<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   -----------

                                    FORM 10-K

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       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 #333-4356
                         COAST HOTELS AND CASINOS, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            NEVADA                                      88-0345706
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

                4500 WEST TROPICANA ROAD, LAS VEGAS, NEVADA 89103
               (Address of principal executive offices) (Zip Code)


       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 365-7000

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

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


                                (Title of class)

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

        Indicate 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 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]

        The number of shares of the Registrant's Common Stock outstanding as of
March 5, 1999 was 1,000 shares, none of which was held by non-affiliates of the
Registrant.

                                   -----------



<PAGE>   2





                         COAST HOTELS AND CASINOS, INC.


                                TABLE OF CONTENTS


                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998


<TABLE>
<CAPTION>
                                                                                       PAGE
                                                                                       ----
                                           PART I
<S>  <C>                                                                                  <C>
Item 1.  Business......................................................................   3

Item 2.  Properties....................................................................  13

Item 3.  Legal Proceedings.............................................................  14

Item 4.  Submission of Matters to a Vote of Security Holders...........................  14

                                           PART II

Item 5.  Market for the Registrant's Common Equity and Related Stockholder Matters.....  16

Item 6.  Selected Financial Data.......................................................  16

Item 7.  Management's Discussion And Analysis Of Financial Condition And Results Of
         Operations.  .................................................................  18

Item 8.  Financial Statements and Supplementary Data...................................  23

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial
         Disclosure....................................................................  23

                                          PART III

Item 10. Directors and Executive Officers of the Registrant............................  24

Item 11. Executive Compensation........................................................  26

Item 12. Security Ownership of Certain Beneficial Owners and Management................  27

Item 13. Certain Relationships and Related Transactions................................  27

                                           PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K.............  29
</TABLE>



                                       2

<PAGE>   3



                                     PART I

ITEM 1. BUSINESS.

THE COMPANY

        We own and operate three Las Vegas hotel-casinos, The Orleans, the Gold
Coast and the Barbary Coast. Our primary target customers for The Orleans and
the Gold Coast are local Las Vegas residents. The Barbary Coast benefits from
foot traffic at its prime location on the Las Vegas Strip. Our growth strategy
includes expanding our existing facilities, as well as identifying and
developing new gaming opportunities, primarily in Las Vegas. We are currently
developing and intend to construct a fourth hotel-casino, the Suncoast, on a 50
acre site in west Las Vegas near Summerlin, a rapidly-growing master-planned
community. We also own an approximately 29 acre gaming site in North Las Vegas
that we may develop in the future.

        We were formed in 1995 in connection with the reorganization of two
affiliated partnerships, the Gold Coast Hotel and Casino, a Nevada limited
partnership (the "Gold Coast Partnership"), and the Barbary Coast Hotel and
Casino, a Nevada general partnership (the "Barbary Coast Partnership" and,
together with the Gold Coast Partnership, the "Predecessor Partnerships"). The
Gold Coast Partnership, formed in 1986, and the Barbary Coast Partnership,
formed in 1978, previously owned and operated the Gold Coast and the Barbary
Coast, respectively, and the Gold Coast Partnership commenced the development of
The Orleans.

        Our principal executive office is located at 4500 West Tropicana Road,
Las Vegas, Nevada 89103. The telephone number is (702) 365-7000.

THE REORGANIZATION

         Effective January 1, 1996, the Predecessor Partnerships were
consolidated and reorganized (the "Reorganization") pursuant to an Agreement and
Plan of Reorganization, as supplemented and amended, entered into among each of
the Predecessor Partnerships, Gaughan-Herbst, Inc., the sole general partner of
the Gold Coast Partnership, and Coast Resorts. As a result of the
Reorganization, we own and operate the Gold Coast, the Barbary Coast and The
Orleans. In the Reorganization, (a) the partners of the Predecessor Partnerships
each transferred to Coast Resorts, Inc., our parent company ("Coast Resorts") by
assignment or through the merger of Gaughan-Herbst, Inc., their respective
partnership interests in the Predecessor Partnerships in exchange for an
aggregate of 1,000,000 shares of common stock, par value $.01 per share, of
Coast Resorts (the "Common Stock") and (b) we assumed, jointly and severally
with Coast Resorts, all of the liabilities of the Predecessor Partnerships other
than (i) the obligations under approximately $52.5 million principal amount of
notes payable to the shareholders of Coast Resorts that were exchanged for an
aggregate of 494,353 shares of Common Stock on January 16, 1996, and (ii) those
liabilities incident to Coast West Inc. ("Coast West"), which prior to July 1998
was a wholly-owned subsidiary of Coast Resorts. On July 21, 1998, Coast Resorts
contributed the common stock of Coast West to the Company. Coast West leases the
real property on which we intend to construct the Suncoast.

BUSINESS AND MARKETING STRATEGY

         Our business and marketing strategy is to attract gaming customers to
our casinos by offering consistently high quality gaming, hotel, entertainment
and dining experiences at affordable prices. We emphasize attracting and
retaining repeat customers. Our primary target market for The Orleans and Gold
Coast consists of value-oriented local middle-market gaming patrons who gamble
frequently. We believe that our target customers return to our hotel-casinos
because of their convenient locations, friendly employees, higher slot machine
and video poker payout rates than are offered at casinos on the Las Vegas Strip
and high quality entertainment and amenities. Additionally, visitors to Las
Vegas find that our guest rooms are spacious, well-appointed and competitively
priced.

         Our operating strategy with respect to gaming revenue focuses on slot
and video poker machines because these games accounted for approximately 70% of
our gaming revenues and approximately 48% of our total 




                                       3



<PAGE>   4

revenues in the year ended December 31, 1998. (It is customary in the gaming
industry to include video poker and other gaming machines when using the term
"slots" or "slot machines.") Our marketing efforts include many high profile
programs, including slot clubs and frequent prize drawings for slot players.
Other promotions include the original "Pick the Pros" $1,000,000 football
contest, check cashing promotions and direct mail campaigns.

        We believe that the most important factors in successfully operating our
casinos are convenient locations with easy access, a friendly atmosphere, a
value-oriented approach and high quality entertainment and amenities. We believe
that our casinos strongly appeal to the Las Vegas residents who gamble.
Additionally, we offer Las Vegas visitors spacious, well-appointed and
competitively priced guest rooms.

o       CONVENIENT, STRATEGIC LOCATIONS. We believe that our two locals-oriented
        properties, The Orleans and the Gold Coast, offer our target customers
        easily accessible, convenient locations for gaming and entertainment.
        The Orleans and the Gold Coast are both located one to two miles west of
        the Strip in high traffic areas close to fast-growing segments of the
        western Las Vegas valley. The Suncoast will have a suburban location
        conveniently located adjacent to the fast-growing Summerlin
        master-planned community with strong demographics, approximately nine
        miles from the Strip. The Orleans and Gold Coast are easily accessible
        and offer ample parking, providing our customers with convenient
        alternatives to the congestion on the Strip.

o       FRIENDLY ATMOSPHERE. A key element of our strategy is to provide patrons
        with friendly, personal service that is designed to foster customer
        loyalty and generate repeat business. Locals appreciate a friendly,
        casual gaming environment where employees make them feel at home.

o       VALUE. We offer value to our gaming patrons by providing video poker and
        slot machines with better odds than those traditionally found at Strip
        casinos due to lower hold percentages on our slot machines. Locals'
        perception of value is also influenced by such things as slot clubs that
        reward frequent gamblers. The Orleans and Gold Coast slot clubs offer
        customers an opportunity to earn cash and prizes based on their
        winnings. Because locals and repeat visitors demand variety and quality
        in their slot machine play, our casinos offer the latest slot and video
        poker technology, including several games designed exclusively for us.
        In addition, in order to appeal to our value-conscious customers, our
        many restaurants and bars serve generous portions of quality food and
        beverages at attractive prices.

o       ENTERTAINMENT, MOVIE THEATERS AND AMENITIES. We believe we compete
        effectively with other locals-oriented casinos by offering amenities and
        entertainment that our customers demand and that accentuate the
        perception of value for our customers. Our properties offer a number of
        amenities that generate significant foot traffic through our casinos,
        including movie theaters, bowling centers, quality restaurants and a
        variety of musical entertainment.



                                       4

<PAGE>   5


o       Entertainment. The Orleans features headliner entertainers in its
        850-seat theater, attracting both local customers and tourists alike.
        Among the entertainers who have appeared are Willie Nelson, Ray Charles
        and the Righteous Brothers. The entertainment lounges at our
        hotel-casinos feature many popular lounge acts.

o       Movie Theaters. The Gold Coast was the first hotel-casino in Las Vegas
        to offer first-run movies in its twin theaters. The Orleans has twelve
        "stadium-seating" movie theaters, which opened in December 1997. Our
        theaters are operated through a long-term joint venture with Century
        Theaters, one of Las Vegas' leading theater operators, allowing us to
        offer a wide variety of first-run movies in our state-of-the-art
        facilities.

o       Restaurants. We believe that the value offered by the many restaurants
        at our casino properties is a major factor in attracting local gaming
        customers, as we believe dining is a primary motivation for casino
        visits by many locals. All of the restaurants located in our casino
        properties offer generous portions of quality food at reasonable prices.
        In addition, the Barbary Coast features two award-winning gourmet
        restaurants, Michael's and Drai's on the Strip.

o       Other Amenities. In addition to the restaurants and theaters mentioned
        above, we offer a variety of amenities directed to the locals market,
        including our bowling centers at the Gold Coast and The Orleans, which
        are among the most popular in Las Vegas. Other amenities include banquet
        and meeting rooms, wedding chapels and child care facilities.

        Tourist Customers. While a significant portion of our customers at The
Orleans and the Gold Coast are local residents, the same factors that appeal to
local residents also appeal to visitors to Las Vegas, including better odds than
those traditionally found at Strip casinos and lower minimum wager limits on our
table games than Strip casinos. Additionally, our casinos are strategically
situated to benefit from a growing visitor market, with the Gold Coast and The
Orleans each located within two miles of the Strip and the Barbary Coast located
at one of the busiest corners on the Strip. In addition to the growing local
resident market, Las Vegas is one of the fastest growing entertainment markets
in the United States.

THE ORLEANS

        We designed The Orleans to differentiate it in the Las Vegas market by
combining an upscale, off-Strip experience in an exciting themed environment
reflecting the architectural heritage of the New Orleans French Quarter with a
wide variety of non-gaming amenities. The Orleans primarily targets middle to
upper-middle income gaming customers, both local residents and visitors to Las
Vegas. We believe that The Orleans is an attractive alternative for local
residents and Las Vegas visitors, offering a full-service hotel-casino and
entertainment experience complemented with a value-oriented pricing strategy.
The Orleans is strategically located on Tropicana Avenue, a short distance from
the Las Vegas Strip and McCarren International Airport. According to the Nevada
Department of Transportation 1997 Annual Traffic Report, approximately 68,000
vehicles travel by The Orleans each day. With easy access and ample parking, The
Orleans has quickly become a popular destination for locals.

        The Orleans features an approximately 100,000 square foot casino, a
22-story tower with 840 hotel rooms, 12 "stadium seating" first-run movie
theaters, a 70-lane bowling center, approximately 40,000 square feet of banquet
and meeting facilities, including an approximately 17,000 square foot grand
ballroom, a wedding chapel, five full-service restaurants, specialty themed
bars, a barber shop, a child care facility, a video arcade, a beauty salon and
approximately 4,000 parking spaces. The casino includes approximately 2,241 slot
machines, 54 table games, a keno lounge, a poker parlor and race and sports
books. The Orleans also includes an 850-seat theater that features headliner
entertainment and other special events. Among the performers at The Orleans'
theater during the past year have been Willie Nelson, Ray Charles and the
Righteous Brothers. We believe that the high-quality entertainment at the
theater distinguishes us from most other locals casinos in Las Vegas and allows
us to attract more tourists who would otherwise gamble at Strip casinos.



                                       5

<PAGE>   6


        The Orleans features five restaurants including the Canal Street Grille,
serving steaks and seafood in a gourmet atmosphere, Vita's Ristorante, an
Italian restaurant, Don Miguel's, a Mexican restaurant, the Courtyard Cafe, a
coffee shop featuring New Orleans favorites as well as Chinese and American
fare, and the French Market Buffet, an all-you-can-eat buffet. Each of our
restaurants serves generous portions of quality food and beverages at
competitive prices. For customers desiring a quick meal or snack, we offer
Terrible Mike's, a hamburger and sandwich restaurant, Kate's Corner, an ice
cream parlor, and a snack bar in our bowling center. The Orleans employs a
number of marketing programs, including a slot club with over 200,000 members,
football contests and grand prize drawings.

        We are currently in the process of expanding The Orleans by
approximately 65,000 square feet, including a new multi-station action buffet
restaurant, an Asian restaurant and additional casino gaming space with
approximately 200 more slot machines and 14 table games. We expect that this
expansion will be completed in the second quarter 1999. Our budget for this
expansion is approximately $13 million, which we are funding from cash on hand.
Through December 31, 1998 we had spent approximately $2.8 million on the
expansion.

        In order to capitalize on our strong presence in the locals market, we
are considering further expansion of The Orleans by adding additional movie
theaters, a restaurant, a new hotel tower and a parking garage. No definitive
plans for such an expansion have been made, nor have we arranged for the
financing for such a project. Because the proposed expansion is subject to a
number of factors, including financing capacity and continued growth of revenues
at The Orleans, we cannot assure you that all or any aspects of this expansion
will be commenced or completed.

THE GOLD COAST

        The Gold Coast, which opened in 1986, is located on West Flamingo Road
approximately one mile west of the Las Vegas Strip near Interstate 15, the major
highway linking Las Vegas and Southern California, offering easy access from all
four directions in the Las Vegas Valley. The Gold Coast is located in a
high-traffic area and, according to the Nevada Department of Transportation, an
average of approximately 78,000 vehicles travel by the Gold Coast each day. The
Gold Coast features an approximately 70,000 square foot casino, including
approximately 2,050 slot machines, 48 table games, a keno lounge, a 160-seat
race and sports book and a 700-seat bingo parlor. The Gold Coast also features
an 11-story tower with 712 hotel rooms and suites and a swimming pool with a
covered bar.

        The Gold Coast features three full-service restaurants, a 380-seat
buffet restaurant, a fast-food restaurant, a snack bar and ice cream parlor.
Entertainment amenities include a 72-lane bowling center, two movie theaters,
approximately 10,000 square feet of banquet and meeting facilities, four bars,
two entertainment lounges and a showroom/dance hall featuring live musical
entertainment. Other amenities include a gift shop, a liquor store, a travel
agency, an American Express office, a Western Union office, a beauty salon, a
barber shop, a child care facility and over 3,000 parking spaces.

        The Gold Coast primarily targets middle-market gaming customers,
catering to local residents as well as repeat visitors to Las Vegas who desire
an alternative to the hotel-casino properties located on the Strip. Our
operating strategy is to maximize customer visitation and thereby increase
casino revenues at the Gold Coast by offering value-conscious customers a
combination of friendly service, generous portions of quality food at
competitive prices and clean, comfortable and inexpensive hotel rooms. We
believe this value-oriented approach generates a high level of customer
satisfaction, fostering customer loyalty and repeat business. We have
periodically renovated and upgraded the Gold Coast in order to maintain its
appeal to our target customers.




                                       6


<PAGE>   7

        The Gold Coast has developed a number of innovative campaigns designed
to promote its business and attract local residents. The Gold Coast's slot club
has issued nearly 500,000 club cards to its members since inception and
currently has over 100,000 active members. We established the slot club in 1987
to encourage repeat business by rewarding frequent slot players with cash and
prizes. Our other Gold Coast marketing programs have included the original "Pick
the Pros" football contest, a $250,000 paycheck cashing contest and live
entertainment in the showroom/dance hall. In addition, the Gold Coast is a
sponsor of the annual National Finals Rodeo, which attracts thousands of
visitors to Las Vegas each December. The awards ceremonies for the Rodeo are
held nightly at the Gold Coast during the 10-day event.

THE BARBARY COAST

        The Barbary Coast, which opened in 1979, is located at the intersection
of Flamingo Road and Las Vegas Boulevard. The Barbary Coast is located on one of
the busiest intersections on the Strip, along with Caesars Palace, Bally's Las
Vegas and Bellagio. Historically, the Barbary Coast has relied on foot traffic
on the Las Vegas Strip for a significant amount of its revenues. As a result,
the Barbary Coast's customer base is primarily visitors to the Las Vegas area.
In addition to its favorable location on the Strip, the Barbary Coast has also
benefited from its more intimate gaming atmosphere, allowing it to develop a
loyal base of table games and slot customers. Our marketing efforts toward table
games customers include complimentary rooms, food and beverage, as well as
programs such as blackjack tournaments and golf outings. Slot players may also
receive complimentary rooms, food and beverage, as well as cash and prizes as
members of our slot club. The slot players' "Fun Club" has over 100,000 members
who are rewarded for their frequent play.

        The Barbary Coast features an approximately 30,000 square foot casino,
including approximately 600 slot machines, 50 table games, race and sports books
and other amenities. Our eight-story tower includes 197 spacious rooms and
suites. The Barbary Coast is furnished and decorated in an elegant
turn-of-the-century Victorian theme and includes three bars and three
restaurants: Michael's gourmet restaurant, Drai's on the Strip (leased to and
operated by a third party) and the Victorian Room. Drai's specializes in French
and California cuisine served in an elegant setting. The Victorian Room features
both American and Chinese cuisine served in an atmosphere of stained glass and
turn-of-the-century decor.

        At the Barbary Coast, we have historically generated most of our gaming
revenue from the table games operations. In 1998, we reconfigured the gaming
floor of the Barbary Coast to enhance its appeal to gaming customers walking on
the Strip and to provide more focus on our slot operations. Approximately 100
machines were added and approximately 40% of the existing machines were replaced
by many of the newest innovations in slot technology. Additionally, as part of
the reconfiguration of the casino, we added live music in our new entertainment
lounge.

THE SUNCOAST

        We are currently designing and developing the Suncoast to expand our
presence in the growing Las Vegas locals market. The Suncoast will serve one of
the fastest growing areas of the Las Vegas valley and will be located on
approximately 50 acres in Peccole Ranch, a master-planned community adjacent to
Summerlin.

        Our new hotel-casino will be strategically located at the intersection
of Rampart Boulevard and Alta Drive, readily accessible from most major points
in the city, including downtown Las Vegas (approximately eight miles) and the
Strip (approximately nine miles). Accessibility will be further enhanced by the
expected connection of the Las Vegas beltway to Summerlin Parkway in 2000. The
site will be approximately 1/4 mile from the Resort at Summerlin, a new luxury
resort that is expected to open in the second quarter of 1999.

        We are designing the Suncoast with a Mediterranean theme and it is
expected to include an approximately 78,000 square foot casino, 232 hotel rooms,
with an average size of approximately 550 square feet, approximately 15,000
square feet of banquet and meeting facilities, 16 "stadium seating" movie
theaters, four full-service 




                                       7


<PAGE>   8
restaurants and approximately 3,400 parking spaces. We expect the casino to
include approximately 2,000 slot machines, 34 table games, a keno lounge, a
poker parlor, race and sports books and a 60 lane bowling alley. The Suncoast is
master-planned to double the number of hotel rooms, when necessary, by adding an
additional wing.

        We have an estimated construction and development budget of
approximately $150 million (including contingencies, but excluding pre-opening
expenditures, opening bankroll and capitalized interest costs). Construction is
expected to cost approximately $105.0 million, including contingencies, and
subject to obtaining financing, we expect construction to begin in mid-1999. The
budget also includes $40.0 million for equipment and $5.0 million for
architecture and design fees. We have assembled a construction team with
substantial experience in the development and construction of hotel-casinos in
Las Vegas and with whom we have worked successfully in the past, including
Tiberti Construction Company, Inc. and Yates-Silverman, Inc. Tiberti
Construction served as general contractor for the construction of The Orleans
and the Gold Coast.

GAMING SECURITY

        Each of our casinos employs extensive supervision and accounting
procedures to control the handling of cash in their gaming operations. These
measures include security personnel, closed-circuit television observation of
critical areas of the casino, locked cash boxes, independent auditors and
observers, strict sign-in and sign-out procedures which ensure, to the extent
practicable, that gaming chips issued by, and returned to, the casino cashier's
cages are accurately accounted for, and procedures for the regular observation
of gaming employees. The accounting departments of each of our casinos, which
employ persons who have no involvement in the gaming operations, review on a
daily basis records compiled by gaming employees pertaining to cash flow and
credit extension. Moreover, regular periodic analysis of the results of our
gaming operations, including analyses of our compliance with the internal
control standards established by the Nevada State Gaming Control Board (the
"Nevada Board"), are performed by us and our independent auditors to detect
significant deviations from industry standards. Based on the results of these
analyses, management believes that its procedures are in compliance in all
material respects with the requirements established by the Nevada Gaming
Commission (the "Nevada Commission") and the Nevada Board.

POTENTIAL FUTURE DEVELOPMENTS

        From time to time in our ordinary course of business we review proposals
for new developments, joint ventures and other strategic transactions. We cannot
assure you that any such new developments, ventures or transactions will be
pursued or, if pursued, will be successful.

NEIGHBORHOOD CASINO ACT

        Nevada's Senate Bill 208, also known as SB 208 and the Neighborhood
Casino Act, was enacted in 1997 and affects the development of our Suncoast
location as well as other potential locations for casinos targeting Las Vegas
residents.  The Neighborhood Casino Act, among other things, imposes more
stringent requirements for approval of new hotel-casinos in Clark County that
are not located in the vicinity of the Strip and downtown Las Vegas.  Sites that
have been designated a gaming overlay or gaming enterprise district not later
than December 31, 1998 and that receive approval from the Nevada Gaming
Commission (the "Nevada Commission") for a nonrestricted gaming license no later
than December 31, 2002 will not be subject to the more stringent requirements of
the Neighborhood Casino Act.

        The site on which the Suncoast will be constructed has been designated
as a gaming overlay or gaming enterprise district by the City of Las Vegas,
which is the zoning designation necessary to construct and operate a
hotel-casino.  We must receive approval for a nonrestricted gaming license which
is generally not available until immediately prior to beginning gaming
operations, by December 21, 2002, or we will be required to successfully
petition the City of Las Vegas to designate the Suncoast site as a gaming
overlay or gaming enterprise district in order to obtain a nonrestricted gaming
license pursuant to the more stringent standards of SB 208.  These and other
restrictions may limit our ability to develop and operate the Suncoast and any
future development projects in Clark County, including the land we own in North
Las Vegas.

COMPETITION

        There is intense competition among companies in the gaming industry. The
Orleans and the Gold Coast compete (and, when completed, the Suncoast will
compete) primarily with Las Vegas hotel-casinos and non-hotel gaming facilities
which target local residents. Some of these competitors have recently completed
expansions or new projects. In addition, there are currently gaming facilities
that have been announced or are under construction in the immediate vicinity of
our casinos. A hotel-casino has been proposed for a location adjacent to the
Gold Coast. Additionally, adjacent to the Suncoast site, a luxury hotel-casino
and spa called The Resort at Summerlin is expected to open in the second quarter
of 1999 and is anticipated to include a 50,000 square foot gaming facility and
over 500 hotel rooms. Furthermore, there are several undeveloped properties in
the immediate vicinity of The Orleans, the Gold Coast and the location of the
Suncoast on which new gaming facilities could be built. The construction of new
properties and the expansion or enhancement of existing properties near our
casinos could have a negative impact on our business.


                                       8
<PAGE>   9


     In contrast to our other casinos, the Barbary Coast competes for customers
primarily with the hotel-casinos located on the Strip. Several large
hotel-casinos have either recently opened or are under construction on the
Strip, including Bellagio, Mandalay Bay, Paris, Aladdin and The Venetian. The
construction of new properties and the expansion or enhancement of existing
properties on the Strip by competitors could materially adversely affect the
Barbary Coast.

        In addition, each of our properties compete (and, when completed, the
Suncoast will compete) to a lesser extent with all other casinos and hotels in
the Las Vegas area. In addition to those mentioned above, several new
hotel-casino projects and expansions have been announced or are under
construction in Las Vegas. These projects and expansions will add substantial
additional gaming capacity and approximately 12,000 rooms to the Las Vegas area
over the next two years. This additional gaming and room capacity may have a
negative impact on our business.

        Furthermore, we compete with other legalized forms of gaming and gaming
operations in other parts of the state of Nevada and elsewhere. Certain states
have recently legalized, and several other states are currently considering
legalizing, casino gaming in designated areas. We also face competition from
casinos located on Native American reservations. We believe that the development
by Native Americans and others of casino properties similar to those in Las
Vegas in areas close to Nevada, particularly California and Arizona, could have
a material adverse effect on our business and results of operations.

        Gaming competition from Native American ventures in California may
intensify due to Proposition 5, a California ballot initiative passed by voters
in California on November 3, 1998. Proposition 5 permits Native American tribes
that enter into agreements with the State of California to conduct gaming
activities including operating gaming devices (including slot machines), banked
card games, horse race wagering and lotteries. Proposition 5 is subject to a
legal challenge and its enforcement has been blocked pending a decision by the
California Supreme Court. We are not certain when, or if, Proposition 5 will
become effective or how it will affect us. However, because visitors from
California make up Nevada's largest visitor market, if Proposition 5 is
implemented, increased competition from Native American gaming may cause a
decline in our revenues and may have a negative impact on our business.

ENVIRONMENTAL MATTERS

        We are subject to a wide variety of federal, state and local laws and
regulations relating to the use, storage, discharge, emission and disposal of
hazardous materials. While we believe that we are presently in material
compliance with all environmental laws, failure to comply with such laws could
result in the imposition of severe penalties or restrictions on operations by
government agencies or courts that could adversely affect operations. In 1995,
we completed Phase I environmental assessments at the properties owned or leased
by us. The reports did not identify any environmental conditions or
non-compliance, the remediation or correction of which are reasonably expected
to have a material adverse impact on our business or financial condition.

EMPLOYEES

        At December 31, 1998, we had approximately 4,900 employees. We have not
experienced any significant work stoppages and believe our labor relations are
good. The Las Vegas job market for employees is very competitive. Except for
approximately 350 employees at the Barbary Coast who are covered by a collective
bargaining agreement, none of our other employees are covered by a collective
bargaining agreement.

NEVADA REGULATION AND LICENSING

        The ownership and operation of casino gaming facilities in Nevada are
subject to (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, the "Nevada Act"), and (ii) various local regulations.
Our gaming operations are subject to the licensing and regulatory control of the
Nevada Commission, the Nevada Board and the Clark County Liquor and Gaming
Licensing Board (the "Clark County Board"). The Nevada Commission, the Nevada
Board and the Clark County Board are collectively referred to as the "Nevada
Gaming Authorities."




                                       9


<PAGE>   10


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

        The Company, which operates the Gold Coast, the Barbary Coast and The
Orleans, is licensed by the Nevada Gaming Authorities and is a corporate
licensee (a "Corporate Licensee") under the terms of the Nevada Act. The gaming
licenses require the periodic payment of fees and taxes and are not
transferable. Coast Resorts is registered with the Nevada Commission as a
publicly traded corporation (a "Registered Corporation") and Coast Resorts has
been found suitable to own the stock of Coast Hotels. Coast Resorts, as a
Registered Corporation, and Coast Hotels, as a Corporate Licensee, are required
periodically to submit detailed financial and operating reports to the Nevada
Commission and furnish any other information that the Nevada Commission may
request. No person may become a stockholder of, or receive any percentage of the
profits from, Coast Hotels without first obtaining licenses and approvals from
the Nevada Gaming Authorities. The Company and Coast Resorts have obtained from
the Nevada Gaming Authorities the various registrations, approvals, permits and
licenses required in order to engage in gaming activities at its hotel-casinos.

        The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or Coast
Resorts in order to determine whether such individual is suitable or should be
licensed as a business associate of a Corporate Licensee or a Registered
Corporation. Officers, directors and certain key employees of the Company 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 who are actively and directly involved in
gaming activities of the Company 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.

        If the Nevada Gaming Authorities were to find an officer, director or
key employee of the Company or Coast Resorts unsuitable for licensing or
unsuitable to continue having a relationship with the Company or Coast Resorts,
the Company and Coast Resorts would have to sever all relationships with such
person. In addition, the Nevada Commission may require the Company and Coast
Resorts 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 and Coast Resorts are required to submit detailed financial
and operating reports to the Nevada Commission. Substantially all material
loans, leases, sales of securities and similar financing transactions by the
Company must be reported to, or approved by, the Nevada Commission.

        If it were determined that the Nevada Act was violated by the Company,
the gaming licenses it holds could be limited, conditioned, suspended or
revoked, subject to compliance with certain statutory and regulatory procedures.
In addition, the Company, Coast Resorts 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 the Company's gaming properties
and, under certain circumstances, earnings generated during the supervisor's
appointment (except for the reasonable rental value of the Company's gaming
properties) could be forfeited to the State of Nevada. Limitation, conditioning
or 





                                       10


<PAGE>   11


suspension of any gaming license 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,
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
a 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 Registered Corporation's voting securities apply to
the Nevada Commission for a finding of suitability within 30 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 will 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 a Registered Corporation, any change in a Registered Corporation's corporate
charter, bylaws, management, policies or operations, 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) 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 owner, after request, fails to
identify the beneficial owner. Any stockholder found unsuitable and who holds,
directly or indirectly, any beneficial ownership of the voting securities of a
Registered Corporation beyond such period of time as may be prescribed by the
Nevada Commission may be guilty of a criminal offense. The Company is 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 Coast
Resorts, 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 such voting securities for cash at fair market value.

        The Nevada Commission may, in its discretion, require the holder of any
debt security of a Corporate Licensee or a Registered Corporation to file
applications, be investigated and be found suitable to own the debt security. If
the Nevada Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Corporate Licensee or the
Registered Corporation can be sanctioned, including the loss of its licenses, 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.



                                       11

<PAGE>   12


        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 is also 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.

        Licensed Corporations and Registered Corporations such as the Company
and Coast Resorts may not make public offering of their 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 require or extend obligations incurred for such purposes. The
Nevada Commission has previously granted exemptions from this prior approval
process for certain public offerings by the Company and Coast Resorts. Approval
of a public offering, if given, will 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 acquire
control of a Registered Corporation must satisfy the Nevada Board and Nevada
Commission with respect to 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 a 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 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 operators 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 a 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 a 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 of food or refreshments. Nevada
licensees that hold a license as an operator of a slot route, or a
manufacturer's or distributor's license, 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 of the Nevada Board of their participation in such
foreign gaming. The revolving fund is subject to increase or decrease at the
discretion of the Nevada Commission. 



                                       12

<PAGE>   13


Thereafter, Licensees are required to comply with certain reporting requirements
imposed by the Nevada Act. 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 Company may pursue development opportunities in other jurisdictions
and expects that if it does so it will be subject to similar rigorous regulatory
standards in each other jurisdiction in which it seeks to conduct gaming
operations. There can be no assurance that regulations adopted, permits required
or taxes imposed, by other jurisdictions will permit profitable operations by
the Company in those jurisdictions.

CERTAIN FORWARD-LOOKING STATEMENTS

        This Form 10-K includes "forward-looking statements" within the meaning
of the securities laws. All statements regarding our expected financial
position, business, strategies and financing plans under the headings
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" "Business" and elsewhere in this Form 10-K are forward-looking
statements. In addition, in those and other portions of this Form 10-K, the
words "anticipates," "believes," "estimates," "seeks," "expects," "plans,"
"intends" and similar expressions, as they relate to the Company or its
management, are intended to identify forward-looking statements. Although we
believe that the expectations reflected in such forward-looking statements are
reasonable, and have based these expectations on our beliefs as well as
assumptions we have made, such expectations may prove to be incorrect. Important
factors that could cause actual results to differ materially from such
expectations are disclosed in this Form 10-K, including, without limitation, the
following factors:

o       increased competition, both in Nevada and other states;

o       dependence on the Las Vegas area and Southern California for a majority
        of our customers;

o       uncertainties associated with obtaining financing on acceptable terms
        for the construction of the Suncoast;

o       substantial leverage and uncertainty that we will be able to service our
        debt;

o       uncertainties associated with the Suncoast and other construction
        projects, including the related disruption of operations and the
        availability of financing, if necessary; and

o       changes in laws or regulations, third party relations and approvals,
        decisions of courts, regulators and governmental bodies.

        All subsequent written and oral forward-looking statements attributable
to us or persons acting on our behalf are expressly qualified in their entirety
by our cautionary statements. The forward-looking statements included are made
only as of the date of this Form 10-K. We do not intend, and undertake no
obligation, to update these forward-looking statements.

ITEM 2. PROPERTIES.

        The Orleans occupies a portion of an approximately 80 acre site located
on West Tropicana Avenue, approximately one mile south of the Gold Coast. We
lease the real property under a ground lease entered into by the Company and the
Tiberti Company, a Nevada general partnership of which J. Tito Tiberti, a
director of the Company, is managing partner. See "Certain Transactions." The
lease had an effective commencement date of 




                                       13

<PAGE>   14


October 1, 1995, an initial term of 50 years, and includes an option,
exercisable by us, to extend the initial term for an additional 25 years. The
lease provides for monthly rental payments of $175,000 per month through
February 1999, $200,000 per month during the 36-month period thereafter,
$225,000 per month during the 48-month period thereafter and $250,000 per month
during the 60-month period thereafter. In March 2011, annual rental payments
will increase on a compounding basis at a rate of 3.0% per annum. In addition,
we have been granted an option to purchase the real property during the two-year
period commencing in February 2016. The lease provides that the purchase price
will be the fair market value of the real property at the time we exercise the
option, provided that the purchase price will not be less than 10 times, nor
more than 12 times, annual rent at such time.

        We own the approximately 26 acres that the Gold Coast occupies on West
Flamingo Road. We also own an 8.33 acre site across the street from the Gold
Coast that contains an approximately 100,000 square foot warehouse. The
warehouse is used by the Gold Coast, the Barbary Coast and The Orleans primarily
as a storage facility.

        The Barbary Coast occupies approximately 1.8 acres at the intersection
of Flamingo Road and the Strip and occupies real property that we lease pursuant
to a lease that expires on May 1, 2003. The lease provides for rental payments
of $175,000 per year. The lease contains two options, exercisable by us, to
extend the term of the lease for 30-years each (with the rent to be readjusted
as provided in the lease during those renewal periods). We have an option to
purchase the leased property at any time during the six month period prior to
the expiration of the lease, provided that certain conditions are met, at a
purchase price equal to the greater of $3.5 million or the then appraised value
of the real property. We also have a right of first refusal in the event the
landlord desires to sell the real property during the initial term of the lease.
We also lease approximately 2.5 additional acres of real property located
adjacent to the Barbary Coast. The lease expires on December 31, 2003. The lease
provides for rental payments of $125,000 per annum. We use the 2.5 acre property
as a parking lot for our employees and for valet parking. The landlord has the
right to terminate the lease upon six months prior notice to us if it requires
the use of the property for its own business purposes (which excludes leaving
the property vacant or leasing it to third parties prior to January 1, 2003).

        We lease the approximately 50 acre Suncoast site located at the corner
of Rampart Boulevard and Alta Drive in the west Las Vegas valley pursuant to a
Ground Lease Agreement dated as of October 28, 1994. The initial term of the
lease expires on December 31, 2055. The lease contains three options,
exercisable by us, to extend term of the lease for 10 years each. The lease
provided for monthly rental payments of $166,667 for the year ended December 31,
1995. Thereafter, the monthly rent increases by the amount of $5,000 in January
of each year. The landlord has the option to require us to purchase the property
at the end of 2014, 2015, 2016, 2017 and 2018, at the fair market value of the
real property at the time the landlord exercises the option, provided that the
purchase price will not be less than 10 times nor more than 15 times the annual
rent at such time. Based on the terms of the lease, the potential purchase price
commitment ranges from approximately $31.0 million to approximately $51.0
million in the years 2014 through 2018. We have a right of first refusal in the
event the landlord desires to sell the property at any time during the lease
term.

        We also own an approximately 29 acre parcel of undeveloped land located
at the corner of Rancho Drive and Carey Avenue in North Las Vegas, close to the
Fiesta Hotel and Casino and the Texas Station Hotel and Casino. Any future
developments on this site would be subject to, among other things, our ability
to obtain necessary financing and compliance with SB 208.

ITEM 3  LEGAL PROCEEDINGS

        We are currently, and are from time to time, involved in litigation
arising in the ordinary course of our business. We are currently subject to two
lawsuits in which the plaintiffs have sought punitive damages. We intend to
continue to defend the lawsuits vigorously. We do not believe that such
litigation, including the foregoing proceedings, will, individually or in the
aggregate, have a material adverse effect on our financial position, results of
operations or cash flows.

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



                                       14

<PAGE>   15


        No matters were submitted to our shareholders during the quarter ended
December 31, 1998.



                                       15


<PAGE>   16




                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS.


        We are a wholly-owned subsidiary of Coast Resorts. None of our equity
securities are publicly traded.

ITEM 6. SELECTED FINANCIAL DATA

        The following Selected Financial Data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this Form 10-K. The balance sheets and statements of income data as
of and for each of the five years in the period ended December 31, 1998 are
derived from the consolidated financial statements of the Company which have
been audited by PricewaterhouseCoopers LLP. The consolidated financial
statements of the Company as of December 31, 1997 and 1998 and for each of the
three years in the period ended December 31, 1998 are included in this report on
Form 10-K.


                                                 YEARS ENDED DECEMBER 31,

<TABLE>
<CAPTION>
                                                       1994           1995          1996(1)         1997           1998
                                                    ----------     ----------     ----------     ----------     ----------
                                                                             (DOLLARS IN THOUSANDS)
<S>                                                  <C>           <C>            <C>            <C>            <C>      
STATEMENTS OF INCOME DATA:
Net revenues......................................   $172,573      $ 174,756      $ 195,987      $ 293,883      $ 332,363
Departmental operating expenses(2) ...............    118,697        118,534        121,628        197,200        209,104
General and administrative expenses ..............     29,271         30,405         37,992         54,351         55,879
Guaranteed payments to former partners(3) ........      2,672            858             --             --             --
Pre-opening expenses .............................         --             --          7,125             --             --
Land leases ......................................         --             --             --          2,100          3,190
Deferred (non-cash) rent .........................         --             --             --          2,378          3,198
Depreciation and amortization ....................      6,766          7,280          7,883         18,278         20,607
                                                    ----------     ----------     ----------     ----------     ----------
Operating income .................................     15,167         17,679         21,359         19,576         40,385
Interest expense, net ............................       (227)        (3,545)        (9,981)       (25,228)       (26,570)
Other income .....................................         23             92             58            919            168
                                                    ----------     ---------      ---------      ---------      ---------
Net income (loss) before income taxes ............     14,963         14,226         11,436         (4,733)        13,983
Provision (benefit) for income taxes .............         --             --          6,617         (1,401)         5,225
                                                    ----------     ----------     ----------     ----------     ----------

Net income (loss) ................................  $  14,963      $  14,226      $   4,819      $  (3,332)     $   8,758
                                                    =========      =========      =========      =========      =========

PRO FORMA INFORMATION TO REFLECT
  CHANGE IN TAX STATUS(4):
Provision (benefit) for income taxes .............      5,251          4,979          4,117         (1,401)         5,225
                                                    ----------     ----------     ----------     ----------     ----------
Net income (loss) ................................  $   9,712      $   9,247      $   7,319      $  (3,332)     $   8,758
                                                    =========      =========      =========      =========      =========
OTHER DATA:
EBITDA(5) ........................................  $  21,933      $  24,959      $  36,367      $  40,232      $  64,190
Cash provided by operating activities ............  $  22,572      $  22,841      $  27,033      $  16,046      $  39,258
Cash used in investing activities ................  $  (5,509)     $ (31,968)     $(125,702)     $ (56,666)     $ (15,324)
Cash provided by (used in) financing activities...  $ (14,883)     $   6,699      $ 145,685      $   8,491      $ (11,765)
Capital expenditures .............................  $   5,514      $  32,187      $ 125,722      $  57,736      $  15,492
Distributions to partners(6) .....................  $  25,823      $  58,660      $      --      $      --      $      --
</TABLE>

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

See Footnotes to Selected Financial Data.



                                       16


<PAGE>   17

ITEM 6. SELECTED FINANCIAL DATA --(CONTINUED)

<TABLE>
<CAPTION>
                                                   AS OF DECEMBER 31,
                              ------------------------------------------------------------
                                1994         1995       1996(1)        1997        1998
                              --------     --------     --------     --------     --------
                                                    (DOLLARS IN THOUSANDS)
<S>                           <C>          <C>          <C>          <C>          <C>     
BALANCE SHEET DATA:
Cash and cash equivalents ..  $ 16,967     $ 14,539     $ 61,555     $ 29,426     $ 41,595
Total assets ...............   134,295      152,216      374,122      366,861      367,034
Total long-term debt(7) ....    11,776       83,357      195,764      207,173      199,954
Stockholder's equity .......    87,781       43,334      100,678       97,346      102,918
</TABLE>


FOOTNOTES TO SELECTED FINANCIAL DATA

(1)     The Orleans opened in December 1996

(2)     Includes casino, food and beverage, hotel and other expenses.

(3)     Prior to the Company's formation in 1995, the Gold Coast and the Barbary
        Coast were operated by two affiliated partnerships which were
        consolidated into the Company and Coast Resorts effective January 1,
        1996. The partnership agreements for those partnerships required that
        guaranteed payments be made to the partners.

(4)     The Predecessor Partnerships were not subject to federal income taxes.
        As a result of the Reorganization, the operations of the Gold Coast and
        the Barbary Coast are being conducted by the Company, which has been
        formed as a "C Corporation" and, therefore, is subject to federal income
        taxes. A pro forma provision for federal income taxes has been made, and
        pro forma net income has been calculated for all periods presented as if
        the Predecessor Partnerships had been treated as a C corporation during
        those periods.

(5)     "EBITDA" means earnings before interest, taxes, depreciation,
        amortization, deferred (non-cash) rent expense and certain non-recurring
        items, including pre-opening expenses. EBITDA should not be construed as
        an alternative to operating income or net income (as determined in
        accordance with generally accepted accounting principles) as an
        indicator of the Company's operating performance, or as an alternative
        to cash flows generated by operating, investing and financing activities
        (as determined in accordance with generally accepted accounting
        principles) as an indicator of the Company's operating performance, or
        as an alternative to cash flows generated by operating, investing, and
        financing activities (as determined in accordance with generally
        accepted accounting principles) as an indicator of cash flows or a
        measure of liquidity. EBITDA is presented solely as supplemental
        disclosure because management believes it is a widely used measure of
        operating performance in the gaming industry. All companies do not
        calculate EBITDA in the same manner. As a result, EBITDA as presented
        here may not be comparable to the similarly titled measures presented by
        other companies. The computation of EBITDA for each of the respective
        periods shown is as follows:

<TABLE>
<CAPTION>
                                                                               YEARS ENDED DECEMBER 31,
                                                            ----------------------------------------------------------------
                                                              1994          1995         1996(1)        1997          1998
                                                            --------      --------      --------      --------      --------
                                                                                 (DOLLARS IN THOUSANDS) 
<S>                                                         <C>           <C>           <C>           <C>           <C>     
Income (loss) before income taxes .....................     $ 14,963      $ 14,226      $ 11,436      $ (4,733)     $ 13,983
Add back:
  Interest expense, net ...............................          227         3,545         9,981        25,228        26,570
  Depreciation and amortization .......................        6,766         7,280         7,883        18,278        20,607
  Pre-opening expenses ................................           --            --         7,125            --            --
  Non-recurring items (gain on equipment disposals)....          (23)          (92)          (58)         (919)         (168)
  Deferred (non-cash) rent  expense ...................           --            --            --         2,378         3,198
                                                            --------      --------      --------      --------      --------
EBITDA.................................................      $21,933      $ 24,959      $ 36,367      $ 40,232      $ 64,190
                                                            ========      ========      ========      ========      ========
</TABLE>



                                       17


<PAGE>   18



ITEM 6. SELECTED FINANCIAL DATA --(CONTINUED)

(6)     Because the Gold Coast Partnership and the Barbary Coast Partnership
        were partnerships during these periods, a substantial portion of their
        net income was distributed to the partners. In 1994, the Barbary Coast
        Partnership distributed $11.0 million of partners' capital in the form
        of notes payable and, in 1995, the Gold Coast Partnership distributed
        $50.0 million of partners' capital in the form of notes payable. Such
        distributions represented previously taxed but undistributed earnings of
        the Predecessor Partnerships.

(7)     Excludes current maturities.

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

RESULTS OF OPERATIONS

        The following table sets forth, for the periods indicated, certain
financial information regarding the historical results of the Company:

<TABLE>
<CAPTION>
                                                         DECEMBER 31,
                                            --------------------------------------
                                               1996           1997          1998
                                            ---------      ---------     ---------
                                                    (DOLLARS IN THOUSANDS)
<S>                                         <C>            <C>           <C>      
GOLD COAST
  Net operating revenues ................   $ 140,548      $ 126,490     $ 128,509
  Operating income ......................      28,975         22,603        24,947
  EBITDA(1) .............................      33,609         27,403        29,916
  Cash provided by operating activities..      35,582         28,135        27,968

BARBARY COAST
  Net operating revenues ................   $  49,419      $  44,610     $  43,609
  Operating income ......................       4,155          1,034         1,977
  EBITDA(1) .............................       5,800          2,627         3,760
  Cash provided by operating activities..       5,954          2,438         2,362

THE ORLEANS
  Net operating revenues ................   $   6,020      $ 122,783     $ 160,245
  Operating income (loss) ...............      (5,859)         3,098        21,600
  EBITDA(1) .............................       1,669         15,946        36,324
  Cash provided by (used in) operating 
    Activities ..........................        (238)         9,142        37,912

TOTAL (INCLUDING CORPORATE)
  Net operating revenues ................   $ 195,987      $ 293,883     $ 332,363
  Operating income ......................      21,359         19,576        40,385
  EBITDA(1) .............................      36,367         40,232        64,190
  Cash provided by operating activities..      27,033         16,046        39,258
</TABLE>

(1)     "EBITDA" means earnings before interest, taxes, depreciation,
        amortization, deferred (non-cash) rent expense and certain non-recurring
        items, including pre-opening expenses. EBITDA should not be construed as
        an alternative to operating income or net income (as determined in
        accordance with generally accepted accounting principles) as an
        indicator of the Company's operating performance, or as an alternative
        to cash flows generated by operating, investing and financing activities
        (as determined in accordance with generally accepted accounting
        principles) as an indicator of the Company's operating performance, or
        as an alternative to cash flows generated by operating, investing, and
        financing activities (as determined in accordance with generally
        accepted accounting principles) as an indicator of cash flows or a
        measure of liquidity. EBITDA is presented solely as supplemental
        disclosure because management believes it is a widely used measure of
        operating performance in the gaming industry. All companies do not
        calculate EBITDA in the same manner. As a result, EBITDA as presented
        here may not be comparable to similarly titled measures presented by
        other companies.




                                       18

<PAGE>   19




FISCAL 1998 COMPARED TO 1997

        Net revenues, operating income and net income all improved in the year
ended December 31, 1998, primarily due to improved revenues at The Orleans. Net
revenues in 1998 were $332.4 million compared to $293.9 million in the year
ended December 31, 1997, an increase of 13.1%. Operating income in the year
ended December 31, 1998 was $40.4 million compared to $19.6 million in the prior
year, an increase of 106.1% primarily due to the increased revenues. Operating
expenses increased $17.7 million, mainly as a result of higher casino expenses
due to increased business at our hotel-casinos. Additionally, land lease and
deferred (non-cash) rent expenses increased due to the Coast West lease
expenses, which became consolidated expenses of the Company in July 1998 as a
result of Coast West becoming a subsidiary. Despite an increase in interest
expense due to the issuance of the 10 7/8% first mortgage notes in November 1997
and an increase in the income tax expense, net income increased $12.1 million to
$8.8 million in 1998 compared to a net loss of $3.3 million in 1997.

        The Orleans. The Orleans opened in December 1996 and generated lower
than expected revenues in the first half of 1997. During the second half of
1997, the property expanded its customer base through increased promotional
activities, featuring headliner entertainment in its showroom and, in December
1997, the opening of 12 new movie theaters. For the year ended December 31,
1998, net revenues were $160.2 million compared to $122.8 million in 1997, an
increase of 30.5%. Casino revenues increased 34.3% for the year, primarily as a
result of increased slot machine play. Growth in customer volume led to an
increase in food and beverage revenues of 22.9%. Hotel revenues increased 4.6%
for the year due to increased occupancy and other revenues increased 63.2% in
1998, due primarily to higher showroom revenues. Operating expenses increased
15.8% in 1998, primarily due to increased casino promotional activities. Other
expenses were up 47.6% for the year due principally to the higher-priced
headliner entertainers in the showroom. Depreciation and amortization expense
increased by $1.9 million due to the opening in December 1997 of the movie
theaters, video arcade, child care facility and additional gaming space. Despite
the increase in operating expenses, operating income increased to $21.6 million
in 1998 compared to $3.1 million in 1997.

        Gold Coast. For the year ended December 31, 1998, net revenues were
$128.5 million, an increase of $2.0 million, or 1.6% over 1997 revenues of
$126.5 million. Casino revenues accounted for most of the increase, up 4.8% over
1997 casino revenues, primarily due to increased slot machine play. Operating
income in the year ended December 31, 1998 was $24.9 million, an increase of
$2.3 million, or 10.4%, over 1997 operating income, as operating expenses were
relatively flat, increasing by 0.3% over the previous year.

        Barbary Coast. Net revenues for the year ended December 31, 1998
decreased 2.2% to $43.6 million compared to $44.6 million in the year ended
December 31, 1997, primarily as a result of a decrease in table game wagering
volume, a lower table games win percentage, the removal of live keno and lower
wagering volume in the race book. Despite the lower revenues in 1998, operating
income increased to $2.0 million compared to $1.0 million in 1997, primarily due
to lower casino promotional expenses.

FISCAL 1997 COMPARED TO 1996

        Net revenues were $293.9 million for the year ended December 31, 1997,
an increase of 50.0% over 1996 net revenues of $196.0 million. The increase was
due primarily to the opening of The Orleans on December 18, 1996. Operating
income declined $1.8 million (8.4%) to $19.6 million in 1997 compared to $21.4
million in 1996. The decline was primarily due to lower-than-expected revenues
in 1997 at the Company's newest property, The Orleans, as well as decreased
revenues at the Company's other two hotel-casinos, the Gold Coast and the
Barbary Coast (discussed below). The lower operating income as well as increased
interest expense contributed to a net loss of $3.3 million in 1997 compared to
net income of $4.8 million in 1996.

        The Orleans. The year ended December 31, 1997 was the first full year of
operations for The Orleans, which opened on December 18, 1996. Net revenues for
the fourteen days in 1996 were $6.0 million. Operating income before pre-opening
expenses of $7.1 million was $1.3 million in 1996.



                                       19

<PAGE>   20


        For 1997, net revenues for The Orleans were $122.8 million. Net revenues
were $27.4 million for the quarter ended March 31, 1997, the first full quarter
of operations. Net revenues were $30.7 million in the second quarter, $29.6
million in the third quarter and $35.1 million in the quarter ended December 31,
1997. Operating income for 1997 was $3.1 million, including a first-quarter
operating loss of $2.5 million, operating income of $1.3 million in the second
quarter, operating income of $245,000 in the third quarter and operating income
of $4.1 million in the fourth quarter ended December 31, 1997. The increase in
revenues and operating income since the first quarter is due primarily to
increased casino activity, which management attributes to successful promotions
and an increasing target market familiarity with the property. Table games
customer wagering volume was 9.2% higher in the fourth quarter than in the first
quarter and slot machine customer wagering volume was 31.0% higher in the fourth
quarter than in the first.

        In the first quarter of 1997, the Company began construction on a
series of improvements at The Orleans which included twelve movie theaters, a
child care facility, arcade and additional slot machines. The related
construction traffic reduced access to the property, adversely affecting
operating results at The Orleans. Management believes that, upon completion in
December 1997, the improvements and lack of disruption from construction
positively affected operating results in the fourth quarter.

        Gold Coast. Net revenues for the year ended December 31, 1997 decreased
10.0% to $126.5 million compared to $140.5 million in 1996. Management
attributes the decrease primarily to competition from the opening of The Orleans
approximately one mile from the Gold Coast. Casino revenues declined 10.6% to
$93.1 million in 1997 compared to $104.2 million in 1996, due to lower customer
wagering volume. Food and beverage business decreased as a result of the reduced
customer traffic, causing revenues to decline 12.1% to $25.1 million in 1997
compared to $28.6 million in 1996. In 1997, an increased number of rooms in the
Las Vegas market led to a total room occupancy rate at the Gold Coast of 81.7%
compared to 92.3% in 1996, contributing to a $239,000 (2.3%) decline in hotel
revenues. Gold Coast operating expenses were $103.9 million in 1997, down $7.7
million (6.9%) from $111.6 million in 1996 primarily due to a $9.8 million
(16.5%) reduction in salaries and related costs as management reacted to the
reduced customer volume. Food and beverage expenses declined $3.2 million
(13.3%) and general and administrative expenses declined $3.0 million (11.6%).
Despite lower operating expenses, the reduced revenues contributed to a 22.0%
decrease in operating income to $22.6 million in 1997 compared to $29.0 million
in 1996.

        Barbary Coast. Net revenues for the year ended December 31, 1997
decreased 9.7% to $44.6 million compared to $49.4 million in 1996. Casino
revenues declined 13.1% to $34.6 million in 1997 compared to $39.8 million in
1996, primarily as a result of decreased customer wagering volume and a lower
than expected win percentage on table games and decreased wagering volume in the
race book. Management attributes the decline to a reduction in foot traffic
since the January 1997 opening of New York-New York Hotel and Casino one mile
south of the Barbary Coast on the Las Vegas Strip as well as to increased
competition from other recently opened or expanded hotel-casinos (including The
Orleans). Food and beverage revenues increased $837,000 (8.6%) in 1997 primarily
as a result of higher drink prices in the bars. The increase in food and
beverage revenues was partially offset by an increase of $664,000 (11.3%) in
food and beverage expenses. Hotel room revenues declined $367,000 (9.1%) due
primarily to lower average room rates as management reacted to increasing
competition. Operating income at the Barbary Coast declined 75.1% to $1.0
million in 1997 compared to $4.2 million in 1996, primarily as a result of the
decreased revenues discussed above.

        Depreciation and amortization expense increased by 132.0% in 1997
compared to 1996, principally due to the opening of The Orleans in December
1996. Net interest expense increased 152.8% in 1997 primarily due to decreases
in capitalized interest and interest income. Capitalized interest was $7.5
million in 1996 during the construction of The Orleans, but was only $1.0
million in 1997 during the construction of phase two of The Orleans.
Additionally, the proceeds from the sale of $175 million in 13% first mortgage
notes the Company earned interest income of $4.8 million in 1996, but were
substantially utilized by the end of 1996.




                                       20

<PAGE>   21


        Gain on disposal of equipment was approximately $919,000 in 1997
compared to $58,000 in 1996, primarily due to a crash of the Company's
Beechcraft Super King Air aircraft which, after receipt of insurance proceeds,
resulted in a gain of $785,000.

LIQUIDITY AND CAPITAL RESOURCES

        The Company's principal sources of liquidity have consisted of cash
provided by operating activities and debt financing. Cash provided by operating
activities increased to $39.3 million in 1998, an increase of $23.2 million over
1997, primarily due to the Company's increased profitability discussed above.


        On January 30, 1996, the Company issued $175.0 million principal amount
of 13% first mortgage notes due 2002 ("13% First Mortgage Notes"). Additionally,
in November 1997, the Company issued $16.8 million principal amount of 10 7/8%
first mortgage notes due November 1, 2001 ("10 7/8% First Mortgage Notes"). The
indentures pursuant to which the 13% First Mortgage Notes and 10 7/8% First
Mortgage Notes were issued contain covenants that, among other things, limit the
ability of the Company to pay dividends or make advances to Coast Resorts, repay
existing indebtedness, incur additional indebtedness, or sell material assets as
defined in the indenture.

        On February 19, 1999, the Company commenced a tender offer and consent
solicitation with respect to the 13% First Mortgage Notes. The tender offer,
which is subject to certain conditions, will expire on March 22, 1999, unless
extended. In the consent solicitation, we obtained consents to eliminate most
financial and restrictive covenants in the indenture and related security
agreement. The amendments will become operative if the tender offer is
consummated. The Company currently intends to issue senior subordinated notes
and enter into a credit facility with a $75.0 million availability to fund the
purchase of 13% First Mortgage Notes in the tender offer. The senior
subordinated notes are expected to be issued in an offering that will not be
registered under the Securities Act of 1933, as amended, and may not be offered
or sold in the United States absent registration or an applicable exemption from
the registration requirements. No assurance can be given that we will issue the
senior subordinated notes, enter into a credit facility or complete the tender
offer to refinance the 13% First Mortgage Notes. If we complete the tender
offer, we also expect to repurchase the 10 7/8% First Mortgage Notes.

        Our cash requirements, in addition to interest payments on outstanding
indebtedness, include annual principal payments of approximately $7.8 million on
equipment notes payable, land lease payments of approximately $4.3 million,
capital expenditures of approximately $10.2 million to complete an expansion of
The Orleans and ongoing maintenance capital expenditures and periodic
enhancements at our existing facilities. Our maintenance capital expenditures
for 1998 were approximately $13.0 million and we currently expect that we will
spend approximately $11.0 million for maintenance capital expenditures in 1999.
We believe that existing cash balances and operating cash flow will provide
sufficient resources to meet our debt obligations and foreseeable capital
expenditure requirements at our existing properties.

        We are currently developing and intend to construct and open the
Suncoast. We do not yet have financing in place to fund the construction of the
Suncoast. Subject to obtaining adequate financing, we currently anticipate that
construction of the Suncoast will begin in mid-1999. If we enter into a new
credit facility, we expect it will contain a provision that would allow us to
increase, with lender approval, the available borrowing capacity under the
facility to up to $200.0 million. We intend to use this increased capacity to
finance construction costs. The availability of the additional $125.0 million
will be reduced in quarterly amounts beginning the fiscal quarter ending June
30, 2001. The increase in the facility remains subject to a number of
contingencies, including lender approval and the negotiation of additional terms
relating to the construction. We cannot assure you that we will be able to
obtain the increase in the new credit facility or that it will be available on
acceptable terms.

        Except as described in this Annual Report on Form 10-K, the Company has
no agreements, arrangements or understandings with respect to financing the
future development of additional properties or capital improvements 




                                       21

<PAGE>   22


to existing properties. Any future development or capital improvements would be
subject to, among other things, the Company's ability to obtain necessary
financing.

IMPACT OF INFLATION

        Absent changes in competitive and economic conditions or in specific
prices affecting the industry, the Company does not expect that inflation will
have a significant impact on the Company's operations. Change in specific
prices, such as fuel and transportation prices, relative to the general rate of
inflation may have a material adverse effect on the hotel and casino industry.

REGULATION AND TAXES

        The Company is subject to extensive regulation by the Nevada gaming
authorities. Changes in applicable laws or regulations could have a significant
impact on the Company's operations. In 1996, legislation was enacted which
established a federal commission to study the gaming industry.

        The gaming industry represents a significant source of tax revenues,
particularly to the State of Nevada and its counties and municipalities. From
time to time, various state and federal legislators and officials have proposed
changes in tax law, or in the administration of such law, affecting the gaming
industry. Proposals in recent years that have not been enacted included a
federal gaming tax and increases in state or local taxes.

        Management believes that the Company's recorded tax balances are
adequate. However, it is not possible to determine with certainty the likelihood
of possible changes in tax law or in the administration of such law. Such
changes, if adopted, could have a material adverse effect on the Company's
operating results.

        During 1997, the Company recorded a tax benefit of $1.4 million in
relation to its loss before income taxes of $4.7 million. This benefit
represents an amount carried-back to prior taxable income.

IMPACT OF THE YEAR 2000 ISSUE

        Many currently installed computer systems and other equipment with
embedded computer chips cannot recognize dates after December 31, 1999.
Beginning in the year 2000, companies with such systems, software or equipment
may experience difficulties due to their reliance on them. This situation
involving the year 2000 is commonly referred to as the "Y2K" problem.

        We utilize computer systems in virtually all areas of our hotel-casino
operations. Should we or certain of our vendors not be "Y2K compliant," the
operations of our hotel-casinos could be disrupted for an indeterminate period
of time, potentially having a material adverse impact on our results of
operations. Possible consequences of our not being Y2K compliant include, but
are not limited to, problems with the compiling of financial information in our
back-office accounting, purchasing, inventory and payroll systems. Additionally,
disruptions could occur to hotel reservations operations, hotel
check-in/check-out procedures, point-of-sale transactions in food, beverage and
retail areas, race and sports book wagering and the updating and accumulation of
slot machine player marketing information. Additionally, embedded microchips in
certain systems such as elevators, escalators and the heating, ventilation and
air conditioning could lead to interruptions in service. All of these problems
could inconvenience hotel and casino customers, resulting in a loss of business.

        We could also be exposed to Y2K problems should certain of our suppliers
have disruptions to their operations due to Y2K problems. We do not consider
these problems to be as significant as those with our own systems because in
most instances we could find alternate vendors for our supplies, but Y2K
problems for certain suppliers, such as utility providers, could result in
disruptions to hotel-casino operations for an indeterminate period of time.
Additionally, should providers of financial services such as ATM's, credit card
processing and credit card cash advance experience Y2K problems, our operations
could be adversely affected.

        We recognize the need to ensure our operations will not be adversely
affected by Y2K and have taken steps to update our systems, where necessary,
including replacing or updating software and equipment. Since 1997, our
Management Information Systems department has attempted to identify all areas
where Y2K could pose a problem. 




                                       22

<PAGE>   23


To assist them in their effort and to further help identify potential problems
areas, in October 1998 we retained the services of an advisor to review our Y2K
program.

        As of December 31, 1998, we have identified and updated or are in the
process of updating those systems and programs that we deem most critical to the
day-to-day operations of our hotel-casinos. We currently use Year 2000 compliant
software for our accounting, human resources, payroll, inventory, and purchasing
systems. Based on representations from our vendors, we anticipate that our other
essential computer systems, including our hotel front desk and reservations,
retail point of sale, bowling center, race and sports wagering and casino player
tracking and marketing systems, will be Y2K compliant by July 1999, although no
assurances can be made to that effect. We estimate that the total cost to
identify and correct potential Y2K problems will be approximately $1.6 million,
approximately $300,000 of which has been spent as of December 31, 1998. All
costs related to software modifications, as well as all costs associated with
our Y2K project, are being expensed as incurred and are included in the cost
estimate referred to above. As of December 31, 1998 we have begun developing
contingency plans for specific areas for our operations. Such plans include the
training of employees in the implementation of manual procedures for gaming
operations, the selection of alternative vendors and the testing of back-up
electrical power generators. We will continue to assess Y2K risk and develop
contingency plans.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        The report of independent accountants, financial statements and
financial statement schedule listed in the accompanying index are filed as part
of this report. See "Index to Financial Statements."

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

        None.



                                       23

<PAGE>   24



                                    PART III

ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT.

         The following table sets forth the names and ages of the directors and
executive officers of the Company and their respective positions as of December
31, 1998.

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

<S>                              <C>    <C>
Michael J. Gaughan               55     Director, Chairman of the Board and Chief Executive
                                        Officer


Harlan D. Braaten                48     Director, President and Chief Operating Officer
                             


Jerry Herbst                     60     Director, Vice President, Treasurer and Assistant
                                        Secretary


J. Tito Tiberti                  53     Director, Vice President and Secretary
                             


Gage Parrish                     45     Director, Vice President, Chief Financial Officer
                                        and Assistant Secretary


Franklin Toti                    60     Director, Vice President of Casino Operations
                             


F. Michael Corrigan              62     Director
                             


Charles Silverman                66     Director
                             


Joseph Blasco                    55     Director
                             
</TABLE>



         MICHAEL J. GAUGHAN. Mr. Gaughan has been a director of the Company
since its formation in September 1995 and is the Chairman of the Board and Chief
Executive Officer of the Company. His current term as a director expires in
2000. He is also a director and Chairman of the Board and Chief Executive
Officer of Coast Resorts, Inc. Mr. Gaughan was a general partner of the Barbary
Coast Partnership from its inception in 1979 until January 1, 1996, the
effective date of the reorganization in which the Barbary Coast Partnership and
the Gold Coast Partnership consolidated with Coast Resorts and the Company (the
"Reorganization"). Mr. Gaughan served as the managing general partner of the
Gold Coast Partnership from its inception in December 1986 until the effective
date of the Reorganization. Mr. Gaughan and Mr. Herbst were the sole
stockholders of Gaughan-Herbst, Inc., which was the sole corporate general
partner of the Gold Coast Partnership prior to the Reorganization. Mr. Gaughan
has been involved in the gaming industry since 1960 and has been licensed as a
casino operator since 1967.

         HARLAN D. BRAATEN. Mr. Braaten joined the Company as the President,
Chief Financial Officer and a director in October 1995, and was appointed Chief
Operating Officer in February 1996. His current term as a director expires in
2000. Mr. Braaten is also the President and Chief Operating Officer of Coast
Resorts. Prior to joining the Company, Mr. Braaten was employed in various
capacities, including the general manager and, most recently, senior vice
president, treasurer and chief financial officer of Rio Hotel and Casino, Inc.
in Las Vegas. From March 1989 to February 1991, Mr. Braaten was vice president,
finance of MGM/Marina Hotel and Casino in Las Vegas, Nevada. Prior thereto, from
November 1983 to March 1989, Mr. Braaten was property controller for Harrah's in
Reno, Nevada. Mr. Braaten has over 20 years of experience in the Nevada gaming
industry.

         JERRY HERBST. Mr. Herbst has been a director, Vice President, Treasurer
and Assistant Secretary of the Company since its formation in September 1995.
His current term as a director expires in 1999. Mr. Herbst has been the
president of Terrible Herbst Oil Company, an owner and operator of gas stations
and car washes, since 1959. Mr. Herbst and Mr. Gaughan were the sole
stockholders of Gaughan-Herbst, Inc., which was the sole 





                                       24

<PAGE>   25



corporate general partner of the Gold Coast Partnership prior to the formation
of the Company. Mr. Herbst has served as a member of the board of directors of
Bank of America--Nevada since 1977, of Nevada Power Company since 1990 and of
Edelbrook Corporation since 1994.

         J. TITO TIBERTI. Mr. Tiberti has been a director, Vice President and
Secretary of the Company since its formation in September 1995. His current term
as a director expires in 1999. He is also a director and Vice President and
Secretary of Coast Resorts. Mr. Tiberti is the president, a director and a
stockholder of, and together with his immediate family, controls Tiberti
Construction, a construction company which served as the general contractor for
the construction of The Orleans and is also serving as general contractor for
the Suncoast. He has also served as managing general partner of The Tiberti
Company, a real estate rental and development company, since 1971. The Tiberti
Company is the lessor of the real property site for The Orleans. Mr. Tiberti has
been involved in the gaming industry for 19 years and was a general partner of
the Barbary Coast Partnership prior to the formation of the Company.

        GAGE PARRISH. Mr. Parrish was named Vice President, Finance, Assistant
Secretary and a director of the Company and Coast Resorts in October 1995 and
was promoted to Chief Financial Officer in February 1996. His current term as a
director expires in 2000. Since 1986, he had been the Controller and Chief
Financial Officer of the Gold Coast Partnership prior to the formation of the
Company. From 1981 to 1986, Mr. Parrish served as Assistant Controller of the
Barbary Coast Partnership. Mr. Parrish is a certified public accountant and has
approximately 20 years of experience in the gaming industry.

         FRANKLIN TOTI. Mr. Toti has been a director of the Company and Coast
Resorts since October 5, 1998. His current term expires in 1999. He has been
Vice President of Casino Operations for the Company since January 1, 1996. Mr.
Toti was a general partner and Casino Manager of the Barbary Coast Partnership
from its inception in 1979 until January 1, 1996, the effective date of the
reorganization. Mr. Toti has 38 years of experience in the gaming industry.

         F. MICHAEL CORRIGAN. Mr. Corrigan was elected as a director of the
Company and Coast Resorts effective as of March 1, 1996. His current term as a
director expires in 2001. Since July 1989, Mr. Corrigan has served as the chief
executive officer of Corrigan Investments, Inc., which owns and manages real
estate in Nevada and Arizona. In addition, Mr. Corrigan is the Chief Executive
Officer of Corstan, Inc., a mortgage banking company, and was previously the
owner, President and Chief Operating Officer of Stanwell Mortgage, a Las Vegas
mortgage company.

         CHARLES SILVERMAN. Mr. Silverman was elected as a director of the
Company and Coast Resorts effective as of March 1, 1996. His current term as a
director expires in 2001. Mr. Silverman is the President and sole stockholder of
Yates-Silverman, Inc., which specializes in developing theme-oriented interiors
and exteriors and is a leading designer of hotels and casinos. Completed
projects of Yates-Silverman, Inc. include New York-New York, Excalibur, Circus
Circus, Luxor, the Trump Taj Mahal, Trump Castle and Atlantic City Showboat.
Yates-Silverman, Inc. also served as the primary designer for The Orleans and is
serving in the same capacity for the Suncoast. Mr. Silverman has served as the
president of Yates-Silverman, Inc. since its inception in 1971.

         JOSEPH BLASCO. Mr. Blasco was elected as a director of the Company and
Coast Resorts effective as of December 16, 1996. His current term as a director
expires in 2001. Since 1984, Mr. Blasco has been a partner in the real estate
development partnership which developed the Spanish Trail community in Las
Vegas, a project which includes over 1,200 homes, a 27-hole golf course and a
country club. Mr. Blasco is currently the managing General Partner of United
Realty Investments, a real estate development and management company in Las
Vegas. He is also general partner in two real estate development partnerships,
Summer Trail LLC and Trop-Edmond Ltd.

         Directors of the Company who are also employees of the Company or Coast
Resorts receive no compensation for service on the Company's Board of Directors
or its committees. All other directors receive an annual director's fee of
$24,000, payable quarterly in arrears. Directors may also be reimbursed for
out-of-pocket expenses incurred in connection with attending Board of Director
or committee meetings.




                                       25

<PAGE>   26



ITEM 11. EXECUTIVE COMPENSATION.

         The following table sets forth all compensation earned by or paid by
the Company during 1996, 1997 and 1998 to each executive officer (the "Named
Executive Officers") whose compensation exceeded $100,000 in all capacities in
which they served.

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                            ANNUAL COMPENSATION
                                            --------------------------------------------------
                                                                                  ALL OTHER
NAME AND PRINCIPAL POSITION                 YEAR      SALARY      BONUS        COMPENSATION(1)
                                            ----     --------     ------       ---------------
<S>                                         <C>      <C>          <C>          <C>     
Michael J. Gaughan.......................   1998     $300,000     $     --        $  5,000
Chairman of the Board and Chief             1997      300,000           --           4,750
Executive Officer of the Company;           1996      300,000      195,000           4,750


Harlan D. Braaten........................   1998      250,000      125,000           5,000
President and Chief Operating               1997      250,000      250,000(3)        4,750
Officer, the Company(2)                     1996      250,000      162,500              --

Gage Parrish............................    1998      200,000           --           5,000
Vice President, Chief Financial Officer     1997      200,000           --           4,750
and Assistant Secretary of the              1996      150,000       52,500           3,040
Company(4)
</TABLE>

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

(1)      The amounts reflect matching contributions paid to the Company's 401(k)
         Profit Sharing Plan and Trust.

(2)      Mr. Braaten joined the Company in October 1995 as President and Chief
         Financial Officer of the Company and Coast Resorts. Mr. Braaten was
         appointed as Chief Operating Officer of the Company and Coast Resorts
         in February 1996.

(3)      Pursuant to his previous employment agreement, Mr. Braaten received a
         bonus of $250,000 because Coast Resorts had not made a public offering
         of its common stock by December 31, 1997. Mr. Braaten entered into a
         new employment agreement effective as of January 1, 1999.

(4)      Mr. Parrish served as Vice President, Finance and Controller of the
         Company and Coast Resorts from September 1995 to February 1996, when
         Mr. Parrish was named Chief Financial Officer of the Company and Coast
         Resorts.

EMPLOYMENT AGREEMENT

         Effective as of January 1, 1999, the Company entered into an employment
agreement with Harlan Braaten, President and Chief Operating Officer. The
agreement has a term of three years and provides for Mr. Braaten to receive a
base salary of $250,000 for the first year and $300,000 for the second year. The
agreement may be terminated upon 30 days notice by Mr. Braaten and at any time
by the Company. In addition, in the event of a termination of Mr. Braaten's
employment other than for failure to comply with Nevada gaming regulations,
failure to perform his duties, medical incapacity or his arrest on a felony
offense, Mr. Braaten will be entitled to receive a severance payment in the
amount of $300,000 plus any pro rata bonus payment and unvested stock options to
which he is entitled. Pursuant to the arrangement, the Company granted Mr.
Braaten options to purchase 30,415 shares of Coast Resorts, Inc. for $100 per
share. The option vested as to one-third of the shares on the grant date,
January 1, 1999, and will vest with respect to half of the remaining shares, on
each of the first and second anniversaries of the grant date.




                                       26


<PAGE>   27



BONUS PLAN

         In 1996, the Company established a bonus plan designed to reward
executive officers and other key employees for their contributions to the
Company's business objectives and operating results. Bonuses may be awarded in
the discretion of the Board of Directors based upon achievement of financial
targets established by the Board of Directors on an annual basis, and generally
will be equal to a percentage of the recipient's base salary, depending on the
target achieved.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

         All of our outstanding capital stock is owned by our parent company,
Coast Resorts, Inc.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

         We maintain numerous racetrack dissemination contracts with Las Vegas
Dissemination Company, Inc. ("LVD"). Michael J. Gaughan's son is the president
and sole stockholder of LVD. LVD provides certain dissemination and pari-mutuel
services to The Orleans, the Gold Coast and the Barbary Coast. LVD has been
granted a license by the Nevada Gaming Authorities to disseminate live racing
for those events and tracks for which it contracts and has been granted the
exclusive right to disseminate all pari-mutuel services and race wire services
in the State of Nevada. Under these dissemination contracts, we pay to LVD an
average of 3% of the wagers accepted for races held at the racetracks covered by
the respective contracts. We also pay to LVD a monthly fee for race wire
services. For the fiscal years ended December 31, 1996, 1997 and 1998, we
incurred expenses payable to LVD of approximately $889,000, $1.1 million and
$3.1 million, respectively. The terms on which such services are provided are
regulated by the Nevada Gaming Authorities.

         Tiberti Construction served as the general contractor for the original
construction of the Gold Coast and for certain expansions thereof, and for the
original construction of the Barbary Coast and all expansions thereof. Tiberti
Construction was also the general contractor for the original construction of
The Orleans, and the 1997 and 1999 expansions. J. Tito Tiberti owns
approximately 6.4% of the outstanding common stock of Coast Resorts, and is a
director, Vice President and Secretary of the Company and Coast Resorts. Mr.
Tiberti is the president, a director and stockholder of, and together with his
immediate family members, controls Tiberti Construction. For the years ended
December 31, 1996, 1997 and 1998, we incurred expenses payable to Tiberti
Construction of approximately $80.3 million, $26.2 million and $3.7 million,
respectively.

         We have entered into a ground lease with The Tiberti Company, a Nevada
general partnership, with respect to the real property on which The Orleans is
located. Mr. Tiberti, a director of the Company and a director and stockholder
of Coast Resorts, is the managing partner of The Tiberti Company. For the fiscal
years ended December 31, 1996, 1997 and 1998, we paid rental expenses to The
Tiberti Company of approximately $3.0 million, $2.1 million and $2.4 million,
respectively.

         Michael J. Gaughan, Franklin Toti and Leo Lewis are the owners of LGT
Advertising, which serves as our advertising agency. LGT Advertising purchases
advertising for our casinos from third parties and passes any discounts directly
through to us. LGT Advertising receives no compensation or profit for such
activities, and invoices us for actual costs incurred. LGT Advertising uses our
facilities and employees in rendering its services, but does not pay any
compensation to us for such use. None of Messrs. Gaughan, Toti or Lewis receives
any compensation from LGT Advertising. Advertising expenses amounted to
approximately $3.8 million, $7.5 million and $6.0 million for the years ended
December 31, 1996, 1997 and 1998, respectively.

         We have purchased certain of our equipment and inventory for our
respective operations from RJS Inc., a Nevada corporation that is owned by
Michael J. Gaughan's father and Steven Delmont, our restaurant manager. RJS
invoices us for actual costs incurred. For the fiscal years ended December 31,
1996, 1997 and 1998, we incurred expenses payable to RJS of approximately $4.1
million, $1.4 million and $829,000, respectively.



                                       27


<PAGE>   28


         Michael J. Gaughan is the majority stockholder of Nevada Wallboards,
Inc., a Nevada corporation ("Nevada Wallboards"), which prints wallboards and
parlay cards for the use in our race and sports books. Mr. Gaughan receives no
compensation from Nevada Wallboards. We expect to continue to purchase
wallboards and parlay cards from Nevada Wallboards. For the fiscal years ended
December 31, 1996, 1997 and 1998, we incurred expenses payable to Nevada
Wallboards of approximately $145,000, $198,000 and $186,000, respectively.

         Charles Silverman, a director of the Company and Coast Resorts, is the
president of Yates-Silverman, Inc., which served as the designer of The Orleans
and is serving as the designer for the Suncoast. For the fiscal years ended
December 31, 1996, 1997 and 1998, we incurred expenses payable to
Yates-Silverman of $508,000, $177,000 and $500,000, respectively.

         The partnership that owned Barbary Coast prior to 1997 had from time to
time borrowed funds from Exber, Inc., a Nevada corporation ("Exber") which owns
the El Cortez Hotel & Casino. Exber is controlled by Jackie Gaughan, Michael J.
Gaughan's father. Jackie Gaughan, Jr., Michael J. Gaughan's brother, serves on
the Board of Directors of Exber. Irving Kenneth Epstein, a stockholder of Coast
Resorts and Vice President of the Company, is a stockholder of Exber. Michael J.
Gaughan has no ownership interest in Exber.

         In February 1991, the Barbary Coast Partnership borrowed $7.5 million
from Exber, the proceeds of which were used to purchase slot machines and for
working capital purposes. The Barbary Coast Partnership repaid all outstanding
principal and interest on such indebtedness in January 1995. Also in January
1995, the Barbary Coast Partnership borrowed an additional $3.0 million from
Exber (the "1995 Exber Loan"). The proceeds from the 1995 Exber Loan were used
to purchase slot machines, to refinance approximately $465,000 outstanding under
the 1991 indebtedness and for working capital purposes. As of December 31, 1996,
nothing was owed to Exber, Inc. During the fiscal year ended December 31, 1996,
we paid to Exber total principal of $1.3 million and interest of $37,000.

         In addition, Exber provided laundry services to the Gold Coast and the
Barbary Coast. We terminated our laundry services contract with Exber effective
October 31, 1996. During the fiscal year ended December 31, 1996, we incurred
total expenses payable to Exber of approximately $864,000.

         In July 1995, the Barbary Coast Partnership borrowed an aggregate
amount of $1.5 million from Michael J. Gaughan which is evidenced by demand
promissory notes. The proceeds of the demand notes were used by the Barbary
Coast Partnership for working capital purposes. The demand notes accrued
interest at 6% per annum, commencing August 1, 1995, and were payable on demand.
In the Reorganization, Coast Resorts assumed the demand notes in exchange for
14,118 shares of Coast Resorts common stock.

         From July 1991 through December 1996, we leased the main sign at the
Barbary Coast from Desert Ltd., a Nevada general partnership. Michael J.
Gaughan, J. Tito Tiberti and Franklin Toti own 50%, 25% and 25%, respectively,
of Desert Ltd. The lease provided for monthly rental payments of $13,700 through
July 1998. The lease also provided us with an option to purchase the sign at any
time prior to the end of the lease term or within thirty days thereafter for a
purchase price equal to its fair market value. We exercised the option to
purchase the sign in December 1996 for $233,000. For the year ended December 31,
1996, we made rental payments to Desert Ltd. of approximately $164,000.

         The Company expects to promote The Orleans by advertising The Orleans
name on a NASCAR race car operated by Brendan Gaughan on the Winston West
Circuit. The Company expects to spend approximately $300,000 in connection with
this promotion. Brendan Gaughan is the son of Michael J. Gaughan.

         The foregoing transactions are believed to have been on terms no less
favorable to us than could have been obtained from unaffiliated third parties
and were approved by a majority of our disinterested directors. Any future
transactions between us and our officers, directors, principal stockholders or
affiliates will be on terms no less favorable to us than may be obtained from
unaffiliated third parties, and will be approved by a majority of our
disinterested directors.





                                       28


<PAGE>   29



                                     PART IV

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

(a)      Financial Statements, Financial Statement Schedules and Exhibits

<TABLE>
<CAPTION>
                                                                         Page
                                                                        -----
<S>      <C>                                                            <C>
1.       Financial Statements Index                                      F-1
                                                                         
         See Index to Financial Statements on page F-1.

2.       Financial Statement Schedule Index:
         Schedule II - Valuation and Qualifying Accounts                 F-31

3.       Exhibits

   *2.1  Agreement and Plan of Reorganization dated as of September 29, 1995,
         among Coast Resorts, Inc., the Gold Coast Hotel and Casino, a Nevada
         limited partnership, the Barbary Coast Hotel and Casino, a Nevada
         general partnership, and Gaughan-Herbst, Inc., a Nevada corporation

  **2.2  Supplement to Agreement and Plan of Reorganization dated as of December
         22, 1995, among Coast Resorts, Inc., the Gold Coast Hotel and Casino, a
         Nevada limited partnership, the Barbary Coast Hotel and Casino, a
         Nevada general partnership, and Gaughan-Herbst, Inc., a Nevada
         corporation

   *3.1  Articles of Incorporation of Coast Resorts, Inc.
   
   *3.2  Bylaws of Coast Resorts, Inc.

***10.1  Indenture dated as of January 30, 1996, among Coast Hotels and Casinos,
         Inc., the Guarantors, and American Bank National Association, as
         Trustee.

***10.2  Registration Rights Agreement dated as of January 30, 1996 among Coast
         Hotels and Casinos, Inc., the Guarantors, and Bear, Stearns & Co. Inc.
         and BA Securities, Inc.

***10.3  Form of Note (included in Exhibit 4.1)

***10.4  Note Guarantee of Coast Resorts, Inc.

***10.5  Note Guarantee of Coast West, Inc.

***10.6  Deed of Trust, Assignment of Rents, Leases and Security Agreement dated
         January 30, 1996 of Coast Hotels and Casinos, Inc.

***10.7  Leasehold Deed of Trust, Assignment of Rents, Leases and Security
         Agreement dated January 30, 1996 of Coast West, Inc.

***10.8  Security Agreement dated January 30, 1996 (Coast Hotels and Casinos,
         Inc.)

***10.9  Security Agreement dated January 30, 1996 (Coast West, Inc.)

***10.10 Stock Pledge and Security Agreement dated January 30, 1996 (Coast
         Resorts, Inc.)

***10.11 Disbursement and Escrow Agreement dated January 30, 1996

***10.12 Pledge and Escrow Agreement dated January 30, 1996

***10.13 Collateral Assignment of Contracts dated January 30, 1996

***10.14 Escrow Agreement dated January 30, 1996

***10.15 Unsecured Environmental Indemnification Agreement (Coast Hotels and
         Casinos, Inc.)

***10.16 Unsecured Environmental Indemnification Agreement (Coast West, Inc.)

***10.17 Tax Sharing Agreement dated as of January 30, 1996

***10.18 Agreement Between Owner and Contractor dated as of January 24, 1996,
         between J.A. Tiberti Construction Co., Inc. and Coast Hotels and
         Casinos, Inc.

  *10.19 Ground Lease dated as of October 1, 1995, between The Tiberti Company,
         a Nevada general partnership, and Coast Hotels and Casinos, Inc. (as
         successor of Gold Coast Hotel and Casino, a Nevada limited partnership)

  *10.20 Lease Agreement dated May 1, 1992, by and between Empey Enterprises, a
         Nevada general partnership, as lessor, and the Barbary Coast Hotel &
         Casino, a Nevada general partnership, as lessee

  *10.21 Ground Lease Agreement dated October 28, 1994 by and among 21 Stars,
         Ltd., a Nevada limited liability company, as landlord, Barbary Coast
         Hotel & Casino, a Nevada general partnership, as tenant, Wanda Peccole,
         as successor trustee of the Peccole 1982 Trust dated February 15, 1982
         ("Trust), and The William Peter and Wanda Ruth Peccole Family Limited
         Partnership, a Nevada limited partnership ("Partnership"), and,
         together with Trust, as owner, as amended

</TABLE>

                                       30

<PAGE>   30

<TABLE>
<CAPTION>
                                                                                   Page
                                                                                   -----
<S>      <C>                                                                       <C>

***10.22 Form of Subordination Agreement with former Gold Coast partners that
         hold Subordinated Notes

  *10.23 Lease dated as of November 1, 1982, by and between Nevada Power
         Company, a Nevada Corporation as landlord, and Barbary Coast Hotel and
         Casino, a Nevada general partnership

  *10.24 Leasehold Deed of Trust, Assignment of Rents and Security Agreement
         dated February 13, 1991, by and between the Barbary Coast Hotel and
         Casino, a Nevada general partnership, First American Title Company of
         Nevada, and Exber, Inc., a Nevada corporation

  +10.25 10 7/8% First Mortgage Note due 2001, dated November 21, 1997

  +10.26 Indenture dated as of November 21, 1997 among Coast Hotels and Casinos,
         Inc., the Guarantors, and Firstar Bank of Minnesota, N.A., as Trustee

  +10.27 Note Guarantee of Coast Resorts, Inc.

  +10.28 Purchase Agreement dated November 21, 1997

      
  +10.29 Security Agreement dated November 21, 1997 (Coast Hotels and Casinos,
         Inc.)

  +10.30 Deed of Trust, Assignment of Rents, Leases and Security Agreement dated
         November 21, 1997

  +10.31 Stock Pledge and Security Agreement dated November 21, 1997 (Coast
         Resorts, Inc.)

  +10.32 Pari Passu Intercreditor Agreement dated November 21, 1997

   10.33 Master Security Agreement, dated as of October 24, 1996, by and between
         Coast Hotels and Casinos, Inc. and the CIT Group/Equipment Financing,
         Inc.

   10.34 Amendment No. 1, dated December 27, 1996, to Master Security Agreement
         dated as of October 24, 1996 by and between Coast Hotels and Casinos,
         Inc. And the CIT Group/Equipment Financing Inc.

   10.35 Agreement Between Owner and Contractor dated as of February 9, 1999,
         between Coast Resorts, Inc., as owner, and J.A. Tiberti Construction
         Co., Inc., as contractor

  *16    Letter re Change in Certifying Accountant

  *21    List of Subsidiaries of Coast Resorts, Inc.
</TABLE>
--------------
*        Previously filed as an exhibit to the Registrant's Form 10 General Form
         For Registration of Securities, as amended, originally filed on October
         3, 1995 (the "Registration Statement").


**       Previously filed as an exhibit to Amendment No. 2 to the Registration
         Statement, filed on January 12, 1996.

***      Previously filed as an exhibit to Coast Resorts' Annual Report on Form
         10-K for the year ended December 31, 1995.


+        Previously filed as an exhibit to the Company's Annual Report on Form
         10-K for the year ended December 31, 1997.


(b)      Reports on Form 8-K

         None.



                                       31
<PAGE>   31




                                   SIGNATURES


Pursuant to the requirements of Section 13 or Section 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Las Vegas, State of Nevada, on March 5, 1999.



                                       COAST HOTELS AND CASINOS, INC.


                                       By:    /s/  MICHAEL J. GAUGHAN
                                          --------------------------------------
                                                   Michael J. Gaughan
                                                   Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

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


<S>                                   <C>                                         <C> 
/s/   MICHAEL J. GAUGHAN              Chairman of the Board of Directors and      March 5, 1999
----------------------------------    Chief Executive Officer (Principal
Michael J. Gaughan                    Executive Officer) and Director


/s/   GAGE PARRISH                    Director and Chief Financial Officer        March 5, 1999
vz----------------------------------    (Principal Financial and Accounting
Gage Parrish                          Officer)


/s/   HARLAN D. BRAATEN               Director                                    March 5, 1999
----------------------------------
Harlan D. Braaten


/s/   JERRY HERBST                    Director                                    March 5, 1999
----------------------------------
Jerry Herbst


/s/   J. TITO TIBERTI                 Director                                    March 5, 1999
----------------------------------
J. Tito Tiberti


                                      Director                                    March __, 1999
----------------------------------
Charles Silverman


                                      Director                                    March __, 1999
----------------------------------
Michael Corrigan


                                      Director                                    March __, 1999
----------------------------------
Joseph A. Blasco


                                      Director and Vice President                 March __, 1999
----------------------------------      of Casino Operations
Franklin Toti
</TABLE>

<PAGE>   32
                          INDEX TO FINANCIAL STATEMENTS

                 COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY

<TABLE>
<S>                                                                                <C>
Report of Independent Accountants                                                   F-2

Consolidated Balance Sheets of Coast Hotels and Casinos, Inc., and Subsidiary as
        of December 31, 1997 and 1998                                               F-3

Statements of Operations of Coast Hotels and Casinos, Inc. and Subsidiary for
        the years ended December 31, 1996, 1997 and 1998                            F-4

Statements of Stockholder's Equity of Coast Hotels and Casinos, Inc. and
        Subsidiary for the years ended December 31, 1996, 1997 and 1998             F-5

Statements of Cash Flows of Coast Hotels and Casinos, Inc. and Subsidiary for
        the years ended December 31, 1996, 1997 and 1998                            F-6

Notes to Financial Statements                                                       F-7

                    COAST RESORTS, INC. (PARENT COMPANY ONLY)

Report of Independent Accountants                                                  F-24

Balance Sheets of Coast Resorts, Inc. (parent company only) as of December 31,
        1997 and 1998                                                              F-25

Statements of Operations of Coast Resorts, Inc. (parent company only) for the
        years ended December 31, 1996, 1997 and 1998                               F-26

Statements of Stockholders' Equity of Coast Resorts, Inc. (parent company only)
        for the years ended December 31, 1996, 1997 and 1998                       F-27

Statements of Cash Flows of Coast Resorts, Inc. (parent company only) for the
        years ended December 31, 1996, 1997 and 1998                               F-28

Notes to Financial Statements                                                      F-29
</TABLE>


                                      F-1


<PAGE>   33

                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Directors and Stockholder of
Coast Hotels and Casinos, Inc. and Subsidiary

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholder's equity and cash flows
present fairly, in all material respects, the financial position of Coast Hotels
and Casinos, Inc. (a wholly owned subsidiary of Coast Resorts, Inc.) and
Subsidiary at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.




PricewaterhouseCoopers LLP

Las Vegas, Nevada 
February 5, 1999, except for Note 15 
as to which the date is March 4, 1999




                                      F-2

<PAGE>   34



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1998
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                                             1997        1998
                                                                                           --------     --------
<S>                                                                                        <C>          <C>     
                                                     ASSETS
CURRENT ASSETS:
  Cash and cash equivalents ..........................................................     $ 29,426     $ 41,595
  Accounts receivable, less allowance for doubtful
          accounts $194 (1997) and $594 (1998) .......................................        5,616        4,301
  Inventories ........................................................................        5,085        4,912
  Due from affiliates ................................................................        1,675           --
  Refundable income taxes ............................................................        1,772           --
  Prepaid expenses and other .........................................................       11,420        9,330
                                                                                           --------     --------
    TOTAL CURRENT ASSETS .............................................................       54,994       60,138
 PROPERTY AND EQUIPMENT, net .........................................................      305,420      301,252
 OTHER ASSETS ........................................................................        6,447        5,644
                                                                                           --------     --------
                                                                                           $366,861     $367,034
                                                                                           ========     ========
                                                LIABILITIES AND
                                             STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
  Accounts payable ...................................................................     $  9,107     $  9,888
  Accrued liabilities ................................................................       27,651       25,338
  Due to affiliate ...................................................................           --        1,353
  Construction accounts payable ......................................................        2,491           --
  Current portion of long-term debt ..................................................        8,076        7,905
                                                                                           --------     --------
    TOTAL CURRENT LIABILITIES ........................................................       47,325       44,484
LONG-TERM DEBT, less current portion .................................................      207,173      199,954
DEFERRED INCOME TAXES ................................................................       10,063        6,654
DEFERRED RENT ........................................................................        4,954       13,024
                                                                                           --------     --------
    TOTAL LIABILITIES ................................................................      269,515      264,116
                                                                                           --------     --------

COMMITMENTS AND CONTINGENCIES ........................................................
STOCKHOLDER'S EQUITY:
  Common stock, $1.00 par value, 25,000 shares authorized,
    1,000 shares issued and outstanding ..............................................            1            1
  Additional paid-in capital .........................................................       95,858       86,903
  Retained earnings ..................................................................        1,487       16,014
                                                                                           --------     --------
    TOTAL STOCKHOLDER'S EQUITY .......................................................       97,346      102,918
                                                                                           --------     --------
                                                                                           $366,861     $367,034
                                                                                           ========     ========
</TABLE>



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



                                      F-3


<PAGE>   35



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                                     1996            1997          1998
                                                                                   ---------      ---------      ---------
<S>                                                                                <C>            <C>            <C>      
OPERATING REVENUES:
     Casino ..................................................................     $ 148,509      $ 211,026      $ 242,992
     Food and beverage .......................................................        39,517         61,724         66,503
     Hotel ...................................................................        14,700         28,095         28,443
     Other ...................................................................        10,635         19,994         26,421
                                                                                   ---------      ---------      ---------
        GROSS OPERATING REVENUES .............................................       213,361        320,839        364,359
     Less: promotional allowances ............................................       (17,374)       (26,956)       (31,996)
                                                                                   ---------      ---------      ---------
        NET OPERATING REVENUES ...............................................       195,987        293,883        332,363
                                                                                   ---------      ---------      ---------

OPERATING EXPENSES:
     Casino ..................................................................        74,169        114,932        127,512
     Food and beverage .......................................................        31,680         50,129         47,278
     Hotel ...................................................................         7,428         12,623         11,856
     Other ...................................................................         8,351         19,516         22,458
     General and administrative ..............................................        37,992         54,351         55,879
     Pre-opening expenses ....................................................         7,125             --             --
     Land lease ..............................................................            --          2,100          3,190
     Deferred (non-cash) rent ................................................            --          2,378          3,198
     Depreciation and amortization ...........................................         7,883         18,278         20,607
                                                                                   ---------      ---------      ---------
        TOTAL OPERATING EXPENSES .............................................       174,628        274,307        291,978
                                                                                   ---------      ---------      ---------
        OPERATING INCOME .....................................................        21,359         19,576         40,385
                                                                                   ---------      ---------      ---------

OTHER INCOME (EXPENSES):
     Interest expense:
        Related parties ......................................................          (160)          (148)            --
        Other ................................................................       (22,076)       (26,194)       (27,323)
     Interest income .........................................................         4,791             98            695
     Interest capitalized ....................................................         7,464          1,016             58
     Gain on disposal of equipment ...........................................            58            919            168
                                                                                   ---------      ---------      ---------
        TOTAL OTHER INCOME (EXPENSES) ........................................        (9,923)       (24,309)       (26,402)
                                                                                   ---------      ---------      ---------
NET INCOME (LOSS) BEFORE INCOME TAXES ........................................        11,436         (4,733)        13,983
PROVISION (BENEFIT) FOR INCOME TAXES .........................................         6,617         (1,401)         5,225
                                                                                   ---------      ---------      ---------
NET INCOME (LOSS) ............................................................     $   4,819      $  (3,332)     $   8,758
                                                                                   =========      =========      =========
UNAUDITED PRO FORMA DATA (reflecting reorganization and change in tax status):
     Provision (benefit) for income taxes ....................................         4,117
                                                                                   ---------
     Net income (loss) .......................................................     $   7,319
                                                                                   =========
</TABLE>

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




                                      F-4


<PAGE>   36



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                    COMMON STOCK                          UNREALIZED
                                               ----------------------    ADDITIONAL         GAINS     RETAINED
                                                SHARES        AMOUNT   PAID-IN CAPITAL     (LOSSES)   EARNINGS      TOTAL
                                               --------      --------  ---------------    ----------  --------     --------
<S>                                               <C>         <C>          <C>               <C>      <C>          <C>     
Balances at December 31, 1995 ............        1,000         $ 1        $ 38,239          $ --     $  5,094     $ 43,334
  Exchange by Coast Resorts, Inc. of
    notes payable for common stock .......                                   52,525                                  52,525
  Reclassification of undistributed
    earnings to additional paid-in capital
    upon termination of partnership
    status ...............................                                    5,094                     (5,094)          --
  Net income .............................                                                               4,819        4,819
                                               --------         ---        --------          ----     --------     --------
Balances at December 31, 1996 ............        1,000           1          95,858            --        4,819      100,678
  Net loss ...............................                                                              (3,332)      (3,332)
                                               --------         ---        --------          ----     --------     --------
Balances at December 31, 1997 ............        1,000           1          95,858            --        1,487       97,346
  Transfer of Coast West, Inc. to the
    Company by Coast Resorts, Inc. .......                                   (8,955)                     5,769       (3,186)
  Net income .............................                                                               8,758        8,758
                                               --------         ---        --------          ----     --------     --------
Balances at December 31, 1998 ............        1,000         $ 1        $ 86,903          $ --     $ 16,014     $102,918
                                               ========         ===        ========          ====     ========     ========
</TABLE>




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



                                      F-5


<PAGE>   37



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                          1996        1997         1998
                                                                       ---------    ---------    ---------
<S>                                                                    <C>          <C>          <C>      
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net income (loss) .............................................   $   4,819    $  (3,332)   $   8,758
                                                                       ---------    ---------    ---------
     ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
        CASH PROVIDED BY OPERATING ACTIVITIES:
           Depreciation and amortization ...........................       7,883       18,278       20,607
           Provision for bad debts .................................       2,153        1,935        1,490
           Gain on disposal of equipment ...........................         (58)        (919)        (168)
           Deferred rent ...........................................        --          2,378        3,198
           Deferred income taxes ...................................       4,162          789          876
           Amortization of original issue discount .................         497          616          706
                 (Increase) decrease in operating assets:
           Accounts receivable .....................................      (1,608)      (1,773)         915
                 Refundable income taxes ...........................        (645)      (1,127)       1,772
                 Inventories .......................................      (2,286)       1,279          173
                 Prepaid expenses and other assets .................      (1,395)      (1,493)       2,463
           Increase (decrease) in operating liabilities:
                 Accounts payable ..................................       4,307       (2,727)         781
                 Accrued liabilities ...............................       9,204        2,142       (2,313)
                                                                       ---------    ---------    ---------
                 TOTAL ADJUSTMENTS .................................      22,214       19,378       30,500
                                                                       ---------    ---------    ---------
                 NET CASH PROVIDED BY OPERATING ACTIVITIES .........      27,033       16,046       39,258
                                                                       ---------    ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Capital expenditures, net of amounts in accounts payable ......    (125,722)     (57,736)     (15,492)
     Proceeds from sale of equipment ...............................          20        1,070          168
                                                                       ---------    ---------    ---------
                 NET CASH USED IN INVESTING ACTIVITIES .............    (125,702)     (56,666)     (15,324)
                                                                       ---------    ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
     Proceeds from borrowings under bank lines of credit ...........       1,045         --           --
     Principal payments on bank lines of credit ....................     (29,200)        --           --
     Proceeds from issuance of long-term debt, net of  discounts and
         commissions ...............................................     179,570       19,569         --
     Principal payments on long-term debt ..........................      (1,826)      (7,913)      (8,097)
     Advances to affiliates ........................................      (2,568)      (3,165)      (3,668)
     Payments for debt issue costs .................................      (1,336)        --           --
                                                                       ---------    ---------    ---------
                 NET CASH PROVIDED BY (USED IN) FINANCING
                 ACTIVITIES ........................................     145,685        8,491      (11,765)
                                                                       ---------    ---------    ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...............      47,016      (32,129)      12,169
CASH AND CASH EQUIVALENTS, at beginning of year ....................      14,539       61,555       29,426
                                                                       ---------    ---------    ---------
CASH AND CASH EQUIVALENTS, at end of year ..........................   $  61,555    $  29,426    $  41,595
                                                                       =========    =========    =========
</TABLE>


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



                                      F-6

<PAGE>   38


                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BACKGROUND INFORMATION AND BASIS OF PRESENTATION

Background Information

        Coast Hotels and Casinos, Inc. (the "Company ") is a Nevada corporation
and a wholly owned subsidiary of Coast Resorts, Inc. ( "Coast Resorts "), which
is also a Nevada corporation. The Company was formed in September 1995 and owns
and operates the following hotel-casinos in Las Vegas, Nevada:

        -       Gold Coast Hotel and Casino, which is located approximately one
                mile west of the Las Vegas Strip on Flamingo Road.

        -       Barbary Coast Hotel and Casino, which is located on the Las
                Vegas Strip.

        -       The Orleans Hotel and Casino, which is located approximately one
                mile west of the Las Vegas Strip on Tropicana Avenue. The
                Orleans opened for business on December 18, 1996.

        Prior to the Reorganization described below, the Gold Coast Hotel and
Casino and the Barbary Coast Hotel and Casino had previously been operated
independently by Gold Coast Hotel and Casino, a Nevada limited partnership
organized in 1986 ("Gold Coast"), and Barbary Coast Hotel and Casino, a Nevada
partnership organized in 1979 ("Barbary Coast").

        On January 1, 1996, the partners of Gold Coast and Barbary Coast (the
"Predecessor Partnerships") completed a reorganization (the "Reorganization")
with Coast Resorts. Coast Resorts was formed in September 1995 for the purpose
of effecting the Reorganization of the Predecessor Partnerships. Coast Resorts,
Gold Coast and Barbary Coast were all related through common ownership and
management control.

        In the Reorganization, the partners of the Predecessor Partnerships each
transferred to Coast Resorts, by assignment or through the merger of
Gaughan-Herbst, Inc., a Nevada corporation, the sole general partner of the Gold
Coast, their respective partnership interests in the Predecessor Partnerships in
exchange for an aggregate of 1,000,000 shares of common stock, par value $.01
per share, of Coast Resorts. The partners of the Gold Coast (or their
principals) received in the aggregate 65% of such shares of common stock of
Coast Resorts, and the partners of the Barbary Coast received in the aggregate
35% of such shares. The shares of common stock were issued to the respective
partners (or their principals) of each such Predecessor Partnership based upon
such partners' pro rata interests in such Predecessor Partnership.

        Concurrently with the exchange of the partners' interests in the
Predecessor Partnerships and the merger of Gaughan-Herbst, Inc. into Coast
Resorts, Coast Resorts became the sole partner of each of the Predecessor
Partnerships, and each Predecessor Partnership dissolved and terminated.
Immediately upon the dissolution and termination, all of the assets and
liabilities of the Predecessor Partnerships became the assets and liabilities of
Coast Resorts. Coast Resorts immediately contributed to the Company all of the
assets of the Predecessor Partnerships other than those relating to a certain
ground lease (the "Coast West Lease"), which Coast Resorts contributed to Coast
West Inc., another wholly-owned subsidiary of Coast Resorts ("Coast West"). In
addition, the Company assumed, jointly and severally with Coast Resorts, all of
the liabilities of the Predecessor Partnerships other than (i) obligations under
a portion of subordinated notes payable to former partners and $1,500,000
principal amount of demand notes payable to a related party which were retained
by Coast Resorts and were exchanged for shares of Coast Resorts Common Stock (as
defined below), and (ii) those liabilities incident to the Coast West Lease, and
Coast West assumed, jointly and severally with Coast Resorts, all of the
liabilities of the Predecessor Partnerships incident to the Coast West Lease.




                                      F-7


<PAGE>   39



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1--BACKGROUND INFORMATION AND BASIS OF PRESENTATION--(CONTINUED)

Background Information--(Continued)

        Coast Resorts retained the liability for an aggregate principal amount
of $51,025,000 in notes payable to former partners and retained the liability
for $1,500,000 relating to demand notes due to a related party (the "Exchange
Liabilities"). On January 16, 1996, the Exchange Liabilities were exchanged for
494,353 shares of common stock, par value $.01 per share, of Coast Resorts (the
"Coast Resorts Common Stock"), based upon management's estimate of the fair
market value of such common stock.

        As a result of the Reorganization, the former partners of the
Predecessor Partnerships (or their principals) immediately following the
Reorganization owned all of the issued and outstanding shares of common stock of
Coast Resorts, Coast Resorts owned all of the issued and outstanding common
stock of the Company and Coast West, and the Company and Coast West owned and
had assumed in the aggregate all of the assets and liabilities of the
Predecessor Partnerships (other than the Exchange Liabilities that were
exchanged for Coast Resorts Common Stock).

        As further described in Note 9, on July 21, 1998, Coast Resorts
contributed the common stock of Coast West to the Company, as a result of which
Coast West became a wholly owned subsidiary of the Company.

Basis of Presentation

        Gold Coast and Barbary Coast historically operated under a high degree
of common control. The former Managing General Partner of Gold Coast was also
the Managing General Partner of Barbary Coast. Due to the common control of Gold
Coast and Barbary Coast and the continuation of ownership by the former
partners, the Reorganization was accounted for as a reorganization of entities
under common control. Accordingly, the financial statements of the Company
reflect the Reorganization in a manner similar to a pooling of interests.

        The consolidated financial statements include the accounts of the
Company and, from July 21, 1998 through December 31, 1998, its subsidiary Coast
West. All intercompany balances and transactions have been eliminated.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Inventories

        Inventories, which consist primarily of food and beverage, liquor store,
and gift shop merchandise, are valued at the lower of cost or market value
(which is determined using the first-in, first-out and the average cost methods)
except for the base stocks of bar glassware and restaurant china which are
stated at original cost with subsequent replacements charged to expense.

Original Issue Discount and Debt Issue Costs

        Original issue discount is amortized over the life of the related
indebtedness using the effective interest method. Costs associated with the
issuance of debt are deferred and amortized over the life of the related
indebtedness also using the effective interest method.



                                      F-8


<PAGE>   40



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Property, Equipment and Depreciation

        Property and equipment are stated at cost. Expenditures for additions,
renewals and betterments are capitalized; expenditures for maintenance and
repairs are charged to expense as incurred. Upon retirement or disposal of
assets, the cost and accumulated depreciation are eliminated from the accounts
and the resulting gain or loss is included in income. Depreciation is computed
by the straight-line method over the estimated useful lives of property and
equipment, which range from 5 to 15 years for equipment and up to 40 years for
buildings and improvements.

        During construction, the Company capitalizes interest and other direct
and indirect development costs. Interest is capitalized monthly by applying the
effective interest rate on certain borrowings to the average balance of
expenditures. The interest that was capitalized was $7,464,000 (1996),
$1,016,000 (1997) and $58,000 (1998).

Pre-opening and Related Promotional Expense

        Costs associated with the opening of new hotel-casinos or major
additions to an existing hotel-casino, including personnel, training, certain
marketing and other costs, are capitalized and charged to expense over
management's estimate of the period of economic benefit associated with such
costs. Management believes that such period, with respect to major
hotel-casinos, is within one fiscal quarter of the date of opening. Effective
January 1, 1999, pre-opening costs are expensed as incurred. There were no
capitalized pre-opening costs at December 31, 1997 or 1998.

Valuation of Long-Lived Assets

        Long-lived assets and certain identifiable intangibles held and used by
the Company are reviewed for impairment whenever events or changes in
circumstances warrant such a review. The carrying value of a long-lived or
intangible asset is considered impaired when the anticipated undiscounted cash
flow from such asset is separately identifiable and is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair value of the asset. Fair value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair values are reduced for the cost
to dispose.

Advertising Costs

        Costs for advertising are expensed as incurred, except costs for
direct-response advertising, which are capitalized and amortized over the period
of the related program. Direct-response advertising costs consist primarily of
mailing costs associated with direct mail programs. Capitalized advertising
costs were immaterial at December 31, 1997 and 1998. Advertising expense was
approximately $3.8 million, $7.5 million, and $6.0 million for the years ended
December 31, 1996, 1997 and 1998, respectively.

Casino Revenue

        In accordance with common industry practice, the Company recognizes as
casino revenue the net win from gaming activities, which is the difference
between amounts wagered and amounts paid to winning patrons.

Deferred Revenue

        Wagers received on all sporting events are recorded as a liability until
the final outcome of the event when the payoffs, if any, can be determined.

Progressive Jackpot Payouts

        The Company has a number of progressive slot machines, progressive poker
games and a progressive keno game. As coins are played on the progressive slot
machines, the amount available to win increases, to be paid out when the
appropriate jackpot is hit. The keno game and poker game payouts also increase
with the amount of play, to be paid out when hit. In accordance with common
industry practice, the Company has recorded the progressive jackpot as a
liability with a corresponding charge against casino revenue.





                                      F-9

<PAGE>   41


                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Promotional Allowances

        The retail value of hotel accommodations and food and beverage items
provided to customers without charge is included in gross revenues and then
deducted as promotional allowances, to arrive at net revenues. The estimated
cost of providing these complimentary services is as follows for the years ended
December 31, 1996, 1997 and 1998:


<TABLE>
<CAPTION>
                                              DECEMBER 31,
                                       ---------------------------
                                        1996      1997      1998  
                                       -------   -------   -------
                                              (IN THOUSANDS)
<S>                                    <C>       <C>       <C>    
Hotel ..............................   $ 1,804   $ 2,023   $ 2,497

Food and beverage ..................    14,725    23,187    25,552
                                       -------   -------   -------
Total cost of promotional allowances   $16,529   $25,210   $28,049
                                       =======   =======   =======
</TABLE>


        The cost of promotional allowances has been allocated to expense as
follows for the years ended December 31, 1996, 1997 and 1998:


<TABLE>
<CAPTION>
                           DECEMBER 31,
                   ---------------------------
                    1996      1997      1998  
                   -------   -------   -------
                         (IN THOUSANDS)
<S>                <C>       <C>       <C>    
Casino..........   $15,361   $22,280   $25,290

Other..........      1,168     2,930     2,759
                   -------   -------   -------
                   $16,529   $25,210   $28,049
                   =======   =======   =======
</TABLE>



Slot Club Promotion

        The Company has established promotional clubs to encourage repeat
business from frequent and active slot machine customers. Members in the clubs
earn points based on slot activity accumulated in the members' account. Points
can be redeemed for certain consumer products (typically household appliances),
travel, food and beverage or cash. The Company accrues for slot club points
expected to be redeemed in the future based on the average cost of items
expected to be redeemed.

Income Taxes

        Prior to the Reorganization, the Company operated as individual
partnerships which did not pay federal income taxes. The partners of Gold Coast
and Barbary Coast were taxed on their proportionate share of each of their
respective partnership's taxable income or loss.

        Subsequent to the Reorganization, the Company is included in the
consolidated federal income tax return filed by Coast Resorts. The Company's tax
allocation is based on the amount of tax it would incur if it filed a separate
return. Coast Resorts will pay the Company an amount equal to the tax benefit
arising from the utilization of net operating losses of the Company to the
extent that such losses result in a reduction in the amount of tax payable by
Coast Resorts.




                                      F-10


<PAGE>   42


                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Income taxes--(Continued)

        In connection with the Reorganization, effective January 1, 1996, the
Company adopted Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" ("SFAS 109"). Under SFAS 109 deferred tax assets and
liabilities are recognized for the expected future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. The adoption of SFAS 109 on January 1, 1996
resulted in the recognition in the 1996 financial statements of net deferred tax
liabilities and a corresponding charge to earnings through the income tax
provision of approximately $2,500,000. In addition, upon termination of the
partnership tax status on January 1, 1996, all undistributed earnings of the
predecessor partnerships were reclassified to additional paid-in capital.

Cash and Cash Equivalents

        The Company considers all highly liquid investments with a remaining
maturity at acquisition of three months or less to be cash equivalents. Cash in
excess of daily requirements is typically invested in U.S. Government-backed
repurchase agreements with maturities of 30 days or less. Such investments are
generally made with major financial institutions having a high credit rating. At
times, the Company's cash deposited in financial institutions may be in excess
of federally insured limits. These instruments are stated at cost, which
approximates fair value because of their short maturity.

Short-term Investments

        Short-term investments purchased with an original maturity of over three
months but less than one year are stated at cost, which approximates fair value
because of their short maturity. There were no short-term investments at
December 31, 1997 or 1998.

Concentration of Credit Risk

        The Company extends credit to patrons after background checks and
investigations of creditworthiness and does not require collateral. The Company
has a concentration of credit risk in Southern Nevada. The Company records
provisions for potential credit losses and such losses have been within
management's expectations. Management believes that as of December 31, 1998, no
significant concentration of credit risk exists for which an allowance has not
already been determined and recorded.

Use of Estimates in the Preparation of Financial Statements

        The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.




                                      F-11

<PAGE>   43


                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Stock Options

        The Financial Accounting Standards Board has issued Statement No. 123,
"Accounting for Stock-Based compensation" ("SFAS" No. 123"). This Statement
defines a fair value based method of accounting for an employee stock option in
which companies account for stock options by recognizing, as compensation
expense in the statement of operations, the fair value of stock options granted
over the vesting period of the option. The statement also permits companies to
continue accounting for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"). The Company
has elected to account for stock options under APB No. 25 and will disclose the
pro forma impact on net income and earning per share as if the Company had used
the fair value method recommended by SFAS No. 123.

Reclassifications

        Certain amounts in the 1996 and 1997 financial statements have been
reclassified to conform with the 1998 presentation.

NOTE 3--PROPERTY AND EQUIPMENT

        Major classes of property and equipment consist of the following as of
December 31, 1997 and 1998:


<TABLE>
<CAPTION>
                                     DECEMBER 31,
                                ----------------------
                                   1997         1998
                                ---------    ---------
                                   (IN THOUSANDS) 
<S>                             <C>          <C>      
Building ....................   $ 232,661    $ 233,570

Furniture and fixtures ......     139,022      146,175
                                ---------    ---------

                                  371,683      379,745

Less accumulated depreciation     (81,733)    (100,369)
                                ---------    ---------

                                  289,950      279,376

Land ........................      15,232       15,232

Construction in progress ....         238        6,644
                                ---------    ---------

Net property and equipment ..   $ 305,420    $ 301,252
                                =========    =========
</TABLE>


NOTE 4--LEASES

        The Barbary Coast building is located on land which is leased. The lease
term runs through May 2003 with a purchase option and two 30 year renewal
options. In addition, the parking lot adjacent to the building is being leased
under a 10 year lease which runs through December 2003. Annual rental payments
under these leases total $300,000.



                                      F-12


<PAGE>   44



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4--LEASES--(CONTINUED)

        During December 1995, the Company entered into a ground lease for the
land underlying the Orleans. The land is owned by The Tiberti Company, a Nevada
general partnership, of which a stockholder of Coast Resorts is the managing
partner. The stockholder is also the president and a director and stockholder of
the general contractor for the construction of the Orleans, as more fully
described in Note 10. The lease provides for an initial term of fifty years with
a twenty-five year renewal option and includes a purchase option, exercisable by
the Company, at fair market value during the twentieth and twenty-first years of
the lease. Lease payments range from $175,000 to $250,000 per month during the
first sixteen years of the lease increasing by 3% per annum thereafter. The
total amount of the base rent payments on the Orleans lease is being charged to
expense on the straight-line method over the term of the lease. The Company has
recorded deferred rent to reflect the excess of rent expense over cash payments
since the inception of the lease.

        The Coast West lease was entered into in September 1995 for a parcel of
land located in the western area of Las Vegas to be used for future development
opportunities. The Coast West Lease term runs through December 31, 2055, with
three 10-year renewal options. Monthly payments started at $166,667 for the year
ended December 31, 1995. Thereafter, the monthly rent increases by the amount of
$5,000 in January of each year. The lease includes a put option exercisable by
the landlord requiring the purchase of the land at fair market value at the end
of the 20th through 24th years of the lease, provided that the purchase price
shall not be less than ten times, nor more than fifteen times, the annual rent
at such time. Based on the terms of the lease, the potential purchase price
commitment ranges from approximately $31,000,000 to approximately $51,000,000 in
the years 2014 through 2018. The total amount of the base rent payments on the
Coast West Lease are being charged to expense on the straight-line method over
the term of the lease. The Company has recorded deferred rent to reflect the
excess of rent expense over cash payments since the inception of the lease.

Future Minimum Lease Payments

        The following is an annual schedule of future minimum cash lease
payments required under operating leases that have initial or remaining
noncancelable terms in excess of one year as of December 31, 1998:

                    OPERATING LEASES

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,                    PAYMENTS
------------------------                 --------------
                                         (IN THOUSANDS)
<S>                                        <C>     
1999 ..................................    $  4,890

2000 ..................................       5,000

2001 ..................................       5,060

2002 ..................................       5,370

2003 ..................................       5,480

Later years ...........................     420,657
                                           --------
Total minimum lease payments...........    $446,457
                                           ========
</TABLE>



                                      F-13

<PAGE>   45


                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4--LEASES--(CONTINUED)

Rent Expense

        Rent expense for the years ended December 31, 1996, 1997 and 1998 is as
follows:


<TABLE>
<CAPTION>
                                        DECEMBER 31,
                           --------------------------------------
                            1996            1997            1998
                           ------          ------          ------
                                      (IN THOUSANDS)
<S>                        <C>             <C>             <C>   
Occupancy rentals.......   $4,777          $4,777          $6,688
                           ------          ------          ------
Other equipment.........      414             900             115
                           ------          ------          ------
                           $5,191          $5,677          $6,803
                           ======          ======          ======
</TABLE>


NOTE 5--ACCRUED LIABILITIES

        Major classes of accrued liabilities consist of the following as of
December 31, 1997 and 1998:


<TABLE>
<CAPTION>
                                                    DECEMBER 31,  
                                              ------------------------
                                                1997            1998
                                              -------          -------
                                                   (IN THOUSANDS)
<S>                                           <C>              <C>    
Slot club liability ......................    $ 6,475          $ 7,548

Compensation and benefits ................      8,177            7,318

Progressive jackpot payouts ..............      4,101            4,511

Customer deposits and unpaid winners......      5,069            3,003

Deferred sports book revenue .............        871              914

Taxes ....................................      1,046              575

Accrued interest expense .................      1,354            1,207

Other ....................................        558              262
                                              -------          -------
                                              $27,651          $25,338
                                              =======          =======
</TABLE>




                                      F-14

<PAGE>   46



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6--LONG-TERM DEBT

<TABLE>
<CAPTION>
Long-term debt consists of the following as of December 31, 1997 and 1998:                                  DECEMBER 31,
                                                                                               -------------------------------------
                                                                                                   1997                      1998
                                                                                               ------------              -----------
                                                                                                           (IN THOUSANDS)
<S>                                                                                            <C>                       <C>        
Related parties:

7.5% notes, payable in monthly installments of interest only, with all principal
and any unpaid interest due December 31, 2001. The notes are uncollateralized
and are payable to the former partners of Barbary Coast and Gold Coast.
Approximately $51,025,000 of the notes were exchanged for Coast Resorts Common
Stock on January 16, 1996 as more fully described in Note 1..............................      $      1,975              $     1,975

Non-related parties:

13% First Mortgage Notes due December 15, 2002, with interest payable
semiannually on June 15 and December 15, net of original issue discount of
$4,677,000 in 1997 and $3,971,000 in 1998................................................           170,323                  171,029

10 7/8% First Mortgage Notes due November 1, 2001, with interest payable
quarterly on March 15, June 15, September 15 and December 15.............................            16,800                   16,800

9.19% note payable, payable in 60 monthly installments of approximately
$750,000, including principal and interest, collateralized by certain gaming and
other equipment..........................................................................            22,481                   14,987

8.6% note due August 11, 2007, payable in monthly installments of $26,667
principal plus interest on remaining principal balance, collateralized by 1980
Hawker aircraft..........................................................................             3,067                    2,773

Other notes payable .....................................................................               603                      295
                                                                                               ------------              -----------
                                                                                                    215,249                  207,859
Less: current portion....................................................................             8,076                    7,905
                                                                                               ------------              -----------
                                                                                               $    207,173              $   199,954
                                                                                               ============              ===========
</TABLE>


        On January 30, 1996, the Company completed a private placement of $175
million principal amount of 13% First Mortgage Notes Due December 15, 2002 (the
"13% First Mortgage Notes"). Interest on the 13% First Mortgage Notes is payable
semi-annually commencing June 15, 1996. The 13% First Mortgage Notes are
unconditionally guaranteed by Coast Resorts, Coast West and certain future
subsidiaries of the Company. Net proceeds from the offering (after deducting
original issue discount and commissions) were approximately $164.1 million. Of
that amount, (i) approximately $114.8 million was deposited in a construction
disbursement account restricted for use by the Company to finance in part the
cost of developing, constructing, equipping and opening The Orleans, (ii)
approximately $19.3 million was used by the Company to purchase U.S. Government
Obligations which were deposited into an interest escrow account restricted to
fund the interest payable on the 13% First Mortgage Notes through December 15,
1996 and (iii) approximately $29.2 million was used by the Company to repay all
outstanding indebtedness under the Company's credit facility, which was
terminated. The balance of approximately $800,000 was used to pay, in part, the
estimated offering expenses of $2.4 million.



                                      F-15

<PAGE>   47


                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6--LONG-TERM DEBT--(CONTINUED)

        The 13% First Mortgage Notes are redeemable at the option of the Company
at 106.50% and 103.25% of the principal amount thereof during the twelve month
periods beginning December 15, 2000 and 2001, respectively. In addition, on or
before December 15, 1998, the Company was entitled to redeem up to $57.25
million aggregate principal amount of 13% First Mortgage Notes at 110% of the
principal amount thereof with the net proceeds of a public offering of Coast
Resorts Common Stock subject to certain limitations as outlined in the indenture
governing the 13% First Mortgage Notes (the "Indenture").

        Pursuant to the terms of the Indenture, in December 1996 the Company
incurred approximately $30 million of equipment financing for The Orleans. In
August 1997, the Company incurred an additional $3.2 million in equipment
financing. At December 31, 1997 and 1998, outstanding equipment financing
totaled approximately $25.5 million and $17.8 million, respectively.

        The Indenture contains covenants that, among other things, limit the
ability of the Company to pay dividends or make advances to Coast Resorts, repay
existing indebtedness, incur additional indebtedness, or sell material assets,
as defined in the Indenture. Additionally, pursuant to the Indenture, if on July
20, 1998 (the twentieth day of the month following the first month in which The
Orleans has been operating for 18 months), the Fixed Charge Coverage Ratio (as
defined in the Indenture) of the Company for the most recently ended four full
fiscal quarters was less than 1.5 to 1, the Company would have been required to
consummate an asset sale of the Barbary Coast within one year. The proceeds from
such asset sale would be required to be used by the Company to repurchase Notes
at a price equal to 101% of the principal amount of such Notes. As of June 30,
1998, the measurement date, the Fixed Charge Coverage Ratio was in excess of 1.5
to 1.

        The Company is permitted by the Indenture governing the 13% First
Mortgage Notes to borrow up to an additional $20 million for working capital
purposes. In November 1997, the Company issued $16.8 million principal amount of
10 7/8% first mortgage notes due November 1, 2001 ("10 7/8% First Mortgage
Notes"). The 10 7/8% First Mortgage Notes are collateralized on a pari passu
basis with the 13% First Mortgage Notes. Interest on the 10 7/8% First Mortgage
Notes is payable quarterly on March 15, June 15, September 15 and December 15.
The 10 7/8% First Mortgage Notes are unconditionally guaranteed by Coast Resorts
and certain future subsidiaries of Coast Hotels. Net proceeds from the offering
(after deducting commissions) were approximately $16.5 million and were used for
working capital purposes.

        The 10 7/8% First Mortgage Notes are redeemable at any time prior to
November 1, 2001 at a redemption price equal to the principal amount thereof,
plus any accrued and unpaid interest plus an "Applicable Premium" as defined in
the indenture governing the 10 7/8% First Mortgage Notes. That indenture
contains covenants that, among other things, limit the ability of the Company to
pay dividends to Coast Resorts, repay existing indebtedness, incur additional
indebtedness or sell material assets.




                                      F-16

<PAGE>   48



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 6--LONG-TERM DEBT--(CONTINUED)

        Maturities on long-term debt are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,           MATURITIES
                                 --------------
                                 (IN THOUSANDS)
<S>                                 <C>     
1999 .....................          $  7,905

2000 .....................             7,918

2001 .....................            19,150

2002 .....................           175,323

2003 .....................               323

Thereafter................             1,211
                                    --------
                                    $211,830
                                    ========
</TABLE>



NOTE 7--INCOME TAXES AND PRO FORMA DATA

        As discussed in Note 1, prior to the Reorganization, the Company
operated as individual partnerships which did not pay federal income taxes.
Effective January 1, 1996, the Company adopted SFAS 109. The adoption of SFAS
109 resulted in the recognition in the 1996 financial statements of net deferred
tax liabilities and a corresponding charge to earnings through the income tax
provision of approximately $2,500,000. Had the Companies been taxed as C
Corporations since formation, the income tax provision and net income for the
year ended December 31, 1996 would have been $4,117,000 and $7,319,000,
respectively.

        The components of the income tax provision (benefit) for the years ended
December 31, 1996, 1997 and 1998 were as follows:


<TABLE>
<CAPTION>
                                  DECEMBER 31,
                  -------------------------------------------
                   1996               1997              1998
                  -------           -------           -------
Federal:                        (IN THOUSANDS)
<S>               <C>               <C>               <C>    
Current           $ 2,454           $(2,189)          $ 4,349
Deferred            4,163               788               876
                  -------           -------           -------
                  $ 6,617           $(1,401)          $ 5,225
                  =======           =======           =======
</TABLE>




                                      F-17


<PAGE>   49



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7--INCOME TAXES AND PRO FORMA DATA--(CONTINUED)

        The income tax provision (benefit) for the years ended December 31,
1996, 1997 and 1998 differs from that computed at the federal statutory
corporate tax rate as follows:


<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                           ---------------------------------- 
                                           1996        1997              1998
                                           ----        -----             ---- 
<S>                                        <C>         <C>               <C>  
Federal statutory rate ........            34.0%       (34.0)%           35.0%
Establishment of deferred taxes            21.0%          --              --
Other .........................             2.0%         4.4 %            2.4%
                                           ----        -----             ---- 
     Effective tax rate .......            57.0%       (29.6)%           37.4%
                                           ====        =====             ====
</TABLE>


        The tax effects of significant temporary differences representing net
deferred tax assets and liabilities at December 31, 1997 and 1998 are as
follows:


<TABLE>
<CAPTION>
                                                           DECEMBER 31,
                                                  ---------------------------
                                                    1997              1998
                                                  --------           --------
                                                         (IN THOUSANDS)
<S>                                               <C>                <C>     
Deferred tax assets:
   Current:
      Accrued vacation .................          $    565           $    810
      Allowance for doubtful accounts ..             2,893                286
      Accrued slot club points .........               902                444
      Progressive liabilities ..........             1,025              1,103
      Accrued medical and other benefits               131                202
      Tax credits ......................             1,299                 --
      NOL carryforward .................               273                 --
      Other ............................                42                 --
                                                  --------           --------
           Total current ...............             7,130              2,845
                                                  --------           --------
   Non-current:
      FICA, alternative minimum tax
          and other tax credits ........                --              2,195
      Deferred rent ....................             1,734              4,688
                                                  --------           --------
          Total non-current ............             1,734              6,883
                                                  --------           --------
Total deferred tax assets ..............             8,864              9,728
                                                  --------           --------
Deferred tax liabilities:
   Non-current:
      Property, plant and equipment ....           (11,797)           (13,537)
                                                  --------           --------
          Total deferred tax liabilities           (11,797)           (13,537)
                                                  --------           --------
Net deferred tax liability .............          $ (2,933)          $ (3,809)
                                                  ========           ========
</TABLE>




                                      F-18

<PAGE>   50



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 8--FAIR VALUE OF FINANCIAL INSTRUMENTS

        The following estimated fair values of the Company's financial
instruments have been determined by the Company using available market
information and appropriate valuation methodologies. The carrying amounts of
cash and cash equivalents, accounts receivable, and accounts payable approximate
fair values due to the short-term maturities of these instruments. The carrying
amounts and estimated fair values of the Company's other financial instruments
at December 31, 1998 are as follows:


<TABLE>
<CAPTION>
                                             Carrying            Fair
                                              Amount             Value
                                             --------          --------
                                                   (in thousands)
<S>                                          <C>               <C>     
Liabilities:
  Current portion of long-term debt          $  7,905          $  7,905
                                             ========          ========

  13% First Mortgage Notes                   $171,029          $196,000
                                             ========          ========

  10 7/8% First Mortgage Notes               $ 16,800          $ 19,328
                                             ========          ========

  Other long-term debt                       $ 12,125          $ 10,789
                                             ========          ========
</TABLE>



        The methods and assumptions are summarized as follows:

        For current portion of long-term debt, the carrying amount approximates
fair value due to the short-term nature of such debt. The fair value of the 13%
First Mortgage Notes was determined based upon market quotes. The fair value of
the 10 7/8% First Mortgage Notes was determined using the make-whole premium as
defined in the associated indenture. For all other long-term debt, the fair
value is estimated using a discounted cash flow analysis, based on the
incremental borrowing rates currently available to the Company for debt with
similar terms and maturity.




                                      F-19


<PAGE>   51



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9--COAST WEST, INC.

        The Company had agreed to provide advances to Coast West sufficient to
make payments on the Coast West Lease and other obligations, including project
development and site improvement. The Indenture limited the amount outstanding
under advances to Coast West to $8.0 million unless Coast West became a
subsidiary of the Company. Based on the cash requirements of Coast West for
lease payments and anticipated development costs, it was likely that by
September 1998 Coast West would require cash from the Company that, when added
to the outstanding advances from the Company, would exceed $8.0 million. On July
21, 1998, Coast Resorts contributed the capital stock of Coast West to the
Company, as a result of which Coast West became a wholly owned subsidiary of the
Company. Coast West remains a guarantor of the 13% First Mortgage Notes.
Pursuant to the terms of the Indenture, the Company may make advances to its
wholly owned subsidiaries without limit.

        As of the date of the stock transfer, Coast West had total assets of
$3,615,000, total liabilities of $12,570,000 (which includes $7,699,000 due to
the Company and $4,871,000 of deferred rent), and an accumulated deficit of
$8,955,000. The Company had recorded an allowance for doubtful accounts in
connection with advances provided to Coast West for lease payments. On the date
of the stock transfer, the total allowance for bad debt expense recorded by the
Company in relation to those advances was $5,769,000. Upon the transfer of Coast
West stock, the Company wrote off this allowance for doubtful accounts to
retained earnings and recorded the assumption of the $8,955,000 of net
liabilities of Coast West as a decrease in additional paid-in capital.


NOTE 10--RELATED PARTY TRANSACTIONS

        The Company's advertising services are provided by LGT Advertising, a
company owned by several stockholders of Coast Resorts. LGT purchases
advertising for the company from third parties and passes along any discounts
they receive. LGT and its owners receive no compensation or profit for these
services, as the Company is invoiced for actual costs incurred. Advertising
expense amounted to approximately $3.8 million, $7.5 million and $6.0 million
for the years ended December 31, 1996, 1997 and 1998, respectively.

        The Company received laundry services from Exber, Inc. (dba El Cortez
Hotel & Casino). A major stockholder-officer of Exber, Inc. is the father of a
major stockholder of Coast Resorts and a director and officer of the Company.
Laundry expense payable to Exber, Inc. was approximately $864,000 for the year
ended December 31, 1996. The Company discontinued its laundry service from
Exber, Inc. in October 1996.

        The Company purchases certain of its equipment and inventory for its
operations from RJS, a company owned by the father of a major stockholder and
director of Coast Resorts and a director and officer of the Company and the
Company's restaurant manager. RJS invoices the Company based on actual costs
incurred. For the fiscal years ended December 31, 1996, 1997 and 1998, the
Company incurred expenses payable to RJS of approximately $4.1 million, $1.4
million and $829,000, respectively.

        The Company purchases wallboards and parlay cards for its race and
sports books from Nevada Wallboards, Inc. A major stockholder and director of
Coast Resorts and a director and officer of the Company is the majority
stockholder of Nevada Wallboards, Inc. For the fiscal years ended December 31,
1996, 1997 and 1998, the Company incurred expenses payable to Nevada Wallboards
of approximately $145,000, $198,000 and $186,000, respectively.



                                      F-20


<PAGE>   52



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10--RELATED PARTY TRANSACTIONS--(CONTINUED)

        A director of the Company is the president and sole stockholder of
Yates-Silverman, Inc. which was retained by the Company as the designer of The
Orleans and the Coast West project. For the fiscal years ended December 31,
1996, 1997 and 1998, the Company incurred expenses payable to Yates-Silverman of
approximately $508,000, $177,000 and $500,000, respectively.

        The Company maintains numerous racetrack dissemination contracts with
Las Vegas Dissemination, Inc. ("LVD"). The son of a major stockholder and
director of Coast Resorts and a director and officer of the company is the
president and sole shareholder of LVD. LVD has been granted a license by the
Nevada gaming authorities to disseminate live racing for those events and tracks
for which it contracts and has been granted the exclusive right to disseminate
all pari-mutuel services and race wire services in the State of Nevada. Under
these dissemination contracts, the Company pays to LVD an amount based on the
wagers accepted for races held at the racetracks covered by the respective
contracts. The Company also pays to LVD a monthly fee for race wire services.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Company
incurred expenses payable to LVD of approximately $889,000, $1.1 million and
$3.1 million, respectively.

        J.A. Tiberti Construction Company ("Tiberti Construction") has served as
the general contractor for the original construction of the Gold Coast and for
certain expansions thereof, for the original construction of the Barbary Coast
and all expansions thereof and for the original construction and Phase II
expansion of The Orleans. The president of Tiberti Construction is a stockholder
and director of Coast Resorts and a director of the Company. For the years ended
December 31, 1996, 1997 and 1998, the Company paid approximately $80.3 million,
$26.2 million and $3.7 million, respectively, to Tiberti Construction in
connection with such construction services.

        As more fully described in Note 4, the Company is a party to a ground
lease with The Tiberti Company with respect to the land underlying The Orleans.
The president of The Tiberti Company is a director and stockholder of Coast
Resorts. Amounts paid to the Tiberti Company with respect to the lease were $3.0
million, $2.1 million and $2.4 million for the years ended December 31, 1996,
1997 and 1998, respectively.


NOTE 11-- BENEFIT PLANS

401(k) Plans

        The Company offers separate defined contribution 401(k) plans for
eligible employees. During 1996, previously separate plans of the Gold Coast and
the Barbary Coast were consolidated into one plan. All employees of the Gold
Coast and The Orleans, and all employees of the Barbary Coast not covered by a
collective bargaining agreement, are eligible to participate. The employees may
elect to defer up to 15% of their yearly compensation, subject to statutory
limits. The Company makes matching contributions of 50% of the first 6% of the
employees' contribution. Contribution expense was $1,176,000, $842,000 and
$1,252,000 for the years ended December 31, 1996, 1997 and 1998, respectively.

Defined Benefit Plan

        Certain employees at the Barbary Coast are covered by a union-sponsored,
collectively bargained, multi-employer, defined benefit pension plan. The
Barbary Coast contributed $274,000, $313,000 and $308,000 during the years ended
December 31, 1996, 1997 and 1998, respectively, to the plan. These contributions
are determined in accordance with the provisions of negotiated labor contracts
and generally are based on the number of hours worked.




                                      F-21

<PAGE>   53



                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11-- BENEFIT PLANS--(CONTINUED)

Stock Compensation Plan

        In December 1996, the Board of Directors of Coast Resorts adopted the
1996 Stock Incentive Plan (the "Plan") which authorizes the issuance of (i)
shares of Coast Resorts Common Stock or any other class of security of Coast
Resorts which is convertible into shares of Coast Resorts Common Stock or (ii) a
right or interest with an exercise or conversion privilege at a price related to
Coast Resorts Common Stock or with a value derived from the value of such common
stock. Awards under the Plan are not restricted to any specified form or
structure and may include, without limitation, sales or bonuses of stock,
restricted stock, stock options, reload stock options, stock purchase warrants,
other rights to acquire stock, securities convertible into or redeemable for
stock, stock appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares. Officers,
key employees, directors (whether employee directors or non-employee directors)
and consultants of Coast Resorts and its subsidiaries are eligible to
participate in the Plan.

        Under the terms of the Plan, the aggregate number of shares issued and
issuable pursuant to all awards (including all incentive stock options) granted
under the Plan shall not exceed 220,000 at any time. In addition, the aggregate
number of shares subject to awards granted during any calendar year to any one
eligible person (including the number of shares involved in awards having a
value derived from the value of shares) shall not exceed 40,000.

        No awards shall be made under the Plan after the tenth anniversary of
the adoption of the Plan. Although shares may be issued after the tenth
anniversary of the adoption of the Plan pursuant to awards made prior to such
date, no shares shall be issued under the Plan after the twentieth anniversary
of adoption of the Plan. As of December 31, 1998, no awards have been made under
the Plan.

NOTE 12--SUPPLEMENTAL CASH FLOWS INFORMATION

           For the years ended December 31, 1996, 1997 and 1998 supplemental
cash flows information amounts are as follows:

<TABLE>
<CAPTION>
                                                                                                             DECEMBER 31,
                                                                                                  ----------------------------------
                                                                                                    1996        1997          1998
                                                                                                  -------      -------      --------
                                                                                                           (IN THOUSANDS)
<S>                                                                                               <C>          <C>          <C>     
Interest paid ................................................................................    $21,607      $25,488      $ 26,764
                                                                                                  =======      =======      ========
Income taxes paid ............................................................................    $ 3,100      $  --        $  2,300
                                                                                                  =======      =======      ========
Supplemental schedule of non-cash investing and financing activities:
Property and equipment acquisitions included in
          accounts payable or financed through notes payable .................................    $38,918      $ 2,491      $   --
                                                                                                  =======      =======      ========

Conversion of notes payable to Coast Resorts Common Stock ....................................    $52,525      $  --        $   --
                                                                                                  =======      =======      ========

Transfer of net liabilities of Coast West to the Company by Coast Resorts
       ($8,955) less write-off of related allowance for advances to Coast West ($5,769).......    $    --      $    --      $  3,186
                                                                                                  =======      =======      ========
</TABLE>




                                      F-22

<PAGE>   54


                  COAST HOTELS AND CASINOS, INC. AND SUBSIDIARY
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13--REGULATION OF GAMING OPERATIONS

        The gaming operations of the Company are subject to the licensing and
regulatory control of the Nevada Gaming Commission (the Nevada Commission), the
Nevada State Gaming Control Board (the Nevada Control Board) and the Clark
County Liquor and Gaming Board (the Clark County Board) (collectively, the
"Nevada Gaming Authorities"). These agencies issue gaming licenses based upon,
among other considerations, evidence that the character and reputation of
principal owners, officers, directors, and certain other key employees are
consistent with regulatory goals. The necessary licenses have been secured by
the Company. The licenses are not transferable and must be renewed periodically
upon the payment of appropriate taxes and license fees. The Nevada Gaming
Authorities have broad discretion with regard to the renewal of the licenses
which may at any time revoke, suspend, condition, limit or restrict a license
for any cause deemed reasonable by the issuing agency. Officers, directors, and
key employees of the Company must be approved by the Nevada Control Board and
licensed by the Nevada Commission and Clark County Board.


NOTE 14--COMMITMENTS AND CONTINGENCIES

        Coast Hotels is involved in various legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
financial position, results of operations or cash flows of Coast Hotels.


NOTE 15--SUBSEQUENT EVENTS

First Mortgage Notes Repurchase

        On February 19, 1999, Coast Hotels commenced an offer to purchase and
consent solicitation with respect to the 13% First Mortgage Notes. Coast Hotels
expects to fund the tender offer with the proceeds from a new note offering and
a bank credit facility which are anticipated to be completed by Coast Hotels
during 1999. In connection with these transactions, Coast Hotels also expects to
repurchase the 10 7/8% First Mortgage Notes. Upon completion of the repurchase
transactions, Coast Hotels anticipates that it will record an extraordinary
loss, net of tax benefit, of approximately $27.1 million which is comprised of
an estimated $33.0 million repurchase premium, the write-off of unamortized debt
issue costs of $4.8 million and the write-off of $4.0 million of original issue
discount associated with the 13% First Mortgage Notes, and a related tax benefit
at a rate of 35%.

        There can be no assurance that Coast Hotels will complete the
aforementioned repurchase and debt offering transactions.

Stock Option Plan

        Effective January 1, 1999, Coast Resorts issued options to purchase
30,415 shares of its common stock to its chief operating officer, who is also
the operating officer of the Company. The options vest in 1/3 increments on
January 1, 1999, January 1, 2000 and January 1, 2001. The exercise price on the
options is at $100 per share, which is equivalent to the estimated fair value of
Coast Resorts' common stock at the grant date, as estimated by Coast Resorts
from recent sales of common stock between shareholders.



                                      F-23

<PAGE>   55


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Directors and Stockholders of
Coast Resorts, Inc.

In our opinion, the accompanying balance sheets and related statements of
operations, stockholders' equity and cash flows present fairly, in all material
respects, the financial position of Coast Resorts, Inc. (parent company only) as
of December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits in accordance with generally accepted
auditing standards, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

The Company has no material business activity other than that conducted through
its wholly owned subsidiary, Coast Hotels and Casinos, Inc. ("CHC"). The
accompanying financial statements include the parent's investment in CHC using
the equity method of accounting, and have been prepared solely to accompany the
financial statements of CHC. The financial statements of Coast Resorts, Inc.
(parent company only) should be read in conjunction with the financial
statements of CHC included in this form 10-K.



PricewaterhouseCoopers LLP

Las Vegas, Nevada 
February 5, 1999,
except for Note 2 as to which
the date is March 4, 1999



                                      F-24

<PAGE>   56



                               COAST RESORTS, INC.
                              (PARENT COMPANY ONLY)
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1997 AND 1998
                    (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                         1997            1998
                                                                      ---------       ---------
<S>                                                                   <C>             <C>      
                                     ASSETS
   CURRENT ASSETS:
     Cash and cash equivalents .................................      $       3       $       3
                                                                      ---------       ---------
       TOTAL CURRENT ASSETS ....................................              3               3
  INVESTMENT IN SUBSIDIARIES ...................................         94,767         103,054
                                                                      ---------       ---------
                                                                      $  94,770       $ 103,057
                                                                      =========       =========
                                LIABILITIES AND
                              STOCKHOLDERS' EQUITY

   CURRENT LIABILITIES:
     Due to affiliates .........................................      $     301       $     601
     Accrued liabilities .......................................             30              30
                                                                      ---------       ---------
       TOTAL CURRENT LIABILITIES ...............................            331             631
                                                                      ---------       ---------

   COMMITMENTS AND CONTINGENCIES
   STOCKHOLDERS' EQUITY:
     Preferred stock, $.01 par value, 500,000 shares authorized,
       None issued and outstanding .............................           --              --
     Common stock, $.01 par value, 2,000,000 shares authorized,
       1,494,353 shares issued and outstanding .................             15              15
     Additional paid-in capital ................................         95,398          95,398
     Retained earnings (deficit) ...............................           (974)          7,013
                                                                      ---------       ---------
       TOTAL STOCKHOLDERS' EQUITY ..............................         94,439         102,426
                                                                      ---------       ---------
                                                                      $  94,770       $ 103,057
                                                                      =========       =========
</TABLE>



                                                                               
   The accompanying notes are an integral part of these financial statements.




                                      F-25


<PAGE>   57



                               COAST RESORTS, INC.
                              (PARENT COMPANY ONLY)
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                             (DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                   1996             1997              1998
                                                               -----------       -----------       -----------
<S>                                                            <C>               <C>               <C>        
Equity interest in income (loss) from subsidiaries ......      $     3,689       $    (4,335)      $     8,287
General and administrative expenses .....................              (81)             (261)             (134)
                                                               -----------       -----------       -----------
Income (loss) before income taxes .......................            3,608            (4,596)            8,153
Income tax provision (benefit) ..........................              (28)               14               166
                                                               ===========       ===========       ===========
NET INCOME (LOSS) .......................................      $     3,636       $    (4,610)      $     7,987
                                                               ===========       ===========       ===========
Basic and diluted net income (loss) per
share of common stock ...................................      $      2.47       $     (3.08)      $      5.34
                                                               ===========       ===========       ===========

Weighted average common shares outstanding ..............        1,472,742         1,494,353         1,494,353
                                                               ===========       ===========       ===========

UNAUDITED PRO FORMA DATA (reflecting
reorganization and change in tax status of subsidiaries):
Income (loss) before income taxes .......................      $     6,108       
Provision (benefit) for income taxes ....................              (28)      
                                                               -----------       
Net income (loss) .......................................      $     6,136       
                                                               ===========       
Basic and diluted net income (loss) per share of
Common stock ............................................      $      4.17       
                                                               ===========       

Weighed average common shares outstanding ...............        1,472,742       
                                                               ===========       
</TABLE>



   The accompanying notes are an integral part of these financial statements.


                                      F-26


<PAGE>   58



                               COAST RESORTS, INC.
                              (PARENT COMPANY ONLY)
                       STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
                             (DOLLARS IN THOUSANDS)


                                                                         
<TABLE>
<CAPTION>
                                                     COMMON STOCK                            UNREALIZED
                                              ---------------------------     ADDITIONAL       GAINS       RETAINED
                                                SHARES           AMOUNT     PAID-IN CAPITAL   (LOSSES)     EARNINGS       TOTAL
                                              ----------       ----------   ---------------  ----------   ----------    ----------
<S>                                            <C>             <C>            <C>            <C>          <C>           <C>       
Balances at December 31, 1995 .............    1,000,000       $       10     $   19,340        $  --     $   23,538    $   42,888
  Exchange of notes payable of
     subsidiary for common stock ..........      494,353                5         52,520                                    52,525
  Reclassification of undistributed
     earnings to additional paid-in capital
     upon termination of partnership
     status ...............................                                       23,538                     (23,538)           --
  Net income ..............................                                                                    3,636         3,636
                                              ----------       ----------     ----------        -----     ----------    ----------
Balances at December 31, 1996 .............    1,494,353               15         95,398           --          3,636        99,049
  Net loss ................................                                                                   (4,610)       (4,610)
                                              ----------       ----------     ----------        -----     ----------    ----------
Balances at December 31, 1997 .............    1,494,353               15         95,398           --           (974)       94,439
  Net income ..............................                                                                    7,987         7,987
                                              ----------       ----------     ----------        -----     ----------    ----------
Balances at December 31, 1998 .............    1,494,353       $       15     $   95,398        $  --     $    7,013    $  102,426
                                              ==========       ==========     ==========        =====     ==========    ==========
</TABLE>

                                                                               
The accompanying notes are an integral part of these financial statements.




                                      F-27


<PAGE>   59



                               COAST RESORTS, INC.
                              (PARENT COMPANY ONLY)
                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                             1996          1997          1998
                                                                           -------       -------       -------
<S>                                                                        <C>           <C>           <C>    
CASH FLOWS FROM OPERATING ACTIVITIES:
        Net income (loss) ...........................................      $ 3,636       $(4,610)      $ 7,987
                                                                           -------       -------       -------
        ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
           CASH PROVIDED BY OPERATING ACTIVITIES:
               Equity interest in net (income) loss from subsidiaries       (3,689)        4,335        (8,287)
               Accrued liabilities ..................................           --            30            --
               Due to affiliates ....................................           53           245           300
                                                                           -------       -------       -------
                  TOTAL ADJUSTMENTS .................................       (3,636)        4,610        (7,987)
                                                                           -------       -------       -------
                  NET CASH PROVIDED BY OPERATING ACTIVITIES .........           --            --            --
                                                                           -------       -------       -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................           --            --            --
CASH AND CASH EQUIVALENTS, at beginning of year .....................            3             3             3
                                                                           -------       -------       -------
CASH AND CASH EQUIVALENTS, at end of year ...........................      $     3       $     3       $     3
                                                                           =======       =======       =======
</TABLE>


   The accompanying notes are an integral part of these financial statements.




                                      F-28

<PAGE>   60


                               COAST RESORTS, INC.
                              (PARENT COMPANY ONLY)

                          NOTES TO FINANCIAL STATEMENTS

               NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Background Information and Basis of Presentation

        Coast Resorts, Inc. ("Coast Resorts" or the "Company") is a Nevada
corporation and serves as a holding company for Coast Hotels and Casinos, Inc.
("Coast Hotels") and Coast West, Inc. ("Coast West"), also Nevada corporations.
The Company has no material business activity other than that conducted through
Coast Hotels.

        On July 21, 1998, the Company contributed the common stock of Coast West
to Coast Hotels, as a result of which Coast West became a wholly owned
subsidiary of Coast Hotels.

        The accompanying financial statements present the financial position and
results of operations of Coast Resorts as a parent company only, and thus
include Coast Resort's investment in Coast Hotels, as well as Coast Resort's
equity interest in its results of operations. Accordingly, these financial
statements should be read in conjunction with the financial statements of Coast
Hotels.

Net Income (Loss) Per Common Share

        Net income per common share for the years ended December 31, 1996, 1997
and 1998 is computed by dividing net income by the weighted average number of
shares of common stock outstanding, which weighted average totaled 1,472,742
shares, 1,494,353 shares and 1,494,353 shares, respectively. The Company has no
dilutive securities outstanding for any of the periods presented.

        In February 1997, the Financial Accounting Standard Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 is effective for periods ending after December 15, 1997 and
replaces currently reported earnings per share with "basic", or undiluted,
earnings per share and "diluted" earnings per share. Basic earnings per share is
computed based on weighted average shares outstanding while diluted earnings per
share reflects the additional dilution for all potential dilutive securities,
such as stock options and warrants.

        The Company has adopted the provisions of SFAS 128 in its fiscal 1997
and 1998 financial statements. The retroactive adoption had no impact on the
Company's operating results for the year ended December 31, 1996.

NOTE 2--SUBSEQUENT EVENT

Coast Hotel's First Mortgage Notes Repurchase

        On February 19, 1999, Coast Hotels commenced an offer to purchase and
consent solicitation with respect to the $175 million principal amount of 13%
First Mortgage Notes. Coast Hotels expects to fund the tender offer with the
proceeds from a new note offering and a bank credit facility which are
anticipated to be completed by Coast Hotels during 1999. In connection with
these transactions, Coast Hotels also expects to repurchase the $16.8 million
principal amount of 10 7/8% First Mortgage Notes. Upon completion of the
repurchase transactions, Coast Hotels anticipates that it will record an
extraordinary loss, net of tax benefit, of approximately $27.1 million which is
comprised of an estimated $33.0 million repurchase premium, the write-off of
unamortized debt issue costs of $4.8 million and the write-off of $4.0 million
of original issue discount associated with the 13% First Mortgage Notes, and a
related tax benefit at a rate of 35%.

         There can be no assurance that Coast Hotels will complete the
aforementioned repurchase and debt offering transactions.

Stock Option Plan

        Effective January 1, 1999, Coast Resorts issued options to purchase
30,415 shares of its common stock to its chief operating officer, who is also
the chief operating officer of Coast Hotels. The options vest in 1/3 increments
on January 1, 1999, January 1, 2000 and January 1, 2001. The exercise price on
the options is at $100 per share, which is equivalent to the estimated fair
value of Coast Resorts' common stock at the grant date, as estimated by Coast
Resorts from recent sales of common stock between shareholders.



                                      F-29

<PAGE>   61


                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Directors and Stockholder of
Coast Hotels and Casinos, Inc. and Subsidiary


Our report on the consolidated financial statements of Coast Hotels and Casinos,
Inc. (a wholly owned subsidiary of Coast Resorts, Inc.) and Subsidiary is
included in this report on Form 10-K. In connection with our audits of such
consolidated financial statements, we have also audited the following financial
statement schedule in this Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.



PricewaterhouseCoopers LLP

Las Vegas, Nevada
February 5, 1999



                                      F-30

<PAGE>   62


                                                                     SCHEDULE II

                         COAST HOTELS AND CASINOS, INC.
               (A WHOLLY OWNED SUBSIDIARY OF COAST RESORTS, INC.)
                        VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
                             (DOLLARS IN THOUSANDS)


<TABLE>
<CAPTION>
                                                                       ADDITIONS  ADDITIONS
                                                           BALANCE AT  CHARGED TO CHARGES TO             BALANCE AT
                                                            BEGINNING   COSTS AND   OTHER    DEDUCTIONS    END OF
DESCRIPTION                                                  OF YEAR     EXPENSES  ACCOUNTS      (1)        YEAR
-----------                                                ----------  ---------- ---------- ----------  -----------
<S>                                                           <C>         <C>         <C>      <C>         <C>   
Allowance for doubtful accounts (casino receivables)

    Year ended December 31, 1996 .......................      $  374      $   94      $--      $   89      $  379
                                                              ======      ======      ===      ======      ======

    Year ended December 31, 1997 .......................      $  379      $  448      $--      $  633      $  194
                                                              ======      ======      ===      ======      ======

    Year ended December 31, 1998 .......................      $  194      $1,499      $--      $1,099      $  594
                                                              ======      ======      ===      ======      ======


Allowance for doubtful accounts (advances to Coast West)

    Year ended December 31, 1996 .......................      $  500      $2,060      $--      $   --      $2,560
                                                              ======      ======      ===      ======      ======

    Year ended December 31, 1997 .......................      $2,560      $2,120      $--      $   --      $4,680
                                                              ======      ======      ===      ======      ======

    Year ended December 31, 1998 .......................      $4,680      $1,090      $--      $5,770      $   --
                                                              ======      ======      ===      ======      ======
</TABLE>

--------------
(1)     On July 21, 1998, Coast Resorts contributed the capital stock of Coast
        West to the Company. The allowance for doubtful accounts on advances
        previously made by the Company to Coast West ($5,770,000) was eliminated
        in connection with such transaction.




                                      F-31