subsidiaries. See Note 15 of Notes to
Consolidated Financial Statements for a more detailed discussion of these
guarantees.

Net cash used in investing activities was $24.7 million for the year ended
December 31, 1997 as compared to $6.4 million for 1996. In 1997, in addition to
the $27.3 million acquisition of the 78% membership interest in 101 Main
discussed above, investing activities included the purchase of property and
equipment of $3.6 million, additional investments in Fremont Street Experience
of $800,000, offset by distributions from 101 Main (prior to the acquisition of
the remaining 78% membership interest) of $1 million. This compares with 1996 in
which property and equipment acquisitions (primarily construction of the Tunica
Hotel) totaled $53.3 million, funded largely by a $46.8 million decline in
restricted cash balances. Additionally, 1996 investing activities included a $1
million investment in Fremont Street Experience offset by a $594,000
distribution from 101 Main.

Net cash provided by financing activities was $24.8 million for the year ended
December 31, 1997 compared with net cash used of $885,000 in 1996. The primary
components in 1997 were the issuance of the $205 million Senior Secured Notes
(net proceeds of $202.6 million), the issuance of the 101 Main Notes (net
proceeds of $38 million) and other issuances of $0.2 million offset by early
retirement of outstanding debt of $202.6 million and issuance costs of $11.3
million. Financing activities in 1996 consisted of primarily the issuance of
$9.6 million in debt (including $5.9 million in Priority Notes) offset by debt
repayment of $10.2 million.

Under the terms of certain indemnification, assignment and assumption and
guarantee agreements executed by FRI in connection with the purchase and
subsequent sale of Harolds Club, FRI is contingently obligated for certain land
lease payments to five lessors in the amount of approximately $580,000 annually
plus certain property-related costs, such as taxes and insurance if said lease
payments and costs are not paid by the current owner of Harolds Club. As of
December 31, 1997, the current owner of Harolds Club was approximately
$1,106,000 in arrears in land lease payments and approximately $259,000 in
arrears in property taxes and assessments. The current owner of Harolds

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                                 Page 31 of 52
<PAGE>   33

Club and the five land lessors have received an offer to purchase their
respective interests in Harolds Club. The same unrelated party has made an offer
to purchase the Nevada Club for $4.0 million. Subject to certain terms and
conditions, FRI has agreed to pay the land lessors approximately $2.1 million in
exchange for a dismissal with prejudice of all claims against FRI arising out of
FRI's purchase and subsequent sale of Harolds Club (the "Settlement").
Concurrent with the closing of the Harolds Club transaction FRI anticipates
payment of $600,000 of the Settlement in cash, less the cumulative amount of
interim monthly rental payments ($28,977 per month), and the remainder in the
form of five promissory notes payable in equal monthly installments over five
years, plus interest at the prime rate in effect at the largest financial
institution in Nevada on the date the notes are executed. The notes will be
secured by the personal guarantee of the Chairman and Chief Executive Officer of
the Company. Subject to specified terms and conditions, a prior owner of Harolds
Club named in four of the five actions has agreed to reimburse $300,000 to FRI
as its contribution to the settlement of these actions and has agreed to provide
a payment guarantee for one of the five notes. The closing of the Harolds Club
transaction is subject to the receipt by FRI of the $300,000 reimbursement and
the closing of the Nevada Club sale. During 1997 the Company recorded an expense
of $1.9 million for the anticipated net settlement obligation, including related
legal fees. In anticipation of the Nevada Club transaction, the Company
reclassified $6.2 million from Property and Equipment to Estimated Realizable
Value of Nevada Club Assets Held for Sale in the consolidated balance sheet as
of December 31, 1997 and recorded an allowance of $2.2 million against the book
value of the assets held for sale to write such assets down to the estimated net
realizable value in the consolidated statement of operations for year ended
December 31, 1997.

In December 1997, the Company closed the Nevada Club in anticipation of the
aforementioned sale. Upon the sale, notes payable by NCI to a bank, which are
secured by Nevada Club assets and guaranteed by the Chairman and Chief Executive
Officer of the Company, will be retired. Such notes payable totaled $2.7 million
in principal amount as of December 31, 1997, and have covenants placing certain
restrictions on NCI and requiring that certain financial ratios be maintained.
As of December 31, 1997, Nevada Club was not in compliance with the following
covenants: Tangible Net Worth of $800,000, Funded Debt to EBITDA Ratio of 3.5 to
1.0, Debt Service Coverage Ratio of 1.2 to 1.0 and a Fixed Charge Coverage Ratio
of 1.0 to 1.0. NCI continues to make scheduled principal and interest payments
on the notes. See Note 7 of Notes to Consolidated Financial Statements. There
can be no assurance, however, that Nevada Club will be sold or that the
Settlement will be consummated.

The Company's principal sources of capital will consist of cash from operations
and vendor and lease financing of gaming and other equipment. Additionally, the
indenture under which the Senior Secured Notes were issued allows the Company,
under certain circumstances, to establish a secured $15.0 million line of
credit, of which up to $5.0 million could be used for capital projects at
Fitzgeralds Black Hawk. As of December 31, 1997, the Company has not established
such line of credit. Based upon anticipated levels of operations, the Company
currently expects its cash flows will be sufficient to enable the Company to
satisfy its anticipated operating cash requirements including debt service
requirements, working capital and other fixed charges through 1998, as well as
anticipated maintenance capital expenditures of approximately $6.0 million
during 1998. There can be no assurance as to the actual level of operating cash
requirements or of the amount of cash flows from operations or their sufficiency
to meet such requirements.

EBITDA AND ADJUSTED EBITDA

The Company's earnings before interest, income taxes, depreciation and
amortization ("EBITDA") was $25.7 million for 1997 and $12.8 million in 1996.
EBITDA is calculated by adding depreciation and amortization expenses to income
from operations. The Company's Adjusted EBITDA was $30.6 million in 1997 and
$13.5 million in 1996. Adjusted EBITDA is determined based on the adjustments
described in Note 4 to "Selected Financial Data." However, EBITDA should only be
read in conjunction with all of the Company's financial data summarized above
and its financial statements prepared in accordance with GAAP appearing
elsewhere herein, and should not be construed as an alternative either to income
from operations (as determined in accordance with GAAP) as an indication of the
Company's operating performance or to cash flows from operating activities (as
determined in accordance with GAAP) as a

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                                 Page 32 of 52
<PAGE>   34

measure of liquidity. This presentation of EBITDA may not be comparable to
similarly titled measures reported by other companies.

RATIO OF EARNINGS TO FIXED CHARGES

The ratio of earnings to fixed charges measures the extent by which earnings, as
defined, exceed certain fixed charges. Earnings are defined as earnings before
income taxes, interest on indebtedness, imputed interest on capital lease
obligations and the portion of rent expense deemed to represent interest. Fixed
charges consist of interest on indebtedness, imputed interest on capital lease
obligations, and the portion of rent expense deemed to represent interest.
Earnings were insufficient to cover fixed charges by $10.6 million and $15.5
million for the years ended December 31, 1997 and 1996, respectively.

BUSINESS SEASONALITY

The Company's business is subject to the seasonality of the gaming business,
which varies slightly geographically. At Fitzgeralds Las Vegas, business levels
are generally weaker from Thanksgiving through the middle of January (except
during the week between Christmas and New Year's) and throughout the summer, and
generally stronger from mid-January through Easter and from mid-September
through Thanksgiving. At each of the three other Fitzgeralds-brand properties,
business levels are typically weaker from Thanksgiving through the end of the
spring and typically stronger from mid-June to mid-November.

COMPUTERIZED OPERATIONS AND THE YEAR 2000

During recent years, there has been significant global awareness raised
regarding the potential disruption to business operations worldwide resulting
from the inability of current technology to process properly the change from the
year 1999 to 2000. The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs that have time-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

In 1997 the Company initiated an investigation to identify and ensure that all
significant applications will be Year 2000 compliant. The Company is conducting
its investigation and is in the process of obtaining assurances from its vendors
that timely updates will be made available to ensure that all purchased
applications are Year 2000 compliant. However, there can be no guarantee that
the systems of other companies on which the Company's systems rely will be
timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company.

The Company will utilize both internal and external resources to test, program
and/or replace applications to ensure that they are Year 2000 compliant.
Completion of this project is anticipated not later than October 31, 1999.
Although the costs associated with the Year 2000 project are not expected to be
material in nature, the Company has not finalized its investigation and is
unable to provide an estimate of such costs at this time. Such costs are
expected to be funded through operating cash flows. Costs of hardware and
software required to be purchased as a result of the Year 2000 Issue will be
capitalized in accordance with normal policy. Personnel and all other costs
related to the project will be expensed as incurred. The conversion of most
purchased applications will be completed under the terms of maintenance
agreements which provide for the conversion of such applications at no
additional cost. All equipment and other operating systems are currently being
evaluated to determine if Year 2000 issues have an effect on their ability to
perform their respective functions.

Although, based on its investigation to date the Company does not believe that
it will experience any significant adverse effects or material unbudgeted costs
associated with the Year 2000 project, the Company cannot provide any assurance
in this regard, and any such cause or effect could materially and adversely
affect the Company.

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Information required by this item is listed under Item 14 of Part IV of this
Report on Form 10-K.

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                                 Page 33 of 52
<PAGE>   35

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                  AND FINANCIAL DISCLOSURE

None




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                                 Page 34 of 52
<PAGE>   36

                                    PART III


ITEM 10.          DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The following tables set forth certain information with respect to the officers,
directors and significant employees of the Company as of December 31, 1997:


                        EXECUTIVE OFFICERS AND DIRECTORS

<TABLE>
<CAPTION>
NAME                           AGE    POSITION(S) HELD
----                           ---    ----------------
<S>                            <C>    <C>

Philip D. Griffith             52     Chairman, President, Chief Executive Officer and Director
Michael A. Ficaro              50     Director
Patricia W. Becker             45     Director
Michael E. McPherson           46     Senior Vice President, Chief Financial Officer, Treasurer and Secretary
</TABLE>


                              SIGNIFICANT EMPLOYEES

<TABLE>
<CAPTION>
NAME                           AGE    POSITION(S) HELD
----                           ---    ----------------
<S>                            <C>    <C>
Paul H. Manske                 57     Senior Vice President of Marketing of the Company

Cara L. Brown                  35     Vice President and General Counsel of the Company

Max L. Page                    48     Executive Vice President and a director of FRI and General Manager of
                                           Fitzgeralds Reno

William J. Noonan, III         46     Vice President and a director of FLVI and General Manager of Fitzgeralds
                                           Las Vegas

James O. Buchanan              48     Vice President and a director of FMI and General Manager of Fitzgeralds
                                           Tunica

Joe C. Collins                 58     Vice President and a director of FBHI and FBHI-II, and General Manager of
                                           Fitzgeralds Black Hawk
</TABLE>


PHILIP D. GRIFFITH, one of the Company's founders, has been President, Chief
Executive Officer and a Director of the Company since its inception in 1984, an
officer and director of certain of its subsidiaries since 1984 and has been
Chairman of the Company since August 1997. Mr. Griffith serves as President and
Chief Executive Officer of each significant subsidiary of the Company. Prior to
his involvement with the Fitzgeralds group of companies, Mr. Griffith was active
in the gaming industry in a variety of positions, serving as Chief Financial
Officer and then President of Harolds Club in Reno from 1973 to 1984 and
president of the Sands Hotel and Casino in Las Vegas from 1982 to 1984. From
1968 to 1973, Mr. Griffith

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                                 Page 35 of 52
<PAGE>   37

was a Certified Public Accountant with the St. Louis, Missouri and Las Vegas
offices of Deloitte Haskins & Sells.

MICHAEL A. FICARO joined the Company as a Director in December 1995. Mr. Ficaro
has been a partner in the Chicago law firm of Hopkins & Sutter since 1989. Mr.
Ficaro has been an adjunct faculty member at John Marshall Law School since 1986
and the National College of District Attorneys since 1978. From 1990 to 1992,
Mr. Ficaro was appointed to the position of Special States Attorney of Cook
County, Illinois. From 1981 to 1989, Mr. Ficaro served in the office of the
Attorney General of Illinois as First Assistant Attorney General (1988-1989),
Charitable Trust Division Chief (1987-1989) and Director of Enforcement
(1986-1989). From 1982 to 1984, he was appointed Special Assistant United States
Attorney. From 1978 to 1981, Mr. Ficaro was Deputy States Attorney of Cook
County, after serving since 1972 as Assistant States Attorney of Cook County.

PATRICIA W. BECKER joined the Company then as a Director in December 1995. Ms.
Becker is a self-employed consultant and served as Chief of Staff to Nevada
Governor Bob Miller from October 1993 to January 1995. From September 1984 to
October 1993, Ms. Becker was a Senior Vice President, General Counsel and
Secretary for Harrah's Casino Hotels., where she was responsible for all legal
affairs and was a member of the senior strategic management group. From January
1983 to September 1984, Ms. Becker was a member of the Nevada State Gaming
Control Board. From July 1979 to January 1983, Ms. Becker was a Deputy and Chief
Deputy Attorney General assigned to the Nevada Gaming Division. Ms. Becker is a
Vice Chair for the Gaming Law Section of the American Bar Association, a past
President of the Nevada Trial Lawyers Association of Gaming Attorneys and a
Director of VLT, Inc.

MICHAEL E. MCPHERSON was named Senior Vice President, Chief Financial Officer
and Treasurer in August 1997, was appointed Secretary in September 1997, and
serves as Senior Vice President, Chief Financial Officer, Treasurer and
Secretary of each significant subsidiary of the Company. Mr. McPherson joined
the Company in March 1985 and has served in various executive positions in the
Company, including Senior Vice President of Operations from September 1995 to
July 1997, Vice President of Finance from November 1994 to September 1995, as
well as Vice President and Treasurer for certain subsidiaries of the Company and
Director of Finance for Fitzgeralds Reno. Mr. McPherson holds a degree in
Business Administration from the University of Nevada Reno and is an associate
member of the Nevada Society of Certified Public Accountants.

PAUL H. MANSKE, one of the Company's founders, has served as Executive Vice
President of a subsidiary of the Company since September 1988 and was appointed
Senior Vice President of Marketing for the Company in January 1997. Prior to
joining the Company, Mr. Manske served as Vice President of Marketing for
Harolds Club and the Sands Hotel/Casino with the Howard Hughes organization from
1978 to 1984, and prior to that as a marketing executive with the Ford Motor
Company from 1964 to 1978. Mr. Manske holds a degree in Business Administration
from Jacksonville University.

CARA L. BROWN joined the Company as Vice President and General Counsel in May
1996. For the three years prior to May 1996, she was an associate counsel at
Harrah's Las Vegas and for the three years prior thereto, she was a staff
attorney at Jones, Jones, Close & Brown in Las Vegas. Ms. Brown has a degree
from the University of North Carolina at Chapel Hill and holds a law degree from
the Marshall-Wythe School of Law at the College of William and Mary in
Williamsburg, Virginia.

MAX L. PAGE, one of the Company's founders, has served as Executive Vice
President and a director of certain subsidiaries of the Company since September,
1986 and as General Manager of Fitzgeralds Reno since November 1994. Mr. Page
was elected a Director of the Company in January 1998. Mr. Page holds a degree
in Political Science and a Masters degree in Public Administration from Brigham
Young University.

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                                 Page 36 of 52
<PAGE>   38

WILLIAM J. NOONAN, III was named Vice President and a director of a subsidiary
of the Company and General Manager of Fitzgeralds Las Vegas in May 1994. He was
first employed by a subsidiary of the Company in January 1994 as Vice President
of that subsidiary. Prior to joining the Company, Mr. Noonan served over 11
years as a city manager: in Perry, Florida from 1982 to September 1987; in Cape
Coral, Florida from September 1987 to January 1991; and in Las Vegas, Nevada
from February 1991 to July 1993. Mr. Noonan was also engaged in business and
gaming consulting services from August 1993 to February 1994. Mr. Noonan holds a
Master's degree in Public Administration from the University of Kansas and a
degree in Public Administration/Economics from Southwest Missouri State
University.

JAMES O. BUCHANAN was named Vice President and a director of a subsidiary of the
Company and General Manager of Fitzgeralds Tunica in January 1995, after serving
first as Senior Director of Gaming, then as Senior Director of Operations and
then as Acting General Manager of Fitzgeralds Tunica from its opening. Prior to
moving to Fitzgeralds Tunica, Mr. Buchanan was employed at Fitzgeralds Reno as
corporate director of slot products from July 1987 to August 1990 and director
of slot operations from August 1990 to December 1993. Prior to joining the
Company, Mr. Buchanan was employed by Harveys Resort Hotel and Casino from 1972
to 1987, during which time he served in numerous positions including director of
slot operations and keno operations.

JOE C. COLLINS was named Vice President and a director of a subsidiary of the
Company and General Manager of Fitzgeralds Black Hawk in January 1995 and was
named Vice President and a director of a second subsidiary of the Company
related to the Fitzgeralds Black Hawk operations in 1997. Prior to that time,
Mr. Collins had been hotel director at Fitzgeralds Reno from April 1985 to
December 1994. Mr. Collins currently serves on the executive board of the Black
Hawk Casino Owners Association and on the board of the Black Hawk Business
Improvement District.

BOARD OF DIRECTORS

Directors are elected at the annual meeting of stockholders and each director is
elected to serve until a successor is elected and qualified. The number of
directors which constitutes the whole Board may not be less than three or more
than nine, except that in cases where all the shares of the Company are owned
beneficially and of record by either one or two stockholders, the number may be
less than three but not less than the number of stockholders. The Company held
the first annual meeting of stockholders on August 1, 1997.

The Board of Directors has established an Audit Committee and a Compensation
Committee. The Audit Committee is charged with reviewing the audited financial
statements of the Company and making recommendations to the full Board on
matters concerning the Company's audits and the selection of independent public
accountants. The Audit Committee is comprised of Patricia W. Becker and Michael
A. Ficaro, as chairperson. The Compensation Committee is responsible for
establishing, bonuses and other compensation for the Company's executive
officers. The Compensation Committee is comprised of Michael A. Ficaro and
Patricia W. Becker, as chairperson.

Directors who are also employees of the Company do not receive any compensation
for their services as directors. Non-employee directors are paid fees of $40,000
per year and $1,000 per Board meeting attended in person or telephonically. The
two non-employee directors of the Company have each received five-year options
to purchase 14,000 shares of the Common Stock, exercisable at a price equal to
the fair market price of the Common Stock on the date of grant. No fee is
payable for participation in Board committee meetings. However, Ms. Becker, as
chairperson of the Company's Gaming Compliance Committee (a non-Board
committee), is paid an additional fee of $30,000 per year and participates in
all health insurance plans available to the Company's employees generally. The
Company reimburses each director for reasonable

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                                 Page 37 of 52
<PAGE>   39

out-of-pocket expenses incurred in his or her capacity as a member of the Board
of Directors. No payments are made for actions taken in writing. Each director
attended at least 75% of the total number of meetings of the Board of Directors
and committees, of which he or she was a member, held during the fiscal year
ended December 31, 1997.

The Company has no nominating committee or committee performing similar
functions.

OTHER COMMITTEES

The Company has formed an Executive Committee (a non-Board committee) to provide
a forum for interaction and discussion among its senior executives. The
Executive Committee is comprised of Michael E. McPherson and Philip D. Griffith,
as chairperson.

In 1995, the Company established a Gaming Compliance Committee (a non-Board
Committee) which is responsible for establishing procedures for and monitoring
compliance with gaming regulations. The Gaming Compliance Committee is comprised
of Cara L. Brown, Kathleen Bryant, Michael E. McPherson and Patricia W. Becker,
as chairperson.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more that 10% of a registered class
of the Company's equity securities, to file an initial report of ownership on
Form 3 and changes in ownership on Forms 4 or 5 with the Securities and Exchange
Commission (the "Commission"). Such officers, directors and 10% stockholders are
also required by the Commission rules to furnish the Company with copies of all
Section 16 (a) forms they file. Based solely on its review of the copies of such
forms received by it, or written representation from certain reporting persons
that no Forms 4 or 5 were required for such persons, the Company has determined
that the following persons filed late reports.

         Mr. Griffith filed a late Form 5, reporting three transactions which
should have been reported on Form 4 and two additional transactions. Mr.
McPherson filed a late Form 5, reflecting a late Form 3 filing (which would
have shown the existence of three grants of options to Mr. McPherson prior to
Mr. McPherson becoming an officer) and two additional transactions. Mr. Page
filed a late Form 3 relating to his election as a director in January 1998.
Mr. Ficaro and Ms. Becker each filed a late Form 5 reporting two transactions.


--------------------------------------------------------------------------------
                                 Page 38 of 52
<PAGE>   40

ITEM 11.          EXECUTIVE COMPENSATION

The following table sets forth a summary of the compensation paid by the Company
in the three fiscal years ended December 31, 1995, 1996 and 1997 to the
Company's Chief Executive Officer and each of its other most highly compensated
executive officers (collectively "named executive officers"). The named
executive officers include (i) each person who served as Chief Executive Officer
during 1997 (one person), (ii) each person who (a) served as an executive
officer at December 31, 1997, (b) was among the four most highly paid executive
officers of the Company, not including the Chief Executive Officer, during 1997
and (c) received over $100,000 in compensation in 1997 (one person), (iii) up to
two persons who would be included under clause (ii) above had they served as an
executive officer at December 31, 1997 (two) and (iv) certain persons who served
as executive officers of a subsidiary of the Company (one person).

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                       LONG-TERM
                                            ANNUAL COMPENSATION(1)                    COMPENSATION
                              ----------------------------------------------------- -----------------
                                                                      OTHER            SECURITIES        ALL OTHER
                              FISCAL                                 ANNUAL            UNDERLYING       COMPENSATION
      NAME & POSITION          YEAR    SALARY ($)  BONUS ($)    COMPENSATION ($)(2)  OPTIONS/SARS(#)       ($)(3)
      ---------------
                              -------- ----------- ----------- -------------------- ----------------- -----------------
<S>                              <C>      <C>         <C>          <C>                    <C>              <C>

Philip D. Griffith               1997     510,008           -           -                 100,000          114,448
  Chairman, President &          1996     465,000           -           -                       -           69,292
  Chief Executive Officer        1995     507,500           -           -                  75,000           10,154

Michael E. McPherson(4)          1997     169,327       7,500           -                  19,000            3,207
  Senior Vice President,         1996     128,077      15,000           -                       -            1,714
  Chief Financial Officer,       1995     125,000           -           -                  21,854            1,424
  Treasurer & Secretary

Paul H. Manske                   1997     224,192           -           -                  19,000           10,701
  Senior Vice President          1996     195,000       2,500           -                       -           10,938
  Marketing                      1995     195,000           -           -                   7,500            7,513

Max Page                         1997     207,308           -           -                   9,000            9,976
  Executive  Vice  President     1996     200,000       5,000           -                       -            7,009
  of FRI & General Manager of    1995     200,000           -           -                  10,000            8,884
  Fitzgeralds Reno

Fernando Bensuaski(5)            1997     200,353           -           -                      --           20,834
                                 1996     257,200           -           -                      --                -
                                 1995      73,315           -           -                  50,000                -
</TABLE>

1    Amounts shown include cash compensation earned for the periods reported
     whether paid or accrued in such periods.
2    During 1997, 1996 and 1995, the named executive officers received personal
     benefits, the aggregate amounts of which for each named executive officer
     did not exceed the lesser of $50,000 or 10% of the total of the annual
     salary and bonus reported for such named executive officer in such years.
3    Amounts represent premiums for life insurance and long-term disability
     policies, medical benefits and the Company's Profit Sharing and 401(k)
     contributions. In fiscal 1997, the Company's Profit Sharing and 401(k)
     contributions were $2,375, $1,862, $2,375 and $2,275 for Messrs. Griffith,
     McPherson, Manske and Page, respectively. During 1997, the Company paid
     $2,524, $2,829, $5,319 and $20,381 in medical benefits for Messrs.
     Griffith, Manske, Page and Bensuaski, respectively. During 1997, the
     Company paid $109,549 in premiums for split dollar, life insurance and long
     term disability policies for Mr. Griffith, and $1,344, $5,497, $2,381 and
     $453 in premiums for life insurance and long disability policies for
     Messrs. McPherson, Manske, Page and Bensuaski, respectively. See
     Employment Agreements with Executive Officers and Key Employees.
4    Mr. McPherson was elected Senior Vice President, Chief Financial Officer
     and Treasurer of the Company on August 1, 1997, and Secretary on September
     7, 1997.
5    Mr. Bensuaski, formerly Executive Vice President and Chief Financial
     Officer of the Company, resigned as an officer of the Company effective
     September 7, 1997. 16,688 of Mr. Bensuaski's options expired unexercised on
     September 7, 1997.

--------------------------------------------------------------------------------
                                 Page 39 of 52
<PAGE>   41

OPTION /SAR GRANTS TABLE

The following table sets forth, with respect to the named executive officers,
the information concerning the grant of stock options during the fiscal year
ended December 31, 1997. During fiscal year 1997, there was a total of 321,000
new stock options granted, of which 147,000 stock options were granted to named
executive officers. The Company has never granted stock appreciation rights
("SARs").


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
                                     Individual Grants
         ---------------------------------------------------------------------------
                                                                                       Potential Realizable
                                 Number of      Percent of                               Value at Assumed
                                Securities        Total                                Annual Rate of Stock
                                               Options/SARs   Exercise
                                Underlying      Granted to     or Base                  Price Appreciation
                               Options/SARs     Employees       Price    Expiration     for Option Term(1)
                 Name            Granted #    in Fiscal Year   ($/Sh)       Date         5%           10%
         --------------------- -------------- --------------- ---------- ----------- ------------ ------------
<S>      <C>                      <C>              <C>          <C>       <C>         <C>          <C>

         Philip D. Griffith       100,000          33.0%        1.10      12/31/00    $127,339     $146,410
         Michael E. McPherson      19,000           6.3%        1.00      12/31/00      21,995       25,289
         Paul H. Manske            19,000           6.3%        1.00      12/31/00      21,995       25,289
         Max L. Page                9,000           3.0%        1.00      12/31/00      10,419       11,979
         Fernando Bensuaski*            0              0          0          --
</TABLE>

1    The Company's Common Stock is not publicly traded.
*    Mr. Bensuaski, formerly Executive Vice President and Chief Financial
     Officer of the Company, resigned as an officer of the Company effective
     September 7, 1997.

OPTION/SAR EXERCISES TABLE

The following table sets forth, with respect to the named executive officers,
information concerning the exercise of stock options during the fiscal year
ended December 31, 1997 and unexercised stock options held as of December 31,
1997.


               AGGREGATE OPTION/SAR EXERCISES IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
                                                          Number of Unexercised     Value of Unexercised In-
                                   Shares                 Options/SARs at Fiscal     The-Money Options/SARs
                                Acquired on    Value           Year End (#)            at Fiscal Year End
                 Name           Exercised #   Realized  Exercisable  Unexercisable            ($)(1)
         ---------------------- ------------- --------- ------------ -------------- --------------------------
         <S>                    <C>           <C>       <C>          <C>            <C>
         Philip D. Griffith          0           0        83,333        91,667             0/0
         Michael E. McPherson        0           0        24,853        16,001             0/0
         Paul H. Manske              0           0        11,333        15,167             0/0
         Max L. Page                 0           0         9,666         9,334             0/0
         Fernando Bensuaski*         0           0        33,332             0             0/0
</TABLE>

1    The exercise price of the unexercised options exceeds the assigned value of
     the Common Stock. The Company's Common Stock is not publicly traded.
*    Mr. Bensuaski, formerly Executive Vice President and Chief Financial
     Officer of the Company, resigned as an officer of the Company effective
     September 7, 1997.

EMPLOYMENT AGREEMENTS WITH EXECUTIVE OFFICERS AND KEY EMPLOYEES

The Company has entered into employment agreements with each of Messrs.
Griffith, Manske and McPherson and with Ms. Brown, to serve in their present
offices for terms expiring June 30, 1998, December 31, 1999, February 28, 1999
and April 30, 1999, respectively. Messrs. Griffith, Manske, and McPherson and
Ms. Brown, as of February 27, 1998, have salaries of $496,125, $250,000,
$210,000 and

--------------------------------------------------------------------------------
                                 Page 40 of 52
<PAGE>   42

$100,000, respectively, and their respective employment agreements generally
provide for annual merit increases. The employment agreements also provide that
such persons will participate in the Company's Executive Bonus Plan, health plan
and any other benefit plan established for selected officers of the Company and
that in the event of a termination of employment without "good cause" (as
defined in the agreements), such persons will be entitled to any unpaid salary
in a specified percentage through the remainder of the term of their respective
agreement. The Company had also entered into an employment agreement with Mr.
Bensuaski, who resigned as officer of the Company effective September 9, 1997.
The agreement with Mr. Bensuaski also provided for the Company to continue to
pay annual premiums for certain life insurance coverage through 1998.

FRI has entered into an employment agreement with Mr. Page, under which he was
appointed Vice President of FRI for a term expiring on December 31, 1999. As of
February 27, 1998, Mr. Page receives a salary of $225,000, participates in FRI's
bonus plan and in a health plan and may participate in any other benefit plan
established by FRI for its executives. FRI also maintains life insurance
coverage with respect and for the benefit of Mr. Page in an amount of $500,000.
Mr. Page is entitled to certain severance payments in the event of a termination
of employment by reason of disability or death. His employment agreement
includes a covenant not to compete for a casino license in Reno, Sparks or
downtown Las Vegas, Nevada or Tunica, Mississippi.

In accordance with industry practice, the Company has entered into employment
agreements with certain of its other vice presidents and departmental directors.

EXECUTIVE BONUS PLAN

The Company has established an Executive Bonus Plan to provide the senior
executive officers of the Company with a performance-based compensation program.
Effective January 1, 1998, the Company will set aside a portion of its annual
consolidated EBITDA, adjusted for extraordinary non-recurring items that are
deemed non-operational in nature ("Adjusted EBITDA"), each year so long as such
Adjusted EBITDA for such year is at least $30 million. The set aside amount will
start at 1.4% of Adjusted EBITDA at the $30 million level and increase by
one-tenth of one percent for each $1 million of Adjusted EBITDA above $30
million up to a limit of 3%. Prior to January 1, 1998, the Executive Bonus Plan
was based upon EBITDA prior to any adjustments and no bonuses were paid under
the Plan as then structured. The Compensation Committee will have full
discretion concerning the payment of executive bonuses.

STOCK OPTIONS

Stock Option Incentive Plan. The Company has adopted a Stock Option Incentive
Plan (the "Plan"). The following is a description of the plan.

The Plan provides for the grant of options to purchase Common Stock either that
are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
that are not intended to so qualify ("non-qualified stock options"). All
officers, directors, employees, consultants, advisers, independent contractors
and agents are eligible to receive options under the Plan, except that only
employees are may receive incentive stock options. The Plan also permits a
one-time grant of options to certain former employees in substitution for
options previously granted to them and having substantially the same terms and
conditions. The maximum number of shares available for issuance under the Plan
is 1,000,000. At December 31, 1997, there were 676,974 options outstanding under
the Plan.

--------------------------------------------------------------------------------
                                 Page 41 of 52
<PAGE>   43

The Plan is administered by the Board of Directors or, in its discretion, by a
committee of the Board of Directors appointed for that purpose (the "Plan
Committee"), which, subject to the terms of the Plan, has the authority in its
sole discretion to determine: (a) the individuals to whom options shall be
granted; (b) the time or times at which options may be exercised; (c) the number
of shares subject to each option, (d) the option price and the duration of each
option granted; and (e) all of the other terms and conditions of options granted
under the Plan.

The exercise price of incentive options granted under the Plan must be at least
equal to the fair market value of the shares on the date of grant (110% of fair
market value in the case of participants who own shares possessing more than 10%
of the combined voting power of the Company or any of its subsidiaries) and may
not have a term in excess of 10 years from the date of grant (five years in the
case of participants who own shares possessing more than 10% of the combined
voting power of the Company). In no event may the aggregate fair market value
(determined as of the time the option is granted) of the shares with respect to
which incentive stock options (granted under the Plan and all other plans of the
Company or any of its subsidiaries) are exercisable for the first time by an
optionee in any calendar year exceed $100,000.

Options granted under the Plan are not transferable other than by will or the
laws of descent and distribution. Unless otherwise determined by the Board of
Directors or the Plan Committee, all stock options granted under the Plan
terminate (i) immediately upon the optionee's termination of employment (or
other relationship) with the Company for cause, (ii) one year after the
optionee's termination of employment (or other relationship) by reason of death
or permanent disability and (iii) 90 days after the optionee's termination of
employment (or other relationship) for any other reason (unless the optionee has
resumed a continuing relationship with the Company), but in no case later than
the scheduled expiration date of the option. Unless otherwise determined by the
Board of Directors or Plan Committee, the number of shares with respect to which
a stock option may be exercised following the optionee's termination of
employment or other relationship is limited to that number of shares which could
have been purchased pursuant to the option had the option been exercised by the
optionee on the date of such termination.

Payment of the exercise price upon exercise of an option must be made in cash
or, in the discretion of the Board of Directors or the Plan Committee, in shares
of Common Stock. Where payment is made in Common Stock, such Common Stock shall
be valued for such purpose at the fair market value of such shares (determined
as specified in the Plan) on the date of exercise.

If the number of outstanding shares of Common Stock is increased or decreased,
or if such shares are exchanged for a different number or kind of shares through
reorganization, merger, recapitalization, stock dividend, stock split, or other
transaction where the Board determines that an adjustment is appropriate, the
aggregate number of shares available for issuance under the Plan, the number of
shares subject to outstanding options, the per share exercise price of
outstanding options and the aggregate number of shares with respect to which
options may be granted to a single participant will be appropriately adjusted by
the Board of Directors.

No grant of options may be made under the Plan after June 25, 2007, which is 10
years after its date of adoption. The Board of Directors has authority to
terminate or to amend the Plan. Amendments may be made without the approval of
the Company's stockholders unless such approval is required by law or stock
exchange requirement. No amendment or termination may impair the rights of any
holder of outstanding options without the consent of such holder. The terms and
conditions of outstanding options may be amended by written agreement between
the optionee and the Company.

--------------------------------------------------------------------------------
                                 Page 42 of 52
<PAGE>   44

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors of the Company is comprised
of Michael A. Ficaro and Patricia W. Becker, as chairperson, neither of whom was
an officer or employee of the Company during or prior to 1997.

ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as of December 31, 1997 with
regard to the beneficial ownership of Common Stock by (i) each person who, to
the knowledge of the Company, beneficially owns more than 5% of the outstanding
Common Stock, (ii) each director of the Company, (iii) each other person named
in the Summary Compensation Table (see Item 11 - Executive Compensation), and
(iv) all executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
                                            SHARES OWNED BENEFICIALLY
                                            -------------------------
                                NAME1                         NUMBER OF SHARES         PERCENTAGE
                                -----                         ----------------         ----------
<S>                                                           <C>                      <C>

         Philip D. Griffith2                                       2,644,356             64.6%
         Jerome H. Turk3                                             858,948             21.3%
         Paul H. Manske4                                             134,898              3.3%
         Michael E. McPherson5                                        24,853                 *
         Michael A. Ficaro6                                            6,333                 *
         Patricia W. Becker7                                          33,808                 *
         Max L. Page8                                                133,231              3.3%
         Fernando Bensuaski9                                          33,332                 *
         All  directors  and  executive  officers as a group
         (four persons)                                            2,709,350             67.5%
</TABLE>
-----------------

1    The address of Messrs. Griffith and Turk is 301 Fremont Street, Las Vegas,
     Nevada 89101.
2    Mr. Griffith's stock is held by the Philip D. Griffith Gaming Trust of
     which Mr. Griffith is a trustee. Includes 83,333 shares which may be
     acquired upon exercise of options exercisable within 60 days.
3    Mr. Turk's stock is held by the Jerome H. Turk Gaming Properties Trust of
     which Mr. Turk is a trustee. Includes 25,000 shares which may be acquired
     upon exercise of options exercisable within 60 days.
4    Mr. Manske's stock is held by the Paul H. Manske Family Trust of which Mr.
     Manske is a trustee. Includes 11,333 shares which may be acquired upon
     exercise of options exercisable within 60 days.
5    Represents shares which may be acquired by Mr. McPherson upon exercise of
     options exercisable within 60 days.
6    Represents shares which may be acquired by Mr. Ficaro upon exercise of
     options exercisable within 60 days.
7    Ms. Becker's stock is held by the Patricia W. Becker Family Trust of which
     Ms. Becker is a trustee. Includes 6,333 shares which may be acquired upon
     exercise of options exercisable within 60 days.
8    Mr. Page's stock is held by the Max L. Page Trust of which Mr. Page is a
     trustee. Includes 9,666 shares which may be acquired upon exercise of
     options exercisable within 60 days.
9    Represents share which may be acquired by Mr. Bensuaski upon exercise of
     options exercisable within 60 days. Mr. Bensuaski, formerly Executive Vice
     President and Chief Financial Officer of the Company resigned as an officer
     of the Company effective September 7, 1997.
*    Less than 1%.




--------------------------------------------------------------------------------
                                 Page 43 of 52
<PAGE>   45


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In June 1987, FRI loaned $3,250,000 to its then stockholders (the
"Stockholders"), including Messrs. Philip D. Griffith and Max L. Page. Such
funds were in turn loaned to Lincoln Partners Corporation ("LPC"), the general
partner of Fitzgeralds Las Vegas Limited Partnership ("FLVLP"), to fund the
purchase of Fitzgeralds Las Vegas by FLVLP. The transactions were structured for
tax reasons associated with FRI's then status as an S corporation and FRI
continues to have an obligation to indemnify Mr. Griffith and Mr. Page for
certain potential tax liabilities arising from such transaction. At that time,
FRI and LPC had, and they continue to have, directly or indirectly, numerous
stockholders in common. The Company has no interest in LPC. The loans made by
FRI were repayable pursuant to promissory notes having identical terms. Such
notes, which were amended in March 1992, bore interest at 6.69% per annum and
were payable interest only on each anniversary date thereof until June 1997, on
which date the notes matured and were payable in full with all accrued and
unpaid interest. The Stockholders failed to pay the sums due under their
respective notes, aggregating $1,807,255 in principal amount, on the June 30,
1997 due date. All amounts owned to FRI by the Stockholders under the Notes were
paid by November 10, 1997.

A fee is payable to executive officers of the Company, not to exceed $250,000
per year as to any such individual, who agree to provide any requested guarantee
of Company borrowings and letters of credit. Such fee, which is set by the Board
of Directors on a case-by-case basis, is generally equal to 2% to 3% of the
amount guaranteed or the letter of credit. Mr. Griffith has guaranteed letters
of credit and certain Company borrowings. Since January 1, 1997, Mr. Griffith
has guaranteed borrowings, aggregating at any one time a maximum of $5,638,889,
for which he received fees of $91,047 and has guaranteed letters of credit and
surety bonds, aggregating at any one time a maximum of $726,000, for which he
received fees of $23,840. In connection with the proposed settlement of the
Harolds Club claims, Mr. Griffith has also agreed to provide a guarantee of
certain promissory notes for which he will receive the customary fee. See Item I
- Business - Legal Proceedings.

The Company provided executive and administrative services to each of its
significant subsidiaries and allocated a portion of its corporate overhead to
each such significant subsidiary This allocation does not necessarily reflect
the costs incurred by the Company in connection with such support and
accordingly, such allocation does not necessarily reflect that which could be
obtained from an unaffiliated party.

All future transactions between the Company and its affiliates in excess of $1.0
million, other than transactions entered into in the ordinary course of business
on terms generally made available to third parties, will be reviewed and passed
upon by a majority of disinterested directors,




--------------------------------------------------------------------------------
                                 Page 44 of 52
<PAGE>   46

                                     PART IV


ITEM 14.          EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
                  FORM 8-K

(a)      1.       Financial Statements.     The following financial statements
                  are attached:

                  Independent Auditors' Report

                  Consolidated Balance Sheets as of December 31, 1997 and 1996

                  Consolidated Statements of Operations for the Years Ended

                           December 31, 1997, 1996, and 1995

                  Consolidated Statements of Stockholders' Equity (Deficiency)

                           for the Years Ended December 31, 1997, 1996, and 1995

                  Consolidated Statements of Cash Flows for the Years Ended

                           December 31, 1997, 1996, and 1995

                  Notes to Consolidated Financial Statements

         2.       Financial Statement Schedules.

                  Schedule II -- Consolidated Valuation And Qualifying Accounts.

         3.       Exhibits.  Refer to (c) below

(b) Reports on Form 8-K. For the fiscal year ended December 31, 1997, the
Company filed the following reports on Form 8-K:

              (i)   Form 8-K, Item 5, filed as of January 13, 1997;

              (ii)  Form 8-K, Item 5, filed as of June 5, 1997;

              (iii) Form 8-K, Item 5, filed as of July 22, 1997;

              (iv)  Form 8-K, Item 5, filed as of August 19, 1997;

              (v)   Form 8-K, Item 5, filed as of January 12, 1998

(c) Exhibits. Reference is made to the Index to Exhibits immediately preceding
the exhibits thereto.



--------------------------------------------------------------------------------
                                 Page 45 of 52
<PAGE>   47

                                   SIGNATURES




         Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on March 31,
1998.


                                                  Fitzgeralds Gaming Corporation



                                                  By:
                                                      --------------------------
                                                       Michael E. McPherson
                                                       Senior Vice  President
                                                       Chief Financial Officer
                                                       Treasurer and Secretary



--------------------------------------------------------------------------------
                                 Page 46 of 52
<PAGE>   48

                                POWER OF ATTORNEY


KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Philip D. Griffith and Michael E. McPherson, and
each of them, his or her own attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.

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

<TABLE>
<CAPTION>
              SIGNATURE                                      TITLE                               DATE
              ---------                                      -----                               ----
<S>                                           <C>                                        <C>


                                             Chairman, President, Chief Executive        March 31, 1998
--------------------------------------       Officer, and Director (Principal
Philip D. Griffith                           Executive Officer)


                                             Senior Vice President, Chief                March 31, 1998
--------------------------------------       Financial Officer, Treasurer and
Michael E. McPherson                         Secretary (Principal Financial and
                                             Accounting Officer)


                                             Director                                    March 31, 1998
--------------------------------------
Michael A. Ficaro


                                             Director                                    March 31, 1998
--------------------------------------
Patricia W. Becker


                                             Director                                    March 31, 1998
--------------------------------------
Max L. Page
</TABLE>



--------------------------------------------------------------------------------
                                 Page 47 of 52
<PAGE>   49

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT                                                                            SEQUENTIALLY
NUMBER       DOCUMENT                                                             NUMBERED PAGE
-----------------------------------------------------------------------------------------------
<S>          <C>                                                                   <C>
2(a)         (i)  Recapitalization Agreement, dated March 14, 1994, among
              Fitzgeralds South, Inc. (formerly Fitzgeralds Gaming Corporation),
              Fitzgeralds Las Vegas, Inc. and certain stockholders thereof; (ii)
              Plan of Reorganization and Stockholders Agreement, dated December
              5, 1994, among Fitzgeralds Gaming Corporation and stockholders of
              Fitzgeralds Reno, Inc., Fitzgeralds South, Inc., Fitzgeralds Inc.,
              Nevada Club, Inc.; and (iii)  Supplement to Plan of Reorganization
              and Stockholders Agreement, dated December 30, 1994, between
              Fitzgeralds Gaming Corporation and the stockholders of Fitzgeralds
              Reno, Inc. and Nevada Club, Inc.(1)

3(a)         (i) Articles of Incorporation, as amended, and (ii) By-Laws of
             Fitzgeralds Gaming Corporation.(1)

3(b)         (i) Articles of Incorporation, as amended, and (ii) By-Laws of
             Fitzgeralds South, Inc.(1)

3(c)         (i) Articles of Incorporation, as amended, and (ii) By-Laws of
             Fitzgeralds Reno, Inc., as amended.(1)

3(d)         (i)  Articles of Incorporation, as amended, and (ii)  By-Laws of Fitzgeralds
             Incorporated.(1)

3(e)         (i) Articles of Incorporation, as amended, and (ii) By-Laws of Nevada
             Club, Inc.(1)

3(f)         (i) Articles of Incorporation, as amended, and (ii) By-Laws of
             Fitzgeralds Las Vegas, Inc.(1)

3(g)         (i) Articles of Incorporation, as amended, and (ii) By-Laws of
             Fitzgeralds Fremont Experience Corporation.(1)

3(h)         (i) Articles of Incorporation, as amended, and (ii) By-Laws of
             Fitzgeralds Mississippi, Inc.(1)

3(i)         (i) Articles of Incorporation, as amended, and (ii) By-Laws of
             Fitzgeralds Black Hawk, Inc.(1)

3(j)         (i) Articles of Incorporation, as amended, and (ii) By-Laws of
             Fitzgeralds Black Hawk II, Inc.(3)

3(k)         (i) Certificate of Organization, as amended and (ii) Second Amended
             and Restated Operating Agreement of 101 Main Street Limited
             Liability Company.(3)

4(a)         Form of Indenture, by and among Fitzgeralds Gaming Corporation,
             Fitzgeralds South, Inc., Fitzgeralds Reno, Inc., Fitzgeralds
             Incorporated, Fitzgeralds Las Vegas, Inc., Fitzgeralds Fremont
             Experience Corporation, Fitzgeralds Mississippi, Inc., Fitzgeralds
             Black Hawk, Inc., Fitzgeralds Black Hawk II, Inc. and 101 Main
             Street Limited Liability Company, and The Bank of New York, as
             trustee.(2)

4(b)         Form of Registration Rights Agreement, by and among Fitzgeralds
             Gaming Corporation, Fitzgeralds South, Inc., Fitzgeralds Reno,
             Inc., Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc.,
             Fitzgeralds Fremont Experience Corporation, Fitzgeralds
             Mississippi, Inc., Fitzgeralds Black Hawk, Inc., Fitzgeralds Black
             Hawk II, Inc. and 101 Main Street Limited Liability Company, and
             Jefferies & Company, Inc. and Merrill Lynch, Merrill, Lynch,
             Pierce, Fenner and Smith Incorporated, as initial purchasers.(2)
</TABLE>

--------------------------------------------------------------------------------
                                 Page 48 of 52
<PAGE>   50
<TABLE>
<S>          <C>                                                                     <C>
4(c)         Form of Security and Pledge Agreement by and among Fitzgeralds
             Gaming Corporation, Fitzgeralds South, Inc., Fitzgeralds Reno,
             Inc., Fitzgeralds Incorporated, Fitzgeralds Las Vegas, Inc.,
             Fitzgeralds Fremont Experience Corporation, Fitzgeralds
             Mississippi, Inc., Fitzgeralds Black Hawk, Inc., Fitzgeralds Black
             Hawk II, Inc., and 101 Main Street Limited Liability Company, as
             grantors, and The Bank of New York, as collateral agent.(2)

4(d)         Forms of Deed of Trust, Security Agreement and Fixture Filing with
             Assignment of Rents by each of Fitzgeralds Las Vegas, Inc.,
             Fitzgeralds Mississippi, Inc., and Fitzgeralds Reno, Inc., as
             trustor, the trustee named therein, as trustee, and The Bank of New
             York, as beneficiary.(2)

4(e)         Form of First Preferred Vessel Mortgage on the Whole of the
             Fitzgeralds Tunica, by and between Fitzgeralds Mississippi, Inc.,
             as owner and mortgagor and The Bank of New York, as trustee.(2)

4(f)         Form of Assignment of Rents, Leases and Property, by each of
             Fitzgeralds Mississippi, Inc. and 101 Main Street Limited Liability
             Company, each as an assignor, and The Bank of New York, as
             assignee.(2)

4(g)         Form of Certificate of Designation of Preferences and Rights for the Preferred
             Stock.(1)

4(h)         Form of Warrant Agreement between the Company and The Bank of New
             York, as successor in interest to First Interstate Bank of Nevada,
             N.A., as warrant agent.(1)

4(i)         Form of First Amendment to Warrant Agreement by and between
             Fitzgeralds Gaming Corporation and The Bank of New York, as warrant
             agent.(2)

10(a)        Agreement for Amendment, Extension and Restructure of Loans, dated September 27,
             1991, First Amendment to Agreement for Amendment, Extension and Restructure of
             Loans, dated October 29, 1992, Second Amendment to Agreement for Amendment,
             Extension and Restructure of Loans, dated December 31, 1993, Third Amendment for
             Amendment, Extension and Restructure of Loans, dated July 27, 1994, and Fourth
             Amendment to Agreement for Amendment, Extension and Restructure of Loans, dated
             January 27, 1995, each between Fitzgeralds Reno, Inc. and First Interstate Bank of
             Nevada, N.A.(1)

10(b)        Lease-Purchase Agreement, dated December 31, 1993, between Murray P. Jacobs
             (Lessor-Seller) and each of Nevada Club, Inc. (Lessee) and Fitzgeralds Reno, Inc.
             (Purchaser).(1)

10(c)        (i)  Credit Agreement between Fitzgeralds Reno, Inc. and PDS Financial Corporation
             ("PDS"); (ii)  Promissory Note from Fitzgeralds Reno, Inc. to PDS; (iii)  Security
             Agreement between Fitzgeralds Reno, Inc. and PDS; and (iv) Guaranty by Fitzgeralds
             Gaming Corporation in favor of PDS, each dated March 15, 1995.(1)

10(d)        Purchase and Sale Agreement, dated November 29, 1994, and Amendment No. 1 to
             Purchase and Sale Agreement, dated November 29, 1994, each between Fitzgeralds Reno,
             Inc. and Gamma International, Ltd.(1)

10(e)        (i) Promissory Note from Polk Landing Entertainment Corporation to
             International Game Technology - North America; and (ii) Guaranty,
             by Fitzgeralds Gaming Corporation in favor of International Game
             Technology - North America, each dated February 24, 1994.(1)

10(f)        (i) Installment Sales Agreement between International Game
             Technology and Polk Landing Entertainment Corporation and (ii)
             Guaranty by Fitzgeralds South, Inc. in favor of International Game
             Technology, each dated April 2, 1994.(1)

10(g)        Promissory Note, dated May 25, 1994, from Polk Landing Entertainment
             Corporation to
</TABLE>

--------------------------------------------------------------------------------
                                 Page 49 of 52
<PAGE>   51

<TABLE>
<S>          <C>                                                                                 <C>
             International Game Technology.(1)

10(h)        (i) Promissory Note from Polk Landing Entertainment Corporation to
             International Game Technology and (ii) Guaranty by Fitzgeralds
             South, Inc. in favor of International Game Technology, each dated
             August 1994.(1)

10(i)        Sales Agreement, dated December 8, 1994, between Mikohn Gaming Corporation and Polk
             Landing Entertainment Corporation.(1)

10(j)        (i) Agreement for Wastewater Service and (ii) Agreement for Water
             Service, each dated March 15, 1994, and (iii) Amendment to
             Agreements for Water and Wastewater Services, dated June 27, 1994,
             each between Polk Landing Entertainment Corporation and River Bend
             Environmental Energy, Inc.(1)

10(k)        (i)  Credit Agreement between Fitzgeralds Las Vegas, Inc. and PDS, (ii)  Promissory
             Note from Fitzgeralds Las Vegas, Inc. to PDS, (iii)  Security Agreement between
             Fitzgeralds Las Vegas, Inc. and PDS and (iv)  Guaranty by Fitzgeralds Gaming
             Corporation in favor of PDS, each dated March 15, 1995.(1)

10(l)        (i) Credit Agreement between 101 Main Street Limited Liability,
             d/b/a Fitzgeralds Black Hawk Casino and PDS, (ii) Promissory Note
             from 101 Main Street Limited Liability Company, d/b/a Fitzgeralds
             Black Hawk Casino to PDS, (iii) Security Agreement between 101 Main
             Street Limited Liability Company, d/b/a Fitzgeralds Black Hawk
             Casino and PDS and (iv) Guaranty by Fitzgeralds Gaming Corporation
             in favor of PDS, each dated March 15, 1995.(1)

10(m)        (i) Credit Agreement between 101 Main Street Limited Liability,
             d/b/a Fitzgeralds Black Hawk Casino and PDS, (ii) Promissory Note
             from 101 Main Street Limited Liability Company, d/b/a Fitzgeralds
             Black Hawk Casino to PDS and (iii) Guaranty by Fitzgeralds Gaming
             Corporation in favor of PDS, each dated March 15, 1995.(1)

10(n)        Promissory Note, dated March 28, 1995, from 101 Main Street Limited
             Liability Company to Fitzgeralds Black Hawk, Inc.(1)

10(o)        Management Agreement, dated October 21, 1994, and Amendment No. 1 to Management
             Agreement, dated February 1995, each between Fitzgeralds Black Hawk, Inc. and 101
             Main Street Limited Liability Company.(1)

10(p)        Second Amended Management Agreement, dated May 13, 1995, between Fitzgeralds Arizona
             Management, Inc. and Yavapai-Apache Nation.(1)

10(q)        Amended Interim Agreement, dated March 11, 1995, between Fitzgeralds Arizona
             Management, Inc. and Yavapai-Apache Nation.(1)

10(r)        Technical Services and Casino Consulting Agreement, dated March 15,
             1994, First Amendment to Technical Services and Casino Consulting
             Agreement, dated October 20, 1994, and Second Amendment to
             Technical Services and Casino Consulting Agreement, dated April 13,
             1995, each between Fitzgeralds Arizona Management, Inc. and
             Yavapai-Apache Nation.(1)

10(s)        Settlement Agreement and Mutual Releases, dated March 30, 1995,
             between The Oneida Indian Nation and Fitzgeralds New York, Inc.(1)

10(t)        Promissory Note, dated March 30, 1995, from the Oneida Indian
             Nation to Fitzgeralds New York, Inc.(1)

10(u)        Mutual Release, dated March 30, 1995, between the Oneida Indian Nation and Philip D.
             Griffith.(1)

10(v)        Memorandum of Agreement, dated March 30, 1995, between Fitzgeralds Las Vegas, Inc.
             and the Culinary Workers and Bartenders Unions.(1)
</TABLE>

--------------------------------------------------------------------------------
                                 Page 50 of 52
<PAGE>   52
<TABLE>
<S>          <C>                                                                                   <C>
10(w)        (i) Lease, dated December 31, 1974, between Santino Oppio, as
             Lessor, and Center Street Properties Corp., as Lessee, and (ii)
             Sublease and Agreement, dated December 31, 1986, by Meta K.
             Fitzgerald, as Sublessor, and Lincoln Investments, Inc. (now known
             as Fitzgeralds Reno, Inc.), as Sublessee.(1)

10(x)        (i) Lease Agreement and Interim Agreement Regarding Lease Agreement
             and (ii) Lease Agreement, dated September 5, 1995, both between
             John A. Kramer, Sr., Trustee, Helen M. Kramer, Elizabeth Thatcher
             Brooks and Betty Bennett, Executrix of the estate of John David
             Kramer, as Lessor, and Fitzgeralds Las Vegas, Inc., as Lessee.(1)

10(y)        Lease Agreement, dated September 1, 1978, between Jewel F. Nolan
             and Julie L. Nolan, David Kramer and Betty Bennett and Richard J.
             Tinkler, as Lessor, and M.B. Dalitz, as Lessee. Amendment, dated
             December 20, 1982, between Julie L. Nolan, David Kramer, Betty
             Bennett and Richard J. Tinkler, as Lessor, and M.B. Dalitz, as
             Lessee. Lease Amendment, Estoppel Certificate and Consent to
             Assignment, dated October 18, 1987, to the named recipients and
             between Julie L. Nolan, David Kramer, Betty Bennett and Richard J.
             Tinkler, as Lessor, and M.B. Dalitz, as Lessee.(1)

10(z)        Lease Agreement, dated July 21, 1954, between Las Vegas Lodge No. 32, Free &
             Accepted Masons, as Lessor, and H. John Gluskin, as Lessee.  Amendment to Lease
             Agreement, dated July 26, 1954, between Las Vegas Lodge No. 32, Free & Accepted
             Masons, as Lessor, and H. John Gluskin, as Lessee.  Assignments, dated July 27,
             1954, February 2, 1955, August 7, 1972 and September 1, 1973.  Supplemental
             Agreement of October 14, 1994, between Las Vegas Lodge No. 32, Free & Accepted
             Masons and H. John Gluskin.  Articles of Amendment, dated June 7, 1973, between Las
             Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and Frederic N. Richman and
             The Pullman Company, d/b/a Nevada Building Company.  Amendment to Masonic Lodge
             Ground Lease, dated December 20, 1982.  Lease Amendment, Estoppel Certificate and
             Consent to Assignment, dated October 23, 1987, to the named recipients and between
             Las Vegas Lodge No. 32, Free & Accepted Masons, as Lessor, and H. John Gluskin, as
             Lessee.(1)

10(aa)       Lease, dated March 4, 1976, between A.W. Ham, Jr., Trustee, under
             wills of A.W. Ham and Alta M. Ham, as Lessor, and Nevada Building
             Company, as Lessee, Amendments to Lease, dated December 20, 1982
             and December 30, 1982, between A.W. Ham, Jr., Trustee, as Lessor,
             and M.B. Dalitz, as Lessee. Lease Amendment, Estoppel Certificate
             and Consent to Assignment, dated October 18, 1987, to the named
             recipients and between A.W. Ham, Jr., Trustee, and M.B. Dalitz.(1)

10(bb)       Amended and Restated Operating Agreement of The Fremont Street
             Experience Limited Liability Company, a Nevada Limited Liability
             Company, dated June 6, 1995.(1)

10(cc)       Substitute and Replacement Promissory Notes, dated December 31, 1993, from Nevada
             Club, Inc. to Bank of America Nevada.(1)

10(dd)       Form of Fitzgeralds Gaming Corporation Amended and Restated Stock Option Incentive
             Plan.(3)

10(ee)       Employment Agreements dated July 1, 1995 between Fitzgeralds Gaming
             Corporation and Philip D. Griffith and March 1, 1997 between
             Fitzgeralds Gaming Corporation and Michael E. McPherson.(2)(3)

10(ff)       Executive Bonus Plan of Fitzgeralds Gaming Corporation.(3)

10(gg)       License Agreement, dated September 11, 1995, between Holiday Inns Franchising, Inc.
             and Fitzgeralds Las Vegas, Inc.(1)

10(hh)       (i) Loan and Security Agreement, dated March 13, 1996, between the
             CIT
</TABLE>


--------------------------------------------------------------------------------
                                 Page 51 of 52
<PAGE>   53
<TABLE>
<S>          <C>                                                                  <C>
             Group/Equipment Financing, Inc. ("CIT") and Fitzgeralds
             Mississippi, Inc. (including Rider A thereto) (ii) Promissory Note,
             dated March 13, 1996, from Fitzgeralds Mississippi, Inc. to CIT,
             (iii) Guaranty Agreement, dated March 13, 1996, by Fitzgeralds
             Gaming Corporation in favor of CIT, and (iv) Guaranty Agreement,
             dated March 13, 1996, by Fitzgeralds South, Inc. in favor of CIT.(2)

10(ii)       Warrant Agreement, dated December 19, 1994, between Fitzgeralds
             Gaming Corporation and Fitzgeralds Lucky Investor Partnership, as
             amended June, 1995(1)

10(jj)       Warrant Agreement, dated March 14, 1994, between Fitzgeralds South,
             Inc. and First Interstate Bank of California.(1)

</TABLE>


<PAGE>   54


<TABLE>
<S>          <C>
10(kk)       Irrevocable (Standby) Letter of Credit of Trustmark National Bank,
             dated June 24, 1994, and Amendment No. One to Irrevocable (Standby)
             Letter of Credit of Trustmark National Bank, dated December 29,
             1994, with Polk Landing Entertainment Corporation as Applicant and
             River Bend Environmental Energy, Inc. as Beneficiary.(1)

10(ll)       Registration Rights Agreement, dated March 14, 1994, by and among
             Fitzgeralds Gaming Corporation, Fitzgeralds Las Vegas Limited
             Partnership, Fitzgeralds Las Vegas Inc., Polk Landing Entertainment
             Corporation, Fitzgeralds Fremont Experience Corporation,
             Fitzgeralds Mississippi, Inc. and Donaldson, Lufkin, & Jenrette
             Securities Corporation.(1)

10(mm)       Form of Management Agreements between Fitzgeralds Gaming Corporation and each of
             Fitzgeralds Las Vegas, Inc., Polk Landing Entertainment Corporation, Fitzgeralds
             Reno, Inc., Nevada Club, Inc., Fitzgeralds Black Hawk, Inc. and Fitzgeralds Arizona
             Management, Inc.(1)

10(nn)       Indemnification Agreements, each dated July 14, 1995, between Fitzgeralds Gaming
             Corporation and each of Philip D. Griffith, Jerome H. Turk, Terrance W. Oliver,
             Fernando Bensuaski, Michael E. McPherson and Gerald C. Heetland.(1)

10(00)       Form of Shareholders' Agreement among the Shareholders listed
             therein, Fitzgeralds Gaming Corporation and First Interstate Bank
             of Nevada, N.A.(1)

21           List of subsidiaries of the Company.(3)

99(c)        Financial data schedule.(3)
</TABLE>

----------------

(1)  Incorporated by reference to the Company's Registration Statement on Form
     S-1, File No. 33-94624, which became effective on December 13, 1995.
(2)  Incorporated by reference to the Company's Report on Form 8-K, SEC File
     No. 000-26518, filed January 12,
     1998.
(3)  Filed herewith.



--------------------------------------------------------------------------------
                                 Page 52 of 52
<PAGE>   55

ITEM 8. FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                                               PAGE
<S>                                                                                                           <C>
   FITZGERALDS GAMING CORPORATION CONSOLIDATED FINANCIAL STATEMENTS:

     Independent Auditors' Report                                                                             F - 2

     Balance Sheets as of December 31, 1997 and 1996                                                          F - 3

     Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995                            F - 5

     Statements of Stockholders' Equity (Deficiency) for the Years Ended
     December 31, 1997, 1996 and 1995                                                                         F - 6

     Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995                            F - 7

     Notes to Consolidated Financial Statements                                                               F - 9
</TABLE>





                                     F - 1
<PAGE>   56



INDEPENDENT AUDITORS' REPORT


Fitzgeralds Gaming Corporation:

We have audited the accompanying consolidated balance sheets of Fitzgeralds
Gaming Corporation and subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity (deficiency), and cash flows for each of the three years in the period
ended December 31, 1997. Our audits also included the financial statement
schedule listed in the Index at Item 14(a)(2). These financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

DELOITTE & TOUCHE LLP

Las Vegas, Nevada
February 27, 1998



                                     F - 2
<PAGE>   57
                         FITZGERALDS GAMING CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS


<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                    ----------------------------
                                                                         1997            1996
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
CURRENT ASSETS:
  Cash and cash equivalents                                         $ 14,809,617    $ 13,349,497
  Accounts receivable, net of allowance for doubtful accounts of
    $411,881, and $253,942                                             2,060,045       2,056,841
  Accounts and notes receivable - related parties                        136,173       2,209,188
  Inventories                                                          1,313,611       1,545,661
  Prepaid expenses:
    Gaming taxes                                                       1,163,342       1,374,319
    Other                                                              1,734,186       1,694,320
                                                                    ------------    ------------

      Total current assets                                            21,216,974      22,229,826
                                                                    ------------    ------------

PROPERTY AND EQUIPMENT, net                                          163,704,715     151,883,083
                                                                    ------------    ------------

OTHER ASSETS:
  Estimated realizable value of Nevada Club assets held for sale       3,979,228              --
  Restricted cash - construction                                         393,987       2,254,323
  Restricted investment                                                1,000,000       1,000,000
  Investments                                                          1,347,813       5,014,175
  Debt offering costs                                                  8,724,936       7,013,894
  Goodwill, net                                                       14,046,231              --
  Other assets                                                         1,206,356       1,783,273
                                                                    ------------    ------------

      Total other assets                                              30,698,551      17,065,665
                                                                    ------------    ------------

MINORITY INTEREST                                                         75,199              --
                                                                    ------------    ------------

TOTAL                                                               $215,695,439    $191,178,574
                                                                    ============    ============
</TABLE>



                                      F - 3

<PAGE>   58

                         FITZGERALDS GAMING CORPORATION

                     CONSOLIDATED BALANCE SHEETS (Continued)

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY


<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                               -------------------------------
                                                                                    1997             1996
                                                                               -------------     -------------
<S>                                                                            <C>               <C>
CURRENT LIABILITIES:
  Current portion of long-term debt                                            $   7,285,897     $  25,637,728
  Current portion of notes payable - related parties                                 304,637         2,111,892
  Accounts payable                                                                 7,236,856        11,518,602
  Accrued and other:
    Payroll and related                                                            4,061,565         3,290,264
    Progressive jackpots                                                             979,449           733,800
    Outstanding chips and tokens                                                     768,633           843,162
    Interest                                                                         175,432           459,326
    Offering costs                                                                   660,775         1,048,611
    Other                                                                          6,262,740         3,619,451
                                                                               -------------     -------------

       Total current liabilities                                                  27,735,984        49,262,836

LONG-TERM DEBT, net of current portion                                           206,191,485       127,856,487

NOTES PAYABLE - RELATED PARTIES, net of current portion                                   --            25,903
                                                                               -------------     -------------

        Total liabilities                                                        233,927,469       177,145,226
                                                                               -------------     -------------

MINORITY INTEREST                                                                         --           587,837
                                                                               -------------     -------------

COMMITMENTS AND CONTINGENCIES (Notes 9 and 12)

CUMULATIVE REDEEMABLE PREFERRED STOCK,
  $.01 par value; $25 stated value; 800,000 shares authorized, issued and
  outstanding; liquidation preference $20,000,000 stated value plus accrued
  dividends of $6,983,663 and $3,288,873 recorded at liquidation preference
  value, net of unamortized offering costs and discount of $7,352,266 and
  $7,800,091, respectively                                                        19,631,397        15,488,782
                                                                               -------------     -------------

STOCKHOLDERS' DEFICIENCY:
  Common stock, $.01 par value; 29,200,000 shares authorized;
    4,012,846 shares issued and outstanding                                           40,128            40,128
  Additional paid-in capital                                                      23,649,582        23,785,603
  Accumulated deficit                                                            (61,553,137)      (25,869,002)
                                                                               -------------     -------------
    Total stockholders' deficiency                                               (37,863,427)       (2,043,271)
                                                                               -------------     -------------

TOTAL                                                                          $ 215,695,439     $ 191,178,574
                                                                               =============     =============
</TABLE>


See notes to consolidated financial statements.


                                      F - 4

<PAGE>   59

                         FITZGERALDS GAMING CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                            Years Ended December 31,
                                               -------------------------------------------------
                                                    1997              1996              1995
                                               -------------     -------------     -------------
<S>                                            <C>               <C>               <C>
OPERATING REVENUES:
  Casino                                       $ 141,215,071     $ 111,284,884     $ 115,048,414
  Food and beverage                               22,499,113        18,551,978        18,276,813
  Rooms                                           21,318,538        15,875,829        13,116,906
  Other                                            9,965,508         7,405,998         6,869,141
                                               -------------     -------------     -------------
      Total                                      194,998,230       153,118,689       153,311,274
  Less promotional allowances                     15,296,497        12,588,342        11,914,178
                                               -------------     -------------     -------------
      Net                                        179,701,733       140,530,347       141,397,096
                                               -------------     -------------     -------------
OPERATING COSTS AND
  EXPENSES:
  Casino                                          69,674,986        58,323,360        57,158,020
  Food and beverage                               17,214,885        13,330,471        12,496,888
  Rooms                                           12,512,496         9,644,494         7,120,826
  Other operating                                  1,681,063         1,543,516         1,821,157
  Selling, general and administrative             48,933,178        44,920,756        41,021,687
  Depreciation and amortization                   12,053,777         8,896,951         8,010,498
  Write down of assets and lease settlement        4,009,832                --                --
                                               -------------     -------------     -------------
      Total                                      166,080,217       136,659,548       127,629,076
                                               -------------     -------------     -------------
INCOME FROM OPERATIONS                            13,621,516         3,870,799        13,768,020

OTHER INCOME (EXPENSE):
  Interest income                                    383,469         1,822,964           292,567
  Interest income - stockholders                      78,708           237,524            28,218
  Interest expense                               (25,368,844)      (20,208,230)      (14,711,618)
  Interest expense - stockholders                   (126,259)          (38,899)         (315,234)
  Other income (expense)                            (882,182)         (662,251)         (490,896)
                                               -------------     -------------     -------------

LOSS BEFORE INCOME TAXES AND
  EXTRAORDINARY ITEM                             (12,293,592)      (14,978,093)       (1,428,943)

INCOME TAX (PROVISION) BENEFIT                            --         1,484,167        (2,825,746)
                                               --------------    --------------    --------------
LOSS BEFORE EXTRAORDINARY ITEM                   (12,293,592)      (13,493,926)       (4,254,689)
EXTRAORDINARY ITEM - LOSS ON
  EARLY RETIREMENT OF DEBT                       (19,247,928)               --                --
                                               -------------     -------------     -------------
NET LOSS                                         (31,541,520)      (13,493,926)       (4,254,689)

PREFERRED STOCK DIVIDENDS                         (4,142,615)       (3,536,152)          (98,497)
                                               -------------     -------------     -------------
NET LOSS APPLICABLE TO
  COMMON STOCK                                 $ (35,684,135)    $ (17,030,078)    $  (4,353,186)
                                               =============     =============     =============

NET LOSS PER COMMON SHARE:

  Before extraordinary item                    $       (4.09)   $        (4.26)    $       (1.09)
  Extraordinary item                                   (4.80)               --                --
                                               -------------     -------------     -------------
NET LOSS PER COMMON SHARE - BASIC              $       (8.89)   $        (4.26)    $       (1.09)
                                               =============     =============     =============


WEIGHTED AVERAGE COMMON
  SHARES OUTSTANDING                               4,012,846         3,998,877         3,989,655
                                               =============     =============     =============

</TABLE>


See notes to consolidated financial statements.


                                     F - 5

<PAGE>   60

                         FITZGERALDS GAMING CORPORATION
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

                  YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997




<TABLE>
<CAPTION>
                                                                                            Retained           Total
                                                 Common Stock            Additional         Earnings        Stockholders'
                                         --------------------------        Paid-In        (Accumulated        Equity
                                           Shares         Amount           Capital           Deficit)       (Deficiency)
                                         ---------     ------------     ------------      ------------      ------------
<S>                                      <C>           <C>              <C>               <C>
BALANCE, JANUARY 1, 1995                 3,932,827     $     39,328     $ 16,457,630      $ (5,409,939)     $ 11,087,019
  Net loss                                      --               --               --        (4,254,689)       (4,254,689)
  Common stock dividends                        --               --               --        (1,018,292)       (1,018,292)
  Preferred stock dividends                     --               --               --           (98,497)          (98,497)
  Issuance of stock                         23,989              240             (240)               --                --
  Issuance of warrants, net
    of offering costs                           --               --       10,463,717                --        10,463,717
  Issuance of stock options                     --               --          215,042                --           215,042
  Purchase and retirement
    of treasury stock                           --               --         (333,333)               --          (333,333)
  Contributions from
    stockholders/partners                       --               --       (2,347,641)        2,347,641                --
                                         ---------     ------------     ------------      ------------      ------------
BALANCE, DECEMBER 31, 1995               3,956,816           39,568       24,455,175        (8,433,776)       16,060,967
  Net loss                                      --               --               --       (13,493,926)      (13,493,926)
  Common stock dividends                        --               --               --          (405,148)         (405,148)
  Preferred stock dividends                     --               --               --        (3,536,152)       (3,536,152)
  Issuance of stock                         56,030              560              790                --             1,350
  Issuance of stock options                     --               --           63,666                --            63,666
  Adjustment to purchase
    price of treasury stock                     --               --         (734,028)               --          (734,028)
                                         ---------     ------------     ------------      ------------      ------------
BALANCE  DECEMBER 31, 1996               4,012,846           40,128       23,785,603       (25,869,002)       (2,043,271)
  Net loss                                      --               --               --       (31,541,520)      (31,541,520)
  Preferred stock dividends                     --               --               --        (4,142,615)       (4,142,615)
  Adjustment to purchase price of
    treasury stock                              --               --         (136,021)               --          (136,021)
                                         ---------     ------------     ------------      ------------      ------------

BALANCE, DECEMBER 31, 1997               4,012,846     $     40,128     $ 23,649,582      $(61,553,137)     $(37,863,427)
                                         =========     ============     ============      ============      ============
</TABLE>


See notes to consolidated financial statements.


                                      F - 6

<PAGE>   61

                         FITZGERALDS GAMING CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS



<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                                            ----------------------------------------------
                                                                1997             1996             1995
                                                            ------------     ------------     ------------
<S>                                                         <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                  $(31,541,520)    $(13,493,926)    $ (4,254,689)
  Adjustments to reconcile net loss to net
    cash provided by operating activities, net
    of effects of acquisition:
    Depreciation and amortization                             12,053,777        8,896,951        8,010,498
    Amortization of note discount
      and offering costs                                       3,062,020        1,998,619        1,824,577
    Write down of assets and lease settlement                  3,982,000               --               --
    Recovery of bad debt from related party                     (510,439)              --               --
    Loss on early retirement of debt                          17,537,928               --               --
    Deferred income taxes                                             --       (1,484,167)       2,825,796
    Other                                                        634,993          995,058          822,421
    (Increase) decrease in accounts receivable, net               92,655          369,954       (1,059,536)
    (Increase) decrease in accounts
      receivable - related parties                               (74,173)        (221,174)         218,362
    (Increase) decrease in inventories                           345,880         (177,431)        (171,798)
    (Increase) decrease in prepaid expenses                      283,887         (376,545)         219,080
    (Increase) decrease in other assets                          204,922         (464,318)         (37,897)
    Increase (decrease) in accounts payable                   (4,369,705)       5,579,952        1,161,211
    Increase (decrease) in accrued and other liabilities        (414,968)        (864,374)      (1,090,030)
                                                            ------------     ------------     ------------

      Net cash provided by operating activities                1,287,257          758,599        8,467,995
                                                            ------------     ------------     ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale of assets                                   129,948          372,529        9,708,331
  Repayments from related parties                              2,518,805           86,664          219,466
  Purchase of treasury stock                                          --               --         (333,333)
  Acquisition of property and equipment                       (3,642,878)     (53,263,739)      (9,830,127)
  (Increase) decrease in restricted cash -
    construction                                               1,860,336       46,845,677      (49,100,000)
  Increase in advances receivable                                     --               --         (541,650)
  Purchase of business, net of cash acquired                 (25,747,169)              --               --
  Other                                                          224,406         (408,999)        (526,678)
                                                            ------------     ------------     ------------

      Net cash used in investing activities                  (24,656,552)      (6,367,868)     (50,403,991)
                                                            ------------     ------------     ------------
</TABLE>

                                                                     (Continued)



                                      F - 7

<PAGE>   62

                         FITZGERALDS GAMING CORPORATION

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)



<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                                           -----------------------------------------------
                                                                1997           1996              1995
                                                           -------------   -------------     -------------
<S>                                                        <C>             <C>               <C>
CASH FLOWS FROM FINANCING
  ACTIVITIES:
  Proceeds from 1997 Offering                                202,634,300              --                --
  Proceeds from 1995 Offering                                         --              --       135,014,840
  Payment of debt offering costs                             (11,308,428)       (275,625)       (9,983,915)
  Proceeds from issuance of stock                                     --           1,350                --
  Advances from related parties                                       --              --           868,195
  Proceeds from issuance of debt                              38,221,811       9,643,064         7,200,963
  Repayment of long-term debt                               (202,573,620)    (10,222,261)      (78,954,240)
  Common stock dividends
    and dividends to minority stockholders                      (337,393)       (405,148)       (1,018,292)
  Repayments to related parties                               (1,807,255)             --        (3,113,317)
  (Increase) decrease in restricted cash                              --         471,569          (120,415)
  Other                                                               --         (98,007)               --
                                                           -------------   -------------     -------------
      Net cash provided by (used in)
         financing activities                                 24,829,415        (885,058)       49,893,819
                                                           -------------   -------------     -------------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                                         1,460,120      (6,494,327)        7,957,823

CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR                                           13,349,497      19,843,824        11,886,001
                                                           -------------   -------------     -------------

CASH AND CASH EQUIVALENTS,
  END OF YEAR                                              $  14,809,617   $  13,349,497     $  19,843,824
                                                           =============   =============     =============
</TABLE>


                               See notes to consolidated financial statements.



                                     F - 8

<PAGE>   63

                         FITZGERALDS GAMING CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    ORGANIZATION

      Fitzgeralds Gaming Corporation (the "Company") is a diversified
      multi-jurisdictional gaming holding company that owns and operates four
      Fitzgeralds-brand casino-hotels, in downtown Las Vegas, Nevada
      ("Fitzgeralds Las Vegas"), Reno, Nevada ("Fitzgeralds Reno"), Tunica,
      Mississippi ("Fitzgeralds Tunica"), and Black Hawk, Colorado ("Fitzgeralds
      Black Hawk"). In addition, the Company has an exclusive agreement to
      manage the Cliff Castle casino, an Indian-owned gaming facility in Camp
      Verde, Arizona ("Cliff Castle"), through May 2000. Because of the
      integrated nature of these operations, the Company is considered to be
      engaged in one industry segment.

      The Company currently conducts substantially all of its business through
      wholly-owned subsidiaries: Fitzgeralds Reno, Inc. ("FRI"); Fitzgeralds
      South, Inc. ("FSI"); and Fitzgeralds Incorporated ("FI"). FRI directly
      owns and operates Fitzgeralds Reno and until its sale in May 1995, Harolds
      Club in Reno, Nevada; FSI owns and operates Fitzgeralds Las Vegas and
      Fitzgeralds Tunica through wholly owned subsidiaries; and FI owns and
      operates Fitzgeralds Black Hawk through wholly owned subsidiaries. FI also
      manages Cliff Castle through its 85%-owned subsidiary, Fitzgeralds Arizona
      Management, Inc. ("FAMI"). In addition, through its 85%-owned subsidiary,
      Fitzgeralds New York, Inc. ("FNYI"), FI is receiving a fee in
      consideration of work performed prior and subsequent to the opening of the
      Turning Stone casino in Verona, New York, owned by the Oneida Indian
      Nation.

      Nevada Club, Inc. ("NCI"), a wholly owned subsidiary of the Company, owned
      and operated the Nevada Club in Reno, Nevada. The Nevada Club has been
      closed pending completion of its sale.

      Separate net operating revenues and net income (loss) of the consolidated
      entities, net of intercompany eliminations, for the years ended December
      31, 1997, 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
                                            1997           1996            1995
                                       ------------    ------------    ------------
<S>                                    <C>             <C>             <C>
Net Operating Revenues:
  FGC                                  $         --    $         --    $         --
  FSI:
    Fitzgeralds Las Vegas                46,540,155      43,482,777      42,652,710
    Fitzgeralds Tunica                   68,734,152      48,747,813      46,465,895
  FRI:
    Harolds Club                                 --              --       1,520,244
    Fitzgeralds Reno                     39,803,326      37,076,390      40,212,715
  NCI                                     6,237,697       6,432,276       7,036,701
  FI:
    Fitzgeralds Black Hawk               12,691,475              --              --
    Other                                 5,694,928       4,791,091       3,508,831
                                       ------------    ------------    ------------
Consolidated net operating revenues    $179,701,733    $140,530,347    $141,397,096
                                       ============    ============    ============
</TABLE>



                                     F - 9
<PAGE>   64

<TABLE>
<CAPTION>
                                            1997           1996            1995
                                       ------------    ------------    ------------
<S>                                    <C>             <C>             <C>
Net Income (Loss):
  FGC                                  $(18,423,409)   $   (410,264)   $    (39,570)
  FSI:
    Fitzgeralds Las Vegas                (8,980,159)     (8,219,859)     (1,721,655)
    Fitzgeralds Tunica                   (4,692,512)     (9,462,003)     (1,379,339)
  FRI:
    Harolds Club                         (1,852,832)             --      (1,896,510)
    Fitzgeralds Reno                      3,377,213       2,604,333        (428,503)
  NCI                                    (2,074,365)       (842,312)       (328,470)
  FI:
    Fitzgeralds Black Hawk               (1,926,503)             --              --
    Other                                 3,031,047       2,836,179       1,539,358
                                       ------------    ------------    ------------
Consolidated net loss                  $(31,541,520)   $(13,493,926)   $ (4,254,689)
                                       ============    ============    ============
</TABLE>


2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      The accounting policies of the Company conform to generally accepted
      accounting principles. The following is a summary of the more significant
      of such policies:

      CONSOLIDATION - The consolidated financial statements of the Company
      include the accounts of its wholly owned and majority owned subsidiaries.
      All intercompany balances and transactions have been eliminated in
      consolidation.

      MINORITY INTEREST - Minority interest represents the minority
      stockholders' share of equity in FAMI and FNYI.

      CASH AND CASH EQUIVALENTS - Cash includes cash required for gaming
      operations. The Company considers cash equivalents to include short-term
      investments with original maturities of ninety days or less. At December
      31, 1997 and 1996, the Company had bank deposits in excess of federally
      insured limits of approximately $7,764,000 and $3,740,000, respectively.

      INVENTORIES - consisting principally of food and beverages and operating
      supplies, are stated at the lower of first-in, first-out cost or market.

      The estimated cost of normal operating quantities (base stock) of china,
      silverware, glassware, linen, uniforms and utensils has been recorded as
      an asset and is not being depreciated. Costs of base stock replacements
      are expensed as incurred. Other assets in the accompanying consolidated
      balance sheets includes $699,989 and $868,168 of base stock inventories at
      December 31, 1997 and 1996.

      PROPERTY AND EQUIPMENT - are stated at cost. Depreciation and amortization
      are computed using the straight-line method over the estimated lives of
      the assets. Costs of major improvements are capitalized; costs of normal
      repairs and maintenance are charged to expenses as incurred. Gains or
      losses on disposals are recognized.


                                     F - 10
<PAGE>   65

      CAPITALIZED INTEREST - Interest costs totaling $1,814,195 and $7,340 were
      capitalized into property and equipment for the years ended December 31,
      1996 and 1995, respectively. No interest was capitalized during the year
      ended December 31, 1997.

      RESTRICTED CASH - CONSTRUCTION - represents cash and cash equivalents to
      fund expansion projects at Fitzgeralds Las Vegas and Fitzgeralds Tunica
      held in collateral accounts pursuant to certain disbursement agreements.

      RESTRICTED INVESTMENT - represents U.S. Treasury Notes of $1,000,000 held
      in an escrow account for the benefit of certain land lessors related to
      Fitzgeralds Las Vegas.

      INVESTMENTS - The Company's investments in limited liability corporations
      organized to construct certain improvements in downtown Las Vegas and to
      operate Fitzgeralds Black Hawk prior to the Company's purchase of 100%
      ownership in that casino are accounted for using the equity method.

      DEBT OFFERING COSTS - Costs associated with the issuance of debt are
      deferred and amortized over the life of the related indebtedness using the
      effective interest method. Debt offering costs at December 31, 1997 and
      1996 are presented net of accumulated amortization of $2,160 and $636,190,
      respectively. Unamortized debt offering costs of $8,148,910 related to
      debt retired from the proceeds of the 1997 Offering were expensed in
      December 1997.

      GOODWILL - represents the cost in excess of fair value of the net assets
      acquired in purchase transactions. Goodwill is being amortized on a
      straight-line method over 40 years and is recorded net of accumulated
      amortization of $132,930 at December 31, 1997.

      CASINO REVENUE - is the net win from gaming activities, which is the
      difference between gaming wins and losses.

      PROMOTIONAL ALLOWANCES - Operating revenues include the retail value of
      rooms, food and beverage provided to customers without charge;
      corresponding charges have been deducted from revenue in the accompanying
      consolidated statements of operations as promotional allowances in the
      determination of net operating revenues. The estimated costs of providing
      the complimentary services are charged to the casino department and are as
      follows:

<TABLE>
<CAPTION>
                           1997           1996            1995
                      -----------     -----------     -----------
<S>                   <C>             <C>             <C>
Hotel                 $ 2,104,907     $ 1,635,213     $ 1,109,155
Food and beverage      10,684,329       9,543,492       8,828,648
Other                     223,949         102,951          91,037
                      -----------     -----------     -----------
Total                 $13,013,185     $11,281,656     $10,028,840
                      ===========     ===========     ===========
</TABLE>

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

      FEDERAL INCOME TAXES - The Company accounts for income taxes in accordance
      with SFAS No. 109, Accounting for Income Taxes, which requires recognition
      of deferred tax assets and liabilities for the expected future tax
      consequences of events that have been included in the financial statements
      or tax returns. Deferred income taxes reflect the net tax effects of (a)
      temporary differences between the carrying


                                     F - 11
<PAGE>   66

      amounts of assets and liabilities for financial reporting purposes and the
      amounts used for income tax purposes, and (b) operating loss and tax
      credit carry forwards.

      FINANCIAL REPORTING PERIOD - The Company has adopted a "4-4-5" (weeks)
      financial reporting period which maintains a December 31 year-end. This
      method of reporting results in 13 weeks in each quarterly accounting
      period. The first and fourth accounting periods will have a fluctuating
      number of days resulting from the maintenance of a December 31 year-end,
      whereas the second and third periods will have the same number of days
      each year.

      FAIR VALUE OF FINANCIAL INSTRUMENTS - The Company believes, based on
      current information, that the carrying value of the Company's cash and
      cash equivalents, restricted cash, accounts, notes and advances
      receivable, and accounts payable approximates fair value because of the
      short maturity of those instruments. The Company estimates the fair value
      of its senior secured notes payable approximates book value as of December
      31, 1997 because the 1997 Offering (see Note 8) was completed on December
      30, 1997. The Company estimates the fair value of its senior secured notes
      payable issued in 1995 approximated $86.1 million as of December 31, 1996
      based on analyst's reports, quotes and recent trades of the securities.
      The Company estimates the fair value of its preferred stock to approximate
      book value as no sales or exchanges have occurred and no market quotes for
      such securities exist. The Company estimates the fair value of all other
      long-term debt and notes payable - related parties approximates their
      carrying value because interest rates on the debt approximate market
      rates.

      IMPAIRMENT OF LONG-LIVED ASSETS - In 1996 the Company adopted SFAS No.
      121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
      Assets to be Disposed Of. This statement requires that long-lived assets
      and certain identifiable intangibles to be held and used by an entity be
      reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable.

      STOCK BASED COMPENSATION - In 1996 the Company adopted SFAS No. 123,
      Accounting for Awards of Stock-Based Compensation. This statement
      establishes financial accounting and reporting standards for stock-based
      employee compensation plans and for transactions where equity securities
      are issued for goods and services. This statement defines a fair value
      based method of accounting for an employee stock option or similar equity
      instrument and encourages all entities to adopt that method of accounting
      for all of their employee stock compensation plans. However, it also
      allows an entity to continue to measure compensation cost for those plans
      using the intrinsic value based method of accounting prescribed by APB
      Opinion No. 25, Accounting for Stock Issued to Employees. Management's
      current intention is to continue to follow APB Opinion No. 25, and to
      adopt only the disclosure requirement of SFAS No. 123.

      EARNINGS PER SHARE - The Company adopted SFAS No. 128, Earnings per Share,
      in 1997. This statement simplifies the standards for computing earnings
      per share (EPS) and makes them comparable to international EPS standards.
      It replaces the presentation of primary EPS with a presentation of basic
      EPS. It also requires dual presentation of basic and diluted EPS on the
      face of the income statement for all entities with complex capital
      structures. The adoption of SFAS No. 128 had no effect on the Company's
      1996 and 1995 loss per share calculations.

      During the years ended December 31, 1997, 1996, and 1995, there were no
      outstanding convertible securities that would result in dilutive potential
      common shares and, as such, diluted earnings per share are not applicable.
      Options to purchase 676,974 shares of common stock at prices ranging from
      $1.00 to $1.10, 450,051 shares of common stock at prices ranging from
      $1.00 to $4.50 per share and 526,561 shares of common stock at prices
      ranging from $1.00 to $4.50 per share and warrants to purchase 1,971,835,
      2,675,237 and 2,675,237 shares of common stock at $.01 per share were
      outstanding at December 31,


                                     F - 12
<PAGE>   67

      1997, 1996 and 1995, respectively. Such options are not included in the
      computation of diluted earnings per share because to do so would have been
      antidilutive for the years presented.

      RECENTLY ISSUED ACCOUNTING STANDARDS - In June 1997, the FASB issued SFAS
      131, Disclosures about Segments of an Enterprise and Related Information,
      which will be effective for the Company beginning January 1, 1998. SFAS
      131 redefines how operating segments are determined and requires
      qualitative disclosure of certain financial and descriptive information
      about a company's operating segments. The Company anticipates with the
      adoption of SFAS 131 it will expand its segment disclosures relative to
      Nevada, Colorado and Mississippi operations. The Company believes the
      segment information required to be disclosed under SFAS 131 will be more
      comprehensive than previously reported, including expanded disclosure of
      income statement and balance sheet items for each of its reportable
      operating segments.

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

      RECLASSIFICATIONS - Certain amounts in the 1996 and 1995 consolidated
      financial statements have been reclassified to conform to the 1997 method
      of presentation.

3.    STATEMENTS OF CASH FLOWS INFORMATION

      The following supplemental disclosures are provided as part of the
      consolidated statements of cash flows for the years ended December 31,
      1997, 1996 and 1995:

      Cash paid for interest, net of amounts capitalized, during the years ended
      December 31, 1997, 1996 and 1995 was $22,590,718, $22,363,448 and
      $10,041,419, respectively.

      Long-term contracts payable of $300,863 in 1997, $3,762,425 in 1996 and
      $2,624,160 in 1995, were incurred with the acquisition of new equipment.

      During 1997, 1996 and 1995, accumulated deficit was increased by
      $4,142,615, $3,536,152 and $98,497 for preferred stock dividends
      consisting of $3,694,790, $3,195,890 and $92,983 accrued dividends and
      $447,825, $340,262 and $5,514 accretion of discount on preferred stock.

      During 1997 and 1996 additional paid in capital decreased and the note
      payable to a former stockholder increased by $136,021 and $636,020,
      respectively, pursuant to an adjustment to the purchase price of treasury
      stock.

      In 1997, accrued offering costs of $660,775 were incurred in connection
      with the 1997 Offering. In 1995, accrued offering costs of $2,596,799 were
      incurred in connection with the 1995 Offering.

      During 1997, certain assets of Nevada Club with a book value totaling
      $6,157,227 were written down to their estimated realizable value of
      $4,000,227 and reclassified from Property and Equipment to Estimated
      Realizable Value of Nevada Club Assets Held for Sale.

      During 1997, notes payable of $1,525,000 and accrued liabilities of
      $300,000 were incurred in connection with the Harolds Club lease
      settlement.

      During 1997, the Company reclassified $985,216 short term debt to other
      accrued liabilities.

      During 1997, the Company reclassified $281,250 of other assets to minority
      interest.


                                     F - 13
<PAGE>   68

      During 1997, the Company acquired the remaining 78% membership interest in
      101 Main with the allocation of the purchase price as follows:

<TABLE>
             <S>                                                <C>
             Working capital other than cash                    $  (3,218,233)
             Property and equipment                                19,591,964
             Goodwill                                              14,179,918
             Long-term debt                                        (4,806,480)
                                                                --------------
             Net                                                $  25,747,169
                                                                =============
</TABLE>

      During 1996 advances receivable of $2,500,000 were transferred to
investments.

      Notes payable of  $2,077,363 in 1995 were incurred for the purchase of
      land.

      During 1995, $425,000 in other assets was reclassified to property and
      equipment.

      The Company issued 23,989 shares of its common stock in 1995 to a minority
      stockholder of FI upon the completion of the 1995 Offering, resulting in
      an increase in common stock and a decrease in additional paid-in capital
      of $240.

4.    PROPERTY AND EQUIPMENT

      Property and equipment consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                                    ESTIMATED
                                                                                     SERVICE
                                                                                       LIFE
                                                 1997               1996             (YEARS)
                                            -------------      -------------        ---------
<S>                                         <C>                <C>                  <C>
Land used in casino operations              $  15,606,209      $  12,961,120
Buildings and improvements                    116,588,374        103,360,569         7-40
Site improvements                              14,383,100         14,331,622           20
Barge and improvements                         12,896,235         12,885,433           15
Furniture, fixtures and equipment              61,974,234         57,503,519         3-12
                                            -------------      -------------
                                              221,448,152        201,042,263
Less accumulated depreciation
  and amortization                            (57,976,447)       (49,335,270)
                                            -------------      -------------
                                              163,471,705        151,706,993
Construction in progress                          233,010            176,090
                                            -------------      -------------
Total                                       $ 163,704,715      $ 151,883,083
                                            =============      =============
</TABLE>


      Substantially all property and equipment are pledged as collateral on
long-term debt.

5.    INVESTMENTS

      The Company owns a 17.65% interest in a limited liability company owned by
      eight downtown Las Vegas casinos to construct and participate in the
      Fremont Street Experience. The Freemont Street Experience is an urban
      theater which includes a space frame containing over two million lights, a
      sky parade light show, sidewalk and street improvements, a parking
      structure, and special events and festivals.


                                     F - 14
<PAGE>   69

      The Company accounts for this investment using the equity method.
      Condensed financial information of the limited liability corporation as of
      December 31, 1997 and 1996 and for the years then ended is summarized
      below.

<TABLE>
<CAPTION>
                                   1997                 1996
                              ------------        ------------
<S>                           <C>                 <C>
Current assets                $    128,943        $  2,102,692
Non current assets              13,283,314          16,295,965
Current liabilities                910,312             848,586
Non current liabilities            141,669           1,358,723
Net assets                      13,412,258          16,191,348

Revenues                      $  3,224,995        $  2,508,049
Operating loss                  (8,142,487)        (10,069,775)
Net loss                        (8,142,487)        (10,069,775)
</TABLE>


      Effective February 16, 1996, the Company, through FBHI, purchased a 22%
      membership interest in 101 Main, a limited liability company formed to
      construct, develop and operate a casino in Gilpin County, Colorado. In
      addition, FBHI entered into a Management Agreement with 101 Main to manage
      the casino operations for a period of 10 years and retained an option to
      purchase the remaining 78% interest in 101 Main. The first floor of the
      casino opened on May 23, 1995.

      The Company accounted for its 22% investment in 101 Main using the equity
      method. Condensed balance sheet and statement of operations information
      for 101 Main as of December 31, 1996, for the year ended December 31,
      1996, and for the period from January 1, 1997 through August 15, 1997 (the
      date the remaining 78% interest in 101 Main was acquired by the Company)
      is summarized below:

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                           1996
                                                                       -----------
<S>                                                                    <C>
Summarized Balance Sheet Information
     Current assets                                                    $ 2,264,357
     Non current assets                                                 21,531,466
     Current liabilities                                                 5,168,166
     Non current liabilities                                             7,607,679
     Net assets                                                         11,019,978
</TABLE>


<TABLE>
<CAPTION>
                                                     PERIOD ENDED       YEAR ENDED
                                                     AUGUST 15,         DECEMBER 31,
                                                        1997               1996
                                                     -----------       -----------
<S>                                                  <C>               <C>
Summarized Statement of Operations Information
    Revenues                                         $21,295,752       $27,944,135
    Operating income                                   5,398,745         7,777,331
    Income before extraordinary item                   4,378,932         6,084,598
    Net income                                         4,130,769         6,084,598
</TABLE>


                                     F - 15
<PAGE>   70

6.    ACQUISITION OF 101 MAIN

      On August 15, 1997, the Company acquired the 78% membership interest in
      101 Main not previously owned by FBHI, at a purchase price of
      approximately $27.3 million. Because of certain restrictions on the
      Company, as issuer, and FBHI, as a subsidiary guarantor, contained in
      existing loan documents, FBHI formed Fitzgeralds Black Hawk, Inc. - II
      ("FBHI-II") as a wholly-owed subsidiary of FBHI. FBHI then contributed
      substantially all of its assets including its 22% membership interest in
      101 Main, its option to acquire the remaining 78% membership interest in
      101 Main and the Management Agreement between FBHI and 101 Main, to
      FBHI-II. At the same time, 101 Main loaned approximately $27.3 million of
      the proceeds of its $38.0 million 13% First Mortgage Notes due 2000 (the
      "101 Main Notes") to FBHI-II for use in acquiring the additional 78%
      membership interest in 101 Main. FBHI-II, as the owner of all of the
      membership interests in 101 Main, and the Management Agreement, guaranteed
      the obligations of 101 Main under the 101 Main Notes. The remainder of the
      proceeds from the 101 Main Notes was used to retire certain existing
      indebtedness secured by assets of 101 Main and for general corporate
      purposes.

      The acquisition of the 78% membership interest in 101 Main has been
      recorded as a purchase. Prior to the acquisition, the Company's 22%
      membership interest in 101 Main was accounted for using the equity method.
      From August 15, 1997, the financial statements of 101 Main have been
      consolidated with those of the Company.

      The allocation of the purchase price is as follows:

<TABLE>
              <S>                                                <C>
             Purchase price                                      $ 27,300,000
             Cash acquired                                          1,552,831
                                                                 ------------
             Net                                                 $ 25,747,169
                                                                 ============

             Working capital other than cash                     $ (3,218,233)
             Property and equipment                                19,591,964
             Goodwill                                              14,179,918
             Long-term debt                                        (4,806,480)
                                                                 ------------
             Net                                                 $ 25,747,169
                                                                 ============
</TABLE>


      The table below reflects pro forma condensed financial information for the
      Company as if the 78% membership interest in 101 Main was acquired on
      January 1, 1996:

<TABLE>
<CAPTION>
                                                             YEAR ENDED            YEAR ENDED
                                                         DECEMBER 31, 1997     DECEMBER 31, 1996
                                                         -----------------     -----------------
               <S>                                       <C>                   <C>
               Net revenues                               $ 200,454,134         $ 167,893,638
               Loss before extraordinary item                (8,735,241)           (8,478,690)
               Net loss                                     (28,231,332)           (8,478,690)
               Net loss applicable to common stock          (32,373,947)          (12,014,842)
               Net loss per common share                          (8.07)                (3.00)
</TABLE>



                                     F - 16
<PAGE>   71

7.    LONG-TERM DEBT

      Long-term debt is as follows at:



<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                               ---------------------------------------
                                                                                    1997                  1996
                                                                               ---------------      ------------------
         <S>                                                                   <C>                  <C>
         Senior secured notes payable (the "Notes"); subject to
             certain exceptions, secured by a first priority lien on
             substantially all of the assets of the subsidiaries of
             the Company (other than FAMI, FNYI and NCI) except
             for certain excluded assets; due in semiannual
             installments of interest at 12.25% on June 15 and
             December 15; with a final payment of principal and
             interest due on December 15, 2004 (net of unamortized
             discount of $2,364,697)                                           $  202,635,303       $               -

         Priority secured notes payable repaid in 1997                                      -               5,010,465

         Senior secured notes payable repaid in 1997                                        -             108,909,919

         Note payable to an individual to acquire Fitzgeralds
             Casino/Hotel (Reno) repaid in 1997                                             -              18,067,287

         Note  payable to  repurchase  outstanding  common  shares  from a
             major stockholder repaid in 1997                                               -               5,707,015

         Revolving credit and term note payable to a bank repaid in 1997
                                                                                            -               1,233,606

         Notepayable to a trust to acquire land used in casino operations;
             collateralized by deed of trust on the land; due in monthly
             installments of $32,681, including interest at 7.5%; remaining
             principal and interest due December 6, 2000                            1,050,616               1,351,620

         Notepayable to a bank to acquire the Nevada Club; collateralized by a
             deed of trust on land and buildings, a security agreement on
             furniture, fixtures and equipment and a personal guarantee by
             certain stockholders; due in monthly installments of $55,839,
             including interest at the bank's prime rate plus 2% (10.5% at
             December 31, 1997); principal
             balance due December 1998                                              2,658,356               3,047,088
</TABLE>


                                     F - 17
<PAGE>   72

<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                            ------------------------------------------
                                                                                  1997                     1996
                                                                            ------------------      ------------------
         <S>                                                                <C>                     <C>
         Notes payable secured by gaming equipment; due in aggregate
             monthly installments of $108,708, including interest at
             11.5%; remaining principal due August 1998                              833,294                1,969,947

         Contract payable secured by gaming equipment, due in monthly
             principal installments of $133,333 plus interest at 10.83%;
             remaining principal due March 1998                                      533,333                2,000,000

         Contracts payable,  collateralized by certain  equipment,  due in
             maximum  aggregate  monthly  installments  of $309,552,  with
             varying maturity dates through 2001                                   3,810,696                4,702,490

         Obligation for construction of water/sewer lines, secured by an
             irrevocable letter of credit, due in monthly installments of
             $11,735, including imputed interest of 9.5%                             273,965                  328,034

         Other                                                                     1,681,819                1,166,744
                                                                             ---------------         ----------------

         Total long-term debt                                                    213,477,382              153,494,215
         Less current portion                                                     (7,285,897)             (25,637,728)
                                                                             ---------------         ----------------

         Long-term portion                                                   $   206,191,485         $    127,856,487
                                                                             ===============         ================
</TABLE>

      The scheduled maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
            YEAR ENDING
            DECEMBER 31,
            <S>                                             <C>
                 1998                                       $    7,285,897
                 1999                                            1,904,376
                 2000                                              815,282
                 2001                                              392,768
                 2002                                              351,207
                 Thereafter                                    202,727,852
                                                            --------------
                 Total                                      $  213,477,382
                                                            ==============
</TABLE>

      The note payable to a bank to acquire the Nevada Club with a balance of
      $2,658,356 as of December 31, 1997, has covenants placing restrictions on
      Nevada Club and requiring that certain financial ratios be maintained. As
      of December 31, 1997, NCI was not in compliance with certain of these
      covenants. NCI continues to make scheduled principal and interest payments
      on the notes. The entire balance of this note has been classified as
      current at December 31, 1997. The Company has received an offer to buy
      Nevada Club, and upon its sale, this note payable will be retired.



                                     F - 18
<PAGE>   73

      On March 14, 1994, FSI issued $36 million of 13% senior secured notes due
      1996. In connection with the issuance of these notes, FSI issued warrants
      (the "FSI Warrants") to purchase 112,108 shares of its common stock. No
      value was ascribed to the FSI Warrants. The FSI Warrants are exercisable
      at $.01 per share, expire five years from the closing of the offering for
      these notes and are subject to certain anti-dilution adjustments. FSI
      Warrants to purchase 54,384 shares of common stock of FSI were also issued
      to the sales agent. These FSI Warrants are exercisable at $32.18 per share
      and expire five years from the closing of the offering. All FSI Warrants
      issued in connection with this note offering are exercisable only for
      shares of common stock of FSI. These notes were repaid from a portion of
      the proceeds from the 1995 Offering at which time, the Company repurchased
      approximately 90% of the $.01 FSI Warrants, leaving 5,358 FSI Warrants
      outstanding.

      EXTRAORDINARY ITEM

      In December 1997, the Company recorded an extraordinary loss on early
      retirement of debt of $19,247,928 consisting of the net write-off of
      unamortized discount and debt offering costs and early payment premium on
      debt retired with the proceeds of the Notes.

8.    THE OFFERINGS

      THE 1997 OFFERING

      On December 30, 1997, the Company completed a private placement of debt
      (the "1997 Offering"). The Company issued $205,000,000 aggregate principal
      amount of 12.25% Senior Secured Notes due December 15, 2004 (the "Notes").
      A summary of the proceeds from the 1997 Offering is as follows:

<TABLE>
            <S>                                       <C>
            Face amount                               $    205,000,000
            Less discount                                   (2,365,700)
                                                      ----------------
              Proceeds                                     202,634,300
            Less offering costs                             (8,727,096)
                                                      ----------------
              Net proceeds                            $    193,907,204
                                                      ================
</TABLE>

      THE NOTES

      The Notes bear interest at a fixed rate of 12.25% per annum payable on
      June 15 and December 15 of each year, commencing June 15, 1998. The Notes
      will mature on December 15, 2004.

      The Notes are secured by a first priority lien on substantially all of the
      assets of the subsidiaries of the Company, except certain excluded assets
      and subsidiaries, as defined.

      The Notes will be redeemable at the option of the Company, in whole or in
      part, on or after December 15, 2001, at the redemption prices defined in
      the indenture governing the Notes (the "Note Indenture"), plus accrued and
      unpaid interest to the date of redemption. Prior to December 15, 2001, the
      Company may redeem up to 35% of the aggregate principal amount of the
      Notes at a redemption price of 112.5% of the principal amount thereof,
      plus accrued and unpaid interest through the applicable date of
      redemption, with the cash proceeds of one or more Public Equity Offerings
      (as defined), provided that at least $133,250,000 aggregate principal
      amount of the Notes remains outstanding immediately thereafter.

      Upon a Change of Control (as defined), the Company will be required to
      offer to repurchase all of the outstanding Notes at a cash price equal to
      101% of the principal amount thereof, plus accrued and unpaid interest to
      the date of repurchase.


                                     F - 19
<PAGE>   74

      The Note Indenture contains covenants which, among other things, restrict
      the Company's ability to (i) make certain payments to, or investments in,
      third parties; (ii) incur additional indebtedness or liens on any assets;
      (iii) enter into transactions with affiliates; and (iv) sell assets or
      subsidiary stock. At December 31, 1997, the Company was in compliance with
      these provisions.

      THE 1995 OFFERING

      On December 19, 1995, the Company completed a public offering (the "1995
      Offering") of debt, preferred stock and warrants (the "Warrants"). The
      Company issued 123,000 Note Units each consisting of $1,000 principal
      amount of 13% Senior Secured Notes due December 31, 2002 with Contingent
      Interest and 13.59368 Warrants, each to purchase one share of the
      Company's common stock at $.01 per share, and 800,000 Preferred Stock
      Units, each consisting of one share of Cumulative Redeemable Preferred
      Stock (the "Preferred Stock") and 1.25402 Warrants. The Warrants were
      assigned a value of $4.50.

      A summary of the proceeds from the 1995 Offering is as follows:

<TABLE>
<CAPTION>
                                 1995         PREFERRED          1995
                                NOTES           STOCK          WARRANTS          TOTAL
                            -------------   -------------    -------------    -------------
<S>                         <C>             <C>              <C>              <C>
Face amount                 $ 123,000,000   $  20,000,000    $          --    $ 143,000,000

Less discount on notes         (7,985,160)             --               --       (7,985,160)
Less value assigned to
  warrants                     (7,524,104)     (4,514,463)      12,038,567               --
                            -------------   -------------    -------------    -------------
  Proceeds                    107,490,736      15,485,537       12,038,567      135,014,840
Less offering costs            (7,374,459)     (3,631,405)      (1,574,850)     (12,580,714)
                            -------------   -------------    -------------    -------------
  Net proceeds              $ 100,116,277   $  11,854,132    $  10,463,717    $ 122,434,126
                            =============   =============    =============    =============
</TABLE>

      PREFERRED STOCK

      The Preferred Stock has a liquidation preference of $20 million dollars
      ($25 per share), plus accrued and unpaid dividends. Cash dividends on the
      Preferred Stock will be payable commencing March 31, 1996 out of funds
      legally available therefor (when and if declared by the Company's Board of
      Directors) in an amount equal to 15% of the liquidation preference.
      Dividends if not paid (whether or not declared) will be cumulative from
      December 19, 1995 and will be compounded quarterly. The Note Indenture
      restricts the Company's ability to pay dividends on the Preferred Stock,
      and the Company has no current intention to pay any dividends on the
      Preferred Stock. The Preferred Stock may be redeemed by the Company at any
      time at a redemption price equal to 100% of the liquidation preference
      plus accrued and unpaid dividends on the date of redemption subject to
      restrictions in the Note Indenture. The Company will be obligated to
      redeem all of the Preferred Stock on December 31, 2005 at a redemption
      price equal to 100% of the liquidation preference plus accrued and unpaid
      dividends on the date of redemption. In the event that the Company
      consummates a Qualified Public Offering (Qualified Public Offering means a
      firm commitment underwritten public offering of Common Stock of the
      Company for which the Company receives net proceeds of at least $25
      million, and after which the Common Stock is traded on a national
      securities exchange or quoted on the Nasdaq National Market), it will be
      required to offer to repurchase 35% of the Preferred Stock at a price
      equal to 100% of the liquidation preference on the date of repurchase.


                                     F - 20
<PAGE>   75

      WARRANTS

      The Warrants were originally exercisable for an aggregate of 2,675,237
      shares of the Company's common stock at $.01 per share. However, in
      connection with the 1997 Offering and the repayment of the 1995 Notes,
      the Company redeemed 703,402 of the Warrants. The remaining 1,971,835
      Warrants are freely transferable and exerciseable, are subject to
      anti-dilution adjustments, and expire December 19, 1998.

9.    COMMITMENTS

      Future minimum rental payments under operating leases with noncancelable
      lease terms in excess of one year are as follows:

<TABLE>
<CAPTION>
             YEAR ENDING
             DECEMBER 31,
             ------------
             <S>                                                 <C>
                  1998                                           $   2,186,626
                  1999                                               1,889,314
                  2000                                               1,535,255
                  2001                                               1,248,444
                  2002                                               1,141,592
                  Thereafter                                         2,637,434
                                                                 -------------
                  Total                                          $  10,638,665
                                                                 =============
</TABLE>

      Such operating lease commitments primarily relate to equipment, signs,
      warehouses and ground leases on which the Company's buildings and
      equipment reside. Rent expense for the years ended December 31, 1997, 1996
      and 1995 was $2,211,745, $1,989,321 and $2,034,061, respectively.

      On May 31, 1995, FRI sold the closed Harolds Club in Reno to an unrelated
      publicly-traded company which subsequently sold Harolds Club to a company,
      the assets of which are now under control of the United States Bankruptcy
      Court for the Northern District of New York. Pursuant to the terms of
      certain indemnification, assignment and assumption and guarantee
      agreements executed by FRI in connection with FRI's purchase and
      subsequent sale of Harolds Club, FRI is contingently obligated for certain
      land lease payments plus certain property-related costs, such as taxes and
      insurance.

      As of December 31, 1997, lease obligations in the aggregate amount of
      approximately $1,106,000 were unpaid and the remaining Harolds Club lease
      obligations are as follows:

<TABLE>
<CAPTION>
             YEAR ENDING
             DECEMBER 31,
             ------------
             <S>                                                 <C>
                1998                                             $    580,745
                1999                                                  334,214
                2000                                                  334,214
                2001                                                  252,749
                2002                                                  212,016
                Thereafter                                          3,745,711
                                                                 ------------
                Total                                            $  5,459,649
                                                                 ============
</TABLE>


                                     F - 21
<PAGE>   76

      The current owner of Harolds Club has not met its obligations with respect
      to the land leases and in August 1996 each of the five land lessors filed
      separate actions in the Second Judicial District Court, Washoe County,
      State of Nevada, against the current owner, FRI and other non-related
      prior lessees under the land leases seeking past due rent, taxes and other
      property-related expenses, as well as attorneys' fees and costs.
      Cross-claims for indemnification have been asserted against FRI by the
      entity from which it assumed the land leases, and FRI has asserted
      cross-claims against the entities that are obligated to indemnify FRI
      under the various indemnification, assignment and assumption, and
      guarantee agreements.

      Orders granting summary judgment against FRI have been entered in four of
      the actions for the aggregate sum of $1,243,220. Two orders have been
      reduced to judgments. In anticipation of the sale of Harolds Club, the
      parties to each of the five land lessor actions are currently negotiating
      a settlement agreement, the details of which are set forth below. Pending
      the sale of Harolds Club, and subject to certain other terms and
      conditions, FRI has agreed to pay monthly lease payments on two of the
      land leases in the total amount of $28,977.

      The current owner of Harolds Club and the five land lessors have received
      an offer to purchase their respective interests in Harolds Club. The same
      unrelated party has made an offer to purchase the Nevada Club for a
      purchase price of $4,000,000 and, in anticipation of completing the sale,
      the Company closed Nevada Club in December 1997. To facilitate the sale of
      both properties and subject to terms and conditions to be agreed upon
      between the potential purchaser and FRI, FRI has agreed to pay the land
      lessors $2,125,000 in exchange for a dismissal with prejudice of all
      claims against FRI arising out of FRI's purchase and subsequent sale of
      Harolds Club. FRI anticipates paying $600,000 of the $2,125,000 settlement
      in cash, less the cumulative amount of interim monthly rental payments
      ($28,977 per month), concurrently with the closing of the Harolds Club
      transaction and executing five separate promissory notes totaling
      $1,525,000 for the balance. The notes will be amortized over five years
      with interest fixed at the prime rate in effect at the largest financial
      institution in Nevada on the date the notes are executed and will be
      secured by the personal guarantee of the Chairman and Chief Executive
      Officer of the Company. In addition to such guarantee, and subject to
      certain conditions, a prior owner of Harolds Club named in four of the
      five land lessor actions has agreed to reimburse FRI $300,000, and to
      provide a payment guarantee for one of the five notes as its contribution
      to the settlement of the actions. The closing of the Harolds Club
      transaction is subject to the receipt by FRI of the $300,000 reimbursement
      and the closing of the Nevada Club sale.

      During 1997, the Company recorded an expense of $1,852,832 for the
      anticipated net settlement obligation, including related legal fees. In
      anticipation of the Nevada Club transaction, the Company has reclassified
      $6,157,227 from Property and Equipment to Estimated Realizable Value of
      Nevada Club Assets Held for Sale in the consolidated balance sheet as of
      December 31, 1997 and has recorded an allowance of $2,157,000 against the
      book value of the assets held for sale to write such assets down to the
      estimated net realizable value for the year ended December 31, 1997.

      EMPLOYMENT AGREEMENTS

      The Company has entered into employment agreements with the President and
      four other officers of the Company for terms expiring on various dates
      through December 31, 1999. Such officers currently have salaries of
      $496,125, $250,000, $225,000, $210,000 and $100,000. The employment
      agreements also provide that such person will participate in an executive
      bonus plan, health plan and any other benefit plan established for
      selected officers of the Company and that in the event of a termination of
      employment without "good cause" (as defined in the agreements), such
      persons will be entitled to any unpaid salary through a specified
      percentage of the remainder of the term of their employment agreements.


                                     F - 22
<PAGE>   77

10.   RELATED PARTY TRANSACTIONS

      Accounts and notes receivable - related parties consist of the following
at:

<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                             --------------------------------------
                                                                                   1997                 1996
                                                                             -----------------    -----------------
         <S>                                                                 <C>                  <C>
         Unsecured notes receivable from stockholders,
             collected in 1997                                               $             -       $  1,167,853

         Unsecured note receivable from a former stockholder,
             collected in 1997                                                             -            639,402

         Unsecured note receivable from a former stockholder,
             collected in 1997                                                             -            216,865

         Accrued interest receivable on notes                                              -             81,725

         Other advances                                                              136,173            114,096
                                                                             ---------------      -------------

         Total                                                                       136,173          2,219,941

         Less current portion                                                       (136,173)        (2,209,188)
                                                                             ---------------      -------------

         Long-term portion (included in other assets)                        $             -      $      10,753
                                                                             ===============      =============
</TABLE>


      Other advances represent advances made to affiliated companies. The
      amounts do not bear interest and there are no stated repayment terms.

      Notes payable - related parties consist of the following at:

<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,
                                                                             ----------------------------------
                                                                                   1997                 1996
                                                                             ---------------      -------------
         <S>                                                                 <C>                  <C>
         Unsecured notes payable to stockholders; interest at 6.24%;
             payable on demand                                               $       304,637      $     304,637

         Subordinated notes payable issued pursuant to the buy-out
             of the former general partners of FLVLP, repaid in 1997                       -          1,807,255

         Other                                                                             -             25,903
                                                                             ---------------      -------------

                                                                                     304,637          2,137,795

         Less current portion                                                       (304,637)        (2,111,892)
                                                                             ---------------       ------------

         Long-term portion                                                   $             -       $     25,903
                                                                             ===============       ============
</TABLE>

      Accrued interest payable on notes payable - related parties, included in
      accrued interest payable, was $23,104 and $4,191 at December 31, 1997 and
      1996.

11.   PROFIT SHARING PLAN

      The Company has contributory profit-sharing plans for eligible employees.
      The Company's contribution to the plans for any year, as determined by the
      Board of Directors, is discretionary. Contributions to the plan are
      allocated among eligible participants in the proportion of their salaries
      to the total salaries of all


                                     F - 23
<PAGE>   78

      participants. Plan contributions, excluding matching contributions
      described below, were $0, $0 and $301,585 for the years ended December 31,
      1997, 1996 and 1995.

      Effective January 1, 1989, the Company amended the plans to include a
      401(k) savings plan whereby eligible employees may contribute up to 15% of
      their salary, which is matched by the Company at 25 cents per employee
      dollar contributed, up to a maximum of 6% of their salary. The Company's
      matching contributions were $277,941, $390,237 and $197,006 for the years
      ended December 31, 1997, 1996 and 1995.

      Each employee age 21 or older completing 1,000 or more hours of service
      during the twelve-month period preceding the entry dates, January 1 or
      July 1, is eligible to participate in the plans.

      In addition, the Company contributes to multi-employer defined
      contribution pension plans under various union agreements. Contributions,
      based on wages paid to covered employees, were $386,975, $322,405 and
      $314,963 for the years ended December 31, 1997, 1996 and 1995.

12.   CONTINGENCIES

      FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK - In the normal course
      of business, the Company is a party to financial instruments with
      off-balance-sheet risk such as guarantees, which are not reflected in the
      accompanying consolidated balance sheets.

      The Company has an irrevocable letter of credit with a bank in the amount
      of $251,000. Such letter, which expires on November 1, 1998, may be drawn
      upon by the State of Nevada Insurance Division in the event that FRI, NCI,
      or FLVI fails to pay to its employees workmen's compensation benefits
      under a self-insurance program.

      The Company has an irrevocable letter of credit with a bank in the amount
      of $200,000 which expires on November 1, 1998, and may be drawn by a third
      party in the event Fitzgeralds Mississippi fails to pay its utility
      obligations.

      The Company has an irrevocable letter of credit with a bank in the amount
      of $275,000 which expires on November 1, 1998, and may be drawn by an
      insurance company in the event Fitzgeralds Mississippi fails to pay its
      portion of a deductible workmen's compensation insurance program.

      In January 1998, the Company executed a letter of credit with a bank in
      the amount of $105,000 which expires on November 30, 1998, and may be
      drawn by a lessee of an underlying parcel of land of Fitzgeralds Reno in
      the event Fitzgeralds Reno fails to pay its obligation as a sub-lessee of
      this parcel.

      No amounts were drawn at December 31, 1997 on any of the above letters of
      credit and management does not expect any material losses to result from
      these off-balance sheet instruments.

      LEGAL MATTERS - The Company is party to various legal actions and
      administrative proceedings and subject to various claims arising in the
      course of business. The Company believes that the disposition of these
      matters will not have a material adverse effect on the consolidated
      financial position or results of operations of the Company.

      The current bankruptcy of an adjacent casino property involves the jointly
      developed access road to Fitzgeralds Tunica. In the opinion of management
      of the Company, the Company's continued access to the property is not in
      jeopardy and the ultimate outcome of this matter will not have a material
      adverse effect on the results of operations or the financial position of
      the Company.


                                     F - 24
<PAGE>   79

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

13.   STOCKHOLDERS' EQUITY

      STOCK REPURCHASE

      On December 21, 1990, FRI entered into an agreement to repurchase certain
      of its outstanding common shares from a major stockholder. Such agreement
      also provided for the repurchase of similar ownership interests of such
      stockholder in NCI and a third entity. Pursuant to the terms of the
      agreement, the purchase price paid by the Company was subject to
      adjustment upon the occurrence of certain events. Accordingly, the
      purchase price was increased by $734,028 in 1996 and by $136,021 in 1997.
      The Company's obligation to the former shareholder was paid from proceeds
      of the 1997 Offering.

      CONTRIBUTIONS FROM STOCKHOLDERS/PARTNERS

      Pursuant to a business combination, the S corporation elections and
      partnership status of certain subsidiaries were terminated. Therefore,
      undistributed earnings (losses) of these subsidiaries have been
      transferred to additional paid-in capital at the end of 1995 in the
      consolidated statements of stockholders' equity (deficiency).

      ISSUANCES OF WARRANTS

      The Company has outstanding common stock warrants issued in connection
      with its 1995 Offering. See Note 8. FSI has outstanding common stock
      purchase warrants issued in connection with its senior secured notes. See
      Note 7.

      During 1994, the Company sold for $133,650 in cash, warrants to purchase a
      total of 29,097 shares of common stock at $.05 per share. In addition, in
      1994 the Company received $125,000 in cash in payment for 26,942 common
      shares to be issued upon completion of the Company's 1995 Offering. Such
      shares were issued during 1996.

      ACQUISITION OF FI STOCK

      As part of a business combination, the Company issued 23,989 shares of its
      common stock in 1995 to a minority stockholder of FI upon the completion
      of the 1995 Offering.

      STOCK OPTIONS

      In February 1995, the Company granted options to purchase 87,140 shares of
      common stock of the Company at $1.00 per share to certain employees of the
      Company. 50% of the options granted vested on June 30, 1995. The remaining
      50% of the options vested on June 30, 1996. No options had been exercised
      as of December 31, 1997.


                                     F - 25
<PAGE>   80

      In September 1995, the Company established an Incentive Option Plan (the
      "Option Plan"). In December 1995, the Company granted options under the
      Option Plan to purchase 75,000 shares to each of two officers and 50,000
      shares to each of two additional officers. In addition, approximately
      193,000 options were granted under the Option Plan to Company employees
      concurrently with the closing of the 1995 Offering. In connection with the
      election of two non-employee directors concurrently with the 1995
      Offering, the Company granted options to purchase 5,000 shares to each of
      such non-employee directors. During 1996, 6,000 options were granted under
      the Option Plan and 82,510 options were forfeited. These options were
      exercisable at $4.50 per share, with the options vesting ratably over
      three years. With the exception of 50,000 options which expired in 1996,
      all options will expire on December 31, 1999. In March 1997, the exercise
      price of all options then outstanding was reduced, to reflect the then
      current fair market value, from $4.50 per share to $1.00 per share, except
      for options granted to two controlling stockholders, the exercise price of
      which was reduced to $1.10 per share.

      In June 1997, the Company determined that its two previously adopted stock
      option plans had never become effective because they were adopted subject
      to approvals which had not been obtained. Accordingly, the Company adopted
      a new Stock Option Incentive Plan (the "Plan"), subject to stockholder
      approval, to replace the two prior plans.  The Plan was approved by
      stockholders on August 1, 1997.

      The Plan, as amended, provides for the grant of options to purchase Common
      Stock that are either intended to qualify as "incentive stock options"
      within the meaning of Section 422 of the Internal Revenue Code of 1986, as
      amended, or that are not intended to so qualify ("non-qualified options").
      All officers, directors, employees, consultants, advisors, independent
      contractors and agents of the Company and its subsidiaries are eligible to
      receive options under the Plan, except that only employees may receive
      incentive stock options. The Plan also permits a one-time grant of options
      to certain former employees in substitution for options previously granted
      to them and having substantially the same terms and conditions. The
      maximum number of shares available for issuance under the Plan is
      1,000,000.

      In October 1997 the Board of Directors granted options to purchase 660,974
      shares under the Plan in full replacement of previously granted options.
      All of such options were granted subject to the optionee's agreement to
      the cancellation of all previously granted options. The replacement
      options were for the same number of shares, with substantially the same
      terms and conditions, as the then outstanding options they replaced.

      The Plan is administered by the Board of Directors or, in its discretion,
      by a committee of the Board of Directors appointed for that purpose (the
      "Plan Committee"), which, subject to the terms of the Plan, has the
      authority in its sole discretion to interpret the Plan and to determine:
      (a) the individuals to whom options shall be granted; (b) the time or
      times at which options may be exercised; (c) the number of shares subject
      to each option; (d) the option price and the duration of each option
      granted; and (e) all of the other terms and conditions of options granted
      under the Plan.

      The exercise price of incentive stock options granted under the Plan must
      be at least equal to the fair market value of the shares on the date of
      grant (110% of fair market value in the case of participants who own
      shares possessing more than 10% of the combined voting power of the
      Company or any of its subsidiaries) and may not have a term in excess of
      10 years from the date of grant (five years in the case of participants
      who own shares possessing more than 10% of the combined voting power of
      the Company). In no event may the aggregate fair market value (determined
      as of the time the option is granted) of the shares with respect to which
      incentive stock options (granted under the Plan and all other plans of the
      Company or any of its subsidiaries) are exercisable for the first time by
      an optionee in any calendar year exceed $100,000.


                                     F - 26
<PAGE>   81

      A summary of the status of the Company's stock option grants as of
      December 31, 1997, 1996 and 1995 and changes during the years then ended
      is presented below:

<TABLE>
<CAPTION>
                                                                              WEIGHTED-
                                                                              AVERAGE
                                                                              EXERCISE
                                                              SHARES           PRICE
                                                           ------------     ------------
            <S>                                            <C>              <C>
            Outstanding at January 1, 1995                            -     $          -
            Granted                                             540,140             3.94
            Forfeited                                           (13,579)            1.00
                                                           ------------     ------------
            Outstanding at December 31, 1995                    526,561             4.01
            Granted                                               6,000             4.50
            Forfeited                                           (82,510)            4.22
                                                           ------------     ------------
            Outstanding at December 31, 1996                    450,051             3.98
            Granted                                             981,974             1.03
            Canceled                                           (660,974)            1.03
            Forfeited                                           (94,077)            1.67
                                                           -------------    ------------
            Outstanding at December 31, 1997                    676,974     $       1.03
                                                           ============     ============

            Options exercisable at year-end                     386,968     $       1.05
                                                           ============     ============
</TABLE>


      As of December 31, 1997, the 676,974 options outstanding under the plans
      have exercise prices of $1.00 and $1.10 and a weighted-average remaining
      contractual life of 2.85 years.

      The Company applies APB Opinion No. 25 and related interpretations in
      accounting for its plans. The compensation cost that has been charged
      against income for its plans was $0, $63,666 and $215,042 for 1997, 1996
      and 1995, respectively. Had compensation cost for the Company's two
      stock-based compensation plans been determined based on the fair value at
      the grant dates for awards under those plans consistent with the method of
      SFAS No. 123, the Company's pro forma net loss and loss per common share
      would have been the amounts indicated below:

<TABLE>
<CAPTION>
                                                         1997              1996             1995
                                                    -------------      ------------      ------------
            <S>                     <C>             <C>                <C>               <C>
            Net loss                As reported     $ (31,541,520)     $(13,493,926)     $ (4,254,689)
                                    Proforma          (31,598,880)     $(13,599,207)     $ (4,243,296)

            Loss per common share   As reported     $       (8.89)     $      (4.26)     $      (1.09)
                                    Proforma        $       (8.91)     $      (4.29)     $      (1.09)
</TABLE>


      The fair value of each option grant for the pro forma disclosure was
      estimated on the date of grant using the minimum value method with the
      following weighted-average assumptions used for grants in 1997, 1996 and
      1995; risk-free interest rates of 6.2 percent, 5.91 percent and 5.45
      percent, respectively, with expected lives of three years, three years and
      four years, respectively. The weighted-average fair value of options
      granted during 1997, 1996 and 1995 were $1.00, $0.71 and $1.32,
      respectively.


                                     F - 27
<PAGE>   82

      TREASURY STOCK PURCHASE AND RETIREMENT

      FMI purchased and retired certain of its shares held by a minority
      stockholder in exchange for a note payable in the amount of $333,333. The
      note was repaid with a portion of the proceeds from the 1995 Offering.

14.   INCOME TAXES

      The income tax (provision) benefit recognized in the consolidated
financial statements consists of the following:

<TABLE>
<CAPTION>
                                                                1997                 1996                 1995
                                                         ----------------       -----------------   ---------------
           <S>                                           <C>                    <C>                 <C>
           Deferred (provision) benefit                  $              -       $      1,484,167    $    (2,825,746)
                                                         ----------------       -----------------   ---------------

           Total                                         $              -       $      1,484,167    $    (2,825,746)
                                                         ================       ================    ===============
</TABLE>

      A reconciliation of the income tax (provision) benefit with amounts
      determined by applying the statutory U.S. Federal income tax rate to
      consolidated loss before taxes is as follows:

<TABLE>
<CAPTION>
                                                                1997                 1996                 1995
                                                         ----------------       -----------------   ---------------
          <S>                                            <C>                      <C>                  <C>
          Tax benefit at U.S. statutory rate             $     11,073,695       $      5,242,297     $       502,060

          Entities which had elected S corporation
             status or were partnerships
                                                                       --                     --            (501,497)
          Deferred liabilities recorded upon the
            change to a taxable status by entities
            which had elected S Corporation status
            or were partnerships                                       --                     --          (3,002,235)

          (Increase) decrease in valuation allowance          (10,981,971)            (3,567,514)            303,922
          Other                                                   (91,724)              (190,616)           (127,996)
                                                         ----------------       ----------------    ----------------
          Total                                          $             --       $      1,484,167     $    (2,825,746)
                                                         ================       ================    ================

</TABLE>

      The tax items comprising the Company's net deferred tax liability as of
December 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                              CURRENT        NON-CURRENT         TOTAL
                                            -----------      -----------      -----------
<S>                                         <C>              <C>              <C>
Deferred tax assets:
  Start-up costs                            $        --      $ 2,017,568      $ 2,017,568
  Accrued and other liabilities               1,163,568               --        1,163,568
  Bad debt reserve                              144,159               --          144,159
  FICA credits not utilized                          --          323,898          323,898
  NOL carryforward                                   --       21,448,488       21,448,488
  Differences from flow through entity               --          192,408          192,408
  Other                                              --           24,082           24,082
                                            -----------      -----------      -----------
                                              1,307,727       24,006,444       25,314,171
                                            -----------      -----------      -----------
</TABLE>

                                                                     (Continued)



                                     F - 28
<PAGE>   83
             (Continued)
<TABLE>
<CAPTION>
                                              CURRENT        NON-CURRENT         TOTAL
                                            -----------      -----------      -----------
<S>                                         <C>              <C>              <C>
Deferred tax liabilities:
  Difference between book and
    tax basis of property                            --        9,000,954        9,000,954
  Prepaid expenses                              636,694               --          636,694
                                           ------------      -----------      -----------
                                                636,694        9,000,954        9,637,648
                                           ------------     ------------      -----------
                                                671,033       15,005,490       15,676,523

  Less:  valuation allowance                   (671,033)     (15,005,490)     (15,676,523)
                                           ------------     ------------      -----------
  Net deferred tax liability               $         --     $         --      $        --
                                           ============     ============      ===========
</TABLE>

START COPY HERE

      The tax items comprising the Company's net deferred tax liability as of
December 31, 1996 are as follows:

<TABLE>
<CAPTION>
                                               CURRENT         NON-CURRENT            TOTAL
                                            ------------       ------------       ------------
<S>                                         <C>                <C>                <C>
Deferred tax assets:
  Start-up costs                            $         --       $  1,409,066       $  1,409,066
  Accrued and other liabilities                  844,448                 --            844,448
  Bad debt reserve                               267,534                 --            267,534
  FICA credits not utilized                           --            212,795            212,795
  NOL carryforward                                    --         12,806,098         12,806,098
  Other                                               --             93,567             93,567
                                            ------------       ------------       ------------
                                               1,111,982         14,521,526         15,633,508
                                            ------------       ------------       ------------

Deferred tax liabilities:
  Differences from flow through entity                --            149,320            149,320
  Difference between book and
    tax basis of property                             --          8,498,185          8,498,185
  Prepaid expenses                               865,598                 --            865,598
                                            ------------       ------------       ------------
                                                 865,598          8,647,505          9,513,103
                                            ------------       ------------       ------------
                                                 246,384          5,874,021          6,120,405

  Less:  valuation allowance                    (246,384)        (5,874,021)        (6,120,405)
                                            ------------       ------------       ------------

      Net deferred tax liability            $        --        $         --       $         --
                                            ============       ============       ============
  </TABLE>


      A valuation allowance has been established in the amount of $15.7 million
      at December 31, 1997 for consolidated net operating loss carryforwards.
      Realization of the valuation allowance is dependent on the Company
      generating sufficient taxable income prior to expiration of the loss
      carryforwards.


      As of December 31, 1997, the Company had consolidated net operating loss
      carryforwards of approximately $61 million which are available to offset
      future taxable income through 2017. Of these carryforwards, $3.7 million
      are available only to offset future taxable income of FMI. The
      availability of the loss carryforwards may be further limited in the event
      of a significant change in ownership of the entities.


                                     F - 29
<PAGE>   84

      CHANGE IN TAX STATUS - The provision for income taxes for the year ended
      December 31, 1995 has been increased by $3,002,235 as a result of
      recording deferred tax liabilities upon the change to a taxable status by
      certain subsidiaries of the Company.

15.   GUARANTEE OF THE NOTES

      The Company's obligations under the Notes are fully and unconditionally
      guaranteed, jointly and severally, by all subsidiaries of the Company
      (other than FAMI, FNYI and NCI). Subject to certain exceptions, the
      guarantee is secured by a first priority lien on substantially all assets
      of the guarantor subsidiaries other than certain excluded assets, as
      defined. Such excluded assets include, among other things, (i) cash,
      deposit accounts and other cash equivalents of $13,337,368 and $12,920,340
      at December 31, 1997 and 1996, respectively; (ii) furniture, fixtures and
      equipment with a net book value of $11,439,196 and $12,940,965 at December
      31, 1997 and 1996, respectively, securing certain non-recourse
      indebtedness; and (iii) any agreements, permits, licenses or the like that
      cannot be subjected to a lien without the consent of third parties, which
      consent is not obtainable by the Company (including all gaming licenses of
      the Company and its restricted subsidiaries (as defined)), provided that
      excluded assets does not include the proceeds of the assets under clauses
      (ii) or (iii) or any other collateral to the extent such proceeds do not
      constitute excluded assets under clause (i) above.

      Condensed consolidating financial statement information for Fitzgeralds
      Gaming Corporation, the Guarantor Subsidiaries, the Non-Guarantor
      Subsidiaries and Eliminating Entries (which consist principally of the
      elimination of intercompany loan and investment accounts) follows.



                                     F - 30
<PAGE>   85

                         FITZGERALDS GAMING CORPORATION

                CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
                                DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                      FITZGERALDS                              NON
                                        GAMING           GUARANTOR          GUARANTOR         ELIMINATING           CONSOLIDATED
ASSETS                               CORPORATION       SUBSIDIARIES        SUBSIDIARIES         ENTRIES                TOTAL
                                    -------------      -------------      -------------      -------------         -------------
<S>                                 <C>                <C>                <C>                <C>                   <C>
CURRENT ASSETS:
  Cash and cash equivalents         $   2,385,746      $  10,951,622      $   1,472,249      $          --         $  14,809,617
  Accounts and notes
   receivable, net                         11,532          1,674,085            510,601                 --             2,196,218
  Inventories                                  --          1,313,611                 --                 --             1,313,611
  Prepaid and other current
   assets                                 195,094          2,579,131            123,303                 --             2,897,528
                                    -------------      -------------      -------------      -------------         -------------
        Total current assets            2,592,372         16,518,449          2,106,153                 --            21,216,974
                                    -------------      -------------      -------------      -------------         -------------

PROPERTY AND EQUIPMENT, net                82,409        163,473,309            148,997                 --           163,704,715
OTHER ASSETS                          189,355,896         29,211,119          4,833,754       (192,702,218)(b)        30,698,551
MINORITY INTEREST                              --                 --             75,199                 --                75,199
                                    -------------      -------------      -------------      -------------         -------------
TOTAL                               $ 192,030,677      $ 209,202,877      $   7,164,103      $(192,702,218)        $ 215,695,439
                                    =============      =============      =============      =============         =============

LIABILITIES AND
  STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES:
  Current portion of long-term
    debt                            $          --      $   4,932,178      $   2,658,356      $          --         $   7,590,534
  Accounts payable, accrued and
    other                               2,960,233         18,462,718            443,151         (1,720,652)(c)        20,145,450
                                    -------------      -------------      -------------      -------------         -------------
      Total current liabilities         2,960,233         23,394,896          3,101,507         (1,720,652)           27,735,984

LONG TERM DEBT,
  net of current portion              209,023,127        207,873,263          5,709,140       (216,414,045)(a)       206,191,485
                                    -------------      -------------      -------------      -------------         -------------
      Total liabilities               211,983,360        231,268,159          8,810,647       (218,134,697)          233,927,469
                                    -------------      -------------      -------------      -------------         -------------

CUMULATIVE  REDEEMABLE
  PREFERRED STOCK                      19,631,397                 --                 --                 --            19,631,397
STOCKHOLDERS' DEFICIENCY              (39,584,080)       (22,065,282)        (1,646,544)        25,432,479 (d)       (37,863,427)
                                    -------------      -------------      -------------      -------------         -------------

TOTAL                               $ 192,030,677      $ 209,202,877      $   7,164,103      $(192,702,218)        $ 215,695,439
                                    =============      =============      =============      =============         =============
</TABLE>
----------
(a) To eliminate intercompany accounts and notes payable.
(b) To eliminate intercompany accounts and notes receivable, investment in
subsidiaries and other capitalized costs.
(c) To eliminate intercompany deferred interest income.
(d) To eliminate investment in subsidiaries, other capitalized costs, and
intercompany deferred interest income.


                                     F - 31
<PAGE>   86

                         FITZGERALDS GAMING CORPORATION

                CONDENSED CONSOLIDATING BALANCE SHEET INFORMATION
                                DECEMBER 31, 1996


<TABLE>
<CAPTION>
                                 FITZGERALDS                               NON
                                    GAMING           GUARANTOR          GUARANTOR         ELIMINATING          CONSOLIDATED
ASSETS                           CORPORATION       SUBSIDIARIES       SUBSIDIARIES          ENTRIES                TOTAL
                                -------------      -------------      -------------      -------------         -------------
<S>                             <C>                <C>                <C>                <C>                   <C>
CURRENT ASSETS:
  Cash and cash equivalents     $   2,887,273      $  10,033,067      $     429,157      $          --         $  13,349,497
  Accounts and notes
    receivable, net                    38,198          3,830,576            397,255                 --             4,266,029
  Inventories                              --          1,510,219             35,442                 --             1,545,661
  Prepaid and other current
     assets                           171,810          2,676,729            220,100                 --             3,068,639
                                -------------      -------------      -------------      -------------         -------------
     Total current assets           3,097,281         18,050,591          1,081,954                 --            22,229,826
                                -------------      -------------      -------------      -------------         -------------

PROPERTY AND
  EQUIPMENT, net                       81,178        147,502,651          4,299,254                 --           151,883,083
OTHER ASSETS                      126,663,939         18,588,082          2,651,644       (130,838,000)(a)        17,065,665
                                -------------      -------------      -------------      -------------         -------------

TOTAL                           $ 129,842,398      $ 184,141,324      $   8,032,852      $(130,838,000)        $ 191,178,574
                                =============      =============      =============      =============         =============

LIABILITIES AND
  STOCKHOLDERS'
  DEFICIENCY

CURRENT LIABILITIES:
  Current portion of
    long-term debt              $     120,415      $  27,210,354      $     418,851      $          --         $  27,749,620
  Accounts payable, accrued
    and other                       3,145,683         19,455,130            704,209         (1,791,806)(c)        21,513,216
                                -------------      -------------      -------------      -------------         -------------
      Total current
        liabilities                 3,266,098         46,665,484          1,123,060         (1,791,806)           49,262,836

LONG TERM DEBT, net of
  current portion                 114,922,596        145,492,473          7,121,669       (139,654,348)(b)       127,882,390
                                -------------      -------------      -------------      -------------         -------------
      Total liabilities           118,188,694        192,157,957          8,244,729       (141,446,154)          177,145,226
                                -------------      -------------      -------------      -------------         -------------

MINORITY INTEREST                          --                 --            587,837                 --               587,837
CUMULATIVE REDEEMABLE
  PREFERRED STOCK                  15,488,782                 --                 --                 --            15,488,782
STOCKHOLDERS' DEFICIENCY           (3,835,078)        (8,016,633)          (799,714)        10,608,154 (d)        (2,043,271)
                                -------------      -------------      -------------      -------------         -------------
TOTAL                           $ 129,842,398      $ 184,141,324      $   8,032,852      $(130,838,000)        $ 191,178,574
                                =============      =============      =============      =============         =============
</TABLE>
----------
(a) To eliminate intercompany accounts and notes receivable and investment in
subsidiaries.
(b) To eliminate intercompany accounts and notes payable.
(c) To eliminate intercompany deferred interest income.
(d) To eliminate investment in subsidiaries and intercompany deferred interest
income.


                                     F - 32


<PAGE>   87


                         FITZGERALDS GAMING CORPORATION
           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                      FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                FITZGERALDS                            NON
                                  GAMING           GUARANTOR         GUARANTOR        ELIMINATING         CONSOLIDATED
                                CORPORATION      SUBSIDIARIES      SUBSIDIARIES         ENTRIES              TOTAL
                               -------------     -------------     -------------     -------------        -------------
<S>                            <C>               <C>               <C>               <C>                  <C>
OPERATING REVENUES:
  Casino                       $          --     $ 135,895,642     $   5,319,429     $          --        $ 141,215,071
  Food and beverage                       --        21,094,261         1,404,852                --           22,499,113
  Rooms                                   --        21,318,538                --                --           21,318,538
  Other                                   --         4,774,324         5,191,184                --            9,965,508
                               -------------     -------------     -------------     -------------        -------------
      Total                               --       183,082,765        11,915,465                --          194,998,230
  Less promotional
    allowances                            --        14,770,306           526,191                --           15,296,497
                               -------------     -------------     -------------     -------------        -------------
      Net                                 --       168,312,459        11,389,274                --          179,701,733
                               -------------     -------------     -------------     -------------        -------------

OPERATING COSTS AND
  EXPENSES:
  Casino                                  --        66,046,542         3,628,444                --           69,674,986
  Food and beverage                       --        16,178,476         1,036,409                --           17,214,885
  Rooms                                   --        12,512,496                --                --           12,512,496
  Other operating                         --         1,681,063                --                --            1,681,063
  Selling, general and
    administrative                 4,354,305        46,909,116         1,804,025        (4,134,268)(g)       48,933,178
  Depreciation and
    amortization                      20,794        11,757,606           275,377                --           12,053,777
  Write down of assets and
    lease settlement                  27,832         2,580,000         1,402,000                --            4,009,832
                               -------------     -------------     -------------     -------------        -------------
  Total                            4,402,931       157,665,299         8,146,255        (4,134,268)         166,080,217
                               -------------     -------------     -------------     -------------        -------------
INCOME (LOSS) FROM
  OPERATIONS                      (4,402,931)       10,647,160         3,243,019         4,134,268           13,621,516

OTHER INCOME (EXPENSE):
  Interest income                 17,438,078           349,823            11,163       (17,336,887)(h)          462,177
  Interest expense               (19,712,305)      (22,729,426)         (319,105)       17,265,733 (e)      (25,495,103)
  Other income (expense)          (9,184,622)        2,693,840          (207,980)        5,816,580 (f)         (882,182)
                               -------------     -------------     -------------     -------------        -------------
  Income (loss) before
    income taxes and
    extraordinary item           (15,861,780)       (9,038,603)        2,727,097         9,879,694          (12,293,592)
  Income tax (provision)
    benefit                        3,075,065        (1,413,031)       (1,662,034)               --                   --
                               -------------     -------------     -------------     -------------        -------------
  Income (loss) before
    extraordinary item           (12,786,715)      (10,451,634)        1,065,063         9,879,694          (12,293,592)
  Extraordinary item - Loss
    on early retirement
    of debt                      (18,683,651)         (564,277)               --                --          (19,247,928)
                               -------------     -------------     -------------     -------------        -------------

NET INCOME (LOSS)              $ (31,470,366)    $ (11,015,911)    $   1,065,063     $   9,879,694        $ (31,541,520)
                               =============     =============     =============     =============        =============
</TABLE>
----------
(e) To eliminate intercompany interest expense.
(f) To eliminate interest in loss of subsidiaries and intercompany management
fee expense.
(g) To eliminate intercompany management fee expense.
(h) To eliminate intercompany interest income, intercompany management fee
income, intercompany deferred interest income, and other intercompany income.



                                     F - 33
<PAGE>   88

                         FITZGERALDS GAMING CORPORATION
           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                      FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                  FITZGERALDS                            NON
                                     GAMING         GUARANTOR         GUARANTOR         ELIMINATING         CONSOLIDATED
                                  CORPORATION      SUBSIDIARIES      SUBSIDIARIES         ENTRIES               TOTAL
                                 -------------     -------------     -------------     -------------        -------------
<S>                              <C>               <C>               <C>               <C>                  <C>
OPERATING REVENUES:
  Casino                         $          --     $ 105,760,883     $   5,524,001     $          --        $ 111,284,884
  Food and beverage                         --        17,043,731         1,508,247                --           18,551,978
  Rooms                                     --        15,875,829                --                --           15,875,829
  Other                                     --         3,476,265         4,258,163          (328,430)(d)        7,405,998
                                 -------------     -------------     -------------     -------------        -------------
      Total                                 --       142,156,708        11,290,411          (328,430)         153,118,689
  Less promotional allowances               --        11,951,259           637,083                --           12,588,342
                                 -------------     -------------     -------------     -------------        -------------
      Net                                   --       130,205,449        10,653,328          (328,430)         140,530,347
                                 -------------     -------------     -------------     -------------        -------------

OPERATING COSTS AND
  EXPENSES:
  Casino                                    --        54,497,530         3,910,240           (84,410)(d)       58,323,360
  Food and beverage                         --        12,254,352         1,076,119                --           13,330,471
  Rooms                                     --         9,644,494                --                --            9,644,494
  Other operating                           16         1,543,500                --                --            1,543,516
  Selling, general and
    administrative                   4,965,042        43,055,896         2,103,578        (5,203,760)(g)       44,920,756
  Depreciation and
    amortization                        13,071         8,651,374           232,506                --            8,896,951
                                 -------------     -------------     -------------     -------------        -------------
      Total                          4,978,129       129,647,146         7,322,443        (5,288,170)         136,659,548
                                 -------------     -------------     -------------     -------------        -------------

INCOME (LOSS) FROM
  OPERATIONS                        (4,978,129)          558,303         3,330,885         4,959,740            3,870,799

OTHER INCOME (EXPENSE):
  Interest income                   15,724,484         1,930,931           110,923       (15,705,850)(e)        2,060,488
  Interest expense                 (18,033,588)      (19,126,739)         (584,458)       17,497,656 (e)      (20,247,129)
  Other income (expense)            (7,993,455)        2,885,233          (332,491)        4,778,462 (f)         (662,251)
                                 -------------     -------------     -------------     -------------        -------------

INCOME (LOSS)
  BEFORE TAXES                     (15,280,688)      (13,752,272)        2,524,859        11,530,008          (14,978,093)

INCOME TAX (PROVISION)
  BENEFIT                               (5,044)        1,510,922           (21,711)               --            1,484,167
                                 -------------     -------------     -------------     -------------        -------------

NET INCOME (LOSS)                $ (15,285,732)    $ (12,241,350)    $   2,503,148     $  11,530,008        $ (13,493,926)
                                 =============     =============     =============     =============        =============
</TABLE>
----------
(d) To eliminate intercompany rental income and expense.
(e) To eliminate intercompany interest expense, interest income and deferred
interest income.
(f) To eliminate interest in loss of subsidiaries and intercompany management
fee income.
(g) To eliminate intercompany rental expense and intercompany management fee
expense.


                                     F - 34

<PAGE>   89

                         FITZGERALDS GAMING CORPORATION
           CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS INFORMATION
                      FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                  FITZGERALDS                              NON
                                     GAMING          GUARANTOR          GUARANTOR       ELIMINATING         CONSOLIDATED
                                  CORPORATION       SUBSIDIARIES      SUBSIDIARIES        ENTRIES              TOTAL
                                 ---------------  -----------------  ---------------- ----------------    -----------------
<S>                                <C>               <C>               <C>               <C>                  <C>
OPERATING REVENUES:
  Casino                           $          --     $ 107,540,734     $   7,507,680     $          --        $ 115,048,414
  Food and beverage                           --        16,470,776         1,806,037                --           18,276,813
  Rooms                                       --        13,116,906                --                --           13,116,906
  Other                                       --         3,783,897         3,158,608           (73,364)(d)        6,869,141
                                   -------------     -------------     -------------     -------------        -------------
      Total                                   --       140,912,313        12,472,325           (73,364)         153,311,274
  Less promotional allowances                 --        11,099,855           814,323                --           11,914,178
                                   -------------     -------------     -------------     -------------        -------------
      Net                                     --       129,812,458        11,658,002           (73,364)         141,397,096
                                   -------------     -------------     -------------     -------------        -------------

OPERATING COSTS AND
  EXPENSES:
  Casino                                      --        51,988,877         5,227,830           (58,687)(d)       57,158,020
  Food and beverage                           --        11,259,768         1,237,120                --           12,496,888
  Rooms                                       --         7,120,826                --                --            7,120,826
  Other operating                             --         1,811,534             9,623                --            1,821,157
  Selling, general and
   administrative                         94,872        37,331,202         3,610,290           (14,677)(d)       41,021,687
  Depreciation and amortization               --         7,397,005           613,493                --            8,010,498
                                   -------------     -------------     -------------     -------------        -------------
      Total                               94,872       116,909,212        10,698,356           (73,364)         127,629,076
                                   -------------     -------------     -------------     -------------        -------------

INCOME (LOSS) FROM
  OPERATIONS
                                         (94,872)       12,903,246           959,646                --           13,768,020

OTHER INCOME (EXPENSE):
  Interest income                        576,366           504,235           106,677          (866,493)(e)          320,785
  Interest expense                      (545,338)      (14,230,036)       (1,117,971)          866,493 (e)      (15,026,852)
  Other income (expense)              (2,782,270)          887,056           (54,620)        1,458,938 (f)         (490,896)
                                   -------------     -------------     -------------     -------------        -------------

INCOME (LOSS) BEFORE
  TAXES                               (2,846,114)           64,501          (106,268)        1,458,938           (1,428,943)

INCOME TAX (PROVISION)
  BENEFIT                                 24,274        (2,054,640)         (795,380)               --           (2,825,746)
                                   -------------     -------------     -------------     -------------        -------------

NET INCOME (LOSS)                  $  (2,821,840)    $  (1,990,139)    $    (901,648)    $   1,458,938        $  (4,254,689)
                                   =============     =============     =============     =============        =============
</TABLE>
----------
(d) To eliminate intercompany rental income and expense.
(e) To eliminate intercompany interest income and expense.
(f) To eliminate interest in loss of subsidiaries.




                                     F - 35

<PAGE>   90

                         FITZGERALDS GAMING CORPORATION
           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                      FOR THE YEAR ENDED DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                       FITZGERALDS                            NON
                                         GAMING          GUARANTOR         GUARANTOR         ELIMINATING          CONSOLIDATED
                                       CORPORATION      SUBSIDIARIES      SUBSIDIARIES         ENTRIES               TOTAL
                                      -------------     -------------     -------------     -------------        -------------
<S>                                   <C>               <C>               <C>               <C>                  <C>
  NET CASH PROVIDED BY
    (USED IN) OPERATING
    ACTIVITIES                        $  (6,529,107)    $   4,074,467     $   3,741,897     $          --        $   1,287,257
                                      -------------     -------------     -------------     -------------        -------------

CASH FLOWS FROM
  INVESTING ACTIVITIES:

    Proceeds from sale of assets                 --           109,012            20,936                --              129,948
    Repayments from related parties              --         2,518,805                --                --            2,518,805
    Acquisition of property
      and equipment                         (22,025)       (3,566,861)          (53,992)               --           (3,642,878)
    Advances to related parties         (61,500,446)              --                --         61,500,446 (b)               --
    (Increase) decrease in
     restricted cash-construction          (355,572)        2,215,908                --                --            1,860,336
    Purchase of business, net
     of cash acquired                            --       (25,747,169)               --                --          (25,747,169)
    Dividends received                    2,896,714         1,911,893                --        (4,808,607)(a)               --
    Other                                        --           224,406                --                --              224,406
                                      -------------     -------------     -------------     -------------        -------------
  Net cash  provided  by (used
    in) investing activities            (58,981,329)      (22,334,006)          (33,056)       56,691,839          (24,656,552)
                                      -------------     -------------     -------------     -------------        -------------
CASH FLOWS FROM
  FINANCING ACTIVITIES:
    Proceeds from 1997 Offering         202,634,300                --                --                --          202,634,300
    Payment of debt offering costs       (9,225,656)       (2,082,772)               --                --          (11,308,428)
    Advances from related parties                --        61,500,446                --       (61,500,446)(b)               --
    Proceeds  from issuance of debt              --        38,221,811                --                --           38,221,811
    Repayment of long-term debt        (128,399,735)      (73,757,422)         (416,463)               --         (202,573,620)
    Dividends                                    --        (2,896,714)       (2,249,286)        4,808,607 (a)         (337,393)
    Repayments to related parties                --        (1,807,255)               --                --           (1,807,255)
                                      -------------     -------------     -------------     -------------        -------------
  Net cash provided by (used
    in) financing activities             65,008,909        19,178,094        (2,665,749)      (56,691,839)          24,829,415
                                      -------------     -------------     -------------     -------------        -------------
NET INCREASE (DECREASE) IN CASH
  AND CASH EQUIVALENTS                     (501,527)          918,555         1,043,092                --            1,460,120
CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR                       2,887,273        10,033,067           429,157                --           13,349,497
                                      -------------     -------------     -------------     -------------        -------------
CASH AND CASH EQUIVALENTS,
  END OF YEAR                         $   2,385,746     $  10,951,622     $   1,472,249     $          --        $  14,809,617
                                      =============     =============     =============     =============        =============
</TABLE>
----------
(a)  To eliminate intercompany dividends.
(b)  To eliminate intercompany advances.



                                     F - 36
<PAGE>   91

                         FITZGERALDS GAMING CORPORATION
           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                      FOR THE YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                    FITZGERALDS                          NON
                                      GAMING          GUARANTOR       GUARANTOR        ELIMINATING        CONSOLIDATED
                                   CORPORATION      SUBSIDIARIES     SUBSIDIARIES        ENTRIES             TOTAL
                                   ------------     ------------     ------------     ------------        ------------
<S>                                <C>              <C>              <C>              <C>                 <C>
  NET CASH PROVIDED BY
    (USED IN) OPERATING
    ACTIVITIES                     $(11,572,491)    $  9,004,758     $  3,326,332     $         --        $    758,599
                                   ------------     ------------     ------------     ------------        ------------

CASH FLOWS FROM
  INVESTING ACTIVITIES:
    Proceeds from sale of
      assets                                 --          334,798           37,731               --             372,529
    Repayments from
      related parties                        --           86,664               --               --              86,664
    Acquisition  of property
      and equipment                     (94,249)     (53,164,997)          (4,493)              --         (53,263,739)
    Decrease in restricted
      cash - construction                    --       46,845,677               --               --          46,845,677
    Dividends received                       --        3,698,396               --       (3,698,396)(a)              --
    Other                                    --         (408,999)              --               --            (408,999)
                                   ------------     ------------     ------------     ------------        ------------
  Net cash provided by (used
    in) investing activities            (94,249)      (2,608,461)          33,238       (3,698,396)         (6,367,868)
                                   ------------     ------------     ------------     ------------        ------------
CASH FLOWS FROM
  FINANCING ACTIVITIES:
    Proceeds  from  issuance
      of common stock                     1,350               --               --               --               1,350
    Payment of debt
      offering costs                   (275,625)              --               --               --            (275,625)
    Proceeds  from  issuance
      of debt                         5,654,211        3,988,853               --               --           9,643,064
    Repayment of long-term
      debt                             (523,332)      (9,119,798)        (579,131)              --         (10,222,261)
    Dividends                                --               --       (4,103,544)       3,698,396 (a)        (405,148)
    Decrease in restricted cash              --          471,569               --               --             471,569
    Other                                    --          (98,007)              --               --             (98,007)
                                   ------------     ------------     ------------     ------------        ------------
  Net cash provided by
    (used in) financing
    activities                        4,856,604       (4,757,383)      (4,682,675)       3,698,396            (885,058)
                                   ------------     ------------     ------------     ------------        ------------
NET INCREASE (DECREASE)
  IN CASH AND CASH
  EQUIVALENTS                        (6,810,136)       1,638,914       (1,323,105)              --          (6,494,327)

CASH AND CASH
  EQUIVALENTS, BEGINNING
  OF YEAR                             9,697,409        8,394,153        1,752,262               --          19,843,824
                                   ------------     ------------     ------------     ------------        ------------
CASH AND CASH
  EQUIVALENTS, END
  OF YEAR                          $  2,887,273     $ 10,033,067     $    429,157     $         --        $ 13,349,497
                                   ============     ============     ============     ============        ============
</TABLE>
----------
(a)  To eliminate intercompany dividends.



                                     F - 37
<PAGE>   92

                         FITZGERALDS GAMING CORPORATION
           CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS INFORMATION
                      FOR THE YEAR ENDED DECEMBER 31, 1995

<TABLE>
<CAPTION>
                                       FITZGERALDS                             NON
                                         GAMING           GUARANTOR        GUARANTOR         ELIMINATING          CONSOLIDATED
                                       CORPORATION      SUBSIDIARIES      SUBSIDIARIES         ENTRIES               TOTAL
                                      -------------     -------------     -------------     -------------        -------------
<S>                                   <C>               <C>               <C>               <C>                  <C>
  NET CASH PROVIDED BY
    (USED IN) OPERATING
    ACTIVITIES                        $    (708,178)    $  10,203,560     $  (1,027,387)    $          --        $   8,467,995
                                      -------------     -------------     -------------     -------------        -------------

CASH FLOWS FROM
  INVESTING ACTIVITIES:
    Proceeds from sale of assets                 --           634,730         9,073,601                --            9,708,331
    Repayments from
      related parties                            --            25,137           219,466           (25,137)(a)          219,466
    Purchase of treasury stock                   --          (333,333)               --                --             (333,333)
    Acquisition of property and
     equipment                                   --        (9,740,664)          (89,463)               --           (9,830,127)
    Advances to related parties        (114,874,329)               --                --       114,874,329 (a)               --
    Increase in restricted
      cash - construction                        --       (49,100,000)               --                --          (49,100,000)
    Increase in advances
      receivable                                 --          (541,650)               --                --             (541,650)
    Dividends received                           --           777,750                --          (777,750)(b)               --
    Investment in Fremont
      Street Experience                          --          (526,678)               --                --             (526,678)
                                      -------------     -------------     -------------     -------------        -------------
  Net cash provided by (used
    in) investing activities           (114,874,329)      (58,804,708)        9,203,604       114,071,442          (50,403,991)
                                      -------------     -------------     -------------     -------------        -------------
CASH FLOWS FROM
  FINANCING ACTIVITIES:
    Proceeds from 1995 Offering         135,014,840                --                --                --          135,014,840
    Payment of debt offering
      costs                              (9,983,915)               --                --                --           (9,983,915)
    Advances from related parties                --       115,742,524                --      (114,874,329)(a)          868,195
    Proceeds from issuance of debt               --         7,200,963                --                --            7,200,963
    Repayment of long-term debt                  --       (70,084,605)       (8,869,635)               --          (78,954,240)
    Dividends                                    --          (914,792)         (881,250)          777,750 (b)       (1,018,292)
    Repayments to related parties                --        (2,925,562)         (212,892)           25,137 (a)       (3,113,317)
    Increase in restricted cash                  --          (120,415)               --                --             (120,415)
                                      -------------     -------------     -------------     -------------        -------------
  Net cash provided by (used in)
    financing activities                125,030,925        48,898,113        (9,963,777)     (114,071,442)          49,893,819
                                      -------------     -------------     -------------     -------------        -------------
NET INCREASE (DECREASE)
  IN CASH AND CASH
  EQUIVALENTS                             9,448,418           296,965        (1,787,560)               --            7,957,823

CASH AND CASH EQUIVALENTS,
  BEGINNING OF YEAR                         248,991         8,097,188         3,539,822                --           11,886,001
                                      -------------     -------------     -------------     -------------        -------------
CASH AND CASH EQUIVALENTS,
  END OF YEAR                         $   9,697,409     $   8,394,153     $   1,752,262     $          --        $  19,843,824
                                      =============     =============     =============     =============        =============
</TABLE>
----------
(a)  To eliminate intercompany advances and repayments.
(b)  To eliminate intercompany dividends.


                                     ******


                                     F - 38
<PAGE>   93
FITZGERALDS GAMING CORPORATION                    SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE:
------------------------------------------------------------------------------
Year Ended    Beginning Balance     Provisions    Recoveries     Ending Balance
----------    -----------------     ----------    ----------     --------------
<S>                 <C>                 <C>            <C>            <C>
 12/31/95          $376,626           $273,143     $(306,539)       $343,230
 12/31/96           343,230            373,978      (463,266)        253,942
 12/31/97           253,942            560,462      (402,523)        411,811

ALLOWANCE FOR DOUBTFUL RELATED PARTY NOTES RECEIVABLE:
-------------------------------------------------------------------------------
Year Ended    Beginning Balance     Provisions    Recoveries     Ending Balance
----------    -----------------     ----------    ----------     --------------
 12/31/95          $510,439         $       -     $       -         $510,439
 12/31/96           510,439                 -             -          510,439
 12/31/97           510,439                 -      (510,439)               -

ALLOWANCE TO WRITE DOWN ASSETS HELD FOR SALE TO ESTIMATED REALIZABLE VALUE:
------------------------------------------------------------- -----------------
Year Ended    Beginning Balance      Additions     Deletions     Ending Balance
----------    -----------------     ----------    -----------    --------------
 12/31/95         $1,401,262        $        -    $(1,401,262)     $        -
 12/31/96                  -                 -              -               -
 12/31/97                  -         2,157,000              -       2,157,000

</TABLE>