<PAGE>   1


                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K/A

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended October 31, 1998        Commission file number 0-7607
                          ----------------                               ------

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

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

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

Registrant's telephone number including area code   504/944-5515
                                                    --------------
Securities registered pursuant to Section 12(b) of the Act:

         Title of each class       Name of each exchange on which registered
         -------------------       -----------------------------------------

         NOT APPLICABLE                               NONE

Securities registered pursuant to Section 12 (g) of the Act:

                           Common Stock, No Par Value
                           --------------------------
                                (Title of Class)

Indicate by a check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such report(s), and (2) has been subject to such filing requirements for
the past 90 days.

                  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 aggregate market value of the voting stock held by non-affiliates of the
Registrant was $3,341,412 computed by reference to the average bid and asked
prices of such stock on January 28, 1999.

The number of shares outstanding of the issuer's single class of common stock
was 468,580 as of January 28, 1999.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Information Statement for the 1998 Annual Meeting
of Shareholders are incorporated by reference into Part III.

                               PAGE 1 OF 45 PAGES
                            EXHIBIT INDEX ON PAGE 43


<PAGE>   2


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item                                                                 Page
----                                                                 ----

<S>         <C>                                                      <C>
ITEM 6.     SELECTED FINANCIAL DATA.................................... 3

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS........................ 4

ITEM 8.     FINANCIAL STATEMENTS.......................................12

ITEM 14     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
            REPORTS ON FORM 8-K........................................39

SIGNATURES.............................................................42

EXHIBIT INDEX..........................................................43
</TABLE>












                                       2
<PAGE>   3


                                EXPLANATORY NOTE

This Form 10-K/A is being filed to amend the Registrant's Form 10-K for the
fiscal year ended October 31, 1998, which was filed with the Securities and
Exchange Commission on February 11, 1999 to correct for an error in the
calculation of deferred income taxes for the fiscal year ended October 31, 1998.

                                     PART II

ITEM 6.  SELECTED FINANCIAL DATA

                            FAIR GROUNDS CORPORATION
                             SELECTED FINANCIAL DATA


<TABLE>
<CAPTION>
                                                               For the Five Years Ended October 31

                                            1998              1997              1996              1995              1994
                                       ------------      ------------      ------------      ------------      ------------

<S>                                    <C>               <C>               <C>               <C>               <C>
OPERATING REVENUES                     $ 36,785,091      $ 30,980,259      $ 27,496,500      $ 23,031,031      $ 22,371,571

OPERATING EXPENSES                       39,209,437        32,201,167        29,809,843        26,394,452        26,094,568
                                       ------------      ------------      ------------      ------------      ------------

LOSS FROM CONTINUING OPERATIONS          (2,424,346)       (1,220,908)       (2,313,343)       (3,363,421)       (3,722,997)

INTEREST EXPENSE                             19,752           266,435           791,566            12,318           284,926

OTHER INCOME                              1,483,027         3,013,320         4,279,503         2,459,163           605,553
                                       ------------      ------------      ------------      ------------      ------------

INCOME (LOSS) BEFORE INCOME TAXES,
  EXTRAORDINARY ITEM, AND
  CUMULATIVE EFFECT OF CHANGES IN
  ACCOUNTING PRINCIPLES                    (961,071)        1,525,977         1,174,594          (916,576)       (3,402,370)

PROVISION (BENEFIT) FOR
  INCOME TAXES                             (645,355)          775,288           294,896          (300,460)       (1,878,635)

EXTRAORDINARY ITEM - GAIN
  FROM FIRE (NET OF TAXES)                6,272,628         9,022,525                --                --         9,312,758

CUMULATIVE EFFECT OF CHANGES
  IN ACCOUNTING PRINCIPLES                       --                --                --           104,000           (75,094)
                                       ------------      ------------      ------------      ------------      ------------

NET INCOME (LOSS)                      $  5,956,912      $  9,773,214      $    879,698      $   (512,116)     $  7,713,929
                                       ============      ============      ============      ============      ============

COMMON SHARES OUTSTANDING                   469,940           469,940           469,940           469,940           469,940
                                       ============      ============      ============      ============      ============

LOSS FROM CONTINUING OPERATIONS
  PER COMMON SHARE                     $      (5.17)     $      (2.61)     $      (4.94)     $      (2.18)     $      (7.95)
                                       ============      ============      ============      ============      ============
NET INCOME (LOSS) PER COMMON
 SHARE                                 $      12.71      $      20.80      $       1.87      $      (1.09)           (16.48)
                                       ============      ============      ============      ============      ============

CASH DIVIDENDS DECLARED
 PER SHARE                             $       None      $       None      $       None      $       None      $       None
                                       ============      ============      ============      ============      ============

TOTAL ASSETS                           $ 49,144,377      $ 48,089,820      $ 34,791,597      $ 30,954,654      $ 26,470,322
                                       ============      ============      ============      ============      ============

NOTES PAYABLE (EXCLUDING
         CURRENT PORTION)              $         --      $         --      $         --      $         --      $  1,000,000
                                       ============      ============      ============      ============      ============
</TABLE>



                                       3
<PAGE>   4


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

RESULTS OF OPERATIONS

Fiscal 1998 Compared to Fiscal 1997

Revenues. During the fiscal years ended October 31, 1998 and 1997, the Company
derived its pari-mutuel income by conducting live racing meets of 88 days during
each fiscal year and in the operation of its tele-tracks for off-track wagering.
In fiscal 1998, the Company utilized its new grandstand and clubhouse
facilities, which were completed in November 1997, when live racing was being
conducted at the Fair Grounds Race Course. Live racing in fiscal 1997 was
conducted at Fair Grounds Race Course utilizing temporary tent facilities and
the tele-track which was completed and put into service in late 1994. During
each such fiscal year, the Company operated tele-tracks in New Orleans at the
Fair Grounds Race Course and on Bourbon Street, and at locations in Jefferson,
Lafourche, St. Bernard and St. John Parishes, Louisiana. Through Finish Line
Management Corporation, an affiliated company, the Company operated tele-track
facilities in Terrebonne, St. Tammany, and Jefferson Parishes, Louisiana.

For the fiscal year ended October 31, 1998, the Company reported total in-state
pari-mutuel wagering of $119,710,774 compared to $105,682,151 in fiscal 1997.

         Comparative pari-mutuel wagering and attendance figures for the fiscal
         years ended October 31, 1998 and 1997 are as follows:

<TABLE>
<CAPTION>
                                          1998             1997
                                     ------------     ------------
<S>                                  <C>              <C>
Pari-mutuel wagering:
   On-track handle                   $ 25,789,351     $ 20,200,754
   Off-track handle                    93,921,423       85,481,397
                                     ------------     ------------
   Total in-state wagering           $119,710,774     $105,682,151
                                     ============     ============
   Out-of-state simulcast handle     $219,765,627     $165,823,806
                                     ============     ============
Attendance:
   On-track                               189,439          109,982
   Off-track                              391,271          389,149
                                     ------------     ------------
Total Attendance                          580,710          499,131
                                     ============     ============
</TABLE>

The $5,588,597, or 27.7%, increase in the on-track handle is primarily due to
the opening of the new racing facility in November 1997.

The Company believes that the $8,440,026, or 9.9%, increase in off-track handle
is primarily due to the Company transmitting better simulcasting signals and
higher quality racing in the Company's live racing meet. The $53,941,821, or
32.5%, increase in out-of-state handle is the result of those same factors as
well as telecasting the Company's races to new out-of-state markets. During the
fiscal year ended October 31, 1998, New York took full cards from the Company
through the end of January increasing the New York handle by $21 million over
the same period last year plus significant handle increases from Kentucky,
Pennsylvania, Texas and Las Vegas.




                                       4
<PAGE>   5


Net Income. The Company reported net income of $5,956,912 for the fiscal year
ended October 31, 1998 compared to net income of $9,773,214 for the previous
fiscal year. In both fiscal years, the Company received significant litigation
settlements as described herein, and in fiscal 1998 the Company also reported a
$645,355 income tax benefit as described herein. In addition, as previously
reported, in fiscal 1997, the Company received video poker franchise fee relief
of approximately $1.92 million which was not available in fiscal 1998. The
Company anticipates that net income for fiscal 1999 will be substantially below
net income for fiscal 1998 because the Company does not expect to record an
income tax benefit in fiscal 1999 similar to that recorded in fiscal 1998 and
the Company may not receive any significant litigation recoveries in fiscal
1999.

Operating Revenues. As a result of the increases in total attendance and
wagering on the Company's races, the Company's fiscal 1998 operating revenues
increased by $5,804,832, or 18.7%, from the prior fiscal year. This included
increases of $2,919,060, or 14%, in pari-mutuel commissions, $37,268, or 7.74%,
in breakage, $1,366,481, or 23.8%, in host track fees, $553,084, or 23.6%, in
video poker revenue, and $456,199, or 154%, in admissions revenue. Admission
revenues include admissions to box seats and suites that were unavailable prior
to the opening of the new racing facility in November 1997. In addition, net
concessions revenues increased by approximately $586,417, or 65.8%, as a result
of the opening of the new clubhouse and grandstand facilities. The Company
believes that operating revenues in fiscal 1999 will be slightly higher than in
fiscal 1998 due to further increases in attendance and wagering.

Racing Expenses. Total racing expenses increased by $5,743,309, or 20.4%, over
fiscal year 1997, primarily as a result of increases in purses, racing salaries
and related benefits, host track fees, repairs and maintenance, advertising and
promotion, utilities, program paper, forms and other supplies, and miscellaneous
racing expenses, arising from the increased pari-mutuel handle and attendance at
the new racing facility. Depreciation expense increased by $258,826, or 16.3%,
also due to the opening of the new facility. The Company expects that racing
expenses in fiscal 1999 will be slightly higher than in fiscal 1998.

General and Administrative Expenses. General and administrative expenses for the
fiscal year ended October 31, 1998 increased $1,264,961, or 30.8%, from the
prior fiscal year. The increase was a result of an increase in salaries and
related taxes and benefits, property taxes, miscellaneous expenses, and office
expenses primarily due to the opening of the new facility. The Company expects
general and administrative expenses in fiscal 1999 to be at approximately the
same level as in fiscal 1998.

Other Income (Expenses). Total other income decreased $1,283,610, or 46.7%, from
the prior fiscal year primarily as a result of a decrease of $1,921,362 in video
poker franchise fee relief partially offset by an increase of $328,220 in Jazz
and Heritage Festival beverage sales income due to the improved weather during
this year's festival compared to the prior year's festival, and a decrease of
$246,683 of interest expense due to the repayment of the construction loans in
late 1997. The Company expects other income (expense) to be at approximately the
same level as in fiscal 1998.






                                       5
<PAGE>   6


Interest income increased by $52,469 from the prior fiscal year primarily as a
result of the Company investing its operating funds in overnight repurchase
securities through a financial institution beginning in July 1998. Short term
loan closing costs decreased by $127,105 due to the lack of financing needs of
the Company compared to the prior fiscal year. The decrease in the gain on sale
of property, plant and equipment of $115,602 related to the prior year sale of
certain temporary racing facilities, which were used prior to the opening of the
Company's new facility.

Extraordinary Items. During the fiscal year ended October 31, 1998, the Company
recorded an extraordinary item of $6,272,628, which was net of $3,683,924 of
income taxes, as a result of a fire-related litigation settlement with ADT
discussed further herein. During the fiscal year ended October 31, 1997, the
Company recorded an extraordinary item of $9,022,525, which was net of
$5,298,944 of deferred income taxes, as a result of a fire-related litigation
settlement with an insurance agent and broker.

Income Taxes. In addition to the components of net income previously discussed,
net income for fiscal 1998 included an income tax benefit of $645,355 compared
to income tax expense of $775,288 in fiscal 1997. The income tax benefit was
attributable to a reduction of the excess of basis for financial reporting
purposes over basis for tax purposes of property constructed with the recoveries
in the fire-related litigation and insurance settlements due to the current
recognition of the gain on the receipt of the recoveries for tax purposes.

Fiscal 1997 Compared to Fiscal 1996

Revenues. During the fiscal years ended October 31, 1997 and 1996, the Company
derived its pari-mutuel income by conducting live racing meets of 88 days during
each fiscal year, and in the operation of its tele-tracks for off-track
wagering. In each of those periods, the Company utilized temporary tent
facilities and its new tele-track at the Fair Grounds Race Course when
conducting live racing because the new grandstand and clubhouse had not been
completed. During each such fiscal year, the Company operated tele-tracks in New
Orleans at the Fair Grounds Race Course and on Bourbon Street, and at locations
in Jefferson, Lafourche, St. Bernard and St. John Parishes, Louisiana. Through
Finish Line, the Company operated tele-track facilities in Terrebonne, St.
Tammany, and Jefferson Parishes, Louisiana that were formerly operated by
Jefferson Downs.

For the fiscal year ended October 31, 1996, the Company reported total in-state
pari-mutuel wagering of $105,682,151 compared to $96,474,002 in fiscal 1996.

Comparative pari-mutuel wagering and attendance figures for the fiscal years
ended October 31, 1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                    1997            1996
                               ------------     -----------
<S>                            <C>              <C>
Pari-mutuel wagering:
   On-track handle             $ 20,200,754     $20,180,889
   Off-track handle              85,481,397      76,293,113
                               ------------     -----------
   Total in-state wagering     $105,682,151     $96,474,002
                               ============     ===========
</TABLE>



                                       6
<PAGE>   7



<TABLE>
<CAPTION>
                                1997             1996
                           ------------     ------------
<S>                        <C>              <C>
Out-of-state simulcast
      handle               $165,823,806     $116,590,172
                           ============     ============
Attendance:
   On-track                     109,982          110,162
   Off-track                    389,149          316,687
                           ------------     ------------
Total Attendance                499,131          426,849
                           ============     ============
</TABLE>

Although in previous fiscal years the Company had experienced declines in
on-track handle due to the limited amenities afforded by the temporary
facilities, the on-track handle for fiscal 1997 was slightly higher than that
for fiscal 1996.

The $9,188,284, or 12%, increase in off-track handle was primarily the result of
the continued success and growth of the Jefferson Parish tele-track facility
opened in October 1995. Handle at the Jefferson Parish facility during fiscal
1997 increased 31.4% over the prior fiscal year.

The $49,233,634, or 42%, increase in out-of-state handle in fiscal 1997 was the
result of continued efforts to telecast the Company's races to new out-of-state
markets. During the fiscal 1997 race meet, there were 14 new markets telecasting
the Company's races, including tracks in Ohio, Oklahoma, Florida, Michigan and
New York, which accounted for approximately $27.7 million, or 56%, of the handle
increase.

Net Income. For the fiscal year ended October 31, 1997, the Company reported net
income of $9,773,214, compared to net income of $879,698 in fiscal 1996. The
increase was primarily the result of litigation settlements and increases in
mutuel income compared to fiscal 1996, partially offset by an increase in racing
expenses over the prior fiscal year. These are described in more detail below.

Operating Revenues. As a result of the increase in total wagering, the Company's
fiscal 1997 operating revenues increased by $3,483,759, or 13%, from fiscal
1996. This included increases of $1,887,524, or 10%, in pari-mutuel commissions,
$73,651, or 22%, in uncashed mutuel tickets, $1,322,817, or 30%, in host track
fees and $391,126, or 20%, in video poker revenue. The Jefferson Parish
tele-track facility accounted for a significant portion of the increase in video
poker revenues. The increase was partially offset by increased pari-mutual taxes
of $222,074.

Racing Expenses. Total racing expenses increased by $2,708,119, or 10.7%, over
fiscal 1996, primarily as a result of increases in purses, racing salaries,
contracts and services, host track fees, advertising, rent, repairs and
maintenance and program paper, forms and other supplies arising out of increased
pari-mutuel handle. This increase was partially offset by a decrease in
depreciation expense and utilities and miscellaneous expense. The temporary
racing facilities which the Company had utilized since January 1994 became fully
depreciated in January 1997.

General and Administrative Expenses. General and administrative expenses for the
fiscal year ended October 31, 1997 decreased $316,155, or 7.2%, from fiscal 1996
primarily due to decreases in salaries resulting from a reduction in general and
administrative staff. The decrease was partially offset by increases in
contracts and services for the





                                       7
<PAGE>   8



construction of the new main facility and by increases in office expense.

Other Income (Expenses). Total other income decreased $741,052, or 21.2%, from
fiscal 1996 primarily as a result of a decrease in Jazz and Heritage Festival
revenue and video poker franchise fee relief revenue, partially offset by a gain
of $115,602 on the sale of the salvage from the removal of the fully depreciated
temporary facilities, and a decrease in interest expense of $525,131 relating to
the bank financing discussed elsewhere herein.

The Jazz and Heritage Festival revenue decreased $486,218, or 31.7%, due to
inclement weather during the first weekend of the seven-day festival in fiscal
1997. The Company receives revenues on the sale of certain beverages during the
festival, which is held at the Fair Grounds Race Course.

Video poker franchise fee relief revenue decreased $967,600, or 33.5%, compared
to fiscal 1996. The revenue provided by the franchise fee relief legislation
described elsewhere herein was available for only a few months during fiscal
1997, compared to the entire 12 months in fiscal 1996. No franchise fee relief
was available to the Company after fiscal 1997 because the Company had repaid
all indebtedness incurred to construct its new main grandstand and racing
facility.

Extraordinary Items. During fiscal year 1997, the Company received settlement
payments in connection with the fire-related litigation described herein in the
aggregate amount of $14,321,469. These proceeds were net of related income tax
expense of $5,298,944.

Income Taxes. In addition to the components of net income previously discussed,
the net income for fiscal 1997 included income tax expense of $775,288 compared
to an income tax expense of $294,896 in fiscal 1996.

LIQUIDITY AND CAPITAL RESOURCES

General

Cash and cash equivalents increased $2,384,974 during the fiscal year ended
October 31, 1998, compared to a decrease of $1,072,178 during the fiscal year
ended October 31, 1997. The increase in cash and cash equivalents in fiscal 1998
was the result of cash provided by operations of $1,895,735, and cash provided
by investing activities of $5,761,248, partially offset by cash used for
financing activities of $5,272,009. Cash used in financing activities related
primarily to the repayment of construction loans. The cash provided by investing
activities was primarily the receipt of $9.9 million of proceeds from
fire-related litigation settlement, partially offset by construction
expenditures for the Company's new racing facility.

In December 1997, the Company entered into a settlement with ADT and its excess
coverage insurers, pursuant to which the Company was paid $37 million, which was
deposited in escrow, and agreed to indemnify ADT and its insurers against the
judgment creditor claims of the intervening insurers. In December 1997, the
Company received $7.7 million of such funds net of litigation expenses. The
balance of the settlement funds were placed in escrow pending resolution of
subrogation claims. The Company received an additional $2.2 million, net of
litigation expenses,




                                       8
<PAGE>   9


in July 1998 pursuant to the settlement described below. The claims of the
Company and the Company's primary property insurer to the remaining escrow funds
are the subject of a civil action now on appeal to the Louisiana Supreme Court.

In connection with the receipt of the settlement proceeds described herein, the
Company recognized an extraordinary gain for the fiscal year ended October 31,
1998 of approximately $6.27 million, which is net of income taxes of
approximately $3.68 million. As a result of this and other settlements received,
the Company has a total net deferred tax liability of approximately $7.08
million. Approximately $3.0 million of this tax liability was due for the tax
year ended October 31, 1998 and has been paid. The remaining deferred tax
liability is to be paid over approximately 39 years in accordance with Internal
Revenue Service regulations. The Company intends to fund these future tax
obligations through operations.

In April 1, 1998, in connection with the ongoing fire-related litigation, the
court entered judgment in favor of the Company and against Travelers, awarding
the Company an additional $2,410,905 in business interruption insurance, legal
interest on the sum from May 13, 1994 until paid, statutory penalties in the
amount of $222,128 and attorney's fees in an amount to be set by the court. In
August 1998, the Court denied all post trial motions and certified the judgment
as being immediately appealable. Under the Mary Carter agreement referred to
above, the liability insurers of the agent and broker are entitled to share in
this award. The Company estimates that its portion of the award, when paid, will
be approximately $1.5 million to $2 million, depending upon the amount of
interest accrued and attorney's fees awarded. This award has been appealed. As
of October 31, 1998, the Company had received cumulatively, since the December
1993 fire, approximately $44 million of insurance proceeds resulting from fire
loss claims submitted to the Company's insurance carriers or in litigation
settlements.

The Company's new main grandstand and racing facility was substantially
completed in November 1997 and was opened for the start of the Company's 1997-98
live racing meet. The total cost of constructing the facility, excluding the
tele-track facility at the Fair Grounds Race Course that was completed in late
1994, through October 31, 1998 was approximately $31 million. Of such amount,
approximately $2.5 million was spent during the fiscal year ended October 31,
1998.

All of the Company's indebtedness to First National Bank of Commerce (now "Bank
One") ("FNBC"), which was incurred in connection with the construction of the
new facility, has been repaid and the Company has no significant indebtedness
remaining relating to construction of those facilities. As a result, video poker
franchise fee relief, which was made available to the Company by legislation
enacted in 1994, has not been available to the Company since fiscal 1997. During
the 1994-1997 fiscal years, the Company received approximately $5.5 million in
the aggregate in franchise fee relief.

On April 14, 1998, the Company entered into a working capital line of credit
agreement with FNBC. The line of credit is for $2.5 million with interest at 8%
on amounts outstanding. In addition to monthly interest payments on outstanding
balances, any amounts outstanding plus unpaid accrued interest are due on April
14, 1999.





                                       9
<PAGE>   10



There were no amounts drawn down or outstanding on this line of credit during
the fiscal year ended October 31, 1998. The line of credit is secured by a
commercial guarantee by Finish Line Management Corporation and a collateral
mortgage note dated November 30, 1995 with all related amendments.

In January 1999, the Company received a $1 million advance from its video poker
operator which it will repay in six equal installments beginning in February
1999.

The Company believes that the combination of existing cash, cash from future
operations, any additional amounts received in the fire-related litigation,
funds available under its working capital line of credit, and the Company's
increased capacity to incur short-term and long-term indebtedness, if necessary,
will be sufficient to fund the Company's cash requirements for the foreseeable
future.

Year 2000 Compliance

A significant part of the Company's operations are dependent on computer systems
and applications. These systems are either owned by the Company or are provided
under contract by third party technology or other service providers. If these
systems are not year 2000 compliant, the Company could experience system
failures or miscalculations leading to disruption of business operations.

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

The Company has also made, and is continuing to make, inquiries to third party
providers as to their compliance and is in the process of obtaining written
assurances from certain vendors, as well as other race tracks with which the
Company interfaces, as to their year 2000 readiness. The Company's plant and
equipment, as well as the providers of services to the plant and equipment, are
also being reviewed to determine whether they are year 2000 ready. The services
of certain of those providers, including electrical and telephone services, are
essential to the Company's ability to operate. The Company's most significant
third party technology services provider is Autotote, which performs the
totalisator functions for the Company. The Company's contract with Autotote
provides that the services are to be year 2000 compliant. Autotote has
contracted with a third party consultant to attain such compliance. If Autotote
does not become compliant, the Company's operations could be adversely affected
until another provider of the totalisator function can be found. The video
services provided by another third party provider are also important to the
Company's operations. These services include the production of the telecast
signal at the Fair Grounds Race Course and distribution to the Company's
tele-tracks and to other wagering facilities within and outside Louisiana. The
Company is working with such provider to ensure that the software applications
that provide the graphical enhancements and other distinguishing features to the
telecast signals are year 2000 compliant. The video poker devices at the





                                       10
<PAGE>   11



Company's facilities are provided by another third party provider. The Company
is working with that provider to ensure that such equipment is year 2000
compliant.

To date, the Company has incurred costs of approximately $30,000, including the
cost and time of Company employees, to address year 2000 issues. Although the
Company has not completed its assessment of its facility, data processing and
other equipment and, accordingly, has not determined the total costs associated
with its efforts to prepare for year 2000, the Company currently believes that
the costs of addressing its year 2000 transition will not have a material
adverse effect on the Company's financial condition or business operations. The
Company has not yet completed a contingency plan addressing failure to be year
2000 ready.

Impact of Inflation

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

Forward-Looking Statements

The statements in this Management's Discussion and Analysis that are
forward-looking are based upon current expectations, and actual results may
differ materially. Therefore, the inclusion of such forward-looking information
should not be regarded as a representation by the Company that the objectives or
plans of the Company will be achieved. Such statements include, but are not
limited to, the Company's expectations regarding the source of funds for payment
of its deferred tax liability, the recovery of additional funds in the
fire-related litigation, the adequacy of its cash, cash equivalents and
borrowings available under its new working capital line of credit to fund future
operations, and the Company's increased capacity to incur short-term and
long-term indebtedness. Words such as "anticipates," "believes," "expects,"
"estimated" and variations of such words and similar expressions are intended to
identify such forward-looking statements. Forward-looking statements contained
herein involve numerous risks and uncertainties, and there are a number of
factors that could cause actual results to differ materially including, but not
limited to, the following: changing economic, market and business conditions,
the ability of the Company to compete effectively for top horses and trainers
necessary to field high-quality horse racing; the ability of the Company to grow
its share of the interstate simulcast market; a substantial change in allocation
of live racing days; the impact of competition from alternative gaming
(including riverboat casinos and lotteries) and other sports and entertainment
options in those markets in which the Company operates; and the Company's
success in attracting new patrons and generating additional revenue for purses.







                                       11
<PAGE>   12



ITEM 8.      FINANCIAL STATEMENTS

The following financial statements of the Company, including the notes thereto,
and the Report of Independent Certified Public Accountants are included
herewith:

Report of Independent Certified Public Accountants

Balance Sheets at October 31, 1998 (As Restated) and 1997

Statements of Operations for the Three Years Ended October 31, 1998 (Fiscal Year
Ended October 31, 1998, As Restated)

Statements of Changes in Stockholders' Equity for the Three Years Ended October
31, 1998 (Fiscal Year Ended October 31, 1998, As Restated)

Statements of Cash Flows for the Three Years Ended October 31, 1998 (Fiscal Year
Ended October 31, 1998, As Restated)



















                                       12
<PAGE>   13


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To The Board of Directors
and Stockholders of the
Fair Grounds Corporation


We have audited the accompanying balance sheets of the Fair Grounds Corporation
as of October 31, 1998 and 1997, and the related statements of operations, of
changes in stockholders' equity, and of cash flows for each of the three years
in the period ended October 31, 1998. 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. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of October 31,
1998 and 1997 and the results of its operations and its cash flows for each of
the three years in the period ended October 31, 1998 in conformity with
generally accepted accounting principles.

As discussed in Note 12 to the financial statements, certain errors involving
the calculation of deferred income taxes were discovered by management of the
Company during the fiscal year ended October 31, 1999. Accordingly, the October
31, 1998 financial statements have been restated to correct the error.


/s/ Rebowe & Company

Metairie, Louisiana
January 8, 1999, except
for Note 12, which is
as of December 27, 1999





                                       13
<PAGE>   14


                            FAIR GROUNDS CORPORATION
                                 BALANCE SHEETS


<TABLE>
<CAPTION>
                                                               October 31
ASSETS                                                   1998              1997
                                                     ------------      ------------
<S>                                                  <C>               <C>
CURRENT ASSETS
 Cash and cash equivalents                           $  7,577,730      $  5,192,756
 Cash and cash equivalents - restricted                   118,218         2,643,702
 Accounts receivable                                    1,078,638         1,348,530
 Mutuel settlements                                       139,964            38,892
 Investment securities - available for sale                    --           592,878
 Inventory                                                118,357            95,303
 Deferred income taxes                                     59,940                --
 Prepaid expenses                                         437,322           353,167
                                                     ------------      ------------

      Total Current Assets                              9,530,169        10,265,228
                                                     ------------      ------------

OTHER ASSETS                                              283,411           125,516
                                                     ------------      ------------

PROPERTY, PLANT AND EQUIPMENT
 Buildings and improvements                            43,870,295        40,587,514
 Land improvements                                      4,348,135         4,340,935
 Automotive equipment                                     931,424           849,201
 Machinery and equipment                                2,432,433         2,365,837
 Furniture and fixtures                                   366,575           326,898
                                                     ------------      ------------

      Total                                            51,948,862        48,470,385

 Less: accumulated depreciation and amortization      (15,904,346)      (14,057,590)
                                                     ------------      ------------

 Depreciable property - net                            36,044,516        34,412,795
 Land                                                   3,286,281         3,286,281
                                                     ------------      ------------

      Property, plant and equipment - net              39,330,797        37,699,076
                                                     ------------      ------------

      TOTAL ASSETS                                   $ 49,144,377      $ 48,089,820
                                                     ============      ============
</TABLE>






                                       14
<PAGE>   15



                            FAIR GROUNDS CORPORATION
                           BALANCE SHEETS (CONTINUED)

<TABLE>
<CAPTION>
                                                         October 31
LIABILITIES AND STOCKHOLDERS' EQUITY               1998              1997
                                               ------------      ------------
<S>                                            <C>               <C>
CURRENT LIABILITIES
  Notes payable                                $     46,894      $  5,318,903
  Accounts payable                                1,493,409         1,097,655
  Construction contract payable                      58,732         1,156,726
  Accrued liabilities:
    Deferred purses                               7,930,825         7,425,179
    Host track fees                                 374,251           416,516
    Uncashed mutuel tickets                         446,786           364,246
    Other                                           369,135           524,850
  Deferred revenues                                 275,701           140,840
  Income taxes payable                              515,391           121,000
                                               ------------      ------------

       Total Current Liabilities                 11,511,124        16,565,915
                                               ------------      ------------

DEFERRED INCOME TAXES                             9,995,418         9,846,104
                                               ------------      ------------
       Total Liabilities                         21,506,542        26,412,019
                                               ------------      ------------

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

STOCKHOLDERS' EQUITY
  Capital stock - no par value; authorized
    600,000 shares, 469,940 shares issued
    and 468,580 shares outstanding                1,525,092         1,525,092
  Additional paid-in capital                      1,936,702         1,936,702
  Retained earnings                              24,211,566        18,254,654
  Unrealized loss on investment
    securities-available for sale                        --            (3,122)
                                               ------------      ------------

       Total                                     27,673,360        21,713,326

  Less: treasury stock at cost,
            1,360 shares at 1998 and 1997           (35,525)          (35,525)
                                               ------------      ------------

       Total Stockholders' Equity                27,637,835        21,677,801
                                               ------------      ------------

       TOTAL LIABILITIES AND
       STOCKHOLDERS' EQUITY                    $ 49,144,377      $ 48,089,820
                                               ============      ============
</TABLE>

See accompanying notes to financial statements.












                                       15
<PAGE>   16


                            FAIR GROUNDS CORPORATION
                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                          For the Years Ended October 31
                                     1998              1997              1996
                                 ------------      ------------      ------------
<S>                              <C>               <C>               <C>
 REVENUES
   Pari-mutuel commissions       $ 23,751,342      $ 20,832,282      $ 18,944,758
   Breakage                           518,822           481,554           439,204
   Uncashed mutuel tickets            476,740           404,405           330,754
                                 ------------      ------------      ------------
        Total                      24,746,904        21,718,241        19,714,716

   Less: pari-mutuel tax           (3,164,575)       (2,792,092)       (2,570,018)
                                 ------------      ------------      ------------

   Commission income               21,582,329        18,926,149        17,144,698
   Host track fees                  7,100,025         5,733,544         4,410,727
                                 ------------      ------------      ------------

        Total Mutuel Income        28,682,354        24,659,693        21,555,425

   Concessions                      2,194,788         1,485,227         1,467,187
   Admissions (net of taxes)          753,069           296,870           351,569
   Parking                             45,090            20,581            14,967
   Video poker                      2,899,761         2,346,677         1,955,551
   Programs and forms               1,598,562         1,491,628         1,474,947
   Miscellaneous                      611,467           679,583           676,854
                                 ------------      ------------      ------------

        Total Operating
          Revenues                 36,785,091        30,980,259        27,496,500
                                 ------------      ------------      ------------

 RACING EXPENSES
   Purses                          13,339,805        11,041,607         9,558,545
   Salaries and related
     taxes and benefits             7,058,677         5,702,370         5,092,149
   Contracts and services           2,197,555         2,333,814         2,069,396
   Depreciation                     1,847,867         1,589,041         1,810,257
   Host track fees                  2,785,281         2,482,926         2,178,478
   Program paper, forms and
     other supplies                 1,774,943         1,587,615         1,545,963
   Utilities                        1,204,332           674,071           711,022
   Advertising and promotion        1,152,101           917,817           781,935
   Cost of sales -
     concessions                      716,918           593,774           541,691
   Repairs and maintenance            733,474           383,343           300,332
   Rent                               326,973           304,138           303,006
   Miscellaneous                      704,012           488,113           497,736
                                 ------------      ------------      ------------

        Total Racing
          Expenses               $ 33,841,938      $ 28,098,629      $ 25,390,510
                                 ------------      ------------      ------------
</TABLE>

(Continued)




                                       16
<PAGE>   17


                            FAIR GROUNDS CORPORATION
                      STATEMENTS OF OPERATIONS (CONTINUED)


<TABLE>
<CAPTION>
                                                     For the Years Ended October 31
                                                 1998             1997             1996
                                              -----------      -----------      -----------
<S>                                           <C>              <C>              <C>
GENERAL AND ADMINISTRATIVE
  EXPENSES
  Salaries and related
    taxes and benefits                        $ 1,483,233      $   993,049      $ 1,225,683
  Insurance                                       827,775          866,343          950,882
  Property taxes                                  811,104          399,541          395,863
  Legal, audit and director fees                1,051,024        1,129,814        1,203,501
  Contracts and services                          179,880          197,603          159,521
  Office expenses                                 408,938          350,090          303,398
  Miscellaneous                                   605,545          166,098          180,485
                                              -----------      -----------      -----------

       Total General and
         Administrative Expenses                5,367,499        4,102,538        4,419,333
                                              -----------      -----------      -----------

LOSS FROM OPERATIONS                           (2,424,346)      (1,220,908)      (2,313,343)
                                              -----------      -----------      -----------

OTHER INCOME (EXPENSE)
  Jazz and Heritage Festival income - net       1,376,973        1,048,753        1,534,971
  Video poker franchise fee revenue                    --        1,921,362        2,888,962
  Interest expense                                (19,752)        (266,435)        (791,566)
  Interest income                                 130,821           78,352           31,990
  Short-term loan closing costs                   (24,042)        (151,147)        (159,702)
  Gain on sale of
    property, plant and equipment                      --          115,602           20,362
  Gain (Loss) on sale of
    securities available for sale                    (725)             398          (37,080)
                                              -----------      -----------      -----------

       Total Other Income                     $ 1,463,275      $ 2,746,885      $ 3,487,937
                                              -----------      -----------      -----------
</TABLE>

(Continued)



                                       17
<PAGE>   18


                            FAIR GROUNDS CORPORATION
                      STATEMENTS OF OPERATIONS (CONTINUED)


<TABLE>
<CAPTION>
                                                         For the Years Ended October 31
                                                       1998            1997           1996
                                                   -----------      ----------     ----------

<S>                                                <C>              <C>            <C>
INCOME (LOSS) BEFORE INCOME TAXES
   AND EXTRAORDINARY ITEM                          $  (961,071)     $1,525,977     $1,174,594

PROVISION (BENEFIT) FOR
   INCOME TAXES                                       (645,355)        775,288        294,896
                                                   -----------      ----------     ----------


INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM                                    (315,716)        750,689        879,698

EXTRAORDINARY ITEM -
INSURANCE PROCEEDS AS A RESULT
OF DECEMBER 1993 FIRE (net of $3,683,924
and $5,298,944 of related income taxes in 1998
and 1997 respectively)                               6,272,628       9,022,525             --
                                                   -----------      ----------     ----------

NET INCOME                                         $ 5,956,912      $9,773,214     $  879,698
                                                   ===========      ==========     ==========
</TABLE>



(Continued)





                                       18
<PAGE>   19


                            FAIR GROUNDS CORPORATION
                      STATEMENTS OF OPERATIONS (CONTINUED)


<TABLE>
<CAPTION>
                                 For the Years Ended October 31
                                 1998          1997         1996
                               --------      --------     --------

<S>                            <C>           <C>          <C>
PER SHARE OF COMMON STOCK:

   INCOME (LOSS) BEFORE
     EXTRAORDINARY ITEM        $  (0.68)     $   1.60     $   1.87

   EXTRAORDINARY ITEM,
     NET OF INCOME TAXES          13.39         19.20           --
                               --------      --------     --------

   NET INCOME                  $  12.71      $  20.80     $   1.87
                               ========      ========     ========
</TABLE>











See accompanying notes to financial statements.




                                       19
<PAGE>   20


                            FAIR GROUNDS CORPORATION
                  STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
               For the Years Ended October 31, 1998, 1997 and 1996


<TABLE>
<CAPTION>
                                                                               Unrealized
                                                                                Loss On
                                Additional                                     Securities                       Total
                                  Capital        Paid-In         Retained      Available      Treasury      Stockholders'
                                  Stock          Capital         Earnings       For Sale       Stock           Equity
                                ----------     -----------      -----------     --------      --------      ------------
<S>                             <C>            <C>              <C>            <C>            <C>           <C>
Balance,
October 31, 1995                $1,525,092     $ 1,942,350      $ 7,601,742     $(54,884)     $(45,973)     $ 10,968,327

  Net Income                            --              --          879,698           --            --           879,698

 Change in unrealized loss
  on securities available
  for sale                              --              --               --       37,759            --            37,759

 Loss on sale of treasury
  Stock                                 --          (5,648)              --           --            --            (5,648)

 Treasury stock sold
 (400) shares                           --              --               --           --        10,448            10,448
                                ----------     -----------      -----------     --------      --------      ------------

Balance
October 31, 1996                 1,525,092       1,936,702        8,481,440      (17,125)      (35,525)       11,890,584

  Net Income                            --              --        9,773,214           --            --         9,773,214

  Change in unrealized loss
  on securities available
  for sale                              --              --               --       14,003            --            14,003
                                ----------     -----------      -----------     --------      --------      ------------

Balance
October 31, 1997                 1,525,092       1,936,702       18,254,654       (3,122)      (35,525)       21,677,801

  Net Income                            --              --        5,956,912           --            --         5,956,912

  Change in unrealized loss
  on securities available
  for sale                              --              --               --        3,122            --             3,122
                                ----------     -----------      -----------     --------      --------      ------------

Balance
October 31, 1998                $1,525,092     $ 1,936,702      $24,211,566     $     --      $(35,525)     $ 27,637,835
                                ==========     ===========      ===========     ========      ========      ============
</TABLE>

    See accompanying notes to financial statements.




                                       20
<PAGE>   21



                            FAIR GROUNDS CORPORATION
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                    For the Years Ended October 31
                                              1998              1997             1996
                                          -----------      ------------      -----------
<S>                                       <C>              <C>               <C>
CASH FLOWS FROM OPERATING
  ACTIVITIES
Net income                                $ 5,956,912      $  9,773,214      $   879,698

    Adjustments to reconcile
      net income to net
      cash provided by
      operating activities:
        Depreciation                        1,847,867         1,589,041        1,810,257
        Gain on sale
          of property                              --          (115,602)         (20,363)
        Provision (benefit) for
          deferred income taxes              (301,326)        5,836,263          244,896
        Loss (Gain) on sale of
         investment securities                   (725)             (398)          37,080
        Gain from fire                     (9,900,000)      (14,321,469)              --
        Change in assets and
          liabilities:
          (Increase) decrease in:
           Accounts receivable and
            mutual settlements                168,820          (438,071)          91,868
            Inventory                         (23,054)          (11,055)          (3,683)
            Prepaid expenses                  (84,155)           72,816          131,050
            Cash and cash
              equivalents -
             restricted                     2,525,484        (2,509,773)          20,980
            Deposits and other assets        (157,895)          (23,832)         (30,420)
          Increase (decrease) in:
            Accounts payable and
              accrued liabilities             736,220           524,312           (5,541)
            Deferred purses                   505,646           732,124        1,026,843
            Deferred revenues                 134,861           134,840          (44,149)
            Income taxes payable              329,185            71,000           50,000
                                          -----------      ------------      -----------

              Total Adjustments            (4,219,072)       (8,459,804)       3,308,818
                                          -----------      ------------      -----------

          Net cash provided by
            operating activities            1,737,840         1,313,410        4,188,516
                                          -----------      ------------      -----------
</TABLE>


(Continued)



                                       21
<PAGE>   22


                            FAIR GROUNDS CORPORATION
                      STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
                                              For the Years Ended October 31
                                         1998              1997              1996
                                     -----------      ------------      ------------
<S>                                  <C>              <C>               <C>
CASH FLOWS FROM INVESTING
  ACTIVITIES
      Capital expenditures            (3,478,477)      (12,965,686)       (5,650,671)
      Construction contract
        payable                       (1,097,994)        1,156,726                --
      Purchase of securities
        available for sale              (750,000)         (500,000)               --
      Proceeds from sale of
        securities available
        for sale                       1,346,725           108,852           270,454
      Proceeds from sale of
        property                          (1,111)          126,371            91,964
      Proceeds from fire
        litigation settlements         9,900,000        14,321,469                --
                                     -----------      ------------      ------------

          Net cash provided by
            (used for) investing
            activities                 5,919,143         2,247,732        (5,288,253)
                                     -----------      ------------      ------------

CASH FLOWS FROM FINANCING
  ACTIVITIES
    Proceeds from short-term
      borrowings                       2,272,253        17,083,985        10,307,260
    Principal repayments
      of short-term borrowings        (7,544,262)      (21,717,305)       (4,061,179)
                                     -----------      ------------      ------------

        Net cash provided by
          (used for) financing
          activities                  (5,272,009)       (4,633,320)        6,246,081
                                     -----------      ------------      ------------

NET INCREASE (DECREASE) IN
  CASH AND CASH EQUIVALENTS            2,384,974        (1,072,178)        5,146,344

CASH AND CASH EQUIVALENTS
  AT BEGINNING OF YEAR                 5,192,756         6,264,934         1,118,590
                                     -----------      ------------      ------------

CASH AND CASH EQUIVALENTS
  AT END OF YEAR                     $ 7,577,730      $  5,192,756      $  6,264,934
                                     ===========      ============      ============
</TABLE>

See accompanying notes to financial statements.



                                       22
<PAGE>   23


                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company conducts a live fall/spring race meet for thoroughbred horses and
participates in inter-track wagering as a host track and as a receiving track.
In addition, the Company currently operates five off-track betting facilities
located in Southeast Louisiana, as well as a tele-track facility located at the
Fair Grounds Race Course. Most of the Company's revenues and receivables are
dependent on patrons of horse racing and other horse racing facilities and
tele-tracks. This results in a concentration of risk and could be affected by
laws or economic conditions that affect the gaming industry.

Uninsured Cash Deposits

As of October 31, 1998 and 1997, the Company had deposits in various financial
institutions in the aggregate of $8,124,477 and $8,740,475, respectively. In
fiscal year 1998, $7,097,978 was invested in U.S. Government Securities which
are guaranteed by the Federal Government, but are not FDIC insured. The
remaining deposits exceeded insured limits as of October 31, 1998 and 1997 by
$787,598 and $3,339,415, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

Cash and Cash Equivalents - Restricted

As of October 31, 1998, restricted assets totalled $118,218 relating to the
worker's compensation program. As of October 31, 1997, restricted assets
totalled $2,643,702, which included a certificate of deposit of $114,581 pledged
as a security deposit for the Company's worker's compensation program, an escrow
account of $674,360, and a money market account of $1,847,858 held by Bank One
and were restricted for construction payments.

Inventory

Inventory consists primarily of food and beverage items and is stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.




                                       23
<PAGE>   24

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation is provided by the
straight-line method. The estimated useful lives of the buildings range from 20
to 40 years. Lives of other depreciable assets range from approximately 3 to 20
years. For financial reporting purposes, leasehold improvements are amortized
over the lesser of the term of the related lease or the estimated useful life of
the asset.

Accounts Receivable

The Company has recorded accounts receivable from pari-mutuel wagering, video
poker and other activities. The majority of these receivables are settled at
least monthly and are considered fully collectable. No allowance for doubtful
accounts is considered necessary.

Deferred Revenues

Promotional fees and reserved seating deposits received by the Company are
deferred and recognized as income over the duration of the racing meet.

Investment Securities - Available for Sale

The Company classifies its investment securities as held to maturity or
available for sale based upon its ability and intent to hold such securities.
The Company has classified its securities as available for sale and reports them
at fair value with the unrealized gain or loss shown as a separate component of
stockholders' equity. The Company records realized gains and losses on
investment securities as they are sold, using the specific identification
method.

Fair Value Disclosures

Financial Accounting Standards Board ("FASB") Statement No. 107, "Disclosure
about Fair Value of Financial Instruments," is a part of a continuing process by
the FASB to improve information on financial instruments. The following methods
and assumptions were used by the Company in estimating its fair value
disclosures for such financial instruments as defined by the Statement:

        Cash and Cash Equivalents -- The carrying amount reported in the balance
      sheet for cash and cash equivalents approximates its fair value.

      Notes Payable -- The carrying amount of the Company's borrowings under its
      line of credit agreements and other long-term debt approximates fair
      value, based upon current interest rates.



                                       24
<PAGE>   25

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Uncashed Mutuel Tickets

Holders of uncashed winning pari-mutuel tickets have until 90 days after the end
of a given race meet to cash their winning tickets. Tickets that expire become
revenues of the Company, up to a maximum of $250,000 per live or simulcasted
race meet. Uncashed pari-mutuel tickets exceeding $250,000 per live or
simulcasted race meet are remitted to the State of Louisiana.

Income Taxes

The Company records income taxes in accordance with SFAS No. 109. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement amounts of 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 No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
included the enactment date. The most significant deferred tax items of the
Company relates to the deferred tax gain as a result of the December 1993 fire
as further discussed in Note 6.

Deferred Purses

Deferred purses include those amounts required by Louisiana law to be withheld
from commissions, video poker revenues, or out-of-state host fees earned by a
racing licensee and paid as purse supplements during the licensee's succeeding
live racing meet.

Net Income Per Share

Net income per share is determined by dividing net income by the weighted
average number of common shares outstanding during the period. Per share amounts
were determined using 468,580 common shares outstanding for fiscal 1998, 1997
and 1996.




                                       25
<PAGE>   26


                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

Management uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were used.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year
presentation.

NOTE 2 - STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES

Cash was paid during the following fiscal years for:

<TABLE>
<CAPTION>
                                      1998         1997         1996
                                  ----------     --------     --------

         <S>                      <C>            <C>          <C>
         Interest                 $   50,594     $454,457     $802,797
                                  ==========     ========     ========
         Taxes                    $3,154,626     $166,969     $     --
                                  ==========     ========     ========
</TABLE>

The 1997 cash paid for interest includes capitalized interest of $214,103.

There were no noncash investing or financing activities for fiscal years ended
October 31, 1998, 1997, and 1996.

NOTE 3 - INVESTMENT SECURITIES AVAILABLE FOR SALE

At October 31, 1997, investment securities were classified as available for sale
and consisted of the following:

<TABLE>
<CAPTION>
                                       1997           1997            Gross
                                    Amortized         Mark          Unrealized
                                       Cost           Value            Loss
                                    ---------        --------       ----------
<S>                                  <C>             <C>             <C>
Preferred and
 common stocks                       $ 96,000        $ 92,878        $(3,122)
                                     ========        ========        =======

Corporate debt
 securities                          $500,000        $500,000        $    --
                                     ========        ========        =======
</TABLE>

There was no investment securities classified as available for sale at
October 31, 1998.


                                       26
<PAGE>   27


                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


NOTE 3 - INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)

During the fiscal years ended October 31, 1998 and 1997, proceeds from sales of
investment securities available for sale were $1,346,725 and $108,852
respectively, and gross realized gains (losses) from such sales were $(725), and
$398, respectively.

NOTE 4 - NOTES PAYABLE - CURRENT

<TABLE>
<CAPTION>
                                                         October
                                                ----------------------------
                                                  1998              1997
                                                ----------        ----------
<S>                                             <C>               <C>
First National Bank of Commerce
("FNBC"); interest at 9% secured
by a second mortgage note on
certain property, and 342,584
common shares of the Company
owned in the aggregate by
Jefferson Downs Corporation,
due October 31, 1998                            $       --        $5,221,725

INAC Corp.; Installment note
insurance premium financing;
interest at 6.79%,
final installment
due February 1999                                   46,894                --

INAC Corp; Installment note
insurance premium financing;
interest at 6.69%,
final installment
due February 1998                                       --            97,178
                                                ----------        ----------
                                                $   46,894        $5,318,903
                                                ==========        ==========
</TABLE>

NOTE 5 - INCOME TAXES

The components of the income tax provision (benefit) are as follows:

<TABLE>
<CAPTION>
                                               October 31
                            -----------------------------------------------
                                1998               1997             1996
                            -----------         ----------        ---------
<S>                         <C>                 <C>               <C>
Current:
     Federal                $ 3,188,238         $  121,000        $  50,000
     State                      495,686                 --               --
                            -----------         ----------        ---------
          Total               3,683,924            121,000           50,000

Deferred                       (645,355)         5,953,232          244,896
                            -----------         ----------        ---------

          Total             $ 3,038,569         $6,074,232        $ 294,896
                            ===========         ==========        =========
</TABLE>




                                       27
<PAGE>   28

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


NOTE 5 - INCOME TAXES (CONTINUED)

Approximately $3.2 million and $5.3 million of the deferred income tax provision
is shown net of the extraordinary item - gain on fire on the Statement of
Operations for the year ended October 31, 1998 and 1997.

For the fiscal years ended October 31, 1998 and 1997, the tax effects of
temporary differences that gave rise to significant portions of the deferred tax
assets and deferred tax liabilities are presented below along with a summary of
activity in the valuation allowance.

<TABLE>
<CAPTION>
                                                          October 31
                                                          ----------
                                                    1998                 1997
                                                -----------         ------------
<S>                                             <C>                 <C>
Current deferred tax assets:

General liability insurance
   reserves                                     $    59,940         $     59,940
Net operating loss carry forwards                        --                   --
                                                -----------         ------------
Total current deferred tax
     assets                                          59,940               59,940

Current deferred tax
     liabilities:

Deferred tax on gain from fire                           --             (264,846)
                                                -----------         ------------
Net current deferred tax
     assets (liabilities)                       $    59,940         $   (204,906)
                                                ===========         ============

Non-current deferred tax assets:

Book accumulated depreciation
     in excess of tax                           $(2,193,188)        $    218,034
                                                -----------         ------------
Total non-current deferred
     tax assets                                  (2,193,188)             218,034

Non-current deferred tax
     liabilities:

Deferred tax on gain from fire                   (7,802,230)         (10,064,138)
                                                -----------         ------------
Net non-current deferred
     tax liabilities                            $(9,995,418)        $ (9,846,104)
                                                ===========         ============

Valuation allowance,
     beginning of year                          $        --         $         --
Change during the year                                   --                   --
                                                -----------         ------------
Valuation allowance,
     end of year                                $        --         $         --
                                                ===========         ============
</TABLE>




                                       28
<PAGE>   29

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


NOTE 5 - INCOME TAXES (CONTINUED)

A reconciliation of the provision (benefit) for taxes on income at the Company's
federal statutory income tax rate to the tax provision (benefit) for financial
reporting purposes for fiscal years ending October 31, 1998, 1997 and 1996 is as
follows:


<TABLE>
<CAPTION>
                                                    October
                              -------------------------------------------------
                                  1998                1997              1996
                              -----------         -----------         ---------
<S>                           <C>                 <C>                 <C>
Expected tax provision
     (benefit)                $ 3,058,464         $ 5,388,132         $ 399,362
State income taxes                495,686             475,423            35,238
Change in valuation
     allowance                         --                  --          (119,253)
Additional realizable
     carryback credits                 --                  --                --
Additional realizable
     carryforward net
     operating losses                  --                  --                --
Utilization of net
     operating loss                    --             251,000                --
Additional tax basis
     attributable to
     gain                        (347,473)                 --                --
Other                            (168,108)            (40,323)          (20,451)
                              -----------         -----------         ---------
Actual tax provision          $ 3,038,569         $ 6,074,232         $ 294,896
                              ===========         ===========         =========
</TABLE>

As of October 31, 1996, the Company had a net operating loss carry forward of
approximately $678,000 which was utilized in fiscal 1997.

As of October 31, 1998, the Company has recorded a non-current deferred tax
liability totaling $9,995,418 as a result of the deferred gain on the fire for
income tax purposes. The Company has reinvested all fire insurance and
litigation proceeds into its new facilities within the allowable replacement
period, therefore deferring the gain on the involuntary conversion. As a result,
the Company has a difference between the book and tax bases of such facilities.
This taxable difference will reverse with the scheduled depreciation of such
assets over the next 39 years.




                                       29
<PAGE>   30

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996



NOTE 6 - COMMITMENTS AND CONTINGENCIES

Fire Related Litigation

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

Travelers Litigation

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

In November 1996, the Company reached a joint settlement with the insurance
agent and broker pursuant to which the insurance agent and broker agreed paid a
total of $10,000,000 to the Company. The settlement has been reported as an
extraordinary item on the Company's Statement of Operations, net of related
income taxes. The settlement agreement included a "Mary Carter" provision
whereby the insurance agent and broker are entitled to share in any recovery
that the Company may eventually obtain from Travelers in that litigation. The
Company's action against Travelers was tried in September 1997, and in April
1998 the trial court entered judgment in favor of the Company and against
Travelers, awarding the Company an additional $2,410,905 in business
interruption insurance, legal interest on that sum from May 1994 until paid,
statutory penalties in the amount of $222,128 and attorney's fees in an amount
to be set by the Court. The court later fixed the amount of attorney's fees at
$75,000. In August 1998, the trial court denied all post trial motions and
certified the judgment as being immediately appealable. Appeals by both the
Company and Travelers are now pending before the state court of appeals. Under
the Mary Carter agreement referenced above, the liability insurers of the agent
and broker are entitled to share in any recovery from Travelers.

ADT Litigation

In December 1994, the Company filed an action in the Civil District Court for
the Parish of Orleans, State of Louisiana against ADT Security Systems
Mid-South, Inc. ("ADT"), which provided and maintained the fire alarm system at
the race track, and other defendants. The



                                       30
<PAGE>   31

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


complaint sought damages, not otherwise compensated for by insurance, that were
allegedly caused by the negligence of one or more of the defendants. The
Company's three fire insurers and a third party's insurance company, which
insured the operator of the video poker machines destroyed in the fire,
intervened in the suit asserting subrogation claims against the same defendants.

In late 1996, the Company and three insurance companies entered into settlements
with the manufacturer of a lighting ballast and an architect. After division of
the settlement proceeds among the Company and the three insurance companies and
the payment of various litigation expenses, the Company received approximately
$268,000. In March 1997, a jury trial was held on the remaining claims and
resulted in an award in favor of the Company and the subrogated insurance
companies of approximately $49.8 million in the aggregate in damages against
ADT, plus interest, of which approximately $31.8 million, plus interest, was
awarded to the Company and the balance to the subrogated insurance companies,
including approximately $4.25 million to the Company's primary property insurer.
The judgment was appealed to the Court of Appeals of Louisiana, Fourth Circuit,
by ADT, the Company and three of the subrogated insurance companies. In June
1997, the insurance company that insured the initial layer of ADT's liability
tendered approximately $9.3 million in partial settlement of the action. After a
dispute with the subrogated insurers over the division of these funds was
resolved in August 1997, the Company received approximately $4 million of those
proceeds after litigation expenses.

In December 1997, the Company entered into a settlement with ADT and ADT's
excess coverage insurers pursuant to which the Company was paid $37 million and
agreed to indemnify ADT and its insurers against the judgment creditor claims of
the four subrogated insurers. In December 1997, the Company received $7.7
million of such funds net of litigation expenses, and the balance of the
settlement funds was placed in escrow pending resolution of the subrogation
claims. The receipt of such funds has been reported as an extraordinary item on
the Company's Statement of Operations, net of related income taxes. In July
1998, the Company settled the subrogation claims of three of the four insurers,
as well as an action filed in April 1997 in United States District Court for the
Eastern District of Louisiana by those three insurers against the Company
seeking a declaratory judgement that a contract had been entered into by the
parties respecting the distribution of funds recovered in the ADT litigation.
Under the terms of this settlement, the three insurers received a total of
$12.97 million from the funds in escrow. At that time, the Company received an
additional $2.2 million from the funds in escrow, net of litigation expenses,
which has been reported as an extraordinary item on the Company's Statement of
Operations, net of related income taxes. Approximately $6.3 million is held in
escrow pending resolution of the claims between the Company and its primary
property insurer, and such funds are not reflected as an asset on the Company's
balance sheet as of October 31, 1998.

In September 1998, the Court of Appeals, among other things, reversed the trial
court's award of $4.25 million to the Company's primary property insurer on its
subrogation claim, concluding that the trial court had erred in making that
award to the insurer when the Company had not been


                                       31
<PAGE>   32

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


fully compensated for its property loss. This decision rendered moot the
remainder of the appeals. The insurer has appealed this decision to the
Louisiana Supreme Court which recently denied the appeal. The funds remaining in
escrow will be paid out when this case is concluded.

United National Litigation

The Company was a defendant, along with its general liability insurance carrier,
United National Insurance Company ("United National"), in a civil action filed
in December 1994 in the United States District Court for the Eastern District of
Louisiana by St. Paul Mercury Insurance Company ("St. Paul"), the insurer of the
computerized betting equipment at the race track. St. Paul alleged that it was
subrogated to its insured's rights to collect damages and that it had paid
approximately $1,175,000 to its insured for the loss of equipment in the fire.

Subsequently, United National filed a declaratory judgment action against the
Company, wherein it sought to deny coverage for St. Paul's subrogation claim.
The Company filed a counterclaim against United National, seeking coverage for
the St. Paul claim as well as payment for various other fire-related claims
previously denied by United National. This action was consolidated for trial
with the suit filed by St. Paul against the Company.

Both United National and the Company moved for summary judgment on the question
of whether the exclusion relied on by United National to deny coverage for the
various claims applied. In 1996, the United States District Court ruled that the
policy exclusion relied upon by United National did not apply to the claim
asserted by St. Paul and to claims made by various jockeys and valets that were
previously paid by the Company. United National subsequently appealed this
decision to the United States Court of Appeals for the Fifth Circuit which held
that the claims were covered.

In May 1997, the St. Paul suit was settled pursuant to an agreement whereby ADT
agreed to pay an undisclosed sum and United National, as the Company's insurer,
agreed to pay $275,000. In February 1998, United National tendered $56,553 to
the Company for claims which it acknowledged were covered under the policy. In
November 1998, United National tendered an additional $11,818 to the Company for
claims which it acknowledged were covered under the policy. In December 1998,
the Company settled the balance of its claims against United National for an
additional $140,000 which has been paid by United National.

Other Litigation

In 1996, a suit was filed in U.S. District Court in Baton Rouge by Livingston
Downs Racing Association ("Livingston") naming the Company and other defendants
in an antitrust/civil RICO suit. This suit is currently in the discovery stage,
and the Company has filed a motion for summary judgment. Management of the
Company believes the action is without merit. Livingston had previously filed a
series of other legal actions against the Company which were



                                       32
<PAGE>   33

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


resolved in the Company's favor. The amount in question in this action has not
yet been determined but could be substantial.

A suit was also filed in state court in Louisiana in 1996 by Livingston against
the Company and the State of Louisiana seeking a judgment that the State
off-track betting law is unconstitutional. The trial court ruled in the
plaintiff's favor. The Louisiana Supreme Court reversed the trial court
decision, holding that the off-track betting statute is constitutional.
Livingston's request for rehearing was subsequently denied.

In 1996 a suit was filed in state court in Louisiana by the Louisiana Horsemen's
Benevolent and Protective Association ("HBPA") against the Company, the State of
Louisiana, and all other pari-mutuel wagering facilities operating in Louisiana.
The HBPA is seeking a larger portion of video poker proceeds. The Company
believes it is currently in compliance with the guidelines established by the
Louisiana State Police Gaming Division, which regulates compliance with
Louisiana's video poker law.

In July 1997, Evelyn Allen and other present or former security or concessions
employees of the Company filed an action in the United States District Court in
New Orleans claiming that the plaintiffs were entitled, under the Fair Labor
Standards Act, to overtime for hours worked over 40 in each work week from July
1994 to July 1997. Two of the plaintiffs also sought to recover damages for
alleged retaliatory discharge. In December 1998, the Company and the plaintiffs
reached a settlement agreement pursuant to which the Company will pay the
plaintiffs $100,000 in full settlement of all claims for overtime pay. The
retaliatory discharge claims were tried in December 1998. At the conclusion of
evidence, the court dismissed those claims. The plaintiffs' claim for attorneys
fees has not yet been resolved.

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




                                       33
<PAGE>   34

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996




NOTE 7 - RELATED PARTY TRANSACTIONS

In April 1996, Bryan G. Krantz purchased 339,604 shares of the Company's stock
from a Trust which had previously acquired the shares from Marie G. Krantz. A
promissory note was executed by Bryan G. Krantz in favor of the Trust for
$9,984,358 with interest at 5.76% per year. The note is due in April 2005 and
cannot be prepaid. The note is secured by a Stock Pledge Agreement in favor of
the Trust executed by Bryan G. Krantz and Marie G. Krantz, in her capacity as
Voting Trustee of a Voting Trust which at the time of such purchase, and
throughout the period referred to herein, held such shares. In April 1998, Bryan
G. Krantz transferred said 339,604 shares of the Company's common stock to
Finish Line Management Corporation ("Finish Line"), together with all of his
interest in the Voting Trust and the voting trust certificate issued by Marie G.
Krantz, as Voting Trustee, to Bryan G. Krantz representing a beneficial interest
in 339,604 shares of the Company's common stock. Finish Line assumed Bryan G.
Krantz's indebtedness to the Trust and agreed to be bound by the Stock Pledge
Agreement. Bryan G. Krantz owns 100% of the capital stock of Finish Line, having
acquired from Marie G. Krantz, as Voting Trustee, in March 1998 the 66.6% of the
outstanding capital stock of Finish Line not theretofore owned by him.
Accordingly, the transfer of the 339,604 shares of common stock from Bryan G.
Krantz to Finish Line did not constitute a change in beneficial ownership of
said 339,604 shares.

Marie G. Krantz, Chairman of the Board of Directors and Treasurer of the
Company, has voting control, as Voting Trustee, over the 339,604 shares of
common stock of the Company (72.27% of the outstanding common stock of the
Company) owned by Finish Line.

In August 1992, the Company entered into a Management Agreement with Finish Line
to operate five tele-track facilities previously operated by Jefferson Downs
Corporation ("Jefferson Downs"), all of the capital stock of which is owned by
Marie G. Krantz and Bryan G. Krantz, for a period of ten years, commencing
November 1, 1992, with the option granted to Finish Line to extend the term of
the Management Agreement for two additional five year periods. The Management
Agreement provides that Finish Line is to have the exclusive responsibility for
the direction, supervision, management and operation of such facilities, is to
collect all monies from such operation and is to pay all expenses in connection
therewith. The Company receives a monthly payment of 0.1% of the gross
pari-mutuel handle at such facilities plus purse supplements, and Finish Line
receives monthly compensation equal to the difference between the gross receipts
collected at such facilities less all expenses (including the payment to the
Company described herein) paid by Finish Line. In addition, Finish Line is to
indemnify the Company for, among other things, all obligations under the leases
assigned by Jefferson Downs to the Company. During the fiscal years ended
October 31, 1998, 1997 and 1996, the Company received $90,668, $82,655, and
$88,835, respectively, from Finish Line in accordance with the Management
Agreement. Accounts receivable (payable) from (to) Finish Line were $753,984 and
$(124,324) at October 31, 1998 and 1997, respectively.



                                       34
<PAGE>   35

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


The following table reflects the host track fees and purse supplement receipts
from Finish Line for the fiscal years ended October 31, 1998, 1997, and 1996.

<TABLE>
<CAPTION>
                                         Received by the Company
                                         and Paid by Finish Line
                                        for the Years Ended October 31
                                 -----------------------------------------------
                                    1998               1997              1996
                                 ----------        -----------        ----------
         <S>                     <C>               <C>                <C>
         Host track fees         $  297,035        $   325,680        $  363,275
                                 ==========        ===========        ==========
         Purse supplement
          receipts               $4,788,281        $ 4,822,405        $4,337,179
                                 ==========        ===========        ==========
</TABLE>

Marie G. Krantz and Bryan G. Krantz each own 50% of the capital stock of
Continental Advertising, Inc. ("Continental"). During the fiscal years ended
October 31, 1998, 1997 and 1996, the Company made payments to Continental of
$502,000, $333,000, and $341,000, respectively, to reimburse Continental for
advertising expenses paid by it. As of October 31, 1998 and 1997, the Company
was due amounts included in accounts receivable of $6,614 and $41,869 from
Continental, respectively.

In February 1992, the Company, Jefferson Downs and Finish Line entered into an
agreement with Video Services, Inc. ("VSI"), whereby VSI was granted the
exclusive right and license by the Company to install, maintain and operate
video draw poker devices at the Fair Grounds Race Course, Jefferson Downs Race
Course and at the tele-tracks then operated by the Company, Jefferson Downs and
Finish Line. Such agreement was for an initial term of five years, with an
option by VSI to extend the term for an additional five years, which option was
exercised. The agreement provides that the Company is to receive a percentage of
the revenues from the operation of the devices installed at the Company's
facilities (not including the facilities operated for the Company by Finish
Line). Such percentage is calculated on the basis of the average amount
collected daily from each device during each month, after the payment of prizes,
taxes and fees. One-half of the net revenues from such devices, after deduction
of certain amounts, are required by state statute to be paid as purse
supplements during the live racing meet. In addition, this agreement entitles
the Company and Finish Line to share in a $270,000 annual promotional fee paid
by VSI. In each of fiscal years 1998, 1997 and 1995, upon agreement of the
Company and Finish Line, the Company received the total promotional fee of
$270,000. Of this amount, $135,000 was set aside each year as purse supplements
to be paid during the upcoming racing season.

The video poker draw devices which have been installed and are to be installed
by VSI remain the property of VSI. As of October 31, 1998, 1997 and 1996, there
were a total of 315, 297, and 234 devices, respectively, in operation at all of
the Company's



                                       35
<PAGE>   36


                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


facilities. In addition, there were a total of 414, 428, and 419 devices in
operation at the Finish Line facilities as of October 31, 1998, 1997 and 1996,
respectively.

Gross video poker revenues and related purse supplements for the years ended
October 31, 1998, 1997, and 1996 are as follows:

<TABLE>
<CAPTION>
                                     1998               1997            1996
                                 ----------        -----------        ----------

<S>                              <C>               <C>                <C>
Gross video poker revenue        $2,899,761        $ 2,346,677        $1,955,551
                                 ==========        ===========        ==========

Purse supplements                $1,197,433        $   981,097        $  821,973
                                 ==========        ===========        ==========
</TABLE>

NOTE 8 - LEASES

The Company has various operating leases for the use of buildings and parking
facilities to operate off-track betting facilities in Louisiana. The location,
lease terms, and monthly payments are as follows:

<TABLE>
<CAPTION>
================================================================================
                                                                       Monthly
         Location                     Lease Term                       Payment
 <S>                          <C>                                      <C>
 St. Bernard Parish,          January 1, 1995 to January 31, 1999
 Louisiana                                                             $ 6,000
 LaPlace, Louisiana           February 1, 1998 to January 31, 1999
                              February 1, 1999 to                      $ 4,420
                              January 31, 2000
                                                                       $ 4,553
 Bourbon Street -             March 15, 1991 to
 New Orleans,                 March 14, 1999                           $10,000
 Louisiana                    March 15, 1999 to March 14, 2004         $13,125
 Thibodaux, Louisiana         October 1, 1998 to
                              September 30, 1999                       $ 2,300
 Metairie, Louisiana          February 1, 1998 to
                              January 31, 1999                         $ 9,000
                              February 1, 1999 to
                              January 31, 2000                         $ 9,500
================================================================================
</TABLE>

The tele-tracks formerly licensed to Jefferson Downs and now licensed to the
Company are also leased; however, as described herein, Finish Line has agreed to
indemnify the Company for, among other things, all obligations under the leases
assigned by Jefferson Downs to the Company.




                                       36
<PAGE>   37

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


Future obligations over the primary lease terms, not including renewal periods,
of the Company's long-term leases as of October 31, 1998 are as follows:

<TABLE>
<CAPTION>
                          Year Ending
                          October 31
                          ----------
                          <S>                        <C>
                            1999                        353,475
                            2000                        285,159
                            2001                        186,000
                            Thereafter               $  374,063
                                                     ----------
                            Total                    $1,198,697
                                                     ==========
</TABLE>

The Company was a party to an agreement with Autotote Limited whereby Autotote
Limited was to provide wagering services for the Company until November 1997,
including all computer and other related services to carry out the totalisator
function for the Company. The Company agreed to pay Autotote Limited 0.0045% of
the total on-track pari-mutuel handle of the Company, plus fixed equipment
rental fees for its off-track betting facilities. The Company entered into an
new agreement with Autotote Limited on November 21, 1997 until November 20, 2002
with the same terms as the old contract and pay Autotote Limited 0.0039% of the
total on-track pari-mutuel handle, plus fixed equipment rental fees for certain
equipment provided by Autotote. The minimum to be paid to Autotote Limited for
each year of the agreement was $200,000. No estimates of future obligations
under this agreement have been included in the above table. For the fiscal years
ended October 31, 1998, 1997, and 1996, the Company incurred $200,000 in minimum
rental fees and $647,187, $600,724 and $575,390, respectively, in equipment and
contingent rental fees in connection with its agreement with Autotote Limited.
Such rental fees were recorded as racing expenses - contracts and services.

NOTE 9 - STOCK OPTIONS

The Company has a stock option plan whereby all incentive stock options granted
under the Plan are intended to qualify as incentive stock options under Section
422(b) of the Internal Revenue Code. Under the Plan, the option price per share
must be at least equal to 100% of the fair market value per share of the common
shares of the Company on the date of the grant. An aggregate of 20,000 common
shares has been reserved for issue and may be granted up to February 28, 2001.
No options were granted or exercised during fiscal years ended October 31, 1998,
1997 and 1996. No options were outstanding at October 31, 1998.

NOTE 10 - DEFINED CONTRIBUTION PLAN

The Company's 401(k) Plan is a defined contribution plan covering all full-time
employees that have at least one year of service and are age twenty-one or
older.



                                       37
<PAGE>   38

                            FAIR GROUNDS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
               For the Years Ended October 31, 1998, 1997 and 1996


Plan participants may contribute to the Plan, and the Company may make matching
contributions subject to the provisions of the Employees Retirement Income
Security Act.

The Company did not make any matching contributions to the Plan during the years
ended October 31, 1998, 1997, and 1996.

NOTE 11 - SUBSEQUENT EVENT

In January 1999, the Company received an advance from Video Services, Inc. in
the amount of $1,000,000 to be repaid in six equal installments beginning in
February, 1999.

NOTE 12 - RESTATEMENT OF 1998 FINANCIAL STATEMENTS

The financial statements for the year ended October 31, 1998 have been restated
to correct for an error in the calculation of deferred income taxes. The
Company's statement of operations for the fiscal year ended October 31, 1998
erroneously reflected a benefit for income taxes of $3,364,232 and net income
for fiscal 1998 of $8,973,671. The benefit for income taxes was primarily
related to the insurance and litigation recoveries arising out of a fire at the
Company's race track in 1993 and the reinvestment of those recoveries in the
Company's new facilities. Had this error not occurred, net income would have
been reduced by $3,016,759, or $6.38 per share, to $5,956,912, or $12.69 per
share. Stockholders' equity at October 31, 1998 would have been $27,637,835 as
compared to the previously reported amount of $30,654,594. The Company's
financial statements as of, and for the year ended, October 31, 1998 have been
restated to reflect this adjustment.










                                       38
<PAGE>   39

                                     PART IV

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

(a)(1) The following audited financial statements are included in Part II, Item
8:

<TABLE>
<CAPTION>
Financial
Statements                                                                              Page
----------
<S>        <C>                                                                          <C>
           Report of Independent Certified Public Accountants                            13

           Balance Sheets at October 31, 1998 (As Restated) and 1997                     14

           Statements of Operations for the Three Years
           Ended October 31, 1998 (Fiscal Year Ended October 31, 1998,
           As Restated)                                                                  16

           Statements of Changes in Stockholder's                                        20
           Equity for the Three Years Ended
           October 31, 1998 (Fiscal Year Ended October 31, 1998, As Restated)

           Statements of Cash Flows for the Three
           Years Ended October 31, 1998 (Fiscal Year Ended October 31, 1998,
           As Restated)                                                                  21

           Notes to Financial Statements                                                 23

(b)       Report on Form 8-K:  None

(c)      Exhibits: The following exhibits are filed as part of this report.
         Those exhibits which have been previously filed and incorporated herein
         by reference are identified by reference to the previous filing.

3.1                                                                                       *
         Articles of Incorporation of Fair Grounds Corporation, as amended
         (incorporated herein by reference to Exhibit (3)(a) to the Form 10-K of
         the Company for the fiscal year ended October 31, 1991, filed on
         January 29, 1992).

3.2                                                                                       *
         Amended and Restated By-Laws of Fair Grounds Corporation
         (incorporated herein by reference to Exhibit (3)(b) to the Form 10-K of
         the Company for the fiscal year ended October 31, 1990).

9                                                                                         *
         Voting Trust Agreement dated as of August 31, 1993, by and among
         Bryan G. Krantz and Richard Katcher, Trustee, as grantors, and Marie G.
         Krantz as Voting Trustee (incorporated herein by reference to
</TABLE>



                                       39
<PAGE>   40


<TABLE>
<S>      <C>                                                                              <C>
         exhibit 2 to Amendment No. 3 to Schedule 13D filed by such persons on
         October 13, 1993).

10.1                                                                                      *
         Net Commercial Lease Agreement dated November 10, 1988, between
         Pelican Homestead and Savings Association and Fair Grounds Corporation
         (incorporated herein by reference to Exhibit (10)(e) to the Form 10-K
         of the Company for the fiscal year ended October 31, 1989).

10.2                                                                                      *
         Lease of Commercial Property dated February 1, 1989, between Mereaux
         and Nunez, Inc. and Fair Grounds Corporation (incorporated herein by
         reference to Exhibit (10)(f) to the Form 10-K of the Company for the
         fiscal year ended October 31, 1989).

10.3                                                                                      *
         Lease Agreement dated March 8, 1989, between Richard F. Keyworth and
         Fair Grounds Corporation (incorporated herein by reference to Exhibit
         (10)(g) to the Form 10-K of the Company for the fiscal year ended
         October 31, 1989).

10.4                                                                                      *
         Fair Grounds Corporation Stock Option Plan (incorporated herein by
         reference to Appendix A to the definitive Information Statement of the
         Company dated February 26, 1991).

10.5                                                                                      *
         Commercial Lease Agreement dated April 1, 1991 between Blake's
         Superette, Inc. and Fair Grounds Corporation (incorporated herein by
         reference to Exhibit (10)(m) to the Form 10-K of the Company for the
         fiscal year ended October 31, 1991, filed on January 29, 1992).

10.6                                                                                      *
         Lease Agreement dated November 21, 1991 between Jefferson Downs
         Corporation and Fair Grounds Corporation (incorporated herein by
         reference to Exhibit (10)(n) to the Form 10-K of the Company for the
         fiscal year ended October 31, 1991, filed on January 29, 1992).
</TABLE>




                                       40
<PAGE>   41

<TABLE>
<S>      <C>                                                                              <C>
10.7                                                                                      *
         Management Agreement by and between Finish Line Management Corp. and
         Fair Grounds Corporation, dated October 9, 1992. (Incorporated herein
         by reference to Exhibit (10)(q) to the Form 10-K of the Company for the
         fiscal year ended October 31, 1992, filed on February 15, 1993.)

10.8                                                                                      *
         Agreement dated February 28, 1992, by and between Video Services, Inc.,
         Fair Grounds Corporation, Jefferson Downs Corporation and Finish Line
         Management Corp. (Incorporated herein by reference to Exhibit (10)(t)
         to the Form 10-K of the Company for the fiscal year ended October 31,
         1992, filed on February 15, 1993.)

10.9                                                                                      *
         Lease Agreement dated August 1, 1995 between Fair Grounds Corporation
         and Robert J. and Iris Ann Saia. (Incorporated herein by reference to
         Exhibit 10.9 to the Form 10-K of the Company for the fiscal year ended
         October 31, 1998, filed on February 11, 1999.)
                                                                                          45
27
                Amended Financial Data Schedule
</TABLE>


*Incorporated herein by reference as indicated.







                                       41
<PAGE>   42


                                   SIGNATURES


Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf, by
the undersigned, thereunto duly authorized.

                                         FAIR GROUNDS CORPORATION




                                         By: /s/ Bryan G. Krantz
                                            -------------------------
                                         Bryan G. Krantz, President


Date: January 27, 2000










                                       42
<PAGE>   43


                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit                            Description                                          Page
-------                            -----------                                          ----
<S>      <C>                                                                            <C>
3.1                                                                                       *
         Articles of Incorporation of Fair Grounds Corporation, as amended
         (incorporated herein by reference to Exhibit (3)(a) to the Form 10-K of
         the Company for the fiscal year ended October 31, 1991, filed on
         January 29, 1992).

3.2                                                                                       *
         Amended and Restated By-Laws of Fair Grounds Corporation (incorporated
         herein by reference to Exhibit (3)(b) to the Form 10-K of the Company
         for the fiscal year ended October 31, 1990).

9                                                                                         *
         Voting Trust Agreement dated as of August 31, 1993, by and among Bryan
         G. Krantz and Richard Katcher, Trustee, as grantors, and Marie G.
         Krantz as Voting Trustee (incorporated herein by reference to exhibit 2
         to Amendment No. 3 to Schedule 13D filed by such persons on October 13,
         1993).

10.1                                                                                      *
         Net Commercial Lease Agreement dated November 10, 1988, between Pelican
         Homestead and Savings Association and Fair Grounds Corporation
         (incorporated herein by reference to Exhibit (10)(e) to the Form 10-K
         of the Company for the fiscal year ended October 31, 1989).

10.2                                                                                      *
         Lease of Commercial Property dated February 1, 1989, between Mereaux
         and Nunez, Inc. and Fair Grounds Corporation (incorporated herein by
         reference to Exhibit (10)(f) to the Form 10-K of the Company for the
         fiscal year ended October 31, 1989).

10.3                                                                                      *
         Lease Agreement dated March 8, 1989, between Richard F. Keyworth and
         Fair Grounds Corporation (incorporated herein by reference to Exhibit
         (10)(g) to the Form 10-K of the Company for the fiscal year ended
         October 31, 1989).
</TABLE>



                                       43
<PAGE>   44


<TABLE>
<S>      <C>                                                                            <C>
10.4                                                                                      *
         Fair Grounds Corporation Stock Option Plan (incorporated herein by
         reference to Appendix A to the definitive Information Statement of the
         Company dated February 26, 1991).

10.5                                                                                      *
         Commercial Lease Agreement dated April 1, 1991 between Blake's
         Superette, Inc. and Fair Grounds Corporation (incorporated herein by
         reference to Exhibit (10)(m) to the Form 10-K of the Company for the
         fiscal year ended October 31, 1991, filed on January 29, 1992).

10.6                                                                                      *
         Lease Agreement dated November 21, 1991 between Jefferson Downs
         Corporation and Fair Grounds Corporation (incorporated herein by
         reference to Exhibit (10)(n) to the Form 10-K of the Company for the
         fiscal year ended October 31, 1991, filed on January 29, 1992).

10.7                                                                                      *
         Management Agreement by and between Finish Line Management Corp. and
         Fair Grounds Corporation, dated October 9, 1992. (Incorporated herein
         by reference to Exhibit (10)(q) to the Form 10-K of the Company for the
         fiscal year ended October 31, 1992, filed on February 15, 1993.)

10.8                                                                                      *
         Agreement dated February 28, 1992, by and between Video Services, Inc.,
         Fair Grounds Corporation, Jefferson Downs Corporation and Finish Line
         Management Corp. (Incorporated herein by reference to Exhibit (10)(t)
         to the Form 10-K of the Company for the fiscal year ended October 31,
         1992, filed on February 15, 1993.)

10.9                                                                                      *
         Lease Agreement dated August 1, 1995 between Fair Grounds Corporation
         and Robert J. and Iris Ann Saia. (Incorporated herein by reference to
         Exhibit 10.9 to the Form 10-K of the Company for the fiscal year ended
         October 31, 1998, filed on February 11, 1999.)
                                                                                         45
27       Amended Financial Data Schedule
</TABLE>

    * Incorporated herein by reference as indicated.







                                       44