**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D. C. 20549**

** **

**FORM 10-K/A**

**(Amendment No. 1)**

** **

**(Mark One)**

** **

**ý****                                ****ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

** **

**For the fiscal year ended December 31, 2003**

** **

**o****                                ****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

** **

**For the transition period from                            to                            **

** **

**Commission file number 0-71094**

 

**HERBST GAMING, INC.**

(Exactname of registrant as specified in its charter)

 

| **NEVADA**                                                       |   | **88-0446145**                         |
|------------------------------------------------------------------|--------|----------------------------------------|
| (State  or other jurisdiction of  incorporation or organization) |   | (I.R.S.  Employer  Identification No.) |
|                                                             |   |                                   |
| **3440 West Russell Road, Las Vegas, Nevada**                    |   | **89118**                              |
| (Address  of principal executive offices)                        |   | (Zip  Code)                            |
|                                                             |   |                                   |
| **(702) 889-7695**                                               |
| (Registrant’s  telephone number, including area code)       |

 

Securities registered pursuant to Section 12(b) ofthe Act:

 

| **Title of  each class** |   | **Name of  each exchange  on which registered** |
|--------------------------|--------|-------------------------------------------------|
|                     |   |                                            |
| Not  Applicable          |   | Not  Applicable                                 |

 

Securities registered pursuant to Section 12(g) ofthe Act:

 

**Not Applicable**

(Titleof class)

 

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Sections 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.   ý Yes          o No

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

 

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Exchange Act Rule12b-2).   o Yes          ý No

 

The aggregate market value ofvoting and non-voting common equity held by non-affiliates of the registrantsas of December 31, 2001, based on the price at which the common equity wassold, was approximately $0.

 

Indicate the number of sharesoutstanding of each of the registrant’s classes of common stock, as ofDecember 31, 2001.

 

Common Stock, no par value, 300outstanding shares.

 

DocumentsIncorporated by Reference

 

None.

 

 

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ExplanatoryNote

 

ThisAmendment No. 1 to the registrant’s annual report on Form 10-K forthe year ended December 31, 2003 is being filed pursuant toRule 12b-15 for the sole purpose of correcting the “due from relatedparties” and “accounts payable” line items in the Consolidated Statements ofCash Flows contained in Item 8.  Financial Statements andSupplementary Data that were inadvertently omitted and/or moved when thefinancial statements were converted for EDGAR purposes.  Accordingly, Item 8.  Financial Statements and SupplementaryData is restated in its entirety. There were no changes made to sub-totals or totals as a result of thischange.  All information in thisAmendment No. 1 is as of December 31, 2003, and does not reflect anysubsequent information or events other than the changes referred to above.

 

**PART I**

 

**Item 8.****           ****Financial Statements andSupplementary Data**

 
| Independent Auditors’  Report                                                                               |   |
|------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                             |   |
| Consolidated Balance Sheets  at December 31, 2002 and 2003                                                  |   |
|                                                                                                             |   |
| Consolidated  Statements of Operations for the Years Ended December 31, 2001, 2002 and  2003                |   |
|                                                                                                             |   |
| Consolidated  Statements of Stockholders’ Equity for the Years Ended December 31,  2001, 2002 and 2003 |   |
|                                                                                                             |   |
| Consolidated  Statements of Cash Flows for the Years Ended December 31, 2001, 2002 and  2003                |   |
|                                                                                                             |   |
| Notes to  Consolidated Financial Statements                                                                      |   |

 

2

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**INDEPENDENT AUDITORS’ REPORT**

 

 

To the Board of Directors and Stockholders ofHerbst Gaming, Inc. and SubsidiariesLas Vegas, Nevada

 

We have audited the accompanying consolidated balancesheets of Herbst Gaming, Inc. and Subsidiaries (the “Company”) as ofDecember 31, 2002 and 2003, and the related consolidated statements ofoperations, stockholders’ deficiency, and cash flows for each of the threeyears in the period ended December 31, 2003.  These financial statements are the responsibility of theCompany’s management.  Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits in accordance with auditingstandards generally accepted in the United States of America.  Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles usedand significant estimates made by management, as well as evaluating the overallfinancial statement presentation.  Webelieve that our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financialstatements present fairly, in all material respects, the financial position ofHerbst Gaming, Inc. and Subsidiaries as of December 31, 2002 and 2003, and theresults of their operations and their cash flows for each of the three years inthe period ended December 31, 2003, in conformity with accounting principlesgenerally accepted in the United States of America.

 

DELOITTE & TOUCHE LLP

 

Las Vegas, Nevada

March 9, 2004

 

3

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**Herbst Gaming, Inc.**

 

**ConsolidatedBalance Sheets**

**(in thousands)**

 
|                                                                                     |   | **December  31,** |    |
|------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                     |   | **2002**          |    | **2003** |   |
|                                                                                     |   |              |    |   |   |
| **Assets**                                                                               |   |              |    |   |   |
| Current assets                                                                           |   |              |    |   |   |
| Cash and cash  equivalents                                                               |   | $                 | 55,035  |   | $ | 54,030 |   |
| Accounts  receivable, net                                                                |   | 1,389             |    | 1,216 |   |
| Notes and loans  receivable                                                              |   | 266               |    | 706 |   |
| Prepaid expenses                                                                         |   | 3,520             |    | 4,070 |   |
| Inventory                                                                                |   | 1,143             |    | 1,039 |   |
| Total current  assets                                                                    |   | 61,353            |    | 61,061 |   |
| Property and  equipment, net                                                             |   | 99,932            |    | 106,824 |   |
| Lease  acquisition costs, net                                                            |   | 15,140            |    | 59,620 |   |
| Due from related  parties                                                                |   | 546               |    | 563 |   |
| Other assets,  net                                                                       |   | 6,742             |    | 9,000 |   |
| Total assets                                                                             |   | $                 | 183,713 |   | $ | 237,068 |   |
|                                                                                     |   |              |    |   |   |
| **Liabilities  and stockholders’ equity (deficiency)**                              |   |              |    |   |   |
| Current  liabilities                                                                     |   |              |    |   |   |
| Current portion  of long-term debt                                                       |   | $                 | 127     |   | $ | 170 |   |
| Accounts payable                                                                         |   | 4,695             |    | 5,727 |   |
| Accrued expenses                                                                         |   | 10,707            |    | 13,599 |   |
| Due to related  parties                                                                  |   | 430               |    | — |   |
| Total current  liabilities                                                               |   | 15,959            |    | 19,496 |   |
| Long-term debt,  less current portion                                                    |   | 167,814           |    | 215,099 |   |
| Other  liabilities                                                                       |   | 1,175             |    | 919 |   |
|                                                                                     |   |              |    |   |   |
| Commitments and  contingencies (Note 9)                                                  |   |              |    |   |   |
|                                                                                     |   |              |    |   |   |
| Stockholders’  equity (deficiency)                                                  |   |              |    |   |   |
| Common stock (no  par value; 2,500 shares authorized; 300 shares issued and outstanding) |   | 2,368             |    | 2,368 |   |
| Additional  paid-in-capital                                                              |   | 1,631             |    | 1,631 |   |
| Accumulated  deficit                                                                     |   | (5,234            | )       | (2,445 | ) |
| Total  stockholders’ equity (deficiency)                                            |   | (1,235            | )       | 1,554 |   |
|                                                                                     |   |              |    |   |   |
| Total  liabilities and stockholders’ equity (deficiency)                            |   | $                 | 183,713 |   | $ | 237,068 |   |

 

See notes to consolidated financial statements.

 

4

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**Herbst Gaming, Inc.**

** **

**Consolidated Statements of Operations**

** **

**(in thousands)**

** **
|                                           |   | **Year Ended  December 31,** |    |
|------------------------------------------------|--------|------------------------------|---------|
|                                           |   | **2001**                     |    | **2002** |   | **2003** |   |
|                                           |   |                         |    |   |   |   |   |
| Revenues                                       |   |                         |    |   |   |   |   |
| Route operations                               |   | $                            | 170,893 |   | $ | 183,877 |   | $ | 241,833 |   |
| Casino  operations                             |   | 67,831                       |    | 72,498 |   | 78,342 |   |
| Other—non-gaming                          |   | 2,878                        |    | 3,078 |   | 3,049 |   |
| Total revenues                                 |   | 241,602                      |    | 259,453 |   | 323,224 |   |
| Less promotional  allowances                   |   | (8,410                       | )       | (9,802 | ) | (11,249 | ) |
| Net revenues                                   |   | 233,192                      |    | 249,651 |   | 311,975 |   |
|                                           |   |                         |    |   |   |   |   |
| Costs and  expenses                            |   |                         |    |   |   |   |   |
| Route operations                               |   | 141,535                      |    | 150,781 |   | 192,757 |   |
| Casino  operations                             |   | 46,686                       |    | 48,635 |   | 51,142 |   |
| Depreciation and  amortization                 |   | 14,198                       |    | 15,741 |   | 24,382 |   |
| General and  administrative                    |   | 10,168                       |    | 10,812 |   | 12,514 |   |
| Total costs and  expenses                      |   | 212,587                      |    | 225,969 |   | 280,795 |   |
| Income from  operations                        |   | 20,605                       |    | 23,682 |   | 31,180 |   |
| Other income  (expense)                        |   |                         |    |   |   |   |   |
| Interest income                                |   | 407                          |    | 336 |   | 228 |   |
| Interest  expense, net of capitalized interest |   | (19,952                      | )       | (18,785 | ) | (22,932 | ) |
| Loss on early  retirement of debt              |   | (13,024                      | )       | — |   | (267 | ) |
| Total other  expense                           |   | (32,569                      | )       | (18,449 | ) | (22,971 | ) |
| Net income  (loss)                             |   | $                            | (11,964 | ) | $ | 5,233 |   | $ | 8,209 |   |

 

See notes to consolidated financial statements.

 

5

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**Herbst Gaming, Inc.**

** **

**Consolidated Statements of Stockholders’Equity (Deficiency)**

** **

**(in thousands)**

** **
| **Balance**                       |   | **Common  Stock** |   | **Additional  Paid-In  Capital** |   | **Retained  Earnings  (Accumulated  Deficit)** |   | **Total** |   |
|-----------------------------------|--------|-------------------|--------|----------------------------------|--------|------------------------------------------------|--------|-----------|--------|
| Balance,  January 1, 2001    |   | $                 | 2,368  |                             | $      | 731                                            |   | $         | 3,873  |   | $ | 6,972 |   |
| Net loss                          |   | —            |   | —                           |   | (11,964                                        | )      | (11,964   | )      |
| Stockholders’  distributions |   | —            |   | —                           |   | (2,376                                         | )      | (2,376    | )      |
| Contributed  capital              |   | —            |   | 900                              |   | —                                         |   | 900       |   |
| Balance,  December 31, 2001  |   | 2,368             |   | 1,631                            |   | (10,467                                        | )      | (6,468    | )      |
| Net income                        |   | —            |   | —                           |   | 5,233                                          |   | 5,233     |   |
| Balance,  December 31, 2002  |   | 2,368             |   | 1,631                            |   | (5,234                                         | )      | (1,235    | )      |
| Net income                        |   | —            |   | —                           |   | 8,209                                          |   | 8,209     |   |
| Stockholders’  distributions |   | —            |   | —                           |   | (5,420                                         | )      | (5,420    | )      |
| Balance,  December 31, 2003  |   | $                 | 2,368  |                             | $      | 1,631                                          |   | $         | (2,445 | ) | $ | 1,554 |   |

 

See notes to consolidated financial statements.

 

6

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**Herbst Gaming, Inc.**

** **

**Consolidated Statements of Cash Flows******

** **

**(in thousands)**

** **
|                                                                                     |   | **Year Ended  December 31,** |    |
|------------------------------------------------------------------------------------------|--------|------------------------------|---------|
|                                                                                     |   | **2001**                     |    | **2002** |   | **2003** |   |
|                                                                                     |   |                         |    |   |   |   |   |
| Cash flows from  operating activities                                                    |   |                         |    |   |   |   |   |
| Net income  (loss)                                                                       |   | $                            | (11,964 | ) | $ | 5,233 |   | $ | 8,209 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by operating activities |   |                         |    |   |   |   |   |
| Depreciation and  amortization                                                           |   | 14,198                       |    | 15,741 |   | 24,382 |   |
| Debt discount  amortization                                                              |   | 1,633                        |    | 424 |   | 83 |   |
| Gain on sale of  property and equipment                                                  |   | (41                          | )       | (129 | ) | (119 | ) |
| Other                                                                                    |   | (202                         | )       | — |   | — |   |
| Loss on early  retirement of debt                                                        |   | 13,024                       |    | — |   | 267 |   |
| Decrease  (increase) in                                                                  |   |                         |    |   |   |   |   |
| Accounts  receivable                                                                     |   | (621                         | )       | 7 |   | 173 |   |
| Prepaid expenses                                                                         |   | 2,182                        |    | (561 | ) | (343 | ) |
| Inventory                                                                                |   | (120                         | )       | (370 | ) | 104 |   |
| Due from related  parties                                                                |   | 21                           |    | (94 | ) | (17 | ) |
| Increase  (decrease) in                                                                  |   |                         |    |   |   |   |   |
| Accounts payable                                                                         |   | (8,597                       | )       | 170 |   | 630 |   |
| Accrued expenses                                                                         |   | 6,157                        |    | (688 | ) | 2,314 |   |
| Due to related  parties                                                                  |   | (1,499                       | )       | (544 | ) | (430 | ) |
| Other liabilities                                                                        |   | 774                          |    | 134 |   | (256 | ) |
| Net cash  provided by operating activities                                               |   | 14,945                       |    | 19,323 |   | 34,997 |   |
| Cash flows from  investing activities                                                    |   |                         |    |   |   |   |   |
| Net cash paid  for acquisition of Anchor’s Slot Route                               |   | —                       |    | — |   | (57,171 | ) |
| Additions to  notes receivable                                                           |   | (325                         | )       | (860 | ) | (619 | ) |
| Collection on  notes receivable                                                          |   | 432                          |    | 870 |   | 689 |   |
| Proceeds from  sale of property and equipment                                            |   | 951                          |    | 395 |   | 577 |   |
| Purchases of  property and equipment                                                     |   | (3,226                       | )       | (8,442 | ) | (15,117 | ) |
| Lease  acquisition costs                                                                 |   | (610                         | )       | (663 | ) | (3,083 | ) |
| Net cash used in  investing activities                                                   |   | (2,778                       | )       | (8,700 | ) | (74,724 | ) |
| Cash flows from  financing activities                                                    |   |                         |    |   |   |   |   |
| Increase in  notes payable to related parties                                            |   | 3,553                        |    | — |   | — |   |
| Decrease in  notes payable to related parties                                            |   | (20,947                      | )       | — |   | — |   |
| Proceeds from long-term  debt                                                            |   | 167,025                      |    | — |   | 49,115 |   |
| Reduction of  long-term debt                                                             |   | (127,531                     | )       | (104 | ) | (2,153 | ) |
| Loan origination  fees                                                                   |   | (7,838                       | )       | (234 | ) | (2,553 | ) |
| Prepayment  penalty on retired debt                                                      |   | (9,776                       | )       | — |   | (267 | ) |
| Additional  paid-in capital                                                              |   | 900                          |    | — |   | — |   |
| Stockholders’  distributions                                                        |   | (2,376                       | )       | — |   | (5,420 | ) |
| Net cash  provided by (used in) financing activities                                     |   | 3,010                        |    | (338 | ) | 38,722 |   |
| Net increase  (decrease) in cash and cash equivalents                                    |   | 15,177                       |    | 10,285 |   | (1,005 | ) |
| Cash and cash  equivalents                                                               |   |                         |    |   |   |   |   |
| Beginning of  year                                                                       |   | 29,573                       |    | 44,750 |   | 55,035 |   |
| End of year                                                                              |   | $                            | 44,750  |   | $ | 55,035 |   | $ | 54,030 |   |

 

7

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|                                                                  |   | **Year Ended  December 31,** |   |
|-----------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                  |   | **2001**                     |   | **2002** |   | **2003** |   |
|                                                                  |   |                         |   |   |   |   |   |
| Supplemental  cash flow information                                   |   |                         |   |   |   |   |   |
| Cash paid during  the year for interest                               |   | $                            | 12,983 |   | $ | 18,637 |   | $ | 21,198 |   |
| Supplemental  schedule of non-cash investing and financing activities |   |                         |   |   |   |   |   |
| Purchase of  property and equipment financed through accounts payable |   | —                       |   | 271 |   | 661 |   |
| Purchase of  assets through direct financing                          |   | 2,445                        |   | 302 |   | 283 |   |
| Acquisition of  Anchor Coin’s Slot Route                         |   |                         |   |   |   |   |   |
| Fair value of  assets and liabilities acquired                        |   |                         |   |   |   |   |   |
| Current assets,  other than cash                                      |   |                         |   |   |   | $ | 717 |   |
| Property and  equipment                                               |   |                         |   |   |   | 5,200 |   |
| Lease  acquisition costs                                              |   |                         |   |   |   | 50,532 |   |
| Other long-term  assets                                               |   |                         |   |   |   | 1,300 |   |
| Other  liabilities                                                    |   |                         |   |   |   | (578 | ) |
| Cash paid, net  of cash acquired                                      |   |                         |   |   |   | $ | 57,171 |   |
|                                                                       |        |                              |        |  |  |  |  |  |  |  |

 

Seenotes to consolidated financial statements.

 

8

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**Herbst Gaming, Inc.**

 

**Notes to Consolidated Financial Statements**

 

**1.****            ****Description of Business and Summaryof Significant Accounting Policies**

 

***Description of Business and Principles ofConsolidation***—Theaccompanying consolidated financial statements of Herbst Gaming, Inc.(“Herbst” or the “Company”) include the accounts of Herbst and itssubsidiaries; E-T-T, Inc. and Subsidiaries (“E-T-T”),Market Gaming, Inc. (“MGI”), E-T-T Enterprises L.L.C. (“E-T-TEnterprises”), and Flamingo and Paradise Gaming, LLC (“FPG”).  The financial statements of E-T-T areconsolidated and include the following wholly-owned subsidiaries:  Cardivan Company, Corral Coin, Inc.,and Corral Country Coin, Inc.

 

All significant intercompanybalances and transactions between Herbst, E-T-T, MGI, E-T-T Enterprises, andFPG have been eliminated in the consolidated financial statements.

 

Herbst Gaming, Inc. wasincorporated in Nevada on January 21, 1997. In August of 2001, a restructuring occurred, wherein E-T-T, MGI, FPG andE-T-T Enterprises became wholly-owned subsidiaries of Herbst.  This restructuring occurred in conjunctionwith the $170.0 million offering of senior secured notes that was used toretire the majority of the existing debt of the consolidated entities.  Prior to August of 2001, the newlyconsolidated entities were combined for presentation purposes.

 

E-T-T and MGI conduct business inthe gaming industry and generate revenue principally from gaming machine routeoperations and casino operations. Gaming machine route operations involve the installation, operation, andservice of gaming machines owned by the Company that are located in licensed,leased, or subleased space in retail stores (supermarkets, convenience stores,etc.), bars, and restaurants throughout the State of Nevada.  The Company operates Terrible’s Town Casino& Bowl (Henderson) in Henderson, Nevada, Terrible’s Searchlight Casino inSearchlight, Nevada, and Terrible’s Town Casino and Terrible’s Lakeside Casino& RV Park, both of which are located in Pahrump, Nevada, a community 60miles west of Las Vegas.

 

E-T-T Enterprises develops andleases real estate to E-T-T.

 

FPG owns and operates Terrible’sHotel & Casino in Las Vegas, Nevada, which began operations inDecember 2000.

 

The gaming industry in the State ofNevada is subject to extensive state and local government regulation.  The Company’s gaming operations are subjectto the licensing and regulatory control of the Nevada Gaming Commission, theNevada Gaming Control Board, and local jurisdictions.

 

***Use of Estimates***—The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectthe reported amounts of assets and liabilities and disclosure of contingent assetsand liabilities at the date of the financial statements and the reportedamounts of revenues and expenses during the period.  Significant estimates incorporated into the Company’sconsolidated financial statements include the estimated useful lives for depreciableand amortizable assets, the estimated allowance for doubtful accountsreceivable and the estimated cash flows in assessing the recoverability oflong-lived assets.  Actual results coulddiffer from those estimates.

 

***Reclassifications***—Certain prior period amounts have been reclassifiedin the consolidated financial statements to conform to the current period’spresentation.  Such reclassificationshad no impact on net income.

 

9

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***Cash and Cash Equivalents***—Cash and cash equivalents include highly liquidinvestments with a maturity at the date of purchase of three months orless.  The carrying value of theseinvestments approximates their fair value due to their short maturities.

 

***Fair Value of Financial Instruments***—The carrying value of the Company’s cash, trade,notes and loans receivable, and trade payables approximates fair valueprimarily because of the short maturities of these instruments.  The fair value of the Company’s long-termdebt is estimated based on the quoted market prices for the same or similarissues or on the current rates offered to the Company for debt of the sameremaining maturities.  Based on theborrowing rates currently available to the Company for debt with similar termsand average maturities, the estimated fair value of long-term debt outstandingis approximately $242,412,500 as of December 31, 2003.

 

***Accounts Receivable***—Receivables consist primarily of amounts due fromcustomers as a result of normal business operations.  The Company periodically performs credit evaluations of itscustomers.  The Company reviews accountsreceivable balances in order to determine an allowance for potential creditlosses.  At December 31, 2002 and2003, an allowance for potential credit losses was $1,224,000 and $310,629,respectively.

 

***Notes and Loans Receivable***—In order to secure various route locations, theCompany has provided certain incentives to the location operators in the formof loans.  The loans, made forbuild-outs, tenant improvements, and initial operating expenses, are generallysecured by the personal guarantees of the operators and the locations’assets.  The majority of the loans arenon-interest bearing and are expected to be repaid within one year from thelocations’ share of net gaming win.

 

On a regular basis, the Companyevaluates the collectibility of the loans by individually evaluating eachlocation’s operating results and cash flows. Management provides for the carrying value of loans that are determinedto be uncollectible.  AtDecember 31, 2002 and 2003, an allowance for potential credit losses wasnot deemed necessary.

 

***Inventory***—Inventories are stated at the lower of cost ormarket value.  Cost is determined usingthe first-in, first-out method.

 

***Property and Equipment***—Property and equipment are stated at cost anddepreciated using the straight-line method over the estimated useful lives ofthe assets.  Leasehold improvements areamortized using the straight-line method over the shorter of the lease term orestimated useful life of the asset. Useful lives are as follows: 

 
| Building                            |   | 40  years   |   |
|-------------------------------------|--------|-------------|--------|
| Gaming equipment                    |   | 5  years    |   |
| Furniture, fixtures, and  equipment |   | 5-10  years |   |
| Leasehold improvements              |   | 1-20  years |   |

 

***Lease Acquisition Costs***—Significant incremental costs associated with theacquisition of location leases are capitalized and amortized using thestraight-line method over the term of the related leases, including expectedrenewals, which range from 1 to 20 years. Lease acquisition costs are stated at cost less accumulated amortizationof $7,528,000 and $16,601,268 at December 31, 2002 and 2003, respectively.

 

10

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***Debt Issuance Costs***—Debt issuance costs incurred in connection with theissuance of long-term debt are capitalized and amortized to interest expenseover the terms of the related debt agreements. Debt issuance costs are included in other assets on the balance sheets(see Note 5).

 

***Long-Lived Assets***—In accordance with the provisions of SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets,” the Companyevaluates the potential impairment of long-lived assets when events or changesin circumstances indicate that the carrying amount of a long-lived asset maynot be recoverable.  If it is determinedthat the carrying value of long-lived assets may not be recoverable based uponthe relevant facts and circumstances, the Company estimates the futureundiscounted cash flows expected to result from the use of the asset and itseventual disposition.  If the sum of theexpected undiscounted future cash flows is less than the carrying value of theasset, the Company will recognize an impairment loss for the difference betweenthe carrying value of the asset and its fair value.  The Company believes that no material impairment of long-livedassets exists at December 31, 2003.

 

***Revenue and Promotional Allowances***—In accordance with industry practice, the Companyrecognizes as gaming revenues the net win from route operations, which is thedifference between gaming wins and losses. The Company recognizes total net win from gaming devices as revenuesfrom gaming routes that operate under revenue-sharing arrangements.  Revenue-sharing payments to route locationsare recorded as costs of route operations. Revenues from casino operations are gaming wins less losses.  Revenues from casino operations include theretail value of food and beverage, and goods and services provided to customerson a complimentary basis.  Such amountsare then deducted as promotional allowances. The estimated cost of providing these promotional allowances is asfollows: 

 
|               |   | **Year Ended  December 31,** |   |
|--------------------|--------|------------------------------|--------|
|               |   | **2001**                     |   | **2002** |   | **2003** |   |
|               |   | **(dollars  in thousands)**  |   |
| Room               |   | $                            | 658    |   | $ | 597 |   | $ | 498 |   |
| Food and  beverage |   | 3,785                        |   | 4,507 |   | 4,798 |   |
| Other              |   | 1,322                        |   | 2,049 |   | 3,538 |   |
| Total              |   | $                            | 5,765  |   | $ | 7,153 |   | $ | 8,834 |   |

 

These costs are periodically reclassified out of therespective department into the casino department.

 

***Location Rent Expense***—Fixed rental payments (including scheduledincreases) are recorded on a straight-line basis over the agreement term,including any optional extension periods that are expected to beexercised.  Contingent payments areexpensed in the period incurred. Renewal agreements are considered new agreements and are accounted foras described above over the new agreement term.

 

***Income Taxes***—Herbst, E-T-T and MGI have elected to be taxedunder the provisions of Subchapter S of the Internal Revenue Code.  Under those provisions, the owners of eachcompany are liable for income tax on the taxable income of the Company as itaffects the owners’ individual income tax returns.  Therefore, a provision for income taxes has not been included inthe accompanying consolidated financial statements.  E-T-T Enterprises and FPG are treated as partnerships for federalincome tax purposes and, therefore, do not incur income taxes.  Instead, their earnings and losses areincluded in the personal returns of the members and are taxed depending ontheir personal tax situations. Accordingly, the accompanying financial statements do not reflect aprovision for income taxes.

 

11

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***Concentrations of Credit Risk***—The Company maintains cash balances at certainfinancial institutions located in southern Nevada.  The balances are insured by the Federal Deposit InsuranceCorporation (“FDIC”) up to $100,000.  Attimes, cash balances may be in excess of FDIC limits.

 

**Recently Issued and Adopted AccountingStandards**—

 

In November 2002, the FASB issuedInterpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others, aninterpretation of SFAS Nos. 5, 57 and 107 and a rescission of FASBInterpretation No. 34” (“Interpretation 45”). Interpretation 45 elaborates on the disclosures to be made by aguarantor in its interim and annual financial statements about its obligationsunder certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at theinception of a guarantee, a liability for the fair value of the obligationundertaken in issuing the guarantee. The provisions of this Interpretation 45 are applicable on a prospectivebasis to guarantees issued or modified after December 31, 2002, and thedisclosure requirements are generally effective for financial statements ofinterim or annual periods ending after December 15, 2002.  The Company believes that Interpretation 45will not have a significant impact on its results of operations or financialposition.

 

In December 2003, the FASB issuedInterpretation No. 46, “Consolidationof Variable Interest Entities (revised December 2003)” (“FIN 46R”), clarifyingFIN 46 and exempting certain entities from the provisions of FIN 46R.  Generally, application of FIN 46R isrequired in financial statements of public entities that have interests instructures commonly referred to as special-purpose entities for periods endingafter December 15, 2003, and, for other types of variable interest entities forperiods ending after March 15, 2004. FIN 46R addresses consolidation by business enterprises of variableinterest entities that either: (1) do not have sufficient equity investment at risk to permit theentity to finance its activities without additional subordinated financialsupport, or (2) the company will hold a significant variable interest in, orhave significant involvement with, an existing variable interest entity.  During the fourth quarter of 2003, theCompany adopted the provisions of FIN 46R related to special-purpose entities,which did not have a material impact on its financial position and results ofoperations.  The Company will adopt theprovisions of FIN 46R related to other types of variable interest entitiesduring the first quarter of 2004.

 

**2.****            ****Acquisition**

 

In February 2003, the Companycompleted its acquisition of the route assets of Anchor Coin, Inc., asubsidiary of IGT (“Anchor”).  Anchorwas a leading route operator in Nevada. The acquisition, which was recorded under the purchase method of accounting,included the purchase of all of the assets of the Anchor’s Slot Route for aninitial purchase price of $61,000,000. A portion of the purchase price has been allocated to assets acquiredand liabilities assumed based on estimated fair market value at the date ofacquisition with the remaining balance of $50,532,000 recorded as leaseacquisition costs for the route contracts acquired.  Such intangible asset is being amortized on a straight-line basisover the remaining lives of the contracts.

 

12

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The table below reflects unauditedpro forma consolidated results of the Company and Anchor Coin as if theacquisition had taken place at the beginning of the year (dollars inthousands): 

 
|           |   | **Year Ended  December 31, 2002** |    | **Year Ended  December 31, 2003** |   |
|----------------|--------|----------------------------------------|---------|----------------------------------------|--------|
|           |   |                                   |    |                                   |   |
| Gross Revenues |   | $                                      | 305,832 |                                   | $      | 329,393 |   |
| Net Income     |   | $                                      | 5,311   |                                   | $      | 7,239 |   |

 

Included in the pro forma netincome are approximately $4,668,000 and $453,000 of interest expense and$1,736,000 and $953,000 of depreciation and amortization expense for the yearsended 2002 and 2003, respectively.  Inmanagement’s opinion, these unaudited pro forma amounts are not necessarilyindicative of what the actual consolidated results of operations might havebeen if the acquisition had been effective at the beginning of 2002.

 

**3.****            ****Property and Equipment**

 

Property and equipment consist ofthe following (dollars in thousands): 

 
|                                |   | **December  31,** |   |
|-------------------------------------|--------|-------------------|--------|
|                                |   | **2002**          |   | **2003** |   |
|                                |   |              |   |   |   |
| Building                            |   | $                 | 52,847 |   | $ | 53,779 |   |
| Gaming equipment                    |   | 51,448            |   | 63,821 |   |
| Furniture,  fixtures, and equipment |   | 18,031            |   | 23,312 |   |
| Leasehold  improvements             |   | 1,622             |   | 1,690 |   |
| Land                                |   | 15,925            |   | 15,925 |   |
| Construction in  progress           |   | 267               |   | 204 |   |
|                                |   | 140,140           |   | 158,731 |   |
| Less accumulated  depreciation      |   | (40,208           | )      | (51,907 | ) |
|                                |   | $                 | 99,932 |   | $ | 106,824 |   |

 

**4.****            ****Lease Acquisition Costs**

 
|                    |   | **As of  December 31, 2002** |   | **As of  December 31, 2003** |   |
|-------------------------|--------|-----------------------------------|--------|-----------------------------------|--------|
|                    |   | **(dollars in thousands)**        |   |
|                    |   | **Gross  Carrying  Amount**       |   | **Accumulated  Amortization**     |   | **Gross  Carrying  Amount** |   | **Accumulated  Amortization** |   |
|                    |   |                              |   |                              |   |   |   |   |   |
| Lease Acquisition Costs |   | $                                 | 22,668 |                              | $      | 7,528 |   | $ | 76,221 |   | $ | 16,601 |   |
|                         |        |                                   |        |                                   |        |  |  |  |  |  |  |  |  |

 

The aggregate amortization expensefor the years ended December 31, 2001, 2002 and 2003 was  $2,931,000, $2,930,000 and $9,134,000,respectively.

 

Estimated amortization expense forthe years ending December 31, 2004, 2005, 2006, 2007, and 2008 is$9,903,000, $9,649,000, $9,434,000, $9,289,000, and $8,542,000, respectively.

 

13

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**5.****            ****Other Assets**

 

Other assets consist of thefollowing (dollars in thousands): 

 
|                                                                                     |   | **December  31,** |   |
|------------------------------------------------------------------------------------------|--------|-------------------|--------|
|                                                                                     |   | **2002**          |   | **2003** |   |
| Debt issuance  costs, net of accumulated amortization of $1,563 and $3,158, respectively |   | $                 | 6,510  |   | $ | 7,468 |   |
| Other assets                                                                             |   | 232               |   | 1,532 |   |
| Total                                                                                    |   | $                 | 6,742  |   | $ | 9,000 |   |

 

**6.****            ****Accrued Expenses**

 

Accrued expenses consist of thefollowing (dollars in thousands): 

 
|                             |   | **December  31,** |   |
|----------------------------------|--------|-------------------|--------|
|                             |   | **2002**          |   | **2003** |   |
| Accrued interest                 |   | $                 | 6,183  |   | $ | 7,833 |   |
| Progressive  Jackpot liabilities |   | 1,089             |   | 1,593 |   |
| Other accrueds                   |   | 3,435             |   | 4,173 |   |
| Total                            |   | $                 | 10,707 |   | $ | 13,599 |   |

 

**7.             Long-Term Debt**

 

Long-term debt consists of thefollowing (dollars in thousands):

 
|                                                                                                                                                                                                                           |   | **December  31,** |    |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                                                                                           |   | **2002**          |    | **2003** |   |
|                                                                                                                                                                                                                           |   |              |    |   |   |
| Senior notes  secured by assets of the Company.  The  notes bear interest at 103⁄4% per annum, payments are due on March 1 and  September 1, commencing on March 1, 2003.   The notes mature on September 1, 2008 |   | $                 | 167,598 |   | $ | 214,798 |   |
| Notes payable to  leasing company secured by vehicles, payable in monthly installments of $4,  including interest ranging from 4.9% to 5.3%, due April 2004                                                                    |   | 343               |    | 471 |   |
| Total debt                                                                                                                                                                                                                     |   | 167,941           |    | 215,269 |   |
| Less current  portion                                                                                                                                                                                                          |   | 127               |    | 170 |   |
| Total long-term  debt                                                                                                                                                                                                          |   | $                 | 167,814 |   | $ | 215,099 |   |

 

On August 24, 2001, theCompany issued (under a private placement) $170.0 million in 103⁄4% seniorsecured notes due in 2008.

 

The proceeds of these notes,approximately $167.0 million, were used to retire outstanding balances onsubstantially all credit facilities of $123.6 million, related-party debt of$20.2 million, and $12.0 million in accrued interest and other costs associatedwith the early termination of the retired debt.

 

14

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In addition, the Company used $6.8 million of theproceeds to pay fees associated with the offering of the 103⁄4% senior securednotes and the remaining $4.4 million was paid to the Company in cash.  The Company incurred an extraordinary chargeto earnings of $13.0 million in August 2001.

 

In February 2003, the Companyissued $47.0 million in additional notes under the existing indenture. Theproceeds of the debt were used to purchase the slot route assets of AnchorCoin, Inc.

 

In December 2003, the Companyrepurchased $2.0 million principal amount of the 103⁄4% senior secured notes,resulting in a principal balance of those notes at December 31, 2003 of$215.0 million.  The Company incurred acharge related to the early retirement of debt of $267,000.

 

In December 2003, the Companyrenewed its $10.0 million undrawn line of credit from U.S. Bank of Nevada.

 

The fees associated with bothissuances of the 103⁄4% senior secured notes are included in other assets atDecember 31, 2002 and 2003 and are being amortized to interest expenseover the life of the indebtedness.

 

The notes mature on August 24,2008.  Interest is payable in cash at arate of 103⁄4% per annum on March 1 and September 1, commencingMarch 1, 2003.  The indenture underwhich the notes were issued contains various limitations and restrictionsincluding (i) change-in-control provisions, (ii) limitations onindebtedness and (iii) limitations on restricted payments such asdividends.  The Company is in compliancewith these covenants as of December 31, 2003.

 

In October 2001, the Company fileda Form S-4 registration statement with the Securities and Exchange Commission(“SEC”) for the purpose of effecting the exchange of the notes for identicalnotes registered for resale under the federal securities laws.  This registration statement became effectiveon December 21, 2001 and the exchange offer was consummated onJanuary 22, 2002.  In March 2003,the Company filed another Form S-4 registration statement with the SEC for thepurpose of effecting the exchange of the additional notes for identical notesregistered for resale under the federal securities laws.  This registration statement became effectiveon May 27, 2003 and the exchange offer was consummated on June 24,2003.

 

Long-term debt at December 31,2003 is expected to mature as follows (dollars in thousands): 

 
| 2004       |   | $       | 170     |   |
|------------|--------|---------|---------|--------|
| 2005       |   | 120     |    |
| 2006       |   | 82      |    |
| 2007       |   | 77      |    |
| 2008       |   | 214,820 |    |
| Thereafter |   | —  |    |
| Total      |   | $       | 215,269 |   |

 

**8.****            ****Related-Party Transactions**

 

The Company leases the landunderlying its facilities for its Terrible’s Town Casino (Pahrump) operationsfrom the Herbst Family Limited Partnership and the E-T-T Corporate facilitiesfrom Herbst Family Limited Partnership II.  The leases require monthly payments of $26,916 through June 2006with

 

15

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several 5-year options by the Company toextend.  Rent expense of $307,992,$322,992 and $322,992 was incurred under these agreements for the years endedDecember 31, 2001, 2002 and 2003, respectively.

 

The Company rents space for certainslot machine route operations in convenience stores owned by TerribleHerbst, Inc. (“Terrible’s”), a corporation in which the Company’s ownersare officers and which is owned by the father of the owners.  Rent expense of $3,653,000, $4,132,800 and$4,754,400 was incurred under this agreement for the years endedDecember 31, 2001, 2002 and 2003, respectively.

 

The Company leases a warehouselocated in Las Vegas, Nevada, for its employment center and purchasingdepartments, from the Herbst’s Grandchildren’s Trust.  The lease began in November 2002 and requires payments of $43,525through November 2012.  Rent expense was$43,525 and $522,300 incurred under this lease arrangement for the years endedDecember 31, 2002 and 2003, respectively.

 

The Company leases the realproperty on which Terrible’s Searchlight Casino in Searchlight is located fromTerrible Herbst, Inc. for $15,000 per month, pursuant to a lease agreement enteredinto on June 30, 2002 that expires in 2022, with options to renew the lease for5 additional successive terms of 10 years each.  Amounts paid under this lease were $90,000 and $180,000 in theyears ended December 31, 2002 and 2003, respectively.

 

The Company leases land and officespace in certain of its facilities to Terrible’s under noncancelable leaseagreements ranging from 10 to 20 years. Monthly rental income is $63,500. Rental income from these leases was $623,000, $662,000 and $642,000 forthe years ended December 31, 2001, 2002 and 2003, respectively.

 

Future rental income underrelated-party agreements is as follows (dollars in thousands): 

 
| 2004       |   | $     | 642    |   |
|------------|--------|-------|--------|--------|
| 2005       |   | 642   |   |
| 2006       |   | 652   |   |
| 2007       |   | 663   |   |
| 2008       |   | 663   |   |
| Thereafter |   | 3,304 |   |
| Total      |   | $     | 6,566  |   |

 

The Company has entered into atrademark and license agreement with Terrible’s in which Terrible’s agrees topermit the Company to use the Terrible Herbst brand name and its cowboy logofor 25 years including renewal periods. The agreement was amended in 2001 and the annual royalty fee wasincreased from $600,000 to $1,200,000. Pursuant to this trademark and license agreement, the Company paidapproximately $800,000 in 2001, $1,200,000 in 2002 and $1,301,000 in 2003.

 

Due from related parties at December 31,2002 and 2003 includes $437,000 and $434,000, respectively, in notes receivablefrom an owner.  The notes bore interestat rates from 5 to 6 percent and were repaid in full in the first quarterof 2004.  Due from related parties alsoincludes receivables of $107,000 from Terrible’s, which is non-interestbearing.  Interest income related to thenotes receivable was $27,000, $26,000 and $ 26,000 for the years endedDecember 31, 2001, 2002 and 2003, respectively.

 

16

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Obligations due to related partiesat December 31, 2002 and 2003 consisted of balances due to Terrible’s forexpenditures made on behalf of the Company, accrued rent, and accruedmanagement fees.  The balances arenon-interest bearing and payable on demand.

 

The Company has also entered into aservicing arrangement with Terrible’s pursuant to which the Company providesaccounting and administrative services related to the collection of dailydeposits from Terrible’s convenience stores. The Company also provides personnel to Terrible’s to count, maintain andsafeguard large amounts of coin and currency. Terrible’s reimburses the Company’s expenses in providing theseservices.  Under this servicingarrangement, the Company recorded approximately $214,000, $205,800 and $205,800for services rendered for the years ended December 31, 2001, 2002 and2003, respectively.

 

In 1999, HIGCO, Inc. (“HIGCO”), acompany owned and operated by Mr. Higgins, the Company’s General Counsel,and two of his brothers, agreed to purchase from the Company for $200,000 aliquor license related to owning and operating a tavern located in Henderson,Nevada.  The terms of the purchasebetween the Company and HIGCO require HIGCO to repay the debt at 9% interestper annum.  The balance of that note atDecember 31, 2002 was $116,000 and $0 at December 31, 2003.  In addition, the Company entered into a slotroute contract to install, operate and service slot machines at thetavern.  Pursuant to the revenue-sharingcontract, HIGCO paid the Company, $114,442, $105,559 and $1,566 in gaming feesin 2001, 2002 and 2003, respectively. The bar was sold on December 31, 2002 to an unrelated party.  In January 2003, HIGCO repaid the note infull.

 

During 2003, HIGCO opened a newtavern and entered into a new slot route contract.  Pursuant to the revenue-sharing contract, HIGCO paid the Company$27,097 in gaming fees in 2003.  AtDecember 31, 2003, HIGCO had a note outstanding of $20,000.

 

A member of the Company’s board ofdirectors is a partner with Kummer Kaempfer Bonner & Renshaw.  The Company retains Kummer Kaempfer Bonner& Renshaw as outside legal counsel, and Kummer Kaempfer Bonner &Renshaw has received fees for legal services in the amount of $387,369,$234,309 and $251,188 for 2001, 2002 and 2003, respectively.

 

A member of the Company’s board ofdirectors, is the President and Chief Executive Officer of Las VegasDissemination, Inc., which provides services related to the race and sportsbooks at Terrible’s Hotel & Casino and Terrible’s Town. Las VegasDissemination, Inc. has received fees for services in the amount of $220,555,$239,111 and $366,526 for 2001, 2002 and 2003, respectively.

 

**9.****            ****Commitments and Contingencies**

 

Pursuant to a lease agreement that expires in 2067,including renewal periods, the Company leases the real property on which itscorporate headquarters is located from The Herbst Family LimitedPartnership II, or Herbst FLP II. The general partners of the Herbst FLP II are Jerry and MaryannaHerbst.  In each of 2001, 2002 and 2003,the Company paid $172,992 under this lease.

 

Pursuant to a lease agreement thatexpires in 2026, including renewal periods, the Company leases the realproperty on which Terrible’s Town in Pahrump is located from the Herbst FamilyLimited Partnership.  In each of 2001,2002 and 2003, the Company paid $135,000, $150,000 and $150,000, respectively,under this lease.

 

17

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The Company leases the facilitiesfor its casino operations.  The leasefor Terrible’s Town Casino (Henderson) requires monthly payments of $27,500through January 2004.  CommencingFebruary 2004, and on each five-year anniversary thereafter, the monthlyrent increases by $2,500.  The initiallease term expires January 2014, with options for ten additional five-yearterms with a $2,500 increase in monthly rent at the beginning of each optionperiod.

 

The Company leases the landunderlying its facilities for its Terrible’s Town Casino (Pahrump) and its LasVegas warehouse and employment center from related parties (see Note 8).

 

In December 1999, the Companyexecuted agreements to lease certain gaming machines for $110,000 per monthbeginning in July 2000 through October 2004.

 

In April 2001, the Company executedagreements to lease certain gaming machines for $91,776 per month, beginning inJuly 2001 through July 2004.

 

At December 31, 2003, theCompany has noncancelable location license agreements for space leases atgroups of affiliated stores that expire on various dates from 2005 through2010, with certain options for renewal. Revenues from gaming machines in these stores accounted forapproximately 45 percent of the Company’s total revenues for the yearended December 31, 2003.

 

Future minimum lease payments undernoncancelable operating leases and location license agreements are as follows(dollars in thousands):

 
| 2004       |   | $      | 74,348  |   |
|------------|--------|--------|---------|--------|
| 2005       |   | 71,043 |    |
| 2006       |   | 58,809 |    |
| 2007       |   | 49,429 |    |
| 2008       |   | 31,132 |    |
| Thereafter |   | 36,611 |    |
| Total      |   | $      | 321,372 |   |

 

Rent expense related to noncancelableleases with terms exceeding one year was $56,074,000, $55,998,000 and$67,111,000 for the years ended December 31, 2001, 2002 and 2003,respectively.

 

The Company is a party to certainclaims, legal actions, and complaints arising in the ordinary course ofbusiness or asserted by way of defense or counterclaim in actions filed by theCompany.  Management believes that itsdefenses are substantial in each of these matters and that the Company’s legalposition can be successfully defended without material adverse effect on itsconsolidated financial statements.

 

**10.****         ****Revenue Derived From MajorLocations**

 

Route operations revenues at three groups ofaffiliated store chains in the year ended December 31, 2003 and two groupsof affiliated store chains in the years ended December 31, 2001 and 2002each accounted for more than 10 percent of the Company’s total routerevenues.  The total of such revenueswere approximately $81,833,000, $87,299,000 and $117,692,000, in the yearsended December 31, 2001, 2002 and 2003, respectively.  Each individual store chain included in anaffiliated group of store chains has a separate lease with the Company.

 

18

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**11.          Business Segments**

 

The Company has adopted SFASNo. 131, “Disclosures about Segments of an Enterprise and RelatedInformation.”  SFAS No. 131established standards for the way public companies are to report informationabout operating segments in annual financial statements and requires thoseenterprises to report selected information about operating segments in interimfinancial reports issued to stockholders. It also established standards for related disclosures about products andservices, geographic areas, and major customers.  The Company’s management does not use segment information onassets to manage its business.

 

The Company operates through twobusiness segments—slot route operations and casino operations.  The slot route operations involve theinstallation, operation, and service of slot machines at strategic, hightraffic non-casino locations, such as grocery stores, drug stores, conveniencestores, bars, and restaurants.  Casinooperations consist of the following five casinos: Terrible’s Town Casino(Henderson) in Henderson, Nevada, Terrible’s Searchlight Casino in Searchlight,Nevada and Terrible’s Town Casino and Terrible’s Lakeside Casino, both of whichare located in Pahrump, Nevada, and Terrible’s Hotel & Casino in LasVegas, Nevada.

 

Revenues and income for thesesegments are as follows (dollars in thousands): 

 
|                           |   | **Year Ended  December 31,** |    |
|--------------------------------|--------|------------------------------|---------|
|                           |   | **2001**                     |    | **2002** |   | **2003** |   |
|                           |   |                         |    |   |   |   |   |
| Net revenues                   |   |                         |    |   |   |   |   |
| Route operations               |   | $                            | 170,750 |   | $ | 183,572 |   | $ | 241,462 |   |
| Casino  operations             |   | 59,564                       |    | 63,001 |   | 67,464 |   |
| Other —  non-gaming       |   | 2,878                        |    | 3,078 |   | 3,049 |   |
| Total                          |   | $                            | 233,192 |   | $ | 249,651 |   | $ | 311,975 |   |
|                           |   |                         |    |   |   |   |   |
| Income from  operations        |   |                         |    |   |   |   |   |
| Route operations               |   | $                            | 20,907  |   | $ | 23,327 |   | $ | 30,812 |   |
| Casino  operations             |   | 7,329                        |    | 8,502 |   | 10,283 |   |
| Other(1)                       |   | (7,631                       | )       | (8,147 | ) | (9,915 | ) |
| Total                          |   | $                            | 20,605  |   | $ | 23,682 |   | $ | 31,180 |   |
|                           |   |                         |    |   |   |   |   |
| Depreciation and  amortization |   |                         |    |   |   |   |   |
| Slot route  operations         |   | $                            | 8,308   |   | $ | 9,464 |   | $ | 17,893 |   |
| Casino  operations             |   | 5,548                        |    | 5,864 |   | 6,039 |   |
| Other                          |   | 342                          |    | 413 |   | 450 |   |
| Total                          |   | $                            | 14,198  |   | $ | 15,741 |   | $ | 24,382 |   |
|                           |   |                         |    |   |   |   |   |
| EBITDA(2)                      |   |                         |    |   |   |   |   |
| Route operations               |   | $                            | 29,215  |   | $ | 32,791 |   | $ | 48,705 |   |
| Casino  operations             |   | 12,878                       |    | 14,366 |   | 16,322 |   |
| Other                          |   | (6,883                       | )       | (7,398 | ) | (9,237 | ) |
| Consolidated  EBITDA           |   | $                            | 35,210  |   | $ | 39,759 |   | $ | 55,790 |   |

 

----

(1)          Amount represents primary other—non-gaming revenuesand general and administrative expenses.

 

19

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(2)          Consolidated EBITDA consists of net income (loss)plus depreciation and amortization, interest expense net of capitalizedinterest and loss on early retirement of debt. Segment EBITDA for route and casino is calculated before allocation ofoverhead.  Other EBITDA represents otherrevenue, general and administrative expenses, interest income and other income.  EBITDA is presented because it is used as aperformance measure to analyze the performance of our business segments andbecause it is frequently used by securities analysts, investors and others inthe evaluation of companies in our industry. However, other companies in our industry may calculate EBITDAdifferently.  EBITDA is not ameasurement of financial performance under generally accepted accountingprinciples and should not be considered as an alternative to cash flow fromoperating activities or as a measure of liquidity or as an alternative to netincome or as an indicator of operating performance or any other measure ofperformance derived in accordance with generally accepted accountingprinciples.

 

The following table is areconciliation of net income (loss) to EBITDA:

 

|                                           |   | **Year Ended  December 31,** |    |
|------------------------------------------------|--------|------------------------------|---------|
|                                           |   | **2001**                     |    | **2002** |   | **2003** |   |
|                                           |   | **(in  thousands)**          |    |
| Net income  (loss)                             |   | $                            | (11,964 | ) | $ | 5,233 |   | $ | 8,209 |   |
| **Adjustments:**                               |   |                         |    |   |   |   |   |
| Depreciation and  amortization                 |   | 14,198                       |    | 15,741 |   | 24,382 |   |
| Interest  expense, net of capitalized interest |   | 19,952                       |    | 18,785 |   | 22,932 |   |
| Loss on early retirement  of debt              |   | 13,024                       |    | — |   | 267 |   |
| Consolidated  EBITDA                           |   | $                            | 35,210  |   | $ | 39,759 |   | $ | 55,790 |   |

 

----

 

**Selected Quarterly Financial Information (Unaudited)**(in thousands)

 
|                              |   | **Mar. 31** |   | **June 30** |   | **Sept. 30** |   | **Dec. 31** |   | **Total** |   |
|-----------------------------------|--------|-------------|--------|-------------|--------|--------------|--------|-------------|--------|-----------|--------|
|                              |   |        |   |        |   |         |   |        |   |      |   |
| **Year  Ended December 31, 2003** |   |        |   |        |   |         |   |        |   |      |   |
|                              |   |        |   |        |   |         |   |        |   |      |   |
| Net revenues -  Route operations  |   | $           | 53,680 |        | $      | 61,344       |   | $           | 62,178 |      | $      | 64,260 |   | $ | 241,462 |   |
| Net revenues -  Casino operations |   | 16,885      |   | 16,383      |   | 16,701       |   | 17,495      |   | 67,464    |   |
| Net revenues -  Other             |   | 724         |   | 725         |   | 863          |   | 737         |   | 3,049     |   |
| Operating income                  |   | 8,579       |   | 9,335       |   | 6,193        |   | 7,073       |   | 31,180    |   |
| Net income                        |   | 3,336       |   | 3,561       |   | 351          |   | 961         |   | 8,209     |   |
|                              |   |        |   |        |   |         |   |        |   |      |   |
| **Year  Ended December 31, 2002** |   |        |   |        |   |         |   |        |   |      |   |
|                              |   |        |   |        |   |         |   |        |   |      |   |
| Net revenues -  Route operations  |   | $           | 44,844 |        | $      | 46,471       |   | $           | 45,147 |      | $      | 47,110 |   | $ | 183,572 |   |
| Net revenues -  Casino operations |   | 16,047      |   | 15,884      |   | 15,360       |   | 15,710      |   | 63,001    |   |
| Net revenues -  Other             |   | 657         |   | 636         |   | 1,054        |   | 731         |   | 3,078     |   |
| Operating income                  |   | 6,168       |   | 6,327       |   | 4,643        |   | 6,544       |   | 23,682    |   |
| Net income                        |   | 1,568       |   | 1,686       |   | 12           |   | 1,967       |   | 5,233     |   |

 

20

----

 

**Item 15.         Exhibits,Financial Statement Schedules, and Reports on Form 8-K**

 

(a)           1.             Financial Statements

 
| Included in Part II of this  report:                                                                                           |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                           |   |
| Independent Auditors’  Report.                                                                                            |   |
|                                                                                                                           |   |
| Consolidated Balance Sheets  at December 31, 2002 and 2003.                                                               |   |
|                                                                                                                           |   |
| Consolidated Statements  of Operations for the Years Ended December 31, 2001, 2002 and 2003.                              |   |
|                                                                                                                           |   |
| Consolidated  Statements of Stockholders’ Equity (Deficiency) for the Years Ended  December 31, 2001, 2002 and 2003. |   |
|                                                                                                                           |   |
| Consolidated Statements  of Cash Flows for the Years Ended December 31, 2001, 2002 and 2003.                              |   |
|                                                                                                                           |   |
| Notes to Consolidated  Financial Statements.                                                                                   |   |

 

2.             FinancialStatement Schedules

 

All required schedules are omittedbecause of the absence of conditions under which they are required or becausethe required information is given in the financial statements or notes thereto.

 

(b)           Reportson Form 8-K

 

Thefollowing report on Form 8-K was filed by Herbst Gaming during the fourthquarter of 2003 and thereafter through March 15, 2003:

 

•           Form 8-K filed November 5, 2003, regarding theresults for the quarter and the nine-month period ended September 30,2003.

 

(c)           Exhibits,including those incorporated by reference.

 
| 2.1++++ |   | Asset Purchase Agreement between  Anchor Coin and Herbst Gaming, Inc. and Market Gaming, Inc. and E-T-T, Inc. dated as of  November 21, 2002                                                |
|---------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                        |
| 2.2++++ |   | First Amendment to Asset Purchase  Agreement by and among Anchor Coin and Herbst Gaming, Inc. and Market Gaming,  Inc. and E-T-T, Inc. dated as of January 14, 2003                         |
|    |   |                                                                                                                                                                                        |
| 3.1+    |   | Articles of Incorporation of  Herbst Gaming, Inc., filed January 21, 1997.                                                                                                                  |
|    |   |                                                                                                                                                                                        |
| 3.2+    |   | By-laws of Herbst Gaming, Inc.,  adopted January 21, 1997.                                                                                                                                  |
|    |   |                                                                                                                                                                                        |
| 4.1+    |   | Indenture dated as of August 24,  2001 between Herbst Gaming, Inc., certain guarantors and The Bank of New York  relating to Series A and Series B 103⁄4% Senior Secured Notes Due 2008. |

 

21

----

 
| 4.2++     |   | First Supplemental Indenture  dated as of August 23, 2002 between Herbst Gaming, Inc., certain  guarantors and The Bank of New York.                                                                                  |
|-----------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|      |   |                                                                                                                                                                                                                       |
| 4.3+++++  |   | Second Supplemental Indenture  dated as of January 23, 2003 between Herbst Gaming, Inc., certain  guarantors and The Bank of New York.                                                                                |
|      |   |                                                                                                                                                                                                                       |
| 4.4+++++  |   | Third Supplemental Indenture  dated as of February 6, 2003 between Herbst Gaming, Inc., certain  guarantors and The Bank of New York.                                                                                 |
|      |   |                                                                                                                                                                                                                       |
| 4.5+      |   | Form of Herbst Gaming, Inc. 103⁄4%  [Series A] [Series B] Senior Secured Notes due 2008 (included as part of the  Indenture at Exhibit 4.1).                                                                            |
|      |   |                                                                                                                                                                                                                       |
| 4.6+      |   | Form of Herbst Gaming, Inc.  Regulation S Global Note 103⁄4% [Series A] [Series B] Senior Secured Notes  due 2008 (included as part of the Indenture at Exhibit 4.1).                                              |
|      |   |                                                                                                                                                                                                                       |
| 4.7+++++  |   | Form of Herbst Gaming, Inc. 103⁄4%  [Series A] [Series B] Senior Secured Notes due 2008 (included as part of the  Third Supplemental Indenture at Exhibit 4.4).                                                         |
|      |   |                                                                                                                                                                                                                       |
| 4.8+++++  |   | Form of Herbst Gaming, Inc.  Regulation S Global Note 103⁄4% [Series A] [Series B] Senior Secured Notes  due 2008 (included as part of the Third Supplemental Indenture at Exhibit  4.4).                          |
|      |   |                                                                                                                                                                                                                       |
| 4.9+++++  |   | Registration Rights Agreement  dated as of February 7, 2003, by and among Herbst Gaming, Inc., certain of  its subsidiaries, and Lehman Brothers Inc.                                                                      |
|      |   |                                                                                                                                                                                                                       |
| 4.10+++   |   | Specimen common stock certificate  for the common stock of Herbst Gaming, Inc.                                                                                                                                             |
|      |   |                                                                                                                                                                                                                       |
| 10.1+     |   | Escrow Agreement dated August 24,  2001 among Herbst Gaming, Inc., E-T-T, Inc., Edward Herbst, Timothy Herbst and Troy  Herbst and Wilmington FSB, as escrow agent, and The Bank of New York, as  trustee.                 |
|      |   |                                                                                                                                                                                                                       |
| 10.2+     |   | Hazardous Substances Indemnity  Agreement dated August 24, 2001 by Herbst Gaming, Inc. and certain guarantors  in favor of The Bank of New York, as trustee.                                                               |
|      |   |                                                                                                                                                                                                                       |
| 10.3+     |   | Trademark License Agreement dated  August 24, 2001 by and between Herbst Gaming, Inc. and Terrible Herbst, Inc.                                                                                                            |
|      |   |                                                                                                                                                                                                                       |
| 10.4+     |   | Security Agreement dated August  24, 2001, among Herbst Gaming, Inc., certain guarantors and Bank of New York,  as trustee.                                                                                                |
|      |   |                                                                                                                                                                                                                       |
| 10.5++    |   | First Amendment to Security  Agreement dated as of August 23, 2002 among Herbst Gaming, Inc. and its  subsidiaries and The Bank of New York.                                                                          |
|      |   |                                                                                                                                                                                                                       |
| 10.6+++++ |   | Second Amendment to Security Agreement  dated as of February 6, 2003 among Herbst Gaming, Inc. and its  subsidiaries and The Bank of New York (included as part of the Third  Supplemental Indenture at Exhibit 4.4). |
|      |   |                                                                                                                                                                                                                       |
| 10.7+     |   | Collateral Assignment of  Contracts and Documents dated August 24, 2001by Herbst Gaming, Inc. and  certain guarantors in favor of The Bank of New York, as trustee.                                                        |
|      |   |                                                                                                                                                                                                                       |
| 10.8+     |   | Pledge and Security Agreement  (Herbst Gaming, Inc.) dated August 24, 2001 by Herbst Gaming, Inc. in favor  of The Bank of New York, as trustee.                                                                           |

 

22

----

 
| 10.9+      |   | Pledge and Security Agreement (E-T-T, Inc.) dated August  24, 2001 by E-T-T, Inc. in favor of The Bank of New York, as trustee.                                                                                                                                                                |
|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.10+     |   | Pledge and Security Agreement  (Edward, Tim and Troy Herbst) dated August 24, 2001 by Edward J. Herbst,  Timothy P. Herbst, and Troy D. Herbst in favor of The Bank of New York, as  trustee.                                                                                             |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.11+     |   | Deed of Trust, Assignment of  Leases and Rents, Security Agreement and Fixture Filing (4100 Paradise Road)  dated August 24, 2001, and made by Flamingo Paradise Gaming, LLC to National  Title Co., as trustee, for the benefit of The Bank of New York, as  beneficiary.                     |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.12++    |   | First Amendment to Deed of Trust  dated as of August 23, 2002 among Flamingo Paradise Gaming, LLC and The  Bank of New York.                                                                                                                                                              |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.13+++++ |   | Second Amendment to Deed of Trust  dated as of February 6, 2002 among Flamingo Paradise Gaming, LLC and The  Bank of New York (included as part of the Third Supplemental Indenture at  Exhibit 4.4).                                                                                     |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.14+     |   | Deed of Trust, Assignment of  Leases and Rents, Security Agreement and Fixture Filing (Terrible’s Casino  & Bowl) dated August 24, 2001, and made by Market Gaming, Inc. to  National Title Co., as trustee, for the benefit of The Bank of New York, as  beneficiary.                |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.15+++++ |   | First Amendment to Deed of Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing  (Terrible’s Casino & Bowl) dated February 6, 2003 (included as part of  the Third Supplemental Indenture at Exhibit 4.4).                                                   |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.16+     |   | Deed of Trust, Assignment of  Leases and Rents, Security Agreement and Fixture Filing (5870 S. Homestead  Road) dated August 24, 2001, and made by E-T-T Enterprises L.L.C. to National Title Co., as  trustee, for the benefit of The Bank of New York, as beneficiary.                       |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.17+++++ |   | First Amendment to Deed of Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing (5870  S. Homestead Road) dated February 6, 2003 (included as part of the Third  Supplemental Indenture at Exhibit 4.4).                                                              |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.18+     |   | Leasehold Deed of Trust, Security  Agreement and Fixture Filing (Warehouse Property) dated August 24, 2001, and  made by E-T-T Enterprises L.L.C. to National Title Co., as trustee, for the benefit  of The Bank of New York, as beneficiary.                                                 |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.19+++++ |   | First Amendment to Leasehold Deed  of Trust, Security Agreement and Fixture Filing (Warehouse Property) dated  February 6, 2003 (included as part of the Third Supplemental Indenture at  Exhibit 4.4).                                                                                        |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.20+     |   | Leasehold Deed of Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing  (Terrible’s Casino & Bowl) dated August 24, 2001, and made by Market  Gaming, Inc. to National Title Co., as trustee, for the benefit of The Bank  of New York, as beneficiary. |
|       |   |                                                                                                                                                                                                                                                                                           |
| 10.21+++++ |   | First Amendment to Leasehold Deed  of Trust, Assignment of Leases and Rents, Security Agreement and Fixture  Filing (Terrible’s Casino & Bowl) dated February 6, 2003 (included  as part of the Third Supplemental Indenture at Exhibit 4.4).                                    |

 

23

----

 
| 10.22+     |   | Leasehold Deed of Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing (771 S.  Nevada Highway) dated August 24, 2001, and made by E-T-T, Inc. to National  Title Co., as trustee, for the benefit of The Bank of New York, as  beneficiary.                    |
|------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.23+++++ |   | First Amendment to Leasehold Deed  of Trust, Assignment of Leases and Rents, Security Agreement and Fixture  Filing (771 S. Nevada Highway) dated February 6, 2003 (included as part of  the Third Supplemental Indenture at Exhibit 4.4).                                               |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.24+++++ |   | Leasehold Deed of Trust,  Assignment of Leases and Rents, Security Agreement and Fixture Filing  (Terrible’s Searchlight Casino) dated February 7, 2003, and made by  E-T-T, Inc. to National Title Co., as trustee, for the benefit of The Bank of  New York, as beneficiary. |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.25**+   |   | Gaming Devices License Agreement  dated August 31, 1998 by and between The Vons Companies, Inc. and Market  Gaming, Inc.                                                                                                                                                                 |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.26**+   |   | License Agreement (Gaming  Devices) dated September 16, 1998 by and between Albertson’s, Inc. and  Cardivan Company.                                                                                                                                                                |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.27**+   |   | Settlement Agreement dated  November 18, 1999 among Cardivan Company, Corral United, Inc., Jackpot  Enterprises Inc. and Albertson’s Inc.                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.28**+   |   | First Amendment to Settlement Agreement  dated December 22, 1999 among Cardivan Company, Corral United, Inc., Jackpot  Enterprises Inc. and Albertson’s, Inc.                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.29**+   |   | License Agreement dated April 24,  1997 between American Drug Stores, Inc. and Cardivan Company.                                                                                                                                                                                         |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.30**+   |   | License Agreement dated April 24,  1997 between American Drug Stores, Inc. and Corral United, Inc.                                                                                                                                                                                       |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.31**+   |   | Gaming Devices License Agreement  dated August 31, 1998 by and between Safeway, Inc. and Market Gaming, Inc.                                                                                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.32*+    |   | License Agreement dated March 12,  1999 between Rite Aid Corporation and Cardivan Company.                                                                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.33*+    |   | First Amendment to Cardivan  License Agreement dated March 27, 2000 between Rite Aid Corporation and  Cardivan Company.                                                                                                                                                                  |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.34*+    |   | License Agreement dated March 12,  1999 between Rite Aid Corporation and Corral Coin, Inc.                                                                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.35*+    |   | First Amendment to Corral Coin  License Agreement dated March 27, 2000 between Rite Aid Corporation and  Corral Coin, Inc.                                                                                                                                                               |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.36*+    |   | Gaming Devices License Agreement  dated December 20, 1999 by and between Terrible Herbst, Inc. and E-T-T, Inc.                                                                                                                                                                           |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.37+     |   | Amendment to Gaming Device  License Agreement dated May     , 2001 by and between E-T-T, Inc. and Terrible  Herbst, Inc.                                                                                                                                             |
|       |   |                                                                                                                                                                                                                                                                                     |
| 10.38*+    |   | Agreement dated May 1, 1998 by  and between Kmart Corporation and Cardivan Company.                                                                                                                                                                                                      |

 

24

----

 
| 10.39**+    |   | License Agreement dated April 24,  1997 between Lucky Stores, Inc. and Cardivan Company.                                                                               |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                   |
| 10.40*+++++ |   | Lease and Sublease Agreement  dated July 28, 1993, by and between Smith’s Food & Drug Centers, Inc. and  Anchor Coin, as amended.                             |
|        |   |                                                                                                                                                                   |
| 10.41+++++  |   | Hold Harmless Agreement dated as  of September 2, 1993 executed by Anchor Coin in favor of Smith’s Food &  Drug Centers, Inc.                                 |
|        |   |                                                                                                                                                                   |
| 10.42*+++++ |   | Letter Agreement and Consent to  Assignment dated January 16, 2003.                                                                                                    |
|        |   |                                                                                                                                                                   |
| 10.43+      |   | Lease Agreement dated July 1,  1997 by and between The Herbst Family Limited Partnership II and E-T-T Enterprises, L.L.C.                                              |
|        |   |                                                                                                                                                                   |
| 10.44+      |   | Lease Agreement dated July 1,  1996 by and between The Herbst Family Limited Partnership and E-T-T, Inc.                                                               |
|        |   |                                                                                                                                                                   |
| 10.45+      |   | Lease extension dated  April 30, 2001 between The Herbst Family Limited Partnership and E-T-T, Inc.                                                               |
|        |   |                                                                                                                                                                   |
| 10.46+      |   | Lease dated September 3, 1993  between The 1993 Samuel Josephson Revocable Family Trust and Phoenix Associates.                                                        |
|        |   |                                                                                                                                                                   |
| 10.47+      |   | Agreement for Sale dated August  1, 1995 between Phoenix Associates and Market Gaming, Inc.                                                                            |
|        |   |                                                                                                                                                                   |
| 10.48+++++  |   | Lease Agreement dated  November 27, 2002 by and between Herbst Grandchildren’s Trust and Herbst  Gaming, Inc.                                                |
|        |   |                                                                                                                                                                   |
| 10.49+++++  |   | Lease dated  June     , 2002 by and between Centennial  Acquisitions, LLC and Terrible Herbst, Inc.                                           |
|        |   |                                                                                                                                                                   |
| 10.50+++++  |   | Amendment to Lease dated  July 30, 2002 by and between Centennial Acquisitions, LLC and Terrible  Herbst, Inc.                                                    |
|        |   |                                                                                                                                                                   |
| 10.51+++++  |   | Lease Agreement dated  July 1, 2002 by and between Terrible Herbst, Inc. and E-T-T, Inc.                                                                          |
|        |   |                                                                                                                                                                   |
| 10.52+      |   | Employment Agreement with Edward  J. Herbst dated August 1, 2001.                                                                                                      |
|        |   |                                                                                                                                                                   |
| 10.53+      |   | Employment Agreement with Mary E.  Higgins dated August 1, 2001.                                                                                                       |
|        |   |                                                                                                                                                                   |
| 10.54+      |   | Form of Executive Compensation  and Bonus Plan.                                                                                                                        |
|        |   |                                                                                                                                                                   |
| 10.55++     |   | Credit Agreement dated September  6, 2002 by and among Herbst Gaming, Inc., Flamingo Paradise Gaming, LLC, and  U.S. Bank National Association.                        |
|        |   |                                                                                                                                                                   |
| 10.56++     |   | Security Agreement dated as of  September 6, 2002, by and between Flamingo Paradise Gaming, LLC and U.S. Bank  National Association                                    |
|        |   |                                                                                                                                                                   |
| 10.57+++++  |   | Code of Ethics                                                                                                                                                         |
|        |   |                                                                                                                                                                   |
| 10.58++#    |   | First Amendment to Credit  Agreement dated December 15, 2003 by and among Herbst Gaming, Inc.,  Flamingo Paradise Gaming, LLC and U.S. Bank National Association. |
|        |   |                                                                                                                                                                   |
| 12.1++#     |   | Computation of Ratio of Earnings  to Fixed Charges.                                                                                                                    |
|        |   |                                                                                                                                                                   |
| 21.1+       |   | Subsidiaries of Herbst Gaming,  Inc.                                                                                                                                   |

 

25

----

 
| 31.1   |   | Certification of Edward J. Herbst  under Section 302 of the Sarbanes-Oxley Act of 2002.                                            |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                               |
| 31.2   |   | Certification of Mary E. Higgins  under Section 302 of the Sarbanes-Oxley Act of 2002.                                             |
|   |   |                                                                                                                               |
| 32.1   |   | Certifications of Edward J.  Herbst and Mary E. Higgins pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|   |   |                                                                                                                               |

 

----

| *      |   | Confidential Treatment for a  portion of this document has been granted pursuant to Rule 406 under the  Securities Act.  The omitted portions  have been separately filed with the Commission.   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                  |
| **     |   | Confidential Treatment for a  portion of this document has been requested pursuant to Rule 406 under the  Securities Act.  The omitted portions  have been separately filed with the Commission. |
|   |   |                                                                                                                                                                                                  |
| +      |   | Incorporated herein by reference  from our registration statement on Form S-4 (SEC No. 33-71094),  Part II, Item 21.                                                                   |
|   |   |                                                                                                                                                                                                  |
| ++     |   | Incorporated herein by reference  from our quarterly report on Form 10-Q filed with the SEC on November 14,  2002.                                                                                    |
|   |   |                                                                                                                                                                                                  |
| +++    |   | Incorporated herein by reference  from our annual report on Form 10-K/A filed with the SEC on April 9,  2002.                                                                                    |
|   |   |                                                                                                                                                                                                  |
| ++++   |   | Incorporated herein by reference  from our current report on Form 8-K filed with the SEC on March 10,  2003.                                                                                     |
|   |   |                                                                                                                                                                                                  |
| +++++  |   | Incorporated  herein by reference from our annual report on Form 10-K filed with the SEC on  March 24, 2003.                                                                                     |
|   |   |                                                                                                                                                                                                  |
| ++#    |   | Incorporated  herein by reference from our annual report on Form 10-K filed with the SEC on  March 17, 2004.                                                                                     |

 

26

----

 

**SIGNATURES**

 

Pursuant to the requirements ofSection 13 or 15(d) of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 
|   | HERBST GAMING, INC.      |
|--------|--------------------------|
|   |                     |
|   |                     |
|   | By:                      |   /s/  Edward J. Herbst |   |
|   |                     |   Edward J. Herbst |
|   |                     |   Chairman of the  Board, Chief Executive Officer |
|   |                     | and  President |
|   |                     |   (Principal Executive  Officer) |
|   |                     |
| Date:  |   May 20, 2004 |
|        |                          |  |  |  |

 

27

----

 

**EXHIBITINDEX**

 
| **Exhibit  No.** |   | **Description of Exhibit**                                                                                               |   |   |
|------------------|--------|--------------------------------------------------------------------------------------------------------------------------|--------|--------|
| 31.1             |   | Certification of Chairman and  Chief Executive Officer Pursuant to SEC Rules 13c-14(a)                                   |   |   |
| 31.2             |   | Certification of Chief Financial  Officer Pursuant to SEC Rules 13c-14(a)                                                |   |   |
| 32.1             |   | Certification Pursuant to 18  U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley  Act of 2002 |   |   |

 

28

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