<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


(Mark One)
( X )  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

        For the quarterly period ended:         September 30, 1998
                                           -------------------------------------

                                       OR

(   )  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

        For the transition period from:                     to
                                        ------------------       ---------------

Commission file number:        333-49715
                            ----------------------------------------------------

                        ALADDIN GAMING ENTERPRISES, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


              NEVADA                                    88-0379695
--------------------------------------    --------------------------------------
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporation or organization)

831 Pilot Road, Las Vegas, Nevada                               89119
--------------------------------------------------------------------------------
(Address of principal executive offices)                      (Zip Code)

                                 (702) 736-7114
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

Indicate the number of shares outstanding of the issuer's classes of common 
stock, as of the latest practicable date.

Class A Common Stock,  
 2,000,000 shares authorized                                1,107,500 issued, 
                                                              no par value
Class B Common Stock, Non-voting,  
 8,000,000 shares authorized                                2,215,000 issued, 
                                                            no par value

<PAGE>

                        ALADDIN GAMING ENTERPRISES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                      INDEX

<TABLE>
<CAPTION>
                                                                                       PAGE NO.
                                                                                     ------------
<S>        <C>                                                                       <C>
PART I     FINANCIAL INFORMATION

   Item 1. Financial Statements

           Balance Sheets -
             September 30, 1998 and December 31, 1997..............................        1

           Statements of Operations -
             For the three and nine months ended September 30, 1998 
             and for the period from inception (December 3, 1997) 
             through September 30, 1998............................................        2

           Statement of Stockholders' Equity -
             For the period from inception (December 3, 1997) through
             September 30, 1998....................................................        3

           Statements of Cash Flows -
             For the nine months ended September 30, 1998 and for 
             the period from inception (December 3, 1997) through 
             September 30, 1998....................................................        4

           Notes to the Financial Statements.......................................      5 - 7

   Item 2. Management's Discussion and Analysis of Financial 
             Condition and Results of Operations...................................     8 - 13

   Item 3. Quantitative and Qualitative Disclosures About Market Risks.............       13

PART II    OTHER INFORMATION

   Item 1. Legal Proceedings.......................................................       13

   Item 2. Changes in Securities and Use of Proceeds...............................       13

   Item 3. Defaults upon Senior Securities.........................................       13

   Item 4. Submission of Matters to a Vote of Security Holders.....................       13

   Item 5. Other Information.......................................................       14

   Item 6. Exhibits and Reports on Form 8-K........................................       14

Signatures ........................................................................       15

Exhibit Index......................................................................       16
</TABLE>

<PAGE>

PART I.      Financial Information

ITEM 1.      FINANCIAL STATEMENTS


                        ALADDIN GAMING ENTERPRISES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                                 BALANCE SHEETS
                    SEPTEMBER 30, 1998 AND DECEMBER 31, 1997

<TABLE>
<CAPTION>
                                                                    September 30,          December 31,
                                                                        1998                   1997
                                                                 --------------------   -------------------
                                                                     (unaudited)
<S>                                                              <C>                    <C>
ASSETS

Cash                                                                 $           669        $          669
Investment in unconsolidated affiliate                                    19,452,182                   331
                                                                 --------------------   -------------------
                                                                     $    19,452,851        $        1,000
                                                                 --------------------   -------------------
                                                                 --------------------   -------------------

LIABILITIES AND STOCKHOLDERS' EQUITY

Payable to related party                                             $         1,500        $            -

Common Stock

Class A, no par value, 2,000,000 and 2,500 shares
authorized, 1,107,500 and 1 shares issued and
outstanding as of September 30, 1998 and 
December 31, 1997, respectively. Class B, no par
value and non-voting 8,000,000 and 0 shares
authorized, 2,215,000 and 0 shares issued and
outstanding, and 2,215,000 and 0 shares reserved
pursuant to the warrant agreement as of
September 30, 1998 and December 31, 1997, respectively.                   13,247,203                     1


Additional paid-in capital                                                15,000,999                   999

Deficit accumulated during the development stage                         (8,796,851)                     -
                                                                 --------------------   -------------------
                                                                     $    19,452,851        $        1,000
                                                                 --------------------   -------------------
                                                                 --------------------   -------------------
</TABLE>

    The accompanying notes are an integral part of this financial statement.

                                      -1-
<PAGE>

                        ALADDIN GAMING ENTERPRISES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                            STATEMENTS OF OPERATIONS
             FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998
                               AND FOR THE PERIOD
          FROM INCEPTION (DECEMBER 3, 1997) THROUGH SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                                                                                      For the period
                                                 For the three months      For the nine months       December 3, 1997
                                                  ended September 30,      ended September 30,     (inception) through
                                                         1998                     1998              September 30, 1998
                                                      (Unaudited)              (Unaudited)             (Unaudited)
                                                ------------------------  ----------------------  -----------------------
<S>                                             <C>                       <C>                     <C>
Other expenses                                        $               -        $         (1,500)       $          (1,500)

Equity in loss of unconsolidated affiliate                   (2,791,157)             (8,214,101)              (8,214,101)

Income tax expense (benefit)                                          -                       -                        -

                                                ------------------------  ----------------------  -----------------------
Net loss accumulated during the development
stage                                                 $      (2,791,157)        $    (8,215,601)       $      (8,215,601)
                                                ------------------------  ----------------------  -----------------------
                                                ------------------------  ----------------------  -----------------------

Basic and Dilutive loss per share                     $           (0.84)        $         (3.01)       $           (3.01)

Shares used in per share calculation                          3,322,500               2,726,154                2,726,154
</TABLE>

    The accompanying notes are an integral part of this financial statement.

                                      -2-
<PAGE>

                        ALADDIN GAMING ENTERPRISES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                       STATEMENT OF STOCKHOLDERS' EQUITY
                FOR THE PERIOD FROM INCEPTION (DECEMBER 3, 1997)
                           THROUGH SEPTEMBER 30, 1998
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 Additional
                                             Common Stock          Paid in            Retained 
                                          Class A and Class B      Capital            Earnings             Total
                                          --------------------  ---------------   -----------------  ------------------
<S>                                       <C>                   <C>               <C>                <C>
BALANCE, DECEMBER 3, 1997                    $              -    $           -       $           -      $            -

Issuance of Class A common stock, 1 share
issued                                                      1              999                   -               1,000
                                          --------------------  ---------------   -----------------  ------------------

BALANCE, DECEMBER 31, 1997                                  1              999                   -               1,000

Net loss accumulated during the
development stage                                           -                -          (8,215,601)         (8,215,601)

Issuance of Class A common stock,
1,107,499 shares issued, and Class B
common stock, 2,215,000 shares issued              13,247,202                -                   -          13,247,202

Issuance of Warrants to purchase
Class B common stock, 2,215,000 Warrants                    -       15,000,000                   -          15,000,000
issued

Equity costs from unconsolidated
affiliate                                                   -                -            (581,250)           (581,250)
                                          --------------------  ---------------   -----------------  ------------------

BALANCE, SEPTEMBER 30, 1998                  $     13,247,203    $  15,000,999       $  (8,796,851)     $   19,451,351
                                          --------------------  ---------------   -----------------  ------------------
                                          --------------------  ---------------   -----------------  ------------------
</TABLE>



    The accompanying notes are an integral part of this financial statement.

                                      -3-
<PAGE>

                        ALADDIN GAMING ENTERPRISES, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                            STATEMENTS OF CASH FLOWS
         FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND FOR THE PERIOD
          FROM INCEPTION (DECEMBER 3, 1997) THROUGH SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                                                                                  For the period
                                                                     For the nine months         December 3, 1997
                                                                            ended               (inception) through
                                                                     September 30, 1998         September 30, 1998
                                                                         (Unaudited)                (Unaudited)
                                                                   ------------------------    ----------------------
<S>                                                                <C>                         <C>
Cash Flows used for investing activities:
Investment in unconsolidated affiliate                                $        (15,000,000)        $     (15,000,331)

Cash Flows from financing activities:
Proceeds from the issuance of stock                                                      -                     1,000
Proceeds from the issuance of warrants                                          15,000,000                15,000,000
                                                                   ------------------------    ----------------------

Increase in cash and cash equivalents                                                    -                       669

Cash and cash equivalents at beginning of period                                       669                         -
                                                                   ------------------------    ----------------------

Cash and cash equivalents at end of period                            $                669         $             669
                                                                   ------------------------    ----------------------
                                                                   ------------------------    ----------------------


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Non-cash investing and financing activities:
Equity contributions - non-cash                                       $         13,247,202         $      13,247,202
</TABLE>


    The accompanying notes are an integral part of this financial statement.

                                      -4-
<PAGE>

                        ALADDIN GAMING ENTERPRISES, INC.

                          (A DEVELOPMENT STAGE COMPANY)

                          NOTES TO FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1998

1.  ORGANIZATION AND BUSINESS

      Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"), 
was established on December 3, 1997. Enterprises holds a 25% interest in 
Aladdin Gaming Holdings, LLC ("Gaming Holdings") and is wholly owned by 
Sommer Enterprises, LLC, a Nevada limited-liability company ("Sommer 
Enterprises"). Aladdin Holdings, LLC, a Delaware limited liability company 
("Holdings"), holds a majority interest in Sommer Enterprises. The members of 
Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer 
Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada 
limited-liability company ("GW"), a wholly owned subsidiary of Trust Company 
of the West ("TCW"), which holds a 5% interest in Holdings.

      Enterprises' interest in Gaming Holdings has been accounted for under 
the equity method.

      Enterprises has no other business or activities other than its 
investment in Gaming Holdings which is a development stage company. Gaming 
Holdings through its subsidiary, Aladdin Gaming, LLC ("Gaming"),  plans to 
develop, construct and operate a new hotel and casino, the Aladdin Hotel and 
Casino as the centerpiece of an approximately 35 acre world-class resort, 
casino and entertainment complex in Las Vegas, Nevada. Gaming Holdings, 
through its subsidiaries, also owns 100% of Aladdin Music, LLC ("Aladdin 
Music"). Aladdin Music intends to construct a second hotel and casino with a 
music and entertainment theme ("Aladdin Music Project") on the southeast 
corner of the 35-acre parcel. Aladdin Music is currently seeking a joint 
venture partner for the Aladdin Music Project.

2.  INCOME TAXES

      Enterprises accounts for income taxes using the liability method as set 
forth in the Statement of Financial Accounting Standards No. 109, ACCOUNTING 
FOR INCOME TAXES. Under the liability method, deferred taxes are provided 
based on the temporary differences between the financial reporting basis and 
the tax basis of Enterprises' assets and liabilities.

      There was no income tax expense or benefit recorded for the period from 
inception (December 3, 1997) through September 30, 1998 as Enterprises is a 
development stage company and the realization of any deferred tax asset is 
uncertain.

3.  PRIVATE OFFERING

      On February 26, 1998, Gaming Holdings, Aladdin Capital Corp. ("Capital" 
together with Gaming Holdings, the "Issuers") and Enterprises consummated a 
private offering (the "Offering") under Rule 144A of the Securities Act of 
1933. The private offering consisted of 221,500 units (the "Units"), each 
unit consisting of (i) $1,000 principal amount at maturity of 13 1/2% Senior 
Discount Notes due 2010 (the "Notes") of Gaming Holdings and Capital and (ii) 
10 Warrants (the "Warrants") to purchase 10 shares of Class B non-voting 
Common Stock, no par value, of Enterprises. The Notes and the Warrants became 
separately transferable on July 23, 1998 and the Warrants became exercisable 
on July 23, 1998 and will expire on March 1, 2010.

      On August 26, 1998, Gaming Holdings and Capital completed an exchange 
offer for 100% of the $221.5 million aggregate principal amount of their 
13 1/2% Senior Discount Notes due 2010 ("Notes"), 

                                      -5-
<PAGE>

pursuant to a registration statement dated July 23, 1998. The Notes were 
exchanged for notes with substantially the same terms issued in the private 
placement.

      The initial accreted value of the Notes was $519.40 per $1,000 
principal amount at maturity of the Notes. The Notes will mature on March 1, 
2010. The Notes will accrete at 13 1/2% (computed on a semi-annual bond 
equivalent basis) based on the initial accreted value, calculated from 
February 26, 1998. Cash interest on the Notes will not accrue prior to March 
1, 2003. Thereafter, cash interest on the Notes will accrue at the rate of 
13 1/2% per annum based on the accreted value at maturity of the Notes and will 
be payable semi-annually in arrears on March 1 and September 1 of each year, 
commencing on September 1, 2003.

      The Notes are secured by a first priority pledge of all of the issued 
and outstanding Series A Preferred Interests of Gaming Holdings in Aladdin 
Gaming, LLC.

      The Indenture to the Notes contains certain covenants that (subject to 
certain exceptions) restrict the ability of the Issuers and certain of their 
subsidiaries to, among other things: (i) make restricted payments, (ii) incur 
additional indebtedness and issue preferred stock; (iii) incur liens; (iv) 
pay dividends or make other distributions; (v) enter into mergers or 
consolidations; (vi) enter into certain transactions with affiliates or (vii) 
enter into new lines of business.

4.       LONG-TERM DEBT OF UNCONSOLIDATED AFFILIATE

         On February 26, 1998, Gaming entered into a $410.0 million Credit 
Agreement ("Bank Credit Facility" or "Credit Agreement") with various 
financial institutions and the Bank of Nova Scotia as the administrative 
agent for the lenders. The Credit Agreement consists of three separate term 
loans. Term A Loan comprises a term loan of $136.0 million and matures seven 
years after the initial borrowing date. Term B Loan comprises a term loan of 
$114.0 million and matures eight and one-half years after the initial 
borrowing date. Term C Loan comprises a term loan of $160.0 million and 
matures ten years after the borrowing date. The Term B Loan and the Term C 
Loan were funded by the lenders on February 26, 1998 and the funds are held 
by Gaming in the cash collateral account for the future development of the 
Aladdin. The Term B Loan and the Term C Loan proceeds could not be utilized 
until the proceeds from the Notes were completely exhausted. As of September 
30, 1998, 100% of the Notes proceeds, approximately $10.2 million of the Term 
B loan and $8.7 million of the Term C loan had been utilized to develop and 
construct the Aladdin. The Term A loan has not been funded.

         Gaming pays interest on the term loans as follows: Term A Loan, 
LIBOR plus 300 basis points until the Aladdin commences operations, then 
LIBOR plus an amount between 150 basis points and 275 basis points depending 
upon Gaming's EBITDA results; Term B Loan, LIBOR plus 200 basis points 
while the funds are held in the cash collateral account and LIBOR plus 350 
basis points once the funds are utilized for the construction of the Aladdin; 
and Term C Loan, LIBOR plus 200 basis points while the funds are held in the 
cash collateral account and LIBOR plus 400 basis points once the funds are 
utilized for the construction of the Aladdin. Gaming has entered into various 
interest rate swaps to manage interest expense, which is subject to 
fluctuations due to the variable nature of LIBOR. Gaming has interest rate 
swap agreements under which it pays a fixed interest rate and receives a 
variable interst rate. The interest rate swaps effectively convert the LIBOR 
into fixed rates of interest as follows: (a) until Aladdin commences 
operation, for the Term A Loan and the Term B Loan LIBOR is fixed at 5.883% 
and for the Term C Loan LIBOR is fixed at 6.485%; and (b) once the Aladdin 
has commenced operations, for the Term A Loan and Term B Loan, the maximum 
LIBOR is 7.00% and the minimum is 5.65%, and for the Term C Loan, the LIBOR 
has been fixed at 6.485%. The rate swaps for the Term A Loan and Term B Loan 
are in place until the respective loan maturity date and for the Term C Loan 
the hedge arrangements are cancelable at the call date of March 2003. No 
principal repayments are required prior to the opening of the Aladdin.

                                     -6-

<PAGE>

         Gaming is exposed to credit loss in the event of nonperformance by 
the other parties to the interest rate swap agreements. However, Gaming 
considers the risk of nonperformance by the counterparties to be minimal 
because the parties to the swap are predominantely members of Gaming's bank 
group.

         Under the Credit Agreement, $25 million of the contingency funds is 
made available to Gaming as a function of the project's percentage of 
construction complete. However, to enhance the quality of the project, Gaming 
has committed to changes in the plans and specifications early in the project 
while the percentage of completion is low. In addition, Gaming revised 
certain items of the project budget and adjusted the budget accordingly, 
including an increase to pre-opening costs. Thus, because financial 
commitments were made when the contingency funds were not yet available to 
pay for such changes, an out-of-balance of approximately $6.5 million 
("Out-of-Balance") was created. While the Out-of-Balance is due to a timing 
difference that Gaming believes will be resolved over time, the Credit 
Agreement nonetheless requires that Gaming fund such Out-of-Balance. London 
Clubs, a 25% owner (through its subsidiary) of Gaming Holdings, and the 
Sommer Trust are negotiating to post a letter of credit to fund such 
Out-of-Balance, which would require an amendment to the Credit Agreement. 
Management believes such amendment will be approved by the Lenders. As the 
Out-of-Balance is reduced, the amount of the letter of credit would be 
correspondingly reduced. In addition to amending other technical provisions 
of the Credit Agreement, the amendment would also revise the net worth 
requirement to reflect the accounting treatment requiring certain costs to be 
expensed rather than capitalized. If the Lenders do not approve a letter of 
credit to fund the Out-of-Balance and the other proposed amendments, or if 
Gaming, London Clubs and/or the Sommer Trust do not otherwise fund the 
Out-of-Balance, the Lenders will not disburse funds under the Credit 
Agreement. Any delay in the disbursement of funds under the Credit Agreement 
could result in delays to the project, which would materially and adversely 
impact Gaming and Enterprises. 

5.  EQUITY CONTRIBUTIONS

      On February 26, 1998, Sommer Enterprises, LLC contributed a portion of 
land and $7.0 million of predevelopment costs in exchange for 100% of the 
Class A Common Stock in Enterprises. Enterprises contributed the portion of 
land, the $7.0 million of predevelopment costs and the net proceeds $15.0 
million allocable from the sale of the Warrants to Gaming Holdings in 
exchange for 25% of the common membership interests in Gaming Holdings.

6.  IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

      In September 1997, the FASB issued SFAS No. 130, "Reporting 
Comprehensive Income." SFAS No. 130 requires companies to classify items of 
other comprehensive income by their nature in a financial statement and 
display the accumulated balance of other comprehensive income separately from 
retained earnings and additional paid-in capital in the equity sections of a 
statement of financial position, and is effective for financial statements 
issued for fiscal years beginning after December 15, 1997. The Company has 
adopted SFAS No. 130, during the three-month period ended March 31,1998 and 
has determined that such adoption will not result in comprehensive income 
different from net income as reported in the accompanying financial 
statements.

      In September 1997, the FASB issued SFAS no. 131, "Disclosure about 
Segments of an Enterprise and Related Information." SFAS No. 131 establishes 
additional standards for segment reporting in financial statements and is 
effective for fiscal years beginning after December 15, 1997. The Company 
currently operates as one segment.


                                     -7-

<PAGE>

ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

      The following discussion should be read in conjunction with, and is 
qualified in its entirety by, the various other reports which have been 
previously filed with the United States Securities and Exchange Commission 
("SEC"), which may be inspected, without charge, at the Public Reference 
Section of the SEC located at 450 Fifth Street, NW, Washington, D.C. 20549 or 
at the SEC internet site address, http://www.sec.gov.

DEVELOPMENT ACTIVITIES

      Aladdin Gaming Enterprises, Inc., a Nevada corporation ("Enterprises"), 
was established on December 3, 1997. Enterprises holds a 25% interest in 
Aladdin Gaming Holdings, LLC ("Gaming Holdings") and is wholly owned by 
Sommer Enterprises, LLC, a Nevada limited-liability company ("Sommer 
Enterprises"). Aladdin Holdings, LLC, a Delaware limited-liability company 
("Holdings"), holds a majority interest in Sommer Enterprises. The members of 
Holdings are the Trust Under Article Sixth u/w/o Sigmund Sommer (the "Sommer 
Trust") which holds a 95% interest in Holdings, and GW Vegas, LLC, a Nevada 
limited-liability company ("GW"), a wholly owned subsidiary of Trust Company 
of the West ("TCW"), which holds a 5% interest in Holdings.

      Enterprises has no other business or activities other than its 
investment in Gaming Holdings which is a development stage company. Gaming 
Holdings is a holding company, the material assets of which are 100% of the 
outstanding common membership interests and 100% of the outstanding Series A 
preferred membership interests of Aladdin Gaming, LLC ("Gaming"). Aladdin 
Capital Corp. ("Capital") is a wholly owned subsidiary of Gaming Holdings and
was incorporated solely for the purpose of serving as a co-issuer of the
13 1/2% Senior Discount Notes ("Notes"). Capital is not expected to have any
material operations or assets and will not have any revenues. Gaming Holdings,
through its subsidiaries, also owns 100% of Aladdin Music, LLC
("Aladdin Music").

      The operations of Enterprises and Gaming Holdings and its subsidiaries, 
collectively known as the Company, have been primarily limited to the design, 
development, financing and construction of a new hotel and casino 
("Aladdin"). The Aladdin will be the centerpiece of an approximately 35 acre 
world-class resort, casino and entertainment complex ("Complex") located on 
the site of the former Aladdin hotel and casino in Las Vegas, Nevada, a 
premier location at the center of the Las Vegas Boulevard ("Strip"). The 
Aladdin has been designed to include a luxury themed hotel of approximately 
2,600 rooms, an approximately 116,000 square foot casino, an approximately 
1,400-seat production showroom and seven restaurants. The casino's main 
gaming area will contain approximately 2,800 slot machines, 87 table games, 
keno and a race and sports book facility. Included on a separate level of the 
casino will be a 15,000 square foot luxurious gaming section that is expected 
to contain an additional 20 to 30 high denomination table games and 
approximately 100 high denomination slot machines. The Complex, which has 
been designed to promote casino traffic and to provide customers with a wide 
variety of entertainment alternatives, will comprise: (i) the Aladdin; (ii) 
the themed entertainment shopping mall with approximately 522,000 square feet 
of retail space ("Desert Passage"); (iii) a second hotel and casino, with a 
music and entertainment theme ("Aladdin Music Project"); (iv) the newly 
renovated 7,000-seat Theater of the Performing Arts ("Theater"); and (v) the 
approximately 4,800-space car parking facility ("Carpark" and, together with 
the Desert Passage, hereinafter, "Mall Project"). The Mall Project will be 
separately owned by an affiliate of the Company and Aladdin Music is 
currently seeking a joint venture partner for the Aladdin Music Project. The 
grand opening date for the Aladdin and the Mall Project is currently 
anticipated to occur during the spring of the year 2000, with the opening of 
the Aladdin Music Project expected to occur within six months after the 
opening of the Aladdin assuming project financing and a joint venture partner 
are secured by the end of the first quarter 1999.

                                      -8-
<PAGE>

RESULTS OF OPERATIONS

      The Company is in the development stage and has no significant 
operations to date. The Company has capitalized all qualifying construction 
costs except for a portion of the interest expense incurred during the 
period. Accordingly, the Company does not have any historical operating 
income. The capitalized costs consist primarily of land contributed by 
certain members of Gaming Holdings, design fees, financing and commitment 
fees, construction costs and interest on qualifying assets. Capitalized costs 
include approximately $1.7 million related to Aladdin Music for design and 
architectural fees. The Company's operating expenses primarily have consisted 
of interest, amortization costs and expenses related to the Notes and 
pre-opening costs.

      The Company anticipates that its results of operations from inception 
to the grand opening of the Aladdin will be adversely affected by the 
expensing of pre-opening costs and interest not qualifying for capitalization 
and should not be indicative of future operations. Accordingly, historical 
results will not be indicative of future operating results. Future operating 
results of the Company are subject to significant business, economic, 
regulatory and competitive uncertainties and contingencies, many of which are 
beyond the Company's control. While the Company believes that the Aladdin 
will be able to attract a sufficient number of patrons and achieve the level 
of activity necessary to permit the Company to meet their payment 
obligations, including the Notes and other indebtedness, there can be no 
assurance with respect thereto.

      Gaming Holdings recorded a net loss of approximately $11.1 million for 
the three months ended September 30, 1998 and approximately $32.9 million for 
the nine months ended September 30, 1998. The loss was due to pre-opening 
costs, interest expense, amortization costs and expenses related to the 
Notes. The pre-opening costs include approximately $.7 million related to 
Aladdin Music.

      Enterprises recorded its 25% share of the Gaming Holdings' losses as 
equity in loss of unconsolidated affiliate and reported a net loss of 
approximately $2.8 million and $8.2 million for the three months and nine 
months ended September 30, 1998, respectively.

MATERIAL CHANGES IN FINANCIAL CONDITION

      Through September 30, 1998, approximately $181.5 million had been 
expended primarily on the development of the Aladdin, of which approximately 
$74.5 million had been expended on repayment of debt associated with the land 
contributed to the Company, approximately $53.2 million in construction, 
furniture, fixtures, and equipment, and capitalized interest, approximately 
$39.5 million in debt issuance and member equity costs, and approximately 
$14.3 million in pre-opening costs, net interest expense, and other current 
assets.

LIQUIDITY AND CAPITAL RESOURCES

      On August 26, 1998, Gaming Holdings and Capital completed an exchange 
offer for 100% of the $221.5 million aggregate principal amount of their 13 
1/2% Senior Discount Notes due 2010 ("Notes"), pursuant to a registration 
statement dated July 23, 1998. The Notes were exchanged for notes with 
substantially the same terms issued in a private placement on February 26, 
1998. For further details on the Notes, please refer to "Note 3-Private 
Offering" of the Notes to Consolidated Financial Statements.

      Aladdin Gaming, LLC has a $410.0 million Credit Agreement ("Bank Credit 
Facility" or "Credit Agreement") with various financial institutions and the 
Bank of Nova Scotia as the administrative agent for the lenders. The Credit 
Agreement consists of three separate term loans. Term A Loan comprises a term 
loan of $136.0 million and matures seven years after the initial borrowing 
date. Term B Loan comprises a term loan of $114.0 million and matures eight 
and one-half years after the initial borrowing date. Term C Loan comprises a 
term loan of $160.0 million and matures ten years after the borrowing date. 
The Term B Loan and the Term C Loan were funded by the lenders on February 
26, 1998 and the 

                                      -9-
<PAGE>

funds are held by Gaming in a cash collateral account for the future 
development of the Aladdin. The Term B Loan and the Term C Loan proceeds 
could not be utilized until the proceeds from the Notes were completely 
exhausted. As of September 30, 1998 all of the $115.0 million of the Notes 
proceeds had been utilized. The proceeds from the Term B Loan and Term C Loan 
have been funded and the funds placed in a cash collateral account from which 
the Company withdraws amounts monthly. As of September 30, 1998, 
approximately $10.2 million of the Term B Loan and approximately $8.7 million 
of the Term C Loan had been utilized to develop and construct the Aladdin. 
The Term A loan had not been funded.

      The Company pays interest on the term loans as follows: Term A Loan, 
LIBOR plus 300 basis points until the Aladdin commences operations, then 
LIBOR plus an amount between 150 basis points and 275 basis points depending 
upon the Company's EBITDA results; Term B Loan, LIBOR plus 200 basis points 
while the funds are held in the cash collateral account and LIBOR plus 350 
basis points once the funds are utilized for the construction of the Aladdin; 
and Term C Loan, LIBOR plus 200 basis points while the funds are held in the 
cash collateral account and LIBOR plus 400 basis points once the funds are 
utilized for the construction of the Aladdin. The Company has entered into 
various interest rate swaps to manage interest expense, which is subject to 
fluctuations due to the variable nature of LIBOR. The Company has interest 
rate swap agreements under which it pays a fixed interest rate and receives a 
variable interest rate. The interest rate swaps effectively convert the LIBOR 
into fixed rates of interest as follows: (a) until Aladdin commences 
operation, for the Term A Loan and the Term B Loan LIBOR is fixed at 5.883% 
and for the Term C Loan LIBOR is fixed at 6.485%; and (b) once the Aladdin 
has commenced operations, for the Term A Loan and Term B Loan, the maximum 
LIBOR is 7.00% and the minimum is 5.65%, and for the Term C Loan, the LIBOR 
has been fixed at 6.485%. The rate swaps for the Term A Loan and Term B Loan 
are in place until the respective loan maturity date and for the Term C Loan 
the hedge arrangements are cancelable at the call date of March 2003. No 
principal repayments are required prior to the opening of the casino. 

      The Company is exposed to credit loss in the event of nonperformance by 
the other parties to the interest rate swap agreements. However, the Company 
considers the risk of nonperformance by the counterparties to be minimal 
because the parties to the swap are predominately members of the Company's 
bank group.

      The Company has operating lease financing of up to $60.0 million and 
term loan facility of $20.0 million to obtain gaming equipment and other 
specified equipment. Funding under the FF&E financing is available beginning 
six months prior to the construction completion date of the Aladdin. 
Repayment of principal and interest is due in quarterly installments upon the 
construction completion date of the Aladdin. The term of the operating lease 
financing is 36 months (with the Company having two, one year options to 
renew) and the term of the loan facility is five years. The interest rate 
from the funding date until the construction of the Aladdin is completed is 
either the 30-day LIBOR plus 478 basis points or the Prime Rate (as defined) 
plus 275 basis points. After the construction completion date, the interest 
rate shall be the 90-day LIBOR plus 478 basis points.

      London Clubs International, plc ("London Clubs"), the Sommer Trust, and 
Aladdin Bazaar Holdings, LLC ("Bazaar Holdings"), a subsidiary of the Sommer 
Trust, have entered into a completion guaranty ("Bank Completion Guaranty") 
for the benefit of the lenders under the Bank Credit Facility, under which 
they have agreed to guarantee, among other things, the completion of the 
Aladdin. The Bank Completion Guaranty is not subject to any maximum dollar 
limitations. The holders of the Notes are not party to the Bank Completion 
Guaranty, however, London Clubs, the Sommer Trust and Bazaar Holdings have 
entered into a limited completion guarantee for the benefit of the 
Noteholders ("Noteholder Completion Guaranty"), under which they guarantee 
completion of the Aladdin, subject to certain important exceptions, 
limitations and qualifications. The Noteholder Completion Guaranty contains 
certain intercreditor provisions which significantly limit the rights of the 
Trustee under the Noteholder Completion Guaranty.

      London Clubs, Holdings and Bazaar Holdings have entered into the 
Keep-Well Agreement for the benefit of the lenders under the Bank Credit 
Facility. Pursuant to the Keep-Well Agreement, London Clubs, Holdings and 
Bazaar Holdings have agreed to contribute funds to the Company to ensure the 
Company's compliance with certain financial ratios and other requirements 
under the Bank Credit Facility for the period up to the earlier of the date 
on which the Company complies with all the financial covenants set forth in 
the Bank Credit Facility for six consecutive quarterly periods from and after 
the Conversion Date or the date on which the aggregate outstanding principal 
amounts of the Bank Credit Facility are reduced below certain amounts and 
prior to certain dates, subject to certain conditions.

                                     -10-
<PAGE>

      In connection with the development of the Mall Project, Aladdin Bazaar, 
LLC, will only reimburse the Company approximately $14.2 million for the 
construction of certain areas shared by the Aladdin and the Mall Project and 
the facade to the Aladdin. Additionally, Aladdin Bazaar, LLC is obligated to 
spend no more than $36.0 million for the Carpark. Therefore, any cost overruns
associated with these items will be borne by the Company. In addition, the
Company is obligated to pay to Aladdin Bazaar, LLC (i) a $3.2 million fee per
year for a term of 99 years, which is adjusted annually pursuant to a consumer
price index-based formula, for usage of the Carpark and (ii) the Company's
proportionate share of the operating costs associated therewith.

      The funds provided by the Notes, Credit Agreement and owner 
contributions (collectively, "Funding Transactions") are expected to be 
sufficient to develop, complete and commence operations of the Aladdin, 
assuming no delays or construction cost overruns, which (i) are not covered 
by the $31.8 million contingency or (ii) Fluor Corporation and/or its 
subsidiary Fluor Daniel are not responsible for pursuant to the Fluor 
Guaranty and the Design/Build Contract, respectively. As of September 30, 
1998, the Company has utilized approximately $5.3 million of the contingency. 
Subject to the discussion below regarding the Credit Agreement, it is not 
expected that additional external funding will need to be obtained in order 
to develop and commence the operations of the Aladdin. However, there can be 
no assurance that such funds will be sufficient for the development, 
construction and commencement of the Aladdin.

      Following the commencement of operations of the Aladdin, the Company 
expects to fund its operating, debt service and capital needs, as currently 
contemplated, with $15.0 million of working capital from the funding 
transactions and operating cash flows. In addition, upon the opening of the 
Aladdin, the Company is expected to have an aggregate of $10.0 million 
available under a working capital facility. Although no additional financing 
is contemplated, the Company will seek, if necessary and to the extent 
permitted under the Notes Indenture and the terms of the Bank Credit 
Facility, additional financing through additional bank borrowings or debt or 
equity financings. There can be no assurance that additional financing, if 
needed, will be available to the Company, or that, if available, the 
financing will be on terms favorable to the Company. There can also be no 
assurance that estimates by the Company of its reasonably anticipated 
liquidity needs are accurate or that new business developments or other 
unforeseen events will not occur, resulting in the need to raise additional 
funds.

RECENT DEVELOPMENTS

      On November 11, 1998, Gaming and Fluor Daniel, Inc. ("Fluor") entered 
into a letter of understanding ("Letter") whereby the parties agreed to 
negotiate the definitive terms of an amendment to the Design/Build Contract 
("Contract") (which Contract is subject to price adjustments if the plans and 
specifications are changed) for the construction of the Aladdin. The Letter 
provides that such amendment would (i) convert the Contract from a $267 
million guaranteed maximum price contract to a $265.29 million substantially 
lump sum price contract; (ii) increase Fluor's responsibilities for the 
project's scope within the lump sum amount and eliminate existing delay 
claims, estimated to be approximately $11 million in total; (iii) reaffirm 
the April 27, 2000 project completion date; (iv) permit Fluor to retain the 
previously paid $2 million advance bonus; (v) increase from 60% to 100% the 
amount of the Contract savings to which Fluor would be entitled; (vi) reduce 
from $9 million to $3 million the maximum amount Fluor would pay as 
liquidated damages for late completion (due to delays caused by Fluor); and 
(vii) amend other technical provisions/matters of the Contract and the 
project. Any amendment to the Contract requires the approval of Gaming's 
Lenders under the Bank Credit Facility, which approval has not yet been 
obtained. While the parties have agreed to negotiate definitive terms of the 
Contract amendment as expeditiously as possible, there can be no assurance 
that: (i) Gaming and Fluor will enter into a definitive Contract amendment; 
(ii) the definitive Contract amendment will not differ materially from the 
Letter; and (iii) Gaming's Lenders will approve the definitive Contract 
amendment. While Management believes that the changes to the Contract 
contemplated by the Letter will increase the likelihood that the project will 
be completed on time and within the budget, in the event a definitive 
Contract amendment is not reached or, if reached, differs 

                                      -11-
<PAGE>

materially from the Letter, Management believes that the project could still 
be completed on time and within the budget.

      Under the Credit Agreement, $25 million of the contingency funds is 
made available to the Company as a function of the project's percentage of 
construction complete. However, to enhance the quality of the project, the 
Company has committed to changes in the plans and specifications early in the 
project while the percentage of completion is low. In addition, the Company 
revised certain items of the project budget and adjusted the budget 
accordingly, including an increase to pre-opening costs. Thus, because 
financial commitments were made when the contingency funds were not yet 
available to pay for such changes, an out-of-balance of approximately $6.5 
million ("Out-of-Balance") was created. While the Out-of-Balance is due to a 
timing difference that the Company believes will be resolved over time, the 
Credit Agreement nonetheless requires that Gaming fund such Out-of-Balance. 
London Clubs and the Sommer Trust are negotiating to post a letter of credit 
to fund such Out-of-Balance, which would require an amendment to the Credit 
Agreement. Management believes such amendment will be approved by the 
Lenders. As the Out-of-Balance is reduced, the amount of the letter of credit 
would be correspondingly reduced. In addition to amending other technical 
provisions of the Credit Agreement, the amendment would also revise the net 
worth requirement to reflect the accounting treatment requiring certain costs 
to be expensed rather than capitalized. Management believes that the 
Out-of-Balance is a short-term timing issue and that as the percentage of 
construction complete is increased, the available contingency funds will 
exceed the amount of funds needed, thereby assuring that the project in total 
has sufficient funds for its completion. However, there can be no assurances 
that the Out-of-Balance will be reduced, that it will not increase as the 
project continues, or that there will be sufficient funds to complete the 
project. If the Lenders do not approve a letter of credit to fund the 
Out-of-Balance and the other proposed amendments, or if Gaming, London Clubs 
and/or the Sommer Trust do not otherwise fund the Out-of-Balance, the Lenders 
will not disburse funds under the Credit Agreement. Any delay in the 
disbursement of funds under the Credit Agreement could result in delays to 
the project, which would materially and adversely impact the Company. While 
Management believes such amendments will be approved and the Out-of-Balance 
will be funded and there will be no delays for the Project due to the 
Out-of-Balance, there can be no assurances.

      The amendments to the Credit Agreement discussed above are also 
required for the Company's operating lease financing and equipment term loan. 
While Management believes such amendment will be approved by this lender, 
there can be no assurances.

YEAR 2000

      The Company and its subsidiaries are development stage companies that 
are developing, constructing, and upon completion (currently anticipated to 
occur in the spring of the year 2000), will operate a hotel casino. The 
selection of software applications, hardware and other technology currently 
in use principally occurred within approximately the last twelve months. The 
only computer systems in place at the current time are several financial 
applications, word processing and an internal e-mail system that are Year 
2000 compliant. Accordingly, it is not expected that the Company will incur 
significant amounts, if any, to modify its systems for Year 2000 compliance.

      The Company has requested representations regarding Year 2000 
compliance from Fluor Corporation and/or its subsidiary Fluor Daniel, the 
design/builder for the Aladdin (the "Design/Builder"), and through 
Design/Builder will seek similar representations of the other contractors and 
subcontractors for the construction of the Aladdin (collectively, the 
"Contractors") to assess the impact of Year 2000 noncompliance on the 
construction of the Aladdin. Construction delays will have a significant 
impact on the financial results of the Company. There can be no assurance 
that the systems of the Contractors or other companies on which the Company 
may rely, such as vendors, will be properly converted before the Year 2000 
and that failure to convert by another company will not have an adverse 
effect on the Company's operations.

                                      -12-
<PAGE>

START-UP ACTIVITIES

      In April 1998, the Accounting Standards Executive Committee of the 
American Institute of Certified Public Accountants issued Statement of 
Position No. 98-5 REPORTING ON THE COSTS OF START-UP ACTIVITIES ("SOP 98-5"). 
The provisions of SOP 98-5 are effective for fiscal years beginning after 
December 15, 1998 and require that the costs associated with start-up 
activities (including pre-opening costs of casinos) be expensed as incurred. 
SOP 98-5 permits early adoption in fiscal years for which annual financial 
statements have not yet been issued.

      Effective January 1, 1998 the Company has adopted the provisions of SOP 
98-5.

CERTAIN FORWARD LOOKING STATEMENTS

      Certain information included in this Form 10-Q and other materials 
filed or to be filed by the Company with the Securities and Exchange 
Commission (as well as information included in oral statements or other 
written statements made or to be made by the Company) contains statements 
that are forward-looking within the meaning of Section 27A of the Securities 
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 
1934, as amended. Such statements include those relating to the Design/Build 
Contract, the Credit Agreement and other agreements, plans for future 
operations, construction and development, other business development 
activities, capital spending, financing sources, the effect of regulation 
(including gaming and tax regulations) and competition. Such forward-looking 
information involves important risks and uncertainties that could 
significantly affect anticipated results in the future and, accordingly, such 
results may differ from those expressed in any forward-looking statements 
made by or on behalf of the Company. These risks and uncertainties include, 
but are not limited to, those relating to whether various parties can reach 
agreement on amendments to and concerning the Design/Build Contract, the 
Credit Agreement and other agreements, development and construction 
activities, dependence on existing management, leverage and debt service 
(including sensitivity to fluctuations in interest rates), domestic or 
international economic conditions (including sensitivity to fluctuations in 
foreign currencies), changes in federal or state tax laws or the 
administration of such laws, changes in gaming laws or regulations (including 
the legalization of gaming in certain jurisdictions) or the administration of 
such laws, and application for licenses and approvals under applicable 
jurisdictional laws and regulations (including gaming laws and regulations).

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      As of September 30, 1998, the Company did not hold any investments in 
market risk sensitive instruments.

PART II     OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

      Not Applicable

ITEM 2.     CHANGES IN SECURITIES AND USE OF PROCEEDS

      Not Applicable

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

      Not Applicable

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

      Not Applicable

                                      -13-
<PAGE>

ITEM 5.     OTHER INFORMATION

      Not Applicable

ITEM 6.     EXHIBITS AND REPORTS ON FORM 8-K

      (a)   Exhibits

            27     Financial Data Schedule.

      (b)   Reports on Form 8-K The Company filed a Form 8-K with the 
            Securities and Exchange Commission on or about September 17, 
            1998, disclosing that Aladdin Gaming Holdings, LLC had not yet 
            concluded negotiations on a joint venture with Planet Hollywood 
            International, Inc. and that Aladdin Gaming Holdings, LLC intends 
            to pursue additional prospective joint venture partners for the 
            development, construction and opening of a proposed hotel and 
            casino with a music and entertainment theme.






                                      -14-
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, 
the registrants have duly caused this report to be signed on their behalf by 
the undersigned thereunto duly authorized.


                                   ALADDIN GAMING ENTERPRISES, INC.



November 16, 1998                  By:    /s/  Ronald Dictrow
                                          --------------------------------------
                                          Ronald Dictrow, Secretary


November 16, 1998                  By:    /s/  Cornelius T. Klerk
                                          --------------------------------------
                                          Cornelius T. Klerk, Chief Accounting
                                          Officer and Treasurer







                                      -15-
<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NO.          DESCRIPTION
-------      -----------
<S>          <C>
  27         Financial Data Schedule                                    

</TABLE>







                                      -16-