<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-K

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

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For the fiscal year ended October 31, 1999               Commission file number 0-7607
                          ----------------                                      ------
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                            FAIR GROUNDS CORPORATION
                            ------------------------
             (Exact name of registrant as specified in its charter)

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

1751 Gentilly Blvd.,  New Orleans LA                                      70119
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(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. [ ]

The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $4,099,491 computed by reference to the average bid and asked
prices of such stock on January 25, 2000.

The number of shares outstanding of the issuer's single class of common stock
was 468,580 as of January 25, 2000.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Information Statement for the 2000 Annual Meeting
of Shareholders are incorporated by reference into Part III.

                               PAGE 1 OF 56 PAGES
                            EXHIBIT INDEX ON PAGE 54


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                               TABLE OF CONTENTS
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Item                                                                    Page
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<S>          <C>                                                        <C>
ITEM 1.      BUSINESS ..............................................       1

ITEM 2.      PROPERTIES ............................................       9

ITEM 3.      LEGAL PROCEEDINGS .....................................      10

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY
             HOLDERS ...............................................      12

             Executive Officers of the Registrant ..................      12

ITEM 5.      MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
             RELATED STOCKHOLDER MATTERS ...........................      12

ITEM 6.      SELECTED FINANCIAL DATA ...............................      14

ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS ...................      15

ITEM 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
             MARKET RISK ...........................................      23

ITEM 8.      FINANCIAL STATEMENTS ..................................      24

ITEM 9.      CHANGES IN AND DISAGREEMENTS WITH ACCOUNTS ON
             ACCOUNTING AND FINANCIAL DISCLOSURE ...................      48

ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ....      48

ITEM 11.     EXECUTIVE COMPENSATION ................................      48

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
             AND MANAGEMENT ........................................      48

ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ........      48

ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
             REPORTS ON FORM 8-K ...................................      49

SIGNATURES .........................................................      52

EXHIBIT INDEX ......................................................      54
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                                     PART I

ITEM 1.      BUSINESS

GENERAL OVERVIEW OF BUSINESS

Fair Grounds Corporation (the "Company"), which was incorporated in 1941, is
the owner of the Fair Grounds Race Course in New Orleans, Louisiana, at which
thoroughbred horse racing, off-track betting and video poker gaming are
conducted. The Fair Grounds Race Course currently is in its 128th racing
season, making it the third oldest thoroughbred racing track in the United
States. In addition to its live racing operations, the Company operates five
off-track betting facilities, referred to herein as tele-tracks, at locations
in St. Bernard, Orleans, Jefferson, St. John and LaFourche Parishes, Louisiana,
as well as a tele-track facility located at the Fair Grounds Race Course.
Through Finish Line Management Corporation ("Finish Line"), an affiliate, the
Company operates five tele-track facilities in Terrebonne, St. Tammany and
Jefferson Parishes, Louisiana. At each location, the Company makes available
pari-mutuel wagering and food and beverage services to the public and receives
revenues from such services. Video poker wagering is conducted at all locations
other than the two facilities located in St. Tammany Parish. The Company
conducts its annual live racing meet and operates its tele-tracks for off-track
betting pursuant to the rules and under the authority of the Louisiana State
Racing Commission (the "Racing Commission"), a statutory body, the members of
which are appointed by the Governor of Louisiana. The Company's live races are
simulcasted to its tele-tracks and to other facilities located both inside and
outside Louisiana.

The Company's fiscal year ends on October 31; accordingly, unless otherwise
indicated, references herein to a year mean the fiscal year which ended in the
calendar year to which reference is made. For example, references to "fiscal
1999" means the fiscal year ended October 31, 1999.

DESCRIPTION OF BUSINESS

Live Racing Meet

Live Racing at the Fair Grounds Race Course. Annually, upon application and
after hearing, the Racing Commission grants to each of the horse racing tracks
operating in Louisiana certain dates during which live racing meets may be
conducted. Currently four licensees, including the Company, operate live racing
meets in Louisiana at various times during the year.

The Company's live racing meet is conducted annually at the Fair Grounds Race
Course generally from Thanksgiving Day to late March. One other track in
Louisiana, Delta Downs, conducts its live racing meet during that same time
period. Such track is smaller and is located approximately two hundred miles
from New Orleans. Delta Downs also simulcasts to and allows wagering to be
accepted on its live races at the tele-tracks to which the Company simulcasts
its live races and at which wagering on the Company's live races is accepted.


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The Company's live racing meet for the fiscal year ended October 31, 1999 was
conducted over 88 racing days. Total paid attendance at the Fair Grounds Race
Course during the live racing meet was 170,684 in fiscal 1999 compared to
189,439 in fiscal 1998 and 109,982 in fiscal 1997. The total on-track handle,
which is the amount of money handled during the live racing meet through the
Company's mutuel machines at the Fair Grounds Race Course, was $27,412,562 in
fiscal 1999, $25,789,351 in fiscal 1998, and $20,200,754 in fiscal 1997. See
"Sources of Revenue."

During its annual live racing meet, the Company attracts thoroughbred horses
from racing stables located in Louisiana and from nationally known racing
stables in Kentucky and elsewhere. Approximately 35% of the thoroughbred
starters at the Fair Grounds Race Course during its live racing meet are
Louisiana-bred. The live racing meet features races with guaranteed purses in
excess of $250,000 and purses averaging approximately $22,000 per race.

For the fiscal year ending October 31, 2000, the Racing Commission granted the
Company a license to conduct its live racing meet during the period from
November 26, 1999 through March 27, 2000, a total of 88 racing days, with live
racing being conducted generally five days a week (Thursday through Monday) and
with ten to eleven races during each racing day.

Simulcasting of Live Races. In addition to conducting live horse racing during
the live racing meet, the Company simulcasts its live races to, and allows
wagering to be accepted at, the tele-tracks which it operates in Orleans, St.
Bernard, St. John, Jefferson and LaFourche Parishes, Louisiana, the tele-tracks
which are licensed to the Company and operated by Finish Line, and tele-tracks
operated by the other horse racing tracks in Louisiana. The Company also
simulcasts live races to certain other wagering facilities located outside of
Louisiana. The Company has continued to experience significant increases in the
demand for the Company's races from out-of-state markets. Total handle from
such out-of-state markets during the fiscal 1999 racing season was
approximately $321 million, a 46.2% increase over the previous racing season.
The Company earns a net commission (after payment of purses) of approximately
1.5% of the out-of-state handle.

Off-Track Betting

Ownership and Operation of Tele-Track Facilities. Louisiana authorizes
off-track wagering and regulates the licensure by the Racing Commission of
tele-tracks, the ownership of such facilities, the commissions which can be
earned on wagers and other related matters. In 1988 each horse racing track
then operating in Louisiana was granted a license to operate tele-tracks at its
racetrack and also within a 55-mile radius of its racetrack, provided that the
voters of the parish where the tele-track was to be located approved the
establishment of such a facility. When two pari-mutuel racetracks are located
within the same 55-mile radius, any tele-tracks opened in such areas are to be
jointly owned unless one of the eligible racetracks does not wish to
participate. The Company and Jefferson Downs Corporation ("Jefferson Downs"),
which is an affiliate of the Company and which through 1992 conducted live
racing at a facility located approximately 12 miles west of the Fair Grounds
Race Course, are parties to an agreement, entered into in 1992 when Jefferson
Downs ceased its live racing, pursuant to which the Company, through Finish
Line, operates the tele-tracks formerly operated by Jefferson Downs. Total paid
attendance at the Company's tele-tracks (excluding the former Jefferson Downs
tele-tracks) during the fiscal year ended October 31, 1999 was 379,910 compared
to 391,271 during fiscal 1998 and 389,149 during fiscal 1997, and the total
off-track handle at such facilities during the 1999 fiscal year was


                                       2
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$98,852,338 compared to $93,921,423, in fiscal 1998 and $85,481,397 during
fiscal 1997. See "Sources of Revenue" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

The Company is a party to a Management Agreement (the "Management Agreement")
with Finish Line pursuant to which Finish Line operates the tele-track
facilities owned by Jefferson Downs and transferred to the Company effective in
May 1993. The Management Agreement is for a term of ten years, which commenced
on November 1, 1992, with the option granted to Finish Line to extend the term
for two additional five-year periods. Pursuant to the Management Agreement,
Finish Line has the exclusive responsibility for the direction, supervision,
management and operation of such facilities, collects all monies from such
operation and pays all expenses in connection therewith. The Company receives
0.1% of the gross pari-mutuel handle at such facilities, and Finish Line is to
receive monthly compensation equal to the difference between the gross receipts
collected at such facilities less all expenses (including the guaranteed
payment to the Company) 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. A portion of the handle generated
at these tele-tracks is set aside to supplement purses for live racing at the
Fair Grounds Race Course. See "Purse Supplements," below.

Simulcasting to Tele-Track Facilities. When a live racing meet is not in
progress at the Fair Grounds Race Course, horse races are simulcasted from
other tracks then conducting live racing in Louisiana, as well as from various
race tracks throughout the United States hosting races of national prominence,
to the Company's tele-tracks, to the tele-track facility located at the Fair
Grounds Race Course and to other off-track tele-tracks. The Company generally
is required to make payments in the form of host track fees and purse
supplements to those tracks conducting live races which are simulcasted to the
Company's tele-tracks. The Company's tele-tracks generally are open daily,
depending on patron demands and race offerings, for afternoon and evening
racing programs which are simulcasted to the tele-tracks.

Purse Supplements. A portion of the handle generated at tele-track facilities
is required by Louisiana law to be set aside and used to supplement purses at
live racing facilities. Purse supplements are computed on a sliding scale of
5.5%, 6% and 6.5% on the tele-tracks' daily handle plus an additional 1.5% of
all "exotic" wagers at tele-track facilities. Purse supplements of 6.5% of
handle are required on all wagers when off-track betting is conducted at the
racing facility of the primary licensee.

Breakage and Uncashed Mutuel Tickets. Race tracks and tele-tracks are allowed
to retain breakage, which is the residual amount remaining in the betting pool
after winnings are paid out to the nearest dime; however, one-half of such
revenue must be paid out as purses. During fiscal 1999, the Company's revenue
from breakage was $698,018 compared to $518,822 in fiscal 1998 and $481,554 in
fiscal 1997. Race tracks are also allowed to retain the proceeds from uncashed
winning pari-mutuel tickets, up to $250,000 for each live or simulcasted meet,
with the excess to be remitted to the State of Louisiana. During the fiscal
year ended October 31, 1999, the Company retained approximately $540,124 in
proceeds of such uncashed mutuel tickets as compared to approximately $476,740
in fiscal 1998 and $404,405 in fiscal 1997.


                                       3
<PAGE>   6

Video Poker Operations

Louisiana permits pari-mutuel facilities to install and operate an unlimited
number of video poker machines. Other types of businesses in Louisiana, such as
bars, truck stops and restaurants, are permitted to operate video poker
machines but are restricted in the number of machines they may operate. See
"Regulation." The owners of pari-mutuel wagering facilities such as the Company
are required to set aside one-half of the net revenues from such devices in
excess of certain amounts and use such amounts which are set aside to
supplement purses for live racing or, if live racing is not then being
conducted, to place such amounts in an interest-bearing account and utilize
them to supplement purses during the next live racing meet. Any such funds
which are earned from devices located at a tele-track are to be used for purse
supplements by the owner of the tele-track or, if it is jointly owned, to be
divided among the owners in proportion to their ownership interests.

The Company, Jefferson Downs and Finish Line entered into an agreement in
February 1992 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 and Jefferson Downs
Race Course and at the tele-tracks 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. Pursuant to such agreement, the Company receives a percentage of the
revenues from the operation of the devices installed at the Company's
facilities, such percentage being calculated on the basis of the average amount
collected daily from each device during each month, after the payment of
prizes, taxes and fees. See "Sources of Revenue." The devices installed by VSI
pursuant to such agreement remain the property of VSI. As of October 31, 1999,
there were a total of 337 devices in operation at the Company's facilities (not
including tele-tracks operated by Finish Line). In addition, there were a total
of 345 devices at the tele-tracks operated by Finish Line as of October 31,
1999. The Company receives purse supplements from the tele-tracks operated by
Finish Line, which includes the tele-tracks formerly owned by Jefferson Downs.

The agreement also provides for the Company and Finish Line to share in an
annual promotional fee of $270,000 paid by VSI. During fiscal 1999, by
agreement between the Company and Finish Line, the total amount of such
promotional fee was retained by the Company. Of such amount, $135,000 was set
aside for purse supplements to be paid during the Company's 1999-2000 racing
meet.

In connection with general elections held on November 5, 1996, special
elections were held in each parish in Louisiana to approve or disapprove, on a
parish-by-parish basis, video poker and other forms of gaming. In such local
elections, the voters in St. Tammany Parish, where the Company, through its
management agreement with Finish Line, maintains two facilities disapproved
video poker operations. As a result, the video poker operations at those two
facilities was terminated in June 1999; however, the loss of video poker
revenue from such locations has not had a material adverse effect on the
Company's results of operations.


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<PAGE>   7

SOURCES OF REVENUE

Income from Wagering

The principal component of the Company's revenue is generated from pari-mutuel
wagering, both on-track and off-track. In pari-mutuel wagering on horses, those
who wager on the first, second and third place horses share the total stakes,
or pool, less a percentage retained by the Company. The term "pool" means the
total amount wagered to win (first place), to place (second place), or to show
(third place) on every horse in a given race, or exacta, quinella and trifecta
wagers on certain combinations of horses. Under the pari-mutuel system, bettors
wager against each other and not against the racing facility, which has no
interest in which horse wins or loses. Racing facilities are authorized under
Louisiana law to retain a stated percentage of the total money handled through
the mutuel machines located at such racing facilities and their tele-tracks on
each racing day. Mutuel commissions range from 17% to 25% of money handled
depending upon the type of wager. For the fiscal year ended October 31, 1999,
the Company received pari-mutuel commissions and related income of $26.5
million, compared to $24.7 million for fiscal 1998 and $21.7 million for fiscal
1997. Total commission income (less pari-mutuel taxes) was $23.2 for fiscal
1999, $21.6 million for fiscal 1998, and $18.9 million for fiscal 1997.

The Company also receives, during its live racing meet, a percentage of the
handle from all tele-tracks and racing facilities to which its races are
simulcasted, paid in the form of host track fees as compensation for the
simulcasting of its races to such facilities. The Company also pays host track
fees to other racing facilities for the simulcasting of races to the Company's
tele-tracks. For the fiscal year ended October 31, 1999, the Company received
host track fees of $10.3 million and paid host track fees of $3.2 million.
During fiscal 1998 the Company received host track fees of $7.1 million and
paid host track fees of $2.8 million, and during fiscal 1997 the Company
received host track fees of $5.7 million and paid host track fees of $2.5
million.

Income from Video Poker Operations

For the fiscal year ended October 31, 1999, revenue from video poker operations
was $3.0 million compared to $2.9 million in fiscal 1998 and $2.3 million in
fiscal 1997. In the fiscal years ended October 31, 1999 and 1998, the Company
did not receive any video poker franchise fee relief revenues as a result of
having repaid all indebtedness incurred to construct its new main grandstand
and racing facility. Video poker franchise fee relief revenues were $1.9
million in the fiscal year ended October 31, 1997. As previously described,
there were a total of 337 devices in operation at the Company's facilities (not
including the tele-tracks operated by Finish Line) as of October 31, 1999.

Other Sources of Revenue

Additional revenue to the Company is generated from program sales, admission
charges collected by the racing facility and tele-tracks, parking, and food and
beverage services, all of which are operated directly by the Company. Pursuant
to its agreement with the publisher of the Daily Racing Form, the Company is
the wholesaler for sales of the Daily Racing Form in the greater New Orleans
area.


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<PAGE>   8

For two weekends each year, after the Company's live racing meet has concluded,
the infield of the Fair Grounds Race Course is used by a non-profit
organization in New Orleans to host a Jazz and Heritage Festival. As
compensation for the use of its facilities, the Company receives all revenues
from certain beverage concessions during the Jazz and Heritage Festival. The
Company and the sponsor of the Jazz and Heritage Festival are parties to an
agreement for the use of the Company's facilities through the year 2001.
Revenues from the 1999 Festival were $1.2 million, compared to $1.4 million
from the 1998 Festival and $1.0 million from the 1997 Festival.

Seasonality

The Company's business is seasonal, and the Company has received and should
continue to receive a majority of its revenues during the first and second
quarters of its fiscal year when its live racing meet is held. Although live
racing is conducted only during the first and second quarters of each fiscal
year, the Company's tele-tracks are operated year-round, enabling the Company
to earn revenues throughout the fiscal year but on a smaller scale in the third
and fourth quarters than in the first and second quarters of its fiscal year.
In addition, video poker operations are conducted year-round; however, revenue
from video poker operations generally is higher during the months when live
racing is conducted at the Company's race track since attendance there is
higher during such period.

For information regarding the Company's operating revenues, income or loss from
operations, other income, net income or loss and total assets, see "Selected
Financial Data."

COMPETITION

The Company continues to face competition from other companies in the gaming
industry, including those which offer pari-mutuel wagering. Activities which
compete or which have the potential for competing with the Company's racing
facility, tele-tracks and video poker operations include other horse racing
tracks and tele-tracks, riverboat and dockside gambling, casinos operated on
Indian reservations, a land-based casino in New Orleans, state-sponsored
lotteries and video poker in restaurants, bars, hotels and truck stops. All
such activities are present in the State of Louisiana, the Mississippi Gulf
Coast area or elsewhere in the State of Mississippi.

In recent years, the growth of gaming in the United States has been reflected
in various forms, including riverboats, dockside gaming facilities, Native
American gaming ventures, land-based casinos, state-sponsored lotteries, and
expanded off-track wagering opportunities. The impact of the lottery, video
poker, and casinos or riverboats on live racing in Louisiana has been felt by
all of the existing tracks. Additional forms of gaming which may be introduced
in the future, as well as future expansions, additions and enhancements to
existing facilities by the Company's competitors, could result in additional
funds being directed away from the Company's on-track and off-track facilities.

Horse Racing

The Company's racing facility and tele-tracks compete for patrons with a number
of sporting events and leisure time and entertainment activities in the New
Orleans area and throughout Louisiana, including race tracks and tele-tracks
owned and operated by three other licensees.


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The Company also competes with other race tracks in Louisiana and throughout
the United States in securing high caliber thoroughbred horses to run at the
Company's race track. The Company believes that it provides high quality horse
racing at the Fair Grounds Race Course.

Other Forms of Legalized Gaming

Louisiana Lottery. A state-wide lottery began operations in Louisiana in
September 1991. The Company believes that at its inception the Louisiana
lottery contributed significantly to a decline in the Company's average daily
pari-mutuel handle (consisting of both on-track and off-track wagering);
however, the Company believes that the lottery has had little impact during the
last several fiscal years.

Casino Gambling. A number of dockside casinos are currently operating in or
near Biloxi, Mississippi, located on the Mississippi Gulf Coast approximately
60 miles east of New Orleans. In addition, a substantial number of dockside
gaming facilities are in operation.

The Louisiana Riverboat Economic Development and Gaming Control Act, which
became effective in July 1991, approved the conduct of riverboat gaming
activities on 12 separate waterways in Louisiana. The legislation authorizes
the issuance of up to 15 licenses to operate riverboat casinos within the
State, with no more than six in any one Parish. As of January 1, 2000, 14
licenses had been granted and there were 13 licensed riverboats in operation in
Louisiana, three of which were operating in the New Orleans area.

In 1992, the Louisiana legislature approved a single land-based casino to be
developed in downtown New Orleans. Such legislation provided that the casino is
to be the only such authorized casino in the State of Louisiana. The City of
New Orleans awarded contracts for the development and operation of such casino
project, and in May 1995 temporary gambling operations commenced and
construction on the permanent casino facility was begun. The temporary gambling
operations and construction were halted in the Fall of 1995 when the developer
of the casino filed for bankruptcy. Construction of the land-based casino was
started again in 1998 and the land-based casino opened in late October 1999
under the name "Harrah's New Orleans."

Video Poker Operations. As described herein, pari-mutuel facilities to have an
unlimited number of video poker devices at such facilities. Any person who has
been granted a license to sell alcoholic beverages for consumption on the
premises may be granted a license for the placement of devices on such
premises; however, with the exception of pari-mutuel facilities and truck stop
facilities, a licensee may not have more than three such devices. Truck stop
facilities may have no more than 50 devices. Devices which are placed in
restaurants are to be operated only in designated areas which are separate from
the dining areas of such restaurants. The Company believes that there are
numerous establishments throughout the New Orleans area at which video poker
devices are located; however, the Company does not believe that the placement
of such devices at such other establishments has had a material adverse effect
on the revenue which has been generated from the operation of such devices at
the Company's racetrack and tele-tracks.


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REGULATION

The Company's operation of pari-mutuel wagering at its racetrack and
tele-tracks is subject to extensive regulation pursuant to Louisiana law and
the rules and regulations of the Racing Commission which govern, among other
things, (i) the awarding of licenses for the conduct of live racing meets; (ii)
the conduct of thoroughbred horse racing; (iii) the types of wagering which may
be offered by the Company and other pari-mutuel facilities; and (iv) the
disposition of revenue generated from wagering. Off-track wagering is also
regulated by the Racing Commission. Such legislation, and subsequent
regulations adopted by the Racing Commission, govern the ownership and
operation of off-track wagering facilities, the commissions which facilities
may earn on wagers and the amounts which must be set aside as purse
supplements, as described elsewhere herein.

The Video Draw Poker Devices Control Law is subject to regulation by the gaming
enforcement division of the Louisiana State Police. Such legislation describes
the specifications which must be met before devices can be utilized in
Louisiana, and also sets forth certain licensing, accounting and reporting
requirements.

EMPLOYEES

During its live racing season, the Company, through a wholly-owned subsidiary,
employs approximately 805 persons. At all other times, the Company employs
approximately 400 persons.


                                       8
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ITEM 2.      PROPERTIES

The Company owns its racetrack site which consists of approximately 145 acres
of land situated within a fenced area adjacent to Gentilly Boulevard in the New
Orleans city limits and within a ten-minute drive from downtown New Orleans.
Located on such property is a one-mile oval, sandy loam race track and a
seven-furlong turf track inside the main track.

The Company owns the new grandstand facility and the tele-track facility
described herein. The new facility is a multi-tiered concrete and steel
structure, with a total seating capacity for approximately 5,000 people. The
size of the new facility, together with the adjacent tele-track building, is
approximately 217,000 square feet in the aggregate. There is general seating in
a bleacher area in the front of the grandstand with reserved seating, including
the new clubhouse area, located in tiered areas above the grandstand. In a
significant change from the design of the old building, the paddock is located
in the middle of and behind the grandstand and may be viewed through a glass
area from all levels of the facility.

The Company also owns 50 modern concrete barns with supporting buildings and
facilities which are located on the property and are capable of quartering
approximately 2,000 horses. There is an all-concrete parking lot which can
accommodate approximately 4,000 vehicles within the fenced area.

The Company leases the facilities for its off-track tele-tracks under lease
agreements which contain various terms. 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.

The Company has an agreement with Autotote Limited ("Autotote") pursuant to
which Autotote provides the Company with wagering services, including
totalisator, computer and related services. The Company pays Autotote a
percentage of the total pari-mutuel handle and also pays Autotote certain
equipment and contingent rental fees in connection with leasing certain
equipment from Autotote.

See Note 8 of Notes to the Financial Statements included elsewhere herein for a
description of the Company's lease obligations.


                                       9
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ITEM 3.      LEGAL PROCEEDINGS

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 that destroyed the Company's main clubhouse
and grandstand building or in connection with the Company's efforts to collect
insurance proceeds after the fire. The following is a brief description of the
fire-related proceedings that are pending or were terminated during the fourth
quarter of fiscal 1999:

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. The settlement agreement included a "Mary Carter" provision
whereby the insurance agent and broker would be entitled to share in any
recovery that the Company might have obtained 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. Both the Company and Travelers appealed, and on September 28, 1999 the
Court of Appeals amended the trial court judgment to delete the $2,410,905
award for business interruption coverage and otherwise affirmed the trial
court's decision. After its petition for rehearing was refused, the Company
filed an application for writ of certiorari with the Louisiana Supreme Court
which has not yet acted on such application. Since the decision by the Court of
Appeals, Travelers has paid $327,147 to the Company in satisfaction of that
portion of the judgment attributable to penalties, attorney's fees and interest
thereon. Under the Mary Carter provision, the Company is entitled to the
following: (i) 100% of the first $1.0 million recovered and 100% of any
recovery from $3.0 million to $4.0 million; (ii) 57.214437% of any recovery
from $10.0 million to $14,674,474; and (iii) 85% of any recovery in excess of
$14,674,474. Under the Mary Carter agreement referenced above, the liability
insurers of the agent and broker are entitled to share in any recovery from
Travelers.

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


                                      10
<PAGE>   13

suit alleging the Company participated in a conspiracy to prevent the plaintiff
from entering the live racing, off-track betting and video poker markets. The
Company filed a motion for summary judgment in late 1998 but that motion has
not been decided by the U.S. District Court. Livingston had previously filed a
series of other legal actions against the Company which were resolved in the
Company's favor. Management believes that Livingston's claims in this case are
without merit. However, there is no assurance that the Company will
successfully defend all of Livingston's claims. Because the amount in question
has not yet been determined but could be substantial and because there is no
assurance that there will be insurance coverage or that it will be adequate, as
discussed below, the failure of the Company to prevail in this lawsuit could
have a material adverse effect on the Company's operations, financial condition
and cash flows.

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

A suit was filed in 1996 in the 19th Judicial District Court in Louisiana by
the Louisiana Horsemen's Benevolent and Protective Association ("LHBPA"), an
association of horsemen organized to promote the dissemination of information
on issues critical to horsemen and the exchange of ideas and information,
against the Company, the State of Louisiana, and all other pari-mutuel wagering
facilities operating in Louisiana. The LHBPA is seeking a larger portion of
video poker proceeds on the grounds that the State of Louisiana and the horse
racing tracks in Louisiana have misinterpreted a Louisiana statute specifying
the amount of revenues from video poker machines at pari-mutuel wagering
facilities that are to be used as purse supplements. A motion for summary
judgment seeking dismissal of this action was filed in April 1999 and is
pending before the court. Management believes that the Company is in compliance
with the Louisiana statute and the guidelines established by the Louisiana
State Police Gaming Division, which regulates compliance with the State of
Louisiana video poker law, and that the Company has sufficient defenses to all
claims. However, there is no assurance that the Company will successfully
defend the LHBPA's claims. Because the amount in question could be substantial,
the failure by the Company to prevail in this lawsuit could have a material
adverse effect on the Company's operations, financial condition and cash flows.

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.


                                      11
<PAGE>   14

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

No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.

EXECUTIVE OFFICERS OF THE REGISTRANT

In accordance with Instruction 3 to Item 401(b) of Regulation S-K, the
following information is submitted concerning the executive officers of the
Company:

BRYAN G. KRANTZ, age 39, is President, General Manager and a director of the
Company and is President of Finish Line Management Corporation, which operates
certain off-track betting facilities in Louisiana.

MARIE G. KRANTZ, age 64, is Chairman of the Board of Directors and Treasurer of
the Company and is Secretary/Treasurer of Finish Line Management Corporation.

MERVIN MUNIZ, JR., age 57, is Director of Racing and Racing Secretary.

GORDON M. ROBERTSON, age 59, is Chief Financial Officer of the Company.

JOAN B. STEWART, age 67, is Secretary of the Company

No family relationships exist between or among any nominee, director or
executive officer of the Company, except that Bryan G. Krantz is the son of
Marie G. Krantz.

                                    PART II

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

The common shares of the Company are not listed on The Nasdaq Stock Market or
any other established trading market. Trading in the common shares of the
Company generally has been sporadic and trading volume generally is very low.
The range of high and low bid quotations set forth below represents the bid
quotations at the end of each fiscal quarter.

<TABLE>
<CAPTION>

FISCAL                       1998             1998                1999               1999
QUARTER ENDED              LOW BID          HIGH BID            LOW BID            HIGH BID
-------------              -------          --------            -------            --------
<S>                        <C>              <C>                 <C>                <C>
 January 31                $ 15.50          $ 20.00             $ 22.50            $  25.00
 April 30                  $ 16.00          $ 17.00             $ 24.25            $  27.00
 July 31                   $ 20.00          $ 26.00             $ 27.50            $ 31.375
 October 31                $ 23.00          $ 30.00             $ 30.50            $  35.00
</TABLE>

As of January 1, 2000, there were approximately 430 shareholders of record of
the 468,580 issued and outstanding common shares of the Company.

There were no cash dividends declared or paid during fiscal 1998. On April 30,
1999, the Company paid a special cash dividend of $1.00 per share to
shareholders of record at the close of business on April 15, 1999. The Company
presently has no plans to declare any additional cash dividends.


                                      12
<PAGE>   15

The Company is not subject to any restrictions (other than non-contractual
business considerations) affecting its present or future ability to pay
dividends with respect to its common shares.

See Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations."


                                      13
<PAGE>   16

ITEM 6.      SELECTED FINANCIAL DATA

                            FAIR GROUNDS CORPORATION
                            SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                     For the Five Years Ended October 31
                                          ------------------------------------------------------------------------------------
                                              1999              1998              1997              1996              1995
                                          ------------      ------------      ------------      ------------      ------------

<S>                                       <C>               <C>               <C>               <C>               <C>
OPERATING REVENUES                        $ 41,794,601      $ 36,785,091      $ 30,980,259      $ 27,496,500      $ 23,031,031

OPERATING EXPENSES                          43,537,452        39,209,437        32,201,167        29,809,843        26,394,452
                                          ------------      ------------      ------------      ------------      ------------

LOSS FROM CONTINUING OPERATIONS              (1,742,851)       (2,424,346)       (1,220,908)       (2,313,343)       (3,363,421)

INTEREST EXPENSE                                19,783            19,752           266,435           791,566            12,318

OTHER INCOME                                   399,015         1,483,027         3,013,320         4,279,503         2,459,163
                                          ------------      ------------      ------------      ------------      ------------

INCOME (LOSS) BEFORE INCOME TAXES,
  EXTRAORDINARY ITEM, AND
  CUMULATIVE EFFECT OF CHANGES IN
  ACCOUNTING PRINCIPLES                     (1,343,836)         (961,071)        1,525,977         1,174,594          (916,576)

PROVISION (BENEFIT) FOR
  INCOME TAXES                                (236,256)         (645,355)          775,288           294,896          (300,460)

EXTRAORDINARY ITEM - GAIN
  FROM FIRE (net of taxes)                   2,517,713         6,272,628         9,022,525                --                --

CUMULATIVE EFFECT OF CHANGES
  IN ACCOUNTING PRINCIPLES                          --                --                --                --           104,000
                                          ------------      ------------      ------------      ------------      ------------

NET INCOME (LOSS)                         $  1,410,133      $  5,956,912      $  9,773,214      $    879,698      $   (512,116)
                                          ============      ============      ============      ============      ============

COMMON SHARES OUTSTANDING                      469,940           469,940           469,940           469,940           469,940
                                          ============      ============      ============      ============      ============
LOSS FROM CONTINUING OPERATIONS
 PER COMMON SHARE                         $      (3.72)     $      (5.17)     $      (2.61)     $      (4.94)     $      (7.18)
                                          ============      ============      ============      ============      ============
NET INCOME (LOSS) PER COMMON
 SHARE                                    $       3.01      $      12.71      $      20.80      $       1.87      $      (1.09)
                                          ============      ============      ============      ============      ============

SPECIAL CASH DIVIDENDS PAID PER SHARE     $       1.00      $       None      $       None      $       None      $       None
                                          ============      ============      ============      ============      ============

TOTAL ASSETS                              $ 48,951,539      $ 49,144,377      $ 48,089,820      $ 34,791,597      $ 30,954,654
                                          ============      ============      ============      ============      ============
</TABLE>


                                      14
<PAGE>   17

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

RESULTS OF OPERATIONS

FISCAL 1999 COMPARED TO FISCAL 1998

Revenues. During the fiscal years ended October 31, 1999 and 1998, 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. During each such fiscal year, in addition to live racing conducted at
the Fair Grounds race course in New Orleans, the Company operated tele-tracks
in New Orleans at the Fair Grounds Race Course and on Bourbon Street, and at
locations in Jefferson, Lafourche, St. Bernard and St. John Parishes,
Louisiana. Through Finish Line Management Corporation, an affiliated company,
the Company operated tele-track facilities in Terrebonne, St. Tammany, and
Jefferson Parishes, Louisiana.

For the fiscal year ended October 31, 1999, the Company reported total in-state
pari-mutuel wagering of $126,264,900 compared to $119,710,774 in fiscal 1998.

Comparative pari-mutuel wagering and attendance figures for the fiscal years
ended October 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                 1999                    1998
                                             --------------         --------------

<S>                                          <C>                    <C>
Pari-mutuel wagering:
   On-track handle                           $   27,412,562         $   25,789,351
   Off-track handle                              98,852,338             93,921,423
                                             --------------         --------------
   Total in-state wagering                   $  126,264,900         $  119,710,774
                                             ==============         ==============

   Out-of-state simulcast handle             $  321,342,925         $  219,765,629
                                             ==============         ==============

Attendance:
   On-track                                         170,684                189,439
   Off-track                                        379,910                391,271
                                             --------------         --------------
Total Attendance                                    550,594                580,710
                                             ==============         ==============
</TABLE>

The Company attributes the $1,623,211, or 6.3%, increase in the on-track handle
in the 1999 fiscal year primarily to the improved quality of racing resulting
from increased purses paid during the fiscal 1999 race meet.

The Company believes that the $4,930,915, or 5.3%, increase in off-track handle
is primarily due to the Company transmitting better simulcasting signals and to
higher quality horses racing in the Company's fiscal 1999 live racing meet. The
$101,577,296, or 46.2%, increase in out-of-state handle is believed to be the
result of those same factors. In addition, during the fiscal 1999 race meet the
Company's races were sometimes simulcasted to locations that have not generally
received simulcasts of the Company's races, thus increasing the Company's
simulcasting handle. Those locations received simulcasts of the Company's races
during fiscal 1999 because certain other tracks were unable to conduct live
racing and simulcast their races to those locations due to severe winter
weather.


                                      15
<PAGE>   18

During the fiscal year ended October 31, 1999, the Company experienced
significant simulcast handle increases from California and New York. These two
markets accounted for approximately $46.4 million, or 46%, of the handle
increase.

With the increase in total handle, the Company's operating revenues in the
fiscal year ended October 31, 1999 increased by $5,009,510, or 13.6%, from the
prior fiscal year. This included increases of $1,539,409, or 6.5%, in
pari-mutuel commissions, $179,196, or 34.5%, in breakage, $63,384, or 13.3% in
uncashed mutuel tickets, $77,285, or 3.5%, in concessions, $3,210,979, or
45.2%, in host track fees, $80,674, or 2.8%, in video poker revenues, $11,516,
or 25.5%, in parking revenues, and $211,722, or 34.6%, in miscellaneous
revenues. Miscellaneous revenue included approximately $150,000 of promotional
fee revenues paid by third parties which advertise in the Company's racing
program plus $135,000 of promotional fees paid to the Company by its video
poker operator. Also included in miscellaneous revenues is group sales and
special events revenues held at the Company's facilities which have continued
to increase since the building of its new grandstand and clubhouse facilities.
These increases were partially offset by a $55,442, or 7.4%, decrease in
admissions revenues, a $143,557, or 9%, decrease in programs and forms revenue
and a $165,656 or 5.2% increase in pari-mutuel tax expense. Admissions are no
longer collected at the Company's teletrack in Lafourche Parish. Programs and
forms revenues have decreased as a result of a continued decline in racing form
sales. Management believes racing form sales are being replaced by the sales of
less expensive racing programs. In addition, some information found in these
racing publications can now be obtained by the public over the internet, thus
reducing the demand for program and form sales.

Racing Expenses. Total racing expenses increased $3,348,937, or 10%, in the
1999 fiscal year over the prior period, primarily as a result of the increased
pari-mutuel activities. This increase included an increase of $2,326,443, or
17.4%, in purses. Other increases included salaries and related taxes and
benefits, contracts and services, rent, repairs and maintenance, concessions
costs, advertising and promotion, and host track fees paid by the Company.
These increases were partially offset by decreases in utilities, depreciation,
and program paper, forms and other supplies.

General and Administrative Expenses. General and administrative expenses
increased by $979,078, or 18.2%, in the 1999 fiscal year primarily as a result
of performance bonuses paid in the second fiscal quarter to key personnel,
increased property taxes, increased office expenses and increased legal fees
relating to ongoing litigation discussed elsewhere herein. Also contributing to
the higher general and administrative expenses in fiscal 1999 was a $118,000
increase in the accrual for contingent liabilities over the prior year based
upon management's evaluation of outstanding contingencies at October 31, 1999.
These increases were partially offset by decreases in insurance costs due to
lower property and general liability premiums, and decreased contracts and
services.

Other Income (Expense). Other income decreased in the fiscal year ended October
31, 1999 by $1,064,260, or 72.7%, due, in part, to a $127,931 decrease in Jazz
and Heritage Festival income. The decrease in Jazz and Heritage Festival income
was primarily attributable to a $25,000 increase of the festival sponsorship
fee paid by the Company, a decrease in infield food sales compared to the 1998
festival, and increased cost of goods sold at the 1999 festival. The decrease
in other income was also attributable to the Company's payment, during the 1999
fiscal year, of a guaranty fee in the amount of $988,789 to Marie G. Krantz for
her guaranty of, and pledge of personal assets to secure, the Company's
reconstruction debt from 1995 through


                                      16
<PAGE>   19

completion of construction in late 1997. No additional guaranty payments are
due to Ms. Krantz, and the Company will not be making a similar guaranty
payment in the 2000 fiscal year.

Extraordinary Items. During the fiscal year ended October 31, 1999, the Company
received settlement payments in connection with the fire related litigation
previously reported in the aggregate amount of $4 million. These proceeds were
reported net of related taxes of approximately $1.48 million. In the comparable
prior fiscal year period, settlements totaled $9.96 million and were reported
net of $3.68 million of related taxes.

Income Taxes. For the fiscal year ended October 31, 1999, income tax benefit
was $236,256, compared to $645,355 for fiscal 1998. The difference between
periods reflects changes in pretax income and deferred tax assets and
liabilities between the respective periods.

Net Income. The Company reported net income of $1,410,133 for the fiscal year
ended October 31, 1999 compared to $5,956,912 for the fiscal year ended October
31, 1998. The Company's net income in fiscal 1999 was significantly reduced
from that in fiscal 1998 primarily due to a substantial reduction in the
fire-related litigation recoveries in the 1999 fiscal year. The Company
anticipates that there may be a further reduction in net income in fiscal 2000
inasmuch as the Company may not receive any significant litigation recoveries
in fiscal 2000. Excluding the extraordinary items and income taxes discussed
above, net income (loss) in the current fiscal year was $(1,343,836) compared
to $(961,071) in the fiscal year ended October 31, 1998.

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.


                                      17
<PAGE>   20

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
fiscal 1997 plus significant handle increases from Kentucky, Pennsylvania,
Texas and Las Vegas.

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. Admissions
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.

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.


                                      18
<PAGE>   21

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.

Other Income (Expenses). Total other income in fiscal 1998 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 fiscal 1998'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.

Interest income in fiscal 1998 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 in fiscal 1998 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 fiscal 1997 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.
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.

Net Income. The Company had 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. Although the Company received significant litigation settlements as
described herein in both fiscal years, the recoveries in fiscal 1998 were
substantially below the fiscal 1997 recoveries. 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.

Liquidity and Capital Resources

General

Cash and cash equivalents increased $911,078 during the fiscal year ended
October 31, 1999, compared to an increase of $2,384,974 during the fiscal year
ended October 31, 1998. The increase in cash and cash equivalents in fiscal
1999 was the result of cash provided by investing activities of $3,179,859,
partially offset by cash used for operating activities of $874,131, and cash
used for financing activities of $1,394,650.


                                      19
<PAGE>   22

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

As of October 31, 1999, the Company had received cumulatively, since the
December 1993 fire, approximately $48 million, before taxes, of insurance
proceeds resulting from fire loss claims submitted to the Company's insurance
carriers or in litigation settlements. The Company's new main grandstand and
racing facility was substantially completed in November 1997 and was opened for
the start of the Company's 1997-98 live racing meet. The total cost of
constructing and furnishing the facility, including the tele-track facility at
the Fair Grounds Race Course that was completed in late 1994, through October
31, 1999 was in excess of $35 million.

On April 14, 1998, the Company entered into a working capital line of credit
agreement with Bank One for a term of one year. The line of credit was for $2.5
million with interest at 8% on amounts outstanding. The credit agreement was
extended beyond April 14, 1999 and was in place at October 31, 1999. A new
credit agreement, with substantially the same terms, was entered into with
First Bank and Trust in November 1999. No amounts were drawn or outstanding on
the Bank One line of credit during the fiscal year ended October 31, 1999 and
no amounts have been drawn down on the First Bank and Trust line of credit
since it was entered into in November 1999.

On April 30, 1999, the Company paid a special cash dividend of $1.00 per share
to shareholders of record at the close of business on April 15, 1999. The
Company presently has no plans to declare any additional cash dividends.

The Company believes that the combination of existing cash, cash from future
operations, funds available under its working capital line of credit, and the
Company's capacity to incur short-term and long-term indebtedness, if
necessary, will be sufficient to fund the Company's cash requirements for the
foreseeable future. As a result of the fire insurance and other litigation
settlements received, the Company has a total net deferred tax liability of
approximately $9.65 million at October 31, 1999. The deferred tax liability is
to be paid over approximately the next 38 years in accordance with Internal
Revenue Service regulations. The Company intends to fund these future tax
obligations through operations.

Year 2000 Compliance

A significant part of the Company's operations are dependent on computer
systems and applications. These systems are either owned by the Company or are
provided under contract by third party technology or other service providers.
If these systems were not year 2000 compliant, the Company could have
experienced system failures or miscalculations leading to disruption of
business operations. Through the third week of year 2000, the Company has not
experienced any significant problems associated with the year 2000 issue,
although it is possible that year 2000 problems could develop at a later date.

In 1999 the Company completed its assessment of its data processing functions
to determine if they are year 2000 compliant. The Company formed a task force
which has assisted in its assessment of year 2000 readiness. Based in part on
that assessment, in fiscal 1998 the Company purchased and installed an updated
version of its accounting software that its vendor stated was year 2000


                                      20
<PAGE>   23

compliant and in 1999 the Company completed the process of testing that
compliance.

The Company also made inquiries to third party providers as to their compliance
and has obtained assurances from certain vendors, as well as other race tracks
with which the Company interfaces, as to their year 2000 readiness. The
Company's plant and equipment, as well as the Providers of Services to the
plant and equipment, were also surveyed to determine whether they were year
2000 ready. The services of those providers, including electrical and telephone
services, are essential to the Company's ability to operate. The Company's most
significant third party technology services provider is Autotote, which
performs the totalisator functions for the Company. The Company's contract with
Autotote provides that the services are to be year 2000 compliant. The Company
was advised that the totalisator functions provided by Autotote are year 2000
compliant. If, in fact, Autotote were not compliant, the Company's operations
could have been or could be adversely affected until another provider of the
totalisator function can be found. The Company's video services provided by a
third party provider, which is an affiliate of Autotote, and are also important
to the Company's operations. These services include the production of the
telecast signal at the Fair Grounds Race Course and distribution to the
Company's tele-tracks and to other wagering facilities within and outside
Louisiana. The Company worked with such provider to ensure that the software
applications that provide the graphical enhancements and other distinguishing
features to the telecast signals are year 2000 compliant. The Company was
informed that most of those applications are year 2000 compliant and was
assured that the remaining applications would be made year 2000 ready by
December 31, 1999. The video poker devices at the Company's facilities are
provided by another third party provider. The Company was advised that such
equipment is year 2000 compliant. The failure of certain third party providers
to complete their year 2000 resolution process could have had, or could in the
future have, a material impact on the Company. As a result, the Company
considered developing business relationships with alternative providers as
necessary and if available but to date has not had to utilize any alternative
providers.

To date, the Company has incurred costs of approximately $55,000, including the
cost and time of Company employees, to address year 2000 issues. During 1999,
the Company completed its assessment of its facility, data processing and other
equipment and believes that the total costs associated with its efforts to
prepare for year 2000 will not have a material adverse effect on the Company's
financial condition or business operations. The Company has not yet completed a
contingency plan addressing failure to be year 2000 ready. While the Company
had developed contingency plans for most year 2000 failures, it has not been
necessary to implement such plans.

Impact of Inflation

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

Forward-Looking Statements

The statements in this Annual Report 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 Company's net income in fiscal 2000, and the adequacy of its
cash, cash


                                      21
<PAGE>   24

equivalents and borrowings available under its new working capital line of
credit to fund the Company's future cash requirements. Words such as
"anticipates," "believes," "expects," "intends," "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
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.


                                      22
<PAGE>   25


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company utilizes an overnight sweep arrangement pursuant to which available
funds are invested in daily repurchase agreements which are collateralized by
U.S. government or agency securities. The Company also has deposits in U.S.
Treasury money market funds which are short-term in nature and guaranteed by
the U.S. government. Because of the short-term duration of the financial
instruments held by the Company, management does not believe that its financial
instruments are materially sensitive to changes in interest rates.


                                      23
<PAGE>   26
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, 1999 and 1998

Statements of Operations for the Three Years Ended October 31, 1999

Statements of Changes in Stockholders' Equity for the Three Years
Ended October 31, 1999

Statements of Cash Flows for the Three Years Ended October 31, 1999



                                       24

<PAGE>   27






               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
(the "Company") as of October 31, 1999 and 1998, 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, 1999. 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,
1999, and 1998 and the results of its operations and its cash flows for each of
the three years in the period ended October 31, 1999 in conformity with
generally accepted accounting principles.

/s/ Rebowe & Company

Metairie, Louisiana
January 3, 2000

                                       25


<PAGE>   28


                            FAIR GROUNDS CORPORATION
                                 BALANCE SHEETS
<TABLE>
<CAPTION>

                                                          October 31
                                                 -------------------------------
ASSETS                                                1999               1998
                                                 ------------       ------------
<S>                                              <C>                <C>
CURRENT ASSETS
   Cash and cash equivalents                     $  8,488,808       $  7,577,730
   Cash and cash equivalents - restricted             125,665            118,218
   Accounts receivable                              1,079,222          1,078,638
   Mutuel settlements                                 181,630            139,964
   Inventory                                          125,156            118,357
   Deferred income taxes                              103,600             59,940
   Prepaid expenses                                   468,165            437,322
                                                 ------------       ------------

        Total Current Assets                       10,572,246          9,530,169
                                                 ------------       ------------

OTHER ASSETS                                           53,768            283,411
                                                 ------------       ------------

PROPERTY, PLANT AND EQUIPMENT
   Buildings and improvements                      44,177,698         43,870,295
   Land improvements                                4,463,899          4,348,135
   Automotive equipment                               963,243            931,424
   Machinery and equipment                          2,696,449          2,432,433
   Furniture and fixtures                             405,352            366,575
                                                 ------------       ------------

        Total                                      52,706,641         51,948,862

   Less: accumulated depreciation
         and amortization                         (17,667,397)       (15,904,346)
                                                 ------------       ------------

   Depreciable property - net                      35,039,244         36,044,516
   Land                                             3,286,281          3,286,281
                                                 ------------       ------------

        Property, plant and equipment - net        38,325,525         39,330,797
                                                 ------------       ------------

        TOTAL ASSETS                             $ 48,951,539       $ 49,144,377
                                                 ============       ============
</TABLE>


                                       26

<PAGE>   29


                            FAIR GROUNDS CORPORATION
                           BALANCE SHEETS (CONTINUED)


<TABLE>
<CAPTION>

                                                            October 31
                                                 -------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY                 1999               1998
                                                 ------------       ------------
<S>                                              <C>                <C>
CURRENT LIABILITIES
   Notes payable                                 $    109,613       $     46,894
   Accounts payable                                   849,288          1,552,141
   Accrued liabilities:
     Deferred purses                                8,104,835          7,930,825
     Host track fees                                  432,721            374,251
     Uncashed mutuel tickets                          391,790            446,786
     Other                                            543,183            369,135
   Deferred revenues                                  282,970            275,701
   Income taxes payable                                 4,932            515,391
                                                 ------------       ------------

        Total Current Liabilities                  10,719,332         11,511,124
                                                 ------------       ------------

DEFERRED INCOME TAXES                               9,652,819          9,995,418
                                                 ------------       ------------

        Total Liabilities                          20,372,151         21,506,542
                                                 ------------       ------------

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                               25,153,119         24,211,566
                                                 ------------       ------------

        Total                                      28,614,913         27,673,360

   Less: treasury stock at cost,
        1,360 shares at 1999 and 1998                 (35,525)           (35,525)
                                                 ------------       ------------

        Total Stockholders' Equity                 28,579,388         27,637,835
                                                 ------------       ------------

        TOTAL LIABILITIES AND
          STOCKHOLDERS' EQUITY                   $ 48,951,539       $ 49,144,377
                                                 ============       ============
</TABLE>




See accompanying notes to financial statements.

                                       27

<PAGE>   30


                            FAIR GROUNDS CORPORATION
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                For the Years Ended October 31
                                      --------------------------------------------------
                                           1999               1998               1997
                                      ------------       ------------       ------------
<S>                                   <C>                <C>                <C>
REVENUES
   Pari-mutuel commissions            $ 25,290,751       $ 23,751,342       $ 20,832,282
   Breakage                                698,018            518,822            481,554
   Uncashed mutuel tickets                 540,124            476,740            404,405
                                      ------------       ------------       ------------
        Total                           26,528,893         24,746,904         21,718,241

   Less: pari-mutuel tax                (3,330,231)        (3,164,575)        (2,792,092)
                                      ------------       ------------       ------------

   Commission income                    23,198,662         21,582,329         18,926,149
   Host track fees                      10,311,004          7,100,025          5,733,544
                                      ------------       ------------       ------------

        Total Mutuel Income             33,509,666         28,682,354         24,659,693

   Concessions                           2,272,073          2,194,788          1,485,227
   Admissions (net of taxes)               697,627            753,069            296,870
   Parking                                  56,606             45,090             20,581
   Video poker                           2,980,435          2,899,761          2,346,677
   Programs and forms                    1,455,005          1,598,562          1,491,628
   Miscellaneous                           823,189            611,467            679,583
                                      ------------       ------------       ------------

        Total Operating Revenues        41,794,601         36,785,091         30,980,259
                                      ------------       ------------       ------------


RACING EXPENSES
   Purses                               15,666,248         13,339,805         11,041,607
   Salaries and related
     taxes and benefits                  7,710,882          7,058,677          5,702,370
   Contracts and services                2,353,119          2,197,555          2,333,814
   Depreciation                          1,763,051          1,847,867          1,589,041
   Host track fees                       3,168,059          2,785,281          2,482,926
   Program paper, forms and
     other supplies                      1,649,714          1,774,943          1,587,615
   Utilities                               998,231          1,204,332            674,071
   Advertising and promotion             1,195,451          1,152,101            917,817
   Cost of sales - concessions             866,532            716,918            593,774
   Repairs and maintenance                 774,331            733,474            383,343
   Rent                                    359,872            326,973            304,138
   Miscellaneous                           685,385            704,012            488,113
                                      ------------       ------------       ------------

        Total Racing Expenses         $ 37,190,875       $ 33,841,938       $ 28,098,629
                                      ------------       ------------       ------------
</TABLE>




(Continued)

                                       28


<PAGE>   31


                            FAIR GROUNDS CORPORATION
                      STATEMENTS OF OPERATIONS (CONTINUED)


<TABLE>
<CAPTION>

                                                    For the Years Ended October 31
                                            -----------------------------------------------
                                               1999              1998              1997
                                            -----------       -----------       -----------
<S>                                         <C>               <C>               <C>
GENERAL AND ADMINISTRATIVE
   EXPENSES
   Salaries and related
     taxes and benefits                     $ 2,145,314       $ 1,483,233       $   993,049
   Legal, audit and director fees             1,254,283         1,051,024         1,129,814
   Property taxes                               965,661           811,104           399,541
   Insurance                                    818,374           827,775           866,343
   Office expenses                              569,711           408,938           350,090
   Contracts and services                       127,794           179,880           197,603
   Miscellaneous                                465,440           605,545           166,098
                                            -----------       -----------       -----------

        Total General and
          Administrative Expenses             6,346,577         5,367,499         4,102,538
                                            -----------       -----------       -----------

LOSS FROM OPERATIONS                         (1,742,851)       (2,424,346)       (1,220,908)
                                            -----------       -----------       -----------

OTHER INCOME (EXPENSE)
   Jazz and Heritage Festival
     income - net                             1,249,042         1,376,973         1,048,753
   Video poker franchise fee                         --                --         1,921,362
   Financing charge                            (988,789)               --                --
   Interest expense                             (19,783)          (19,752)         (266,435)
   Interest income                              158,545           130,821            78,352
   Other                                             --           (24,767)          (35,147)
                                            -----------       -----------       -----------

        Total Other Income                  $   399,015       $ 1,463,275       $ 2,746,885
                                            -----------       -----------       -----------

INCOME (LOSS) BEFORE
   INCOME TAXES AND
   EXTRAORDINARY ITEM                       $(1,343,836)      $  (961,071)      $ 1,525,977

PROVISION (BENEFIT) FOR
   INCOME TAXES                                (236,256)         (645,355)          775,288
                                            -----------       -----------       -----------

INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM                           (1,107,580)         (315,716)          750,689

EXTRAORDINARY ITEM -
INSURANCE PROCEEDS AS A
RESULT OF DECEMBER 1993
FIRE (net of $1,478,657, $3,683,924
and $5,298,944 of related income taxes
in 1999, 1998 and 1997, respectively)         2,517,713         6,272,628         9,022,525
                                            -----------       -----------       -----------

NET INCOME                                  $ 1,410,133       $ 5,956,912       $ 9,773,214
                                            ===========       ===========       ===========
</TABLE>


(Continued)

                                       29
<PAGE>   32


                            FAIR GROUNDS CORPORATION
                      STATEMENTS OF OPERATIONS (CONTINUED)


<TABLE>
<CAPTION>

                                    For the Years Ended October 31
                                --------------------------------------
                                  1999           1998           1997
                                --------       --------       --------
<S>                             <C>            <C>            <C>
PER SHARE OF COMMON STOCK:

   INCOME (LOSS) BEFORE
     EXTRAORDINARY ITEM         $  (2.37)      $  (0.68)      $   1.60

   EXTRAORDINARY ITEM,
     NET OF INCOME TAXES            5.38          13.39          19.20
                                --------       --------       --------

   NET INCOME                   $   3.01       $  12.71       $  20.80
                                ========       ========       ========
</TABLE>






See accompanying notes to financial statements.

                                       30

<PAGE>   33
                            FAIR GROUNDS CORPORATION
                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              For the Years Ended October 31, 1999, 1998 and 1997

<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, 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

 Net Income                                       --            --       1,410,133           --           --        1,410,133

 Special cash dividends ($1 per share)            --            --        (468,580)          --           --         (468,580)
                                          ----------    ----------    ------------     --------     --------     ------------

Balance, October 31, 1999                 $1,525,092    $1,936,702    $ 25,153,119     $     --     $(35,525)    $ 28,579,388
                                          ==========    ==========    ============     ========     ========     ============
</TABLE>


See accompanying notes to financial statements.


                                      31
<PAGE>   34
                            FAIR GROUNDS CORPORATION
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                           For the Years Ended October 31
                                                  ------------------------------------------------
                                                      1999               1998             1997
                                                  ------------      ------------      ------------

<S>                                               <C>               <C>               <C>
CASH FLOWS FROM OPERATING
  ACTIVITIES
  Net income                                      $  1,410,133      $  5,956,912      $  9,773,214
  Adjustments to reconcile net income
    to net cash provided by operating
    activities:
    Depreciation                                     1,763,051         1,847,867         1,589,041
    Financing charge                                   988,789                --                --
    Gain on sale of property                                --                --          (115,602)
    Provision (benefit) for
      deferred income taxes                           (407,805)         (301,326)        5,836,263
    Loss (Gain) on sale of
      investment securities                                 --              (725)             (398)
    Gain from fire                                  (3,996,370)       (9,900,000)      (14,321,469)
    Change in assets and
      liabilities:
    (Increase) decrease in:
    Accounts receivable and
      mutuel settlements                               (42,250)          168,820          (438,071)
    Inventory                                           (6,799)          (23,054)          (11,055)
    Prepaid expenses                                   (30,843)          (84,155)           72,816
    Cash and cash equivalents -
      restricted                                        (7,447)        2,525,484        (2,509,773)
    Deposits and other assets                          229,643          (157,895)          (23,832)
    Increase (decrease) in:
    Accounts payable and
      accrued liabilities                             (510,259)          736,220           524,312
    Deferred purses                                    174,010           505,646           732,124
    Deferred revenues                                    7,269           134,861           134,840
    Income taxes payable                              (445,253)          329,185            71,000
                                                  ------------      ------------      ------------

    Total Adjustments                               (2,284,264)       (4,219,072)       (8,459,804)
                                                  ------------      ------------      ------------

  Net cash provided by (used for)
    operating activities                              (874,131)        1,737,840         1,313,410
                                                  ------------      ------------      ------------
</TABLE>

(Continued)


                                      32
<PAGE>   35

                            FAIR GROUNDS CORPORATION
                      STATEMENTS OF CASH FLOWS (CONTINUED)


<TABLE>
<CAPTION>
                                                           For the Years Ended October 31
                                                  ------------------------------------------------
                                                      1999               1998             1997
                                                  ------------      ------------      ------------

<S>                                               <C>               <C>               <C>
CASH FLOWS FROM INVESTING
  ACTIVITIES
  Capital expenditures                                (757,779)       (3,478,477)      (12,965,686)
  Construction contract
    payable                                            (58,732)       (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
  Proceeds from sale of property                            --            (1,111)          126,371
  Proceeds from fire
    litigation settlements                           3,996,370         9,900,000        14,321,469
                                                  ------------      ------------      ------------

  Net cash provided by
    investing activities                             3,179,859         5,919,143         2,247,732
                                                  ------------      ------------      ------------

CASH FLOWS FROM FINANCING
  ACTIVITIES
  Dividends paid                                      (468,580)               --                --
  Payment of financing charge                         (988,789)               --                --
  Proceeds from short-term
    borrowings                                       1,320,052         2,272,253        17,083,985
  Principal repayments
    of short-term borrowings                        (1,257,333)       (7,544,262)      (21,717,305)
                                                  ------------      ------------      ------------

  Net cash used for
    financing activities                            (1,394,650)       (5,272,009)       (4,633,320)
                                                  ------------      ------------      ------------

NET INCREASE (DECREASE) IN
  CASH AND CASH EQUIVALENTS                            911,078         2,384,974        (1,072,178)

CASH AND CASH EQUIVALENTS
  AT BEGINNING OF YEAR                               7,577,730         5,192,756         6,264,934
                                                  ------------      ------------      ------------

CASH AND CASH EQUIVALENTS
  AT END OF YEAR                                  $  8,488,808      $  7,577,730      $  5,192,756
                                                  ============      ============      ============
</TABLE>


See accompanying notes to financial statements.


                                      33
<PAGE>   36

                            FAIR GROUNDS CORPORATION
                         NOTES TO FINANCIAL STATEMENTS
              For the Years Ended October 31, 1999, 1998 and 1997


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

The Company conducts a live winter/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
regulations or economic conditions that affect the gaming industry.

Basis of Consolidation

The accompanying financial statements include the accounts of the Company and
its wholly-owned subsidiary, F. G. Staffing Services, Inc. All inter-company
balances and transactions have been eliminated in consolidation.

Uninsured Cash Deposits

As of October 31, 1999 and 1998, the Company had deposits in various financial
institutions in the aggregate of $8,622,684 and $8,124,477, respectively. In
fiscal year 1999, $308,915 was FDIC insured and $7,884,502 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, 1999 and 1998 by $429,267 and $787,598, 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, 1999 and 1998, restricted cash totalled $125,665 and
$118,218, respectively. This restricted cash is a security deposit for the
Company's worker's compensation program.

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.


                                      34
<PAGE>   37

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


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.

Advertising

Advertising costs are charged to operations when incurred.

Accounts Receivable

The Company has recorded accounts receivable from pari-mutuel wagering, video
poker and other activities. The majority of these receivables is settled at
least monthly and considered fully collectable. Therefore, management does not
consider an allowance for doubtful accounts to be 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.


                                      35
<PAGE>   38

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      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.

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 Statement of Financial
Accounting Standards (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 5.

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.

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.


                                      36
<PAGE>   39

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Reclassification

Certain prior year accounts have been reclassified to conform to the current
year presentation. This reclassification has no effect on the net income for
the year ended October 31, 1998 and 1997.

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 $12.71 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 October 31, 1998 have been restated to reflect this
adjustment.


NOTE 2 - STATEMENTS OF CASH FLOWS - SUPPLEMENTAL DISCLOSURES

Cash was paid during the following fiscal years for:

<TABLE>
<CAPTION>
                                                  1999               1998              1997
                                              ------------      ------------      ------------

          <S>                                 <C>               <C>               <C>
          Interest                            $     19,783      $     50,594      $    454,457
                                              ============      ============      ============
          Income taxes                        $  1,298,000      $  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, 1999, 1998, and 1997.


                                      37
<PAGE>   40

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


NOTE 3 - INVESTMENT SECURITIES AVAILABLE FOR SALE

There were no investment securities classified as available for sale at October
31, 1999 and 1998.

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. There were no proceeds from sales of investment
securities or gains (losses) realized for the fiscal year ended October 31,
1999.


NOTE 4 - NOTES PAYABLE

<TABLE>
<CAPTION>
                                                             October 31
                                                     ------------------------
                                                        1999           1998
                                                     ---------      ---------


<S>                                                  <C>           <C>
Imperial Premium Finance, Inc.
Installment note - insurance
premium financing; interest at 6.75%,
final installment due April 2000.                       69,130             --

INAC Corp; Installment note -
insurance premium financing;
interest at 6.78%, final installment
due February 2000.                                      40,483             --

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

                                                     $ 109,613      $  46,894
                                                     =========      =========
</TABLE>


NOTE 5 - INCOME TAXES

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

<TABLE>
<CAPTION>
                                                        October 31
                                    --------------------------------------------------
                                        1999               1998                1997
                                    ------------       ------------       ------------

<S>                                 <C>                <C>                <C>
Current:
     Federal                        $  1,278,244       $  3,188,238       $    121,000
     State                               200,413            495,686                 --
                                    ------------       ------------       ------------
          Total                        1,478,657          3,683,924            121,000

Deferred                                (236,256)          (645,355)         5,953,232
                                    ------------       ------------       ------------

          Total                     $  1,242,401       $  3,038,569       $  6,074,232
                                    ============       ============       ============
</TABLE>


                                       38
<PAGE>   41

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


NOTE 5 - INCOME TAXES (CONTINUED)

Approximately $1.5 million, $3.7 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 years ended October 31, 1999, 1998 and
1997, respectively.

For the fiscal years ended October 31, 1999 and 1998, the tax effects of
temporary differences that gave rise to significant portions of the deferred
tax assets and liabilities are presented below. There was no activity in the
valuation allowance in fiscal years 1999 and 1998.

<TABLE>
<CAPTION>
                                                                        October 31
                                                             -------------------------------
                                                                 1999               1998
                                                             ------------       ------------

<S>                                                          <C>                <C>
Current deferred tax assets:
General liability insurance contingency accrual              $    103,600       $     59,940
                                                             ------------       ------------
Total current deferred tax assets                            $    103,600       $     59,940
                                                             ============       ============
Non-current deferred tax assets:

Tax accumulated depreciation in excess of book               $ (1,850,589)      $ (2,193,188)
                                                             ------------       ------------
Total non-current deferred tax assets                          (1,850,589)        (2,193,188)

Non-current deferred tax liabilities:

Deferred tax on gain from fire                                 (7,802,230)        (7,802,230)
                                                             ------------       ------------
Net non-current deferred tax liabilities                     $ (9,652,819)      $ (9,995,418)
                                                             ============       ============
</TABLE>


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, 1999, 1998 and
1997 is as follows:

<TABLE>
<CAPTION>
                                                                       October 31
                                                   -------------------------------------------------
                                                       1999              1998               1997
                                                   ------------      ------------       ------------

<S>                                                <C>               <C>                <C>
Expected tax provision                             $    901,862      $  3,058,464       $  5,388,132
State income taxes                                      200,413           495,686            475,423
Utilization of net operating loss                            --                --            251,000
Additional tax basis attributable to gain                    --          (347,473)                --
Other                                                   140,126          (168,108)           (40,323)
                                                   ------------      ------------       ------------
Actual tax provision                               $  1,242,401      $  3,038,569       $  6,074,232
                                                   ============      ============       ============
</TABLE>


                                       39
<PAGE>   42

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


NOTE 5 - INCOME TAXES (CONTINUED)

As of October 31, 1999, the Company has recorded a non-current deferred tax
liability totaling $9,652,819 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 its remaining tax life.


NOTE 6 - COMMITMENTS AND CONTINGENCIES

The Company has been a party to a number of legal proceedings which arose as a
result of the December 1993 fire that destroyed the Company's main clubhouse
and grandstand building or in connection with the Company's efforts to collect
insurance proceeds after the fire. The following is a brief description of
pending fire-related proceedings or proceedings terminated during the fiscal
year ended October 31, 1999:

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. The settlement agreement included a "Mary Carter" provision
whereby the insurance agent and broker are entitled to share in any recovery
that the Company might have obtained 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.

Both the Company and Travelers filed appeals with the Louisiana Fifth Circuit
Court of Appeals. On September 28, 1999 the Court of Appeals amended the trial
court judgment to delete the



                                       40
<PAGE>   43

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997

NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

$2,410,905 award for business interruption coverage and otherwise affirmed the
trial court's decision. After the Company's petition for rehearing was refused
by the Court of Appeals on October 18, 1999, the Company filed an application
for writ of certiorari with the Louisiana Supreme Court which has not yet acted
on such application. Since the decision by the Court of Appeals, Travelers has
paid $327,147 to the Company in satisfaction of that portion of the judgment
attributable to penalties, attorney's fees and interest thereon. Under the Mary
Carter provision, the Company is entitled to the following: (i) 100% of the
first $1.0 million recovered and 100% of any recovery from $3.0 million to $4.0
million; (ii) 57.214437% of any recovery from $10.0 million to $14,674,474; and
(iii) 85% of any recovery in excess of $14,674,474.

Livingston Downs Litigation

In 1996, a suit was filed in U.S. District Court in Baton Rouge by Livingston
Downs Racing Association ("Livingston") naming the Company and other defendants
in an antitrust/civil RICO suit alleging the Company participated in a
conspiracy to prevent the plaintiff from entering the live racing, off track
betting and video poker markets. The Company filed a motion for summary
judgment in late 1998 but that motion has not been decided by the U.S. District
Court. Livingston had previously filed a series of other legal actions against
the Company which were resolved in the Company's favor. Management believes
that Livingston's claims in this case are without merit. However, there is no
assurance that the Company will successfully defend all of Livingston's claims.
Because the amount is question has not yet been determined but could be
substantial and because there is no assurance that there will be insurance
coverage or that it will be adequate, as discussed below, the failure of the
Company to prevail in this lawsuit could have a material adverse effect on the
Company's operations, financial condition and cash flows.

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

Other Litigation

A suit was filed in 1996 in the 19th Judicial District Court in Louisiana by
the Louisiana Horsemen's Benevolent and Protective Association ("LHBPA"), an
association of horsemen organized to promote the dissemination of information
on issues critical to horsemen and the exchange of ideas and information,
against the Company, the State of Louisiana, and all other pari-mutuel wagering
facilities operating in Louisiana. The LHBPA is seeking a larger portion of
video poker proceeds on the grounds that the State of Louisiana and the horse
racing tracks in Louisiana have misinterpreted a Louisiana statute specifying
the amount of revenues from video poker machines at


                                       41
<PAGE>   44

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

pari-mutuel waging facilities that are to be used as purse supplements. A
motion for summary judgment seeking dismissal of this action was filed in April
1999 and is pending before the court. Management believes that the Company is
in compliance with the Louisiana statute and the guidelines established by the
Louisiana State Police Gaming Division, which regulates compliance with the
State of Louisiana video poker law, and that the Company has sufficient
defenses to all claims. However, there is no assurance that the Company will
successfully defend the LHBPA's claims. Because the amount in question could be
substantial, the failure by the Company to prevail in this lawsuit could have a
material effect on the Company's operations, financial condition and cash
flows.

In July 1997, 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 1999, the Company and the plaintiffs reached a
settlement agreement pursuant to which the Company paid the plaintiffs $100,000
in full settlement of all claims for overtime pay plus attorneys' fees. The
retaliatory discharge claims were tried in 1999. At the conclusion of evidence,
the court dismissed those claims.

During fiscal 1999, the Company received a final payment of $3,996,370 in
connection with the fire-related litigation against ADT Security Systems
Mid-South, Inc., as previously reported. This amount has been reported as an
extraordinary item, net of taxes, in the Company's October 31, 1999 Statement
of Operations.

The Company also has an accrued liability of $280,000 for contingent
liabilities as of October 31, 1999. This amount has been reported as an "Other
Current Liability" in the October 31, 1999 Balance Sheet. This accrual
increased by $118,000 over fiscal 1998's accrual based upon management's
evaluation of outstanding contingencies at October 31, 1999. Such increase of
the accrual for contingent liabilities has been reported as a "Miscellaneous
General and Administrative Expense" in the Company's October 31, 1999 Statement
of Operations.

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


NOTE 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


                                      42
<PAGE>   45

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)

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, 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, 1999, 1998 and 1997, the Company received
$87,530, $90,668, and $82,655, respectively, from Finish Line in accordance
with the Management Agreement. Accounts receivable from Finish Line were
$774,245 and $753,984 at October 31, 1999 and 1998, respectively.

The following table reflects the host track fees and purse supplement receipts
from Finish Line for the fiscal years ended October 31, 1999, 1998, and 1997.

<TABLE>
<CAPTION>
                                                           Received by the Company and Paid
                                                     by Finish Line for the Years Ended October 31
                                                   -------------------------------------------------
                                                       1999              1998               1997
                                                   ------------      ------------       ------------

<S>                                                <C>               <C>                <C>
Host track fees                                    $    305,591      $    297,035       $    325,680
                                                   ============      ============       ============
Purse supplement receipts                          $  4,986,874      $  4,788,281       $  4,822,405
                                                   ============      ============       ============
</TABLE>


                                      43
<PAGE>   46

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


NOTE 7 - RELATED PARTY TRANSACTIONS (CONTINUED)

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, 1999, 1998 and 1997, the Company made payments to Continental of
$628,365, $502,000, and $333,000, respectively, to reimburse Continental for
advertising expenses paid by it. Continental does not generate any net income
and the Krantz's do not receive any form of compensation from it. As of October
31, 1999 and 1998, the Company was due amounts included in accounts receivable
of $13,894 and $6,614 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 1999, 1998 and 1997, 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, 1999, 1998 and 1997, there
were a total of 337, 315, and 297 devices, respectively, in operation at all of
the Company's facilities. In addition, there were a total of 345, 414, and 428
devices in operation at the Finish Line facilities as of October 31, 1999, 1998
and 1997, respectively.

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


                                      44
<PAGE>   47
                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


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, Louisiana         January 1, 1995 to January 31, 1999                $ 6,000
                                       February 1, 1999 to January 31, 2004               $ 9,325

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

 LaPlace, Louisiana                    February 1, 1998 to January 31, 1999               $ 4,420
                                       February 1, 1999 to January 31, 2000               $ 4,553

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

 Bourbon Street -                      March 15, 1991 to March 14, 1999                   $10,000
 New Orleans, Louisiana                March 15, 1999 to March 14, 2004                   $13,125

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

 Thibodaux, Louisiana                  October 1, 1998 to September 30, 1999              $ 2,300
                                       October 1, 1999 to September 30, 2000              $ 2,300

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

 Metairie, Louisiana                   February 1, 1998 to January 31, 1999               $ 9,000
                                       February 1, 1999 to January 31, 2000               $ 9,500
                                       February 1, 2000 to January 31, 2001               $ 9,500
=================================================================================================
</TABLE>


                                      45
<PAGE>   48

                           FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


NOTE 8 - LEASES (CONTINUED)

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.

Future obligations over the primary lease terms, not including renewal periods,
of the Company's long-term leases as of October 31, 1999 are as follows:

<TABLE>
<CAPTION>
                       Year Ending
                       October 31
                       -----------
                       <S>                            <C>
                          2000                        $    422,359
                          2001                             297,900
                          2002                             269,400
                          2003                             269,400
                          2004                              87,038
                                                      ------------
                          Total                       $  1,346,097
                                                      ============
</TABLE>

The Company is party to an agreement with Autotote Limited to provide wagering
services, including computer and all related services to carry out the
totalisator function for the Company, until November 20, 2002. The Company pays
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 is $200,000. No
estimates of future obligations under this agreement have been included in the
above table. For the fiscal years ended October 31, 1999, 1998, and 1997, the
Company incurred $200,000 in minimum rental fees and $695,670, $647,187 and
$600,724, 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,
1999, 1998 and 1997. No options were outstanding at October 31, 1999.


                                       46

<PAGE>   49

                            FAIR GROUNDS CORPORATION
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
              For the Years Ended October 31, 1999, 1998 and 1997


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.

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, 1999, 1998, and 1997.


NOTE 11 - SUBSEQUENT EVENT

On November 9, 1999, the Company received $326,396.87 from Travelers Indemnity
Company of Illinois. (See Note 6 above).


                                      47
<PAGE>   50

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

None


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning directors of the Company contained in the section
entitled "Election of Directors" of the definitive Information Statement for
the 2000 Annual Meeting of Shareholders to be filed with the Commission on or
about March 3, 2000 is incorporated herein by reference in response to this
item.


ITEM 11.  EXECUTIVE COMPENSATION

The information contained in the sections entitled "Executive Compensation" and
"Board Committees and Compensation" of the definitive Information Statement for
the 2000 Annual Meeting of Shareholders to be filed with the Commission on or
about March 3, 2000 is incorporated herein by reference in response to this
item.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information contained in the section entitled "Security Ownership" of the
definitive Information Statement for the 2000 Annual Meeting of Shareholders to
be filed with the Commission on or about March 3, 2000 is incorporated herein
by reference in response to this item.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained in the section entitled "Election of Directors" and
"Executive Compensation" of the definitive Information Statement for the 2000
Annual Meeting of Shareholders to be filed with the Commission on or about
March 3, 2000 is incorporated herein by reference in response to this item.


                                      48
<PAGE>   51


                                    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                  25

               Balance Sheets at October 31, 1999 and 1998                         26

               Statements of Operations for the Three Years                        28
               Ended October 31, 1999

               Statements of Changes in Stockholder's                              31
               Equity for the Three Years Ended
               October 31, 1999

               Statements of Cash Flows for the Three                              32
               Years Ended October 31, 1999

               Notes to Financial Statements                                       34

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


                                      49
<PAGE>   52

<TABLE>

<S>      <C>                                                                        <C>
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).

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.)
</TABLE>


                                      50
<PAGE>   53

<TABLE>

<S>      <C>                                                                       <C>
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.)

  27     Financial Data Schedule (for SEC use only)                                 56
</TABLE>


*Incorporated herein by reference as indicated.


                                      51
<PAGE>   54

                                   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


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

<TABLE>
<CAPTION>

Name                                 Capacity                      Date
---------                            --------                      ----

<S>                                  <C>                           <C>
PRINCIPAL EXECUTIVE OFFICER:


/s/ Bryan G. Krantz
-----------------------
Bryan G. Krantz                      President                     January 27, 2000


PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:



/s/ Gordon M. Robertson
-----------------------
Gordon M. Robertson,                 Chief Financial Officer       January 27, 2000
</TABLE>


                                      52
<PAGE>   55


DIRECTORS:

<TABLE>


<S>                                  <C>                           <C>
/s/ Richard Katcher
-----------------------
Richard Katcher                      Director                      January 27, 2000


/s/ Marie G. Krantz
-----------------------
Marie G. Krantz                      Director and Chairman         January 27, 2000
                                     of the Board


/s/ Bryan G. Krantz
-----------------------
Bryan G. Krantz                      Director and President        January 27, 2000


/s/ Ronald J. Maestri
-----------------------
Ronald J. Maestri                    Director                      January 27, 2000


/s/ Charmaine R. Morel
-----------------------
Charmaine R. Morel                   Director                      January 27, 2000


/s/ Wayne E. Thomas
-----------------------
Wayne E. Thomas                      Director                      January 27, 2000
</TABLE>


                                      53
<PAGE>   56


                                 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>


                                      54
<PAGE>   57


<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.)

  27     Financial Data Schedule (for SEC use only)                                56
</TABLE>


*   Incorporated herein by reference as indicated.


                                      55