**UNITED STATES********SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q**

 

**(Mark One)**

**x****          ****QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

** **

**For thequarterly period ended June 30, 2006**

 

**OR**

 

**o****             ****TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

** **

**For thetransition period from                 to                 **

 

**Commission File Number 333-123179**

 

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**VirginRiver Casino Corporation**

**RBG, LLC**

**B &B B, Inc.**

(Exact Name of Registrant as Specified in itsCharter)

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

** **

**(702) 346-4000**

(Registrant’s Telephone Number, IncludingArea Code)

 

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**Indicate by check markwhether the Registrant (1) has filed all reports required by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the Registrant was required to filesuch reports) and (2) has been subject to such filing requirements for thepast 90 days.    Yes **x  No o

** **

Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of theExchange Act (Check one):  Largeaccelerated filer o  Accelerated filer o   Non-accelerated filer x

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).  Yes oNo x

 

 

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**TABLE OFADDITIONAL REGISTRANTS**

 

Each of the following direct and indirectsubsidiaries of RBG, LLC and each other subsidiary that is or becomes aguarantor of registrant’s registered securities, is also deemed to be aregistrant.

 
| **Exact name  of registrant as  specified in its charter** | ** ** | **State or other  jurisdiction of  incorporation or  organization** | ** ** | **I.R.S. Employer  Identification No.** | ** ** | **Address, including zip code, and  telephone number, of principal  executive offices** |
|------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------------------------------------------------------|
| Casablanca Resorts, LLC                                    |       | Nevada                                                              |       | 88-0492081                              |       | 897 West Mesquite BlvdMesquite, NV 89027  (702) 346-4000                                |
| Oasis Interval Ownership, LLC                              |       | Nevada                                                              |       | 88-0500066                              |       | 897 West Mesquite BlvdMesquite, NV 89027(702) 346-4000                                  |
| Oasis Interval Management, LLC                             |       | Nevada                                                              |       | 88-0500065                              |       | 897 West Mesquite BlvdMesquite, NV 89027(702) 346-4000                                  |
| Oasis Recreational Properties, Inc.                   |       | Nevada                                                              |       | 88-0499167                              |       | 897 West Mesquite BlvdMesquite, NV 89027(702) 346-4000                                  |

 

2

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| **PART I – FINANCIAL INFORMATION**                                                                                 | 4          |
|------------------------------------------------------------------------------------------------------------------------------|------------|
| Item 1. Financial Statements.                                                                                                | 4          |
|                                                                                                                         |       |
| ***Virgin River Casino Corporation Condensed  Consolidated Financial Statements***                                           | 4          |
| Condensed Consolidated  Balance Sheets – June 30, 2006 (unaudited) and December 31, 2005                           | 4          |
| Condensed Consolidated  Statements of Operations (unaudited) for the Three and Six Months Ended  June 30, 2006 and 2005 | 5          |
| Condensed Consolidated  Statements of Cash Flows (unaudited) for the Six Months Ended June 30,  2006 and 2005           | 6          |
| Notes to Condensed  Consolidated Financial Statements (unaudited)                                                            | 8          |
| ***RBG, LLC Condensed Consolidated Financial Statements***                                                                   | 15         |
| Condensed Consolidated  Balance Sheets – June 30, 2006 (unaudited) and December 31, 2005                           | 15         |
| Condensed Consolidated  Statements of Operations (unaudited) for the Three and Six Months Ended  June 30, 2006 and 2005 | 16         |
| Condensed Consolidated  Statements of Cash Flows (unaudited) for the Six Months Ended June 30,  2006 and 2005           | 17         |
| Notes to Condensed  Consolidated Financial Statements (unaudited)                                                            | 19         |
| ***B & B B, Inc. (doing business as  Virgin River Casino Hotel/Casino/Bingo) Condensed Financial Statements*** | 30         |
| Condensed Balance  Sheets – June 30, 2006 (unaudited) and December 31, 2005                                        | 30         |
| Condensed  Statements of Operations (unaudited) for the Three and Six Months Ended June  30, 2006 and 2005                   | 31         |
| Condensed  Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2006  and 2005                             | 32         |
| Notes to  Condensed Financial Statements (unaudited)                                                                         | 34         |
|                                                                                                                         |       |
| Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations.                        | 39         |
| Item 3.  Quantitative and Qualitative Disclosures About Market Risk.                                                         | 54         |
| Item 4. Controls  and Procedures                                                                                             | 56         |
|                                                                                                                         |       |
| **PART II  – OTHER INFORMATION**                                                                                   | **57**     |
| ** **                                                                                                                   | ** ** |
| Item 1. Legal  Proceedings                                                                                                   | 57         |
| Item 1A. Risk Factors                                                                                                        | 57         |
| Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds                                                         | 57         |
| Item 3.  Defaults Upon Senior Securities                                                                                     | 57         |
| Item 4.  Submission of Matters to A Vote of Security Holders                                                                 | 57         |
| Item 5. Other  Information                                                                                                   | 57         |
| Item 6. Exhibits.                                                                                                            | 57         |
|                                                                                                                         |       |
| **SIGNATURES**                                                                                                               | **58**     |

 

3

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**PART I – FINANCIAL INFORMATION**

** **

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

## ** **

**VirginRiver Casino Corporation**

 

### **Condensed ConsolidatedBalance Sheets**

### **(in thousands)**

 
| ** **                                                                                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                  | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                  | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| **Assets**                                                                                                  |       |              |       |                  |       |
| Current  assets:                                                                                            |       |              |       |                  |       |
| Cash and cash equivalents                                                                                   |       | $                 | 9,033      |                  | $          | 9,421 |   |
| Accounts receivable, net                                                                                    |       | 1,871             |       | 1,241                 |       |
| Related party receivables                                                                                   |       | 207               |       | 95                    |       |
| Related company receivables                                                                                 |       | 4,617             |       | 395                   |       |
| Inventories                                                                                                 |       | 1,594             |       | 1,652                 |       |
| Property held for vacation interval sales                                                                   |       | 352               |       | 392                   |       |
| Prepaid expenses                                                                                            |       | 2,796             |       | 3,194                 |       |
| Current portion of notes receivable                                                                         |       | 203               |       | 303                   |       |
| Total  current assets                                                                                       |       | 20,673            |       | 16,693                |       |
| Property and  equipment, net                                                                                |       | 120,231           |       | 123,092               |       |
| Notes  receivable, less current portion                                                                     |       | 1,224             |       | 1,821                 |       |
| Other assets                                                                                                |       | 245               |       | 217                   |       |
| Deferred  financing fees                                                                                    |       | 7,630             |       | 8,337                 |       |
| Goodwill and  other intangible assets, net                                                                  |       | 30,114            |       | 31,193                |       |
| Total assets                                                                                                |       | $                 | 180,117    |                  | $          | 181,353 |   |
|                                                                                                        |       |              |       |                  |       |
| **Liabilities  and Stockholder’s Deficit**                                                             |       |              |       |                  |       |
| Current  liabilities:                                                                                       |       |              |       |                  |       |
| Bank overdraft                                                                                              |       | $                 | —     |                  | $          | 548 |   |
| Current portion of gaming equipment  financing                                                              |       | 2,875             |       | 2,528                 |       |
| Current portion of long-term debt                                                                           |       | 80                |       | 614                   |       |
| Accounts payable                                                                                            |       | 2,200             |       | 2,784                 |       |
| Accrued liabilities                                                                                         |       | 14,627            |       | 15,041                |       |
| Related company payable                                                                                     |       | 3,068             |       | 99                    |       |
| Total current liabilities                                                                                   |       | 22,850            |       | 21,614                |       |
| Gaming equipment financing, less current  portion                                                           |       | 1,936             |       | 3,306                 |       |
| Long-term debt, less current portion                                                                        |       | 173,223           |       | 172,333               |       |
| Fair value of interest rate swaps                                                                           |       | —            |       | 195                   |       |
| Minority interest                                                                                           |       | 16,883            |       | 16,414                |       |
| Commitments and contingencies                                                                               |       |              |       |                  |       |
| 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                                                                                         |       | (21,472           | )          | (21,472               | )          |
| Accumulated deficit                                                                                         |       | (16,471           | )          | (14,205               | )          |
| Total stockholder’s deficit                                                                            |       | (34,775           | )          | (32,509               | )          |
| Total liabilities and stockholder’s deficit                                                            |       | $                 | 180,117    |                  | $          | 181,353 |   |

 

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

 

4

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**VirginRiver Casino Corporation**

 

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

**(inthousands)**

 
| ** **                                                                                | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                                                | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                                                | ** ** | **2006**               | ** ** | **2005**             | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                      |       |                   |       |                 |       |   |   |   |   |
| Revenues                                                                                  |       |                   |       |                 |       |   |   |   |   |
| Casino                                                                                    |       | $                      | 17,497     |                 | $          | 15,582 |   | $ | 34,816 |   | $ | 31,578 |   |
| Food and beverage                                                                         |       | 8,085                  |       | 7,942                |       | 16,069 |   | 15,837 |   |
| Hotel                                                                                     |       | 6,814                  |       | 5,478                |       | 13,441 |   | 10,819 |   |
| Related company rental income                                                             |       | 1,575                  |       | 1,575                |       | 3,150 |   | 3,150 |   |
| Other                                                                                     |       | 5,271                  |       | 5,569                |       | 10,530 |   | 10,832 |   |
| Total revenues                                                                            |       | 39,242                 |       | 36,146               |       | 78,006 |   | 72,216 |   |
| Less—promotional allowances                                                          |       | (6,561                 | )          | (4,640               | )          | (13,134 | ) | (9,507 | ) |
| Net revenues                                                                              |       | 32,681                 |       | 31,506               |       | 64,872 |   | 62,709 |   |
| Operating expenses:                                                                       |       |                   |       |                 |       |   |   |   |   |
| Casino                                                                                    |       | 7,712                  |       | 7,306                |       | 15,773 |   | 15,018 |   |
| Food and beverage                                                                         |       | 4,665                  |       | 5,125                |       | 9,266 |   | 9,818 |   |
| Hotel                                                                                     |       | 1,210                  |       | 1,838                |       | 2,599 |   | 3,422 |   |
| Other                                                                                     |       | 3,133                  |       | 3,690                |       | 6,224 |   | 7,369 |   |
| General and administrative                                                                |       | 9,310                  |       | 7,497                |       | 17,480 |   | 14,490 |   |
| Depreciation and amortization                                                             |       | 3,082                  |       | 2,566                |       | 6,484 |   | 4,805 |   |
| Loss on sale and disposal of assets                                                       |       | 156                    |       | 633                  |       | 248 |   | 650 |   |
| Total operating expenses                                                                  |       | 29,268                 |       | 28,655               |       | 58,074 |   | 55,572 |   |
| Operating income                                                                          |       | 3,413                  |       | 2,851                |       | 6,798 |   | 7,137 |   |
| Other income (expense):                                                                   |       |                   |       |                 |       |   |   |   |   |
| Interest expense                                                                          |       | (4,417                 | )          | (4,452               | )          | (8,814 | ) | (8,716 | ) |
| Change in fair value of interest rate swaps                                               |       | 71                     |       | 169                  |       | 195 |   | 736 |   |
| Return on  investment with MDW, LLC                                                       |       | 220                    |       | (143                 | )          | 220 |   | (175 | ) |
| Loss before cumulative effective of change  in accounting principle and minority interest |       | (713                   | )          | (1,575               | )          | (1,601 | ) | (1,018 | ) |
| Cumulative effect of change in accounting  principle                                      |       | —                 |       | —               |       | (196 | ) | — |   |
| Loss before minority interest                                                             |       | (713                   | )          | (1,575               | )          | (1,797 | ) | (1,018 | ) |
|                                                                                      |       |                   |       |                 |       |   |   |   |   |
| Minority interest in income from RBG, LLC  and Casablanca Resorts, LLC                    |       | (261                   | )          | (165                 | )          | (469 | ) | (502 | ) |
| Net loss                                                                                  |       | $                      | (974       | )                    | $          | (1,740 | ) | $ | (2,266 | ) | $ | (1,520 | ) |

 

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

 

5

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**VirginRiver Casino Corporation**

 

### **Condensed ConsolidatedStatements of Cash Flows (unaudited)**

**(in thousands)**

 
| ** **                                                                       | ** ** | **Six months ended** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                       | ** ** | **June 30,**    | ** ** | **June 30,** | ** ** |
| ** **                                                                       | ** ** | **2006**             | ** ** | **2005** | ** ** |
| Cash flows from operating activities:                                            |       |                 |       |   |   |
| Net loss                                                                         |       | $                    | (2,266     | ) | $ | (1,520 | ) |
| Adjustments to reconcile net loss to net  cash provided by operating activities: |       |                 |       |   |   |
| Depreciation and amortization                                                    |       | 6,484                |       | 4,805 |   |
| Minority interest in income from RBG, LLC  and Casablanca Resorts, LLC           |       | 469                  |       | 502 |   |
| Change in fair value of interest rate swaps                                      |       | (195                 | )          | (736 | ) |
| Loss on sale and disposal of assets                                              |       | 248                  |       | 650 |   |
| Cumulative effect of change in accounting principle                              |       | 196                  |       | — |   |
| Amortization of deferred financing fees                                          |       | 706                  |       | 688 |   |
| Accretion of senior subordinated notes                                           |       | 2,890                |       | 2,389 |   |
| Interest expense on gaming equipment  financing                                  |       | 51                   |       | 152 |   |
| Cost of vacation intervals sales                                                 |       | 41                   |       | 86 |   |
| Change in operating assets and liabilities:                                      |       |                 |       |   |   |
| Accounts, related company and related party  receivables, net                    |       | (4,926               | )          | 1,062 |   |
| Inventories                                                                      |       | 58                   |       | (79 | ) |
| Prepaid expenses                                                                 |       | 398                  |       | 176 |   |
| Notes receivable                                                                 |       | 501                  |       | 184 |   |
| Accounts payable, accrued liabilities and  related company payables              |       | 1,952                |       | 3,705 |   |
| Net cash provided by operating activities                                        |       | 6,607                |       | 12,064 |   |
|                                                                             |       |                 |       |   |   |
| Cash flows from investing activities:                                            |       |                 |       |   |   |
| Proceeds received from sale of assets                                            |       | 43                   |       | 140 |   |
| Purchase price adjustment                                                        |       | —               |       | (1,218 | ) |
| Capital expenditures                                                             |       | (2,809               | )          | (7,617 | ) |
| Net cash used in investing activities                                            |       | (2,766               | )          | (8,695 | ) |
|                                                                             |       |                 |       |   |   |
| Cash flows from financing activities:                                            |       |                 |       |   |   |
| Proceeds from issuance of long-term debt                                         |       | 3,000                |       | 487 |   |
| Decrease in bank overdraft                                                       |       | (548                 | )          | (1,480 | ) |
| Payment of long-term debt                                                        |       | (5,534               | )          | (942 | ) |
| Payment on gaming equipment financing                                            |       | (1,117               | )          | (400 | ) |
| Payment of obligations under capital lease                                       |       | —               |       | (9 | ) |
| Payment of financing fees                                                        |       | —               |       | (193 | ) |
| Distributions paid                                                               |       | —               |       | (1,783 | ) |
| Change in other assets                                                           |       | (30                  | )          | 106 |   |
| Net cash used in financing activities                                            |       | (4,229               | )          | (4,214 | ) |
| Net decrease in cash and cash equivalents                                        |       | (388                 | )          | (845 | ) |
| Cash and cash equivalents at beginning of  year                                  |       | 9,421                |       | 11,114 |   |
| Cash and cash equivalents at end of period                                       |       | $                    | 9,033      |   | $ | 10,269 |   |

 

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

 

6

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**VirginRiver Casino Corporation**

 

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

**(inthousands)**

 
| ** **                                             | ** ** | **Six months ended** | ** ** |
|--------------------------------------------------------|------------|----------------------|------------|
| ** **                                             | ** ** | **June 30,**    | ** ** | **June 30,** | ** ** |
| ** **                                             | ** ** | **2006**             | ** ** | **2005** | ** ** |
|                                                   |       |                 |       |   |   |
| Supplemental cash flow disclosure:                     |       |                 |       |   |   |
|                                                   |       |                 |       |   |   |
| Cash paid for interest                                 |       | $                    | 5,182      |   | $ | 797 |   |
|                                                   |       |                 |       |   |   |
| Acquisition of assets with gaming equipment  financing |       | $                    | 62         |   | $ | 5,202 |   |

 

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

 

7

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**Virgin River Casino Corporation**

 

### **Notes to CondensedConsolidated Financial Statements (unaudited)**

**June 30, 2006**

** **

**1.**             Basis of Presentation and Background

** **

The accompanying are thecondensed consolidated financial statements of Virgin River Casino Corporation,which includes 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”) owns 80.8% of RBG, LLC (“RBG”) andCasablanca Resorts, LLC (“Resorts LLC”). Robert R. Black, Sr. (“Mr. Black”)is the sole shareholder of VRCC and owns 17.3% of RBG individually and throughanother entity.  Mr. Black also isthe sole shareholder of B&BB, Inc. (doing business as Virgin RiverHotel/Casino/Bingo) (“B&BB”). The Company and B&BB are collectivelyreferred to as the “Companies.” The Companies are operated under commonmanagement.  Significant intercompanyitems and transactions of the Company have been eliminated.

 

***InterimFinancial Statements***– The accompanying unaudited condensed consolidated financialstatements as of June 30, 2006 and for the three and six-month periodsended June 30, 2006 and 2005 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 consolidated financial statements filedon Form 10-K for the year ended December 31, 2005.  The results for the three and six-monthperiods ended June 30, 2006 are not necessarily indicative of the resultsthat may be expected for the year ending December 31, 2006, or for anyother period.

 

***Reclassifications***– Certainpreviously reported amounts in the condensed consolidated financial statementshave been reclassified to conform to the current period’s presentation.

 

**2.**             Property and Equipment

** **

Property and equipmentconsists of the following (in thousands):

 
| ** **                                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                           | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Land                                                 |       | $                 | 35,838     |                  | $          | 35,838 |   |
| Buildings                                            |       | 72,284            |       | 71,774                |       |
| Land and leasehold improvements                      |       | 18,499            |       | 18,400                |       |
| Furniture, fixtures and equipment                    |       | 39,465            |       | 38,623                |       |
| Construction in progress                             |       | 1,144             |       | 1,043                 |       |
|                                                 |       | 167,230           |       | 165,678               |       |
| Less—accumulated depreciation and  amortization |       | (46,999           | )          | (42,586               | )          |
| Property and equipment, net                          |       | $                 | 120,231    |                  | $          | 123,092 |   |

 

The Company hasre-evaluated the useful lives of their slot machines (included in furniture,fixture and equipment above) and effective January 1, 2006, changing thatestimate from seven years to five years.  For the three and six months ended June 30,2006, operating income of the Company decreased approximately $204,000 and$374,000, respectively, as a result of the change in estimated lives.

 

8

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**VirginRiver Casino Corporation**

 

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

 

**3.**             NotesReceivable

** **

Notes receivable consistof the following (in thousands):

 

| ** **                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                           | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Vacation interval notes receivable   |       | $                 | 1,273      |                  | $          | 1,722 |   |
| Holdbacks by financing institutions  |       | 678               |       | 797                   |       |
| Allowance for possible credit losses |       | (524              | )          | (395                  | )          |
| Total notes receivable               |       | 1,427             |       | 2,124                 |       |
| Less: current portion                |       | (203              | )          | (303                  | )          |
| Non-current notes receivable         |       | $                 | 1,224      |                  | $          | 1,821 |   |

 

Notesgenerated from the sale of vacation intervals generally bear interest at annualrates ranging from 12.75% to 14.75% and have terms of 5 to 7 years. Thevacation interval notes receivable are collateralized by the right to use anddeeds of trust on the vacation interval sold.

 

In January of 2006,the Company adopted the provisions of SFAS 152, “*Accountingfor Real Estate Time-Sharing Transactions*.” SFAS 152 amendsexisting accounting guidance to reference the financial accounting andreporting guidance for real estate time-sharing transactions provided in AICPAStatement of Position 04-02, “*Accounting for Real EstateTime-Sharing Transactions*.” In determining the allowance forpossible credit losses, the Company, in accordance with SFAS 152, uses atechnique referred to as static pool analysis, which tracks uncollectible notereceivables based on each year’s sales over the entire life of those notes.  The Company considers whether the historicaleconomic conditions are comparable to current economic conditions.  If current economic conditions differ fromthe economic conditions in effect when the historical experience was generated,the Company adjusts the allowance for possible credit losses to reflect theexpected effects of current economic conditions on uncollectibility.  The Company groups all notes receivables inone pool for analytical purposes based on historical collectibility andcustomer demographics.  As a result ofthe change in accounting for the allowance for possible credit losses, theCompany has recorded in the accompanying statement of operations for thesix-months ended June 30, 2006, a cumulative effect of a change inaccounting principle of $196,000 to increase the allowance for possible creditlosses.

 

9

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**VirginRiver Casino Corporation**

 

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

 

**4.**             Long-term Debt

** **

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

 
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| 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                                                  |       | $                 | —     |                  | $          | 2,000 |   |
| 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 |       | 48,223            |       | 45,333                |       |
| 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                                                                                                                                                   |       | —            |       | 363                   |       |
| Hypothecation note at prime plus 3.0%  (10.25% at December 31, 2005), collateralized by certain notes  receivable as defined; guaranteed by one of the initial members, due  April 2004                                                                                                               |       | —            |       | 94                    |       |
| 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                                                                                                                                               |       | 80                |       | 157                   |       |
|                                                                                                                                                                                                                                                                                                            |       | 173,303           |       | 172,947               |       |
| Less—current portion                                                                                                                                                                                                                                                                                       |       | (80               | )          | (614                  | )          |
| Total long-term debt                                                                                                                                                                                                                                                                                            |       | $                 | 173,223    |                  | $          | 172,333 |   |

 

***FoothillFacility***

** **

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 June 30, 2006, no amountswere drawn under the Foothill Facility. Accordingly, the availability under the Foothill Facility at June 30,2006 was $15.0 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 5.35% at June 30, 2006.  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 June 30, 2006 and December 31, 2005.  The outstanding balance on the FoothillFacility is a joint and several obligation of the Companies.

 

10

----

 

**VirginRiver Casino Corporation**

 

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

 

**4.**             Long-term Debt (cont’d)

** **

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

 

In December 2004, aspart of an ownership buyout (the “Buyout”), VRCC, RBG and B&BB (the “Issuers”)issued $125.0 million of 9% senior secured notes (“Senior Notes”) due on January 15,2012 and $39.9 million in gross proceeds of 123⁄4% senior subordinated notes(“Senior Sub Notes”) due January 15, 2013 (collectively the “Notes”).  The Notes are joint and several obligationsof the Issuers and all current and future subsidiaries of the Issuers.  Although the Notes are joint and severalobligations of the Issuers, the allocation of the balance of the Notes to the individualbalance sheets of B&BB, VRCC and RBG was according to the flow of funds atthe date of the Buyout with the proceeds of the Senior Notes necessary topurchase the interests of B&BB recorded on the balance sheet of B&BBand the remaining proceeds of the Senior Notes and Senior Sub Notes recorded onthe consolidated balance sheet of VRCC. The condensed consolidated balance sheet of the Company reflects thefull obligation of the Notes at June 30, 2006, with the amount recorded onthe balance sheet of B&BB recognized as a deemed distribution to reflectthe net obligation of the Notes recorded on the condensed consolidated balancesheet of the Company at June 30, 2006. At June 30, 2006, the netamount of the Notes recorded on the Company’s condensed consolidated balancesheet was $152.6 million. The Senior Notes pay interest semiannually while theSenior Sub Notes accrue interest 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 Issuers’ Notes contain certain customary financial and othercovenants, which limit the Issuers’ ability to incur additional debt.  The Indentures provide that the Issuers maynot incur additional indebtedness, other than specified types of indebtedness,unless the Consolidated Coverage Ratio, as defined, on a pro-forma basis afterthe incurrence of the additional indebtedness is at least 2.00 to 1.00. As of June 30,2006, the Issuers have incurred $0 of additional indebtedness as defined.

 

TheIndentures also contain other covenants which limit the ability of the Issuersand Guarantors, as defined, under the Indentures to pay dividends, redeemstock, or make other distributions, make investments, create certain liens,enter into certain transactions with affiliates, utilize proceeds from assetsales, transfer or sell assets, issue or sell equity interests of subsidiariesand enter into certain mergers and consolidations, as defined in theIndentures.  There are no restrictionsrelated to the transfer of funds between the Issuers, Guarantors and their respectivesubsidiaries.  The Issuers were incompliance with these covenants at June 30, 2006 and December 31,2005.

 

11

----

 

**VirginRiver Casino Corporation**

 

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

 

**4.**             Long-term Debt (cont’d)

** **

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 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.

 

***InterestRate Swaps***

 

The Companies’ interestrate swaps terminated effective June 30, 2006.

 

**5.****            ****GamingEquipment 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 manufacturers consist of payment terms ofless than 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):

 
| ** **                                                                                                                                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                           | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                           | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Gaming equipment financing to purchase 205  games, no payments for one year and monthly payments of $106 for 24 months  beginning February 2006 |       | $                 | 1,904      |                  | $          | 2,320 |   |
| Gaming equipment financing to purchase 68  games, no payments for one year and monthly payments of $43 for 24 months  beginning January 2006    |       | 765               |       | 945                   |       |
| Gaming equipment financing to purchase 70  games, no payments for one year and monthly payments of $39 for 24 months  beginning March 2006      |       | 756               |       | 838                   |       |
| Gaming equipment financing to purchase 60  games, monthly payments of $20 for 36 months beginning April 2005                                    |       | 407               |       | 513                   |       |
| Gaming equipment financing to purchase 64  games, no payments for one year and monthly payments of $26 for 24 months  beginning February 2006   |       | 468               |       | 577                   |       |
| Gaming equipment financing to purchase 38  games, monthly payments of $13 for 36 months beginning April 2005                                    |       | 244               |       | 312                   |       |
| Gaming equipment financing to purchase 20  games, no payments for one year and monthly payments of $8 for 24 months  beginning January 2006     |       | 133               |       | 174                   |       |
| Gaming equipment financing, monthly  payments of $3 for 36 months beginning January 2005                                                        |       | 42                |       | 59                    |       |
| Gaming equipment financing with terms of  less than 12 months                                                                                        |       | 92                |       | 96                    |       |
|                                                                                                                                                 |       | 4,811             |       | 5,834                 |       |
|  Less  current portion                                                                                                                          |       | (2,875            | )          | (2,528                | )          |
| Gaming equipment financing, long-term  portion                                                                                                       |       | $                 | 1,936      |                  | $          | 3,306 |   |

 

12

----

 

**Virgin RiverCasino Corporation**

 

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

 

**6.****            ****Related Party Transactions**

 

MJB Development is a realestate construction company owned by a former shareholder of the Companieswhich provides storages services associated with hotel facilities of theCompany.  Total charges for leasing ofstorage containers totaled $0, $0, $0 and $70,000 during the three andsix-months ended June 30, 2006 and 2005, respectively, and are included inthe accompanying consolidated statements of operations.

 

Virgin River Foodmart, Inc.,a Nevada corporation (“Foodmart”), is owned by Mr. Black and his siblings.Participants in the Company’s slot club program are able to redeem their pointsfor gasoline at the Foodmart.  Foodmartcharges the Company the retail amount of gas purchased with player points.  Chargesassociated with the point redemption for gasoline at the Foodmart were $0,$1,000, $42,000 and $70,000 for the three and six-months ended June 30,2006 and 2005, respectively.

 

Black,LoBello & Pitegoff is a law firm managed by the daughter of Mr. Black. The Company retains Black, LoBello &Pitegoff as outside legal counsel, and has paid legal fees for legal servicesin the amount of $0, $69,000, $34,000 and $43,000 for the three and six-monthsended June 30, 2006 and 2005, respectively.

 

Pursuant to theIndenture, Mr. Black is entitled to a management fee for his management ofthe Company business of up to 5% of EBITDA, as defined.  The Company expensed $219,000, $438,000,$192,000 and $384,000 during the three and six-months ended June 30, 2006and 2005, respectively, associated with this management fee.

 

Gaming Research is aconsulting firm retained to perform marketing research for the Company.  The principal of Gaming Research is thefather of the Company’s chief operating officer.  Gaming Research received consulting fees of$41,000, $48,000, $9,000 and $27,000 for the three and six-months ended June 30,2006 and 2005, respectively.

 

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 June 30, 2006 and December 31,2005 is a receivable for $207,000 and $95,000, respectively, related to amountsowed for those services.

 

MDW, LLC (“MDW”) is aNevada limited-liability company which Mr. Black has an interest in. OnDecember 15, 2004, pursuant to a termination agreement, the Company terminatedits lease with MDW and entered into an arrangement with MDW to sellcondominiums. During the three and six months ended June 30, 2006, the Companyrecorded approximately $0.2 million in other income, respectively, and duringthe three and six months ended June 30, 2005, recorded $0.1 million and $0.2million in other expense, respectively, related to the Company’s investmentwith MDW.

 

**7.****            ****Commitments and Contingencies**

 

In January 2006,Oasis Interval Ownership, LLC entered into an agreement with Global ExchangeDevelopment Corp. to sell substantially all of the unsold time share intervalsat the Oasis Hotel and Casino.  The saleis expected to close in three separate closings each involving approximatelyone-third of the unsold time share intervals at the Oasis Hotel and Casino.Each close is expected to occur within 6 months of the preceding close.  The first closing occurred in January 2006for $280,000.  As part of the close,Global Exchange Development Corp. executed a note payable to Oasis IntervalOwnership, LLC in the amount of $224,000 due January 2007 at an interestrate of 4.38%.  The note was fully paidin April of 2006.  The secondclosing occurred in June 2006 for $288,000 in cash.

 

13

----

 

**VirginRiver Casino Corporation**

 

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

 

**7.****            ****Commitments and Contingencies(cont’d)**

 

As part of theacquisition of the Oasis Hotel and Casino in July 2001, WSR, Inc. (“WSR”),the former owners of the property, retained rights that enabled them to havecertain land owned by the Oasis Hotel and Casino in Arizona re-conveyed to themif any of the following events were to occur: (1) WSR is able to purchase theland, currently leased to the Oasis Hotel and Casino, from the State of Arizonaand sell the portion of the land used in the operation of the Palms Golf Courseback to the Oasis Hotel and Casino; (2) the Oasis Hotel and Casino is not ableto renegotiate a long-term extension to the current lease with the State ofArizona that expires in April 2008 and is required to develop existingland to replace the leased land for the golf course operation.  Management of the Company is unaware of anyattempts made by WSR to acquire the land from the State of Arizona and isconfident that it will be successful in extending this existing land lease.

 

14

----

 

**RBG, LLC**

 

**CondensedConsolidated Balance Sheets**

**(inthousands)**

 
| ** **                                        | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                        | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                        | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| **Assets**                                        |       |              |       |                  |       |
| Current assets:                                   |       |              |       |                  |       |
| Cash and cash equivalents                         |       | $                 | 8,576      |                  | $          | 7,815 |   |
| Accounts receivable, net                          |       | 1,864             |       | 1,226                 |       |
| Related party receivables                         |       | 207               |       | 95                    |       |
| Related company receivables                       |       | 4,876             |       | 620                   |       |
| Inventories                                       |       | 1,594             |       | 1,652                 |       |
| Property held for vacation interval sales         |       | 352               |       | 392                   |       |
| Prepaid expenses                                  |       | 2,770             |       | 3,116                 |       |
| Current portion of notes receivable               |       | 203               |       | 303                   |       |
| Total current assets                              |       | 20,442            |       | 15,219                |       |
| Property and equipment, net                       |       | 82,034            |       | 84,397                |       |
| Notes receivable, less current portion            |       | 1,224             |       | 1,821                 |       |
| Other assets                                      |       | 245               |       | 217                   |       |
| Goodwill and other intangible assets, net         |       | 30,114            |       | 31,193                |       |
| Total assets                                      |       | $                 | 134,059    |                  | $          | 132,847 |   |
| ** **                                        | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Liabilities and Members’ Deficit**         |       |              |       |                  |       |
| Current liabilities:                              |       |              |       |                  |       |
| Bank overdraft                                    |       | $                 | —     |                  | $          | 548 |   |
| Current portion of gaming equipment  financing    |       | 2,875             |       | 2,528                 |       |
| Current portion of long-term debt                 |       | 80                |       | 614                   |       |
| Accounts payable                                  |       | 2,191             |       | 2,762                 |       |
| Accrued liabilities                               |       | 14,627            |       | 16,119                |       |
| Related company payable                           |       | 224               |       | 196                   |       |
| Total current liabilities                         |       | 19,997            |       | 22,767                |       |
| Gaming equipment financing, less current  portion |       | 1,936             |       | 3,306                 |       |
| Long-term debt, less current portion              |       | 173,223           |       | 172,333               |       |
| Fair value of interest rate swaps                 |       | —            |       | 195                   |       |
| Commitments and contingencies                     |       |              |       |                  |       |
| Members’ deficit:                            |       |              |       |                  |       |
| Members’ contributions                       |       | 122,799           |       | 122,799               |       |
| Deemed distribution                               |       | (178,414          | )          | (178,883              | )          |
| Accumulated deficit                               |       | (5,482            | )          | (9,670                | )          |
| Total members’ deficit                       |       | (61,097           | )          | (65,754               | )          |
| Total liabilities and members’ deficit       |       | $                 | 134,059    |                  | $          | 132,847 |   |

 

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

 

15

----

 

**RBG, LLC**

 

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

**(inthousands)**

 
| ** **                                                            | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                                            | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                                                            | ** ** | **2006**               | ** ** | **2005**             | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                  |       |                   |       |                 |       |   |   |   |   |
| Revenues                                                              |       |                   |       |                 |       |   |   |   |   |
| Casino                                                                |       | $                      | 17,497     |                 | $          | 15,582 |   | $ | 34,816 |   | $ | 31,578 |   |
| Food and beverage                                                     |       | 8,085                  |       | 7,942                |       | 16,069 |   | 15,837 |   |
| Hotel                                                                 |       | 6,720                  |       | 5,343                |       | 13,096 |   | 10,400 |   |
| Other                                                                 |       | 5,198                  |       | 5,491                |       | 10,381 |   | 10,676 |   |
| Total revenues                                                        |       | 37,500                 |       | 34,358               |       | 74,362 |   | 68,491 |   |
| Less—promotional allowances                                      |       | (6,540                 | )          | (4,653               | )          | (13,059 | ) | (9,507 | ) |
| Net revenues                                                          |       | 30,960                 |       | 29,705               |       | 61,303 |   | 58,984 |   |
| Operating expenses:                                                   |       |                   |       |                 |       |   |   |   |   |
| Casino                                                                |       | 7,712                  |       | 7,306                |       | 15,773 |   | 15,018 |   |
| Food and beverage                                                     |       | 4,665                  |       | 5,125                |       | 9,266 |   | 9,818 |   |
| Hotel                                                                 |       | 1,088                  |       | 1,735                |       | 2,303 |   | 3,136 |   |
| Other                                                                 |       | 3,133                  |       | 3,690                |       | 6,224 |   | 7,369 |   |
| General and administrative                                            |       | 9,274                  |       | 7,379                |       | 17,400 |   | 14,312 |   |
| Depreciation and amortization                                         |       | 2,708                  |       | 2,001                |       | 5,736 |   | 3,865 |   |
| Loss on sale and disposal of assets                                   |       | 156                    |       | 633                  |       | 248 |   | 650 |   |
| Total operating expenses                                              |       | 28,736                 |       | 27,869               |       | 56,950 |   | 54,168 |   |
| Operating income                                                      |       | 2,224                  |       | 1,836                |       | 4,353 |   | 4,816 |   |
| Other income (expense):                                               |       |                   |       |                 |       |   |   |   |   |
| Interest expense                                                      |       | (163                   | )          | (346                 | )          | (329 | ) | (691 | ) |
| Change in fair value of interest rate swaps                           |       | 51                     |       | 121                  |       | 140 |   | 527 |   |
| Return on  investment with MDW, LLC                                   |       | 220                    |       | (143                 | )          | 220 |   | (175 | ) |
| Income before cumulative effective of  change in accounting principle |       | 2,332                  |       | 1,468                |       | 4,384 |   | 4,477 |   |
| Cumulative effect of change in accounting  principle                  |       | —                 |       | —               |       | (196 | ) | — |   |
| Net income                                                            |       | $                      | 2,332      |                 | $          | 1,468 |   | $ | 4,188 |   | $ | 4,477 |   |

 

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

 

16

----

 

**RBG, LLC**

 

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

**(inthousands)**

 
| ** **                                                                         | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **June 30,**    | ** ** | **June 30,** | ** ** |
| ** **                                                                         | ** ** | **2006**             | ** ** | **2005** | ** ** |
|                                                                               |       |                 |       |   |   |
| Cash flows from operating activities:                                              |       |                 |       |   |   |
| Net income                                                                         |       | $                    | 4,188      |   | $ | 4,477 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                 |       |   |   |
| Depreciation and amortization                                                      |       | 5,736                |       | 3,865 |   |
| Change in fair value of interest rate swaps                                        |       | (140                 | )          | (527 | ) |
| Loss on sale and disposal of assets                                                |       | 248                  |       | 650 |   |
| Cumulative effect of change in accounting principle                                |       | 196                  |       | — |   |
| Interest expense on gaming equipment  financing                                    |       | 51                   |       | 152 |   |
| Cost of vacation intervals sales                                                   |       | 41                   |       | 86 |   |
| Change in operating assets and liabilities:                                        |       |                 |       |   |   |
| Accounts, related company and related party  receivables, net                      |       | (4,968               | )          | (249 | ) |
| Inventories                                                                        |       | 58                   |       | (79 | ) |
| Prepaid expenses                                                                   |       | 346                  |       | 119 |   |
| Notes receivable                                                                   |       | 501                  |       | 184 |   |
| Accounts payable, accrued liabilities and  related company payables                |       | (750                 | )          | 1,098 |   |
| Net cash provided by operating activities                                          |       | 5,507                |       | 9,776 |   |
|                                                                               |       |                 |       |   |   |
| Cash flows from investing activities:                                              |       |                 |       |   |   |
| Proceeds received from sale of assets                                              |       | 43                   |       | 140 |   |
| Capital expenditures                                                               |       | (2,557               | )          | (7,364 | ) |
| Net cash used in investing activities                                              |       | (2,514               | )          | (7,224 | ) |
|                                                                               |       |                 |       |   |   |
| Cash flows from financing activities:                                              |       |                 |       |   |   |
| Proceeds from issuance of long-term debt                                           |       | —               |       | 193 |   |
| Decrease in bank overdraft                                                         |       | (548                 | )          | (1,480 | ) |
| Payment of long-term debt                                                          |       | (534                 | )          | (762 | ) |
| Payment on gaming equipment financing                                              |       | (1,117               | )          | (400 | ) |
| Payment of obligations under capital lease                                         |       | —               |       | (9 | ) |
| Change in other assets                                                             |       | (33                  | )          | 106 |   |
| Net cash used in financing activities                                              |       | (2,232               | )          | (2,352 | ) |
| Net increase in cash and cash equivalents                                          |       | 761                  |       | 200 |   |
| Cash and cash equivalents at beginning of  year                                    |       | 7,815                |       | 7,544 |   |
| Cash and cash equivalents at end of period                                         |       | $                    | 8,576      |   | $ | 7,744 |   |

 

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

 

17

----

 

**RBG, LLC**

 

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

**(inthousands)**

 
| ** **                                             | ** ** | **Six months ended** | ** ** |
|--------------------------------------------------------|------------|----------------------|------------|
| ** **                                             | ** ** | **June 30,**    | ** ** | **June 30,** | ** ** |
| ** **                                             | ** ** | **2006**             | ** ** | **2005** | ** ** |
|                                                   |       |                 |       |   |   |
| Supplemental cash flow disclosure:                     |       |                 |       |   |   |
|                                                   |       |                 |       |   |   |
| Cash paid for interest                                 |       | $                    | 278        |   | $ | 539 |   |
|                                                   |       |                 |       |   |   |
| Acquisition of assets with gaming equipment  financing |       | $                    | 62         |   | $ | 5,202 |   |

 

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

 

18

----

 

**RBG, LLC**

 

### **Notes to CondensedFinancial Statements (unaudited)**

**June 30, 2006**

** **

**1.**             Basis of Presentation and Background

** **

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”). Virgin River Casino Corporation (“VRCC”) owns 80.8% ofRBG, LLC (“RBG”) and Casablanca Resorts, LLC (“Resorts LLC”). Robert R. Black, Sr.(“Mr. Black”) is the sole shareholder of VRCC and owns 17.3% of RBGindividually and through another entity. Mr. Black also is the sole shareholder of B & B B, Inc.(doing business as Virgin River Hotel/Casino/Bingo) (“B&BB”). VRCC, RBG andB&BB (collectively the “Companies”) are operated under common management.Significant intercompany items and transactions of RBG have been eliminated.

 

***InterimFinancial Statements***– The accompanying unaudited condensed consolidated financialstatements as of June 30, 2006 and for the three and six-month periodsended June 30, 2006 and 2005 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 consolidated financial statements filed on Form 10-Kfor the year ended December 31, 2005. The results for the three and six-month periods ended June 30, 2006are not necessarily indicative of the results that may be expected for the yearending December 31, 2006, or for any other period.

 

***Reclassifications***– Certainpreviously reported amounts in the condensed consolidated financial statementshave been reclassified to conform to the current period’s presentation.

 

**2.**             RelatedCompany Receivables and Payables

** **

The related companyreceivables at June 30, 2006 and December 31, 2005 consist of thefollowing (in thousands):

 

| ** **                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                  | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                  | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Virgin River Casino Corp.   |       | $                 | 259        |                  | $          | 225 |   |
| B&BB                    |       | 4,617             |       | 395                   |       |
| Related company receivables |       | $                 | 4,876      |                  | $          | 620 |   |

 

The related companypayables at June 30, 2006 and December 31, 2005 consist of thefollowing (in thousands):

 

| ** **                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                 | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Virgin River  Casino Corp. |       | $                 | 190        |                  | $          | 196 |   |
| B&BB                   |       | 34                |       | —                |       |
| Related  company payables  |       | $                 | 224        |                  | $          | 196 |   |

 

19

----

 

**RBG, LLC**

 

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

 

**2.**             Related Company Receivables and Payables(cont’d)

** **

The transactions betweenthe RBG and the entities above are based on informal arrangements.  At June 30, 2006 and December 31,2005, there are no specific payment terms nor do any of the receivables requirethe payment of any interest.

 

**3.**             Propertyand Equipment

** **

Property and equipmentconsists of the following (in thousands):

 
| ** **                                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                           | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                           | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Land                                                 |       | $                 | 21,147     |                  | $          | 21,147 |   |
| Buildings                                            |       | 41,559            |       | 41,048                |       |
| Land and  leasehold improvements                     |       | 14,371            |       | 14,272                |       |
| Furniture,  fixtures and equipment                   |       | 38,115            |       | 37,454                |       |
| Construction  in progress                            |       | 982               |       | 951                   |       |
|                                                 |       | 116,174           |       | 114,872               |       |
| Less—accumulated  depreciation and amortization |       | (34,140           | )          | (30,475               | )          |
| Property and  equipment, net                         |       | $                 | 82,034     |                  | $          | 84,397 |   |

 

RBG has re-evaluated theuseful lives of their slot machines (included in furniture, fixtures andequipment above) and effective January 1, 2006, changing that estimate fromseven years to five years.  For the threeand six months ended June 30, 2006, operating income of the Company decreasedapproximately $204,000 and $374,000, respectively, as a result of the change inthe estimated lives.

 

**4.**             NotesReceivable

** **

Notes receivable consistof the following (in thousands):

 

| ** **                            | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                            | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Vacation  interval notes receivable   |       | $                 | 1,273      |                  | $          | 1,722 |   |
| Holdbacks by  financing institutions  |       | 678               |       | 797                   |       |
| Allowance  for possible credit losses |       | (524              | )          | (395                  | )          |
| Total notes  receivable               |       | 1,427             |       | 2,124                 |       |
| Less:  current portion                |       | (203              | )          | (303                  | )          |
| Non-current  notes receivable         |       | $                 | 1,224      |                  | $          | 1,821 |   |

 

Notesgenerated from the sale of vacation intervals generally bear interest at annualrates ranging from 12.75% to 14.75% and have terms of 5 to 7 years. Thevacation interval notes receivable are collateralized by the right to use anddeeds of trust on the vacation interval sold.

 

In January of 2006,RBG adopted the provisions of SFAS 152, “*Accountingfor Real Estate Time-Sharing Transactions*.” SFAS 152 amendsexisting accounting guidance to reference the financial accounting andreporting guidance for real estate time-sharing transactions provided in AICPAStatement of Position

 

20

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**RBG, LLC**

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**4.             NotesReceivable (cont’d)**

** **

04-02,“*Accounting for Real Estate Time-SharingTransactions*.” In accordance with SFAS 152, RBG now uses a techniquereferred to as static pool analysis, which tracks uncollectible notereceivables based on each year’s sales over the entire life of thosenotes.  RBG considers whether thehistorical economic conditions are comparable to current economicconditions.  If current economic conditionsdiffer from the economic conditions in effect when the historical experiencewas generated, RBG adjusts the allowance for possible credit losses to reflectthe expected effects of current economic conditions on uncollectibility.  RBG groups all notes receivables in one poolfor analytical purposes based on historical collectibility and customerdemographics.  As a result of the changein accounting for the allowance for possible credit losses, RBG has recorded inthe accompanying statement of operations for the six-months ended June 30,2006, a cumulative effect of a change in accounting principle of $196,000 toincrease the allowance for possible credit losses.

 

**5.             Long-termDebt**

** **

Long-termdebt consists of the following (in thousands):

 
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| 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.                                                 |       | $                 | —     |                  | $          | 2,000 |   |
| 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 |       | 48,223            |       | 45,333                |       |
| 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                                                                                                                                                   |       | —            |       | 363                   |       |
| Hypothecation Note at prime plus 3.0%  (10.75% at March 31, 2006), collateralized by certain notes receivable  as defined; guaranteed by one of the initial members, due April 2004                                                                                                                   |       | —            |       | 94                    |       |
| 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                                                                                                                                               |       | 80                |       | 157                   |       |
|                                                                                                                                                                                                                                                                                                            |       | 173,303           |       | 172,947               |       |
| Less—current portion                                                                                                                                                                                                                                                                                       |       | (80               | )          | (614                  | )          |
| Total long-term debt                                                                                                                                                                                                                                                                                            |       | $                 | 173,223    |                  | $          | 172,333 |   |

 

***Foothill Facility***

** **

TheWells Fargo Foothill credit facility (“Foothill Facility”) is secured bysubstantially all the assets of the Companies. During the life of the Foothill Facility,the Companies may borrow up to the lesser of (1) $15.0 million lessthe Letter of Credit Usage, as defined, less the Bank Product Reserve, asdefined, or

 

21

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**RBG, LLC**

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**5.             Long-termDebt (cont’d)**

** **

(2) theBorrowing Base, as defined, less the Letter of Credit Usage.  At June 30, 2006, no amounts were drawnunder the Foothill Facility. Accordingly, the availability under the Foothill Facility atJune 30, 2006 was $15.0 million.

 

Underthe terms of the Foothill Facility, interest accrues on the outstandingprincipal balance at LIBOR plus the LIBOR Rate Margin, which is 3.5%, or theBase Rate, as defined, plus the Base Rate Margin, which is 2%.  LIBOR was approximately 5.35% atJune 30, 2006.  The FoothillFacility also contains certain financial and other covenants.  These include a minimum trailing twelve-monthEarnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of$15,000,000 for the Companies and limitations on other indebtedness and capitalexpenditures, as defined.  The Companieswere in compliance with these covenants at June 30, 2006 andDecember 31, 2005.

 

Theoutstanding balance on the Foothill Facility is a joint and several obligationof the Companies. The condensed consolidated balance sheet of RBG reflects thefull obligation of the Foothill Facility at June 30, 2006 and December 31,2005 with the amount recorded on the consolidated balance sheet of VRCCrecognized as a deemed distribution to reflect the net obligation of theFoothill Facility on the consolidated balance sheet of RBG at June 30,2006.

 

***Senior Secured and SeniorSubordinated Notes***

 

InDecember 2004, as part of an ownership buyout (the “Buyout”), VRCC, RBGand B&BB (the “Issuers”) issued $125.0 million of 9% senior securednotes (“Senior Notes”) due on January 15, 2012 and $39.9 million ingross proceeds of 123⁄4% senior subordinated notes (“Senior Sub Notes”) dueJanuary 15, 2013 (collectively the “Notes”).  The Notes are joint and several obligationsof the Issuers and all current and future subsidiaries of the Issuers.  Although the Notes are joint and severalobligations of the Issuers, the allocation of the balance of the Notes to theindividual balance sheets of B&BB, VRCC and RBG was according to the flowof funds at the date of the Buyout with the proceeds of the Senior Notesnecessary to purchase the interests of B&BB recorded on the balance sheetof B&BB and the remaining proceeds of the Senior Notes and Senior Sub Notesrecording on the balance sheet of VRCC. The consolidated balance sheet of RBG reflects the full obligation ofthe Notes at June 30, 2006 with an amount recognized as a deemeddistribution to reflect the net obligation of the Notes recorded on theconsolidated balance sheet of RBG at June 30, 2006. At June 30, 2006,the net amount of the Notes recorded on the Company’s balance sheet was $0.

 

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.

 

Theindentures (the “Indentures”) governing the Issuers’ Notes contain certaincustomary financial and other covenants, which limit the Issuers’ ability toincur additional debt.  The Indenturesprovide that the Issuers may not incur additional indebtedness, other thanspecified types of indebtedness, unless the Consolidated Coverage Ratio, asdefined, on a pro-forma basis after the incurrence of the additionalindebtedness is

 

22

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**RBG, LLC**

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**5.             Long-termDebt (cont’d)**

** **

atleast 2.00 to 1.00. As of June 30, 2006, the Issuers have incurred $0 ofadditional indebtedness as defined. The Indentures also contain other covenantswhich limit the ability of the Issuers and Guarantors, as defined, under theIndentures to pay dividends, redeem stock, or make other distributions, makeinvestments, create certain liens, enter into certain transactions withaffiliates, utilize proceeds from asset sales, transfer or sell assets, issueor sell equity interests of subsidiaries and enter into certain mergers andconsolidations, as defined in the Indentures. There are no restrictions related to the transfer of funds between theIssuers, Guarantors and their respective subsidiaries.  The Issuers were in compliance with thesecovenants at June 30, 2006 and December 31, 2005.

 

TheSenior Notes are secured by substantially all existing and future assets of theIssuers and the Guarantors, as defined, as well as the equity interest of theGuarantors, the equity interests of Mr. Black 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.

 

***Interest Rate Swaps***

 

TheCompanies’ interest rate swapsterminated effective June 30, 2006.

 

**6.             GamingEquipment Financing**

 

RBGfrom time to time enters into agreements with gaming manufacturers to financethe purchase of gaming equipment. Contractual terms of the agreements with the gaming manufactures consistof payment terms of less than 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%.

 

Gamingequipment financing for RBG consists of the following (in thousands):  

 
| ** **                                                                                                                                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                           | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                           | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Gaming equipment financing to purchase 205  games, no payments for one year and monthly payments of $106 for 24 months  beginning February 2006 |       | $                 | 1,904      |                  | $          | 2,320 |   |
| Gaming equipment financing to purchase 68  games, no payments for one year and monthly payments of $43 for 24 months  beginning January 2006    |       | 765               |       | 945                   |       |
| Gaming equipment financing to purchase 70  games, no payments for one year and monthly payments of $39 for 24 months  beginning March 2006      |       | 756               |       | 838                   |       |
| Gaming equipment financing to purchase 60  games, monthly payments of $20 for 36 months beginning April 2005                                    |       | 407               |       | 513                   |       |
| Gaming equipment financing to purchase 64  games, no payments for one year and monthly payments of $26 for 24 months  beginning February 2006   |       | 468               |       | 577                   |       |
| Gaming equipment financing to purchase 38  games, monthly payments of $13 for 36 months beginning April 2005                                    |       | 244               |       | 312                   |       |
| Gaming equipment financing to purchase 20  games, no payments for one year and monthly payments of $8 for 24 months  beginning January 2006     |       | 133               |       | 174                   |       |
| Gaming equipment financing, monthly  payments of $3 for 36 months beginning January 2005                                                        |       | 42                |       | 59                    |       |
|                                                                                                                                                      |            |                   |            |                       |            |  |  |

 

23

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**RBG, LLC**

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**6.             GamingEquipment Financing (cont’d)**

 
| Gaming equipment financing with terms of  less than 12 months |   | 92     |   | 96     |   |
|---------------------------------------------------------------|--------|--------|--------|--------|--------|
|                                                          |   | 4,811  |   | 5,834  |   |
|  Less  current portion                                   |   | (2,875 | )      | (2,528 | )      |
| Gaming equipment financing, long-term  portion                |   | $      | 1,936  |   | $      | 3,306 |   |
|                                                               |        |        |        |        |        |  |  |

 

**7.             RelatedParty Transactions**

 

MJBDevelopment is a real estate construction company owned by a former shareholderof the Companies which provides storage services associated with hotelfacilities of the Company.  Total chargesfor leasing of storage containers totaled $0, $0, $0 and $70,000 during thethree and six-months ended June 30, 2006 and 2005, respectively, and areincluded in the accompanying consolidated statements of operations.

 

VirginRiver Foodmart, Inc., a Nevada corporation, (“Foodmart”) is owned byMr. Black and his siblings. Participants in the Company’s slot club program are able to redeem theirpoints for gasoline at the Foodmart. Foodmart charges the Company the retail amount of gas purchased withplayer points.  Charges associated withthe point redemption for gasoline at the Foodmart were $0, $1,000, $42,000 and$70,000 for the three and six-months ended June 30, 2006 and 2005,respectively.

 

Black,LoBello & Pitegoff is a law firm managed by the daughter ofMr. Black. The Company retains Black, LoBello & Pitegoff asoutside legal counsel, and has paid legal fees for legal services in the amountof $0, $67,000, $23,000 and $27,000 for the three and six-months endedJune 30, 2006 and 2005, respectively.

 

Pursuantto the Indenture, Mr. Black is entitled to a management fee for hismanagement of the Company business of up to 5% of EBITDA, as defined.  The Company expensed $219,000, $438,000,$192,000 and $384,000 during the three and six-months ended June 30, 2006and 2005, respectively, associated with this management fee.

 

GamingResearch is a consulting firm retained to perform marketing research forRBG.  The principal of Gaming Research isthe father of RBG’s chief operating officer. Gaming Research received consulting fees of $41,000, $48,000, $9,000 and$27,000 for the three and six-months ended June 30, 2006 and 2005,respectively.

 

ResortsLLC provided management and other services to two related parties that manageand operate the home owners associations of the vacation intervals sold at theproperty.  Included in the accompanyingcondensed consolidated balance sheet at June 30, 2006 andDecember 31, 2005 is a receivable for $207,000 and $95,000, respectively,related to amounts owed for those services.

 

MDW,LLC (“MDW”) is a Nevada limited-liability company which Mr. Black has aninterest in. On December 15, 2004, pursuant to a termination agreement, theCompany terminated its lease with MDW and entered into an arrangement with MDWto sell condominiums. As a result, during the three and six months ended June30, 2006, the Company recorded approximately $0.2 in other income,respectively, and during the three and six months ended June 30, 2005, recorded$0.1 million and $0.2 million in other expense, respectively, related to theCompany’s investment with MDW.

 

24

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**RBG, LLC**

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**8.             Commitmentsand Contingencies**

 

InJanuary 2006, Oasis Interval Ownership, LLC entered into an agreement withGlobal Exchange Development Corp. to sell substantially all of the unsold timeshare intervals at the Oasis Hotel and Casino. The sale is expected to close in three separate closings each involvingapproximately one-third of the unsold time share intervals at the Oasis Hoteland Casino. Each close is expected to occur within 6 months of the precedingclose.    The first closing occurred inJanuary 2006 for $280,000.  As partof the close, Global Exchange Development Corp. executed a note payable toOasis Interval Ownership, LLC in the amount of $224,000 due January 2007at an interest rate of 4.38%.  The notewas fully paid in April of 2006. The second closing occurred inJune 2006 for $288,000 in cash.

 

Aspart of the acquisition of the Oasis Hotel and Casino in July 2001, WSR,Inc. (“WSR”), the former owners of the property, retained rights that enabledthem to have certain land owned by the Oasis Hotel and Casino in Arizonare-conveyed to them if any of the following events were to occur: (1) WSR isable to purchase the land, currently leased to the Oasis Hotel and Casino, fromthe State of Arizona and sell the portion of the land used in the operation ofthe Palms Golf Course back to the Oasis Hotel and Casino; (2) the Oasis Hoteland Casino is not able to renegotiate a long-term extension to the currentlease with the State of Arizona that expires in April 2008 and is requiredto develop existing land to replace the leased land for the golf courseoperation.  Management of the Company isunaware of any attempts made by WSR to acquire the land from the State ofArizona and is confident that it will be successful in extending this existingland lease.

 

**9.**             **Consolidating Condensed Financial Information**

 

CasablancaResorts, LLC, Oasis Recreational Properties, Inc., Oasis IntervalManagement, LLC and Oasis Interval Ownership, LLC (together the “GuarantorSubsidiaries”) have fully and unconditionally guaranteed, on a joint andseveral basis, payment of the Notes. Separate condensed financial statement informationfor RBG and its Guarantor Subsidiaries as of June 30, 2006 (unaudited) andDecember 31, 2005 and for the six months ended June 30, 2006 and 2005(unaudited) is as follows (in thousands):

 

25

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**RBG, LLC**

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**9.**             **Consolidating Condensed Financial Information (cont’d)**

 
| ** **                                                   | ** ** | **RBG**    | ** ** | **Guarantor   Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total  Consolidated** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|------------------------------|------------|------------------|------------|-------------------------|------------|
| **As of  June 30, 2006**                                | ** ** | ** ** | ** ** | ** **                   | ** ** | ** **       | ** ** | ** **              | ** ** |
| **BALANCE  SHEET:**                                          | ** ** | ** ** | ** ** | ** **                   | ** ** | ** **       | ** ** | ** **              | ** ** |
| Current Assets, including intercompany  accounts             |       | $          | 21,129     |                         | $          | 11,015           |       | $                       | (11,702    | ) | $ | 20,442 |   |
| Property and Equipment, net                                  |       | 44,549     |       | 37,485                       |       | —           |       | 82,034                  |       |
| Goodwill and Other Intangibles                               |       | 14,584     |       | 15,530                       |       | —           |       | 30,114                  |       |
| Other assets (liabilities), excluding  intercompany accounts |       | 46,432     |       | 573                          |       | (45,536          | )          | 1,469                   |       |
|                                                         |       | $          | 126,694    |                         | $          | 64,603           |       | $                       | (57,238    | ) | $ | 134,059 |   |
|                                                         |       |       |       |                         |       |             |       |                    |       |
| Current Liabilities                                          |       | $          | 13,330     |                         | $          | 18,369           |       | $                       | (11,702    | ) | $ | 19,997 |   |
| Long-term debt, less current portion                         |       | 173,223    |       | —                       |       | —           |       | 173,223                 |       |
| Gaming equipment financing, less current  portion            |       | 1,238      |       | 698                          |       | —           |       | 1,936                   |       |
| Fair value of interest rate swaps                            |       | —     |       | —                       |       | —           |       | —                  |       |
| Members’ (Deficit) Equity                               |       | (61,097    | )          | 45,536                       |       | (45,536          | )          | (61,097                 | )          |
|                                                         |       | $          | 126,694    |                         | $          | 64,603           |       | $                       | (57,238    | ) | $ | 134,059 |   |
|                                                         |       |       |       |                         |       |             |       |                    |       |
| **As of  December 31, 2005**                            |       |       |       |                         |       |             |       |                    |       |
| **BALANCE  SHEET:**                                          |       |       |       |                         |       |             |       |                    |       |
| Current Assets, including intercompany  accounts             |       | $          | 18,415     |                         | $          | 6,911            |       | $                       | (10,107    | ) | $ | 15,219 |   |
| Property and Equipment, net                                  |       | 46,783     |       | 37,614                       |       | —           |       | 84,397                  |       |
| Goodwill and Other Intangibles                               |       | 15,047     |       | 16,146                       |       | —           |       | 31,193                  |       |
| Other Assets (liabilities), including  intercompany accounts |       | 44,384     |       | 716                          |       | (43,062          | )          | 2,038                   |       |
|                                                         |       | $          | 124,629    |                         | $          | 61,387           |       | $                       | (53,169    | ) | $ | 132,847 |   |
|                                                         |       |       |       |                         |       |             |       |                    |       |
| Current Liabilities                                          |       | $          | 15,854     |                         | $          | 17,020           |       | $                       | (10,107    | ) | $ | 22,767 |   |
| Long-term debt, less current portion                         |       | 172,333    |       | —                       |       | —           |       | 172,333                 |       |
| Gaming equipment financing, less current  portion            |       | 2,100      |       | 1,206                        |       | —           |       | 3,306                   |       |
| Fair value of interest rate swaps                            |       | 96         |       | 99                           |       | —           |       | 195                     |       |
| Members’ (Deficit) Equity                               |       | (65,754    | )          | 43,062                       |       | (43,062          | )          | (65,754                 | )          |
|                                                         |       | $          | 124,629    |                         | $          | 61,387           |       | $                       | (53,169    | ) | $ | 132,847 | . |

 

26

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**RBG, LLC**

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**9.**             **Consolidating Condensed Financial Information (cont’d)**

 
| ** **                                               | ** ** | **RBG**    | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total  Consolidated** | ** ** |
|----------------------------------------------------------|------------|------------|------------|-----------------------------|------------|------------------|------------|-------------------------|------------|
| **For the three-months ended June 30, 2006**        |       |       |       |                        |       |             |       |                    |       |   |   |   |   |
| **STATEMENT OF OPERATIONS**                              |       |       |       |                        |       |             |       |                    |       |   |   |   |   |
| Net Revenues                                             |       | $          | 16,132     |                        | $          | 14,828           |       | $                       | —     |   | $ | 30,960 |   |
| Operating Expenses:                                      |       |       |       |                        |       |             |       |                    |       |
| Casino                                                   |       | 4,474      |       | 3,238                       |       | —           |       | 7,712                   |       |
| Food and beverage                                        |       | 2,479      |       | 2,186                       |       | —           |       | 4,665                   |       |
| Hotel                                                    |       | 451        |       | 637                         |       | —           |       | 1,088                   |       |
| Other                                                    |       | 1,862      |       | 1,271                       |       | —           |       | 3,133                   |       |
| General and administrative                               |       | 4,318      |       | 4,956                       |       | —           |       | 9,274                   |       |
| Depreciation and amortization                            |       | 1,265      |       | 1,443                       |       | —           |       | 2,708                   |       |
| Loss on sale of assets                                   |       | 69         |       | 87                          |       | —           |       | 156                     |       |
|                                                     |       | 14,918     |       | 13,818                      |       | —           |       | 28,736                  |       |
| Operating  income                                        |       | 1,214      |       | 1,010                       |       | —           |       | 2,224                   |       |
| Income from investment in subsidiary                     |       | 967        |       | —                      |       | (967             | )          | —                  |       |
| Change in fair value of swap                             |       | 15         |       | 36                          |       | —           |       | 51                      |       |
| Other                                                    |       | 220        |       | —                      |       | —           |       | 220                     |       |
| Interest expense                                         |       | (84        | )          | (79                         | )          | —           |       | (163                    | )          |
| Total other income (expense)                             |       | 1,118      |       | (43                         | )          | (967             | )          | 108                     |       |
| Income before cumulative change in  accounting principle |       | 2,332      |       | 967                         |       | (967             | )          | 2,332                   |       |
| Cumulative effect of change in accounting  principle     |       | —     |       | —                      |       | —           |       | —                  |       |
| Net income                                               |       | $          | 2,332      |                        | $          | 967              |       | $                       | (967       | ) | $ | 2,332 |   |
|                                                     |       |       |       |                        |       |             |       |                    |       |
| **For the three-months ended June 30,  2005**       | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **       | ** ** | ** **              | ** ** |
| **STATEMENT OF OPERATIONS**                              |       |       |       |                        |       |             |       |                    |       |
| Net Revenues                                             |       | $          | 15,111     |                        | $          | 14,594           |       | $                       | —     |   | $ | 29,705 |   |
| Operating Expenses:                                      |       |       |       |                        |       |             |       |                    |       |
| Casino                                                   |       | 4,003      |       | 3,303                       |       | —           |       | 7,306                   |       |
| Food and beverage                                        |       | 2,711      |       | 2,414                       |       | —           |       | 5,125                   |       |
| Hotel                                                    |       | 778        |       | 957                         |       | —           |       | 1,735                   |       |
| Other                                                    |       | 1,948      |       | 1,742                       |       | —           |       | 3,690                   |       |
| General and administrative                               |       | 3,649      |       | 3,730                       |       | —           |       | 7,379                   |       |
| Depreciation and amortization                            |       | 1,123      |       | 878                         |       | —           |       | 2,001                   |       |
| Loss on sale of assets                                   |       |       |       | 633                         |       | —           |       | 633                     |       |
|                                                     |       | 14,212     |       | 13,657                      |       | —           |       | 27,869                  |       |

 

27

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**RBG, LLC**

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**9.**             **Consolidating Condensed Financial Information (cont’d)**

 
| ** **                                               | ** ** | **RBG** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total  Consolidated** | ** ** |
|----------------------------------------------------------|------------|---------|------------|-----------------------------|------------|------------------|------------|-------------------------|------------|
| **For the  three-months ended June 30, 2005**       |       |    |       |                        |       |             |       |                    |       |
| **STATEMENT  OF OPERATIONS**                             |       |    |       |                        |       |             |       |                    |       |
| Operating  income                                        |       | 899     |       | 937                         |       | —           |       | 1,836                   |       |
| Income from investment in subsidiary                     |       | 821     |       | —                      |       | (821             | )          | —                  |       |
| Change in fair value of swap                             |       | 36      |       | 85                          |       | —           |       | 121                     |       |
| Other                                                    |       | (143    | )          | —                      |       | —           |       | (143                    | )          |
| Interest expense                                         |       | (145    | )          | (201                        | )          | —           |       | (346                    | )          |
| Total other  income (expense)                            |       | 569     |       | (116                        | )          | (821             | )          | (368                    | )          |
| Income  before cumulative change in accounting principle |       | 1,468   |       | 821                         |       | (821             | )          | 1,468                   |       |
| Cumulative  effect of change in accounting principle     |       | —  |       | —                      |       | —           |       | —                  |       |
| Net income                                               |       | $       | 1,468      |                        | $          | 821              |       | $                       | (821       | ) | $ | 1,468 |   |
| ** **                                               |       |    |       |                        |       |             |       |                    |       |
| **For the six-months ended June 30, 2006**          |       |    |       |                        |       |             |       |                    |       |
| **STATEMENT OF OPERATIONS**                              |       |    |       |                        |       |             |       |                    |       |
| Net Revenues                                             |       | $       | 31,432     |                        | $          | 29,871           |       | $                       | —     |   | $ | 61,303 |   |
| Operating  Expenses:                                     |       |    |       |                        |       |             |       |                    |       |
| Casino                                                   |       | 9,094   |       | 6,679                       |       | —           |       | 15,773                  |       |
| Food and beverage                                        |       | 4,905   |       | 4,361                       |       | —           |       | 9,266                   |       |
| Hotel                                                    |       | 971     |       | 1,332                       |       | —           |       | 2,303                   |       |
| Other                                                    |       | 3,606   |       | 2,618                       |       | —           |       | 6,224                   |       |
| General and administrative                               |       | 8,113   |       | 9,287                       |       | —           |       | 17,400                  |       |
| Depreciation and amortization                            |       | 2,910   |       | 2,826                       |       | —           |       | 5,736                   |       |
| Loss on sale of assets                                   |       | 69      |       | 179                         |       | —           |       | 248                     |       |
|                                                     |       | 29,668  |       | 27,282                      |       | —           |       | 56,950                  |       |
| Operating  income                                        |       | 1,764   |       | 2,589                       |       | —           |       | 4,353                   |       |
| Income from investment in subsidiary                     |       | 2,474   |       | —                      |       | (2,474           | )          | —                  |       |
| Change in fair value of swap                             |       | 41      |       | 99                          |       | —           |       | 140                     |       |
| Other                                                    |       | 220     |       | —                      |       | —           |       | 220                     |       |
| Interest expense                                         |       | (186    | )          | (143                        | )          | —           |       | (329                    | )          |
| Total other  income (expense)                            |       | 2,549   |       | (44                         | )          | (2,474           | )          | 31                      |       |
| Income  before cumulative change in accounting principle |       | 4,313   |       | 2,545                       |       | (2,474           | )          | 4,384                   |       |
| Cumulative  effect of change in accounting principle     |       | (125    | )          | (71                         | )          | —           |       | (196                    | )          |
| Net income                                               |       | $       | 4,188      |                        | $          | 2,474            |       | $                       | (2,474     | ) | $ | 4,188 |   |

 

28

----

 

**RBG, LLC**

 

**Notes toCondensed Consolidated Financial Statements (unaudited) (continued)**

 

**9.**             **Consolidating Condensed Financial Information (cont’d)**

 
| ** **                                               | ** ** | **RBG** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Total  Consolidated** | ** ** |
|----------------------------------------------------------|------------|---------|------------|-----------------------------|------------|------------------|------------|-------------------------|------------|
| **For the six-months ended June 30, 2005**          |       |    |       |                        |       |             |       |                    |       |   |   |   |   |
| ** **                                               |       |    |       |                        |       |             |       |                    |       |   |   |   |   |
| **STATEMENT OF OPERATIONS**                              |       |    |       |                        |       |             |       |                    |       |   |   |   |   |
| Net Revenues                                             |       | $       | 29,846     |                        | $          | 29,138           |       | $                       | —     |   | $ | 58,984 |   |
| Operating Expenses:                                      |       |    |       |                        |       |             |       |                    |       |
| Casino                                                   |       | 8,129   |       | 6,889                       |       | —           |       | 15,018                  |       |
| Food and beverage                                        |       | 5,121   |       | 4,697                       |       | —           |       | 9,818                   |       |
| Hotel                                                    |       | 1,430   |       | 1,706                       |       | —           |       | 3,136                   |       |
| Other                                                    |       | 4,039   |       | 3,330                       |       | —           |       | 7,369                   |       |
| General and administrative                               |       | 7,113   |       | 7,199                       |       | —           |       | 14,312                  |       |
| Depreciation and amortization                            |       | 2,204   |       | 1,661                       |       | —           |       | 3,865                   |       |
| Loss on sale of assets                                   |       | 17      |       | 633                         |       | —           |       | 650                     |       |
|                                                     |       | 28,053  |       | 26,115                      |       | —           |       | 54,168                  |       |
| Operating income                                         |       | 1,793   |       | 3,023                       |       | —           |       | 4,816                   |       |
| Income from investment in subsidiary                     |       | 2,971   |       | —                      |       | (2,971           | )          | —                  |       |
| Change in fair value of swap                             |       | 156     |       | 371                         |       | —           |       | 527                     |       |
| Other                                                    |       | (175    | )          | —                      |       | —           |       | (175                    | )          |
| Interest expense                                         |       | (268    | )          | (423                        | )          |             |       | (691                    | )          |
| Total other income (expense)                             |       | 2,684   |       | (52                         | )          | (2,971           | )          | (339                    | )          |
| Income before cumulative change in  accounting principle |       | 4,477   |       | 2,971                       |       | (2,971           | )          | 4,477                   |       |
| Cumulative effect of change in accounting  principle     |       | —  |       | —                      |       | —           |       | —                  |       |
| Net income                                               |       | $       | 4,477      |                        | $          | 2,971            |       | $                       | (2,971     | ) | $ | 4,477 |   |
| ** **                                               |       |    |       |                        |       |             |       |                    |       |
| **For the  six-months ended June 30, 2006**         |       |    |       |                        |       |             |       |                    |       |
|                                                     |       |    |       |                        |       |             |       |                    |       |
| **STATEMENT  OF CASH FLOWS**                             |       |    |       |                        |       |             |       |                    |       |
| Net cash provided by operating activities                |       | $       | 1,267      |                        | $          | 4,240            |       | $                       | —     |   | $ | 5,507 |   |
| Net cash used  in investing activities                   |       | (448    | )          | (2,066                      | )          | —           |       | (2,514                  | )          |
| Net cash  used in financing activities                   |       | (1,432  | )          | (800                        | )          | —           |       | (2,232                  | )          |
|                                                     |       |    |       |                        |       |             |       |                    |       |
| **For the  six-months ended June 30, 2005**         |       |    |       |                        |       |             |       |                    |       |
| ** **                                               |       |    |       |                        |       |             |       |                    |       |
| **STATEMENT  OF CASH FLOWS**                             |       |    |       |                        |       |             |       |                    |       |
| Net cash  provided by operating activities               |       | $       | 3,875      |                        | $          | 5,901            |       | $                       | —     |   | $ | 9,776 |   |
| Net cash  used in investing activities                   |       | (3,912  | )          | (3,312                      | )          | —           |       | (7,224                  | )          |
| Net cash  used in financing activities                   |       | (957    | )          | (1,395                      | )          | —           |       | (2,352                  | )          |

 

29

----

 

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

 

### **CondensedBalance Sheets(in thousands)**

 
| ** **                                                                                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                  | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                  | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| **Assets**                                                                                                  |       |              |       |                  |       |
| Current  assets:                                                                                            |       |              |       |                  |       |
| Cash and cash equivalents                                                                                   |       | $                 | 8,169      |                  | $          | 6,211 |   |
| Accounts receivable, net                                                                                    |       | 250               |       | 155                   |       |
| Related company receivables                                                                                 |       | 3,068             |       | 122                   |       |
| Inventories                                                                                                 |       | 387               |       | 392                   |       |
| Prepaid expenses                                                                                            |       | 1,129             |       | 1,361                 |       |
| Total  current assets                                                                                       |       | 13,003            |       | 8,241                 |       |
| Property and  equipment, net                                                                                |       | 10,523            |       | 11,155                |       |
| Goodwill and  other intangible assets, net                                                                  |       | 10,914            |       | 11,568                |       |
| Deferred  financing fees                                                                                    |       | 1,035             |       | 1,129                 |       |
| Other assets                                                                                                |       | 18                |       | 15                    |       |
| Total assets                                                                                                |       | $                 | 35,493     |                  | $          | 32,108 |   |
| ** **                                                                                                  | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Liabilities  and Stockholder’s Deficit**                                                             |       |              |       |                  |       |
| Current  liabilities:                                                                                       |       |              |       |                  |       |
| Current portion of long-term debt                                                                           |       | $                 | —     |                  | $          | 174 |   |
| Current portion of gaming equipment  financing                                                              |       | 1,830             |       | 1,647                 |       |
| Accounts payable                                                                                            |       | 620               |       | 843                   |       |
| Accrued liabilities                                                                                         |       | 8,501             |       | 10,245                |       |
| Related company payable                                                                                     |       | 4,617             |       | 418                   |       |
| Total  current liabilities                                                                                  |       | 15,568            |       | 13,327                |       |
| Gaming  equipment financing, less current portion                                                           |       | 992               |       | 2,063                 |       |
| Long-term  debt, less current portion                                                                       |       | 173,223           |       | 172,333               |       |
| Fair value  of interest rate swaps                                                                          |       | —            |       | 195                   |       |
| Commitments  and contingencies                                                                              |       |              |       |                  |       |
| Stockholder’s  deficit:                                                                                |       |              |       |                  |       |
| Common stock, no par value; authorized  2,500 shares, 100 shares issued and 88 shares outstanding |       | —            |       | —                |       |
| Retained earnings                                                                                           |       | 3,352             |       | 2,613                 |       |
| Treasury stock, at cost                                                                                     |       | (700              | )          | (700                  | )          |
| Deemed distribution                                                                                         |       | (156,942          | )          | (157,723              | )          |
| Total stockholder’s deficit                                                                            |       | (154,290          | )          | (155,810              | )          |
|                                                                                                        |       |              |       |                  |       |
| Total liabilities and stockholder’s deficit                                                            |       | $                 | 35,493     |                  | $          | 32,108 |   |

 

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

 

30

----

 

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

 

### **Condensed Statements of Operations (unaudited)**

**(inthousands)**

 
| ** **                          | ** ** | **Three months ended** | ** ** | **Six months ended** | ** ** |
|-------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                          | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| ** **                          | ** ** | **2006**               | ** ** | **2005**             | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                |       |                   |       |                 |       |   |   |   |   |
| Revenues                            |       |                   |       |                 |       |   |   |   |   |
| Casino                              |       | $                      | 9,046      |                 | $          | 8,597 |   | $ | 18,799 |   | $ | 17,545 |   |
| Food and beverage                   |       | 2,904                  |       | 2,880                |       | 6,157 |   | 5,995 |   |
| Hotel                               |       | 2,664                  |       | 2,391                |       | 5,311 |   | 4,655 |   |
| Other                               |       | 689                    |       | 695                  |       | 1,424 |   | 1,398 |   |
| Total  revenues                     |       | 15,303                 |       | 14,563               |       | 31,691 |   | 29,593 |   |
| Less—promotional allowances    |       | (2,201                 | )          | (1,866               | )          | (4,557 | ) | (3,901 | ) |
| Net revenues                        |       | 13,102                 |       | 12,697               |       | 27,134 |   | 25,692 |   |
| Operating  expenses:                |       |                   |       |                 |       |   |   |   |   |
| Casino                              |       | 3,384                  |       | 3,307                |       | 6,830 |   | 7,030 |   |
| Food and beverage                   |       | 1,862                  |       | 1,904                |       | 3,820 |   | 3,657 |   |
| Hotel                               |       | 509                    |       | 752                  |       | 1,050 |   | 1,379 |   |
| Other                               |       | 363                    |       | 377                  |       | 717 |   | 750 |   |
| Related company rent                |       | 1,575                  |       | 1,575                |       | 3,150 |   | 3,150 |   |
| General and administrative          |       | 3,781                  |       | 3,128                |       | 7,199 |   | 6,404 |   |
| Depreciation and amortization       |       | 1,192                  |       | 712                  |       | 2,487 |   | 1,359 |   |
| Gain on sale and disposal of assets |       | (16                    | )          | (43                  | )          | (16 | ) | (43 | ) |
| Total  operating expenses           |       | 12,650                 |       | 11,712               |       | 25,237 |   | 23,686 |   |
| Operating  income                   |       | 452                    |       | 985                  |       | 1,897 |   | 2,006 |   |
| Other income  (expense):            |       |                   |       |                 |       |   |   |   |   |
| Interest expense                    |       | (583                   | )          | (584                 | )          | (1,158 | ) | (1,144 | ) |
| Net (loss)  income                  |       | $                      | (131       | )                    | $          | 401 |   | $ | 739 |   | $ | 862 |   |

 

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

 

31

----

 

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

 

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

**(inthousands)**

 
| ** **                                                                         | ** ** | **Six months ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **June 30,**    | ** ** | **June 30,** | ** ** |
| ** **                                                                         | ** ** | **2006**             | ** ** | **2005** | ** ** |
|                                                                               |       |                 |       |   |   |
| Cash flows  from operating activities:                                             |       |                 |       |   |   |
| Net income                                                                         |       | $                    | 739        |   | $ | 862 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |       |                 |       |   |   |
| Depreciation and amortization                                                      |       | 2,487                |       | 1,359 |   |
| Gain on sale and disposal of assets                                                |       | (16                  | )          | (43 | ) |
| Amortization of deferred financing fees                                            |       | 95                   |       | 90 |   |
| Interest expense on gaming equipment  financing                                    |       | 21                   |       | 119 |   |
| Change in operating assets and liabilities:                                        |       |                 |       |   |   |
| Accounts and related company receivables,  net                                     |       | (3,041               | )          | 713 |   |
| Inventories                                                                        |       | 5                    |       | 15 |   |
| Prepaid expenses                                                                   |       | 232                  |       | 147 |   |
| Accounts payable, accrued liabilities and  related company payables                |       | 3,670                |       | (40 | ) |
| Net cash provided by operating activities                                          |       | 4,192                |       | 3,222 |   |
|                                                                               |       |                 |       |   |   |
| Cash flows from investing activities:                                              |       |                 |       |   |   |
| Proceeds received from sale of assets.                                             |       | 11                   |       | 110 |   |
| Capital expenditures                                                               |       | (1,180               | )          | (1,122 | ) |
| Net cash used in investing activities                                              |       | (1,169               | )          | (1,012 | ) |
|                                                                               |       |                 |       |   |   |
| Cash flows  from financing activities:                                             |       |                 |       |   |   |
| Payment of long-term debt                                                          |       | (174                 | )          | (93 | ) |
| Payment on gaming equipment financing                                              |       | (886                 | )          | (310 | ) |
| Payment of financing fees                                                          |       | —               |       | (22 | ) |
| Change in other assets                                                             |       | (5                   | )          | (246 | ) |
| Net cash  used in financing activities                                             |       | (1,065               | )          | (671 | ) |
| Net increase  in cash and cash equivalents                                         |       | 1,958                |       | 1,539 |   |
| Cash and  cash equivalents at beginning of year                                    |       | 6,211                |       | 5,918 |   |
| Cash and  cash equivalents at end of period                                        |       | $                    | 8,169      |   | $ | 7,457 |   |

 

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

 

32

----

 

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

 

**CondensedStatements of Cash Flows (unaudited) (continued)**

**(inthousands)**

 
| ** **                                             | ** ** | **Six months ended** | ** ** |
|--------------------------------------------------------|------------|----------------------|------------|
| ** **                                             | ** ** | **June 30,**    | ** ** | **June 30,** | ** ** |
| ** **                                             | ** ** | **2006**             | ** ** | **2005** | ** ** |
|                                                   |       |                 |       |   |   |
| Supplemental  cash flow disclosure:                    |       |                 |       |   |   |
|                                                   |       |                 |       |   |   |
| Cash paid for interest                                 |       | $                    | 1,112      |   | $ | 13 |   |
|                                                   |       |                 |       |   |   |
| Acquisition of assets with gaming equipment  financing |       | $                    | —     |   | $ | 3,453 |   |

 

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

 

33

----

 

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

 

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

**June 30,2006**

** **

**1.             Basisof Presentation and Background**

** **

B&BB, 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 100.0% owned by Randy Black, Sr. (“Mr. Black”). The hotelportion of the facility commenced operations on June 1, 1990, and thecasino portion commenced operations on September 1, 1990. The land andbuildings are owned by Virgin River Casino Corporation (“VRCC”), a Nevadacorporation which is also 100% owned by Mr. Black and leased to B&BB.Certain personal property including furniture and fixtures, leaseholdimprovements within the casino, and gaming equipment are owned by B&BB.VRCC, RBG and B&BB (collectively the “Companies”) are operated under commonmanagement.

 

***Interim Financial Statements***– The accompanying unaudited condensedconsolidated financial statements as of June 30, 2006 and for the threeand six-month periods ended June 30, 2006 and 2005 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 financial statements should be read in conjunction with theCompany’s audited financial statements filed on Form 10-K for the yearended December 31, 2005.  Theresults for the three and six-month periods ended June 30, 2006 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2006, or for any other period.

 

**2.             RelatedCompany Receivables and Payables**

** **

Therelated company receivable of the Company consists of the following (inthousands):

 
| ** **                   | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                   | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Virgin River  Casino Corp.   |       | $                 | 3,068      |                  | $          | 106 |   |
| RBG, LLC                     |       | —            |       | 8                     |       |
| Casablanca  Resorts, LLC     |       | —            |       | 8                     |       |
| Related  company receivables |       | $                 | 3,068      |                  | $          | 122 |   |

 

Therelated company payable of the Company consists of the following (inthousands):

 
| ** **                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                 | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                 | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Virgin River  Casino Corp. |       | $                 | —     |                  | $          | 14 |   |
| RBG, LLC                   |       | 2,714             |       | 271                   |       |
| Casablanca  Resorts, LLC   |       | 1,903             |       | 133                   |       |
| Related  company payable   |       | $                 | 4,617      |                  | $          | 418 |   |

 

34

----

 

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

 

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

 

**3.             Propertyand Equipment**

** **

Thetransactions between the Company and the entities above are based on informalarrangements.  At June 30, 2006 andDecember 31, 2005, there are no specific payment terms nor do any of thereceivables require the payment of any interest.

** **

Propertyand equipment consists of the following (in thousands):

 
| ** **                                      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                      | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                      | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Buildings                                       |       | $                 | 285        |                  | $          | 285 |   |
| Land and  leasehold improvements                |       | 3,741             |       | 3,741                 |       |
| Furniture,  fixtures and equipment              |       | 27,515            |       | 25,964                |       |
| Construction  in progress                       |       | 541               |       | 893                   |       |
|                                            |       | 32,082            |       | 30,883                |       |
| Less-accumulated  depreciation and amortization |       | (21,559           | )          | (19,728               | )          |
| Property and  equipment, net                    |       | $                 | 10,523     |                  | $          | 11,155 |   |

 

TheCompany has re-evaluated the useful lived of their slot machines (included infurniture, fixtures and equipment above) and effective January 1, 2006,changing that estimate from seven years to five years.  For the three and six ended June 30, 2006,operating income of the Company decreased approximately $97,000 and $194,000,respectively, as a result of the change in the estimated lives.

 

**4.             Long-termDebt**

 

Long-termdebt consists of the following (in thousands): 

 
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                                                                                                                                                                                      | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| 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                                                  |       | $                 | —     |                  | $          | 2,000 |   |
| 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 |       | 48,223            |       | 45,333                |       |
| 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                                                                                                                                                   |       | —            |       | 174                   |       |
|                                                                                                                                                                                                                                                                                                            |       | 173,223           |       | 172,507               |       |
| Less—current portion                                                                                                                                                                                                                                                                                       |       | —            |       | (174                  | )          |
| Total long-term debt                                                                                                                                                                                                                                                                                            |       | $                 | 173,223    |                  | $          | 172,333 |   |

 

35

----

 

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

 

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

 

**4.             Long-termDebt (cont’d)**

** **

***Foothill Facility***

** **

TheWells Fargo Foothill credit facility (“Foothill Facility”) is secured bysubstantially all the assets of the Companies. During the life of the FoothillFacility, the Companies may borrow up to the lesser of(1) $15.0 million less the Letter of Credit Usage, as defined, lessthe Bank Product Reserve, as defined, or (2) the Borrowing Base, asdefined, less the Letter of Credit Usage. At June 30, 2006, no amounts were drawn on the FoothillFacility.  Accordingly, the availabilityunder the Foothill Facility at June 30, 2006 was $15.0 million. Under theterms of the Foothill Facility, interest accrues on the outstanding principalbalance at LIBOR 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 5.35% atJune 30, 2006.  The FoothillFacility also contains certain financial and other covenants.  These include a minimum trailing twelve-monthEarnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of$15,000,000 for the Companies and limitations on other indebtedness and capitalexpenditures, as defined.  The Companieswere in compliance with these covenants at June 30, 2006 andDecember 31, 2005.

 

Theoutstanding balance on the Foothill Facility is a joint and several obligationof the Companies. The condensed balance sheet of the Company reflects the fullobligation of the Foothill Facility at June 30, 2006 and December 31, 2005with the amount recorded on the consolidated balance sheet of VRCC recognizedas a deemed distribution to reflect the net obligation of the Foothill Facilityon the balance sheet of the Company at June 30, 2006. At June 30,2006, the net amount of the Foothill Facility recorded on the Company’s balancesheet is $0.

 

***Senior Secured and SeniorSubordinated Notes***

 

InDecember 2004, as part of an ownership buyout (the “Buyout”), the VRCC,RBG and B&BB (the “Issuers”) issued $125.0 million of 9% seniorsecured notes (“Senior Notes”) due on January 15, 2012 and$39.9 million in gross proceeds of 123⁄4% senior subordinated notes (“SeniorSub Notes”) due January 15, 2013 (collectively the “Notes”).  The Notes are joint and several obligationsof the Issuers and all current and future subsidiaries of the Issuers.  Although the Notes are joint and severalobligations of the Issuers, the allocation of the balance of the Notes to theindividual balance sheets of B&BB, VRCC and RBG was according to the flowof funds at the date of the Buyout with the proceeds of the Senior Notesnecessary to purchase the interests of B&BB recorded on the balance sheetof B&BB and the remaining proceeds of the Senior Notes and Senior Sub Notesrecording on the balance sheet of VRCC. The condensed balance sheet of the Company reflects the full obligationof the Notes at June 30, 2006 with an amount that is recorded on theconsolidated balance sheet of VRCC recognized as a deemed distribution toreflect the net obligation of the Notes recorded on the balance sheet of theCompany at June 30, 2006. At June 30, 2006, the net amount of theNotes recorded on the Company’s balance sheet is $20.6 million.

 

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.

 

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

 

**Notes toCondensed Financial Statements (unaudited) (continued)**

 

**4.             Long-termDebt (cont’d)**

** **

Theindentures (the “Indentures”) governing the Issuers’ Notes contain certaincustomary financial and other covenants, which limit the Issuers’ ability toincur additional debt.  The Indenturesprovide that the Issuers may not incur additional indebtedness, other thanspecified types of indebtedness, unless the Consolidated Coverage Ratio, asdefined, on a pro-forma basis after the incurrence of the additionalindebtedness is at least 2.00 to 1.00. As of June 30, 2006, the Issuershave incurred $0 of additional indebtedness as defined.

 

TheIndentures also contain other covenants which limit the ability of the Issuersand Guarantors, as defined, under the Indentures to pay dividends, redeem stock,or make other distributions, make investments, create certain liens, enter intocertain transactions with affiliates, utilize proceeds from asset sales,transfer or sell assets, issue or sell equity interests of subsidiaries andenter into certain mergers and consolidations, as defined in theIndentures.  There are no restrictionsrelated to the transfer of funds between the Issuers, Guarantors and theirrespective subsidiaries.  The Issuerswere in compliance with these covenants at June 30, 2006 and December 31,2005.

 

TheSenior Notes are secured by substantially all existing and future assets of theIssuers and the Guarantors, as defined, as well as the equity interest of theGuarantors, the equity interests of Mr. Black  and his affiliate in the Issuers.  The Guarantors are all the wholly ownedsubsidiaries of the Issuers.  The SeniorNotes are subordinated to the security interests of the Foothill Facility.  The Senior Sub Notes are subordinate to theSenior Notes and all other indebtedness of the Companies.

 

***Interest Rate Swaps***

 

TheCompanies’ interest rate swapsterminated effective June 30, 2006.

 

**5.             GamingEquipment Financing**

 

TheCompany from time to time enters into agreements with gaming manufacturers tofinance the purchase of gaming equipment. Contractual terms of the agreements with the gaming manufactures consistof payment terms of less than one year to up to three years withoutinterest.  In the event that an agreementwith a gaming manufacturer extends past a year, the Company will imputeinterest at a rate of 8%.

 

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

 

**Notes toCondensed Financial Statements (unaudited) (continued)**

 

**5.             GamingEquipment Financing (cont’d)**

 

Gamingequipment financing consists of the following (in thousands): 

 
| ** **                                                                                                                                           | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                           | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| ** **                                                                                                                                           | ** ** | **(unaudited)**   | ** ** | ** **            | ** ** |
| Gaming equipment financing to purchase 273  games, no payments for one year and monthly payments of $145 for 24 months  beginning February 2006 |       | $                 | 2,450      |                  | $          | 3,183 |   |
| Gaming equipment financing to purchase 20  games, monthly payments of $7 for 36 months beginning April 2005                                     |       | 127               |       | 167                   |       |
| Gaming equipment financing to purchase 35  games, no payments for one year and monthly payments of $8 for 24 months  beginning January 2006     |       | 112               |       | 176                   |       |
| Gaming equipment financing to purchase 4  games, monthly payments of $1 for 36 months beginning April 2005                                      |       | 23                |       | 32                    |       |
| Gaming equipment financing to purchase 20  games, monthly payments of $7 for 36 months beginning April 2005                                     |       | 110               |       | 152                   |       |
|                                                                                                                                                 |       | 2,822             |       | 3,710                 |       |
|  Less  current portion                                                                                                                          |       | (1,830            | )          | (1,647                | )          |
| Gaming equipment financing, long-term  portion                                                                                                       |       | $                 | 992        |                  | $          | 2,063 |   |

 

**6.             RelatedParty Transactions**

 

VirginRiver Foodmart, Inc. (“Foodmart”), a Nevada corporation, is owned byMr. Black and his siblings.  Participants in the Company’s slot clubprogram are able to redeem their points for gasoline at the Foodmart.  Foodmart charges the Company the retailamount of gas purchased with player points. For the three and six-month periods ended June 30, 2006 and 2005,Foodmart has charged the Company $14,000, $25,000, $75,000 and $133,000,respectively, for gasoline purchased with points from the Company’s slot clubprogram.

 

Black,LoBello & Pitegoff is a law firm managed by the daughter ofMr. Black. The Company retains Black, LoBello & Pitegoff asoutside legal counsel, and have paid legal fees for legal services in theamount of $0, $14,000, $4,000 and $4,000 for the three and six-month periodsended June 30, 2006 and 2005, respectively.

 

GamingResearch is a consulting firm retained to perform marketing research for theCompany.  The principal of GamingResearch is the father of the Company’s chief operating officer.  Gaming Research received consulting fees of$0, $43,000, $4,000 and $4,000 during the three and six-months endedJune 30, 2006 and 2005, respectively

 

Pursuantto the indenture, Mr. Black is entitled to a management fee for hismanagement of the Company’s business of up to 5% of EBITDA, as defined.  The Company has expensed $110,000 and$219,000, $96,000 and $192,000 during the three and six-month periods endedJune 30, 2006 and 2005, respectively, associated with this management fee.

 

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## **Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations.**

## ** **

*You should read the followingdiscussion and analysis together with our unaudited consolidated financialstatements and the accompanying notes. This discussion contains forward-lookingstatements, within the meaning of Section 27A of Securities Act of 1933,as amended, Section 21E of the Securities Exchange Act of 1934, asamended, and the Private Securities Litigation Reform Act of 1995, includingstatements regarding our expected financial position, business and financingplans. Some of the forward-looking statements can be identified by the use offorward-looking terms such as “believes,” “expects,” “may,” “will,” “should,”“could,” “seek,” “intends,” “plans,” “estimates,” “anticipates,” or othercomparable terms. Forward-looking statements involve inherent risks anduncertainties which could cause actual results to differ materially from thosein the forward-looking statement, including those discussed herein andelsewhere in our Form 10-K for the year ended December 31, 2005,particularly under the heading “Risk Factors.” We caution readers not to placeundue reliance upon any such forward-looking statements, which speak only as ofthe date made*.

 

***Overview***

** **

We own and operate the CasaBlanca Hotel &Casino (the “Casablanca”), the Oasis Hotel and Casino (the “Oasis”) and theVirgin River Hotel & Casino (the “Virgin River”) in Mesquite, Nevada,which is located approximately 80 miles north of Las Vegas. We own three of thefour casinos operating in Mesquite and collectively our properties have adominant 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 extensivevalue-oriented amenities and emphasis on slot play to target middle marketgaming customers.

 

Our revenues are primarily derived from gamingrevenues, which include revenues from slot machines, table games, live keno,race and sports book wagering and bingo. Gaming revenues are generally definedas gaming wins less gaming losses. In addition, we derive a significant amountof revenue from our hotel rooms and our food and beverage outlets. We alsoderive revenues from our golf courses, spa facilities, timeshare units, bowlingcenter and other amenities. Promotional allowances consist primarily of freehotel rooms or food and beverages furnished gratuitously to customers. The retailvalue of such services is included in the respective revenue classificationsand is then deducted as promotional allowances. We calculate operating incomeas net revenues less total operating costs and expenses. Operating incomerepresents only those amounts that relate to our operations and excludesinterest income, interest expense, and other non-operating income and expenses.

 

Our entities are classified as “flow-through”entities under the partnership or Subchapter S provisions of the InternalRevenue Code of 1986, as amended. Under those provisions, the owners of thecompanies pay or are responsible for reporting our taxable income on theirseparate returns. Accordingly, a provision for income taxes is not included inour financial statements.

 

RBG, LLC, a Nevada limited-liability company, wasformed in February 1997 for the purpose of acquiring the assets ofPlayer’s Island Resort in Mesquite, Nevada, currently operating as the Casablanca.RBG, LLC acquired the Casablanca for $30.5 million. In February 2001,RBG, LLC formed a subsidiary, Casablanca Resorts, LLC, a Nevadalimited-liability company, in order to purchase the assets of the Oasis inMesquite. RBG, LLC acquired the Oasis for $31.7 million. Currently, RBG,LLC directly owns and operates the CasaBlanca, and through its wholly-ownedsubsidiary, owns and operates the Oasis. In 

 

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May 2001, Casablanca Resorts, LLC formedthree subsidiaries—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&BB, Inc., a Nevada corporation, wasformed in December 1989 in connection with the construction anddevelopment of the Virgin River. B&BB, Inc. operates the hotel casinoand owns certain personal property including furniture and fixtures, leaseholdimprovements and gaming equipment within the casino. Virgin River CasinoCorporation, a Nevada corporation, was formed in July 1988 in connectionwith the construction of the Virgin River. Virgin River Casino Corporationcurrently owns the land and buildings associated with the Virgin River as wellas the Virgin River Convention Center (formerly known as the Mesquite Star Hotel &Casino). Virgin River Casino Corporation generates income from rents receivedfrom B & B B, Inc., which operates the Virgin River.

 

The Virgin River Convention Center is currently anonoperating casino, which we acquired out of bankruptcy for $6.3 millionin November 2000. The Virgin River Convention Center 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 Virgin River Convention Center gives us acompetitive advantage in the Mesquite market because it allows us theflexibility of opening the casino to meet market demand and to maintain ourmarket share in the future on a cost-effective basis.

 

In order to offer our customers attractive andmodern facilities, we plan to continue to renovate our facilities and addamenities. In particular, in the future we plan to (i) add convention andconcert space and redesign the center and pool bar at the Casablanca; (ii) addan additional restaurant and refurbish and remodel the casino interior, coffeeshop and lounge at the Virgin River; and (iii) expand and remodel the finedining restaurant and sports bar at the Oasis. We are currently in the designphase for each of the projects, therefore, budgets and timetables forcompletion for each have not been finalized. However, it is anticipated that the total cost for all projects will notexceed $21 million, the same amount previously allocated for our postponedhotel tower.

 

***Key Performance Indicators***

 

Our operating results are highly dependent on thevolume of customers at our properties, which in turn impacts the price we cancharge for our hotel rooms and other amenities. We generate a significantportion of our operating income from the gaming and hotel portions of ouroperations. Key performance indicators in our gaming and hotel operations areas follows:

 

Gaming revenue indicators – table games drop andslot handle (volume indicators); “win” or “hold” percentage, which is not fullycontrollable by us. Our normal table games win percentage is in the range of15% to 18% of table games drop and our normal slot win percentage is in therange of 5% to 6% of slot handle.

 

Hotel revenue indicators – hotel occupancy (volumeindicator); average daily rate (“ADR,” price indicator); revenue per availableroom (“REVPAR”), a summary measure of hotel results, combining ADR andoccupancy rate.

 

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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, 54% of our operating income isgenerated in the first quarter and 39% is generated in the second quarter with the remainderbeing generated during the final half of the year.

 

***Financial Highlights of Virgin River CasinoCorporation***

** **

**Forthe Three and Six-Months Ended June 30, 2005 and 2006 (unaudited) (inthousands)**

** **
| ** **                           | ** ** | **Three-months ended   June 30,** | ** ** | **%**    | ** ** | **Six months ended   June 30,** | ** ** | **%**    | ** ** |
|--------------------------------------|------------|----------------------------------------|------------|----------|------------|--------------------------------------|------------|----------|------------|
| ** **                           | ** ** | **2005**                               | ** ** | **2006** | ** ** | **Change**                           | ** ** | **2005** | ** ** | **2006** | ** ** | **Change** | ** ** |
| Casino  revenues                     |       | $                                      | 15,582     |     | $          | 17,497                               |       | 12.3     | %          | $ | 31,578 |   | $ | 34,816 |   | 10.3 | % |
| Casino  expenses                     |       | 7,306                                  |       | 7,712    |       | 5.6                                  | %          | 15,018   |       | 15,773 |   | 5.0 | % |
| Profit margin                        |       | 53.1                                   | %          | 55.9     | %          | —                               |       | 52.4     | %          | 54.7 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Food and  beverage revenues          |       | $                                      | 7,942      |     | $          | 8,085                                |       | 1.8      | %          | $ | 15,837 |   | $ | 16,069 |   | 1.5 | % |
| Food and  beverage expenses          |       | 5,125                                  |       | 4,665    |       | (9.0                                 | )%         | 9,818    |       | 9,266 |   | (5.6 | )% |
| Profit  margin                       |       | 35.5                                   | %          | 42.3     | %          | —                               |       | 38.0     | %          | 42.3 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Hotel  revenues                      |       | $                                      | 5,478      |     | $          | 6,814                                |       | 24.4     | %          | $ | 10,819 |   | $ | 13,441 |   | 24.2 | % |
| Hotel  expenses                      |       | 1,838                                  |       | 1,210    |       | (34.2                                | )%         | 3,422    |       | 2,599 |   | (24.1 | )% |
| Profit  margin                       |       | 66.4                                   | %          | 82.2     | %          | —                               |       | 68.4     | %          | 80.7 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Other  revenues                      |       | $                                      | 7,144      |     | $          | 6,846                                |       | (4.2     | )%         | $ | 13,982 |   | $ | 13,680 |   | (2.2 | )% |
| Other  expenses                      |       | 3,690                                  |       | 3,133    |       | (15.1                                | )%         | 7,369    |       | 6,224 |   | (15.5 | )% |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Promotional  allowances              |       | $                                      | 4,640      |     | $          | 6,561                                |       | 41.4     | %          | $ | 9,507 |   | $ | 13,134 |   | 38.2 | % |
| Percent of  gross revenues           |       | 12.8                                   | %          | 16.7     | %          | —                               |       | 13.2     | %          | 16.8 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| General and  administrative expenses |       | $                                      | 7,497      |     | $          | 9,310                                |       | 24.2     | %          | $ | 14,490 |   | $ | 17,480 |   | 20.6 | % |
| Percent of  net revenues             |       | 23.8                                   | %          | 28.5     | %          | —                               |       | 23.1     | %          | 26.9 | % | — |   |

** **

**Threeand six-months ended June 30, 2006 compared to the three and six-monthsEnded June 30, 2005**

** **

*Consolidated Net Revenues.* Consolidated net revenues increased by 3.7%to $32.7 million for the three-months ended June 30, 2006 as compared to$31.5 million for the three-months ended June 30, 2005. The increasewas primarily due to a $1.9 million increase in casino revenues, a $1.3 millionincrease in hotel revenues and a $0.1 million increase in food and beveragerevenues, offset by a $0.3 million decrease in other revenues and a $1.9million increase in promotional allowances.

 

Consolidatednet revenues increased by 3.4% to $64.9 million for the six-months ended June 30,2006 as compared to $62.7 million for the six-months ended June 30,2005. The increase was primarily due to a $3.2 million increase in casino revenues,a $2.6 million increase in hotel revenues and a $0.2 million increase in foodand beverage revenues, offset by a $0.3 million decrease in other revenues anda $3.6 million increase in promotional allowances.

 

*Consolidated Operating Income.* Consolidated operating income increased by19.7% to $3.4 million for the three-months ended June 30, 2006 as comparedto $2.9 million for the three-months ended

 

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June 30, 2006. In addition, our operating income margin increasedto 10.4% of net revenues for the three-months ended June 30, 2006 ascompared to 9.0% of net revenues for the three-months ended June 30, 2005.The main reason for the increase was due to reduced operating expenses in foodand beverage, hotel and other revenue departments in the current period.

 

Consolidatedoperating income decreased by 4.7% to $6.8 million for the six-months ended June 30,2006 as compared to $7.1 million for the six-months ended June 30,2006. In addition, our operating income margin decreased to 10.5% of netrevenues for the six-months ended June 30, 2006 as compared to 11.4% ofnet revenues for the three-months ended June 30, 2005. The main reason forthe decrease was due to a $1.7 million increase in depreciation and amortizationexpense offset by reduced operating expenses in food and beverage, hotel andother revenue departments in the current period.

 

*Casino. *Casino revenues increased 12.3% to $17.5 million for thethree-months ended June 30, 2006 as compared to $15.6 million for thethree-months ended June 30, 2005. The increase in casino revenues was dueto the increase in slot revenues, which increased $1.8 million between periodsas coin-in increased $1.1 million on an increased overall hold for thethree-months ended June 30, 2006 compared to the same period in the prioryear. Table games revenues increased $0.3 million for the three months ended June 30,2006 as compared to the same period in the prior year on flat drop. Casinoprofit margin increased to 55.9% for the three-months ended June 30, 2006as compared to 53.1% for three-months ended June 30, 2005. The increase incasino profit margin is primarily due to most costs remaining relatively flator decreasing, with the exception of gaming taxes and advertising andpromotions for the three-months ended June 30, 2006 compared to thethree-months ended June 30, 2005. Overall casino expenses increased 5.6%for the three-months ended June 30, 2006 compared to the same period inthe prior year.

 

Casinorevenues increased 10.3% to $34.8 million for the six-months ended June 30,2006 as compared to $31.6 million for the six-months ended June 30,2005. The increase in casino revenues was due to the increase in slot revenues,which increased $2.8 million between periods as coin-in decreased $17.9 millionon an increased overall hold for the six-months ended June 30, 2006compared to the same period in the prior year. Table games revenues increased$0.8 million for the six months ended June 30, 2006 as compared to thesame period in the prior year on a $0.7 million increase in drop. Casino profitmargin increased to 54.7% for the six-months ended June 30, 2006 ascompared to 52.4% for the six-months ended June 30, 2005. The increase incasino profit margin is primarily due to most costs remaining relatively flator decreasing, with the exception of gaming taxes and advertising andpromotions for the six-months ended June 30, 2006 compared to thesix-months ended June 30, 2005. Overall casino expenses increased 5.0% forthe six-months ended June 30, 2006 compared to the same period in theprior year.

 

*Food and Beverage.* Food and beverage revenues increased by 1.8% to $8.1 million for thethree-months ended June 30, 2006 as compared to $7.9 million for thethree-months ended June 30, 2005. Revenues increased due to an increase inpricing offset by 46,000 fewer covers. Food and beverage expenses decreased9.0% to $4.7 million for the three-months ended June 30, 2006 as comparedto $5.1 million for the three-months ended June 30, 2005 due to a $0.5million decrease in payroll costs. Food and beverage profit margin increased to42.3% for the three-months ended June 30, 2006 as compared to 35.5% forthe three-months ended June 30, 2005. The increase in food and beverageprofit margin is primarily due to an increase in pricing for the period.

 

Foodand beverage revenues increased by 1.5% to $16.1 million for the six-monthsended June 30, 2006 as compared to $15.8 million for the six-months ended June 30,2005. Revenues increased due to an increase in pricing offset by 120,000 fewercovers. Food and beverage expenses decreased 5.6% to $9.3 million for thesix-month ended June 30, 2006 as compared to $9.8 million for thesix-months ended

 

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June 30, 2005 due to a $0.5 million decrease in payroll costs. Foodand beverage profit margin increased to 42.3% for the six-months ended June 30,2006 as compared to 38.0% for the six-months ended June 30, 2005. Theincrease in food and beverage profit margin is primarily due to an increase inpricing and a decrease in payroll costs for the period.

 

*Hotel.* Hotel revenues increased 24.4% to $6.8 million for the three-monthsended June 30, 2006 as compared to $5.5 million for the three-monthsended June 30, 2005. Overall occupied rooms were down approximately 9,100 room nightsfor the three-months ended June 30, 2006 compared to the three-monthsended June 30, 2005. The average ADR increased at the Casablanca to $81during the three-months ended June 30, 2006 compared to $53 in the sameperiod of the prior year and at the Oasis to $46 during the three-months ended June 30,2006 from $39 during the same period in the prior year. Hotel expensesdecreased 34.2% to $1.2 million for the three-months ended June 30, 2006compared $1.8 million to for the three-months ended June 30, 2005 due tothe decrease in occupied rooms. As a result, hotel profit margin increased to82.2% for the three-months ended June 30, 2006 from 66.4% in the priorthree-month period ended June 30, 2005.

 

Hotelrevenues increased 24.2% to $13.4 million for the six-months ended June 30,2006 as compared to $10.8 million for the six-months ended June 30,2005. Overall occupied rooms were down approximately 18,700 room nightsfor the six-months ended June 30, 2006 compared to the six-months ended June 30,2005. The average ADR increased at the Casablanca to $81 during the six-monthsended June 30, 2006 compared to $60 in the same period of the prior yearand at the Oasis to $46 during the six-months ended June 30, 2006 from $37during the same period in the prior year. Hotel expenses decreased 24.1% to$2.6 million for the six-months ended June 30, 2006 compared $3.4 millionto for the six-months ended June 30, 2005 due to the decrease in occupiedrooms. As a result, hotel profit margin increased to 80.7% for the six-monthsended June 30, 2006 from 68.4% in the prior six-month period ended June 30,2005.

 

*Other Revenues.* Other revenues decreased 4.2% to $6.8 million for the three-monthsended June 30, 2006 as compared to $7.1 million for the three-months endedJune 30, 2005. The slight declines were attributable to decreases in timeshare revenues at the Casablanca offset by the increases in time share sales atthe Oasis due to the bulk sale of inventory. Other expenses decreased 15.1% to$3.1 million for the three-months ended June 30, 2006 as compared to $3.7million for the three-months ended June 30, 2005. Other expenses decreaseddue to reduced payroll expenses and cost of sales items for the three-monthsended June 30, 2006 compared to June 30, 2005.

 

Otherrevenues decreased 2.2% to $13.7 million for the six-months ended June 30,2006 as compared to $14.0 million for the six-months ended June 30, 2005. Otherexpenses decreased 15.5% to $6.4 million for the six-months ended June 30,2006 as compared to $7.4 million for the six-months ended June 30, 2005. Otherexpenses decreased due to reduced payroll expenses and cost of sales items forthe six-months ended June 30, 2006 compared to June 30, 2005.

 

*Promotional Allowances.* Promotional allowances increased by 41.4% to$6.6 million for the three-months ended June 30, 2006 as compared to$4.6 million for the three-months ended June 30, 2005. As a percentof gross revenues, promotional allowances increased to 16.7% for thethree-months ended June 30, 2006 as compared to 12.8% for the three-monthsended June 30, 2005 as we focused our marketing attention on our bettergaming customers.

 

Promotionalallowances increased by 38.2% to $13.1 million for the six-months ended June 30,2006 as compared to $9.5 million for the six-months ended June 30,2005. As a percent of gross revenues, promotional allowances increased to 16.8%for the six-months ended June 30, 2006 as compared to

 

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13.2% for the six-months ended June 30, 2005 as we focused ourmarketing attention on our better gaming customers.

 

*General and Administrative (“G&A”).*G&A expenses increased by 24.2% to$9.3 million for the three-months ended June 30, 2006 as compared to$7.5 million for the three-months ended June 30, 2005. As apercent of net revenues, G&A expenses increased to 28.5% for thethree-months ended June 30, 2006 as compared to 23.8% for the three-monthsended June 30, 2005. G&A expenses increased due to a $0.2 millionincrease in advertising expenses and a $1.5 million increase in salaries andincreases in bonuses and management fees.

 

G&Aexpenses increased by 20.6% to $17.5 million for the six-months ended June 30,2006 as compared to $14.5 million for the six-months ended June 30, 2005.As a percent of net revenues, G&A expenses increased to 26.9% for thesix-months ended June 30, 2006 as compared to 23.1% for the six-monthsended June 30, 2005. G&A expenses increased due to a $0.5 millionincrease in advertising expenses, a $1.9 million increase in salaries andincreases in bonuses and management fees and a $0.6 million increase in medicalexpenses.

 

*Depreciation and Amortization.* Depreciation and amortization increased to$3.1 million for the three-months ended June 30, 2006 compared to$2.6 million for the three-months ended June 30, 2005. The increasewas due to the purchase of additional gaming equipment and other capitalexpenditures in addition to a change in the estimated life of our gamingequipment which was made effective on January 1, 2006 and our purchaseaccounting adjustment, related to the December 20, 2004 buyout, completedin the fourth quarter of 2005.

 

Depreciationand amortization increased to $6.5 million for the six-months ended June 30,2006 compared to $4.8 million for the six-months ended June 30, 2005.The increase was due to the purchase of additional gaming equipment and othercapital expenditures in addition to a change in the estimated life of ourgaming equipment which was made effective on January 1, 2006 and our purchaseaccounting adjustment, related to the December 20, 2004 buyout, completedin the fourth quarter of 2005.

 

*Interest Expense.* Interest expense remained flat at $4.4 million for the three-monthsended June 30, 2006 as compared to $4.5 million the three-months ended June 30,2005.

 

Interestexpense remained flat at $8.8 million for the six-months ended June 30,2006 as compared to $8.7 million the six-months ended June 30, 2005.

 

*Change in Fair Value of Swaps.* Change in fair value of swaps decreasedto income of $0.1 million during the three-months ended June 30, 2006compared to income of $0.2 million in the same period of the prior year. Thedecrease in income is due to a decrease in the average notional amount of theswaps outstanding.

 

Change in fair value of swaps decreased to income of$0.2 million during the six-months ended June 30, 2006 compared to incomeof $0.7 million in the same period of the prior year. The decrease in income isdue to a decrease in the average notional amount of the swaps outstanding.

 

*Cumulative effect of change inaccounting principle.* We adopted the provisions of SFAS 152, “*Accountingfor Real Estate Time-Sharing Transactions*.” The adoption of SFAS 152resulted in an increase in our allowance for possible credit losses of $0.2million during the six-months ended June 30, 2006 compared to $0 in thesame period in the prior year.

 

44

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**Liquidity andCapital Resources**

** **

*Cash Flows and Credit Facility*

* *

Our primary sources of liquidity and capital resourceshave been cash flow from operations and our credit facility with Wells FargoFoothill (the “Foothill Facility”). As of June 30, 2006 and December 31,2005, cash and cash equivalents were $9.0 million and $9.4 million,respectively.

 

*Operating Activities*

* *

Cashprovided by operating activities for the six-months ended June 30, 2006was $6.6 million compared to $12.1 million for the six-months ended June 30,2005. The $5.5 million decrease was primarily due to a $4.4 millionincrease cash paid for interest and a $1.8 million decrease in our overall netcurrent payables and receivables offset by a $0.9 million increase in operatingincome (excluding depreciation and amortization expense and other noncashcharges) during the six-month period ended June 30, 2006 compared to thesame period in the prior year.

 

*Investing Activities*

 

Cash used in investing activities for the six-monthsended June 30, 2006 was $2.8 million compared to $8.7 millionfor the six-months ended June 30, 2005. The majority of cash used for theperiod ended June 30, 2006 was due to capital expenditures for ourcentralized laundry projects.

 

Cash used in investing activities for the six-monthsended June 30, 2005 was $8.7 million. The majority of the cash used forthese activities consisted of $2.4 million related to gaming equipmentpurchases at the properties, $2.2 million related to the room remodel atthe Casablanca, $1.2 million of tax payments related to the prior owners thatadjusted the purchase price of the December 20, 2004 buyout, $0.2 millionfor the Casablanca spa expansion, $0.2 million for the Casablanca tower andconvention center, $0.3 million for the Starbucks at the Oasis, $0.4 millionrelated to the Oasis hotel room remodel, $0.2 million related to the Oasiscasino remodel and remainder for various maintenance capital expendituresoffset.

 

*FinancingActivities*

 

Cash used in financing activities for the six-monthsended June 30, 2006 was $4.2 million compared to $4.2 millionfor the six-months ended June 30, 2005. For the six-months ended June 30,2006, $0.5 million represented a decrease in the bank overdraft balance,$5.5 million related to payments on long-term debt associated with theFoothill Facility, equipment financing and time share financing and $1.1million related to payments on gaming equipment financing. These financingoutflows were offset by $3.0 million of borrowings on the FoothillFacility. For the six-months ended June 30, 2005, $1.5 millionrepresented a decrease in the bank overdraft balance, $0.9 million relatedto payments on long-term debt associated with equipment and time sharefinancing, $1.8 million related to tax distributions, $0.4 millionrelated to payments on gaming equipment financing, and $0.2 millionrelated to payment of debt issuance costs associated with the notes, and ournew senior secured credit facility. These financing outflows were offset by$0.5 million of borrowings associated with our time share financing.

 

45

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***Financial Highlights of RBG, LLC (doing business asCasaBlanca Resort/Casino/Golf/Spa), CasaBlanca Resorts, LLC (doing business asOasis Resort & Casino) and subsidiaries***

** **

**Forthe Three and Six -Months Ended June 30, 2005 and 2006 (unaudited) (inthousands)**

** **
| ** **                           | ** ** | **Three-months ended   June 30,** | ** ** | **%**    | ** ** | **Six months ended   June 30,** | ** ** | **%**    | ** ** |
|--------------------------------------|------------|----------------------------------------|------------|----------|------------|--------------------------------------|------------|----------|------------|
| ** **                           | ** ** | **2005**                               | ** ** | **2006** | ** ** | **Change**                           | ** ** | **2005** | ** ** | **2006** | ** ** | **Change** | ** ** |
| Casino  revenues                     |       | $                                      | 15,582     |     | $          | 17,497                               |       | 12.3     | %          | $ | 31,578 |   | $ | 34,816 |   | 10.3 | % |
| Casino expenses                      |       | 7,306                                  |       | 7,712    |       | 5.6                                  | %          | 15,018   |       | 15,773 |   | 5.0 | % |
| Profit  margin                       |       | 53.1                                   | %          | 55.9     | %          | —                               |       | 52.4     | %          | 54.7 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Food and  beverage revenues          |       | $                                      | 7,942      |     | $          | 8,085                                |       | 1.8      | %          | $ | 15,837 |   | $ | 16,069 |   | 1.5 | % |
| Food and  beverage expenses          |       | 5,125                                  |       | 4,665    |       | (9.0                                 | )%         | 9,818    |       | 9,266 |   | (5.6 | )% |
| Profit  margin                       |       | 35.5                                   | %          | 42.3     | %          | —                               |       | 38.0     | %          | 42.3 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Hotel  revenues                      |       | $                                      | 5,343      |     | $          | 6,720                                |       | 25.8     | %          | $ | 10,400 |   | $ | 13,096 |   | 25.9 | % |
| Hotel  expenses                      |       | 1,735                                  |       | 1,088    |       | (37.3                                | )%         | 3,136    |       | 2,303 |   | (26.6 | )% |
| Profit  margin                       |       | 67.5                                   | %          | 83.8     | %          | —                               |       | 69.8     | %          | 82.4 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Other  revenues                      |       | $                                      | 5,491      |     | $          | 5,198                                |       | (5.3     | )%         | $ | 10,676 |   | $ | 10,381 |   | (2.8 | )% |
| Other  expenses                      |       | 3,690                                  |       | 3,133    |       | (15.1                                | )%         | 7,369    |       | 6,224 |   | (15.5 | )% |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Promotional  allowances              |       | $                                      | 4,653      |     | $          | 6,540                                |       | 40.6     | %          | $ | 9,507 |   | $ | 13,059 |   | 37.4 | % |
| Percent of  gross revenues           |       | 13.5                                   | %          | 17.4     | %          | —                               |       | 13.9     | %          | 17.6 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| General and  administrative expenses |       | $                                      | 7,379      |     | $          | 9,274                                |       | 25.7     | %          | $ | 14,312 |   | $ | 17,400 |   | 21.6 | % |
| Percent of  net revenues             |       | 24.8                                   | %          | 30.0     | %          | —                               |       | 24.3     | %          | 28.4 | % | — |   |

** **

**Threeand six-months ended June 30, 2006 compared to the three and six-monthsEnded June 30, 2005**

** **

*Consolidated Net Revenues.*Consolidated net revenues increased by 4.2%to $31.0 million for the three-months ended June 30, 2006 as compared to$29.7 million for the three-months ended June 30, 2005. The increasewas primarily due to a $1.9 million increase in casino revenues, a $1.4 millionincrease in hotel revenues and a $0.1 million increase in food and beveragerevenues, offset by a $1.9 million increase in promotional allowances.

 

Consolidatednet revenues increased by 3.9% to $61.3 million for the six-months ended June 30,2006 as compared to $59.0 million for the six-months ended June 30,2005. The increase was primarily due to a $3.2 million increase in casinorevenues, a $2.7 million increase in hotel revenues and a $0.2 million increasein food and beverage revenues, offset by a $0.3 million decrease in otherrevenues and a $3.6 million increase in promotional allowances.

 

*Consolidated Operating Income.*Consolidated operating income increased by21.1% to $2.2 million for the three-months ended June 30, 2006 as comparedto $1.8 million for the three-months ended June 30, 2005. Inaddition, our operating income margin increased to 7.2% of net revenues for thethree-months ended June 30, 2006 as compared to 6.2% of net revenues forthe three-months ended June 30, 2005.

 

Consolidatedoperating income decreased by 9.6% to $4.4 million for the six-months ended June 30,2006 as compared to $4.8 million for the six-months ended June 30,2005. In addition, our operating income margin decreased to 7.1% of netrevenues for the six-months ended June 30, 2006 as compared to 8.2% of netrevenues for the six-months ended June 30, 2005.

 

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*Casino. *Casino revenues increased 12.3% to $17.5 million for thethree-months ended June 30, 2006 as compared to $15.6 million for thethree-months ended June 30, 2005. The increase in casino revenues was dueto the increase in slot revenues, which increased $1.8 million between periodsas coin-in increased $1.1 million on an increased overall hold for thethree-months ended June 30, 2006 compared to the same period in the prioryear. Table games revenues increased $0.3 million for the three months ended June 30,2006 as compared to the same period in the prior year on flat drop. Casinoprofit margin increased to 55.9% for the three-months ended June 30, 2006as compared to 53.1% for three-months ended June 30, 2005. The increase incasino profit margin is primarily due to most costs remaining relatively flator decreasing, with the exception of gaming taxes and advertising andpromotions for the three-months ended June 30, 2006 compared to thethree-months ended June 30, 2005. Overall casino expenses increased 5.6%for the three-months ended June 30, 2006 compared to the same period inthe prior year.

 

Casinorevenues increased 10.3% to $34.8 million for the six-months ended June 30,2006 as compared to $31.6 million for the six-months ended June 30,2005. The increase in casino revenues was due to the increase in slot revenues,which increased $2.8 million between periods as coin-in decreased $17.9 millionon an increased overall hold for the six-months ended June 30, 2006compared to the same period in the prior year. Table games revenues increased$0.8 million for the six months ended June 30, 2006 as compared to thesame period in the prior year on a $0.7 million increase in drop. Casino profitmargin increased to 54.7% for the six-months ended June 30, 2006 ascompared to 52.4% for six-months ended June 30, 2005. The increase incasino profit margin is primarily due to most costs remaining relatively flator decreasing, with the exception of gaming taxes and advertising and promotionsfor the three-months ended June 30, 2006 compared to the three-monthsended June 30, 2005. Overall casino expenses increased 5.0% for thesix-months ended June 30, 2006 compared to the same period in the prioryear.

 

*Food and Beverage.* Food and beverage revenues increased by 1.8% to $8.1 million for thethree-months ended June 30, 2006 as compared to $7.9 million for thethree-months ended June 30, 2005. Revenues increased due to an increase inpricing offset by 46,000 fewer covers. Food and beverage expenses decreased9.0% to $4.7 million for the three-month ended June 30, 2006 as comparedto $5.1 million for the three-months ended June 30, 2005 due to a $0.5million decrease in payroll. Food and beverage profit margin increased to 42.3%for the three-months ended June 30, 2006 as compared to 35.5% for thethree-months ended June 30, 2005. The increase in food and beverage profitmargin is primarily due to an increase in pricing for the period.

 

Foodand beverage revenues increased by 1.5% to $16.1 million for the six-monthsended June 30, 2006 as compared to $15.8 million for the six-months ended June 30,2005. Revenues increased due to an increase in pricing offset by 120,000 fewercovers. Food and beverage expenses decreased 5.6% to $9.3 million for thesix-month ended June 30, 2006 as compared to $9.8 million for thesix-months ended June 30, 2005 due to a $0.5 million decrease in payrollcosts. Food and beverage profit margin increased to 42.3% for the six-monthsended June 30, 2006 as compared to 38.0% for the six-months ended June 30,2005. The increase in food and beverage profit margin is primarily due to anincrease in pricing and a decrease in payroll costs for the period.

 

*Hotel.* Hotel revenues increased 25.8% to $6.7 million for the three-monthsended June 30, 2006 as compared to $5.3 million for the three-monthsended June 30, 2005. Overall occupied rooms were down approximately 8,300 room nightsfor the three-months ended June 30, 2006 compared to the three-monthsended June 30, 2005. The average ADR increased at the Casablanca to $81during the three-months ended June 30, 2006 compared to $53 in the sameperiod of the prior year and at the Oasis to $46 during the three-months ended June 30,2006 from $39 during the same period in the prior year. Hotel expensesdecreased 37.3% to $1.1 million for the three-months ended June 30, 2006compared $1.7

 

47

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million to for the three-months ended June 30, 2005 due to thedecrease in occupied rooms. As a result, hotel profit margin increased to 83.8%for the three-months ended June 30, 2006 from 67.5% in the priorthree-month period ended June 30, 2005.

 

Hotelrevenues increased 25.9% to $13.1 million for the six-months ended June 30,2006 as compared to $10.4 million for the six-months ended June 30,2005. Overall occupied rooms were down approximately 16,600 room nightsfor the six-months ended June 30, 2006 compared to the six-months ended June 30,2005. The average ADR increased at the Casablanca to $81 during the six-monthsended June 30, 2006 compared to $60 in the same period of the prior yearand at the Oasis to $46 during the six-months ended June 30, 2006 from $37during the same period in the prior year. Hotel expenses decreased 26.6% to$2.3 million for the six-months ended June 30, 2006 compared $3.1 millionto for the six-months ended June 30, 2005 due to the decrease in occupiedrooms. As a result, hotel profit margin increased to 82.4% for the six-monthsended June 30, 2006 from 69.8% in the prior six-month period ended June 30,2005.

 

*Other Revenues.* Other revenues decreased 5.3% to $5.2 million for the three-monthsended June 30, 2006 as compared to $5.5 million for the three-months endedJune 30, 2005. The slight declines were attributable to decreases in timeshare revenues at the Casablanca offset by the increases in time share sales atthe Oasis due to the bulk sale of inventory. Other expenses decreased 15.1% to$3.1 million for the three-months ended June 30, 2006 as compared to $3.7million for the three-months ended June 30, 2005. Other expenses decreaseddue to reduced payroll expenses and cost of sales items for the three-monthsended June 30, 2006 compared to June 30, 2005.

 

Otherrevenues decreased 2.8% to $10.4 million for the six-months ended June 30,2006 as compared to $10.7 million for the six-months ended June 30, 2005. Otherexpenses decreased 15.5% to $6.2 million for the six-months ended June 30,2006 as compared to $7.4 million for the six-months ended June 30, 2005. Otherexpenses decreased due to reduced payroll expenses and cost of sales items forthe six-months ended June 30, 2006 compared to June 30, 2005.

 

*Promotional Allowances.* Promotional allowances increased by 40.6% to$6.5 million for the three-months ended June 30, 2006 as compared to$4.7 million for the three-months ended June 30, 2005. As a percentof gross revenues, promotional allowances increased to 17.4% for thethree-months ended June 30, 2006 as compared to 13.5% for the three-monthsended June 30, 2005 as we focused our marketing attention on our bettergaming customers.

 

Promotionalallowances increased by 37.4% to $13.1 million for the six-months ended June 30,2006 as compared to $9.5 million for the six-months ended June 30,2005. As a percent of gross revenues, promotional allowances increased to 17.6%for the six-months ended June 30, 2006 as compared to 13.9% for thesix-months ended June 30, 2005 as we focused our marketing attention onour better gaming customers.

 

*General and Administrative (“G&A”).*G&A expenses increased by 25.7% to$9.3 million for the three-months ended June 30, 2006 as compared to$7.4 million for the three-months ended June 30, 2005. As apercent of net revenues, G&A expenses increased to 30.0% for thethree-months ended June 30, 2006 as compared to 24.8% for the three-monthsended June 30, 2005. G&A expenses increased due to a $0.2 millionincrease in advertising expenses and a $1.5 million increase in salaries andincreases in bonuses and management fees.

 

G&Aexpenses increased by 21.6% to $17.4 million for the six-months ended June 30,2006 as compared to $14.3 million for the six-months ended June 30, 2005.As a percent of net revenues, G&A expenses increased to 28.4% for thesix-months ended June 30, 2006 as compared to 24.3% for the six-

 

48

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months ended June 30, 2005. G&A expenses increased due to a$0.5 million increase in advertising expenses, a $1.9 million increase insalaries and increases in bonuses and management fees and a $0.6 milliondecrease in medical expenses.

 

*Depreciation and Amortization.* Depreciation and amortization increased to$2.7 million for the three-months ended June 30, 2006 compared to$2.0 million for the three-months ended June 30, 2005. The increasewas due to the purchase of additional gaming equipment and other capitalexpenditures in addition to a change in the estimated life of our gamingequipment which was made effective January 1, 2006 and our purchase accountingadjustment, related to the December 20, 2004 buyout, completed in thefourth quarter of 2005.

 

Depreciationand amortization increased to $5.7 million for the six-months ended June 30,2006 compared to $3.9 million for the six-months ended June 30, 2005.The increase was due to the purchase of additional gaming equipment and othercapital expenditures in addition to a change in the estimated life of ourgaming equipment which was made effective on January 1, 2006 and our purchaseaccounting adjustment, related to the December 20, 2004 buyout, completedin the fourth quarter of 2005.

 

*Interest Expense.* Interest expense decreased to $0.2 million for the three months ended June 30,2006 as compared to $0.3 million for the three-months ended June 30, 2005.The decrease in interest expense was due to less outstanding debt in thecurrent three months ended June 30, 2006 compared to June 30, 2005.

 

Interestexpense decreased to $0.3 million for the six-months ended June 30, 2006as compared to $0.7 million for the six-months ended June 30, 2005. Thedecrease in interest expense was due to less outstanding debt in the currentthree months ended June 30, 2006 compared to June 30, 2005.

 

*Change in Fair Value of Swaps.* Change in fair value of swaps decreasedto income of $0.1 million during the three-months ended June 30, 2006compared to a decrease to income of $0.1 million in the same period of theprior year. The decrease in income is due to a decrease in the average notionalamount of the swaps outstanding.

 

Change in fair value of swaps decreased to income of$0.1 million during the six-months ended June 30, 2006 compared to adecrease to income of $0.5 million in the same period of the prior year. Thedecrease in income is due to a decrease in the average notional amount of theswaps outstanding.

 

*Cumulative effect of change inaccounting principle.* We adopted the provisions of SFAS 152, “*Accountingfor Real Estate Time-Sharing Transactions*.” The adoption of SFAS 152resulted in an increase in our allowance for possible credit losses of $0.2 millionduring the six-months ended June 30, 2006 compared to $0 in the sameperiod in the prior year.

 

**Liquidity andCapital Resources**

** **

*Cash Flows and Credit Facility*

* *

Our primary sources of liquidity and capital resourceshave been cash flow from operations and our Foothill Facility. As of June 30,2006 and December 31, 2005, cash and cash equivalents were $8.6 millionand $7.8 million, respectively.

 

*Operating Activities*

* *

Cashprovided by operating activities for the six-months ended June 30, 2006was $5.5 million compared to $9.8 million for the six-months ended June 30,2005. The $4.3 million decrease was

 

49

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primarily due to a $1.0 million increase in operating income (excludingdepreciation and amortization expense and other noncash charges) during thesix-months ended June 30, 2006 compared to the prior period offset by a$4.8 million decrease in the change in receivables and payables.

 

*Investing Activities*

 

Cash used in investing activities for the six-monthsended June 30, 2006 was $2.5 million compared to $7.2 millionfor the six-months ended June 30, 2005. The majority of cash used for theperiod ended June 30, 2006 was due to capital expenditures for ourcentralized laundry projects.

 

Cash used in investing activities for the six-monthsended June 30, 2005 was $7.2 million. For the six-months ended June 30,2005, the majority of cash used in investing activities consisted of $2.4million related to gaming equipment purchases at the properties, $2.2 millionrelated to the room remodel at the Casablanca, $0.2 million for theCasablanca spa expansion, $0.2 million for the Casablanca tower and conventioncenter, $0.3 million for the Starbucks at the Oasis, , $0.2 million related tothe Oasis casino remodel and remainder for various maintenance capitalexpenditures offset.

 

*FinancingActivities*

 

Cash used in financingactivities during the six-months ended June 30, 2006 was $2.2 millioncompared to $2.4 million for the six-months ended June 30, 2005. Forthe six-months ended June 30, 2006, $0.5 million represented adecrease in the bank overdraft balance, $0.5 million related to paymentson long-term debt associated with equipment and time share financing and $1.1million related to payments on gaming equipment financing. For the six-monthsended June 30, 2005, $1.5 million represented a decrease in the bankoverdraft balance, $0.8 million related to payments on long-term debtassociated with equipment and time share financing and $0.4 million related topayments on gaming equipment financing. These financing outflows were offset by$0.2 million of borrowings associated with our time share financing.

 

***FinancialHighlights of B & B B, Inc. (doing business as Virgin RiverHotel/Casino/Bingo)***

 

**Forthe Three and Six Months Ended June 30, 2005 and 2006 (unaudited) (inthousands)**

** **
| ** **                           | ** ** | **Three-months ended   June 30,** | ** ** | **%**    | ** ** | **Six months ended   June 30,** | ** ** | **%**    | ** ** |
|--------------------------------------|------------|----------------------------------------|------------|----------|------------|--------------------------------------|------------|----------|------------|
| ** **                           | ** ** | **2005**                               | ** ** | **2006** | ** ** | **Change**                           | ** ** | **2005** | ** ** | **2006** | ** ** | **Change** | ** ** |
| Casino  revenues                     |       | $                                      | 8,597      |     | $          | 9,046                                |       | 5.2      | %          | $ | 17,545 |   | $ | 18,799 |   | 7.1 | % |
| Casino expenses                      |       | 3,307                                  |       | 3,384    |       | 2.3                                  | %          | 7,030    |       | 6,830 |   | (2.8 | )% |
| Profit  margin                       |       | 61.5                                   | %          | 62.6     | %          | —                               |       | 59.9     | %          | 63.7 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Food and  beverage revenues          |       | $                                      | 2,880      |     | $          | 2,904                                |       | 0.8      | %          | $ | 5,995 |   | $ | 6,157 |   | 2.7 | % |
| Food and  beverage expenses          |       | 1,904                                  |       | 1,862    |       | (2.2                                 | )%         | 3,657    |       | 3,820 |   | 4.5 | % |
| Profit  margin                       |       | 33.9                                   |       | 35.9     | %          | —                               |       | 39.0     | %          | 38.0 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Hotel  revenues                      |       | $                                      | 2,391      |     | $          | 2,664                                |       | 11.4     | %          | $ | 4,655 |   | $ | 5,311 |   | 14.1 | % |
| Hotel  expenses                      |       | 752                                    |       | 509      |       | (32.3                                | )%         | 1,379    |       | 1,050 |   | (23.9 | )% |
| Profit  margin                       |       | 68.5                                   | %          | 80.9     | %          | —                               |       | 70.4     | %          | 80.2 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Other  revenues                      |       | $                                      | 695        |     | $          | 689                                  |       | (0.9     | )%         | $ | 1,398 |   | $ | 1,424 |   | 1.9 | % |
| Other  expenses                      |       | 377                                    |       | 363      |       | (3.7                                 | )%         | 750      |       | 717 |   | (4.4 | )% |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| Promotional  allowances              |       | $                                      | 1,866      |     | $          | 2,201                                |       | 18.0     | %          | $ | 3,901 |   | $ | 4,557 |   | 16.8 | % |
| Percent of  gross revenues           |       | 12.8                                   | %          | 14.4     | %          | —                               |       | 13.2     | %          | 14.4 | % | — |   |
|                                 |       |                                   |       |     |       |                                 |       |     |       |   |   |   |   |
| General and  administrative expenses |       | $                                      | 4,703      |     | $          | 5,356                                |       | 13.9     | %          | $ | 9,554 |   | $ | 10,349 |   | 8.3 | % |
| Percent of  net revenues             |       | 37.0                                   | %          | 40.9     | %          | —                               |       | 37.2     | %          | 38.1 | % | — |   |

 

50

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**Threeand six-months ended June 30, 2006 compared to the three and six-monthsended June 30, 2005**

** **

*Net Revenues.* Net revenues increased by 3.2% to $13.1 million for the three-monthsended June 30, 2006 as compared to $12.7 million for the three-monthsended June 30, 2005. The increase was primarily due to a $0.5 millionincrease in casino revenues, a $0.2 million increase in hotel revenues, and wasoffset by a $0.3 million increase in promotional allowances. Net revenuesincreased $1.4 million to $27.1 million for the six months ended June 30,2006 as compared to $25.7 million for the six months ended June 30, 2005. Theincrease was primarily due to a $1.3 million increase in casino revenues, a$0.1 million increase in food and beverage revenues and a $0.6 million increasein hotel revenues, and was offset by a $0.7 million increase in promotionalallowances.

 

*Operating Income.* Operating income decreased by 54.1% to $0.4 million for thethree-months ended June 30, 2006 as compared to $1.0 million for thethree-months ended June 30, 2005. In addition, our operating income margindecreased to 3.4% of net revenues for the three-months ended June 30, 2006as compared to 7.8% of net revenues for the three-months ended June 30,2005. Operating income decreased $0.1 million to $1.9 million for the sixmonths ended June 30, 2006 as compared to $2.0 million for the six monthsended June 30, 2005. In addition, our operating income margin decreased to7.0% of net revenues for the six-months ended June 30, 2006 as compared to7.8% of net revenues for the six-months ended June 30, 2005.

 

*Casino. *Casino revenues increased 5.2% to $9.0 million for thethree-months ended June 30, 2006 as compared to $8.6 million for thethree-months ended June 30, 2005. The increase in casino revenues was dueto the increase in slot revenues, which increased $0.4 million betweenperiods as the hold percentage for the three-months ended June 30, 2006increased compared to the same period in the prior year. Table games revenuesremained flat for the three months ended June 30, 2006 as compared to thesame period in the prior year. Overall casino expenses increased 2.3% for thethree-months ended June 30, 2006 compared to the same period in the prioryear due mainly to an increase in taxes and license fees on increased gamingrevenues and advertising and promotional costs. Casino profit margin increasedto 62.6% for the three-months ended June 30, 2006 as compared to 61.5% forthree-months ended June 30, 2005.

 

Casinorevenues increased 7.1% to $18.8 million for the six-months ended June 30,2006 as compared to $17.5 million for the six months ended June 30,2005. The increase in casino revenues was due to the increase in slot revenues,which increased $0.7 million between periods as the hold percentage increasedfor the six-months ended June 30, 2006 compared to the same period in theprior year. Table games revenues increase slightly by $0.1 million during thesix months ended June 30, 2006 as compared to the same period in the prioryear. Overall casino expenses decreased 2.8% for the six-months ended June 30,2006 compared to the same period in the prior year due to an increase in taxesand license fees on increased gaming revenues and advertising and promotionalcosts. Casino profit margin increased to 63.7% for the six-months ended June 30,2006 as compared to 59.9% for six-months ended June 30, 2005.

 

*Food and Beverage.* Food and beverage revenues were flat at $2.9 million for thethree-months ended June 30, 2006 as compared to $2.9 million for thethree-months ended June 30, 2005. Food and beverage expenses also remainedflat at $1.9 million for the three-months ended June 30, 2006 as comparedto $1.9 million for the three-months ended June 30, 2005. Our food andbeverage profit margin increased to 35.9% of net revenues for the three-monthsended June 30, 2006 as compared to 33.9% of net revenues for the sameperiod in the prior year. Food and beverage revenues increased by 2.7% to$6.2 million for the six-months ended June 30, 2006 as compared to $6.0million for the six-months

 

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ended June 30, 2005. Food and beverage expenses increased to $3.8million for the six-months ended June 30, 2006 as compared to $3.7 millionfor the six-months ended June 30, 2005. Our food and beverage profitmargin decreased to 38.0% of net revenues for the six-months ended June 30,2006 as compared to 39.0% of net revenues for the same period in the prioryear.

 

*Hotel.* Hotel revenues increased by 11.4% to $2.7 million for thethree-months ended June 30, 2006 as compared to $2.4 million for thethree-months ended June 30, 2005. The hotel revenues increased due to anincrease in the average daily rate on 5,600 fewer occupied rooms during thethree-months ended June 30, 2006 compared to the same period in the prioryear. Hotel expenses decreased 32.3% to $0.5 million for the three-months endedJune 30, 2006 as compared to $0.8 million for the three months ended June 30,2005 due to the decrease in occupied rooms. As a result, hotel profit marginincreased to 80.9% for the three-months ended June 30, 2006 from 68.5% inthe same period of the prior year. Hotel revenues increased by 14.1% to$5.3 million for the six-months ended June 30, 2006 as compared to$4.7 million for the six-months ended June 30, 2005. The hotelrevenues increased due to an increase in the average daily rate on 9,300 feweroccupied rooms during the six-months ended June 30, 2006 compared to thesame period in the prior year. Hotel expenses decreased 23.9% to $1.1 millionfor the six-months ended June 30, 2006 as compared to $1.4 million for thesix months ended June 30, 2005 due to the decrease in occupied rooms. As aresult, hotel profit margin increased to 80.2% for the six-months ended June 30,2006 from 70.4% in the same period of the prior year.

 

*Other Revenues.* Other revenues remained relatively flat at $0.7 million for thethree-months ended June 30, 2006 as compared to the same period in theprior year. Other expenses remained relatively flat as well at $0.4 million forthe three-months ended June 30, 2006 and June 30, 2005. Otherrevenues remained consistent for the six months ended June 30, 2006 ascompared to the same period in the prior year at $1.4 million. Other expenseswere also consistent at $0.7 million for the six-months ended June 30,2006 and June 30, 2005.

 

*Promotional Allowances.* Promotional allowances increased by 18.0% to$2.2 million for the three-months ended June 30, 2006 as compared to$1.9 million for the three-months ended June 30, 2005. As a percentof gross revenues, promotional allowances increased to 14.4% of gross revenuesfor the three-months ended June 30, 2006 as compared to 12.8% for thethree months ended June 30, 2005 as we focused our marketing attention onour better gaming customers. Promotional allowances increased by 16.8% to$4.6 million for the six-months ended June 30, 2006 as compared to$3.9 million for the six-months ended June 30, 2005. As a percent ofgross revenues, promotional allowances increased to 14.4% of gross revenues forthe six-months ended June 30, 2006 as compared to 13.2% for the six monthsended June 30, 2005 as we focused our marketing attention on our bettergaming customers.

 

*General and Administrative.*G&A expenses increased by 13.9% to$5.4 million for the three-months ended June 30, 2006 as compared to$4.7 million for the three-months ended June 30, 2005. As a percentof net revenues, G&A expenses increased to 40.9% for the three-months endedJune 30, 2006 as compared to 37.0% for the three-months ended June 30,2005. The main reason for the increase was due to advertising and promotionalcosts, employee incentives and an increase in utility costs. G&A expensesincreased by 8.3% to $10.3 million for the six-months ended June 30,2006 as compared to $9.6 million for the six-months ended June 30,2005. As a percent of net revenues, G&A expenses increased to 38.1% for thesix-months ended June 30, 2006 as compared to 37.2% for the six-months endedJune 30, 2005. The main reason for the increase were advertising andpromotional costs, employee incentives and an increase in utility costs.

 

*Depreciation and Amortization.* Depreciation and amortization increased to$1.2 million for the three-months ended June 30, 2006 compared to$0.7 million for the three-months ended June 30, 2005. The increasewas due to the purchase of additional gaming equipment and other capitalexpenditures in

 

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addition to a change in the estimated life of our gaming equipment whichwas made effective January 1, 2006 and our purchase accounting adjustment,related to the December 20, 2004 buyout, completed during the fourthquarter of 2005.

 

Depreciationand amortization increased to $2.5 million for the six-months ended June 30,2006 compared to $1.4 million for the six-months ended June 30, 2005.The increase was due to the purchase of additional gaming equipment and othercapital expenditures in addition to a change in the estimated life of ourgaming equipment which was made effective on January 1, 2006 and our purchaseaccounting adjustment, related to the December 20, 2004 buyout, completedduring the fourth quarter of 2005

 

*Interest Expense.*Interest expense remained relatively flat at $0.6 million for thethree-months ended June 30, 2006 as compared to the same period in theprior year. Interest expense remained consistent for the six months ended June 30,2006 as compared to the same period in the prior year at $1.1 million.

 

**Liquidity andCapital Resources**

** **

*Cash Flows and Credit Facility*

* *

Our primary sources of liquidity and capital resourceshave been cash flow from operations and our credit facility. As of June 30,2006 and December 31, 2005, cash and cash equivalents were $8.2 millionand $6.2 million, respectively.

 

*Operating Activities*

* *

Cashprovided by operating activities for the six-months ended June 30, 2006was $4.2 million compared to $3.2 million for the six-months ended June 30,2005. The $1.0 million increase was primarily due to an increase inoperating income (excluding depreciation and amortization expense and othernoncash charges)

 

*Investing Activities*

 

Cash used in investingactivities for the six-months ended June 30, 2006 was $1.2 millioncompared to $1.0 million for the six-months ended June 30, 2005. Themajority of cash used in investing activities was related to capitalexpenditures for the property management and back office computer system.

 

*FinancingActivities*

 

Cash used in financingactivities for the six-months ended June 30, 2006 was $1.1 millioncompared to $0.7 million for the six-months ended June 30, 2005. Forthe six-months ended June 30, 2006, $0.9 million represented payments ongaming equipment financing and $0.2 million represented payments on theequipment financing. For the six-months ended June 30, 2005, $0.3 millionrepresented a payment on gaming equipment financing.

 

***Capital Expenditures for VirginRiver Casino Corporation, RBG, LLC and B & B B, Inc.***

 

For the remainder of fiscal 2006, we plan to spendapproximately $0.4 million in capital expenditures for the consolidationof our laundry operation and for a new property management and back officecomputer system. In addition, we plan to continue to renovate ourfacilities and add amenities. In particular, during the remainder of 2006 andthroughout 2007, we plan to (i) add convention and concert space andredesign the center and pool bar at the Casablanca; (ii) add an additionalrestaurant and

 

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refurbishand remodel the casino interior, coffee shop and lounge at the Virgin River;and (iii) expand and remodel the fine dining restaurant and sports bar atthe Oasis. We are currently in the design phase for each of the projects and withthe exception of the Oasis sports bar remodel which is expected to cost $0.5million and be completed by the end of the third quarter of this year, budgetsand timetables for completion for each project have not been finalized;however, it is anticipated that the total cost for all projects will not exceedwhat had been allocated for our postponed Casablanca hotel tower which was $21million. We believethat existing cash, cash flows from operations, equipment financing andavailable borrowings under the Foothill Facility will be adequate to satisfyour anticipated uses of capital during the remainder of 2006.

 

*Off BalanceSheet Arrangements for Virgin River Casino Corporation, RBG, LLC and B & BB, Inc.*

 

We have no off balancesheet arrangements at June 30, 2006 or December 31, 2005.

 

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

 

A description of ourcontractual obligations and commitment for Virgin River Casino Corporation,RBG, LLC and B & B B, Inc. can be found in item 7 of our Form 10-Kfor the year ended December 31, 2005.

 

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

** **

A description of ourcritical accounting policies can be found in Item 7 of our Form 10-K forthe year ended December 31, 2005.

 

**Item 3. Quantitative and QualitativeDisclosures About Market Risk.**

 

The following table provides information about ourlong-term debt at June 30, 2006:

 
| ** **                          | ** ** | **Maturity  Date**      | ** ** | **Face  Amount** | ** ** | **Carrying  Value** | ** ** | **Estimated  Fair  Value** | ** ** |
|-------------------------------------|------------|-------------------------|------------|------------------|------------|---------------------|------------|----------------------------|------------|
| ** **                          | ** ** | **(in thousands)** | ** ** |
| 9% senior secured notes             |       | January 2012       |       | $                | 125,000    |                | $          | 125,000                    |       | $ | 125,000 |   |
| 12 3/4 % senior subordinated  notes |       | January 2013       |       | 66,000           |       | 48,223              |       | 43,808                     |       |
| Note payable, interest at 6.21%     |       | December 2006      |       | 574              |       | 80                  |       | 80                         |       |
| Total                               |       |                    |       | $                | 191,574    |                | $          | 173,303                    |       | $ | 168,888 |   |

 

We are also exposed tomarket risk in the form of fluctuations in interest rates and theirpotential impact upon our debt. Historically, this market risk is managed byutilizing derivative financial instruments in accordance with establishedpolicies and procedures. We evaluate our exposure to market risk by monitoringinterest rates in the marketplace, and do not utilize derivative financialinstruments for trading purposes. Our derivative financial instruments consistexclusively of interest rate swap agreements. Interest differentials resultingfrom these agreements are recorded on an accrual basis as an adjustment tointerest expense. As of June 30, 2006, the interest rate swaps contractsended.

 

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

 

54

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| ** **                                   | ** ** | **As of June 30,**    | ** ** |
|----------------------------------------------|------------|----------------------------|------------|
| ** **                                   | ** ** | **2006**                   | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
| ** **                                   | ** ** | **(dollars in thousands)** | ** ** |
| Long-term  debt (including current portion): |       |                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed-rate                                   |       | $                          | 80         |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 191,000 |   | $ | 191,080 |   |
| Average  interest rate                       |       | 10.04                      | %          | 10.14 | % | 10.24 | % | 10.30 | % | 10.30 | % | 10.30 | % | 10.04 | % |
| Variable-rate                                |       | $                          | —     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   |
| Average  interest rate                       |       | —                     |       | — |   | — |   | — |   | — |   | — |   | — |   |

 

The gaming equipmentfinancing are agreements that because of their long-term nature we imputeinterest expense for accounting purposes. Contractually these agreements carryno interest, therefore we believe that there is no exposure to interest raterisk and therefore have excluded those contracts from the presentation above.

 

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

## ** **

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

## ** **

We evaluated the effectiveness of our disclosurecontrols and procedures as of and for the three months ended June 30, 2006.This evaluation was done with the participation of our management, includingour Chief Executive Officer and Chief Financial Officer.

 

Disclosure controls and procedures are controls andother procedures that are designed to ensure that information required to bedisclosed by us in the reports that we file or submit under the SecuritiesExchange Act of 1934 are recorded, processed, summarized and reported withinthe time periods specified in the Commission’s rules and forms. Disclosurecontrols and procedures include, without limitation, controls and proceduresdesigned to ensure that information required to be disclosed by us in thereports that we file under the Securities Exchange Act of 1934 is accumulatedand communicated to our manager, as appropriate to allow timely decisionsregarding required disclosure.

 

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

## ** **

Our management does not expect that our disclosurecontrols and procedures prevent all error and all fraud. A control system, nomatter how well conceived and operated, can provide only reasonable, but notabsolute, assurance that the objectives of a control system are met. Further,any control system reflects limitations on resources, and the benefits of acontrol system must be considered relative to its costs. Because of theinherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, within us have been detected. These inherent limitations include therealities that judgments in decision-making can be faulty and that breakdownscan occur because of simple error or mistake. Additionally, controls can becircumvented by the individual acts of some persons, by collusion of two ormore people, or by management override of a control. Because the design of a controlsystem is based upon certain assumptions about the likelihood of future events,there can be no assurance that any design will succeed in achieving its statedgoals under all potential future conditions as over time, controls may becomeinadequate because of changes in conditions, or the degree of compliance with thepolicies or procedures may deteriorate. Because of the inherentlimitations in a cost-effective control system, misstatements due to error orfraud may occur and may not be detected.

 

## ***Conclusions***

## ** **

Based on this evaluation, our Chief Executive Officerand Chief Financial Officer have evaluated our disclosure controls andprocedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and15d-15(e)) as of June 30, 2006, and have concluded that they are effectiveto timely alert them to material information relating to us required to beincluded in the reports that we file or submit under the Securities ExchangeAct of 1934.

 

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

## ** **

There were no changes in our internal controls overfinancial reporting that occurred during our last fiscal quarter, *i.e.*, the quarter ended June 30,2006, that have materially affected, or are reasonably likely to materiallyaffect, our internal controls over financial reporting.

 

56

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**PART II– OTHER INFORMATION**

 

**Item 1. Legal Proceedings.**

 

None.

 

**Item 1A. Risk Factors.**

 

None.

 

**Item 2. Unregistered Sales of EquitySecurities and Use 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.**

 

Exhibits:

 

31.1                           Certification pursuant to §302 of the Sarbanes-Oxley Act of 2002,Robert R. Black, Sr.

 

31.2                           Certification pursuant to §302 of the Sarbanes-Oxley Act of 2002, CurtMayer

 

32.1                           Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002,Robert R. Black, Sr.

 

32.1                           Certification pursuant to §906 of the Sarbanes-Oxley Act of 2002, CurtMayer

 

57

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
| **VIRGIN  RIVER CASINO CORPORATION** |                                          |
|--------------------------------------|-----------------------------------------------|
|                                 |                                          |   |
|                                 |                                          |   |
| By:                                  |   /s/  Curt Mayer                   |   | August 14,  2006 |
|                                 |   Curt  Mayer                       |   |
|                                 | *  Chief  Financial Officer*        | * * |
|                                 | *  (Principal  Financial and Chief* | * * |
|                                 | *  Accounting  Officer)*            | * * |
|                                 | * *                                      | * * |
| **RBG,  LLC**                        |                                          |
|                                 |                                          |   |
|                                 |                                          |   |
| By:                                  |   /s/  Curt Mayer                   |   | August 14,  2006 |
|                                 |   Curt  Mayer                       |   |
|                                 | *  Chief  Financial Officer*        | * * |
|                                 | *  (Principal  Financial and Chief* | * * |
|                                 | *  Accounting  Officer)*            | * * |
|                                 | * *                                      | * * |
| **B &  B B, INC.**     |                                          |
|                                 |                                          |   |
|                                 |                                          |   |
| By:                                  |   /s/  Curt Mayer                   |   | August 14,  2006 |
|                                 |   Curt  Mayer                       |   |
|                                 | *  Chief  Financial Officer*        | * * |
|                                 | *  (Principal  Financial and Chief* | * * |
|                                 | *  Accounting  Officer)*            | * * |
|                                 | * *                                      | * * |
|                                 | * *                                      | * * |
| **CASABLANCA  RESORTS, LLC**         |                                          |
|                                 |                                          |   |
|                                 |                                          |   |
| By:                                  |   /s/  Curt Mayer                   |   | August 14,  2006 |
|                                 |   Curt  Mayer                       |   |
|                                 | *  Chief  Financial Officer*        | * * |
|                                 | *  (Principal  Financial and Chief* | * * |
|                                 | *  Accounting  Officer)*            | * * |

 

58

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| **OASIS  INTERVAL OWNERSHIP, LLC**            |                                          |
|-----------------------------------------------|-----------------------------------------------|
|                                          |                                          |   |
|                                          |                                          |   |
| By:                                           |   /s/  Curt Mayer                   |   | August 14,  2006 |
|                                          |   Curt  Mayer                       |   |
|                                          | *  Chief  Financial Officer*        | * * |
|                                          | *  (Principal  Financial and Chief* | * * |
|                                          | *  Accounting  Officer)*            | * * |
|                                          | * *                                      | * * |
| **OASIS  INTERVAL MANAGEMENT, LLC**           |                                          |
|                                          |                                          |   |
|                                          |                                          |   |
| By:                                           |   /s/  Curt Mayer                   |   | August 14,  2006 |
|                                          |   Curt  Mayer                       |   |
|                                          | *  Chief  Financial Officer*        | * * |
|                                          | *  (Principal  Financial and Chief* | * * |
|                                          | *  Accounting  Officer)*            | * * |
|                                          | * *                                      | * * |
| **OASIS  RECREATIONAL PROPERTIES, INC.** |                                          |
|                                          |                                          |   |
|                                          |                                          |   |
| By:                                           |   /s/  Curt Mayer                   |   | August 14,  2006 |
|                                          |   Curt  Mayer                       |   |
|                                          | *  Chief  Financial Officer*        | * * |
|                                          | *  (Principal  Financial and Chief* | * * |
|                                          | *  Accounting  Officer)*            | * * |

** **

**59**

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