**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q**

 
| **(Mark One)** | ** **                                                                                   |
|----------------|----------------------------------------------------------------------------------------------|
| **ý**     | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

** **

**For the quarterly periodended September 30, 2005**

 

**OR**

** **
| **o** | **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 333-123179**

 

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**VirginRiver Casino CorporationRBG, LLCB & B B, Inc.**

(Exact Name of Registrant as Specified in its Charter)

 

| **NEVADA  NEVADA  NEVADA**                                      |       | **88-0238611  86-0860535  88-0254007**   |
|-----------------------------------------------------------------|------------|------------------------------------------|
| (State or Other Jurisdiction  of Incorporation or Organization) |       | (I.R.S. Employer  Identification Number) |
|                                                            |       |                                     |
| **897 West Mesquite Boulevard  Mesquite, Nevada**               | ** ** | **89027**                                |
| (Address of Principal Executive Offices)                        |       | (Zip Code)                               |

** **

**(702)  346-4000**

(Registrant’s Telephone Number, Including Area Code)

 

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Indicate by check mark whether the Registrant (1) has filed all reportsrequired by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the Registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days.    Yes ý No o

 

Indicateby check mark whether the Registrant is an accelerated filer (as defined inRule 12b-2 of the Securities Exchange Act of 1934). Yes o No ý

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).  Yes oNo ý

 

 

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| **PART I –  FINANCIAL INFORMATION**                                                                                                    |   |
|---------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                        |   |
| ITEM 1.  FINANCIAL STATEMENTS.                                                                                                              |   |
| **Virgin River Casino Corporation  Condensed Consolidated Financial Statements (unaudited)**                                                |   |
| *Condensed  Consolidated Balance Sheets-September 30, 2005 (unaudited) and December 31,  2004*                                              |   |
| *Condensed  Consolidated Statements of Operations (unaudited) For the Three Months and  Nine Months Ended September 30, 2005 and 2004* |   |
| *Condensed  Consolidated Statements of Cash Flows (unaudited) For the Nine Months Ended  September 30, 2005 and 2004*                       |   |
| *Notes  to Condensed Consolidated Financial Statements (unaudited)*                                                                         |   |
| **RBG,  LLC Condensed Consolidated Financial Statements (unaudited)**                                                                       |   |
| *Condensed  Consolidated Balance Sheets-September 30, 2005 (unaudited) and December 31,  2004*                                              |   |
| *Condensed  Consolidated Statements of Operations (unaudited) For the Three Months and  Nine Months Ended September 30, 2005 and 2004* |   |
| *Condensed  Consolidated Statements of Cash Flows (unaudited) For the Nine Months Ended  September 30, 2005 and 2004*                       |   |
| *Notes  to Condensed Consolidated Financial Statements (unaudited)*                                                                         |   |
| **B & B  B, Inc. (doing business as Virgin River Casino Hotel/Casino/Bingo) Condensed  Financial Statements (unaudited)**               |   |
| *Condensed  Balance Sheets-September 30, 2005 and December 31, 2004*                                                                        |   |
| *Condensed Statements of Operations (unaudited) For the  Three Months and Nine Months Ended September 30, 2005 and 2004*                    |   |
| *Condensed Statements of Cash Flows (unaudited) For the  Nine Months Ended September 30, 2005 and 2004*                                     |   |
| *Notes to Condensed Financial Statements (unaudited)*                                                                                       |   |
| ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS                                        |   |
| ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                                         |   |
| ITEM 4. CONTROLS  AND PROCEDURES                                                                                                            |   |
|                                                                                                                                        |   |
| **PART  II – OTHER INFORMATION**                                                                                                       |   |
|                                                                                                                                        |   |
| ITEM 1. LEGAL  PROCEEDINGS                                                                                                                  |   |
| NONE                                                                                                                                        |   |
| ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                                        |   |
| ITEM 3. DEFAULTS  UPON SENIOR SECURITIES                                                                                                    |   |
| ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                                |   |
| ITEM 5. OTHER  INFORMATION                                                                                                                  |   |
| ITEM  6. EXHIBITS                                                                                                                           |   |
|                                                                                                                                        |   |
| **SIGNATURES**                                                                                                                              |   |

 

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**PART I – FINANCIAL INFORMATION**

 

## **Item 1.  Financial Statements.**

## ** **

**Virgin River Casino Corporation**

 

 

### **Condensed ConsolidatedBalance SheetsSeptember 30, 2005 and December 31, 2004**

**(inthousands)**

 
| ** **                                                                                                  | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                  | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| **Assets**                                                                                                  |       |                    |       |                   |       |
| Current assets:                                                                                             |       |                    |       |                   |       |
| Cash and cash  equivalents                                                                                  |       | $                       | 6,858      |                   | $          | 11,114 |   |
| Accounts  receivable, net                                                                                   |       | 673                     |       | 809                    |       |
| Related party  receivables                                                                                  |       | 156                     |       | 213                    |       |
| Related company  receivables                                                                                |       | 99                      |       | 1,250                  |       |
| Inventories                                                                                                 |       | 1,681                   |       | 1,680                  |       |
| Property held  for vacation interval sales                                                                  |       | 380                     |       | 461                    |       |
| Prepaid expenses                                                                                            |       | 3,486                   |       | 2,911                  |       |
| Current portion  of notes receivable                                                                        |       | 388                     |       | 414                    |       |
| Total current  assets                                                                                       |       | 13,721                  |       | 18,852                 |       |
| Property and  equipment, net                                                                                |       | 121,244                 |       | 114,142                |       |
| Notes  receivable, less current portion                                                                     |       | 2,209                   |       | 2,487                  |       |
| Other assets                                                                                                |       | 407                     |       | 413                    |       |
| Deferred  financing fees                                                                                    |       | 8,451                   |       | 9,173                  |       |
| Goodwill and  other intangible assets, net                                                                  |       | 35,267                  |       | 34,084                 |       |
| Total assets                                                                                                |       | $                       | 181,299    |                   | $          | 179,151 |   |
|                                                                                                        |       |                    |       |                   |       |
| **Liabilities  and Stockholder’s Deficit**                                                             |       |                    |       |                   |       |
| Current  liabilities:                                                                                       |       |                    |       |                   |       |
| Bank overdraft                                                                                              |       | $                       | —     |                   | $          | 1,480 |   |
| Current portion  of obligation under capital lease                                                          |       | 5                       |       | 18                     |       |
| Current portion  of gaming equipment financing                                                              |       | 2,006                   |       | 582                    |       |
| Current portion  of long-term debt                                                                          |       | 917                     |       | 1,353                  |       |
| Accounts payable                                                                                            |       | 2,991                   |       | 3,271                  |       |
| Accrued  liabilities                                                                                        |       | 12,960                  |       | 9,297                  |       |
| Related company  payable                                                                                    |       | 1,400                   |       | 758                    |       |
| Total current  liabilities                                                                                  |       | 20,279                  |       | 16,759                 |       |
| Gaming equipment  financing, less current portion                                                           |       | 3,891                   |       | 189                    |       |
| Long-term debt,  less current portion                                                                       |       | 170,106                 |       | 165,588                |       |
| Fair value of  interest rate swaps                                                                          |       | 391                     |       | 1,493                  |       |
| Commitments and  contingencies                                                                              |       |                    |       |                   |       |
| Minority  interest                                                                                          |       | 16,295                  |       | 16,040                 |       |
| Stockholder’s  deficit:                                                                                |       |                    |       |                   |       |
| Common stock, no  par value; authorized 2,500 shares, 100 shares issued and 88 shares outstanding |       | —                  |       | —                 |       |
| Additional paid-in  capital                                                                                 |       | 3,168                   |       | 3,168                  |       |
| Deemed distribution                                                                                         |       | (21,102                 | )          | (20,672                | )          |
| Accumulated  deficit                                                                                        |       | (11,729                 | )          | (3,414                 | )          |
| Total  stockholder’s deficit                                                                           |       | (29,663                 | )          | (20,918                | )          |
| Total  liabilities and stockholder’s deficit                                                           |       | $                       | 181,299    |                   | $          | 179,151 |   |

 

The accompanying notes arean integral part of these condensed consolidated financial statements.

 

1

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**Virgin River Casino Corporation**

 

### **Condensed ConsolidatedStatements of Operations (unaudited)For the Three Months and Nine Months Ended September 30, 2005 and 2004**

**(inthousands)**

** **
| ** **                                                                    | ** ** | **Three months ended**  | ** ** | **Nine Months ended**   | ** ** |
|-------------------------------------------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                                                    | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                                                          |       |                    |       |                    |       |   |   |   |   |
| Revenues                                                                      |       |                    |       |                    |       |   |   |   |   |
| Casino                                                                        |       | $                       | 14,283     |                    | $          | 13,770 |   | $ | 45,861 |   | $ | 43,207 |   |
| Food and  beverage                                                            |       | 7,149                   |       | 7,187                   |       | 22,986 |   | 23,072 |   |
| Hotel                                                                         |       | 4,744                   |       | 4,138                   |       | 15,563 |   | 14,695 |   |
| Related company  rental income                                                |       | 1,575                   |       | 1,575                   |       | 4,725 |   | 4,725 |   |
| Other                                                                         |       | 3,471                   |       | 4,073                   |       | 14,303 |   | 15,769 |   |
| Total revenues                                                                |       | 31,222                  |       | 30,743                  |       | 103,438 |   | 101,468 |   |
| Less—promotional  allowances                                             |       | (4,315                  | )          | (3,920                  | )          | (13,822 | ) | (12,921 | ) |
| Net revenues                                                                  |       | 26,907                  |       | 26,823                  |       | 89,616 |   | 88,547 |   |
| Operating  expenses:                                                          |       |                    |       |                    |       |   |   |   |   |
| Casino                                                                        |       | 7,712                   |       | 7,020                   |       | 22,730 |   | 21,564 |   |
| Food and  beverage                                                            |       | 4,589                   |       | 4,642                   |       | 14,407 |   | 14,241 |   |
| Hotel                                                                         |       | 1,617                   |       | 1,902                   |       | 5,039 |   | 5,555 |   |
| Other                                                                         |       | 3,448                   |       | 3,481                   |       | 10,817 |   | 10,962 |   |
| General and  administrative                                                   |       | 7,937                   |       | 6,726                   |       | 22,427 |   | 21,214 |   |
| Depreciation and  amortization                                                |       | 2,465                   |       | 1,686                   |       | 7,270 |   | 5,396 |   |
| Loss on sale and  disposal of assets                                          |       | 79                      |       | 2                       |       | 729 |   | 22 |   |
| Total operating  expenses                                                     |       | 27,847                  |       | 25,459                  |       | 83,419 |   | 78,954 |   |
| Operating (loss)  income                                                      |       | (940                    | )          | 1,364                   |       | 6,197 |   | 9,593 |   |
| Other income  (expense):                                                      |       |                    |       |                    |       |   |   |   |   |
| Interest expense                                                              |       | (4,571                  | )          | (1,768                  | )          | (13,287 | ) | (5,383 | ) |
| Related party  interest expense                                               |       | —                  |       | (75                     | )          | — |   | (75 | ) |
| Change in fair  value of interest rate swaps                                  |       | 366                     |       | (336                    | )          | 1,102 |   | 2,683 |   |
| Other                                                                         |       | (113                    | )          | —                  |       | (288 | ) | — |   |
| (Loss) income  before minority interest                                       |       | (5,258                  | )          | (815                    | )          | (6,276 | ) | 6,818 |   |
| Minority  interest in loss (income) from RBG, LLC and Casablanca Resorts, LLC |       | 248                     |       | 635                     |       | (254 | ) | (1,110 | ) |
| Net (loss)  income                                                            |       | $                       | (5,010     | )                       | $          | (180 | ) | $ | (6,530 | ) | $ | 5,708 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

2

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**Virgin River Casino Corporation**

 

### **Condensed ConsolidatedStatements of Cash Flows (unaudited)For the Nine Months Ended September 30, 2005 and 2004**

**(inthousands)**

** **
| ** **                                                                                | ** ** | **Nine months ended**   | ** ** |
|-------------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                                | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
| Cash flows from  operating activities:                                                    |       |                    |       |   |   |
| Net (loss)  income                                                                        |       | $                       | (6,530     | ) | $ | 5,708 |   |
| Adjustments to reconcile  net (loss) income to net cash provided by operating activities: |       |                    |       |   |   |
| Depreciation and  amortization                                                            |       | 7,270                   |       | 5,396 |   |
| Minority  interest in income from RBG, LLC and Casablanca Resorts, LLC                    |       | 254                     |       | 1,110 |   |
| Change in fair  value of interest rate swaps                                              |       | (1,102                  | )          | (2,683 | ) |
| Loss on sale and  disposal of assets                                                      |       | 729                     |       | 22 |   |
| Amortization of  deferred financing fees                                                  |       | 1,030                   |       | 207 |   |
| Accretion of  senior subordinated notes                                                   |       | 3,721                   |       | — |   |
| Interest expense  on gaming equipment financing                                           |       | 232                     |       | — |   |
| Cost of vacation  intervals sales                                                         |       | 81                      |       | 348 |   |
| Change in  operating assets and liabilities:                                              |       |                    |       |   |   |
| Accounts,  related company and related party receivables, net                             |       | 1,395                   |       | 654 |   |
| Inventories                                                                               |       | (1                      | )          | 123 |   |
| Prepaid expenses                                                                          |       | (575                    | )          | (481 | ) |
| Accounts payable  and accrued liabilities                                                 |       | 3,019                   |       | 1,627 |   |
| Net cash  provided by operating activities                                                |       | 9,523                   |       | 12,031 |   |
|                                                                                      |       |                    |       |   |   |
| Cash flows from  investing activities:                                                    |       |                    |       |   |   |
| Proceeds  received from sale of assets                                                    |       | 145                     |       | 6 |   |
| Capital  expenditures                                                                     |       | (9,197                  | )          | (1,774 | ) |
| Purchase price  adjustment                                                                |       | (1,218                  | )          | — |   |
| Decrease in  notes receivable                                                             |       | 304                     |       | 118 |   |
| Net cash used in  investing activities                                                    |       | (9,966                  | )          | (1,650 | ) |
|                                                                                      |       |                    |       |   |   |
| Cash flows from  financing activities:                                                    |       |                    |       |   |   |
| Proceeds from  issuance of long-term debt                                                 |       | 1,666                   |       | 2,284 |   |
| Decrease in bank  overdraft                                                               |       | (1,480                  | )          | (1,264 | ) |
| Payment of long-term  debt                                                                |       | (1,306                  | )          | (11,255 | ) |
| Payment on  gaming equipment financing                                                    |       | (619                    | )          | (587 | ) |
| Payment of  obligations under capital lease                                               |       | (13                     | )          | (22 | ) |
| Payment of  financing fees                                                                |       | (307                    | )          | — |   |
| Change in other  assets                                                                   |       | 29                      |       | (37 | ) |
| Tax distributions  paid                                                                   |       | (1,783                  | )          | (880 | ) |
| Capital  contributions                                                                    |       | —                  |       | 27 |   |
| Net cash used in  financing activities                                                    |       | (3,813                  | )          | (11,734 | ) |
| Net decrease in  cash and cash equivalents                                                |       | (4,256                  | )          | (1,353 | ) |
| Cash and cash  equivalents at beginning of year                                           |       | 11,114                  |       | 8,884 |   |
| Cash and cash  equivalents at end of period                                               |       | $                       | 6,858      |   | $ | 7,531 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

3

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**Virgin River Casino Corporation**

 

**Condensed ConsolidatedStatements of Cash Flows (unaudited) (continued)For the Nine Months Ended September 30, 2005 and 2004**

**(inthousands)**

** **
| ** **                                             | ** ** | **Nine months ended**   | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                                   |       |                    |       |   |   |
| Supplemental  cash flow disclosure:                    |       |                    |       |   |   |
|                                                   |       |                    |       |   |   |
| Cash paid for  interest                                |       | $                       | 5,889      |   | $ | 4,872 |   |
|                                                   |       |                    |       |   |   |
| Acquisition of  assets with gaming equipment financing |       | $                       | 5,202      |   | $ | 385 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

4

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**Virgin River Casino Corporation**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited)September 30, 2005**

 

**1.             Basis ofPresentation and Background**

 

The accompanying are the condensedconsolidated financial statements of Virgin River Casino Corporation, whichincludes the accounts of RBG, LLC (doing business as CasaBlancaResort/Casino/Golf/Spa) and its wholly owned subsidiary Casablanca Resorts, LLC(doing business as Oasis Resort & Casino) (collectively the “Company”).Virgin River Casino Corporation (“VRCC”) owned 61.54% of RBG, LLC (“RBG”) andCasablanca Resorts, LLC (“Resorts LLC”) prior to December 20, 2004. Foursiblings owned 100% of the shares of VRCC and owned 8.47% of the membershipinterests in RBG individually. Those same four siblings also owned 93.28% ofB&BB, Inc. (doing business as Virgin River Hotel/Casino/Bingo) (“B&BB”).The Company and B&BB are collectively referred to as the Companies. TheCompanies are operated under common management. Significant intercompany items and transactions of the Company have beeneliminated.

 

On December 20,2004, the Companies entered into a series of transactions whereby they issued$125.0 million aggregate principal amount of Senior Secured Notes due 2012and $66.0 million aggregate principal amount at maturity($39.9 million in gross proceeds) of Senior Subordinated Notes due 2013,and received a $16.0 million equity contribution from Mr. Black and R.Black, Inc. The Companies used the proceeds from the above offering to purchasethe interests held by certain affiliated and unaffiliated shareholders(collectively known as the “Buyout”) for $101.4 million pursuant to theAgreement for Purchase and Sale or Redemption of Equity Interests (“Agreementfor Purchase of Equity Interests”) between James A. Black GamingProperties Trust, Gary W. Black Gaming Properties Trust, Michael T.Black Gaming Properties Trust, Jorco, Inc., Marcus A. Hall, James Ritchieand Barry Moore as Sellers and Robert R. Black, VRCC, and B&BB asPurchasers (see Note 3).  As a result ofthe Buyout, Mr. Black obtained the remaining 80.97% interest in B&BB and75.0% interest in VRCC. VRCC along with R. Black, Inc. obtained 32.69% ofthe membership interest in RBG that was being purchased. The remaining proceedswere utilized to repay $64.0 million owed under the Credit Agreement andthe $2.0 million promissory note payable to a selling shareholder. Fivedays prior to the Buyout, RBG terminated the lease with MDW (see Note 6)and the Companies disposed of certain assets. As a result of thesetransactions, Mr. Black and R. Black, Inc. control VRCC, RBG and B&BB. Inaddition, VRCC, RBG and B&BB are co-issuers on the Companies’ SeniorSecured and Senior Subordinated Notes and all three entities are jointlymanaged and share resources (see Note 4).

 

***InterimFinancial Statements***– The accompanying unauditedcondensed consolidated financial statements for the three and nine-month periodsended September 30, 2005 and September 30, 2004 are unaudited.  In the opinion of management, all adjustments(which include normal recurring adjustments) necessary for a fair presentationof the Company’s financial position and results of operations for such periods,have been included.  The accompanyingunaudited condensed consolidated financial statements should be read inconjunction with the Company’s audited financial statements for the year endedDecember 31, 2004 included in its registration statement on Form S-4/A filed September22, 2005.  The results for the three and nine-monthperiods ended September 30, 2005 are not necessarily indicative of the resultsthat may be expected for the year ending December 31, 2005, or for any otherperiod.

 

5

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**Virgin River Casino Corporation**

 

**Notes to Condensed Consolidated Financial Statements (unaudited)(continued)**

 

**2.             Property and Equipment**

 

Property and equipmentconsists of the following (in thousands):

 

| ** **                                           | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                           | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| Land                                                 |       | $                       | 30,636     |                   | $          | 30,630 |   |
| Buildings                                            |       | 68,450                  |       | 65,588                 |       |
| Land and  leasehold improvements                     |       | 21,792                  |       | 21,566                 |       |
| Furniture,  fixtures and equipment                   |       | 39,592                  |       | 31,420                 |       |
| Construction in  progress                            |       | 1,008                   |       | 397                    |       |
|                                                 |       | 161,478                 |       | 149,601                |       |
| Less—accumulated  depreciation and amortization |       | (40,234                 | )          | (35,459                | )          |
| Property and  equipment, net                         |       | $                       | 121,244    |                   | $          | 114,142 |   |

 

**3.             Purchase of Equity Interests**

 

On December 20,2004, pursuant to the Agreement for Purchase of Equity Interests described inNote 1, Mr. Black and R. Black, Inc. acquired certain interests inB&BB, VRCC and RBG for $101.4 million. In addition, the Companiesincurred approximately $10.3 million in capitalized deferred financingfees, $9.0 million of which is recorded in the accompanying consolidatedbalance sheet, related to the issuance of the Notes as well as $274,000 incosts associated with the Agreement for Purchase of Equity Interests which werecharged to equity in the accompanying consolidated balance sheet. Managementvalued the assets acquired in the transaction as follows.  Current assets and liabilities were recordedat book value, which approximated their estimated market values at the date ofacquisition.  Land, buildings andbuilding improvements were valued based upon comparable values of recent salesin the Mesquite, Nevada market and 3rd party market valuations ofcomparable assets in Mesquite, Nevada. For equipment, management recorded these assets at book value, which wasdeemed to be fair value, considering the relative age and working condition ofthe equipment.  Intangible assets,representing the Companies’ customer list and slot club program, were recordedat fair value, which was calculated based upon comparable customer lists andslot programs with other casinos operating in the Las Vegas and surroundingmarket.  In accordance with theprovisions of SFAS No. 141, the remainder of the purchase price was allocatedto goodwill. Management believes that the goodwill arose from the Companies’dominance in and the growing Mesquite, Nevada market, the value of the existingworkforce and the existing accounting and operating infrastructure.

 

Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed by the Companies at the date of acquisition. The purchaseprice allocation is in process and will be completed within one year of theacquisition; thus, the allocation of the purchase price is subject torefinement.

 

6

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**Virgin River Casino Corporation**

 

**Notes to Condensed Consolidated Financial Statements (unaudited)(continued)**

 

**3.             Purchase of Equity Interests(continued)**

 

| ** **                 | ** ** | **At   December 20,  2004** | ** ** |
|----------------------------|------------|-----------------------------|------------|
|                       |       |                        |       |
| Current assets             |       | $                           | 15,600     |   |
| Property and  equipment    |       | 100,200                     |       |
| Other  non-current assets  |       | 3,300                       |       |
| Intangibles                |       | 4,600                       |       |
| Goodwill                   |       | 43,000                      |       |
| Total assets  acquired     |       | 166,700                     |       |
|                       |       |                        |       |
| Current  liabilities       |       | 12,800                      |       |
| Long-term  liabilities     |       | 1,200                       |       |
| Long-term debt  assumed    |       | 53,300                      |       |
| Total  liabilities assumed |       | 67,300                      |       |
|                       |       |                        |       |
| Net assets  acquired       |       | $                           | 99,400     |   |

 

Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed related to the Company at the date of acquisition.

 

| ** **                 | ** ** | **At   December 20,  2004** | ** ** |
|----------------------------|------------|-----------------------------|------------|
|                       |       |                        |       |
| Current assets             |       | $                           | 10,000     |   |
| Property and  equipment    |       | 100,200                     |       |
| Other  non-current assets  |       | 3,300                       |       |
| Intangibles                |       | 2,300                       |       |
| Goodwill                   |       | 31,800                      |       |
| Total assets  acquired     |       | 147,600                     |       |
| Current  liabilities       |       | 10,200                      |       |
| Long-term  liabilities     |       | 1,200                       |       |
| Long-term debt  assumed    |       | 53,200                      |       |
| Total  liabilities assumed |       | 64,600                      |       |
|                       |       |                        |       |
| Net assets  acquired       |       | $                           | 83,000     |   |

 

7

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**Virgin River Casino Corporation**

 

**Notes to Condensed Consolidated Financial Statements (unaudited)(continued)**

 

**4.             Long-term Debt**

 

Long-term debt consistsof the following (in thousands): 

 
| ** **                                                                                                                                                                                                                                                                                  | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                  | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| 9% senior  secured notes, interest payable semiannually, principal due January 15, 2012,  callable January 15, 2009                                                                                                                                                                         |       | $                       | 125,000    |                   | $          | 125,000 |   |
| 12 3⁄4% senior  subordinated notes, non-cash interest will accrue at an annual rate of 12 3⁄4% in  the form of increase accreted value until January 15, 2009. Beginning January  15, 2009, interest payable semiannually, principal due January 15, 2013,  callable January 15, 2009 |       | 43,788                  |       | 40,068                 |       |
| Revolving credit  facility totaling $15 million with Wells Fargo Foothill, at a margin above  prime or LIBOR, as defined; collateralized by substantially all real and  personal property, leases, intangibles and other interests of the Companies  as defined.                            |       | 1,277                   |       | —                 |       |
| Promissory note  payable to Wells Fargo Equipment Finance, Inc. payable in monthly  installments of $37 at an interest rate of 6.97%, due June 2006                                                                                                                                         |       | 464                     |       | 757                    |       |
| Hypothecation  Note at prime plus 3.0% (9.75% at September 30, 2005), collateralized by  certain notes receivable as defined; guaranteed by one of the Initial  Members, due April 2004                                                                                                     |       | 252                     |       | 572                    |       |
| Promissory note  payable to Wells Fargo Equipment Finance, Inc. payable in monthly  installments of $24 at an interest rate of 7.00%, due November 2005                                                                                                                                |       | 47                      |       | 251                    |       |
| Promissory note  payable to Wells Fargo Equipment Finance, Inc. payable in monthly  installments of $14 at an interest rate of 6.21%, due December 2006                                                                                                                                     |       | 195                     |       | 293                    |       |
|                                                                                                                                                                                                                                                                                        |       | 171,023                 |       | 166,941                |       |
| Less—current  portion                                                                                                                                                                                                                                                                  |       | (917                    | )          | (1,353                 | )          |
| Total long-term  debt                                                                                                                                                                                                                                                                       |       | $                       | 170,106    |                   | $          | 165,588 |   |

* *

***New Revolving Facility***

 

The Wells Fargo Foothillcredit facility (“Foothill Facility’) is secured by substantially all theassets of the Companies. During the life of the Foothill Facility, theCompanies may borrow up to the lesser of (1) $15.0 million less theLetter of Credit Usage, as defined, less the Bank Product Reserve, as defined,or (2) the Borrowing Base, as defined, less the Letter of CreditUsage.  At September 30, 2005, the BankProduct Reserve was approximately $359,000 and is based on the fair marketvalue at September 30, 2005 of the interest rate swap owed to Wells FargoFoothill, Inc.  Accordingly, theavailability under the Foothill Facility at September 30, 2005 was limited to$13.4 million.

 

Under the terms of theFoothill Facility, interest accrues on the outstanding principal balance atLIBOR plus the LIBOR Rate Margin, which is 3.5%, or the Base Rate, as defined,plus the Base Rate Margin, which is 2%. LIBOR was approximately 4.4% at September 30, 2005.  The Foothill Facility also

 

8

----

 

**Virgin River Casino Corporation**

 

**Notes to Condensed Consolidated Financial Statements (unaudited)(continued)**

 

**4.             Long-term Debt (continued)**

 

contains certainfinancial and other covenants.  Theseinclude a minimum trailing twelve-month Earnings before Interest, Taxes,Depreciation and Amortization (“EBITDA”) of $15,000,000 for the Companies andlimitations on other indebtedness and capital expenditures, as defined.  The Companies were in compliance with thesecovenants at September 30, 2005.  Theoutstanding balance on the Foothill Facility is a joint and several obligationof the Companies. The condensed consolidated balance sheet of the Companyreflects the full obligation of the Foothill Facility at September 30, 2005.

 

***Senior Secured and Senior Subordinated Notes***

 

In December 2004, as partof the Buyout, the VRCC, RBG and B&BB (the “Issuers”) issued$125.0 million of 9% senior secured notes (“Senior Notes”) due onJanuary 15, 2012 and $39.9 million in gross proceeds of 123⁄4% seniorsubordinated notes (“Senior Sub Notes”) due January 15, 2013 (collectivelythe “Notes”).  The Notes are joint andseveral obligations of the Issuers and all current and future subsidiaries ofthe Issuers.  Although the Notes arejoint and several obligations of the Issuers, the allocation of the balance ofthe Notes to the individual balance sheets of B&BB, VRCC and RBG wasaccording to the flow of funds at the date of the Buyout with the proceeds ofthe Senior Notes necessary to purchase the interests of B&BB recorded onthe balance sheet of B&BB and the remaining proceeds of the Senior Notesand Senior Sub Notes recorded on the consolidated balance sheet of VRCC.  The condensed consolidated balance sheet ofthe Company reflects the full obligation of the Notes at September 30, 2005,with the amount recorded on the balance sheet of B&BB recognized as adeemed distribution to reflect the net obligation of the Notes recorded on thecondensed consolidated balance sheet of the Company at September 30, 2005. At September30, 2005, the net amount of the Notes recorded on the Company’s condensedconsolidated balance sheet is $148.2 million. The Senior Notes pay interestsemiannually while the Senior Sub Notes accrue interest in the form ofincreased accreted value until January 15, 2009, when the carrying bookvalue of the Senior Sub Notes will be $66.0 million.  At that point the Senior Sub Notes will payinterest semiannually on the same dates as the Senior Notes.

 

The indentures (the “Indentures”)governing the Companies’ Notes contain certain customary financial and othercovenants, which limit the Companies’ ability to incur additional debt.  The Indentures provide that the Companies maynot incur additional indebtedness, other than specified types of indebtedness,unless the Consolidated Coverage Ratio, on a pro-forma basis after theincurrence of the additional indebtedness is at least 2.00 to 1.00. As of September30, 2005, the Companies have incurred $0 of additional indebtedness as defined.

 

TheIndentures also contain other covenants which limit the ability of the Issuersand Guarantors, as defined, to pay dividends, redeem stock, or make otherdistributions, make investments, create certain liens, enter into certaintransactions with affiliates, utilize proceeds from asset sales, transfer orsell assets, issue or sell equity interests of subsidiaries and enter intocertain mergers and consolidations, as defined in the Indentures.  There are no restrictions related to thetransfer of funds between the Issuers, Guarantors and their respectivesubsidiaries.  The Issuers were incompliance with these covenants at September 30, 2005.

 

9

----

 

**Virgin River Casino Corporation**

 

**Notes to Condensed Consolidated Financial Statements (unaudited)(continued)**

 

**4.             Long-term Debt (continued)**

 

The Senior Notes aresecured by substantially all existing and future assets of the Issuers and theGuarantors, as defined, as well as the equity interest of the Guarantors, theequity interests of the Mr. Black and his affiliate in the Issuers.  The Guarantors are all the wholly ownedsubsidiaries of the Issuers.

 

The Senior Notes aresubordinated to the security interests of the Foothill Facility.  The Senior Sub Notes are subordinate to theSenior Notes and all other indebtedness of the Companies.

 

**5.             Gaming Equipment Financing**

 

The Company from time totime enters into agreements with gaming manufacturers to finance the purchaseof gaming equipment.  Contractual termsof the agreements with the gaming manufactures consist of payment terms of lessthan one year to up to three years without interest.  In the event that an agreement with a gamingmanufacturer extends past a year, the Company will impute interest at a rate of8%.

 

Gaming equipmentfinancing consists of the following (in thousands): 

 
| ** **                                                                                                                                      | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                      | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| Gaming equipment  financing to purchase 205 games, no payments for one year and monthly  payments of $106 for 24 months beginning February 2006 |       | $                       | 2,274      |                   | $          | — |   |
| Gaming equipment  financing to purchase 68 games, no payments for one year and monthly payments  of $43 for 24 months beginning January 2006    |       | 926                     |       | —                 |       |
| Gaming equipment  financing to purchase 70 games, no payments for one year and monthly payments  of $39 for 24 months beginning March 2006      |       | 822                     |       | —                 |       |
| Gaming equipment  financing to purchase 60 games, monthly payments of $20 for 36 months  beginning April 2005                                   |       | 565                     |       | —                 |       |
| Gaming equipment  financing to purchase 64 games, no payments for one year and monthly payments  of $26 for 24 months beginning February 2006   |       | 566                     |       | —                 |       |
| Gaming equipment  financing to purchase 38 games, monthly payments of $13 for 36 months  beginning April 2005                                   |       | 344                     |       | —                 |       |
| Gaming equipment  financing to purchase 20 games, no payments for one year and monthly payments  of $8 for 24 months beginning January 2006     |       | 171                     |       | 189                    |       |
| Gaming equipment  financing, monthly payments of $3 for 36 months beginning January 2005                                                        |       | 69                      |       | —                 |       |
| Gaming equipment  financing with terms of less than 12 months                                                                                   |       | 160                     |       | 582                    |       |
|                                                                                                                                            |       | 5,897                   |       | 771                    |       |
| Less current  portion                                                                                                                           |       | (2,006                  | )          | (582                   | )          |
| Gaming equipment  financing, long-term portion                                                                                                  |       | $                       | 3,891      |                   | $          | 189 |   |

 

10

----

 

**Virgin River Casino Corporation**

 

**Notes to Condensed Consolidated Financial Statements (unaudited)(continued)**

 

**6.             Related Party Transactions**

 

Wingnuts, Inc. is acompany that owns an airplane used by the Company.  Wingnuts, Inc. is owned by Mr. Black alongwith various former stockholders of the Companies.  Wingnuts, Inc. charges the Company forbusiness usage of the airplane using hourly rates for actual air time.  Total charges for the three and nine-month periodsended September 30, 2005 and 2004 were $0, $12,000, $0 and $38,000,respectively.

 

MJB Development is a realestate construction company owned by a former shareholder of the Companieswhich provided construction and storage services associated with hotelfacilities of the Company.  Whenperforming construction services, the actual costs of construction, overheadcharges, and a profit are charged to the Company.  In addition to construction services, MJBDevelopment has also leased containers for storage to the Company.  Total charges for construction and leasing ofstorage containers totaled $0, $6,000, $2,000 and $17,000 during the three and nine-monthperiods ended September 30, 2005 and 2004, respectively, and are included inthe accompanying consolidated statements of operations.  In addition, during the nine months ended September30, 2005, the Company paid MJB Development $68,000 to purchase previouslyleased storage containers.

 

MDW is a Nevada limited-liabilitycompany in which Mr. Black has an interest. MDW owns a condominium complex located in Mesquite, Nevada. The Companyhad entered into a lease agreement with MDW whereby MDW gave the members of theCasaBlanca Vacation Club (the timeshare club associated with the CasaBlanca)the right to use and occupy the timeshare units located on the leaseholdproperty.  The remaining units at thecondominium complex were utilized by the CasaBlanca for hotel and apartmentpurposes.  On December 15, 2004,pursuant to a termination agreement, the Company terminated its lease withMDW.  The rent payments paid by theCompany to MDW during the three and nine-month periods ended September 30, 2005and 2004 totaled $0, $185,000, $0 and $554,000, respectively, and are includedin the condensed consolidated statements of operations.  The Company did not record any revenuerelated to the condominium sales during the nine months ended September 30,2005. In addition, pursuant to the lease termination agreement, the Companyowes MDW $86,000 at September 30, 2005 for money owed to MDW during the ninemonths ended September 30, 2005.

 

Virgin RiverFoodmart, Inc., a Nevada corporation, (“Foodmart”) is owned by Mr. Blackand former shareholders of VRCC. Pursuant to a lease agreement, VRCC leases to Virgin RiverFoodmart, Inc. certain real property and the structures and improvementscontained thereon for the purposes of operating the Virgin River FoodMart.  Pursuant to the Buyout, the realproperty, structures and improvements previously leased to the Virgin RiverFoodmart, Inc. were not acquired by Mr. Black, but were distributed to theshareholders of VRCC; therefore the lease between VRCC and Virgin RiverFoodmart, Inc. was terminated.  Leasepayments made to VRCC were $0, $56,000, $0 and $167,000 for the three and nine-monthperiods ended September 30, 2005 and 2004, respectively, and are included inthe accompanying condensed consolidated statements of operations.

 

In addition, participantsin the Company’s slot club program are able to redeem their points for gasolineat the Foodmart.  Foodmart charges theCompany the retail amount of gas purchased with player points.  Chargesassociated with the point redemption for gasoline at the Foodmart were $30,000,$35,000, $106,000 and $112,000 for the three and nine-month periods ended September30, 2005 and 2004, respectively.

 

11

----

 

**Virgin River Casino Corporation**

 

**Notes to Condensed Consolidated Financial Statements (unaudited)(continued)**

 

**6.             Related Party Transactions(continued)**

 

Black,LoBello & Pitegoff is a law firm managed by the daughter of Mr. Black.The Company retains Black, LoBello & Pitegoff as outside legalcounsel, and has incurred legal fees for legal services in the amount of $68,000,$22,000, $112,000 and $91,000 for the three and nine-month periods ended September30, 2005 and 2004, respectively.

 

Pursuant to theIndenture, Mr. Black is entitled to a management fee for his management of theCompany business of up to 5% of EBITDA, as defined.  The Company has recorded an estimatedliability of $576,000 associated with this management fee at September 30,2005.

 

Resorts LLC providedmanagement and other services to two related parties that manage and operatethe home owners associations of the vacation intervals sold at theproperty.  Included in the accompanyingcondensed consolidated balance sheet at September 30, 2005 is a receivable for$99,000 related to amounts owed for those services.

 

**7.             Commitments and Contingencies**

 

In September 2005, theCompanies entered into an agreement with Agilysys NV, LLC to purchase a newproperty management system for the three properties.  Implementation is expected to begin inDecember 2005 with a completion date expected to occur before the end of thesecond quarter 2006.  The estimated costof this project is approximately $1.7 million.

 

In September 2005, theCompanies entered into an agreement with Infinium Software, Inc. to purchase anew financial management system. Implementation is expected to begin in December 2005 with an completiondate expected to occur before the end of the second quarter in 2006. Theestimated cost of this project is approximately $615,000.

 

In May 2005, theCompanies entered into a lease arrangement with Dell Financial Services tolease desktop computers and servers.  Theterm of the lease is 18 months at a rate of approximately $29,000 a month.  The lease also provides for a renewal periodof an additional 18 months at approximately $6,000 a month.  The Companies are accounting for the lease asan operating lease.

 

**8.             Subsequent Events**

 

In October 2005, pursuantto the Agreement for Purchase of Equity Interests, the Company made a final taxdistribution of $525,000 to the previous shareholders of the Company towardtheir 2004 tax liability.  As ofSeptember 30, 2005, the Company recognized an additional liability and adjustedgoodwill and other intangible assets for this amount to reflect the change inthe purchase price of the Buyout that was consummated on December 20, 2004.

 

In October 2005, theCompanies entered into an agreement with Wells Fargo Financial Leasing to leasegolf maintenance equipment totaling approximately $1.3 million.  The term of the lease is 36 months at a rateof $29,000.  The Companies are accountingfor the lease as an operating lease.

 

12

----

 

**RGB, LLC**

 

**Condensed Consolidated Balance Sheets****September 30, 2005and December 31, 2004(in thousands)**

 
| ** **                                         | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|----------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                         | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| **Assets**                                         | ** ** | ** **              | ** ** | ** **             | ** ** |
| Current assets:                                    |       |                    |       |                   |       |
| Cash and cash  equivalents                         |       | $                       | 5,493      |                   | $          | 7,544 |   |
| Accounts  receivable, net                          |       | 673                     |       | 799                    |       |
| Related party  receivables                         |       | 342                     |       | 213                    |       |
| Related company  receivables                       |       | 99                      |       | 205                    |       |
| Inventories                                        |       | 1,681                   |       | 1,680                  |       |
| Property held  for vacation interval sales         |       | 380                     |       | 461                    |       |
| Prepaid expenses                                   |       | 3,393                   |       | 2,823                  |       |
| Current portion  of notes receivable               |       | 388                     |       | 414                    |       |
| Total current  assets                              |       | 12,449                  |       | 14,139                 |       |
| Property and  equipment, net                       |       | 77,398                  |       | 69,137                 |       |
| Notes  receivable, less current portion            |       | 2,209                   |       | 2,487                  |       |
| Other assets                                       |       | 407                     |       | 399                    |       |
| Goodwill and  other intangible assets, net         |       | 33,524                  |       | 34,084                 |       |
| Total assets                                       |       | $                       | 125,987    |                   | $          | 120,246 |   |
|                                               |       |                    |       |                   |       |
| **Liabilities  and Members’ Deficit**         | ** ** | ** **              | ** ** | ** **             | ** ** |
| Current  liabilities:                              |       |                    |       |                   |       |
| Bank overdraft                                     |       | $                       | —     |                   | $          | 1,480 |   |
| Current portion  of obligation under capital lease |       | 5                       |       | 18                     |       |
| Current portion  of gaming equipment financing     |       | 2,006                   |       | 582                    |       |
| Current portion  of long-term debt                 |       | 917                     |       | 1,353                  |       |
| Accounts payable                                   |       | 2,961                   |       | 3,154                  |       |
| Accrued  liabilities                               |       | 12,380                  |       | 8,645                  |       |
| Related company  payable                           |       | 252                     |       | 200                    |       |
| Total current  liabilities                         |       | 18,521                  |       | 15,432                 |       |
| Gaming equipment  financing, less current portion  |       | 3,891                   |       | 189                    |       |
| Long-term debt,  less current portion              |       | 170,106                 |       | 165,588                |       |
| Fair value of  interest rate swaps                 |       | 391                     |       | 1,493                  |       |
| Commitments and  contingencies                     |       |                    |       |                   |       |
| Members’  deficit:                            |       |                    |       |                   |       |
| Members’  contributions                       |       | 116,391                 |       | 116,391                |       |
| Deemed distribution                                |       | (172,568                | )          | (165,831               | )          |
| Accumulated  deficit                               |       | (10,745                 | )          | (13,016                | )          |
| Total members’  deficit                       |       | (66,922                 | )          | (62,456                | )          |
| Total  liabilities and members’ deficit       |       | $                       | 125,987    |                   | $          | 120,246 |   |

 

The accompanying notes arean integral part of these condensed consolidated financial statements.

 

13

----

 

**RGB, LLC**

 

**Condensed****ConsolidatedStatements of Operations (unaudited)**

**For theThree Months and Nine Months Ended September 30, 2005 and 2004**

**(inthousands)**

** **
| ** **                                   | ** ** | **Three months ended**  | ** ** | **Nine Months ended**   | ** ** |
|----------------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                                   | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                         |       |                    |       |                    |       |   |   |   |   |
| Revenues                                     |       |                    |       |                    |       |   |   |   |   |
| Casino                                       |       | $                       | 14,283     |                    | $          | 13,770 |   | $ | 45,861 |   | $ | 43,207 |   |
| Food and  beverage                           |       | 7,149                   |       | 7,187                   |       | 22,986 |   | 23,072 |   |
| Hotel                                        |       | 4,725                   |       | 4,070                   |       | 15,125 |   | 14,237 |   |
| Other                                        |       | 3,378                   |       | 3,913                   |       | 14,054 |   | 15,319 |   |
| Total revenues                               |       | 29,535                  |       | 28,940                  |       | 98,026 |   | 95,835 |   |
| Less—promotional  allowances            |       | (4,295                  | )          | (3,912                  | )          | (13,802 | ) | (12,913 | ) |
| Net revenues                                 |       | 25,240                  |       | 25,028                  |       | 84,224 |   | 82,922 |   |
| Operating  expenses:                         |       |                    |       |                    |       |   |   |   |   |
| Casino                                       |       | 7,712                   |       | 7,020                   |       | 22,730 |   | 21,564 |   |
| Food and  beverage                           |       | 4,589                   |       | 4,642                   |       | 14,407 |   | 14,241 |   |
| Hotel                                        |       | 1,546                   |       | 1,620                   |       | 4,682 |   | 5,020 |   |
| Other                                        |       | 3,448                   |       | 3,481                   |       | 10,817 |   | 10,962 |   |
| General and  administrative                  |       | 7,870                   |       | 6,751                   |       | 22,182 |   | 21,052 |   |
| Depreciation and  amortization               |       | 1,994                   |       | 1,398                   |       | 5,859 |   | 4,542 |   |
| Loss on sale and  disposal of assets         |       | 79                      |       | 2                       |       | 729 |   | 22 |   |
| Total operating  expenses                    |       | 27,238                  |       | 24,914                  |       | 81,406 |   | 77,403 |   |
| Operating (loss)  income                     |       | (1,998                  | )          | 114                     |       | 2,818 |   | 5,519 |   |
| Other income  (expense):                     |       |                    |       |                    |       |   |   |   |   |
| Interest expense                             |       | (357                    | )          | (1,483                  | )          | (1,048 | ) | (4,512 | ) |
| Related party  interest expense              |       | —                  |       | (41                     | )          | — |   | (41 | ) |
| Change in fair  value of interest rate swaps |       | 262                     |       | (241                    | )          | 789 |   | 1,921 |   |
| Other                                        |       | (113                    | )          | —                  |       | (288 | ) | — |   |
| Net (loss)  income                           |       | $                       | (2,206     | )                       | $          | (1,651 | ) | $ | 2,271 |   | $ | 2,887 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

14

----

 

**RGB, LLC**

 

**Condensed Consolidated Statements of Cash Flows (unaudited)**

**For theNine Months Ended September 30, 2005 and 2004**

**(inthousands)**

** **
| ** **                                                                         | ** ** | **Nine months ended**   | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                         | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                                                               |       |                    |       |   |   |
| Cash flows from  operating activities:                                             |       |                    |       |   |   |
| Net income                                                                         |       | $                       | 2,271      |   | $ | 2,887 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                    |       |   |   |
| Depreciation and  amortization                                                     |       | 5,859                   |       | 4,542 |   |
| Change in fair  value of interest rate swaps                                       |       | (789                    | )          | (1,921 | ) |
| Loss on sale and  disposal of assets                                               |       | 729                     |       | 22 |   |
| Amortization of  deferred financing fees                                           |       | —                  |       | 158 |   |
| Interest expense  on gaming equipment financing                                    |       | 232                     |       | — |   |
| Cost of vacation  intervals sales                                                  |       | 81                      |       | 348 |   |
| Change in  operating assets and liabilities:                                       |       |                    |       |   |   |
| Accounts,  related company and related party receivables, net                      |       | 103                     |       | 660 |   |
| Inventories                                                                        |       | (1                      | )          | 123 |   |
| Prepaid expenses                                                                   |       | (570                    | )          | (473 | ) |
| Accounts payable  and accrued liabilities                                          |       | 1,542                   |       | (43 | ) |
| Net cash  provided by operating activities                                         |       | 9,457                   |       | 6,303 |   |
|                                                                               |       |                    |       |   |   |
| Cash flows from  investing activities:                                             |       |                    |       |   |   |
| Proceeds  received from sale of assets                                             |       | 145                     |       | 6 |   |
| Capital  expenditures                                                              |       | (8,944                  | )          | (1,748 | ) |
| Decrease in  notes receivable                                                      |       | 304                     |       | 118 |   |
| Net cash used in  investing activities                                             |       | (8,495                  | )          | (1,624 | ) |
|                                                                               |       |                    |       |   |   |
| Cash flows from  financing activities:                                             |       |                    |       |   |   |
| Proceeds from  issuance of long-term debt                                          |       | 209                     |       | 284 |   |
| Decrease in bank  overdraft                                                        |       | (1,480                  | )          | (1,264 | ) |
| Payment of long-term  debt                                                         |       | (1,126                  | )          | (3,005 | ) |
| Payment on  gaming equipment financing                                             |       | (619                    | )          | (587 | ) |
| Payment of  obligations under capital lease                                        |       | (13                     | )          | (22 | ) |
| Change in other  assets                                                            |       | 16                      |       | (37 | ) |
| Net cash used in  financing activities                                             |       | (3,013                  | )          | (4,631 | ) |
| Net (decrease)  increase in cash and cash equivalents                              |       | (2,051                  | )          | 48 |   |
| Cash and cash  equivalents at beginning of year                                    |       | 7,544                   |       | 7,429 |   |
| Cash and cash  equivalents at end of period                                        |       | $                       | 5,493      |   | $ | 7,477 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

15

----

 

**RGB, LLC**

 

**CondensedConsolidated Statements of Cash Flows (unaudited) (continued)**

**For theNine Months Ended September 30, 2005 and 2004**

**(inthousands)**

** **
| ** **                                             | ** ** | **Nine months ended**   | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                                   |       |                    |       |   |   |
| Supplemental  cash flow disclosure:                    |       |                    |       |   |   |
|                                                   |       |                    |       |   |   |
| Cash paid for  interest                                |       | $                       | 539        |   | $ | 4,091 |   |
|                                                   |       |                    |       |   |   |
| Acquisition of  assets with gaming equipment financing |       | $                       | 5,513      |   | $ | 385 |   |

 

The accompanying notes are an integral partof these condensed consolidated financial statements.

 

16

----

 

**RGB, LLC**

 

**Notes to Condensed FinancialStatements (unaudited)****September30, 2005**

 

**1.             Basis of Presentation andBackground**

 

The accompanyingcondensed consolidated financial statements include the accounts of RBG, LLC(doing business as CasaBlanca Resort/Casino/Golf/Spa) and its wholly ownedsubsidiary Casablanca Resorts, LLC (doing business as Oasis Resort &Casino) (“Resorts LLC”). Prior to December 20, 2004, RBG, LLC (“RBG”) was a 61.54%owned subsidiary of Virgin River Casino Corp. (“VRCC”).  Four siblings owned 100% of the shares ofVRCC and owned 8.47% of the membership interests in RBG individually. Thosesame four siblings owned 93.28% of B & B B, Inc. (doingbusiness as Virgin River Hotel/Casino/Bingo) (“B&BB”).  VRCC, RBG and B&BB (collectively the “Companies”)are operated under common management.

 

On December 20,2004, the Companies entered into a series of transactions whereby they issued$125.0 million aggregate principal amount of Senior Secured Notes due 2012and $66.0 million aggregate principal amount at maturity($39.9 million in gross proceeds) of Senior Subordinated Notes due 2013,and received a $16.0 million equity contribution from Mr. Black and R.Black, Inc. The Companies used the proceeds from the above offering to purchasethe interests held by certain affiliated and unaffiliated shareholders(collectively known as the “Buyout”) for $101.4 million pursuant to theAgreement for Purchase and Sale or Redemption of Equity Interests (“Agreementfor Purchase of Equity Interests”) between James A. Black GamingProperties Trust, Gary W. Black Gaming Properties Trust, Michael T.Black Gaming Properties Trust, Jorco, Inc., Marcus A. Hall, James Ritchieand Barry Moore as Sellers and Robert R. Black, VRCC and B&BB asPurchasers (see Note 3).  As a result ofthe Buyout, Mr. Black obtained the remaining 80.97% interest in B&BB and 75.0%interest in VRCC. VRCC along with R. Black, Inc. obtained 32.69% of themembership interest in RBG that was being purchased. The remaining proceedswere utilized to repay $64.0 million owed under the Credit Agreement andthe $2.0 million promissory note payable to a selling shareholder. Fivedays prior to the Buyout, RBG terminated the lease with MDW (see Note 6)and the Companies disposed of certain assets. As a result of thesetransactions, Mr. Black and R. Black, Inc. control VRCC, RBG and B&BB. Inaddition, VRCC, RBG, and B&BB are co-issuers on the Companies’ SeniorSecured and Senior Subordinated Notes and all three entities are jointlymanaged and share resources (see Note 4).

 

***InterimFinancial Statements***– The accompanying unauditedcondensed consolidated financial statements for the three and nine-monthperiods ended September 30, 2005 and 2004 are unaudited.  In the opinion of management, all adjustments(which include normal recurring adjustments) necessary for a fair presentationof RBG’s financial position and results of operations for such periods, havebeen included.  The accompanyingunaudited condensed consolidated financial statements should be read inconjunction with RBG’s audited financial statements for the year ended December31, 2004 included in RBG’s registration statement on Form S-4/A filed on September22, 2005.  The results for the three andnine-month periods ended September 30, 2005 are not necessarily indicative ofthe results that may be expected for the year ending December 31, 2005, or forany other period.

 

17

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**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**2.             Property and Equipment**

 

Property and equipmentconsists of the following (in thousands):

 

| ** **                                           | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                           | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| Land                                                 |       | $                       | 16,690     |                   | $          | 16,684 |   |
| Buildings                                            |       | 31,947                  |       | 29,257                 |       |
| Land and  leasehold improvements                     |       | 18,032                  |       | 17,806                 |       |
| Furniture,  fixtures and equipment                   |       | 38,423                  |       | 30,269                 |       |
| Construction in  progress                            |       | 901                     |       | 353                    |       |
|                                                 |       | 105,993                 |       | 94,369                 |       |
| Less—accumulated  depreciation and amortization |       | (28,595                 | )          | (25,232                | )          |
| Property and  equipment, net                         |       | $                       | 77,398     |                   | $          | 69,137 |   |

 

**3.             Purchase of Equity Interests**

 

On December 20,2004, pursuant to the Agreement for Purchase of Equity Interests described inNote 1, Mr. Black and R. Black, Inc. acquired certain interests inB&BB, VRCC and RBG for $101.4 million. In addition, the Companiesincurred approximately $10.3 million in capitalized deferred financingfees related to the issuance of the Notes all of which was recorded to theconsolidated balance sheet of VRCC and balance sheet of B&BB. Managementvalued the assets acquired in the transaction as follows.  Current assets and liabilities were recordedat book value, which approximated their estimated market values at the date ofacquisition.  Land, buildings andbuilding improvements were valued based upon comparable values of recent salesin the Mesquite, Nevada market and 3rd party market valuations ofcomparable assets in Mesquite, Nevada. For equipment, management recorded these assets at book value, which wasdeemed to be fair value, considering the relative age and working condition ofthe equipment.  Intangible assets,representing the Companies’ customer list and slot club program, were recordedat fair value, which was calculated based upon comparable customer lists andslot programs with other casinos operating in the Las Vegas and surroundingmarket.  In accordance with theprovisions of SFAS No. 141, the remainder of the purchase price was allocatedto goodwill. Management believes that the goodwill arose from the Companies’dominance in and the growing Mesquite, Nevada market, the value of the existingworkforce and existing accounting and operating infrastructure.

 

Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed by the Companies at the date of acquisition. The purchaseprice allocation is in process and will be completed within one year of theacquisition; thus, the allocation of the purchase price is subject torefinement.

 

18

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**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**3.             Purchase of Equity Interests(continued)**

** **

| ** **                | ** ** | **At  December 20,  2004** | ** ** |
|---------------------------|------------|----------------------------|------------|
|                      |       |                       |       |
| Current assets            |       | $                          | 15,600     |   |
| Property and  equipment   |       | 100,200                    |       |
| Other  non-current assets |       | 3,300                      |       |
| Intangibles               |       | 4,600                      |       |
| Goodwill                  |       | 43,000                     |       |
| Total assets  acquired    |       | 166,700                    |       |
|                           |            |                            |            |  |

 

| ** **                 | ** ** | **At  December 20,  2004** | ** ** |
|----------------------------|------------|----------------------------|------------|
|                       |       |                       |       |
| Current  liabilities       |       | 12,800                     |       |
| Long-term  liabilities     |       | 1,200                      |       |
| Long-term debt  assumed    |       | 53,300                     |       |
| Total  liabilities assumed |       | 67,300                     |       |
|                       |       |                       |       |
| Net assets  acquired       |       | $                          | 99,400     |   |
|                            |            |                            |            |  |

 

Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed related to RBG at the date of acquisition.

 

| ** **                 | ** ** | **At  December 20,  2004** | ** ** |
|----------------------------|------------|----------------------------|------------|
|                       |       |                       |       |
| Current assets             |       | $                          | 9,800      |   |
| Property and  equipment    |       | 57,600                     |       |
| Other  non-current assets  |       | 2,800                      |       |
| Intangibles                |       | 2,300                      |       |
| Goodwill                   |       | 31,800                     |       |
| Total assets  acquired     |       | 104,300                    |       |
| Current  liabilities       |       | 11,800                     |       |
| Long-term  liabilities     |       | 900                        |       |
| Long-term debt  assumed    |       | 46,600                     |       |
| Total  liabilities assumed |       | 59,300                     |       |
|                       |       |                       |       |
| Net assets  acquired       |       | $                          | 45,000     |   |

 

19

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**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**4.            ****Long-termDebt**

 

Long-term debt consistsof the following (in thousands): 

 
| ** **                                                                                                                                                                                                                                                                                  | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                  | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| 9% senior  secured notes, interest payable semiannually, principal due January 15, 2012,  callable January 15, 2009                                                                                                                                                                         |       | $                       | 125,000    |                   | $          | 125,000 |   |
| 12 3⁄4% senior  subordinated notes, non-cash interest will accrue at an annual rate of 12 3⁄4%  in the form of increase accreted value until January 15, 2009. Beginning  January 15, 2009, interest payable semiannually, principal due January 15,  2013, callable January 15, 2009 |       | 43,788                  |       | 40,068                 |       |
| Revolving credit  facility totaling $15 million with Wells Fargo Foothill, at a margin above  prime or LIBOR, as defined; collateralized by substantially all real and  personal property, leases, intangibles and other interests of the Companies  as defined.                            |       | 1,277                   |       | —                 |       |
| Promissory note  payable to Wells Fargo Equipment Finance, Inc. payable in monthly  installments of $37 at an interest rate of 6.97%, due June 2006                                                                                                                                         |       | 464                     |       | 757                    |       |
| Hypothecation  Note at prime plus 3.0% (9.75% at September 30, 2005), collateralized by  certain notes receivable as defined; guaranteed by one of the Initial  Members, due April 2004                                                                                                     |       | 252                     |       | 572                    |       |
| Promissory note  payable to Wells Fargo Equipment Finance, Inc. payable in monthly  installments of $24 at an interest rate of 7.00%, due November 2005                                                                                                                                |       | 47                      |       | 251                    |       |
| Promissory note  payable to Wells Fargo Equipment Finance, Inc. payable in monthly  installments of $14 at an interest rate of 6.21%, due December 2006                                                                                                                                     |       | 195                     |       | 293                    |       |
|                                                                                                                                                                                                                                                                                        |       | 171,023                 |       | 166,941                |       |
| Less—current  portion                                                                                                                                                                                                                                                                  |       | (917                    | )          | (1,353                 | )          |
| Total long-term  debt                                                                                                                                                                                                                                                                       |       | $                       | 170,106    |                   | $          | 165,588 |   |

 

***New Revolving Facility***

 

The Wells Fargo Foothillcredit facility (“Foothill Facility’) is secured by substantially all theassets of the Companies. During the life of the Foothill Facility, theCompanies may borrow up to the lesser of (1) $15.0 million less theLetter of Credit Usage, as defined, less the Bank Product Reserve, as defined,or (2) the Borrowing Base, as defined, less the Letter of CreditUsage.  At September 30, 2005, the BankProduct Reserve was approximately $359,000 and is based on the fair marketvalue at September 30, 2005 of the interest rate swap owed to Wells FargoFoothill, Inc.  Accordingly, theavailability under the Foothill Facility at September 30, 2005 was limited to $13.4million.

 

Under the terms of the FoothillFacility, interest accrues on the outstanding principal balance at LIBOR plusthe LIBOR Rate Margin, which is 3.5%, or the Base Rate, as defined, plus theBase Rate Margin, which is 2%.  LIBOR wasapproximately 4.4% at September 30, 2005. The Foothill Facility also contains certain financial and othercovenants.  These include a minimumtrailing twelve-month Earnings before Interest, Taxes, Depreciation andAmortization (“EBITDA”) of $15,000,000 for the Companies and limitations onother indebtedness and capital expenditures, as defined.  The Companies were in compliance with thesecovenants at September 30, 2005.

 

20

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**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**4.             Long-term Debt (continued)**

 

The outstanding balanceon the Foothill Facility is a joint and several obligation of the Companies.The condensed consolidated balance sheet of RBG reflects the full obligation ofthe Foothill Facility at September 30, 2005 with the amount recorded on theconsolidated balance sheet of VRCC recognized as a deemed distribution toreflect the net obligation of the Foothill Facility on the consolidated balancesheet of RBG at September 30, 2005. At September 30, 2005, the net amount ofthe Foothill Facility recorded on RBG’s consolidated balance sheet is $0.

 

***SeniorSecured and Senior Subordinated Notes***

 

In December 2004, as partof the Buyout, the VRCC, RBG and B&BB (the “Issuers”) issued$125.0 million of 9% senior secured notes (“Senior Notes”) due onJanuary 15, 2012 and $39.9 million in gross proceeds of 123⁄4% seniorsubordinated notes (“Senior Sub Notes”) due January 15, 2013 (collectivelythe “Notes”).  The Notes are joint andseveral obligations of the Issuers and all current and future subsidiaries ofthe Issuers.  Although the Notes arejoint and several obligations of the Issuers, the allocation of the balance ofthe Notes to the individual balance sheets of B&BB, VRCC and RBG wasaccording to the flow of funds at the date of the Buyout with the proceeds ofthe Senior Notes necessary to purchase the interests of B&BB recorded onthe balance sheet of B&BB and the remaining proceeds of the Senior Notesand Senior Sub Notes recording on the balance sheet of VRCC.  The consolidated balance sheet of RBGreflects the full obligation of the Notes at September 30, 2005 with an amountrecognized as a deemed distribution to reflect the net obligation of the Notesrecorded on the consolidated balance sheet of RBG at September 30, 2005. TheSenior Notes pay interest semiannually while the Senior Sub Notes accrueinterest in the form of increased accreted value until January 15, 2009,when the carrying book value of the Senior Sub Notes will be$66.0 million.  At that point theSenior Sub Notes will pay interest semiannually on the same dates as the SeniorNotes.

 

The indentures (the “Indentures”)governing the Companies’ Notes contain certain customary financial and othercovenants, which limit the Companies’ ability to incur additional debt.  The Indentures provide that the Companies maynot incur additional indebtedness, other than specified types of indebtedness,unless the Consolidated Coverage Ratio, on a pro-forma basis after theincurrence of the additional indebtedness is at least 2.00 to 1.00. As ofSeptember 30, 2005, the Companies have incurred $0 of additional indebtednessas defined.

 

TheIndentures also contain other covenants which limit the ability of the Issuersand Guarantors, as defined, to pay dividends, redeem stock, or make otherdistributions, make investments, create certain liens, enter into certaintransactions with affiliates, utilize proceeds from asset sales, transfer orsell assets, issue or sell equity interests of subsidiaries and enter intocertain mergers and consolidations, as defined in the Indentures.  There are no restrictions related to thetransfer of funds between the Issuers, Guarantors and their respectivesubsidiaries.  The Issuers were incompliance with these covenants at September 30, 2005.

 

21

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**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**4.             Long-term Debt (continued)**

 

The Senior Notes aresecured by substantially all existing and future assets of the Issuers and theGuarantors, as defined, as well as the equity interest of the Guarantors, theequity interests of the Acquiring Shareholder and his affiliate in theIssuers.  The Guarantors are all thewholly owned subsidiaries of the Issuers. The Senior Notes are subordinated to the security interests of theFoothill Facility.  The Senior Sub Notesare subordinate to the Senior Notes and all other indebtedness of theCompanies.

 

**5.             Gaming Equipment Financing**

 

RBG from time to timeenters into agreements with gaming manufacturers to finance the purchase ofgaming equipment.  Contractual terms ofthe agreements with the gaming manufactures consist of payment terms of lessthan one year to up to three years without interest.  In the event that an agreement with a gamingmanufacturer extends past a year, RBG will impute interest at a rate of 8%.

 

Gaming equipmentfinancing for RBG consists of the following (in thousands): 

 
| ** **                                                                                                                                      | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                      | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| Gaming equipment  financing to purchase 205 games, no payments for one year and monthly  payments of $106 for 24 months beginning February 2006 |       | $                       | 2,274      |                   | $          | — |   |
| Gaming equipment  financing to purchase 68 games, no payments for one year and monthly payments  of $43 for 24 months beginning January 2006    |       | 926                     |       | —                 |       |
| Gaming equipment  financing to purchase 70 games, no payments for one year and monthly payments  of $39 for 24 months beginning March 2006      |       | 822                     |       | —                 |       |
| Gaming equipment  financing to purchase 60 games, monthly payments of $20 for 36 months  beginning April 2005                                   |       | 565                     |       | —                 |       |
| Gaming equipment  financing to purchase 64 games, no payments for one year and monthly payments  of $26 for 24 months beginning February 2006   |       | 566                     |       | —                 |       |
| Gaming equipment  financing to purchase 38 games, monthly payments of $13 for 36 months  beginning April 2005                                   |       | 344                     |       | —                 |       |
| Gaming equipment  financing to purchase 20 games, no payments for one year and monthly payments  of $8 for 24 months beginning January 2006     |       | 171                     |       | 189                    |       |
| Gaming equipment  financing, monthly payments of $3 for 36 months beginning January 2005                                                        |       | 69                      |       | —                 |       |
|                                                                                                                                                 |            |                         |            |                        |            |  |  |

 

22

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**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**5.             Gaming Equipment Financing(continued)**

 
| Gaming equipment  financing with terms of less than 12 months |   | 160    |   | 582    |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|
|                                                          |   | 5,897  |   | 771    |   |
| Less current  portion                                         |   | (2,006 | )      | (582   | )      |
| Gaming equipment  financing, long-term portion                |   | $      | 3,891  |   | $      | 189 |   |
|                                                               |        |        |        |        |        |  |  |

 

**6.             Related Party Transactions**

 

Wingnuts, Inc. is acompany that owns an airplane used by RBG. Wingnuts, Inc. is owned by Mr. Black along with various formerstockholders of the Companies. Wingnuts, Inc. charges RBG for business usage of the airplane usinghourly rates for actual air time.  Totalcharges for the three and nine-month periods ended September 30, 2005 and 2004were $0, $12,000, $0 and $26,000, respectively.

 

MJB Development is a realestate construction company owned by a former shareholder of the Companieswhich provided construction and storage services associated with hotelfacilities of RBG.  When performingconstruction services, the actual costs of construction, overhead charges, anda profit are charged to RBG.  In additionto construction services, MJB Development has also leased containers forstorage to RBG.  Total charges forconstruction and leasing of storage containers totaled $0, $6,000, $2,000 and$11,000 during the three and nine-month periods ended September 30, 2005 and2004, respectively, and are included in the accompanying consolidatedstatements of operations.  In addition,during the nine months ended September 30, 2005, RBG paid MJB Development$68,000 to purchase previously leased storage containers.

 

MDW is a Nevada limited-liabilitycompany in which Mr. Black has an interest. MDW owns a condominium complex located in Mesquite, Nevada. RBG hadentered into a lease agreement with MDW whereby MDW gave the members of theCasaBlanca Vacation Club (the timeshare club associated with the CasaBlanca)the right to use and occupy the timeshare units located on the leaseholdproperty.  The remaining units at thecondominium complex were utilized by the CasaBlanca for hotel and apartmentpurposes.  On December 15, 2004,pursuant to a termination agreement, RBG terminated its lease with MDW.  The rent payments paid by RBG to MDW duringthe three and nine-month periods ended September 30, 2005 and 2004 totaled $0,$185,000, $0 and $554,000, respectively, and are included in the condensedconsolidated statements of operations. RBG did not record any revenue related to the condominium sales duringthe nine months ended September 30, 2005. In addition, pursuant to the leasetermination agreement, RBG owes MDW $86,000 at September 30, 2005 for moneyowed to MDW during the nine months ended September 30, 2005.

 

Virgin RiverFoodmart, Inc. (“Foodmart”), a Nevada corporation, is owned by Mr. Blackand former shareholders of B&BB and VRCC. Participants in RBG’s slot clubprogram are able to redeem their points for gasoline at the Foodmart.  Foodmart charges RBG the retail amount of gaspurchased with player points.  Charges associated with the point redemptionfor gasoline at the Virgin River Food Mart, Inc. were $30,000, $35,000, $106,000and $112,000 for the three and nine-month periods ended September 30, 2005 and2004, respectively.

 

23

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**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**6.             Related Party Transactions(continued)**

 

Black,LoBello & Pitegoff is a law firm managed by the daughter of Mr. Black.The Company retains Black, LoBello & Pitegoff as outside legalcounsel, and has incurred legal fees for legal services in the amount of$60,000, $22,000, $87,000 and $84,000 for the three and nine-month periodsended September 30, 2005 and 2004, respectively.

 

Pursuant to theIndenture, Mr. Black is entitled to a management fee for his management of RBG’sbusiness of up to 5% of EBITDA, as defined. RBG has recorded an estimated liability of $576,000 associated with thismanagement fee at September 30, 2005.

 

Resorts LLC providedmanagement and other services to two related parties that manage and operatethe home owners associations of the vacation intervals sold at theproperty.  Included in the accompanyingcondensed consolidated balance sheet at September 30, 2005 is a receivable for$99,000 related to amounts owed for those services.

 

**7.****                                      Commitmentsand Contingencies**

 

In October 2005, theCompanies entered into an agreement with Wells Fargo Financial Leasing to leasegolf maintenance equipment totaling approximately $1.3 million.  The term of the lease is 36 months at a rateof $29,000.  The Companies are accountingfor the lease as an operating lease.

 

In September 2005, theCompanies entered into an agreement with Agilysys NV, LLC to purchase a newproperty management system for the three properties.  Implementation is expected to begin inDecember 2005 with a completion date expected to occur before the end of thesecond quarter 2006.  The estimated costof this project is approximately $1.7 million.

 

In September 2005, theCompanies entered into an agreement with Infinium Software, Inc. to purchase anew financial management system. Implementation is expected to begin in December 2005 with an completiondate expected to occur before the end of the second quarter in 2006. Theestimated cost of this project is approximately $615,000.

 

In May 2005, theCompanies entered into a lease arrangement with Dell Financial Services tolease desktop computers and servers.  Theterm of the lease is 18 months at a rate of approximately $29,000 a month.  The lease also provides for a renewal periodof an additional 18 months at approximately $6,000 a month.  The Companies are accounting for the lease asan operating lease.

 

**8.**             **Consolidating CondensedFinancial Information**

 

Casablanca Resorts, LLC, Oasis Recreational Properties, Inc., OasisInterval Management, LLC and Oasis Interval Ownership, LLC (together the “GuarantorSubsidiaries”) have fully and unconditionally guaranteed, on a joint and severalbasis, payment of the Notes. Separate condensed financial statement informationfor RBG and its Guarantor Subsidiaries as of September 30, 2005 (unaudited) andDecember 31, 2004 and for the three and nine months ended September 30,2005 and 2004 (in thousands) (unaudited) is as follows:

 

24

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**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**8.            ConsolidatingCondensed Financial Information (continued)**

** **

| ** **                                                   | ** ** | **RBG** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total  Consolidated** | ** ** |
|--------------------------------------------------------------|------------|---------|------------|-----------------------------|------------|------------------|------------|-------------------------|------------|
| **As of  and for the year ended September 30, 2005**         |       |    |       |                        |       |             |       |                    |       |
| **BALANCE  SHEET:**                                          |       |    |       |                        |       |             |       |                    |       |
| Current Assets,  including intercompany accounts             |       | $       | 15,700     |                        | $          | 5,971            |       | $                       | (9,222     | ) | $ | 12,449 |   |
| Property and  Equipment, net                                 |       | 49,585  |       | 27,813                      |       | —           |       | 77,398                  |       |
| Goodwill and  Other Intangibles                              |       | 33,524  |       | —                      |       | —           |       | 33,524                  |       |
| Other assets  (liabilities), including intercompany accounts |       | 17,958  |       | 813                         |       | (16,155          | )          | 2,616                   |       |
|                                                         |       | $       | 116,767    |                        | $          | 34,597           |       | $                       | (25,377    | ) | $ | 125,987 |   |
|                                                         |       |    |       |                        |       |             |       |                    |       |
| Current  Liabilities                                         |       | $       | 10,969     |                        | $          | 16,774           |       | $                       | (9,222     | ) | $ | 18,521 |   |
| Long-term debt,  less current portion                        |       | 170,066 |       | 40                          |       | —           |       | 170,106                 |       |
| Gaming equipment  financing, less current portion            |       | 2,460   |       | 1,431                       |       | —           |       | 3,891                   |       |
| Fair value of  interest rate swaps                           |       | 194     |       | 197                         |       | —           |       | 391                     |       |
| Members’  (Deficit)Equity                               |       | (66,922 | )          | 16,155                      |       | (16,155          | )          | (66,922                 | )          |
|                                                         |       | $       | 116,767    |                        | $          | 34,597           |       | $                       | (25,377    | ) | $ | 125,987 |   |
|                                                         |       |    |       |                        |       |             |       |                    |       |
| **As of  and for the year ended December 31, 2004**          |       |    |       |                        |       |             |       |                    |       |
| **BALANCE  SHEET:**                                          |       |    |       |                        |       |             |       |                    |       |
| Current Assets,  including intercompany accounts             |       | $       | 17,596     |                        | $          | 5,982            |       | $                       | (9,439     | ) | $ | 14,139 |   |
| Property and  Equipment, net                                 |       | 43,884  |       | 25,253                      |       | —           |       | 69,137                  |       |
| Goodwill and  Other Intangibles                              |       | 34,084  |       | —                      |       | —           |       | 34,084                  |       |
| Other Assets  (liabilities), including intercompany accounts |       | 16,305  |       | 755                         |       | (14,174          | )          | 2,886                   |       |
|                                                         |       | $       | 111,869    |                        | $          | 31,990           |       | $                       | (23,613    | ) | $ | 120,246 |   |
|                                                              |            |         |            |                             |            |                  |            |                         |            |  |  |  |  |  |  |  |  |  |

 

25

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**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**8.            ConsolidatingCondensed Financial Information (continued)**

** **

| ** **                                          | ** ** | **RBG**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total  Consolidated** | ** ** |
|-----------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------|------------|-------------------------|------------|
| **As of  and for the year ended December 31, 2004** |       |       |       |                        |       |             |       |                    |       |
| **BALANCE  SHEET:**                                 |       |       |       |                        |       |             |       |                    |       |
|                                                |       |       |       |                        |       |             |       |                    |       |
| Current  Liabilities                                |       | $          | 8,353      |                        | $          | 16,518           |       | $                       | (9,439     | ) | $ | 15,432 |   |
| Long-term debt,  less current portion               |       | 165,232    |       | 356                         |       | —           |       | 165,588                 |       |
|                                                |       |       |       |                        |       |             |       |                    |       |
| Gaming equipment  financing, less current portion   |       | —     |       | 189                         |       | —           |       | 189                     |       |
| Fair value of  interest rate swaps                  |       | 740        |       | 753                         |       | —           |       | 1,493                   |       |
| Members’  (Deficit)Equity                      |       | (62,456    | )          | 14,174                      |       | (14,174          | )          | (62,456                 | )          |
|                                                |       | $          | 111,869    |                        | $          | 31,990           |       | $                       | (23,613    | ) | $ | 120,246 |   |
|                                                |       |       |       |                        |       |             |       |                    |       |
| **For the  three-months ended September 30, 2005**  | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **       | ** ** | ** **              | ** ** |
| **STATEMENT  OF OPERATIONS**                        |       |       |       |                        |       |             |       |                    |       |
| Net Revenues                                        |       | $          | 13,446     |                        | $          | 11,794           |       | $                       | —     |   | $ | 25,240 |   |
| Operating Expenses:                                 |       |       |       |                        |       |             |       |                    |       |
| Casino                                              |       | 4,166      |       | 3,546                       |       | —           |       | 7,712                   |       |
| Food and  beverage                                  |       | 2,290      |       | 2,299                       |       | —           |       | 4,589                   |       |
| Hotel                                               |       | 677        |       | 869                         |       | —           |       | 1,546                   |       |
| Other                                               |       | 2,098      |       | 1,350                       |       | —           |       | 3,448                   |       |
| General and  administrative                         |       | 4,060      |       | 3,810                       |       | —           |       | 7,870                   |       |
| Depreciation and  amortization                      |       | 1,172      |       | 822                         |       | —           |       | 1,994                   |       |
| Loss on sale of  assets                             |       | 16         |       | 63                          |       | —           |       | 79                      |       |
|                                                |       | 14,479     |       | 12,759                      |       | —           |       | 27,238                  |       |
| Operating income                                    |       | (1,033     | )          | (965                        | )          | —           |       | (1,998                  | )          |
| Income from  investment in subsidiary               |       | (990       | )          | —                      |       | 990              |       | —                  |       |
| Change in fair  value of swap                       |       | 77         |       | 185                         |       | —           |       | 262                     |       |
| Other                                               |       | (113       | )          | —                      |       | —           |       | (113                    | )          |
| Interest expense                                    |       | (147       | )          | (210                        | )          | —           |       | (357                    | )          |
| Total other  income (expense)                       |       | (1,173     | )          | (25                         | )          | 990              |       | (208                    | )          |
| Net (loss)  income                                  |       | $          | (2,206     | )                           | $          | (990             | )          | $                       | 990        |   | $ | (2,206 | ) |
|                                                     |            |            |            |                             |            |                  |            |                         |            |  |  |  |  |  |  |  |

 

26

----

 

**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**8.            ConsolidatingCondensed Financial Information (continued)**

** **

| **For the  three-months ended September 30, 2004** |       |       |       |       |       |       |       |       |       |
|----------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **STATEMENT  OF OPERATIONS**                       |       |       |       |       |       |       |       |       |       |
| Net Revenues                                       |       | $          | 13,565     |       | $          | 11,463     |       | $          | —     |   | $ | 25,028 |   |
| Operating  Expenses:                               |       |       |       |       |       |       |       |       |       |
| Casino                                             |       | 3,605      |       | 3,415      |       | —     |       | 7,020      |       |
| Food and  beverage                                 |       | 2,444      |       | 2,198      |       | —     |       | 4,642      |       |
| Hotel                                              |       | 782        |       | 838        |       | —     |       | 1,620      |       |
| Other                                              |       | 2,167      |       | 1,314      |       | —     |       | 3,481      |       |
| General and  administrative                        |       | 3,182      |       | 3,569      |       | —     |       | 6,751      |       |
| Depreciation and  amortization                     |       | 643        |       | 755        |       | —     |       | 1,398      |       |
| Loss on sale of  assets                            |       | 2          |       | —     |       | —     |       | 2          |       |
|                                               |       | 12,825     |       | 12,089     |       | —     |       | 24,914     |       |
| Operating income                                   |       | 740        |       | (626       | )          | —     |       | 114        |       |
| Income from  investment in subsidiary              |       | (1,980     | )          | —     |       | 1,980      |       | —     |       |
| Change in fair  value of swap                      |       | (70        | )          | (171       | )          | —     |       | (241       | )          |
| Related party  interest income (expense)           |       | 133        |       | (143       | )          | —     |       | (10        | )          |
| Interest expense                                   |       | (474       | )          | (1,040     | )          | —     |       | (1,514     | )          |
|                                               |       |       |       |       |       |       |       |       |       |
| Total other  income (expense)                      |       | (2,391     | )          | (1,354     | )          | 1,980      |       | (1,765     | )          |
| Net (loss)  income                                 |       | $          | (1,651     | )          | $          | (1,980     | )          | $          | 1,980      |   | $ | (1,651 | ) |
|                                               |       |       |       |       |       |       |       |       |       |
| **For the  nine months ended September 30, 2005**  |       |       |       |       |       |       |       |       |       |
| **STATEMENT  OF OPERATIONS**                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net Revenues                                       |       | $          | 43,292     |       | $          | 40,932     |       | $          | —     |   | $ | 84,224 |   |
| Operating  Expenses:                               |       |       |       |       |       |       |       |       |       |
| Casino                                             |       | 12,295     |       | 10,435     |       | —     |       | 22,730     |       |
| Food and  beverage                                 |       | 7,411      |       | 6,996      |       | —     |       | 14,407     |       |
| Hotel                                              |       | 2,107      |       | 2,575      |       | —     |       | 4,682      |       |
| Other                                              |       | 6,137      |       | 4,680      |       | —     |       | 10,817     |       |
| General and  administrative                        |       | 11,173     |       | 11,009     |       | —     |       | 22,182     |       |
| Depreciation and  amortization                     |       | 3,376      |       | 2,483      |       | —     |       | 5,859      |       |
| Loss on sale of  assets                            |       | 33         |       | 696        |       | —     |       | 729        |       |
|                                               |       | 42,532     |       | 38,874     |       | —     |       | 81,406     |       |
| Operating income                                   |       | 760        |       | 2,058      |       | —     |       | 2,818      |       |
| Income from  investment in subsidiary              |       | 1,981      |       | —     |       | (1,981     | )          | —     |       |
| Change in fair  value of swap                      |       | 233        |       | 556        |       | —     |       | 789        |       |
| Other                                              |       | (288       | )          | —     |       | —     |       | (288       | )          |
| Interest expense                                   |       | (415       | )          | (633       | )          | —     |       | (1,048     | )          |
| Total other  income (expense)                      |       | 1,511      |       | (77        | )          | (1,981     | )          | (547       | )          |
| Net income                                         |       | $          | 2,271      |       | $          | 1,981      |       | $          | (1,981     | ) | $ | 2,271 |   |
|                                                    |            |            |            |            |            |            |            |            |            |  |  |  |  |  |  |  |

 

27

----

 

**RGB, LLC**

 

**Notes to Condensed ConsolidatedFinancial Statements (unaudited) (continued)**

 

**8.            ConsolidatingCondensed Financial Information (continued)**

 

| **For the  nine months ended September 30, 2005** |   |   |   |   |   |   |   |   |   |
|---------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| **STATEMENT  OF CASH FLOWS**                      |   |   |   |   |   |   |   |   |   |
| Net cash  provided by operating activities        |   | $      | 4,196  |   | $      | 5,261  |   | $      | — |   | $ | 9,457 |   |
| Net cash used in  investing activities            |   | (4,731 | )      | (3,764 | )      | — |   | (8,495 | )      |
| Net cash used in  financing activities            |   | (1,384 | )      | (1,629 | )      | — |   | (3,013 | )      |
|                                              |   |   |   |   |   |   |   |   |   |
| **For the  nine months ended September 30, 2004** |   |   |   |   |   |   |   |   |   |
| **STATEMENT  OF OPERATIONS**                      |   |   |   |   |   |   |   |   |   |
| Net Revenues                                      |   | $      | 43,478 |   | $      | 39,444 |   | $      | — |   | $ | 82,922 |   |
| Operating  Expenses:                              |   |   |   |   |   |   |   |   |   |
| Casino                                            |   | 11,154 |   | 10,410 |   | — |   | 21,564 |   |
| Food and  beverage                                |   | 7,391  |   | 6,850  |   | — |   | 14,241 |   |
| Hotel                                             |   | 2,408  |   | 2,612  |   | — |   | 5,020  |   |
| Other                                             |   | 6,218  |   | 4,744  |   | — |   | 10,962 |   |
| General and  administrative                       |   | 10,040 |   | 11,012 |   | — |   | 21,052 |   |
| Depreciation and  amortization                    |   | 2,074  |   | 2,468  |   | — |   | 4,542  |   |
| Loss on sale of  assets                           |   | 22     |   | — |   | — |   | 22     |   |
|                                              |   | 39,307 |   | 38,096 |   | — |   | 77,403 |   |
|                                              |   |   |   |   |   |   |   |   |   |
| Operating income                                  |   | 4,171  |   | 1,348  |   | — |   | 5,519  |   |
| Loss from  investment in subsidiary               |   | (812   | )      | — |   | 812    |   | — |   |
| Change in fair  value of swap                     |   | 569    |   | 1,352  |   | — |   | 1,921  |   |
| Related party  interest income (expense)          |   | 388    |   | (429   | )      | — |   | (41    | )      |
| Interest expense                                  |   | (1,429 | )      | (3,083 | )      | — |   | (4,512 | )      |
| Total other  income (expense)                     |   | (1,284 | )      | (2,160 | )      | 812    |   | (2,632 | )      |
| Net income  (loss)                                |   | $      | 2,887  |   | $      | (812   | )      | $      | 812    |   | $ | 2,887 |   |
|                                              |   |   |   |   |   |   |   |   |   |
| **STATEMENT  OF CASH FLOWS**                      |   |   |   |   |   |   |   |   |   |
| Net cash  provided by operating activities        |   | $      | 4,371  |   | $      | 1,932  |   | $      | — |   | $ | 6,303 |   |
| Net cash used in  investing activities            |   | (644   | )      | (980   | )      | — |   | (1,624 | )      |
| Net cash used in  financing activities            |   | (3,011 | )      | (1,620 | )      | — |   | (4,631 | )      |
|                                                   |        |        |        |        |        |        |        |        |        |  |  |  |  |  |  |  |

 

28

----

 

**B &BB, Inc. (doing business as Virgin River Hotel/Casino/Bingo)**

 

### **CondensedBalance Sheets**

### **September 30, 2005 and December 31, 2004**

**(inthousands)**

 
| ** **                                                                                                  | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                  | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| **Assets**                                                                                                  |       |                    |       |                   |       |
| Current assets:                                                                                             |       |                    |       |                   |       |
| Cash and cash  equivalents                                                                                  |       | $                       | 5,338      |                   | $          | 5,918 |   |
| Accounts  receivable, net                                                                                   |       | 144                     |       | 255                    |       |
| Related company  receivables                                                                                |       | 1,259                   |       | 758                    |       |
| Inventories                                                                                                 |       | 390                     |       | 397                    |       |
| Prepaid expenses                                                                                            |       | 1,517                   |       | 1,207                  |       |
| Total current  assets                                                                                       |       | 8,648                   |       | 8,535                  |       |
| Property and  equipment, net                                                                                |       | 9,386                   |       | 5,242                  |       |
| Goodwill and  other intangible assets, net                                                                  |       | 12,874                  |       | 13,453                 |       |
| Deferred  financing fees                                                                                    |       | 1,143                   |       | 1,244                  |       |
| Other assets                                                                                                |       | 14                      |       | 12                     |       |
| Total assets                                                                                                |       | $                       | 32,065     |                   | $          | 28,486 |   |
|                                                                                                        |       |                    |       |                   |       |
| **Liabilities  and Stockholder’s Deficit**                                                             |       |                    |       |                   |       |
| Current  liabilities:                                                                                       |       |                    |       |                   |       |
| Current portion of  long-term debt                                                                          |       | $                       | 222        |                   | $          | 189 |   |
| Current portion  of gaming equipment financing                                                              |       | 1,237                   |       | 280                    |       |
| Accounts payable                                                                                            |       | 1,038                   |       | 934                    |       |
| Accrued  liabilities                                                                                        |       | 6,481                   |       | 3,505                  |       |
| Related company  payable                                                                                    |       | 15                      |       | 1,250                  |       |
| Total current  liabilities                                                                                  |       | 8,993                   |       | 6,158                  |       |
| Gaming equipment  financing, less current portion                                                           |       | 2,431                   |       | 191                    |       |
| Long-term debt,  less current portion                                                                       |       | 170,065                 |       | 165,242                |       |
| Fair value of  interest rate swaps                                                                          |       | 391                     |       | 1,493                  |       |
| Commitments and  contingencies                                                                              |       |                    |       |                   |       |
| Stockholder’s  deficit:                                                                                |       |                    |       |                   |       |
| Common stock, no  par value; authorized 2,500 shares, 100 shares issued and 88 shares outstanding |       | —                  |       | —                 |       |
| Retained  earnings                                                                                          |       | 2,631                   |       | 2,330                  |       |
| Treasury stock,  at cost                                                                                    |       | (700                    | )          | (700                   | )          |
| Deemed  Distribution                                                                                        |       | (151,746                | )          | (146,228               | )          |
| Total  stockholder’s deficit                                                                           |       | (149,815                | )          | (144,598               | )          |
| Total  liabilities and stockholder’s deficit                                                           |       | $                       | 32,065     |                   | $          | 28,486 |   |

 

The accompanying notes arean integral part of these condensed financial statements.

 

29

----

 

**B & BB, Inc. (doing businessas Virgin River Hotel/Casino/Bingo)**

 

### **Condensed Statementsof Operations (unaudited)**

### **For the Three Months and Nine MonthsEnded September 30, 2005 and 2004**

**(inthousands)**

** **
| ** **                          | ** ** | **Three months ended**  | ** ** | **Nine Months ended**   | ** ** |
|-------------------------------------|------------|-------------------------|------------|-------------------------|------------|
| ** **                          | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                |       |                    |       |                    |       |   |   |   |   |
| Revenues                            |       |                    |       |                    |       |   |   |   |   |
| Casino                              |       | $                       | 8,390      |                    | $          | 7,958 |   | $ | 25,935 |   | $ | 23,839 |   |
| Food and  beverage                  |       | 2,757                   |       | 2,769                   |       | 8,752 |   | 8,517 |   |
| Hotel                               |       | 1,789                   |       | 1,612                   |       | 6,444 |   | 5,669 |   |
| Other                               |       | 709                     |       | 699                     |       | 2,107 |   | 2,105 |   |
| Total revenues                      |       | 13,645                  |       | 13,038                  |       | 43,238 |   | 40,130 |   |
| Less—promotional  allowances   |       | (1,646                  | )          | (1,745                  | )          | (5,547 | ) | (5,315 | ) |
| Net revenues                        |       | 11,999                  |       | 11,293                  |       | 37,691 |   | 34,815 |   |
| Operating  expenses:                |       |                    |       |                    |       |   |   |   |   |
| Casino                              |       | 3,450                   |       | 3,605                   |       | 10,884 |   | 10,826 |   |
| Food and  beverage                  |       | 1,852                   |       | 1,694                   |       | 5,509 |   | 5,239 |   |
| Hotel                               |       | 590                     |       | 720                     |       | 1,969 |   | 2,213 |   |
| Other                               |       | 350                     |       | 365                     |       | 1,100 |   | 1,087 |   |
| Related company  rent               |       | 1,575                   |       | 1,575                   |       | 4,725 |   | 4,725 |   |
| General and  administrative         |       | 3,506                   |       | 2,997                   |       | 9,506 |   | 8,306 |   |
| Depreciation and  amortization      |       | 629                     |       | 335                     |       | 1,988 |   | 1,020 |   |
| Gain on sale and disposal of assets |       | —                  |       | (72                     | )          | (43 | ) | (72 | ) |
| Total operating  expenses           |       | 11,952                  |       | 11,219                  |       | 35,638 |   | 33,344 |   |
| Operating income                    |       | 47                      |       | 74                      |       | 2,053 |   | 1,471 |   |
| Other income  (expense):            |       |                    |       |                    |       |   |   |   |   |
| Interest expense                    |       | (608                    | )          | (38                     | )          | (1,752 | ) | (27 | ) |
| Related party interest income       |       | —                  |       | 75                      |       | — |   | 75 |   |
| Other (expense)  income             |       | (608                    | )          | 37                      |       | (1,752 | ) | 48 |   |
| Net (loss)  income                  |       | $                       | (561       | )                       | $          | 111 |   | $ | 301 |   | $ | 1,519 |   |

 

The accompanying notes are an integral partof these condensed financial statements.

 

30

----

 

**B & BB, Inc. (doing businessas Virgin River Hotel/Casino/Bingo)**

 

### **Condensed Statementsof Cash Flows (unaudited)**

### **For the Nine Months Ended September 30,2005 and 2004**

**(inthousands)**

** **
| ** **                                                                         | ** ** | **Nine months ended**   | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                         | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                                                               |       |                    |       |   |   |
| Cash flows from  operating activities:                                             |       |                    |       |   |   |
| Net income                                                                         |       | $                       | 301        |   | $ | 1,519 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                    |       |   |   |
| Depreciation and  amortization                                                     |       | 1,988                   |       | 1,020 |   |
| Gain on sale and  disposal of assets                                               |       | (43                     | )          | (72 | ) |
| Amortization of  deferred financing fees                                           |       | 137                     |       | — |   |
| Interest expense  on gaming equipment financing                                    |       | 172                     |       | — |   |
| Change in  operating assets and liabilities:                                       |       |                    |       |   |   |
| Accounts and  related company receivables, net                                     |       | (390                    | )          | (680 | ) |
| Inventories                                                                        |       | 7                       |       | 7 |   |
| Prepaid expenses                                                                   |       | (310                    | )          | (209 | ) |
| Accounts payable  and accrued liabilities                                          |       | 220                     |       | 283 |   |
| Net cash  provided by operating activities                                         |       | 2,082                   |       | 1,868 |   |
|                                                                               |       |                    |       |   |   |
| Cash flows from  investing activities:                                             |       |                    |       |   |   |
| Proceeds  received from sale of assets                                             |       | 110                     |       | — |   |
| Capital  expenditures                                                              |       | (2,209                  | )          | (914 | ) |
| Net cash used in  investing activities                                             |       | (2,099                  | )          | (914 | ) |
|                                                                               |       |                    |       |   |   |
| Cash flows from  financing activities:                                             |       |                    |       |   |   |
| Payment of long-term  debt                                                         |       | (140                    | )          | (131 | ) |
| Payment on gaming  equipment financing                                             |       | (381                    | )          | (565 | ) |
| Payment of  financing fees                                                         |       | (37                     | )          | — |   |
| Change in other  assets                                                            |       | (5                      | )          | 18 |   |
| Net cash used in  financing activities                                             |       | (563                    | )          | (678 | ) |
| Net (decrease) increase  in cash and cash equivalents                              |       | (580                    | )          | 276 |   |
| Cash and cash  equivalents at beginning of year                                    |       | 5,918                   |       | 4,058 |   |
| Cash and cash  equivalents at end of period                                        |       | $                       | 5,338      |   | $ | 4,334 |   |

 

The accompanying notes are an integral partof these condensed financial statements.

 

31

----

 

**B & BB, Inc. (doing businessas Virgin River Hotel/Casino/Bingo)**

 

**Condensed Statements of Cash Flows (unaudited)(continued)**

**For theNine Months Ended September 30, 2005 and 2004**

**(inthousands)**

** **
| ** **                                             | ** ** | **Nine months ended**   | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|
| ** **                                             | ** ** | **September 30,  2005** | ** ** | **September 30,  2004** | ** ** |
|                                                   |       |                    |       |   |   |
| Supplemental cash flow disclosure:                     |       |                    |       |   |   |
|                                                   |       |                    |       |   |   |
| Cash paid for  interest                                |       | $                       | 1,056      |   | $ | 27 |   |
|                                                   |       |                    |       |   |   |
| Acquisition of  assets with gaming equipment financing |       | $                       | 3,430      |   | $ | 69 |   |

 

The accompanying notes are an integral partof these condensed financial statements.

 

32

----

 

**B & BB, Inc. (doing businessas Virgin River Hotel/Casino/Bingo)**

 

**Notes to Condensed FinancialStatements (unaudited)September 30, 2005**

 

**1.             Basis of Presentation andBackground**

 

B & B B,Inc. (the “Company” or “B&BB”) is a Nevada corporation formed onDecember 7, 1989 for the purpose of operating the Virgin RiverHotel/Casino/Bingo (“Virgin River”) located in Mesquite, Nevada. The Company’sshares are 93.28% owned by Randy Black, Sr. (“Mr. Black”) and his threesiblings. The hotel portion of the facility commenced operations onJune 1, 1990, and the casino portion commenced operations onSeptember 1, 1990. The land and buildings are owned by Virgin River CasinoCorporation (“VRCC”), a Nevada corporation which is 100% owned by Mr. Black andhis three siblings, and leased to B&BB. Certain personal property includingfurniture and fixtures, leasehold improvements within the casino, and gamingequipment are owned by B&BB.

 

On December 20,2004, the Company, VRCC and its subsidiary RBG, LLC (“RBG”) and its subsidiaryCasablanca Resorts, LLC (“Resorts LLC”) (collectively, the “Companies”),entered into a series of transactions whereby they collectively co-issued$125.0 million aggregate principal amount of Senior Secured Notes due 2012and $66.0 million aggregate principal amount at maturity($39.9 million in gross proceeds) of Senior Subordinated Notes due 2013and received a $16.0 million equity contribution from Mr. Black and R. Black,Inc. The Companies used the proceeds from the above offering to purchase theinterests held by Mr. Black’s siblings and unaffiliated shareholders(collectively known as the “Buyout”) for $101.4 million pursuant to theAgreement for Purchase and Sale or Redemption of Equity Interests (“Agreementfor Purchase of Equity Interests”) between James A. Black GamingProperties Trust, Gary W. Black Gaming Properties Trust, Michael T.Black Gaming Properties Trust, Jorco, Inc., Marcus A. Hall, James Ritchieand Barry Moore as Sellers and Robert R. Black, VRCC and B&BB asPurchasers (see Note 3).  As a result ofthe Buyout, Mr. Black obtained the remaining 80.97% interest in B&BB and75.0% interest in VRCC. VRCC along with R. Black, Inc. obtained 32.69% ofthe membership interest in RBG that was being purchased. The remaining proceedswere utilized to repay $64.0 million owed under the Credit Agreement bythe Companies and the $2.0 million promissory note payable to a sellingshareholder by VRCC. As a result of these transactions, Mr. Black and R. Black,Inc. control VRCC, RBG and B&BB. In addition, VRCC, RBG, and B&BB areco-issuers on the Companies’ Senior Secured and Senior Subordinated Notes andall three entities are jointly managed and share resources (see Note 4) .

 

***InterimFinancial Statements***– The accompanying unauditedcondensed financial statements for the three and nine-month periods endedSeptember 30, 2005 and 2004 are unaudited. In the opinion of management, all adjustments (which include normal recurringadjustments) necessary for a fair presentation of the Company’s financialposition and results of operations for such periods, have been included.  The accompanying unaudited condensedfinancial statements should be read in conjunction with the Company’s auditedfinancial statements for the year ended December 31, 2004 included in theCompany’s registration statement filed on Form S-4/A on September 22,2005.  The results for the three andnine-month periods ended September 30, 2005 are not necessarily indicative of theresults that may be expected for the year ending December 31, 2005, or for anyother period.

 

33

----

 

**B & BB, Inc. (doing businessas Virgin River Hotel/Casino/Bingo)**

 

**Notes to Condensed Financial Statements (unaudited) (continued)**

 

**2.             Property and Equipment**

 

Property and equipmentconsists of the following (in thousands):

 

| ** **                                           | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                           | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| Buildings                                            |       | 285                     |       | 285                    |       |
| Land and  leasehold improvements                     |       | 3,741                   |       | 3,424                  |       |
| Furniture,  fixtures and equipment                   |       | 24,015                  |       | 20,984                 |       |
| Construction in  progress                            |       | 546                     |       | —                 |       |
|                                                 |       | 28,587                  |       | 24,693                 |       |
| Less—accumulated  depreciation and amortization |       | (19,201                 | )          | (19,451                | )          |
| Property and  equipment, net                         |       | $                       | 9,386      |                   | $          | 5,242 |   |
|                                                      |            |                         |            |                        |            |  |  |

 

**3.             Purchase of Equity Interests**

 

On December 20,2004, pursuant to the Agreement for Purchase of Equity Interests described inNote 1, Mr. Black and R. Black, Inc. acquired certain interests inB&BB, VRCC and RBG for $101.4 million. In addition, the Companiesincurred approximately $10.3 million in capitalized deferred financingfees related to the issuance of the Notes, $1.3 million of which was recordedon the balance sheet of the Company. Management valued the assets acquired inthe transaction as follows.  Currentassets and liabilities were recorded at book value, which approximated theirestimated market values at the date of acquisition.  Land, buildings and building improvementswere valued based upon comparable values of recent sales in the Mesquite,Nevada market and 3rd party market valuations of comparable assetsin Mesquite, Nevada.  For equipment,management recorded these assets at book value, which was deemed to be fairvalue, considering the relative age and working condition of theequipment.  Intangible assets, representingthe Companies’ customer list and slot club program, were recorded at fairvalue, which was calculated based upon comparable customer lists and slotprograms with other casinos operating in the Las Vegas and surroundingmarket.  In accordance with theprovisions of SFAS No. 141, the remainder of the purchase price was allocatedto goodwill. Management believes that the goodwill arose from the Companies’dominance in and the growing Mesquite, Nevada market, the value of the existingworkforce and existing accounting and operating infrastructure.

 

Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed of the Companies at the date of acquisition. The purchaseprice allocation is in process and will be completed within one year of theacquisition; thus, the allocation of the purchase price is subject torefinement. 

 

| ** **                | ** ** | **At  December 20,  2004** | ** ** |
|---------------------------|------------|----------------------------|------------|
| Current assets            |       | $                          | 15,600     |   |
| Property and  equipment   |       | 100,200                    |       |
| Other  non-current assets |       | 3,300                      |       |
| Intangibles               |       | 4,600                      |       |
|                           |            |                            |            |  |

 

34

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**B & BB, Inc. (doing businessas Virgin River Hotel/Casino/Bingo)**

 

**Notes to Condensed Financial Statements (unaudited) (continued)**

 

**3.             Purchase of Equity Interests (continued)**

** **

| ** **                 | ** ** | **At  December 20,  2004** | ** ** |
|----------------------------|------------|----------------------------|------------|
| Goodwill                   |       | 43,000                     |       |
| Total assets  acquired     |       | 166,700                    |       |
| Current  liabilities       |       | 12,800                     |       |
| Long-term  liabilities     |       | 1,200                      |       |
| Long-term debt  assumed    |       | 53,300                     |       |
| Total  liabilities assumed |       | 67,300                     |       |
|                       |       |                       |       |
| Net assets  acquired       |       | $                          | 99,400     |   |
|                            |            |                            |            |  |

 

Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed related to the Company at the date of acquisition.  

 

| ** **                 | ** ** | **At  December 20,  2004** | ** ** |
|----------------------------|------------|----------------------------|------------|
|                       |       |                       |       |
| Current assets             |       | $                          | 6,200      |   |
| Property and equipment     |       | 4,200                      |       |
| Intangibles                |       | 2,300                      |       |
| Goodwill                   |       | 11,100                     |       |
| Total assets  acquired     |       | 23,800                     |       |
| Current liabilities        |       | 3,700                      |       |
| Long-term debt assumed     |       | 100                        |       |
| Total  liabilities assumed |       | 3,800                      |       |
|                       |       |                       |       |
| Net assets  acquired       |       | $                          | 20,000     |   |

** **

**4.             Long-term Debt**

 

Long-term debt consistsof the following (in thousands): 

 
| ** **                                                                                                                                                                                                                                                                                  | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                  | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| 9% senior  secured notes, interest payable semiannually, principal due January 15, 2012,  callable January 15, 2009                                                                                                                                                                         |       | $                       | 125,000    |                   | $          | 125,000 |   |
| 12 3⁄4% senior  subordinated notes, non-cash interest will accrue at an annual rate of 12 3⁄4%  in the form of increase accreted value until January 15, 2009. Beginning  January 15, 2009, interest payable semiannually, principal due January 15,  2013, callable January 15, 2009 |       | 43,788                  |       | 40,068                 |       |
| Revolving credit  facility totaling $15 million with Wells Fargo Foothill, at a margin above  prime or LIBOR, as defined; collateralized by substantially all real and  personal property, leases, intangibles and other interests of the Companies  as defined.                            |       | 1,277                   |       | —                 |       |
|                                                                                                                                                                                                                                                                                             |            |                         |            |                        |            |  |  |

 

35

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**B & BB, Inc. (doing businessas Virgin River Hotel/Casino/Bingo)**

 

**Notes to Condensed Financial Statements (unaudited) (continued)**

 

**4.             Long-term Debt (continued)**

** **
| ** **                                                                                                                                          | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                          | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| Promissory note  payable to Wells Fargo Equipment Finance, Inc. payable in monthly  installments of $17 at an interest rate of 6.97%, due June 2006 |       | 222                     |       | 363                    |       |
|                                                                                                                                                |       | 170,287                 |       | 165,431                |       |
| Less—current  portion                                                                                                                          |       | (222                    | )          | (189                   | )          |
| Total long-term  debt                                                                                                                               |       | $                       | 170,065    |                   | $          | 165,242 |   |
|                                                                                                                                                     |            |                         |            |                        |            |  |  |

* *

***New Revolving Facility***

 

The Wells Fargo Foothillcredit facility (“Foothill Facility’) is secured by substantially all theassets of the Companies. During the life of the Foothill Facility, theCompanies may borrow up to the lesser of (1) $15.0 million less theLetter of Credit Usage, as defined, less the Bank Product Reserve, as defined,or (2) the Borrowing Base, as defined, less the Letter of CreditUsage.  At September 30, 2005, the Bank ProductReserve was approximately $359,000 and is based on the fair market value atSeptember 30, 2005 of the interest rate swap owed to Wells Fargo Foothill,Inc.  Accordingly, the availability underthe Foothill Facility at September 30, 2005 was limited to $13.4 million.

 

Under the terms of theFoothill Facility, interest accrues on the outstanding principal balance atLIBOR plus the LIBOR Rate Margin, which is 3.5%, or the Base Rate, as defined,plus the Base Rate Margin, which is 2%. LIBOR was approximately 4.4% at September 30, 2005.  The Foothill Facility also contains certainfinancial and other covenants.  Theseinclude a minimum trailing twelve-month Earnings before Interest, Taxes,Depreciation and Amortization (“EBITDA”) of $15,000,000 for the Companies andlimitations on other indebtedness and capital expenditures, as defined.  The Companies were in compliance with thesecovenants at September 30, 2005.

 

The outstanding balanceon the Foothill Facility is a joint and several obligation of the Companies.The condensed balance sheet of the Company reflects the full obligation of theFoothill Facility at September 30, 2005 with the amount recorded on theconsolidated balance sheet of VRCC recognized as a deemed distribution toreflect the net obligation of the Foothill Facility on the balance sheet of theCompany at September 30, 2005. At September 30, 2005, the net amount of theFoothill Facility recorded on the Company’s balance sheet is $0.

 

***SeniorSecured and Senior Subordinated Notes***

 

In December 2004, as partof the Buyout, the VRCC, RBG and B&BB (the “Issuers”) issued$125.0 million of 9% senior secured notes (“Senior Notes”) due onJanuary 15, 2012 and $39.9 million in gross proceeds of 123⁄4% seniorsubordinated notes (“Senior Sub Notes”) due January 15, 2013 (collectivelythe “Notes”).  The Notes are joint andseveral obligations of the Issuers and all current and future subsidiaries ofthe Issuers.  Although the Notes arejoint and several obligations of the Issuers, the allocation of the balance ofthe Notes to the individual balance sheets of B&BB, VRCC and RBG wasaccording to the flow of funds at the date of the Buyout with the proceeds ofthe Senior Notes necessary to purchase the interests of B&BB recorded onthe balance sheet of B&BB and the remaining proceeds of the Senior Notesand Senior Sub Notes recording on the balance sheet of VRCC.  The condensed balance

 

36

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**B & BB, Inc. (doing business as Virgin River Hotel/Casino/Bingo)**

 

**Notes to Condensed Financial Statements (unaudited) (continued)**

 

**4.             Long-term Debt (continued)**

 

sheet of the Companyreflects the full obligation of the Notes at September 30, 2005 with an amountthat is recorded on the consolidated balance sheet of VRCC recognized as adeemed distribution to reflect the net obligation of the Notes recorded on thebalance sheet of the Company at September 30, 2005. At September 30, 2005, thenet amount of the Notes recorded on the Company’s balance sheet is $20.6million.

 

The Senior Notes payinterest semiannually while the Senior Sub Notes accrue interest in the form ofincreased accreted value until January 15, 2009, when the carrying bookvalue of the Senior Sub Notes will be $66.0 million.  At that point the Senior Sub Notes will payinterest semiannually on the same dates as the Senior Notes.

 

The indentures (the “Indentures”)governing the Companies’ Notes contain certain customary financial and othercovenants, which limit the Companies’ ability to incur additional debt.  The Indentures provide that the Companies maynot incur additional indebtedness, other than specified types of indebtedness,unless the Consolidated Coverage Ratio, on a pro-forma basis after theincurrence of the additional indebtedness is at least 2.00 to 1.00. As ofSeptember 30, 2005, the Companies have incurred $0 of additional indebtednessas defined.

 

TheIndentures also contain other covenants which limit the ability of the Issuersand Guarantors, as defined, to pay dividends, redeem stock, or make otherdistributions, make investments, create certain liens, enter into certaintransactions with affiliates, utilize proceeds from asset sales, transfer orsell assets, issue or sell equity interests of subsidiaries and enter intocertain mergers and consolidations, as defined in the Indentures.  There are no restrictions related to thetransfer of funds between the Issuers, Guarantors and their respectivesubsidiaries.  The Issuers were incompliance with these covenants at September 30, 2005.

 

The Senior Notes aresecured by substantially all existing and future assets of the Issuers and theGuarantors, as defined, as well as the equity interest of the Guarantors, theequity interests of the Acquiring Shareholder and his affiliate in theIssuers.  The Guarantors are all thewholly owned subsidiaries of the Issuers. The Senior Notes are subordinated to the security interests of theFoothill Facility.  The Senior Sub Notesare subordinate to the Senior Notes and all other indebtedness of theCompanies.

 

**5.             Gaming Equipment Financing**

 

The Company from time totime enters into agreements with gaming manufacturers to finance the purchaseof gaming equipment.  Contractual termsof the agreements with the gaming manufactures consist of payment terms of lessthan one year to up to three years without interest.  In the event that an agreement with a gamingmanufacturer extends past a year, the Company will impute interest at a rate of8%.

 

37

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**B & BB, Inc. (doing businessas Virgin River Hotel/Casino/Bingo)**

 

**Notes to Condensed Financial Statements (unaudited) (continued)**

 

**5.****                                     ****Gaming Equipment Financing(continued)**

 

Gaming equipmentfinancing consists of the following (in thousands): 

 
| ** **                                                                                                                                      | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                                                                                                                                      | ** ** | **(unaudited)**         | ** ** | ** **             | ** ** |
| Gaming equipment  financing to purchase 273 games, no payments for one year and monthly  payments of $145 for 24 months beginning February 2006 |       | $                       | 3,119      |                   | $          | — |   |
| Gaming equipment  financing to purchase 20 games, monthly payments of $7 for 36 months  beginning April 2005                                    |       | 208                     |       | —                 |       |
| Gaming equipment  financing to purchase 35 games, no payments for one year and monthly payments  of $8 for 24 months beginning January 2006     |       | 173                     |       | 191                    |       |
| Gaming equipment  financing to purchase 4 games, monthly payments of $1 for 36 months beginning  April 2005                                     |       | 2                       |       | —                 |       |
| Gaming equipment  financing to purchase 20 games, monthly payments of $7 for 36 months  beginning April 2005                                    |       | 166                     |       | —                 |       |
| Gaming equipment  financing with terms of less than 12 months                                                                                   |       | —                  |       | 280                    |       |
|                                                                                                                                            |       | 3,668                   |       | 471                    |       |
| Less current  portion                                                                                                                           |       | (1,237                  | )          | (280                   | )          |
| Gaming equipment  financing, long-term portion                                                                                                  |       | $                       | 2,431      |                   | $          | 191 |   |

** **

**6.             Related Party Transactions**

 

Wingnuts, Inc. is acompany that owns an airplane used by the Company.  Wingnuts, Inc. is owned by Mr. Blackalong with various former stockholders of the Company.  Wingnuts, Inc. charges the Company forbusiness usage of the airplane using hourly rates for actual air time.  Total charges for the three and nine-monthperiods ended September 30, 2005 and 2004 were $0, $6,000, $0 and $18,000,respectively.

 

Virgin RiverFoodmart, Inc. (“Foodmart”), a Nevada corporation, is owned by Mr. Blackand former shareholders of the Company and VRCC. Participants in the Company’sslot club program are able to redeem their points for gasoline at theFoodmart.  Foodmart charges the Companythe retail amount of gas purchased with player points.  For the three and nine-month periods endedSeptember 30, 2005 and 2004, Foodmart has charged the Company $77,000, $95,000,$210,000 and $252,000, respectively, for gasoline purchased with points fromthe Company’s slot club program.

 

Black,LoBello & Pitegoff is a law firm managed by the daughter of Mr. Black.The Company retains Black, LoBello & Pitegoff as outside legalcounsel, and have incurred legal fees for legal services in the amount of $14,000,$0, $18,000 and $24,000 for the three and nine-month periods ended September30, 2005 and 2004, respectively.

 

Pursuant to theindenture, Mr. Black is entitled to a management fee for his management of theCompany’s business of up to 5% of EBITDA, as defined.  The Company has recorded an estimatedliability of $288,000 associated with this management fee at September 30,2005.

 

38

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**B &BB, Inc. (doing business as Virgin River Hotel/Casino/Bingo)**

 

**Notes to Condensed Financial Statements (unaudited) (continued)**

 

**7.             Commitments and Contingencies**

 

In October 2005, theCompanies entered into an agreement with Wells Fargo Financial Leasing to leasegolf maintenance equipment totaling approximately $1.3 million.  The term of the lease is 36 months at a rateof $29,000.  The Companies are accountingfor the lease as an operating lease.

 

In September 2005, theCompanies entered into an agreement with Agilysys NV, LLC to purchase a newproperty management system for the three properties.  Implementation is expected to begin inDecember 2005 with a completion date expected to occur before the end of the secondquarter 2006.  The estimated cost of thisproject is approximately $1.7 million.

 

In September 2005, theCompanies entered into an agreement with Infinium Software, Inc. to purchase anew financial management system. Implementation is expected to begin in December 2005 with a completiondate expected to occur before the end of the second quarter in 2006. Theestimated cost of this project is approximately $615,000.

 

In May 2005, theCompanies entered into a lease arrangement with Dell Financial Services tolease desktop computers and servers.  Theterm of the lease is 18 months at a rate of approximately $29,000 a month.  The lease also provides for a renewal periodof an additional 18 months at approximately $6,000 a month.  The Companies are accounting for the lease asan operating lease.

 

39

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## **Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations.**

## ** **

**Overview**

 

We own and operate the CasaBlanca, the Oasis and the Virgin River inMesquite, Nevada, which is located approximately 80 miles north of Las Vegas.We own three of the four casinos operating in Mesquite and our properties havea dominant market share in Mesquite. Our properties are well established, eachhaving been in operation for at least nine years, and serve as significantdrive-in gaming and resort destinations. Our properties collectively featureover 2,200 slot machines, 75 table games, and 2,100 deluxe hotel rooms, andoffer extensive amenities, including championship golf courses, full servicespas, a bowling center, movie theaters, restaurants, and banquet and conferencefacilities. With each of our properties, we leverage our extensive value-orientedamenities and emphasis on slot play to target middle market gaming customers.

 

Our revenues areprimarily derived from gaming revenues, which include revenues from slotmachines, table games, live keno, race and sports book wagering and bingo.Gaming revenues are generally defined as gaming wins less gaming losses. Inaddition, we derive a significant amount of revenue from our hotel rooms andour food and beverage outlets. We also derive revenues from our golf courses,spa facilities, timeshare units, bowling center and other amenities.Promotional allowances consist primarily of food and beverages furnishedgratuitously to customers. The retail value of such services is included in therespective revenue classifications and is then deducted as promotionalallowances. We calculate operating income as net revenues less total operatingcosts and expenses. Operating income represents only those amounts that relateto our operations and excludes interest income, interest expense, and othernon-operating income and expenses.

 

Our entities areclassified as “flow-through” entities under the partnership or Subchapter Sprovisions of the Internal Revenue Code of 1986, as amended. Under thoseprovisions, the owners of the companies pay or are responsible for reportingour taxable income on their separate returns. Accordingly, a provision forincome taxes is not included in our financial data.

 

RBG, LLC, a Nevadalimited-liability company, was formed in February 1997 for the purpose ofacquiring the assets of Player’s Island Resort in Mesquite, Nevada, currentlyoperating as the CasaBlanca. RBG, LLC acquired the CasaBlanca for$30.5 million. In February 2001, RBG, LLC formed a subsidiary,Casablanca Resorts, LLC, a Nevada limited-liability company, in order topurchase the assets of the Oasis in Mesquite. RBG, LLC acquired the Oasis for$31.7 million. Currently, RBG, LLC directly owns and operates theCasaBlanca, and through its wholly-owned subsidiary, owns and operates theOasis. In May 2001, Casablanca Resorts, LLC formed threesubsidiaries—Oasis Interval Ownership, LLC, a Nevada limited-liability company;Oasis Recreational Properties, Inc., a Nevada corporation; and OasisInterval Management, LLC, a Nevada limited-liability company. Oasis IntervalOwnership, LLC and Oasis Interval Management, LLC were formed in connectionwith the operation and management of time share operations. Oasis RecreationalProperties, Inc. owns the recreational facility that is associated withthe Oasis.

 

B & B B, Inc., aNevada corporation, was formed in December 1989 in connection with theconstruction and development of the Virgin River Hotel & Casino. B& B B, Inc. operates the hotel casino and owns certain personalproperty including furniture and fixtures, leasehold improvements and gamingequipment within the casino. Virgin River Casino Corporation, a Nevadacorporation, was formed in July 1988 in connection with the constructionof the Virgin River. Virgin River Casino Corporation currently owns the landand buildings associated with the Virgin River as well as the Mesquite Star.Virgin River Casino Corporation generates income from rents received from B& B B, Inc., which operates the Virgin River.

 

40

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The Mesquite Star iscurrently a nonoperating casino, which we acquired out of bankruptcy for$6.3 million in November 2000. The Mesquite Star has 12,000 squarefeet of gaming space and 210 hotel rooms. We are presently using the propertyas a special events facility and for overflow hotel traffic from our otherproperties. We believe that the Mesquite Star gives us a competitive advantagein the Mesquite market because it allows us the flexibility of opening thecasino to meet market demand and to maintain our market share in the future ona cost-effective basis.

 

In order to offer ourcustomers attractive and modern facilities, we plan to continue to renovate ourfacilities, add amenities and remodel and expand some of our restaurants andspa facilities. In particular, we plan to (i) add a steakhouse, aStarbucks® and an additional movie theater, remodel the buffet restaurant andthe coffee shop, and refurbish the hotel rooms at the Virgin River,(ii) add a Starbucks® and a convention facility, expand and remodel thespa facility, recondition the parking lot, and refurbish the hotel rooms at theOasis, and (iii) add an additional restaurant, expand and remodel the spafacility, remodel the fine dining restaurant, and refurbish the hotel rooms atthe CasaBlanca. In addition, to offer a greater variety of slot machines andincrease our slot revenue and profitability, we are in the process ofconverting our slot machines to coinless slot technology or to slot machineswith advanced electronic games. As of September 30, 2005, more than 95% of ourslot machines had been converted to coinless slot technology or to advancedelectronic slot games. For the remainder of 2005 and 2006, we plan to spend anaggregate of approximately $4.2 million in capital expenditures for hotelroom renovation, for a consolidation of our laundry operation, and a newproperty management and back office computer system. Furthermore, toaccommodate long-term market growth and high hotel occupancy rates, we plan tospend approximately $20.0 million in capital expenditures, beginning inthe fourth quarter 2005 to the first quarter of 2006, to expand the CasaBlanca byadding a 165-room hotel tower and convention center.

 

**KeyPerformance Indicators**

 

Our operating results arehighly dependent on the volume of customers at our properties, which in turnimpacts the price we can charge for our hotel rooms and other amenities. Wegenerate a significant portion of our operating income from the gaming andhotel portions of our operations. Key performance indicators in our gaming andhotel operations are as follows:

 

Gaming revenue indicators– table games drop and slot handle (volume indicators); “win” or “hold”percentage, which is not fully controllable by us. Our normal table games winpercentage is in the range of 15% to 18% of table games drop and our normalslot win percentage is in the range of 5% to 6% of slot handle.

 

Hotel revenue indicators –hotel occupancy (volume indicator); average daily rate (“ADR,” priceindicator); revenue per available room (“REVPAR”), a summary measure of hotelresults, combining ADR and occupancy rate.

 

Most of our revenue isessentially cash-based, through customers wagering with cash or paying fornon-gaming services with cash or credit cards. Our industry is capitalintensive and we rely heavily on the ability of our properties to generateoperating cash flow to repay debt financing, fund maintenance capitalexpenditures and provide excess cash for future development.

 

Our results of operationstend to be seasonal in nature. Typically, 37% of our operating income isgenerated in the first quarter and 35% is generated in the second quarter withthe remainder being generated during the final half of the year.

 

41

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**Financial Highlights of VirginRiver Casino Corporation**

** **

**For the Three and Nine monthsEnded September 30, 2005 and 2004 (in thousands):**

** **
| ** **                           | ** ** | **Three-months ended  September 30,** | ** ** | **%**    | ** ** | **Nine months ended  September 30,** | ** ** | **%**    | ** ** |
|--------------------------------------|------------|---------------------------------------|------------|----------|------------|--------------------------------------|------------|----------|------------|
| ** **                           | ** ** | **2005**                              | ** ** | **2004** | ** ** | **Change**                           | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Casino revenues                      |       | $                                     | 14,283     |     | $          | 13,770                               |       | 3.7      | %          | $ | 45,861 |   | $ | 43,207 |   | 6.1 | % |
| Casino expenses                      |       | 7,712                                 |       | 7,020    |       | 9.9                                  | %          | 22,730   |       | 21,564 |   | 5.4 | % |
| Profit margin                        |       | 46.0                                  | %          | 49.0     | %          | —                               |       | 50.4     | %          | 50.1 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Food and  beverage revenues          |       | $                                     | 7,149      |     | $          | 7,187                                |       | (0.5     | )%         | $ | 22,986 |   | $ | 23,072 |   | (0.4 | )% |
| Food and  beverage expenses          |       | 4,589                                 |       | 4,642    |       | (1.1                                 | )%         | 14,407   |       | 14,241 |   | 1.2 | % |
| Profit margin                        |       | 35.8                                  | %          | 35.4     | %          | —                               |       | 37.3     | %          | 38.3 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Hotel revenues                       |       | $                                     | 4,744      |     | $          | 4,138                                |       | 14.6     | %          | $ | 15,563 |   | $ | 14,695 |   | 5.9 | % |
| Hotel expenses                       |       | 1,617                                 |       | 1,902    |       | (15.0                                | )%         | 5,039    |       | 5,555 |   | (9.3 | )% |
| Profit margin                        |       | 65.9                                  | %          | 54.0     | %          | —                               |       | 67.6     | %          | 62.2 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Other revenues                       |       | $                                     | 5,046      |     | $          | 5,648                                |       | (10.7    | )%         | $ | 19,028 |   | $ | 20,494 |   | (7.2 | )% |
| Other expenses                       |       | 3,448                                 |       | 3,481    |       | (0.9                                 | )%         | 10,817   |       | 10,962 |   | (1.3 | )% |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Promotional  allowances              |       | $                                     | 4,315      |     | $          | 3,920                                |       | 10.1     | %          | $ | 13,822 |   | $ | 12,921 |   | 7.0 | % |
| Percent of gross  revenues           |       | 13.8                                  | %          | 12.8     | %          | —                               |       | 13.4     | %          | 12.7 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| General and  administrative expenses |       | $                                     | 7,937      |     | $          | 6,726                                |       | 18.0     | %          | $ | 22,427 |   | $ | 21,214 |   | 5.7 | % |
| Percent of net  revenues             |       | 29.5                                  | %          | 25.1     | %          | —                               |       | 25.0     | %          | 24.0 | % | — |   |

 

*Consolidated Net Revenues.*Consolidated net revenues increased by 0.3% to $26.9 million for thethree-months ended September 30, 2005 as compared to $26.8 million for thethree-months ended September 30, 2004. The increase was primarily due to a$0.5 million increase in casino revenues, a $0.6 million increase in hotelrevenues offset by a $0.6 million decrease in other revenues and a $0.4 millionincrease in promotional allowances. Consolidated net revenues increased by 1.2% to $89.6 million forthe nine months ended September 30, 2005 as compared to $88.5 million forthe nine-months ended September 30, 2004. The increase was primarily due to a$2.7 million increase in casino revenues, a $0.9 million increase in hotelrevenues offset by a $1.5 million decrease in other revenues and a $0.9 millionincrease in promotional allowances.

 

*ConsolidatedOperating Income (Loss).* Consolidated operating income (loss)decreased by 168.9% to $(1.0) million for the three-months ended September30, 2005 as compared to $1.4 million for the three-months ended September30, 2004. This was mainly due to our higher depreciation and amortizationexpense and a $1.2 million increase in general and administrative expenses.Consolidated operating income decreased by 35.4% to $6.2 million for the ninemonths ended September 30, 2005 as compared to $9.6 million for the ninemonths ended September 30, 2004, due mainly to the same reasons as mentionedabove.

 

*Casino.*Casino revenues increased 3.7% to $14.3 million for the three-months endedSeptember 30, 2005 as compared to $13.8 million for the three-months endedSeptember 30, 2004. The increase in casino revenues was due to the increase inslot revenues, which increased $0.5 million between periods as coin-inincreased $12.5 million or 5.6%, offset by decreased overall hold. Casinoprofit margin decreased to 46.0% for the three-months ended September 30, 2005as compared to 49.0% for three-months ended September 30, 2004. The decrease incasino profit margin is primarily due to flat coin-in and increased play ongames with a lower hold. Overall casino expenses increased 9.9% for thethree-months ended September 30, 2005 compared to the same period in the prioryear mainly due to the increase in promotional allowances given to gamingcustomers. Casino revenues increased 6.1% to $45.9 million for

 

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the nine months endedSeptember 30, 2005 as compared to $43.2 million for the nine months endedSeptember 30, 2004. The increase in casino revenues was due to the increase inslot revenues, which increased $2.7 million between periods as coin-inincreased $25.4 million or 3.6% on increased overall slot hold. Casino profitmargin increased to 50.4% for the nine months ended September 30, 2005 ascompared to 50.1% for the nine months ended September 30, 2004.  The increase in casino profit margin isprimarily due to our increased efficiency due to the purchase of the newticket-in ticket-out slot machines which allowed us to reduce labor in our slotdepartment. Overall casino expenses increased 5.4% for the nine months endedSeptember 30, 2005 compared to the same period in the prior year mainly due toincreased taxes and license fees on increased gaming revenues.

 

*Foodand Beverage.* Food and beverage revenues were relatively flatdecreasing by 0.5% to $7.1 million for the three-months ended September30, 2005 as compared to $7.2 million for the three-months ended September30, 2004 mainly due to a 7.0% decrease in restaurant covers, offset byincreases in revenues per covers. Food and beverage expenses decreased 1.1% to$4.6 million for the three-months ended September 30, 2005 compared to $4.6million in the prior year mainly due to the reduced covers.

 

Food and beveragerevenues decreased by 0.4% to $23.0 million for the nine months endedSeptember 30, 2005 as compared to $23.1 million for the nine months endedSeptember 30, 2004 mainly due to a 5.7% decrease in restaurant covers offset byincreases in revenues per cover. Food and beverage expenses increased 1.2% to$14.4 million for the nine months ended September 30, 2005 compared to $14.2million for the same period in the prior year. Increases in food and beverage expenses were due to general increases inlabor and cost of sales.

 

*Hotel.*Hotel revenues increased by 14.6% to $4.7 million for the three-monthsended September 30, 2005 as compared to $4.1 million for the three-monthsended September 30, 2004. The hotel revenue increase was entirely due to anincrease in ADR, as overall occupied rooms decreased approximately 6,700 roomsfor the three-months ended September 30, 2005 compared to the three-monthsended September 30, 2004, of which 6,200 of the room decrease was at theCasablanca as a result of the room remodel. Hotel expenses decreased 15.0% for the same time period to $1.6 millionfor the three-months ended September 30, 2005 compared to $1.9 million for thethree-months ended September 30, 2004 mainly due to the decreased occupiedrooms.  As a result, hotel profit marginincreased to 65.9% for the three-months ended September 30, 2005 from 54.0% inthe prior year. Hotel revenues increased by 5.9% to $15.6 million for the ninemonths ended September 30, 2005 as compared to $14.7 million for the ninemonths ended September 30, 2004. The hotel revenue increase was entirely due toan increase in ADR as overall occupied rooms decreased approximately 5,100rooms for the nine months ended September 30, 2005 compared to the nine monthsended September 30, 2004, with the number of occupied rooms at the Casablancadeclining approximately 12,000 rooms due to the room remodel offset by anincrease in occupied rooms at the Oasis. Hotel expenses decreased 9.3% for the same time period to $5.0 millionfrom $5.6 million mainly due to the decline in occupied rooms.  As a result, hotel profit margin increased to67.6% for the nine months ended September 30, 2005 from 62.2% in the prioryear.

 

*OtherRevenues.* Other revenues decreased by 10.7% to$5.0 million for the three-months ended September 30, 2005 compared to$5.6 million for the same period in 2004. Other revenue decreased due to a$0.2 million decrease in time share revenue, $0.1 million decrease in golfrevenue and $0.1 million in spa revenue during the three-months ended September30, 2005 compared to the three-months ended September 30, 2004. Other revenuesdecreased by 7.2% to $19.0 million for the nine months ended September 30,2005 compared to $20.5 million for the same period in 2004. Other revenuedecreased due mainly to a $0.9 million decrease in time share revenue, a $0.4million decrease in golf revenue and $0.3 million decrease in spa revenueoffset by increases in other revenue centers during the nine months endedSeptember 30, 2005 compared to the nine months ended September 30, 2004.

 

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*PromotionalAllowances.* Promotional allowances increased by 10.1% to$4.3 million for the three-months ended September 30, 2005 as compared to$3.9 million for the three-months ended September 30, 2004.  As a percent of gross revenues, promotionalallowances increased to 13.8% for the three-months ended September 30, 2005compared to 12.8% in the prior year as we focused our marketing attention onour better gaming customers.  Promotionalallowances increased by 7.0% to $13.8 million for the nine months endedSeptember 30, 2005 as compared to $12.9 million for the nine months endedSeptember 30, 2004.  As a percent ofgross revenues, promotional allowances increased to 13.4% for the nine monthsended September 30, 2005 compared to 12.7% in the prior year as we focused ourmarketing attention on our better gaming customers.

 

*Generaland Administrative (“G&A”).* G&A expenses increased by18.0% to $7.9 million for the three-months ended September 30, 2005 ascompared to $6.7 million for the three-months ended September 30,2004.  As a percent of net revenues,G&A expenses increased to 29.5% for the three-months ended September 30,2005 as compared to 25.1% for the three-months ended September 30, 2004.  The main reason for the increase was due to a$0.6 million increase in medical, a $0.3 million increase in administrativesalaries, a $0.2 million increase in management fees, and a $0.2 million inaccrued bonuses.  G&A expensesincreased by 5.7% to $22.4 million for the nine months ended September 30,2005 as compared to $21.2 million for the nine months ended September 30,2004.  As a percent of net revenues,G&A expenses increased to 25.0% for the nine months ended September 30,2005 as compared to 24.0% in the prior year due to the increase in net revenuesand G&A expenses.  The main reasonfor the increase was due to a $0.6 million increase in management fees, a $0.6million increase in administrative salaries, a $0.6 million in accrued bonusesoffset by a $0.3 million decrease in medical.

 

*Depreciationand Amortization.* Depreciation and amortization increased to$2.5 million for the three-months ended September 30, 2005 compared to$1.7 million for the three-months ended September 30, 2004.  Depreciation and amortization increased to$7.3 million for the nine months ended September 30, 2005 compared to$5.4 million for the nine months ended September 30, 2004.  The increase was due to an increase in thedepreciable asset base due to the Buyout on December 20, 2004 and slot machinepurchases during the year.

 

*Loss onsale and disposal of assets.* Loss on disposal of assetsincreased to $0.1 million for the three-months ended September 30, 2005compared to $0.0 million for the three-months ended September 30, 2004.Loss on disposal of assets increased to $0.7 million for the nine monthsended September 30, 2005 compared to $0.0 million for the nine monthsended September 30, 2004.The increase was due to the disposal of slot machineswith the purchase of ticket-in ticket-out slot machines during the year.

 

*Changein Fair Value of Swaps.* Change in fair value of swapsincreased to $0.4 million during the three-months ended September 30, 2005compared to $(0.3) million in the same period in the prior year.  The increase is due to an increase in the ratesduring the three-months ended September 30, 2005 compared to the same period inthe prior year.  Change in fair value ofswaps decreased to $1.1 million during the nine months ended September 30, 2005compared to $2.7 million in the same period in the prior year.  The decrease is due to a smaller increase ininterest rates in the nine months ended September 30, 2005 compared to the sameperiods in the prior year.

 

*InterestExpense.* Interest expense was $4.6 million for thethree-months ended September 30, 2005 compared to $1.8 million for thethree-months ended September 30, 2004. Interest expense was $13.3 millionfor the nine months ended September 30, 2005 compared to $5.4 million forthe nine months ended September 30, 2004. The increase in interest expense was due to an increase in our averageoutstanding borrowings during the three and nine months ended September 30,2005 compared to the same periods in the prior year.

 

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**Liquidity and Capital Resourcesfor Virgin River Casino Corporation**

 

The following liquidityand capital resources discussion contains certain forward-looking statementswith respect to our business, financial condition, results of operations,expansion projects and our subsidiaries, which involve risks and uncertaintiesthat cannot be predicted or quantified, and consequently, actual results maydiffer materially from those expressed or implied herein. Such risks anduncertainties include, but are not limited to, financial market risks, theability to maintain existing management, competition within the gamingindustry, the cyclical nature of the hotel business and gaming business,economic conditions, regulatory matters and litigation and other risksdescribed in our filings with the Securities and Exchange Commission. Inaddition, construction projects such as our tower and convention centerprojects entail significant risks, including shortages of materials or skilledlabor, unforeseen regulatory problems, work stoppages, weather interference,and unanticipated cost increases. The anticipated costs and constructionperiods are based on budgets, conceptual design documents and constructionschedule estimates. There can be no assurance that the budgeted costs orconstruction period will be met. All forward-looking statements are based onour current expectations and projections about future events.

 

*Cash Flows*

 

Our primary sources ofliquidity and capital resources have been cash flow from operations and our creditfacility. As of September 30, 2005 and December 31, 2004, cash and cashequivalents were $6.9 million and $11.1 million, respectively.

 

Cash provided byoperating activities for the nine months ended September 30, 2005 was$9.5 million compared to $12.0 million for the nine months endedSeptember 30, 2004. The $2.5 million decrease was mainly attributable to a$0.8 million decrease in operating income (excluding depreciation andamortization expense and other noncash charges), $0.3 million related to thelease termination agreement with MDW, LLC and we paid $1.0 million more in cashfor interest in the nine months ended September 30, 2005 compared to the ninemonths ended September 30, 2004.

 

Cash used in investingactivities for the nine months ended September 30, 2005 was $10.0 millioncompared to $1.7 million for the nine months ended September 30, 2004. Forthe nine months ended

 

September 30, 2005, themajority of cash used in investing activities consisted of $2.1 million relatedto gaming equipment purchases at the properties, $2.9 million related to theroom remodel at the Casablanca, $0.2 million for the Casablanca spa expansion,$0.3 million for the fine dining expansion at the Casablanca, $0.4 million forthe Casablanca tower and convention center, $0.3 million for the Starbucks atthe Oasis, $0.4 million related to the Oasis hotel room remodel, $0.2 millionfor the casino remodel at the Oasis, $0.2 million for the buffet expansion atthe Virgin River, $0.4 for laundry equipment and $1.8 million related tovarious maintenance capital expenditures. In addition, $1.2 million of taxpayments was made related to the prior owners that adjusted the purchase priceof the Buyout.  The majority of cash usedin investing activities for the nine months ended September 30, 2004 related tocapital expenditures for slot machines and various maintenance capitalexpenditures.

 

Cash used in financingactivities for the nine months ended September 30, 2005 was $3.8 millioncompared to $11.7 million for the nine months ended September 30, 2004.For the nine months ended September 30, 2005, $1.5 million represented adecrease in the bank overdraft balance, $1.3 million related to paymentson long-term debt associated with equipment and time share financing, $1.8million related to tax distributions, $0.6 million related to payments ongaming equipment financing, and $0.3 million related to payment of debtissuance costs associated with the Senior Notes, Senior Sub Notes, and FoothillFacility. These financing outflows were offset by $1.7 million ofborrowings associated with our time share financing and credit line. For the ninemonths ended September 30, 2004, $11.3 million

 

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represented payments onlong-term debt (of which $10.0 million was related to our old creditfacility and the remainder related to equipment and time share financing), $1.3million represented a decrease in our bank overdraft balance, $0.9 million intax distributions and $0.6 million related to payments on our gamingequipment financing.  These financingoutflows were offset by $2.3 million of borrowings associated with our timeshare financing.

 

**Financial Highlights of RBG, LLCFor the Three and Nine months Ended September 30, 2005 and 2004 (in thousands):**

** **
| ** **                           | ** ** | **Three-months ended  September 30,** | ** ** | **%**    | ** ** | **Nine months ended  September 30,** | ** ** | **%**    | ** ** |
|--------------------------------------|------------|---------------------------------------|------------|----------|------------|--------------------------------------|------------|----------|------------|
| ** **                           | ** ** | **2005**                              | ** ** | **2004** | ** ** | **Change**                           | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Casino revenues                      |       | $                                     | 14,283     |     | $          | 13,770                               |       | 3.7      | %          | $ | 45,861 |   | $ | 43,207 |   | 6.1 | % |
| Casino expenses                      |       | 7,712                                 |       | 7,020    |       | 9.9                                  | %          | 22,730   |       | 21,564 |   | 5.4 | % |
| Profit margin                        |       | 46.0                                  | %          | 49.0     | %          | —                               |       | 50.4     | %          | 50.1 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Food and  beverage revenues          |       | $                                     | 7,149      |     | $          | 7,187                                |       | (0.5     | )%         | $ | 22,986 |   | $ | 23,072 |   | (0.4 | )% |
| Food and  beverage expenses          |       | 4,589                                 |       | 4,642    |       | (1.1                                 | )%         | 14,407   |       | 14,241 |   | 1.2 | % |
| Profit margin                        |       | 35.8                                  | %          | 35.4     | %          | —                               |       | 37.3     | %          | 38.3 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Hotel revenues                       |       | $                                     | 4,725      |     | $          | 4,070                                |       | 16.1     | %          | $ | 15,125 |   | $ | 14,237 |   | 6.2 | % |
| Hotel expenses                       |       | 1,546                                 |       | 1,620    |       | (4.6                                 | )%         | 4,682    |       | 5,020 |   | (6.7 | )% |
| Profit margin                        |       | 67.3                                  | %          | 60.2     | %          | —                               |       | 69.0     | %          | 64.7 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Other revenues                       |       | $                                     | 3,378      |     | $          | 3,913                                |       | (13.7    | )%         | $ | 14,054 |   | $ | 15,319 |   | (8.3 | )% |
| Other expenses                       |       | 3,448                                 |       | 3,481    |       | (0.9                                 | )%         | 10,817   |       | 10,962 |   | (1.3 | )% |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Promotional  allowances              |       | $                                     | 4,295      |     | $          | 3,912                                |       | 9.8      | %          | $ | 13,802 |   | $ | 12,913 |   | 6.9 | % |
| Percent of gross  revenues           |       | 14.5                                  | %          | 13.5     | %          | —                               |       | 14.1     | %          | 13.5 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| General and  administrative expenses |       | $                                     | 7,870      |     | $          | 6,751                                |       | 16.6     | %          | $ | 22,182 |   | $ | 21,052 |   | 5.4 | % |
| Percent of net  revenues             |       | 31.2                                  | %          | 27.0     | %          | —                               |       | 26.3     | %          | 25.4 | % | — |   |

 

*Consolidated Net Revenues.*Consolidated net revenues increased by 0.8% to $25.2 million for thethree-months ended September 30, 2005 as compared to $25.0 million for thethree-months ended September 30, 2004. The increase was primarily due to a$0.5 million increase in casino revenues, a $0.6 million increase in hotelrevenues offset by a $0.5 million decrease in other revenues and a $0.4 millionincrease in promotional allowances. Consolidated net revenues increased by 1.6% to $84.2 million forthe nine months ended September 30, 2005 as compared to $82.9 million forthe nine months ended September 30, 2004. The increase was primarily due to a$2.7 million increase in casino revenues, a $0.9 million increase in hotelrevenues offset by a $1.3 million decrease in other revenues and a $0.9 millionincrease in promotional allowances.

 

*ConsolidatedOperating Income (Loss).* Consolidated operating income (loss)decreased by 1,852.6% to an operating loss of $(2.0) million for thethree-months ended September 30, 2005 as compared to operating income of$0.1 million for the three-months ended September 30, 2004. Consolidatedoperating income decreased by 48.9% to $2.8 million for the nine monthsended September 30, 2005 as compared to $5.5 million for the nine monthsended September 30, 2004. For both periods, the decrease was mainly due to ourhigher depreciation and amortization expense and the increase in general andadministrative expenses.

 

*Casino.*Casino revenues increased 3.7% to $14.3 million for the three-months endedSeptember 30, 2005 as compared to $13.8 million for the three-months endedSeptember 30, 2004. The increase in casino revenues was due to the increase inslot revenues, which increased $0.5 million between periods as coin-inincreased $12.5 million or 5.6% offset by decreased overall hold. Casino profitmargin decreased

 

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to 46.0% for thethree-months ended September 30, 2005 as compared to 49.0% for three-monthsended September 30, 2004. The decrease in casino profit margin is primarily dueto flat coin-in and increased play on games with a lower hold. Overall casinoexpenses increased 9.9% for the three-months ended September 30, 2005 comparedto the same period in the prior year mainly due to the increase in promotionalallowances given to gaming customers. Casino revenues increased 6.1% to$45.9 million for the nine months ended September 30, 2005 as compared to$43.2 million for the nine months ended September 30, 2004. The increasein casino revenues was due to the increase in slot revenues, which increased$2.7 million between periods as coin-in increased $25.4 million or 3.6% onincreased overall slot hold. Casino profit margin increased to 50.4% for the ninemonths ended September 30, 2005 as compared to 50.1% for nine months endedSeptember 30, 2004.  The increase incasino profit margin is primarily due to our increased efficiency due to thepurchase of the new ticket-in ticket-out slot machines which allowed us toreduce labor in our slot department. Overall casino expenses increased 5.4% forthe nine months ended September 30, 2005 compared to the same period in theprior year mainly due to increased taxes and license fees on increased gamingrevenues.

 

*Foodand Beverage.* Food and beverage revenues were relatively flatdecreasing by 0.5% to $7.1 million for the three-months ended September30, 2005 as compared to $7.2 million for the three-months ended September30, 2004 mainly due to a 7.0% decrease in restaurant covers offset by increasesin revenues per covers. Food and beverage expenses decreased 1.1% to $4.6million for the three-months ended September 30, 2005 compared to $4.6 millionin the prior year mainly due to the reduced covers.

 

Food and beveragerevenues decreased by 0.4% to $23.0 million for the nine months endedSeptember 30, 2005 as compared to $23.1 million for the nine months endedSeptember 30, 2004 mainly due to a 5.7% decrease in restaurant covers offset byincreases in revenues per cover. Food and beverage expenses increased 1.2% to$14.4 million for the nine months ended September 30, 2005 compared to $14.2million for the same period in the prior year. Increases in food and beverage expenses were due to general increases inlabor and cost of sales.

 

*Hotel.*Hotel revenues increased by 16.1% to $4.7 million for the three-monthsended September 30, 2005 as compared to $4.1 million for the three-monthsended September 30, 2004. The hotel revenue increase was entirely due to anincrease in ADR, as overall occupied rooms decreased approximately 5,700 roomsfor the three-months ended September 30, 2005 compared to the three-monthsended September 30, 2004, of which 6,200 of the room decrease was at theCasablanca as a result of the room remodel. Hotel expenses decreased 4.6% for the same time period to $1.5 millionfor the three-months ended September 30, 2005 compared to $1.6 million for thethree-months ended September 30, 2004 mainly due to the decreased occupiedrooms.  As a result, hotel profit marginincreased to 67.3% for the three-months ended September 30, 2005 from 60.2% inthe prior year. Hotel revenues increased by 6.2% to $15.1 million for the ninemonths ended September 30, 2005 as compared to $14.2 million for the ninemonths ended September 30, 2004. The hotel revenue increase was entirely due toan increase in ADR as overall occupied rooms decreased approximately 4,100rooms for the nine months ended September 30, 2005 compared to the nine monthsended September 30, 2004, with the number of occupied rooms at the Casablancadeclining approximately 12,000 rooms due to the room remodel offset by an increasein occupied rooms at the Oasis.  Hotelexpenses decreased 6.7% for the same time period to $4.7 million from $5.0million mainly due to the decline in occupied rooms.  As a result hotel profit margin increased to69.0% for the nine months ended September 30, 2005 from 64.7% in the prioryear.

 

*OtherRevenues.* Other revenues decreased by 13.7% to$3.4 million for the three-months ended September 30, 2005 compared to$3.9 million for the same period in 2004. Other revenue decreased due to a$0.2 million decrease in time share revenue, $0.1 million decrease in golfrevenue and $0.1 million in spa revenue during the three-months ended September30, 2005 compared to the three-months ended September 30, 2004. Other revenuesdecreased by 8.3% to $14.1 million for the nine months ended

 

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September 30, 2005,compared to $15.3 million for the same period in 2004. Other revenuedecreased due mainly to a $0.9 million decrease in time share revenue, a $0.4million decrease in golf revenue and $0.3 million decrease in spa revenueoffset by increases in other revenue centers during the nine months endedSeptember 30, 2005, compared to the nine months ended September 30, 2004.

 

*PromotionalAllowances.* Promotional allowances increased by 9.8% to$4.3 million for the three-months ended September 30, 2005 as compared to$3.9 million for the three-months ended September 30, 2004.  As a percent of gross revenues, promotionalallowances increased to 14.5% for the three-months ended September 30, 2005compared to 13.5% in the prior year as we focused our marketing attention onour better gaming customers.  Promotionalallowances increased by 6.9% to $13.8 million for the nine months endedSeptember 30, 2005 as compared to $12.9 million for the nine months endedSeptember 30, 2004.  As a percent ofgross revenues, promotional allowances increased to 14.1% for the nine monthsended September 30, 2005 compared to 13.5% in the prior year as we focused ourmarketing attention on our better gaming customers.

 

*Generaland Administrative.* G&A expenses increased by 16.6% to$7.9 million for the three-months ended September 30, 2005 as compared to$6.8 million for the three-months ended September 30, 2004.  As a percent of net revenues, G&Aexpenses increased to 31.2% for the three-months ended September 30, 2005 ascompared to 27.0% for the three-months ended September 30, 2004.  The main reason for the increase was due to a$0.6 million increase in medical, a $0.3 million increase in administrativesalaries, a $0.2 million increase in management fees, and a $0.2 million inaccrued bonuses. G&A expenses increased by 5.4% to $22.2 million for the ninemonths ended September 30, 2005 as compared to $21.1 million for the ninemonths ended September 30, 2004..  As apercent of net revenues, G&A expenses increased to 26.3% for the ninemonths ended September 30, 2005 as compared to 25.4% in the prior year due tothe increases in net revenues. The main reason for the increase was due to a$0.6 million increase in management fees, a $0.6 million increase inadministrative salaries, a $0.6 million in accrued bonuses offset by a $0.3million decrease in medical.

 

*Depreciationand Amortization.* Depreciation and amortization increased to$2.0 million for the three-months ended September 30, 2005 compared to$1.4 million for the three-months ended September 30, 2004.  Depreciation and amortization increased to $5.9 millionfor the nine months ended September 30, 2005 compared to $4.5 million forthe nine months ended September 30, 2004. The increase was due to an increase in the depreciable asset base due toBuyout on December 20, 2004 and slot machine purchases during the year.

 

*Loss onsale and disposal of assets.* Loss on disposal of assetsincreased to $0.1 million for the three-months ended September 30, 2005compared to $0.0 million for the three-months ended September 30, 2004.Loss on disposal of assets increased to $0.7 million for the nine monthsended September 30, 2005 compared to $0.0 million for the nine monthsended September 30, 2004. The increase was due to the disposal of slot machineswith the purchase of ticket-in ticket-out slot machines during the year.

 

*Changein Fair Value of Swaps.* Change in fair value of swapsincreased to $0.3 million during the three-months ended September 30, 2005compared to $(0.2) million in the same period in the prior year.  The increase was due to a change in interestrates for the three-months ended September 30, 2005 compared to the same periodin the prior year.  Change in fair valueof swaps decreased to $0.8 million during the nine months ended September 30,2005 compared to $1.9 million in the same period in the prior year.  The decrease is due to a smaller increase ininterest rates in the nine months ended September 30, 2005 compared to the sameperiod in the prior year.

 

*InterestExpense.* Interest expense was $0.4 million for thethree-months ended September 30, 2005 compared to $1.5 million for thethree-months ended September 30, 2004. Interest expense was

 

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$1.0 million for thenine months ended September 30, 2005 compared to $4.5 million for the ninemonths ended September 30, 2004.  Thedecrease in interest expense was due to a decrease in our average outstandingborrowings during the three and nine months ended September 30, 2005 comparedto the same period in the prior year.

 

**Liquidity and Capital Resourcesof RGB, LLC**

 

The following liquidityand capital resources discussion contains certain forward-looking statementswith respect to our business, financial condition, results of operations,expansion projects and our subsidiaries, which involve risks and uncertaintiesthat cannot be predicted or quantified, and consequently, actual results may differmaterially from those expressed or implied herein. Such risks and uncertaintiesinclude, but are not limited to, financial market risks, the ability tomaintain existing management, competition within the gaming industry, thecyclical nature of the hotel business and gaming business, economic conditions,regulatory matters and litigation and other risks described in our filings withthe Securities and Exchange Commission. In addition, construction projects suchas our tower and convention center projects entail significant risks, includingshortages of materials or skilled labor, unforeseen regulatory problems, workstoppages, weather interference, and unanticipated cost increases. Theanticipated costs and construction periods are based on budgets, conceptualdesign documents and construction schedule estimates. There can be noassurance that the budgeted costs or construction period will be met. Allforward-looking statements are based on our current expectations andprojections about future events.

 

*Cash Flows*

 

Our primary sources ofliquidity and capital resources have been cash flow from operations and our creditfacility. As of September 30, 2005 and December 31, 2004, cash and cashequivalents were $5.5 million and $7.5 million, respectively.

 

Cash provided byoperating activities for the nine months ended September 30, 2005 was$9.5 million compared to $6.3 million for the nine months endedSeptember 30, 2004. The $3.2 million increase was mainly attributable to a$0.7 million decrease in operating income (excluding depreciation andamortization expense and other noncash charges) offset by a $3.6 milliondecrease in cash paid for interest in the nine months ended September 30, 2005compared to the nine months ended September 30, 2005.

 

Cash used in investingactivities for the nine months ended September 30, 2005 was $8.5 millioncompared to $1.6 million for the nine months ended September 30, 2004. Forthe nine months ended September 30, 2005, the majority of cash used ininvesting activities consisted of $2.1 million related to gaming equipmentpurchases at the properties, $2.9 million related to the room remodel at theCasablanca, $0.2 million for the Casablanca spa expansion, $0.3 million for thefine dining expansion at the Casablanca, $0.4 million for the Casablanca towerand convention center, $0.3 million for the Starbucks at the Oasis, $0.4million related to the Oasis hotel room remodel, $0.2 million for the casinoremodel at the Oasis, $0.4 for laundry equipment and $1.8 million related to variousmaintenance capital expenditures. The majority of cash used in investingactivities for the nine months ended September 30, 2004 related to capitalexpenditures for slot machines and various maintenance capital expenditures.

 

Cash used in financing activitiesfor the nine months ended September 30, 2005 was $3.0 million compared to$4.6 million for the nine months ended September 30, 2004. For the ninemonths ended September 30, 2005, $1.5 million represented a decrease inthe bank overdraft balance, $1.1 million related to payments on long-termdebt associated with equipment and time share financing and $0.6 millionrelated to payments on gaming equipment financing.  These financing outflows were offset by$0.2 million of borrowings associated with our time share financing. Forthe nine months ended

 

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September 30, 2004,$3.0 million represented payments on long-term debt (of which$1.8 million was related to our old credit facility and the remainder relatedto equipment and time share financing), $1.3 million represented a decrease inour bank overdraft balance and $0.6 million related to payments on ourgaming equipment financing.  Thesefinancing outflows were offset by $0.3 million of borrowings associated withour time share financing.

 

**Financial Highlights of B&BB,Inc.**

** **

**For the Three and Nine monthsEnded September 30, 2005 and 2004 (in thousands):**

 
| ** **                           | ** ** | **Three-months ended  September 30,** | ** ** | **%**    | ** ** | **Nine months ended  September 30,** | ** ** | **%**    | ** ** |
|--------------------------------------|------------|---------------------------------------|------------|----------|------------|--------------------------------------|------------|----------|------------|
| ** **                           | ** ** | **2005**                              | ** ** | **2004** | ** ** | **Change**                           | ** ** | **2005** | ** ** | **2004** | ** ** | **Change** | ** ** |
| Casino revenues                      |       | $                                     | 8,390      |     | $          | 7,958                                |       | 5.4      | %          | $ | 25,935 |   | $ | 23,839 |   | 8.8 | % |
| Casino expenses                      |       | 3,450                                 |       | 3,605    |       | (4.3                                 | )%         | 10,884   |       | 10,826 |   | .5 | % |
| Profit margin                        |       | 58.9                                  | %          | 54.7     | %          | —                               |       | 58.0     | %          | 54.6 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Food and beverage revenues           |       | $                                     | 2,757      |     | $          | 2,769                                |       | (0.4     | )%         | $ | 8,752 |   | $ | 8,517 |   | 2.8 | % |
| Food and beverage expenses           |       | 1,852                                 |       | 1,694    |       | 9.3                                  | %          | 5,509    |       | 5,239 |   | 5.2 | % |
| Profit margin                        |       | 32.8                                  | %          | 38.8     | %          | —                               |       | 37.1     | %          | 38.5 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Hotel revenues                       |       | $                                     | 1,789      |     | $          | 1,612                                |       | 11.0     | %          | $ | 6,444 |   | $ | 5,669 |   | 13.7 | % |
| Hotel expenses                       |       | 590                                   |       | 720      |       | (18.1                                | )%         | 1,969    |       | 2,213 |   | (11.0 | )% |
| Profit margin                        |       | 67.0                                  | %          | 55.3     | %          | —                               |       | 69.4     | %          | 61.0 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Other revenues                       |       | $                                     | 709        |     | $          | 699                                  |       | 1.4      | %          | $ | 2,107 |   | $ | 2,105 |   | 0.1 | % |
| Other expenses                       |       | 350                                   |       | 365      |       | (4.1                                 | )%         | 1,100    |       | 1,087 |   | 1.2 | % |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| Promotional allowances               |       | $                                     | 1,646      |     | $          | 1,745                                |       | (5.7     | )%         | $ | 5,547 |   | $ | 5,315 |   | 4.4 | % |
| Percent of gross revenues            |       | 12.1                                  | %          | 13.4     | %          | —                               |       | 12.8     | %          | 13.2 | % | — |   |
|                                 |       |                                  |       |     |       |                                 |       |     |       |   |   |   |   |
| General and  administrative expenses |       | $                                     | 5,081      |     | $          | 4,572                                |       | 11.1     | %          | $ | 14,231 |   | $ | 13,031 |   | 9.2 | % |
| Percent of net revenues              |       | 42.3                                  | %          | 40.5     | %          | —                               |       | 37.8     | %          | 37.4 | % | — |   |

 

*Net Revenues.* Netrevenues increased by 6.3% to $12.0 million for the three-months endedSeptember 30, 2005 as compared to $11.3 million for the three-months endedSeptember 30, 2004. The increase was primarily due to a $0.4 millionincrease in casino revenues, a $0.2 million increase in hotel revenues and flatfood and beverage revenues.  Net revenuesincreased by 8.3% to $37.7 million for the nine months ended September 30,2005 as compared to $34.8 million for the nine months ended September 30,2004. The increase was primarily due to a $2.1 million increase in casinorevenues, a $0.8 million increase in hotel revenues and a $0.2 million increasein food and beverage revenues offset by a $0.2 million increase in promotionalallowances.

 

*OperatingIncome.* Operating income decreased by 36.5% to$0.0 million for the three-months ended September 30, 2005 as compared to$0.1 million for the three-months ended September 30, 2004. Operatingincome increased by 39.6% to $2.1 million for the nine months endedSeptember 30, 2005 as compared to $1.5 million for the nine months endedSeptember 30, 2004.  This was mainly dueto increases in casino revenues and flat or improving operating margins.

 

*Casino.*Casino revenues increased 5.4% to $8.4 million for the three-months endedSeptember 30, 2005 as compared to $8.0 million for the three-months endedSeptember 30, 2004. The increase in casino revenues was mainly due to theincrease in slot revenues, which increased $0.3 million between periods onflat coin-in on increased overall hold. Casino profit margin increased to 68.9%for the three-months ended September 30, 2005 as compared to 54.7% forthree-months ended September 30, 2004 due to the increased overall hold andefficiencies generated from the purchase of the new ticket-in ticket-out slot

 

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machines which allowed usto reduce labor in our slot department. Overall casino expenses decreased 4.3%for the three months ended September 30, 2005 compared to the same period inthe prior year. Casino revenues increased 8.8% to $25.9 million for the ninemonths ended September 30, 2005 as compared to $23.8 million for the ninemonths ended September 30, 2004. The increase in casino revenues was due to theincrease in slot revenues, which increased $1.5 million between periods ascoin-in increased $1.5 million on increased overall slot hold. Table gamesrevenue also increased $0.3 million between periods. Casino profit marginincreased to 58.0% for the nine months ended September 30, 2005 as compared to54.6% for nine months ended September 30, 2004. The increase in casino profit margin is primarily due to the increasedoverall hold on relatively flat coin-in and most costs remaining relativelyflat as our efficiency increased due to the purchase of the new ticket-inticket-out slot machines which allowed us to reduce labor in our slotdepartment. Overall casino expenses increased 0.5% for the nine months-monthsended September 30, 2005 compared to the same period in the prior year.

 

*Foodand Beverage.* Food and beverage revenues remained relativelyflat at $2.8 million for the three-months ended September 30, 2005 ascompared to prior year as covers decreased 10.8% on increased revenue percover. Food and beverage expenses increased 9.3% to $1.9 million for thethree-months ended September 30, 2005 compared to $1.7 million in the prioryear mainly due to increase in labor and cost of sales.

 

Food and beveragerevenues increased by 2.8% to $8.8 million for the nine months endedSeptember 30, 2005 as compared to $8.5 million for the nine months endedSeptember 30, 2004 due to increases in revenue per cover as covers decreased6.1% compared to prior year. Food and beverage expenses increased 5.2% to $5.5million for the nine months ended September 30, 2005 compared to $5.2 millionfor the same period in the prior year. Increases in food and beverage expenses were due to general increases inlabor and cost of sales.

 

*Hotel.*Hotel revenues increased by 11.0% to $1.8 million for the three-monthsended September 30, 2005 as compared to $1.6 million for the three-monthsended September 30, 2004. The hotel revenue increase was entirely due to anincrease in ADR, as overall occupied rooms were down 7,700 for the three-monthsended September 30, 2005 compared to the three-months ended September 30,2004.  Hotel expenses decreased 18.1% forthe same time period to $0.6 million from $0.7 million due to the decrease inoccupied rooms.   As a result hotelprofit margin increased to 67.0% for the three-months ended September 30, 2005from 55.3% in the prior year. Hotel revenues increased by 13.7% to$6.4 million for the nine months ended September 30, 2005 as compared to$5.7 million for the nine months ended September 30, 2004. The hotelrevenue increase was entirely due to an increase in ADR as overall occupiedrooms were down 6,700 for the nine months ended September 30, 2005 compared tothe nine months ended September 30, 2004. Hotel expenses decreased 11.0% for the same time period to $2.0 millionfrom $2.2 million due to the decrease in occupied rooms during the nine monthsended September 30, 2005 compared to the prior year.  As a result hotel profit margin increased to69.4% for the nine months ended September 30, 2005 from 61.0% in the prioryear.

 

*OtherRevenues.* Other revenues were flat at $0.7 million forthe three-months ended September 30, 2005 and $0.7 million for the sameperiod in 2004. Other revenues were flat at $2.1 million for the ninemonths ended September 30, 2005 compared to $2.1 million for the sameperiod in 2004.

 

*PromotionalAllowances.* Promotional allowances remained relatively flatat $1.6 million for the three-months ended September 30, 2005 as comparedto $1.7 million for the three-months ended September 30, 2004.  Promotional allowances increased by 4.4% to$5.5 million for the nine months ended September 30, 2005 as compared to$5.3 million for the nine months ended September 30, 2004 as we focusedour marketing attention on our better gaming customers.  As a percent of gross revenues, promotional

 

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allowances decreased to12.8% for the nine months ended September 30, 2005 compared to 13.2% in the prioryear.

 

*Generaland Administrative.* G&A expenses increased by 14.6% to$5.1 million for the three-months ended September 30, 2005 as compared to$4.6 million for the three-months ended September 30, 2004.  As a percent of net revenues, G&Aexpenses increased to 42.3% for the three-months ended September 30, 2005 ascompared to 40.5% for the three-months ended September 30, 2004.  The main reason for the increase was due to a$0.3 million increase in utilities, $0.3 million in marketing, $0.1 million increasein management fees, and a $0.1 million in accrued bonuses offset by a $0.3million decrease in medical.  G&Aexpenses increased 9.2% to $14.2 million for the nine months ended September30, 2005 as compared to $13.0 million for the nine months ended September 30,2004.  As a percent of net revenues,G&A expenses remained relatively flat at 37.8% for the nine months endedSeptember 30, 2005 as compared to 37.4% in the prior year.  The main reason for the increase was due to a$0.3 million increase in administrative salaries, $0.3 million increase inmanagement fees, $0.4 million in accrued bonuses and a $0.3 million increase inutility expenses.

 

*Depreciationand Amortization.* Depreciation and amortization increased to$0.6 million for the three-months ended September 30, 2005 compared to$0.3 million for the three-months ended September 30, 2004.  Depreciation and amortization increased to$2.0 million for the nine months ended September 30, 2005 compared to$1.0 million for the nine months ended September 30, 2004.  The increase was due to an increase in thedepreciable assets and amortization of intangible assets, arising as a resultof the Buyout.

 

*InterestExpense.* Interest expense was $0.6 million for thethree-months ended September 30, 2005 compared to $0.0 million for thethree-months ended September 30, 2004. Interest expense was $1.8 millionfor the nine months ended September 30, 2005 compared to $0.0 million forthe nine months ended September 30, 2004. The increase in interest expense wasdue to the Buyout on December 20, 2004.

 

**Liquidity and Capital Resourcesfor B&BB, Inc.**

 

The following liquidity and capital resources discussion containscertain forward-looking statements with respect to our business, financialcondition, results of operations, expansion projects and our subsidiaries,which involve risks and uncertainties that cannot be predicted or quantified,and consequently, actual results may differ materially from those expressed orimplied herein. Such risks and uncertainties include, but are not limited to,financial market risks, the ability to maintain existing management,competition within the gaming industry, the cyclical nature of the hotelbusiness and gaming business, economic conditions, regulatory matters andlitigation and other risks described in our filings with the Securities andExchange Commission. In addition, construction projects such as our tower andconvention center projects entail significant risks, including shortages ofmaterials or skilled labor, unforeseen regulatory problems, work stoppages,weather interference, and unanticipated cost increases. The anticipated costsand construction periods are based on budgets, conceptual design documents andconstruction schedule estimates. There can be no assurance that thebudgeted costs or construction period will be met. All forward-lookingstatements are based on our current expectations and projections about futureevents.

 

*Cash Flows*

 

Our primary sources ofliquidity and capital resources have been cash flow from operations and our creditfacility. As of September 30, 2005 and December 31, 2004, cash and cashequivalents were $5.3 million and $5.9 million, respectively.

 

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Cash provided byoperating activities for the nine months ended September 30, 2005 was$2.1 million compared to $1.9 million for the nine months endedSeptember 30, 2004. The $0.2 million increase was mainly attributable to a$1.6 million increase in operating income (excluding depreciation andamortization expense and other noncash charges) offset by the $1.0 increase incash paid for interest and $0.1 million decrease in related party interestincome.

 

Cash used in investingactivities for the nine months ended September 30, 2005 was $2.1 millioncompared to $0.9 million for the nine months ended September 30, 2004. Forthe nine months ended September 30, 2005, the majority of cash used ininvesting activities consisted of the following at the Virgin River: $0.7million for the room remodel, $0.3 million for the Starbucks, $0.5 million forgaming equipment, $0.1 million for the buffet expansion and $0.6 million formaintenance capital expenditures.  Themajority of cash used in investing activities for the nine months endedSeptember 30, 2004 related to capital expenditures for slot machines andvarious maintenance capital expenditures.

 

Cash used in financingactivities for the nine months ended September 30, 2005 was $0.6 millioncompared to $0.7 million for the nine months ended September 30, 2004.  The cash used in financing activities for the ninemonths ended September 30, 2005 consisted of $0.4 million in payments on gamingequipment financing and $0.1 million in payments on long-term debt associatedwith equipment.  The cash used infinancing activities for the nine months ended September 30, 2004 wasattributable to $0.6 million in payments on gaming equipment financing and $0.1million in payment on long-term debt associated with equipment.

 

*Capital Expenditures for Virgin River Casino Corporation,RBG, LLC and B&BB, Inc.*

 

For the remainder offiscal 2005 and 2006, we plan to spend an aggregate of approximately$4.2 million in capital expenditures for hotel room renovation, for aconsolidation of our laundry operation, and for a new property management andback office computer system.  Inaddition, we plan to spend approximately $20.0 million in capital expendituresfor the development and construction of a new 165-room hotel tower andconvention center. Of the approximately $24.2 million in capitalexpenditures referred to above, we plan to spend approximately$2.7 million in fiscal year 2005 and the remainder in 2006.

 

We believe that existingcash, cash flows from operations, equipment financing and available borrowingsunder the Foothill Facility will be adequate to satisfy our anticipated uses ofcapital during the remainder of 2005 and 2006.

 

*Off Balance Sheet Arrangements for Virgin River CasinoCorporation, RBG, LLC and B&BB, Inc.*

 

We have no off balancesheet arrangements at September 30, 2005 or December 31, 2004.

 

*ContractualObligations and Commitments for Virgin River Casino Corporation, RBG, LLC andB&BB, Inc.*

 

Inaddition to our contractual obligations and commitments presented in ourregistration statement on Form S-4/A filed with the Securities and ExchangeCommission on September 22, 2005, the Companies have the following additionalcontractual obligations related to our gaming equipment financing as ofSeptember 30, 2005:

 

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| **Year Ending** | ** ** | **Amount**         | ** ** |
|-----------------|------------|--------------------|------------|
| ** **      | ** ** | **(in thousands)** | ** ** |
| 2005            |       | $                  | 300        |   |
| 2006            |       | 4,651              |       |
| 2007            |       | 5,115              |       |
| 2008            |       | 619                |       |
| Total           |       | $                  | 10,685     |   |

 

*ContractualObligations and Commitments for Virgin River Casino Corporation, RBG, LLC andB&BB, Inc. (continued)*

 

In October 2005, weentered into an agreement with Wells Fargo Financial Leasing to lease golfmaintenance equipment totaling approximately $1.3 million.  The term of the lease is 36 months at a rateof $29,000.  We are accounting for thelease as an operating lease.

 

In September 2005, weentered into an agreement with Agilysys NV, LLC to purchase a new propertymanagement system for the three properties. Implementation is expected to begin in December 2005 with a completiondate expected to occur before the end of the second quarter 2006.  The estimated cost of this project isapproximately $1.7 million.

 

In September 2005, weentered into an agreement with Infinium Software, Inc. to purchase a newfinancial management system. Implementation is expected to begin in December 2005 with an completiondate expected to occur before the end of the second quarter in 2006. Theestimated cost of this project is approximately $615,000.

 

In May 2005, we enteredinto a lease arrangement with Dell Financial Services to lease desktopcomputers and servers.  The term of thelease is 18 months at a rate of approximately $29,000 a month.  The lease also provides for a renewal periodof an additional 18 months at approximately $6,000 a month.  We are accounting for the lease as anoperating lease.

 

**CriticalAccounting Policies for VirginRiver Casino Corporation, RBG, LLC and B&BB, Inc.**

 

A description of ourcritical accounting policies can be found in Item 7 of our registrationstatement on Form S-4/A filed on September 22, 2005.

 

## **Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk.**

## ** **

The following tableprovides information about our long-term debt at September 30, 2005:

 
| ** **                                              | ** ** | **Maturity  Date** | ** ** | **Face  Amount**   | ** ** | **Carrying  Value** | ** ** | **Estimated  Fair  Value** | ** ** |
|---------------------------------------------------------|------------|--------------------|------------|--------------------|------------|---------------------|------------|----------------------------|------------|
| ** **                                              | ** ** | ** **         | ** ** | **(in thousands)** | ** ** |
| Revolving credit  facility at an interest rate of 8.25% |       | December 2008      |       | $                  | 15,000     |                | $          | 1,277                      |       | $ | 1,277 |   |
| 9% senior  secured notes                                |       | January 2012       |       | 125,000            |       | 125,000             |       | 130,000                    |       |
| 12 3⁄4% senior  subordinated notes                   |       | January 2013       |       | 66,000             |       | 43,788              |       | 46,860                     |       |
| Notes payable,  interest at 6.97%                       |       | September 2006     |       | 2,292              |       | 686                 |       | 686                        |       |
| Hypothecation  Note, interest at 9.25%                  |       | April 2004         |       | 10,000             |       | 252                 |       | 252                        |       |
| Notes payable,  interest at 7.0%                        |       | December 2008      |       | 574                |       | 47                  |       | 47                         |       |
| Notes payable,  interest at 6.21%                       |       | 2004-2007          |       | 988                |       | 195                 |       | 195                        |       |
| Market value of  interest rate swaps                    |       | September 2006     |       | 758                |       | 391                 |       | 391                        |       |
| Total                                                   |       |               |       | $                  | 220,612    |                | $          | 171,636                    |       | $ | 179,708 |   |

 

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We are also exposed tomarket risk in the form of fluctuations in interest rates and their potentialimpact upon our debt. Historically, this market risk is managed by utilizingderivative financial instruments in accordance with established policies andprocedures. We evaluate our exposure to market risk by monitoring interestrates in the marketplace, and do not utilize derivative financial instrumentsfor trading purposes. Our derivative financial instruments consist exclusivelyof interest rate swap agreements. Interest differentials resulting from theseagreements are recorded on an accrual basis as an adjustment to interestexpense. As of September 30, 2005, as a result of the Buyout, the interest rateswaps related to debt are not matched with any of our specific fixed-rate orvariable**-**rate debt obligations.

 

The following tableprovides information about our financial instruments that are sensitive tochanges in interest rates:

 
| ** **                                   | ** ** | **As of September 30**     | ** ** |
|----------------------------------------------|------------|----------------------------|------------|
| ** **                                   | ** ** | **2005**                   | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| ** **                                   | ** ** | **(dollars in thousands)** | ** ** |
| Long-term debt  (including current portion): |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed-rate                                   |       | $                          | 887        |   | $ | 40 |   | $ | — |   | $ | — |   | $ | — |   | $ | 191,000 |   | $ | 192,181 |   |
| Average interest  rate                       |       | 9.96                       | %          | 10.06 | % | 10.16 | % | 10.27 | % | 10.30 | % | 10.30 | % | 10.28 | % |
| Variable-rate                                |       | $                          | 252        |   | $ | — |   | $ | — |   | $ | 1,277 |   | $ | — |   | $ | — |   | $ | 1,529 |   |
| Average interest  rate                       |       | 9.75                       | %          | — |   | — |   | 8.75 | % | — |   | — |   | 8.91 | % |
| Capital leases  (including current portion): |       | $                          | 5          |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 5 |   |
| Average interest  rate                       |       | 4.67                       | %          | — |   | — |   | — |   | — |   | — |   | 4.67 | % |
| Interest rate  swaps:                        |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Notional amount                              |       | $                          | —     |   | $ | 36,400 |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 36,400 |   |
| Average payable  rate                        |       | —                     |       | 5.88 | % | — |   | — |   | — |   | — |   | 5.88 | % |
| Average  receivable rate                     |       |                       |       | 4.06 | % |   |   |   |   |   |   |   |   | 4.06 | % |

 

The gaming equipmentfinancing are agreements that because of their long-term nature we imputeinterest expense for accounting purposes. Contractually these agreements carry no interest therefore we believethat there is no exposure to interest rate risk and therefore have excludedthose contracts from the presentation above.

 

## **Item 4.  Controls and Procedures.**

## ** **

##### ***Evaluation of Disclosure Controls***

#####  

Weevaluated the effectiveness of our disclosure controls and procedures as of thenine months ended September 30, 2005. This evaluation was done with the participation of our management.

 

Disclosurecontrols and procedures are controls and other procedures that are designed toensure that information required to be disclosed by us in the reports that wefile or submit under the Securities Exchange Act of 1934 are recorded,processed, summarized and reported within the time periods specified in theSecurities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include,without limitation, controls and procedures designed to ensure that informationrequired to be disclosed by us in the reports that we file under the SecuritiesExchange Act of 1934 is accumulated and communicated to our management, asappropriate to allow timely decisions regarding required disclosure.

 

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##### ***Limitations on the Effectiveness of Controls***

#####  

Ourmanagement does not expect that our disclosure controls and procedures or ourinternal controls over financial reporting will prevent all error and allfraud.  A control system, no matter howwell conceived and operated, can provide only reasonable, but not absolute,assurance that the objectives of a control system are met.  Further, any control system reflectslimitations on resources, and the benefits of a control system must beconsidered relative to its costs. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within us have been detected.  These inherent limitations include the realitiesthat judgments in decision-making can be faulty and that breakdowns can occurbecause of simple error or mistake. Additionally, controls can be circumventedby the individual acts of some persons, by collusion of two or more people, orby management override of a control.  Thedesign of a control system is also based upon certain assumptions about thelikelihood of future events, there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions;over time, controls may become inadequate because of changes in conditions, orthe degree of compliance with the policies or procedures may deteriorate.Because of the inherent limitations in a cost-effective control system,misstatements due to error or fraud may occur and may not be detected.

 

##### ***Conclusions***

#####  

Basedon this evaluation, we concluded that, subject to the limitations noted above,our disclosure controls and procedures are effective to ensure that informationwe are required to disclose in reports that we file or submit under the SecuritiesExchange Act of 1934 are recorded, processed, summarized, and reported withinthe time periods specified in the Securities and Exchange Commission’s rulesand forms.

 

##### ***Changes in Internal Controls***

#####  

Therewere no changes in our internal controls over financial reporting that occurredduring our last fiscal quarter, *i.e.*,the quarter ended September 30, 2005, that have materially affected, or arereasonably likely to materially affect, our internal controls over financialreporting.

 

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**PART II – OTHER INFORMATION**

## **Item 1. Legal Proceedings.**

## ** **

## **None.**

## ** **

## **Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds.**

## ** **

None.

 

## **Item 3.  Defaults Upon Senior Securities.**

## ** **

None.

 

## **Item 4.  Submission of Matters to a Vote of SecurityHolders.**

## ** **

None.

 

## **Item 5. Other Information.**

## ** **

None.

 

## **Item 6. Exhibits.**

## ** **

(a)                                  Exhibits:

 

31.1         Certification pursuant to §302 of theSarbanes-Oxley Act of 2002, Curt Mayer

 

31.2         Certification pursuant to §302 of theSarbanes-Oxley Act of 2002, Robert R. Black, Sr.

 

32.1         Certification pursuant to §906 of theSarbanes-Oxley Act of 2002, Curt Mayer

 

32.2         Certification pursuant to §906 of theSarbanes-Oxley Act of 2002, Robert R. Black, Sr.

 

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# **SIGNATURES**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
| VIRGIN RIVER CASINO  CORPORATION |                      |
|----------------------------------|---------------------------|
|                             |                      |   |
| By:                              | /s/ Curt Mayer            |   | November  14, 2005 |
|                             | Curt Mayer                |   |
| * *                         | *Chief Financial Officer* | * * |
| * *                         | * *                  | * * |
| * *                         | * *                  | * * |
| RBG, LLC                         |                      |
|                             |                      |   |
| By:                              | /s/ Curt Mayer            |   | November  14, 2005 |
|                             | Curt Mayer                |   |
| * *                         | *Chief Financial Officer* | * * |
| * *                         | * *                  | * * |
| * *                         | * *                  | * * |
| B & BB, INC.                 |                      |
|                             |                      |   |
| By:                              | /s/ Curt Mayer            |   | November  14, 2005 |
|                             | Curt Mayer                |   |
| * *                         | *Chief Financial Officer* | * * |
|                                  |                           |  |  |  |

 

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