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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

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FORM 10-K

(Mark One)

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2001

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

For the transition period from  to

Commission file number 0-71094

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HERBST GAMING, INC.(Exact name of registrant as specified in its charter)

NEVADA(State or other jurisdiction of
incorporation or organization)

88-0446145(I.R.S. Employer Identification No.)3440 West Russell Road, Las Vegas, Nevada(Address of principal executive offices)

89118(Zip Code)


(702) 889-7695(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act:

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

Securities registered pursuant to Section 12(g) of the Act:

Not Applicable(Title of class)

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. o Yes    o No    Not Applicable

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.    oNot Applicable

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

Indicate
the number of shares outstanding of each of the registrant's classes of common stock, as of December 31, 2001.

Common
Stock, no par value, 300 outstanding shares.

Documents Incorporated by Reference

None.

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PART I

Item 1.Business

General

We are a gaming company that currently owns and operates through subsidiaries approximately 6,800 slot machines throughout the State of Nevada. Our business is
divided into two segmentsslot route operations and casino operations.

Our
route operations involve the exclusive installation and operation of slot machines at strategic, high traffic, non-casino locations such as grocery stores, drug stores,
convenience stores, bars and restaurants. Our slot machines include video poker, Keno, slot and other games. We are one of the largest slot route operators in Nevada with approximately 5,400 slot
machines in approximately 520 locations as of December 31, 2001.

Our
casino operations consist of owning and operating four casinos in Nevada including Terrible's Hotel & Casino, located one mile from the Las Vegas Strip, Terrible's Lakeside
Casino & RV Park and Terrible's Town Casino in Pahrump, and Terrible's Casino & Bowl in Henderson.

Herbst
Gaming, Inc. was incorporated in Nevada on January 21, 1997. In connection with the offering of $170,000,000 of its 103/4% senior secured notes due
2008, Herbst Gaming, Inc. became the holding company of all gaming interests formerly owned by Edward, Timothy and Troy Herbst, who are brothers as well as the owners of all of the stock of
Herbst Gaming, Inc. On August 23, 2001, Herbst Gaming, Inc. commenced business operations when the Herbst brothers entered into contribution agreements pursuant to which they
contributed all of the outstanding stock of E-T-T, Inc. and Market
Gaming, Inc., as well as all of the membership interests in E-T-T Enterprises L.L.C. and 80% of the membership interests in Flamingo Paradise Gaming, LLC to Herbst
Gaming. In addition, E-T-T, Inc., which owned a 20% membership interest in Flamingo Paradise Gaming, LLC, entered into an assignment of membership interest pursuant to
which E-T-T, Inc. assigned its 20% membership interest in Flamingo Paradise Gaming, LLC to Herbst Gaming. As a result of the contributions, Herbst Gaming, Inc.
became a holding company of subsidiaries that conduct slot route or casino operations.

Our
principal executive offices are located at 3440 West Russell Road, Las Vegas, Nevada 89118 and our telephone number is (702) 889-7695.

Herbst
Gaming has elected to be taxed as a Subchapter S corporation.

Recent Developments

On August 24, 2001, we completed the sale of $170.0 million in aggregate principal amount of Series A 103/4% senior secured
notes due September 1, 2008. The net proceeds of the Series A notes were used to refinance substantially all of our debt and for working capital. Pursuant to the registration rights
agreement that we entered into in connection with the offering of the Series A 103/4% senior secured notes, we agreed to complete an exchange offer whereby the holders of the
Series A 103/4% senior secured notes could exchange their Series A notes for substantially identical notes that were registered under the Securities Act of 1933.
Accordingly, we filed an exchange offer registration statement on Form S-4, which became effective on December 21, 2001. The exchange offer was completed on
January 22, 2002.

Narrative Description of Business

Our business focuses on attracting and fostering repeat business from local gaming patrons in both our route and casino operations. Local patrons are typically
sophisticated gaming customers who seek convenient locations, high payouts and a pleasant atmosphere.

2

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Route Operations

Our route operations involve the exclusive installation and operation of slot machines in chain store and street account locations. We define chain stores as
grocery stores, drug stores, merchandise stores
and convenience stores, with more than five locations. Our chain store contracts are primarily with large, national retailers, such as Albertsons, Vons, Safeway, SavOn, Kmart and Rite Aid, as well as
Terrible Herbst. Street accounts include local bars, restaurants and non-chain convenience stores.

We
generally enter into two types of route contractsone is a space lease arrangement and the other is a revenue-sharing arrangement. Under space lease arrangements, which we
principally enter into with chain stores, we pay a fixed monthly fee for each location in which we place slot machines. Under revenue-sharing arrangements, which we typically enter into with street
accounts, we pay the location owner a percentage of the revenues generated by our slot machines located at that particular street account. In order to enter into a revenue-sharing arrangement, the
location owner must hold a gaming license. Both space lease and revenue-sharing arrangements typically involve long-term contracts that provide us with the exclusive right to install our
slot machines at particular locations. In the case of chain stores, our contracts give us the exclusive right to install slot machines at stores opened in the future.

In
November 2000, we significantly increased the size of our route operations through the acquisition of Jackpot Enterprises, Inc.'s route operations. This acquisition
increased the number of slot machines in our route operations from approximately 2,200 to 5,400.

We
believe our route patrons choose to play slot machines near their homes. We attract these players by installing state-of-the-art slot machines with
popular games, by offering a high level of customer service and providing an attractive, comfortable atmosphere at the route locations.

Casino Operations

We operate four casinos. Our strategy with respect to our casino operations is to offer high quality gaming, hotel and dining experiences at affordable prices.
Our primary target market consists of value oriented local middle-market gaming patrons who gamble frequently. We believe that we attract our targeted customers and that they return to our casinos
because of our convenient locations, quality food, ample parking, friendly employees and high slot machine payout rates.

Terrible's Hotel & Casino.We designed, developed and constructed the Terrible's Hotel & Casino, which opened
on December 6, 2000. Terrible's Hotel & Casino is located on the corner of Flamingo and Paradise Roads. Terrible's Hotel & Casino is located approximately one mile east of the Las
Vegas Strip and one mile north of the McCarran International Airport. The casino at Terrible's Las Vegas features 750 slot and video poker machines, 8 table games, a race and sports book and a
185-seat bingo hall. Terrible's offers a buffet, a deli, 24-hour café, and fast food choices, including McDonald's and Krispy Kreme donuts. The hotel has 373
rooms.

Our
business strategy includes focusing on slot play. Accordingly, we have installed IGT's EZ Pay ticket system, a "ticket-in/ticket-out" system that replaces
traditional coin payout by allowing slot patrons to receive printed tickets instead of coins from the machine. This system permits tickets generated at one machine to be inserted, like currency, into
the bill acceptor of any other slot machine on the system.

Terrible's Town Casino.Terrible's Town Casino is located in Pahrump, Nevada, approximately 55 miles from Las Vegas.
Terrible's Town Casino has a western theme and caters to locals and retirees. Terrible's Town Casino offers 325 slot machines, 6 table games, a 145-seat bingo facility, a race and sports
book, and a coffee shop.

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Terrible's Lakeside Casino & RV Park.Terrible's Lakeside is also a casino located in Pahrump with a western theme
that targets locals and retirees. Terrible's Lakeside features 238 slot machines, a 232-seat bingo facility, a sports book window that is open seasonally, and a coffee shop. Adjacent to
the casino is an RV park that contains 159 spaces near the seven-acre lake.

Terrible Town Casino & Bowl.Terrible's Town Casino & bowl is a 16-lane bowling alley with
approximately 100 slot machines. There is also a bar and snack bar on the premises.

Financial Information

The primary source of our revenue and income is from our route and casino operations, although we view the restaurants, bars and services to be important adjuncts
to our casino operations. The following table sets forth the contribution to total net revenues on a dollar and percentage basis of our major activities for the years ended December 31, 2001,
2000 and 1999.

|                               |                      | Years Ended December 31, |        
|------------------------------ | -------------------- | ------------------------ | -------
|
|
|
|Revenues:                      |                      |                          |        
|                               | Route operations(1)  |                          | $      
|                               | Casino operations(1) |                          |        
|                               | Other                |                          |        
|                               |                      |                          |        
|Total revenues(2)              |                      |                          | 241,561
|Less promotional allowances(1) |                      |                          | (8,410 
|                               |                      |                          |        
|Total net revenues             |                      | $                        | 233,151
|                               |                      |                          |        

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See
"Item 8. Financial Statements and Supplementary Data" for additional financial information about us.

Marketing

We target our marketing to locals because we believe that a vast majority of our gaming patrons are local residents. Our marketing efforts seek to capitalize on
the strong recognition and high level of quality and value associated with the Terrible Herbst trade name and its cowboy logo, which is used in over 65 gasoline stations and convenience stores
throughout California, Arizona and Nevada. For this reason, we have licensed the Terrible Herbst trade name from Terrible Herbst, Inc., a related party, for a period of ten years.

We
have implemented a unique players club that rewards customers with points for playing at our route and casino locations as well as for purchases made at Terrible Herbst gas stations
and

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convenience stores in the Las Vegas area. Points may be redeemed for free or discounted rooms, food or other goods or services provided at any such location.

Competition

Our slot route operations are subject to substantial direct competition for our revenue-sharing and fixed space lease locations from two large route operators and
numerous small operators, located principally in Las Vegas, Nevada. The principal method of competition for slot route operators includes the economic terms of the revenue-sharing or space lease
arrangement, the services provided and the reputation of the route operator. Price competition for revenue-sharing or space lease arrangements is intense and we believe that price competition among
slot route operators will continue. We are one of the largest route operators with approximately 5,400 slot machines situated in locations outside of our casinos.

With
respect to our casino operations in Las Vegas, Terrible's Hotel & Casino competes for local gaming customers with other locals-oriented casino-hotels in Las Vegas. We do not
believe that we are in direct competition with many of the resort-casino properties on the Las Vegas Strip, which focus primarily on attracting tourist players. Rather, we believe that our competitors
in our casino operations are the other local casinos located near us. We compete with these properties on the basis of the desirability of location, payout rates, personalized approach, casino
promotions, comfort and value of restaurants and hotel rooms and the variety and value of entertainment. The construction of new casinos or the expansion of existing casinos near our casinos could
have a negative impact on our casino operations. Although we are not a tourist destination, we receive a certain amount of tourist traffic through our casino due to our location near the airport and
the Strip.

Our
casino operations in Pahrump and Henderson, Nevada face competition from other casinos located in the vicinity of these properties.

Seasonality

We do not believe that our business as a whole is seasonal to any significant degree.

Environmental Laws

Compliance with federal, state and local laws enacted for the protection of the environment to date had no material effect upon our capital expenditures, earnings
or competitive position and we do not anticipate any material adverse effects in the future based on the nature of our operations.

Employees

As of December 31, 2001 we employed approximately 2,100 employees. None of our employees is covered by a collective bargaining agreement. We believe that
our relationship with our employees is good.

Regulation and Licensing

The ownership and operation of casino gaming facilities and slot routes in Nevada are subject to the Nevada Gaming Control Act and the regulations promulgated
thereunder, or the Nevada Act, and various local regulations.

Our
gaming operations are subject to the licensing and regulatory control of the Nevada Gaming Commission, the Nevada State Gaming Control Board, the Clark County Liquor and Gaming
Licensing Board, and the Cities of Las Vegas, Reno, Henderson and other local regulatory authorities, or the Nevada Gaming Authorities.

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The
laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things:



Changes
in these laws, regulations and procedures could have an adverse effect on our gaming operations.

Corporations
and other entities that operate casinos or slot routes in Nevada are required to be licensed by the Nevada Gaming Authorities. A gaming license for such activities requires
the periodic payment of fees and taxes and is not transferable. Herbst Gaming is registered by the Nevada Gaming Commission as a publicly traded corporation (a "registered corporation"). As a
registered corporation, we are required periodically to submit detailed financial and operating reports to the Nevada Gaming Commission and furnish any other information that the Nevada Gaming
Commission may require. Herbst Gaming has been found suitable by the Nevada Gaming Commission to own the stock of E-T-T, Inc., which is licensed by the Nevada Gaming
Commission as a casino and slot route operator, Market Gaming, Inc., which is also licensed as a slot route operator, and Flamingo Paradise Gaming, LLC, which is licensed as a casino operator.
E-T-T, Inc., is also registered by the Nevada Gaming Commission as an intermediary holding company (the "Intermediary Company") and has been found suitable to own the
stock of Corral Country Coin, Inc., Cardivan Company, and Corral Coin, Inc., all of which are licensed by the Nevada Gaming Authorities as slot route operators (all of the foregoing,
including Market Gaming, Inc., and Flamingo Paradise Gaming, LLC, are referred to as the "Gaming Subsidiaries"). No person may become a stockholder of, or receive any percentage of the profits
from, the Intermediary Company or any of the Gaming Subsidiaries without first obtaining licenses and approvals from the Nevada Gaming Authorities. Herbst Gaming, the Intermediary Company, and all of
the Gaming Subsidiaries have obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to engage in gaming activities in Nevada.

The
Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, Herbst Gaming, the Intermediary Company or the Gaming
Subsidiaries in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of Herbst
Gaming, the Intermediary Company, and the Gaming Subsidiaries must file applications with the Nevada Gaming Authorities and are required to be licensed by the Nevada Gaming Authorities. The Nevada
Gaming Authorities may deny an application for licensing for any cause that they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal
and financial information followed by a thorough investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities, and, in addition to their authority to deny an
application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position.

If
the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with us, we would have to
sever all

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relationships with that person. In addition, the Nevada Gaming Commission may require us to terminate the employment of any person who refuses to file appropriate applications. Determinations of
suitability or of questions pertaining to licensing are not subject to judicial review in Nevada.

Herbst
Gaming, the Intermediary Company, and the Gaming Subsidiaries are required to submit detailed financial and operating reports to the Nevada Gaming Commission. Substantially all
material loans, leases, sales of securities and similar financing transactions by Herbst Gaming, the Intermediary Company and the Gaming Subsidiaries must be reported to the Nevada Gaming Commission.

If
it were determined that Herbst Gaming, the Intermediary Company or the Gaming Subsidiaries violated the Nevada gaming laws, our gaming licenses and registrations with the Nevada
Gaming Commission could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, Herbst Gaming, the Intermediary Company, the
Gaming Subsidiaries and the persons involved could be subject to substantial fines for each separate violation of the Nevada laws at the discretion of the Nevada Gaming Commission. Further, the Nevada
Gaming Commission could appoint a supervisor to operate our gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental
value of our gaming properties) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any
gaming license would) materially adversely affect our operations.

Any
beneficial holder of Herbst Gaming's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have his suitability as
a beneficial holder of Herbst Gaming's voting securities determined if the Nevada Gaming Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies
of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting such investigation.

Although
we do not intend to register or sell any equity securities, Nevada law requires any person who acquires more than 5% of a registered corporation's voting securities to report
the acquisition to the Nevada Gaming Commission. Nevada law requires that beneficial owners of more than 10% of a registered corporation's voting securities apply to the Nevada Gaming Commission for a
finding of suitability within 30 days after the Chairman of the Nevada State Gaming Control Board mails the written notice requiring the filing for a finding of suitability. Under certain
circumstances, an "institutional investor," as defined in the regulations of the Nevada Gaming Commission, which acquires more than 10%, but not more than 15%, of our voting securities may apply to
the Nevada Gaming Commission for a waiver of such finding of suitability if that institutional investor holds the voting securities for investment purposes only. An institutional investor will not be
deemed to hold
voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the members of our board of directors, any change in our corporate charter, bylaws, management, policies or operations, or any of our gaming
affiliates, or any other action which the Nevada Gaming Commission finds to be inconsistent with holding our voting securities for investment purposes only. Activities which are not deemed to be
inconsistent with holding voting securities for investment purposes only include:



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If
the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.

Any
person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Gaming Commission or the Chairman of
the Nevada State Gaming Control Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any
stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a registered corporation beyond the period of time as may be prescribed by the
Nevada Gaming Commission may be guilty of a criminal offense. Herbst Gaming, the Intermediary Company or the Gaming Subsidiaries may become subject to disciplinary action if, after receipt of notice
that a person is unsuitable to be a stockholder or to have any other relationship with Herbst Gaming, the Intermediary Company or the Gaming Subsidiaries, Herbst Gaming:



Additionally,
the Clark County Liquor and Gaming Licensing Board has taken the position that it has the authority to approve all persons owning or controlling the stock of any corporation controlling
a gaming license.

We
may be required to disclose to the Nevada State Gaming Control Board and the Nevada Gaming Commission the identities of all holders of our issued and outstanding 103/4%
senior secured notes. The Nevada Gaming Commission may, in its discretion, require the holder of any debt security of a registered corporation to file applications, be investigated and be found
suitable to own the debt security of a registered corporation. If the Nevada Gaming Commission determines that a person is unsuitable to own a debt security, then pursuant to Nevada law, the
registered corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Gaming Commission, it:



Herbst
Gaming is required to maintain a current ledger in Nevada, which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or
by a nominee, the record holder may be required to disclose the identity of the beneficial holder to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. We are also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Gaming Commission has the power to require our securities to
bear a legend indicating that the securities are subject to the Nevada Act. However, to date, the Nevada Gaming Commission has not imposed such a requirement on Herbst Gaming.

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Herbst
Gaming may not make a public offering of securities without the prior approval of the Nevada Gaming Commission if the securities or proceeds from the securities are intended to be
used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for the purposes of constructing, acquiring or financing gaming facilities. Furthermore,
any approval, if granted, does not constitute a finding, recommendation or approval by the Nevada Gaming Commission or the Nevada State Gaming Control Board as to the accuracy or adequacy of the
prospectus or the investment merits of the securities offered. Any representation to the contrary is unlawful.

Changes
in the control of Herbst Gaming through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby that
person obtains control (including foreclosure on the pledged shares), may not occur without the prior approval of the Nevada Gaming Commission. Entities seeking to acquire control or ownership of a
registered corporation must satisfy the Nevada State Gaming Control Board and Nevada Gaming Commission in a variety of stringent standards prior to assuming control of such registered corporation. The
Nevada Gaming Commission may also require the stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process relating to the transaction.

License
fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the
Nevada licensee's respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon
either:



Any
person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons, or Licensees, and who is or who proposes to
become involved in a gaming venture outside of Nevada, is required to deposit with the Nevada State Gaming Control Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation by the Nevada State Gaming Control Board of the Licensees' participation in foreign
gaming. The revolving fund is subject to increase or decrease in the discretion of the Nevada Gaming Commission. Thereafter, Licensees are also required to comply with certain reporting requirements
imposed by the Nevada gaming laws. Licensees are also subject to disciplinary action by the Nevada Gaming Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to a
foreign gaming operation, fail to conduct the foreign gaming operation in accordance with the standards of honesty and integrity required of Nevada gaming operations, engage in activities or enter
into associations that are harmful to the State of Nevada or its ability to collect gaming taxes and fees, or employ, contract with or associate with a person in the foreign operation who has been
denied a license or a finding of suitability in Nevada on the ground of personal unsuitability.

Item 2.Properties

We believe that our properties are generally in good condition, are well maintained and are generally suitable and adequate to carry on our business. We also
believe that our gaming properties are operated at satisfactory levels of utilization and each property is monitored to make sure that the needs of our business and customers are met. All of our
properties are subject to a deed of trust securing the $170,000,000 103/4% senior secured notes.

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Our
principal properties consist of the following:

Company Headquarters and Warehouse.We lease the four-acre site in Las Vegas and own the 50,000 square foot
building where our executive offices and operational headquarters are located. This facility houses our executive and administrative offices and is used for sub-assembly and warehouse
space for our slot route operations. The lease between the Herbst Family Limited Partnership II, a Nevada limited partnership, and us ends on June 30, 2016, with options to renew the lease for
five additional successive terms of ten years each.

Terrible's Hotel & Casino.We own the 10-acre site in Las Vegas on which Terrible's Hotel & Casino
is located, consisting of a 45,000 square foot casino with 373 guest rooms.

Terrible's Town Casino.Terrible's Town Casino in Pahrump, Nevada, which is approximately 60 miles from Las Vegas, comprises
an approximate 30,000 square foot building on approximately three acres. We lease the land from the Herbst Family Limited Partnership I, a Nevada limited partnership. The lease expires on
June 30, 2006. We also have an option to further extend the lease for four additional successive terms of five years each.

Terrible's Lakeside Casino & RV Park.We own the land in Pahrump, Nevada on which Terrible's Lakeside Casino &
RV Park, an approximate 8,000 square foot casino on 30 acres, is located.

Terrible's Town Casino & Bowl.We lease the land and building on which our Terrible's Town Casino & Bowl is
located in Henderson, Nevada. The lease ends on February 9, 2014, with options to renew the lease for five additional successive terms of ten years each. We own a 0.8-acre lot
adjacent to Terrible's Town Casino & Bowl that we are holding for possible future development.

Item 3.Legal Proceedings

From time to time, we are a party to various claims arising in the normal course of business. Management believes that these matters are expected to be resolved
with no material impact on our financial position, liquidity, or results of operations.

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

Not applicable.

PART II

Item 5.Market for Registrant's Common Equity and Related Stockholder Matters



No
class of our capital stock has been registered under the Securities Act of 1933 or under Section 12 of the Securities Exchange Act of 1934. All 300 shares of our outstanding
capital stock are owned by the Herbst brothers.



To
date, we have not made any distributions on our common stock, other than distributions permitted by the indenture governing our 103/4% senior secured notes. The
indenture governing our 103/4% senior secured notes restricts our ability to declare or make distributions on our capital shares. Subject to contractual restrictions contained in the
indenture, any future determinations as to the payment of dividends will be at the discretion of our board of directors, and will depend on our financial condition, results of operations, capital
requirements, and such other factors as the board of directors deems relevant. See "Item 7. Management's Discussion and Analysis of Financial Condition

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and Results of OperationsLiquidity and Capital Resources" and "Item 8. Financial Statements and Supplementary DataNotes to Financial Statements."

Item 6.Selected Historical Consolidated Condensed Financial Data

We derived the following selected historical consolidated condensed financial data as of and for each of the four years ended December 31, 2001, from our
audited consolidated financial statements. We derived the data as of and for the year ended December 31, 1997 from our consolidated financial statements, which, other than with respect to
E-T-T Enterprises L.L.C., have been audited. E-T-T Enterprises L.L.C. did not represent a material portion of our consolidated operations for that year.
In November 2000, we purchased Jackpot's route operations, and in December 2000, we opened Terrible's Hotel & Casino. Therefore, the year ended December 31, 2001 is the
only period presented that reflects all of our current operations and may not be comparable to prior years. The following information should be read in conjunction with the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and our historical consolidated financial statements and related notes included in this annual report.

We
have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code of 1986. Under those provisions, the owners of our company pay income taxes on our taxable
income. Accordingly, a provision for income taxes is not included in our financial data.

|                                                  |                               | Year Ended December 31, |       
|------------------------------------------------- | ----------------------------- | ----------------------- | ------
|
|
|Income statement data:                            |                               |                         |       
|Revenues                                          |                               |                         |       
|                                                  | Route operations              |                         | $     
|                                                  | Casino operations             |                         |       
|                                                  | Other                         |                         |       
|                                                  |                               |                         |       
|Total revenues                                    |                               |                         | 75,187
|                                                  | Promotional allowances-route  |                         |       
|                                                  | Promotional allowances-casino |                         |       
|                                                  |                               |                         |       
|Net revenues                                      |                               |                         | 73,694
|                                                  |                               |                         |       
|Costs of revenues                                 |                               |                         |       
|                                                  | Route operations              |                         |       
|                                                  | Casino operations             |                         |       
|                                                  | General and administrative    |                         |       
|                                                  | Depreciation and amortization |                         |       
|                                                  | Pre-opening expenses          |                         |       
|                                                  |                               |                         |       
|Total costs and expenses                          |                               |                         | 64,955
|                                                  |                               |                         |       
|Income from operations                            |                               |                         | 8,739 
|                                                  |                               |                         |       
|                                                  | Interest income               |                         |       
|                                                  | Interest expense              |                         |       
|                                                  | Gain on sale of assets        |                         |       
|Net income before extraordinary item              |                               |                         | 7,074 
|Extraordinary loss on early retirement of debt(3) |                               |                         |      
|                                                  |                               |                         |       
|Net Income (loss)                                 |                               | $                       | 7,074 
|                                                  |                               |                         |       

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|                                  |  | As of December 31, |       
|--------------------------------- |  | ------------------ | ------
|
|
|Balance sheet data:               |  |                    |       
|Cash and cash equivalents         |  | $                  | 8,570 
|Total assets                      |  |                    | 30,752
|Total debt(1)                     |  |                    | 20,299
|Stockholders' equity (deficiency) |  |                    | 5,596 

|                                                    |  | Year Ended December 31, |       
|--------------------------------------------------- |  | ----------------------- | ------
|
|
|Other data:                                         |  |                         |       
|Ratio of earnings to fixed charges(2)               |  |                         | 4.7x  
|Net cash provided by operating activities           |  | $                       | 13,116
|Net cash used in investing activities               |  |                         | (7,957
|Net cash provided by (used in)
financing activities |  |                         | (3,166
|Capital expenditures                                |  |                         | 4,747 
|Route EBITDA(4)                                     |  | $                       | 10,122
|Casino EBITDA(4)                                    |  |                         | 5,714 
|Other EBITDA(4)                                     |  |                         | 1,177 
|Corporate EBITDA(4)                                 |  |                         | (3,164
|Consolidated EBITDA(4)                              |  | $                       | 13,849

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12

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

The following discussion and analysis should be read in conjunction with the section "Selected Historical Consolidated Condensed Financial Data" and the
consolidated financial statements and related notes included elsewhere in this annual report.

Overview

We are a gaming company that currently owns and operates approximately 6,800 slot machines throughout the State of Nevada. Our route operations involve the
exclusive installation and operation of approximately 5,400 slot machines in strategic, high traffic, non-casino locations, such as grocery stores drug stores, convenience stores, bars and
restaurants. We also own and operate Terrible's Hotel & Casino in Las Vegas, as well as three other small casinos.

We
generally enter into two types of route contracts. With chain store customers, such as Albertsons, Vons, Safeway, SavOn, Kmart, Terrible Herbst and Rite Aid, we pay a fixed monthly
fee for each location in which we place slot machines. With our street accounts, such as bars, restaurants and non-chain convenience stores, we share in the revenues on a percentage basis
with the location owner.

On
November 20, 2000, we completed the acquisition of the stock of three subsidiaries of Jackpot. This acquisition has dramatically impacted all of our operations since
November 2000. In addition, in December 2000, we opened Terrible's Hotel & Casino. Therefore, the year ended December 31, 2001 is the only period presented that reflects
all of our current operations and may not be comparable to the year ended December 31, 2000.

We
have elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code of 1986. Under those provisions, the owners of our company pay income taxes on our taxable
income. Accordingly, a provision for income taxes is not included in our financial data.

Year 2001 Compared to Year 2000

Route Operations

Route operations accounted for 76% and 71% of total revenues during the years ended December 31, 2000 and 2001, respectively. Total revenues from route
operations were $170.9 million for the year ended December 31, 2001, an increase of $84.8 million, or 98.5%, from $86.1 million for the year ended December 31, 2000.
At December 31, 2001, we were operating approximately 5,400 slot machines in the route compared to approximately 2,200 slot machines at December 31, 2000. The increase in slot machines
and related revenue was primarily a result of the acquisition of Jackpot's route operations purchased in November 2000. The increase in revenues was due to the inclusion of these new slot
machines as well as the replacement and refurbishment of existing slot machines during 2001.

Route
operating costs were $141.5 million, or 83%, of route revenues for the year ended December 31, 2001. This compares to $74.3 million and 86% of route revenues
for the same period in 2000. The increase in route operating expenses was primarily related to the increase in route operations due to the acquisition of Jackpot's route operations.

Route
EBITDA (as defined) for the year ended December 31, 2001 was $29.2 million, an increase of $17.6 million, or 153%, from $11.6 million for the year ended
December 31, 2000.

Casino Operations

Casino operations accounted for 28% and 22% of total revenues for the years ended December 31, 2001 and 2000, respectively. Total revenues derived from
casino operations were $67.8 million for the year ended December 31, 2001, an increase of $42.5 million, or 168%, from

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$25.3 million for the year ended December 31, 2000. Casino operating costs were $46.7 million, or 69%, of casino revenues for the year ended December 31, 2001, compared to
$17.3 million, or 68%, of casino revenues for the year ended December 31, 2000. The opening and ramp up of the new Terrible's Hotel & Casino contributed heavily to the increased
revenue and operating costs in the period-to-period comparison. This revenue increase from Terrible's Las Vegas was offset by a 12% or $2.5 million decline in the
Pahrump market revenues due to the opening of a new competitor in late March 2001. Casino EBITDA (as defined) was $12.9 million for the year ended December 31, 2001, an increase
of $7.1 million, or 122%, from $5.8 million from the year ended December 31, 2000.

Other Revenue

Other revenue consists of revenue items unrelated to route and casino operations. Other revenues were $2.8 million for the year ended December 31,
2001 compared to $2.4 million for the year ended December 31, 2000, an increase of 17%. The increase in other revenue primarily related to the full year of operations of Terrible's Las
Vegas in the year ended December 31, 2001.

Promotional Allowances

Promotional allowances were $8.4 million, or 3.5% of total revenues, for the year ended December 31, 2001, an increase of $6.1 million, or
244%, from $2.4 million, or 2.1% of total revenues for the year ended December 31, 2000. The increase was primarily due to the opening of Terrible's Hotel & Casino.

Other Costs

General and administrative expenses, or G&A, were $10.2 million for the year ended December 31, 2001, an increase of $5.3 million, or 108%,
from $4.8 million for the year ended December 31, 2000. The increase was due to costs associated with the acquisition of Jackpot's route operations and the opening of Terrible's
Hotel & Casino. G&A expenses as a percentage of net revenue were 4% of revenue for the years ended December 31, 2000 and 2001, respectively.

Depreciation
and amortization expense was $14.2 million for the year ended December 31, 2001, an increase of $8.9 million, or 167%, from $5.3 million for the
year ended December 31, 2000. The increase was due to the amortization expenses associated with the acquired slot route contracts and depreciation expenses associated with the fixed assets
added in the acquisition of Jackpot's route operations and the opening of Terrible's Hotel & Casino in December of 2000.

Income from Operations

As a result of the factors discussed above, income from operations was $20.6 million for the year ended December 31, 2001, an increase of
$13.3 million from $7.3 million for the year ended December 31, 2000. As a percentage of total revenues, income from operations increased from 6.3% during 2000 to 8.5% during the
same period in 2001.

Other Expenses

Other expense was $19.5 million for the year ended December 31, 2001, increasing $15.5 million from $4.0 million in the same period in
2000. The increase in this expense is primarily due to interest expense of $20.0 million for the year ended December 31, 2001, an increase of $15.3 million from
$4.6 million used for interest payments in 2000. Interest expense is related to the debt used to purchase Jackpot's route operations, the construction of Terrible's Hotel & Casino and
financing for furniture, fixtures and equipment, or FF&E, at Terrible's Hotel & Casino.

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Extraordinary Charge

We incurred an extraordinary charge to earnings of $13.0 million in August of 2001. This charge was due to the costs associated with the retirement and
restructuring of $143.0 million of our long-term debt. This restructuring was done in conjunction with the issuance of $170.0 million 103/4% senior secured
notes in August of 2001.

Net Income (loss)

As a result of the factors discussed above, including the $13.0 million in extraordinary charge for the early debt restructuring costs, net loss for the
year ended December 31, 2001 was $12.0 million, a decrease of $15.3 million from net income of $3.3 million for the year ended December 31, 2000. Net income before
the extraordinary charge due to early retirement of debt was $1.1 million for the year ended December 31, 2001.

Year 2000 Compared to Year 1999

Route Operations

Route operations accounted for 76% of total revenues for each of the years ended December 31, 1999 and 2000, respectively. Total revenues from route
operations were $86.1 million for the fiscal year ended 2000, an increase of $18.2 million, or 27%, from $67.9 million for the fiscal year ended December 31,
1999. At December 31, 2000, we were operating approximately 5,600 slot machines in our route operations compared to approximately 2,200 slot machines at the end of 1999. The increase in
machines was due primarily to the acquisition of approximately 3,400 Jackpot machines in November 2000.

Route
operating costs were $74.3 million, or 86%, of route revenues for 2000. This compares to $59.0 million, or 87%, of route revenues at fiscal year end 1999. The
$15.3 million increase in route operating expenses was related in part to the acquisition and operating costs associated with the acquisition of Jackpot's route operations for two months in
2000.

Route
EBITDA (as defined) was $11.6 million for the year ended December 31, 2000, an increase of $2.8 million, or 32%, from $8.8 million for the year ended
December 31, 1999.

Casino Operations

Casino operations revenue accounted for 22% of total revenues for both years for the years ended December 31, 1999 and 2000. Total revenues derived from
casino operations were $25.3 million for fiscal year ended December 31, 2000, an increase of $5.6 million, or 28%, from $19.7 million for fiscal year 1999. Casino operating
costs were $17.3 million, or 68%, of casino revenues for fiscal year 2000. This compares to $13.3 million, or 68%, of casino revenues for fiscal year 1999. In 1999 casino revenues were
primarily derived from our two casinos in Pahrump. We opened our newest casino, Terrible's Hotel & Casino in Las Vegas, on December 6, 2000. During 2000, this facility contributed
$3.3 million in revenues. The pre-opening costs associated with the new casino accounted for $2.4 million in expenses in December 2000. Casino EBITDA (as defined) was
$5.8 million for the year ended December 31, 2000, an increase of $0.9 million, or 18%, from $4.9 million for the year ended December 31, 1999.

Other Revenue

Other revenue consists of revenue items unrelated to route and casino operations. Other revenue was $2.4 million for the year ended December 31,
2000, which compared to $2.0 million for the same period in 1999, an increase of 20%. The increase in other revenue principally related to the opening of

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Terrible's Hotel & Casino in December 2000 and the full year of operations of Terrible's Lakeside, which opened in March of 1999.

Promotional Allowances

Promotional allowances were $2.4 million, or 2%, of total revenues for the year ended December 31, 2000, an increase of $0.9 million or 60%
from $1.5 million, or 2%, of total revenues for the same period in 1999. The increase in promotional allowance is principally related to the opening of Terrible's Hotel & Casino in
December 2000.

Other Costs

G&A expenses were $4.8 million for the fiscal year ended December 31, 2000, an increase of $1.0 million, or 26%, from $3.8 million for
fiscal year 1999. G&A expenses as a percentage of net revenue were 4% of revenue for both 1999 and 2000. The increase in expenses was due to the acquisition of Jackpot's route operations, the opening
of Terrible's Hotel & Casino, and a full year of operations at Terrible's Lakeside, which opened in March of 1999.

Depreciation
and amortization expense was $5.3 million for the fiscal year ended 2000, a decrease of $0.3 million from $5.6 million for 1999.

Income from Operations

As a result of the factors discussed above, income from operations was $7.3 million for fiscal year ended December 31, 2000, an increase of
$1.0 million from the 1999 figure of $6.3 million. As a percentage of total revenues, income from operations decreased from 7% in 1999 to 6% in 2000. Operating expenses included
$2.4 million due to pre-opening expenses associated with the opening of Terrible's Hotel & Casino in December 2000. If the operating income were adjusted for those
expenses, operating income would have been $9.7 million, or 9%, of total revenues for 2000.

Other Expense

Other expense, which consists of interest income, interest expense, and other income, was $4.0 million for the year ended December 31, 2000,
increasing from $1.4 million in 1999. This increase was primarily due to the interest expense associated with the debt used to purchase Jackpot's route operations, the construction of and FF&E
financing for Terrible's Hotel & Casino, and the FF&E financing for Terrible's Lakeside.

Net Income

As a result of the factors discussed above, net income for fiscal year ended December 31, 2000 was $3.3 million, a decrease of $1.5 million,
or 31%, from $4.8 million in fiscal year ended 1999.

Liquidity and Capital Resources

Cash Flows

At December 31, 2001, we maintained $44.8 million in cash and equivalents. We expect to fund our operations, debt service and capital needs from
operating cash flow and cash on hand. Based upon our anticipated future operations, we believe that cash on hand together with available cash flow will be adequate to meet our anticipated working
capital requirements, capital expenditures and scheduled payments of interest on the notes for the next twelve months and at least the foreseeable future. No assurances can be given, however, that our
cash flow will be sufficient for that purpose. There can be no assurance that our estimates of our cash needs are accurate or that new business developments or other unforeseeable events will not
occur, resulting in the need to raise additional funds.

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Operating Activities

During the year ended December 31, 2001, operating activities provided $15.0 million in cash flows on $12.0 million in net loss. Net loss for
the year ended December 31, 2001 included non-cash expenses (depreciation and amortization) of $14.2 million and an extraordinary charge to earnings associated with early
retirement of debt of $13.0 million. Net income exclusive of these extraordinary charges was $1.1 million.

Investing Activities and Capital Expenditures

For the year ended December 31, 2001, we had net cash used for investing activities of $2.8 million primarily related to the purchase and
installation of new slot machines. The amount for 2001 is low
due to purchases made in December 2000 of over $4.0 million of slot machines to be placed in the route locations acquired from Jackpot during 2000.

Capital
expenditures are budgeted to be $6.0 million for 2002. These funds will be primarily used for maintenance capital expenditures and for the purchase of slot machines.

Financing Activities

Cash flows provided by financing activities were $3.0 million in 2001. On August 24, 2001, we issued $170.0 million aggregate principal
amount of our 103/4% senior secured notes. The proceeds of these notes were used to refinance substantially all of our outstanding debt at that date and to provide working capital. The
103/4% senior secured notes mature on September 1, 2008. Interest payment dates under the senior secured notes are March 1 and September 1 of each year, beginning
March 1, 2002. The notes are our senior obligations and rank equally in right of payment with all of our existing and future senior indebtedness and rate senior in right of payment to all of
our existing and future subordinated indebtedness. The indenture governing our 103/4% senior secured notes places significant restrictions on our ability to incur additional
indebtedness, create liens on collateral securing the notes, enter into transactions with affiliates, and make restricted payments unless certain conditions are met. To make a restricted payment, we
must, among other things, have a fixed charge coverage ratio of 2.0 to 1.0 for the most recently ended four full fiscal quarters, after giving effect to such restricted payments. The indenture permits
us to distribute to our stockholders an amount for the payment of taxes owed by the stockholders relating to the income recognized by the stockholders due to our status as a Subchapter S corporation.

The
indenture permits us to incur up to $10.0 million of additional indebtedness for working capital purposes without first meeting the debt incurrence test set forth in the
indenture. We are currently negotiating a $10.0 million line of credit with a lending source for such purpose.

Our
ability to service our debt will be dependent on our future performance, which will be affected by, among other things, prevailing economic conditions and financial, business and
other factors certain of which are beyond our control.

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Contractual Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2001.

|                                   |  | Payments Due by Period
|---------------------------------- |  | ----------------------
|
|
|Contractual Obligations:           |  |                       
|Long-term debt                     |  | $                     
|Operating leases                   |  |                       
|                                   |  |                       
|Total Contractual Cash Obligations |  | $                     
|                                   |  |                       

Significant Accounting Policies

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Our business and
industry is highly regulated. The majority of our revenue is counted in the form of cash, chips and tokens and therefore, is not subject to any significant or complex estimation procedures. We are
required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Significant
estimates incorporated into our consolidated financial statements as discussed in Note 1 of our Notes to Consolidated Financial Statements in Item 8 (Financial Statements and
Supplementary Data) include the estimated useful lives for depreciable and amortizable assets, the estimated allowance for doubtful accounts receivable and the estimated cash flows in assessing the
recoverability of long-lived assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Recently Issued and Adopted Accounting Standards

In January 2001, the Emerging Issues Task Force ("EITF") of the Financial Accounting Standards Board ("FASB") reached a consensus on EITF Issue No.
00-22, "Accounting for "Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future."
EITF Issue No. 00-22 requires that the redemption of "points" for cash be recognized as a reduction of revenue. We have complied with the requirements of EITF Issue
No. 00-22 on the accompanying consolidated statements of operations.

The
FASB issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting
for Certain Derivative Instruments and Certain Hedging Activities (an amendment of SFAS No. 133)." These statements establish accounting and reporting standards for derivative instruments for
fiscal years beginning after June 15, 2000. At December 31, 2001, we did not have any derivative instruments or hedging activities. We adopted SFAS Nos. 133 and 138 on January 1,
2001, and the adoption did not have a material impact on our consolidated financial statements.

On
June 29, 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets" that amend APB Opinion
No. 16, "Business Combinations," and supercede APB Opinion No. 17, "Intangible Assets." These statements (1) require that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001 and prohibit the pooling-of-interest method and (2) change the accounting for goodwill on January 1,
2002.

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The new method of accounting for goodwill applies to all existing and future unamortized goodwill balances at the time of adoption. As part of the adoption of these standards, we are required to
reassess the useful lives of our existing intangible assets and perform impairment tests. We are currently in the process of performing these steps but have not determined the impact of this standard
on its future goodwill and intangible asset amortization expense.

In
August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations, and amends ARB No. 51, Consolidated Financial Statements. SFAS No. 144 requires one accounting model to be used for
long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. The requirements of SFAS No. 144 are
effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 is not expected to have a material effect on our financial position or results of operations.

Statement on Forward-Looking Information

Certain information included herein contains statements that may be considered forward-looking, such as statements relating to projections of future results of
operations or financial condition, expectations for our route operations and casino properties, and expectations of the continued availability of capital resources. Any forward-looking statement made
by us necessarily is based upon a number of estimates and assumptions that, while considered reasonable by us, is inherently subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control, and are subject to change. Actual results of our operations may vary materially from any forward-looking statement made by or on our behalf.
Forward-looking statements should not be regarded as a representation by us or any other person that the forward-looking statements will be achieved. Undue reliance should not be placed on any
forward-looking statements. Some of the contingencies and uncertainties to which any forward-looking statement contained herein is subject include, but are not limited to, the following:

The success of our route operations is dependent on our ability to renew our contracts.

We
conduct our route operations under contracts with third parties. Both contracts with chain and street accounts are renewable at the option of the owner of the respective chain store
or street account. As our route contracts expire, we are required to compete for renewals. Although we have historically been able to renew our contracts, if we are unable to renew a material portion
of our route contracts because our competitors offer more favorable terms or for any other reason, our operations would be adversely affected. We cannot assure you that our current chain or street
contracts will be renewed.

Our substantial indebtedness could adversely affect our financial health and prevent us from fulfilling our obligations under the
indenture.

We
have a significant amount of indebtedness. The following chart shows certain important credit statistics and is presented as of the date specified below:

December 31, 2001(in thousands)Long-term debt, including current portion

$
167,319Stockholders' deficiency


(6,468
)


Year Ended
December 31, 2001Ratio of earnings to fixed charges

1.1x


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Our substantial indebtedness could have important consequences. For example, it could:



In
addition, we may be able to incur substantial additional indebtedness in the future. The terms of the indenture do not fully prohibit us from doing so. We may incur new debt if we
have a fixed charge coverage ratio of at least 2.0x. In addition, we are currently negotiating a $10.0 million line of credit. If we incur additional debt, the risks set forth above could
intensify.

We will require a significant amount of cash to service our indebtedness. Our ability to generate cash depends on many factors beyond our
control.

Our
ability to make payments on and to refinance our indebtedness, and to fund our operations will depend upon our ability to generate cash in the future. This, to a certain extent, is
subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Based on our current level of operations and anticipated revenue growth, we
believe our cash flow from operations, available cash and future borrowings will be adequate to meet our future liquidity needs for the next few years. However, we cannot assure you that our business
will generate sufficient cash flow from operations or that future borrowings will be available to us in amounts sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs.
In addition, if we consummate significant acquisitions in the future, our cash requirements may increase significantly. If we are unable to generate sufficient cash flow and are unable to refinance or
extend outstanding borrowings, we may have to:



Furthermore,
we may need to refinance all or a portion of our debt on or before maturity. We cannot assure you that we will be able to refinance any of our debt on commercially
reasonable terms or at all.



The indenture governing our 103/4% senior secured notes contains certain restrictive covenants that, among other things, restrict our ability to:



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In
addition, we anticipate entering into a new credit facility to provide us with additional working capital. The credit facility may contain covenants similar to those in the indenture,
as well as requirements that we maintain specified financial ratios and satisfy certain financial tests. These restrictive covenants may restrict our ability to make capital expenditures or pursue
other business strategies.

We may experience reduced operating margins and loss of market share due to intense competition from companies with longer operating histories, greater resources
and more established brand names.

The
gaming industry is highly competitive. If other route operations or properties operate more successfully, if existing route operations or properties are enhanced or expanded, or if
additional route operations or hotels and casinos are established in and around the locations in which we conduct business, we may lose market share. In particular, the expansion of route operations
or casino gaming in or near any geographic area from which we attract or expect to attract a significant number of our customers could have a material adverse effect on our business, financial
condition and results of operations.

Each
of our route operations and our casinos are subject to intense competition. The principal competitive factors in the route business are location, service, quality and convenience.
The principal competitive factors for our casinos include the quality and location of a facility, the nature and quality
of the amenities, customer service and marketing programs. Each of our casinos competes with other casinos focusing on the locals market, as well as other casinos and other forms of gaming and
entertainment in their respective locales. A competing casino opened in March 2001 in Pahrump. The impact of this new casino has been minimal to date, but it could adversely affect the
operations of our Pahrump casinos in the future.

Our
competitors vary in size, scope and breadth. Some of our competitors have greater name recognition and greater financial, selling and marketing, technical and other resources than we
do. We must continually attract customers to our route locations and casinos which requires us to maintain a high level of investment on our part in marketing and customer service. There can be no
assurance that we will be able to compete effectively with our existing competitors or with new competitors.



Licensing Requirements.As owners and operators of gaming facilities, we are subject to extensive Nevada state and local
regulation. Nevada state and local government authorities require us and our subsidiaries to obtain gaming licenses and require our officers and key employees to demonstrate suitability to hold gaming
licenses. The Nevada state and local government authorities may limit, condition, suspend or revoke a license for any cause deemed reasonable by the respective licensing agency. They may also levy
substantial fines against us or our subsidiaries or the individuals involved in violating any gaming laws or regulations. Furthermore, the Nevada Gaming Commission could request that a state court
appoint a supervisor to operate any non-restricted gaming establishment operated by us if the licenses held by us are revoked, suspended or otherwise lapse. In such extraordinary
circumstances, earnings generated by gaming operations during a supervisor's appointment (except for

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reasonable rental value) could be forfeited to the State of Nevada. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of
operations.

Any
future public offering of debt or equity securities by Herbst Gaming will require review of and prior approval by the Nevada Gaming Commission.

Potential Changes in Regulatory Environment.From time to time, legislators and special interest groups have proposed
legislation that would expand, restrict or prevent gaming operations in the jurisdictions in which we operate. Any such change to the regulatory environment or the adoption of new federal, state or
local government legislation could have a material adverse effect on our business.

Taxation.We pay substantial taxes and fees in connection with our operations as a gaming company. In addition, from time to
time, federal, Nevada state and local legislators and other government officials have proposed changes in tax laws, or in the administration of those laws affecting the gaming industry. It is not
possible to determine the likelihood of changes in tax laws or in the administration of those laws. Changes to applicable tax laws, if adopted, could have a material adverse effect on our business,
financial condition and results of operations.

Smoking.If smoking were banned at grocery stores and convenience stores, our business could be materially adversely
affected.

Compliance with Other Laws.We are subject to a variety of other rules and regulations, including zoning, environmental,
construction and land-use laws and regulations governing the serving of alcoholic beverages. Any changes to these laws could have a material adverse effect on our business, financial
condition and results of operations.

We are unable to predict the future impact that terrorist attacks may have on our business and operations.

The
terrorist attacks that occurred on September 11, 2001 have had little impact directly on our route operations. The September 11 attacks have had a modest effect on our
casino operations, as our casino operations are impacted by a loss of room revenue as a result of less tourists traveling to southern Nevada. Overall, our operations to date have not been
significantly affected by the terrorist attacks and terrorism in general. We cannot guarantee, however, that our business will remain unaffected by terrorism in the future. The impact and future
effects of terrorism are currently uncertain and we are unable to predict the future impact that terrorist attacks may have on our business and operations, the local markets in which we operate, and
the economy in general.



Our success is substantially dependent upon the efforts and skills of Edward J. Herbst, our chairman of the board, chief executive officer and president, and Mary
E. Higgins, our chief financial officer. We have entered into employment agreements with Mr. Herbst and Ms. Higgins. However, if we were to lose the services rendered by either of them,
our operations could be adversely affected. In addition, we compete with other potential employers for employees, and we may not succeed in hiring and retaining the executives and other employees that
we need. An inability to hire quality employees could have a material adverse effect on our business, financial condition and results of operations.

Our executive officers and members of our board of directors own 100% of Herbst Gaming and could have interests that conflict with yours.

Edward,
Timothy and Troy Herbst own all of the outstanding stock of Herbst Gaming. This concentration of ownership gives them the power to control the outcome of all matters requiring
stockholder approval, including the election of all directors, and will give them the power to hinder or

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delay a change of control of Herbst Gaming. In addition, Edward, Timothy and Troy Herbst are all officers and directors of Terrible Herbst, Inc., a company owned by parties related to us. We
currently engage in transactions with Terrible Herbst, Inc. and plan to continue to do so in the future. These related-party transactions could lead to potential conflicts of interest.

We rely on purchasing most of our machines and equipment from International Game Technology.

Substantially
all of our slot machines are manufactured by International Game Technology, or IGT. As such, part of our success depends on whether consumers play the machines developed
and manufactured by IGT, and whether we are able to acquire IGT machines and equipment. If IGT were to experience manufacturing difficulties, if consumers developed a distaste for IGT's products or if
we could not purchase IGT machines and equipment on favorable terms, our revenues and profits could be materially adversely affected, especially if we were unable to find another gaming manufacturer
to service our needs.

Our business relies heavily on certain markets and an economic downturn in these markets could have a material adverse effect on our
results.

Our
business depends on customers living in Nevada, an area that has recently experienced significant population growth. We cannot be certain that this growth will continue. If it does
not continue, the profitability of our route and casino operations could be adversely affected. Our casinos are particularly dependent on the economy where they are located. An economic downturn in
Nevada or these local markets could have a material adverse effect on our operating results. In addition, there can be no assurance that the economy in Nevada or these local markets will continue to
grow.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, and commodity
prices.

On
August 24, 2001 we issued $170.0 million in 103/4% senior secured notes. The proceeds of these notes were used to refinance substantially all of our
existing debt and for working capital purposes. All debt is currently at a fixed rate of interest.

The
fair value of our long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining
maturities. Based on the borrowing rates currently available to the Company for debt with similar terms and average maturities, the estimated fair value of long-term debt outstanding is approximately
$175,318,000 as of December 31, 2001.

We
do not invest in derivative financial instruments, interest rate swaps or other similar investments to alter interest rate exposure.

We
do not have any cash or cash equivalents as of December 31, 2001 that are subject to market risk based on changes in interest rates.

Item 8.Financial Statements and Supplementary Data

Independent Auditors' Report

Consolidated
Balance Sheets at December 31, 2001 and 2000

Consolidated
Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999



Consolidated
Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999

Notes
to Consolidated Financial Statements

23

---



HERBST GAMING, INC.    CONSOLIDATED FINANCIAL STATEMENTS    DECEMBER 31, 2001

24

---

INDEPENDENT AUDITORS' REPORT

To
the Board of Directors and Stockholders of
Herbst Gaming, Inc. and Subsidiaries
Las Vegas, Nevada

We
have audited the accompanying consolidated balance sheets of Herbst Gaming, Inc. and Subsidiaries (the "Company") as of December 31, 2000 and 2001, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Herbst Gaming, Inc. and Subsidiaries as of December 31, 2000
and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.

DELOITTE &
TOUCHE LLP
Las Vegas, Nevada
March 4, 2002

25

---



Herbst Gaming, Inc.        Consolidated Balance Sheets        (in thousands)

|                                                       |                                                                                         | December 31,                            |        
|------------------------------------------------------ | --------------------------------------------------------------------------------------- | --------------------------------------- | -------
|
|Assets                                                 |                                                                                        
|Current assets                                         |                                                                                         |                                         |        
|                                                       | Cash and cash equivalents                                                               |                                         | $      
|                                                       | Accounts receivable, net                                                                |                                         |        
|                                                       | Notes and loans receivable                                                              |                                         |        
|                                                       | Prepaid expenses                                                                        |                                         |        
|                                                       | Inventory                                                                               |                                         |        
|                                                       |                                                                                         |                                         |        
|Total current assets                                   |                                                                                         |                                         | 36,525 
|Property and equipment, net                            |                                                                                         |                                         | 110,774
|Lease acquisition costs, net                           |                                                                                         |                                         | 19,807 
|Due from related parties                               |                                                                                         |                                         | 473    
|Other assets, net                                      |                                                                                         |                                         | 3,553  
|                                                       |                                                                                         |                                         |        
|Total assets                                           |                                                                                         | $                                       | 171,132
|                                                       |                                                                                         |                                         |        
|Liabilities and stockholders' equity (deficiency)      |                                                                                        
|Current liabilities                                    |                                                                                         |                                         |        
|                                                       | Current portion of notes payable to related parties                                     |                                         | $      
|                                                       | Current portion of long-term debt                                                       |                                         |        
|                                                       | Accounts payable                                                                        |                                         |        
|                                                       | Construction payables                                                                   |                                         |        
|                                                       | Accrued expenses                                                                        |                                         |        
|                                                       | Due to related parties                                                                  |                                         |        
|                                                       |                                                                                         |                                         |        
|Total current liabilities                              |                                                                                         |                                         | 66,008 
|Notes payable to related parties, less current portion |                                                                                         |                                         | 7,435  
|Long-term debt, less current portion                   |                                                                                         |                                         | 90,450 
|Other liabilities                                      |                                                                                         |                                         | 267    
|Commitments and contingencies (Note 9)                 |                                                                                         |                                         |        
|Stockholders' equity (deficiency)                      |                                                                                         |                                         |        
|                                                       |                                                                                         |                                         |        
|                                                       | Common stock (no par value; 2,500 shares authorized; 300 shares issued and outstanding) |                                         |        
|                                                       | Additional paid-in capital                                                              |                                         |        
|                                                       | Retained earnings (accumulated deficit)                                                 |                                         |        
|                                                       |                                                                                         |                                         |        
|                                                       |                                                                                         | Total stockholders' equity (deficiency) |        
|                                                       |                                                                                         |                                         |        
|Total liabilities and stockholders' equity             |                                                                                         | $                                       | 171,132
|                                                       |                                                                                         |                                         |        

See
notes to consolidated financial statements.

26

---



Herbst Gaming, Inc.        Consolidated Statements of Operations        (in thousands)

|                                               |                                               | Year Ended December 31, |       
|---------------------------------------------- | --------------------------------------------- | ----------------------- | ------
|
|Revenues                                       |                                               |                         |       
|                                               | Route operations                              |                         | $     
|                                               | Casino operations                             |                         |       
|                                               | Other                                         |                         |       
|                                               |                                               |                         |       
|Total revenues                                 |                                               |                         | 89,524
|                                               | Less promotional allowances                   |                         |       
|                                               |                                               |                         |       
|Net revenues                                   |                                               |                         | 88,042
|                                               |                                               |                         |       
|Costs and expenses                             |                                               |                         |       
|                                               | Route operations                              |                         |       
|                                               | Casino operations                             |                         |       
|                                               | Depreciation and amortization                 |                         |       
|                                               | General and administrative                    |                         |       
|                                               | Pre-opening expenses                          |                         |       
|                                               |                                               |                         |       
|Total costs and expenses                       |                                               |                         | 81,755
|                                               |                                               |                         |       
|Income from operations                         |                                               |                         | 6,287 
|                                               |                                               |                         |       
|Other income (expense)                         |                                               |                         |       
|                                               | Interest income                               |                         |       
|                                               | Interest expense, net of capitalized interest |                         |       
|                                               | Gain on sale of assets                        |                         |       
|                                               |                                               |                         |       
|Total other expense                            |                                               |                         | (1,447
|                                               |                                               |                         |       
|Income before extraordinary item               |                                               | $                       | 4,840 
|Extraordinary loss on early retirement of debt |                                               |                         |      
|                                               |                                               |                         |       
|Net income (loss)                              |                                               | $                       | 4,840 
|                                               |                                               |                         |       

See
notes to consolidated financial statements.

27

---



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, 1999   |                     | $            | 2,368 |                             | $ |                                        |     | $     | 6,057  
|                           | Net income          |              |       |                            |   |                                         |    |       |        
|                           | Dividends           |              |       |                            |   |                                         |    |       |        
|                           |                     |              |       |                             |   |                                         |     |       |        
|Balance, December 31, 1999 |                     |              | 2,368 |                             |   |                                        |     |       | 6,086  
|                           | Net income          |              |       |                            |   |                                         |    |       |        
|                           | Dividends           |              |       |                            |   |                                         |    |       |        
|                           | Contributed capital |              |       |                            |   |                                         | 731 |       |        
|                           |                     |              |       |                             |   |                                         |     |       |        
|Balance, December 31, 2000 |                     |              | 2,368 |                             |   | 731                                     |     |       | 3,873  
|                           | Net loss            |              |       |                            |   |                                         |    |       |        
|                           | Dividends           |              |       |                            |   |                                         |    |       |        
|                           | Contributed capital |              |       |                            |   |                                         | 900 |       |        
|                           |                     |              |       |                             |   |                                         |     |       |        
|Balance, December 31, 2001 |                     | $            | 2,368 |                             | $ | 1,631                                   |     | $     | (10,467
|                           |                     |              |       |                             |   |                                         |     |       |        

See
notes to consolidated financial statements.

28

---

Herbst Gaming, Inc.
Consolidated Statements of Cash Flows
(in thousands)

|                                                                     |                                                                                               | Year Ended December 31,                        |        
|-------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------- | -------
|
|Cash flows from operating activities                                 |                                                                                               |                                                |        
|                                                                     | Net income (loss)                                                                             |                                                | $      
|                                                                     | Adjustments to reconcile net income (loss) to net cash provided by operating activities       |                                                |        
|                                                                     |                                                                                               | Depreciation and amortization                  |        
|                                                                     |                                                                                               | Debt discount amortization                     |        
|                                                                     |                                                                                               | Gain on sale of property and equipment         |        
|                                                                     |                                                                                               | Other                                          |        
|                                                                     |                                                                                               | Extraordinary loss on early retirement of debt |        
|                                                                     | Decrease (increase) in                                                                        |                                                |        
|                                                                     |                                                                                               | Accounts receivable                            |        
|                                                                     |                                                                                               | Prepaid expenses                               |        
|                                                                     |                                                                                               | Inventory                                      |        
|                                                                     |                                                                                               | Other current assets                           |        
|                                                                     |                                                                                               | Due from related parties                       |        
|                                                                     | Increase (decrease) in                                                                        |                                                |        
|                                                                     |                                                                                               | Accounts payable                               |        
|                                                                     |                                                                                               | Accrued expenses                               |        
|                                                                     |                                                                                               | Due to related parties                         |        
|                                                                     |                                                                                               | Other liabilities                              |        
|                                                                     |                                                                                               |                                                |        
|Net cash provided by operating activities                            |                                                                                               |                                                | 12,374 
|                                                                     |                                                                                               |                                                |        
|Cash flows from investing activities                                 |                                                                                               |                                                |        
|                                                                     | Net cash paid for acquisition of Jackpot's Slot Route                                         |                                                |        
|                                                                     | Additions to notes receivable                                                                 |                                                |        
|                                                                     | Collection on notes receivable                                                                |                                                |        
|                                                                     | Proceeds from sale of property and equipment                                                  |                                                |        
|                                                                     | Purchases of property and equipment                                                           |                                                |        
|                                                                     | Lease acquisition costs                                                                       |                                                |        
|                                                                     | (Increase) decrease in other assets                                                           |                                                |        
|                                                                     |                                                                                               |                                                |        
|Net cash used in investing activities                                |                                                                                               |                                                | (19,674
|                                                                     |                                                                                               |                                                |        
|Cash flows from financing activities                                 |                                                                                               |                                                |        
|                                                                     | Increase in notes payable to related parties                                                  |                                                |        
|                                                                     | Decrease in notes payable to related parties                                                  |                                                |        
|                                                                     | Proceeds from long-term debt                                                                  |                                                |        
|                                                                     | Reduction of long-term debt                                                                   |                                                |        
|                                                                     | Loan origination fees                                                                         |                                                |        
|                                                                     | Prepayment penalty on retired debt                                                            |                                                |        
|                                                                     | Additional paid-in capital                                                                    |                                                |        
|                                                                     | Dividends                                                                                     |                                                |        
|                                                                     |                                                                                               |                                                |        
|Net cash provided by financing activities                            |                                                                                               |                                                | 10,368 
|                                                                     |                                                                                               |                                                |        
|Net increase in cash and cash equivalents                            |                                                                                               |                                                | 3,068  
|Cash and cash equivalents                                            |                                                                                               |                                                |        
|                                                                     | Beginning of year                                                                             |                                                |        
|                                                                     |                                                                                               |                                                |        
|                                                                     | End of year                                                                                   |                                                | $      
|                                                                     |                                                                                               |                                                |        
|Supplemental cash flow information                                   |                                                                                               |                                                |        
|                                                                     | Cash paid during the year for interest                                                        |                                                | $      
|Supplemental schedule of non-cash Investing and financing activities |                                                                                               |                                                |        
|                                                                     | Purchase of property and equipment financed through accounts payable                          |                                                |        
|                                                                     | Purchase of assets through direct financing                                                   |                                                |        
|                                                                     | Real estate development costs financed through additional debt                                |                                                |        
|                                                                     | Conversion of payables to stockholders into notes payable to owners                           |                                                |        
|                                                                     | Advance to Flamingo Paradise Gaming, LLC applied as payments on notes payable to stockholders |                                                |        
|                                                                     | Receivable from owner applied as payment on notes payable to stockholders                     |                                                |        
|Acquisition of Jackpot's Slot Route                                  |                                                                                               |                                                |        
|                                                                     | Fair value of assets and liabilities acquired                                                 |                                                |        
|                                                                     |                                                                                               | Current assets, other than cash                |        
|                                                                     |                                                                                               | Property and equipment                         |        
|                                                                     |                                                                                               | Lease acquisition costs                        |        
|                                                                     |                                                                                               | Other long-term assets                         |        
|                                                                     |                                                                                               | Accounts payable                               |        
|                                                                     |                                                                                               | Other liabilities                              |        
|                                                                     |                                                                                               |                                                |        
|Cash paid, net of cash acquired                                      |                                                                                               |                                                |       
|                                                                     |                                                                                               |                                                |        

See notes to consolidated financial statements.

29

---



Herbst Gaming, Inc.        Notes to Consolidated Financial Statements

1.    Description of Business and Summary of Significant Accounting Policies

Description of Business and Principles of ConsolidationThe accompanying consolidated financial
statements of Herbst Gaming, Inc. ("Herbst" or the "Company") include the accounts of Herbst and its subsidiaries; E-T-T, Inc. and Subsidiaries
("E-T-T"), Market Gaming, Inc. ("MGI"), E-T-T Enterprises L.L.C. ("E-T-T Enterprises"), and Flamingo Paradise Gaming, LLC
("FPG"). The financial statements of E-T-T are consolidated and include the following wholly-owned subsidiaries: Cardivan Company, Corral Coin, Inc., and Corral Country
Coin, Inc.

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

Herbst
Gaming, Inc. was incorporated in Nevada on January 21, 1997 as a shell corporation. Edward, Timothy and Troy Herbst, who are brothers, own all the stock of Herbst
Gaming. On August 23, 2001, upon receiving approval from the Nevada Gaming Commission, Herbst Gaming commenced business operations and the Herbst brothers entered into contribution agreements
pursuant to which they contributed all of the outstanding stock of E-T-T, Inc. and Market Gaming, Inc., as well as all of the membership interest in
E-T-T Enterprises L.L.C. and 80% of the membership interest in Flamingo Paradise Gaming, LLC to Herbst Gaming, which became a holding company for their gaming interests. In
addition, E-T-T, Inc., which owned a 20% membership interest in Flamingo Paradise Gaming, LLC, entered into an assignment of membership interest pursuant to which
E-T-T, Inc. assigned its 20% membership interest in Flamingo Paradise Gaming, LLC to Herbst Gaming. This restructuring occurred in conjunction with the issuance of
$170.0 million 103/4% senior secured notes that was used to retire the majority of the existing debt of the consolidated entities and has been accounted for as if the combination
had occurred as of the earliest period presented with the amounts carried over at historical cost. Prior to August of 2001, the newly consolidated entities were combined for presentation purposes.

E-T-T
and MGI conduct business in the gaming industry and generate revenue principally from gaming machine route operations and casino operations. Gaming machine
route operations involve the installation, operation, and service 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, and Terrible's Town Casino
and Terrible's Lakeside Casino & RV Park, both of which are located in Pahrump, Nevada, a community 60 miles west of Las Vegas.

E-T-T
Enterprises develops and leases real estate to E-T-T.

FPG
owns and operates Terrible's Hotel & Casino in Las Vegas, Nevada, which began operations in December 2000.

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

Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and expenses during the period. Significant estimates incorporated into our consolidated financial statements include the
estimated useful lives for depreciable and amortizable assets, the estimated

30

---

allowance for doubtful accounts receivable and the estimated cash flows in assessing the recoverability of long-lived assets. Actual results could differ from those estimates.

Cash and Cash EquivalentsCash and cash equivalents include highly liquid investments with an original maturity at the date of
purchase of three months or less. The carrying value of these investments 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 value primarily because of the short maturities of these instruments. The fair value of the Company's long-term debt is estimated based on the quoted market prices for the
same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. Based on the borrowing rates currently available to the Company for debt with similar
terms and average maturities, the estimated fair value of long-term debt outstanding is approximately $175,318,000 as of December 31, 2001.

Accounts ReceivableReceivables consist primarily of amounts due from customers as a result of normal business operations. The
Company periodically performs credit evaluations of its customers. The Company reviews accounts receivable balances in order to determine an allowance for potential credit losses. At
December 31, 2000 and 2001, an allowance for potential credit losses was $573,000 and $1,028,000, respectively.

Notes and Loans ReceivableIn order to secure various route locations, the Company has provided certain incentives to the
location operators in the form of loans. The loans, made for build-outs, tenant improvements, and initial operating expenses, are generally secured by the personal guarantees of the
operators and the locations' assets. The majority of the loans are non-interest bearing and are expected to be repaid within one year from the locations' share of net gaming win.

On
a regular basis, the Company evaluates the collectibility of the loans by individually evaluating each location's operating results and cash flows. The carrying value of loans that
are determined to be uncollectible is charged to operations at that time. At December 31, 2000 and 2001, an allowance for potential credit losses was not deemed necessary.

InventoryInventories are stated at the lower of cost or market value. Cost is determined using the first-in,
first-out method.

Property and EquipmentProperty and equipment are stated at cost and depreciated using the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset.
Useful lives are as follows:

Building

40 yearsGaming equipment

5 yearsFurniture, fixtures, and equipment

5-10 yearsLeasehold improvements

1-20 years


Real Estate CostsCosts that clearly relate to the acquisition, development, and construction of real estate projects are
capitalized. Interest costs are capitalized while development and construction are in progress. Interest capitalized for the years ended December 31, 1999, 2000 and 2001 was $1,662,000,
$3,408,000 and $0, respectively.

Lease Acquisition CostsSignificant incremental costs associated with the acquisition of location leases are capitalized and
amortized using the straight-line method over the term of the related leases,

31

---

including expected renewals, which range from 1 to 20 years. Lease acquisition costs are stated at cost less accumulated amortization of $2,928,000 and $5,454,000 at December 31, 2000
and 2001, respectively.

Debt Issuance CostsDebt issuance costs incurred in connection with the issuance of long-term debt are capitalized
and amortized to interest expense over the terms of the related debt agreements. Debt issuance costs are included in other assets on the balance sheets.

Long-Lived AssetsIn accordance with the provisions of SFAS No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company evaluates the potential impairment of long-lived assets when events or changes in
circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. If it is determined that the carrying value of long-lived assets may not be
recoverable based upon the relevant facts and circumstances, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the
sum of the expected undiscounted future cash flows is less than the carrying value of the asset, the Company will recognize an impairment loss for the difference between the carrying value of the
asset and its fair value. The Company believes that no material impairment of long-lived assets exists at December 31, 2001.

Revenue and Promotional AllowancesIn accordance with industry practice, the Company recognizes as gaming revenues the net win
from route operations, which is the difference between gaming wins and losses. The Company recognizes total net win from gaming devices as revenues from gaming routes that operate under
revenue-sharing arrangements. Revenue-sharing payments to route locations are recorded as costs of route operations. Revenues from casino operations are gaming wins less losses. Revenues from casino
operations include the estimated retail value of food and beverage, and goods and services provided to customers on a complimentary basis. Such amounts are then deducted as promotional allowances. The
estimated cost of providing these promotional allowances is as follows:

Year Ended December 31,1999

2000

2001(dollars in thousands)Room

$


$
34

$
658Food and beverage


934


1,273


3,785Other





515


1,322Total

$
934

$
1,822

$
5,765


Location Rent ExpenseFixed rental payments (including scheduled increases) are recorded on a straight-line basis
over the agreement term, including any optional extension periods that are expected to be exercised. Contingent payments are expensed in the period incurred. Renewal agreements are considered new
agreements and are accounted for as described above over the new agreement term. Revenue-sharing payments to route locations are recorded as location rent expense, which is included in route
operations costs and expenses.

Pre-opening ExpensesIn accordance with Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-up Activities," the Company expenses certain costs of start-up activities as incurred. During the year ended December 31, 2000, the Company expensed $2,361,000 in
pre-opening costs relating to Terrible's Hotel & Casino in Las Vegas.

Income TaxesHerbst, E-T-T and MGI have elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the owners of each company are

32

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liable for income tax on the taxable income of the Company as it affects the owners' individual income tax returns. Therefore, a provision for income taxes has not been included in the accompanying
consolidated financial statements. E-T-T Enterprises and FPG are treated as partnerships for federal income tax purposes and, therefore, do not incur income taxes. Instead,
their earnings and losses are
included in the personal returns of the members and are taxed depending on their personal tax situations. Accordingly, the financial statements do not reflect a provision for income taxes.

Concentrations of Credit RiskThe Company maintains cash balances at certain financial institutions located in southern
Nevada. The balances are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. At times, cash balances may be in excess of FDIC limits.

Recently Issued and Adopted Accounting StandardsIn January 2001, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board ("FASB") reached a consensus on EITF Issue No. 00-22, "Accounting for 'Points' and Certain Other Time-Based or Volume-Based Sales Incentive
Offers, and Offers for Free Products or Services to Be Delivered in the Future." EITF No. 00-22 requires that the redemption of "points" for cash be recognized as a reduction of revenue.
The Company has complied with the requirements of EITF Issue No. 00-22 in the accompanying consolidated statements of operations.

The
FASB issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities (an amendment of SFAS No. 133)." These statements establish accounting and reporting standards for derivative instruments for fiscal years
beginning after June 15, 2000. At December 31, 2001, the Company did not have any derivative instruments or hedging activities. The Company adopted SFAS Nos. 133 and 138 on
January 1, 2001, and the adoption did not have a material impact on the Company's consolidated financial statements.

On
June 29, 2001, the FASB issued SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets" that amend APB Opinion No. 16, "Business
Combinations," and supercede APB Opinion No. 17, "Intangible Assets." These statements (1) require that the purchase method of accounting be used for all business combinations initiated
after June 30, 2001 and prohibit the pooling-of-interest method and (2) change the accounting for goodwill on January 1, 2002. The new method of accounting
for goodwill applies to all existing and future unamortized goodwill balances at the time of adoption. As part of the adoption of these standards, we are required to reassess the useful lives of our
existing intangible assets and perform impairment tests. We are currently in the process of performing these steps but have not determined the impact of this standard on its future goodwill and
intangible asset amortization expense.

In
August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB Opinion
No. 30, Reporting the Results of Operations, and amends ARB No. 51, Consolidated Financial Statements. SFAS No. 144 requires one accounting model be used for
long-lived assets to be disposed of by sale and broadens the presentation of discontinued operations to include more disposal transactions. The requirements of SFAS No. 144 are
effective for fiscal years beginning after December 15, 2001. The adoption of SFAS No. 144 is not expected to have a material effect on our financial position or results of operations.

33

---

2.    Acquisition

On November 20, 2000, the Company completed its acquisition of Cardivan Company, Corral Coin, Inc., and Corral Country Coin, Inc.
(collectively, the "Route") from Jackpot Enterprises, Inc. ("Jackpot"). Jackpot was a leading route operator in Nevada. The acquisition, which was recorded under the purchase method of
accounting, included the purchase of all of the outstanding shares of the Route for an initial purchase price of $38,000,000, plus working capital and other purchase price adjustments of $6,455,000,
for a total purchase price of $44,455,000. A portion of the purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair market value at the date of acquisition
with the remaining balance of $17,566,000 recorded as lease acquisition costs for the route contracts acquired. Such intangible asset is being amortized on a straight-line basis over the
remaining life of the contracts.

The
table below reflects unaudited pro forma consolidated results of the Company and the Route as if the acquisition had taken place at the beginning of the year (dollars in thousands):

Year Ended December 31,1999

2000Gross Revenues

$
184,483

$
183,507Net loss


(2,000
)

(2,642
)


Included in the pro forma net loss are approximately $5,785 and $5,060 of interest expense and $2,342 and $2,050 of amortization expense for the
years ended December 31, 1999 and 2000. In management's opinion, these unaudited pro forma amounts are not necessarily indicative of what the actual consolidated results of operations might
have been if the acquisition had been effective at the beginning of 1999.

3.    Property and Equipment

Property and equipment consist of the following (dollars in thousands):

December 31,2000

2001Building

$
54,826

$
51,547Gaming equipment


45,249


48,664Furniture, fixtures, and equipment


12,691


15,581Leasehold improvements


1,410


1,587Land


15,925


15,925Construction in progress


1,932


1,636132,033


134,940Less accumulated depreciation


(21,259
)

(30,568
)$
110,774

$
104,372


4.    Other Assets

Other assets consist of the following (dollars in thousands):

December 31,2000

2001Debt issuance costs, net of accumulated amortization of $249 and $383, respectively

$
3,293

$
7,566Other assets


260


232Total

$
3,553

$
7,798


34

---



5.    Accrued Expenses

Accrued expenses consist of the following (dollars in thousands):

December 31,2000

2001Accrued Interest

$
3,293

$
7,566Other Accrueds


260


232Total

$
3,553

$
7,798


6.    Notes Payable to Related Parties

Notes payable to related parties consist of the following (dollars in thousands):

December 31,2000

2001Various notes payable to related parties paid during 2001


17,219


Less current portion


9,784


$
7,435

$



Related-party debt of approximately $20.2 million was paid off in August of 2001 in connection with the issuance of $170.0 million
103/4% senior secured notes due in 2008. Related-party interest expense associated with notes payable to stockholders was $142,000, $663,000, and $955,412 for the years ended
December 31, 1999, 2000 and 2001, respectively.

7.    Long-Term Debt

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

|                                                                                                                                                                                                                                                     |  | December 31,
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------
|
|Senior secured notes payable to holders of the 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, 2002. The notes mature on September 1, 2008 |  |             
|Bank term credit facility paid during 2001                                                                                                                                                                                                           |  |             
|Senior subordinated notes payable to bondholders paid during 2001                                                                                                                                                                                    |  |             
|First mortgage note payable paid during 2001                                                                                                                                                                                                         |  |             
|Second mortgage note payable paid during 2001                                                                                                                                                                                                        |  |             
|Various notes payable paid during 2001                                                                                                                                                                                                               |  |             
|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 2003                                                                                            |  |             
|                                                                                                                                                                                                                                                     |  |             
|Total debt                                                                                                                                                                                                                                           |  |             
|Less current portion                                                                                                                                                                                                                                 |  |             
|                                                                                                                                                                                                                                                     |  |             
|Total long-term debt                                                                                                                                                                                                                                 |  | $           
|                                                                                                                                                                                                                                                     |  |             

On August 24, 2001 the Company issued (under a private placement) $170.0 million in 103/4% senior secured notes due
in 2008.

35

---

The
proceeds of these notes, approximately $167.0 million, were used to retire outstanding balances on substantially all credit facilities of $123.6 million, related-party
debt of $20.2 million, and $12.0 million in accrued interest and other costs associated with the early termination of the retired debt. In addition, the Company used $6.8 million
of the proceeds to pay fees associated with the offering of the 103/4% senior secured notes and the remaining $4.4 million was paid to the Company in cash. The fees associated
with the issuance of the 103/4% senior secured notes are included in other assets at December 31, 2001 and are being amortized to interest expense over the life of the
indebtedness.

The
notes mature on August 24, 2008. Interest is payable in cash at a rate of 103/4% per annum on March 1 and September 1, commencing March 1,
2002. The indenture under which the notes were issued contains various limitations and restrictions including (i) change-in-control provisions, (ii) limitations
on indebtedness and (iii) limitations on restricted payments such as dividends. Management believes that the Company is in compliance with these covenants as of December 31, 2001.

In
October 2001, the Company filed a Form S-4 registration statement with the Securities and Exchange Commission ("SEC") for the purpose of effecting the
exchange of the notes for identical notes registered for resale under the federal securities laws. This registration statement became effective on December 21, 2001 and the exchange offer was
consummated on January 22, 2002.

Long-term
debt at December 31, 2001 is expected to mature as follows (dollars in thousands):

2002

$
742003


442004


262005


2006


Thereafter


167,175Total

$
167,319


8.    Related-Party Transactions

The Company leases the land underlying its facilities for its Terrible's Town Casino (Pahrump) operations and the E-T-T Corporate
facilities from Herbst Family Limited Partnership. The leases require monthly payments of $26,916 through June 2006 with several 5-year options by the Company to extend. Rent
expense of $292,992, $292,992 and $307,992 was incurred under these agreements for the years ended December 31, 1999, 2000 and 2001, respectively.

The
Company rents space for certain slot machine route operations in convenience stores owned by Terrible Herbst, Inc. ("Terrible's"), a corporation in which the Company's owners
are officers and which is owned by the father of the owners. Rent expense of $3,267,000, $2,344,000, and $3,653,000 was incurred under this agreement for the years ended December 31, 1999, 2000
and 2001, respectively.

We
have entered into a trademark and license agreement with Terrible's in which Terrible's agrees to permit us to use the Terrible Herbst brand name and its cowboy logo for
25 years including renewal periods. The agreement was amended in 2001 and the annual royalty fee was increased from $600,000 to $1,200,000. Pursuant to this trademark and license agreement, we
paid approximately $600,000 to Terrible's during each of the fiscal years 1999 and 2000 and $800,000 in 2001.

36

---

Due
from related parties at December 31, 2000 and 2001 consists of $473,000 and $432,000, respectively, in notes receivable from an owner. The notes bear interest at rates from 5
to 6 percent and are due in
2003. Interest income related to the notes receivable was $30,000, $26,000 and $27,000 for the years ended December 31, 1999, 2000 and 2001, respectively.

Obligations
due to related parties at December 31, 2000 and 2001 consisted of balances due to Terrible's for expenditures made on behalf of the Company, accrued rent, and accrued
management fees. The balances are non-interest bearing and payable on demand.

We
have also entered into a servicing arrangement with Terrible's pursuant to which we provide accounting and administrative services related to the collection of daily deposits from
Terrible's convenience stores. We also provide personnel to Terrible's to count, maintain and safeguard large amounts of coin and currency. Terrible's reimburses our expenses in providing these
services. Under this servicing arrangement, we were paid approximately $205,000, $155,000, and $214,000 for services rendered for the years ended December 31, 1999, 2000 and 2001, respectively.

The
Company leases land and office space in certain of its facilities to Terrible's under noncancelable lease agreements ranging from ten to twenty years. Rental income from these leases
was $550,000, $612,000 and $623,000 for the years ended December 31, 1999, 2000 and 2001, respectively.

In
1999, HIGCO, Inc. ("HIGCO"), a company owned and operated by Mr. Higgins and two of his brothers, agreed to purchase from us for $200,000 a liquor license related to owning and
operating a tavern located in Henderson, Nevada. The terms of the purchase between us and HIGCO require HIGCO to repay the debt at 9% interest per annum. The balance of that note at
December 31, 2000 was $175,000 and $135,000 at December 31, 2001. In addition, we have entered into a slot route contract to install, operate and service slot machines at the tavern.
Pursuant to the revenue-sharing contract, HIGCO paid us $0, $66,948 and $114,442 in gaming fees in 1999, 2000 and 2001, respectively.

A
member of our board of directors is a partner with Kummer Kaempfer Bonner & Renshaw. We retain Kummer Kaempfer Bonner & Renshaw as outside legal counsel,
and Kummer Kaempfer Bonner & Renshaw has received fees for legal services in the last fiscal year.

A
member of our board of directors, is the President and Chief Executive Officer of Las Vegas Dissemination, Inc. Las Vegas Dissemination, Inc. provides services related to the race and
sports books at Terrible's Hotel & Casino and Terrible's Town. Las Vegas Dissemination, Inc. has received fees for services in the amount of $125,449, $108,842 and $220,555 for 1999,
2000 and 2001 respectively.

Future
rental income under related-party agreements are as follows (dollars in thousands):

2002

$
6332003


6422004


6422005


6422006


652Thereafter


4,623Total

$
7,834


37

---

9.    Commitments and Contingencies

The Company leases the facilities for its casino operations. The lease for Terrible's Town Casino (Henderson) requires monthly payments of $27,500 through
January 2004. Commencing February 2004, and on each five-year anniversary thereafter, the monthly rent increases by $2,500. The initial lease term expires
January 2014, with options for ten additional five-year terms with a $2,500 increase in monthly rent at the beginning of each option period.

The
Company leases the land underlying its facilities for its Terrible's Town Casino (Pahrump) from related parties (see Note 8).

In
December 1999, the Company executed agreements to lease certain computer equipment and gaming machines for $178,000 per month beginning in July 2000 through
October 2004.

In
April of 2001, the Company executed agreements to lease certain gaming machines for $48,166 per month, beginning in July 2001 through October 2004.

At
December 31, 2001, the Company has noncancelable location license agreements for space leases at a group of affiliated stores that expire on various dates from 2005 through
2010, with certain options
for renewal. Gaming machine operations from these stores accounted for approximately 43 percent of the Company's total revenues for the year ended December 31, 2001.

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

2002

$
58,1732003


44,5632004


27,5722005


14,3902006


3,000Thereafter


31,195Total

$
178,893


Rent
expense related to noncancelable leases with terms exceeding one year was $17,746,000, $21,478,000, and $56,074,000 for the years ended December 31, 1999, 2000 and 2001,
respectively.

The
Company is a party to certain claims, legal actions, and complaints arising in the ordinary course of business or asserted by way of defense or counterclaim in actions filed by the
Company. Management believes that its defenses are substantial in each of these matters and that the Company's legal position can be successfully defended without material adverse effect on its
consolidated financial statements.

10.  Revenue Derived From Major Locations

Route operations revenues at a group of affiliated store chains in the years ended December 31, 1999, 2000 and at two groups of affiliated stores in 2001
each accounted for more than 10 percent of the Company's total revenues. The total of such revenues were approximately $24,887,000, $31,100,000 and
$81,833,000 in the years ended December 31, 1999, 2000 and 2001, respectively. Each individual store chain included in an affiliated group of store chains has a separate lease with the Company.

38

---

11.  Business Segments

The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" SFAS No. 131 established standards for
the way public companies are to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in
interim financial reports issued to stockholders. It also established standards for related disclosures about products and services, geographic areas, and major customers.

The
Company operates through two business segmentsslot route operations and casino operations. The slot route operations involve the installation, operation, and service of
slot machines at strategic, high traffic non-casino locations, such as grocery stores, drug stores, convenience stores, bars, and restaurants. Casino operations consist of the following
four casinos: Terrible's Town Casino (Henderson) in Henderson, Nevada, and Terrible's Town Casino and Terrible's Lakeside Casino, both of which are located in Pahrump, Nevada, and Terrible's
Hotel & Casino in Las Vegas, Nevada.

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

|                              |                       | Year Ended December 31,
|----------------------------- | --------------------- | -----------------------
|
|Revenues                      |                       |                        
|                              | Route operations      |                        
|                              | Casino operations     |                        
|                              |                       |                        
|Income from operations        |                       |                        
|                              | Slot route operations |                        
|                              | Casino operations     |                        
|                              |                       |                        
|Depreciation and amortization |                       |                        
|                              | Slot route operations |                        
|                              | Casino operations     |                        
|                              |                       |                        

Selected Quarterly Financial Information (Unaudited) (in thousands)

|                                        |  | Mar. 31 |        | June 30 |   | Sept. 30 |  | Dec. 31 |         | Total |  
|--------------------------------------- |  | ------- | ------ | ------- | - | -------- |  | ------- | ------- | ----- | -
|Year Ended December 31, 2001            |  |         |        |         |   |          |  |         |         |       |  
|Net revenuesRoute operations           |  | $       | 41,476 |         | $ | 43,253   |  | $       | 42,486  |       | $
|Net revenuesCasino operations          |  |         | 15,523 |         |   | 14,636   |  |         | 14,266  |       |  
|Net revenuesOther                      |  |         | 552    |         |   | 657      |  |         | 768     |       |  
|Operating income                        |  |         | 5,261  |         |   | 5,524    |  |         | 5,118   |       |  
|Net income before extraordinary item(1) |  |         | 509    |         |   | 220      |  |         | 306     |       |  
|Extraordinary item(1)                   |  |         |       |         |   |         |  |         | (13,024 | )     |  
|Net income                              |  | $       | 509    |         | $ | 220      |  | $       | (12,718 | )     | $
|Year Ended December 31, 2000            |  |         |        |         |   |          |  |         |         |       |  
|Net revenuesRoute operations           |  | $       | 19,787 |         | $ | 19,407   |  | $       | 19,479  |       | $
|Net revenuesCasino operations          |  |         | 5,380  |         |   | 4,917    |  |         | 4,890   |       |  
|Net revenuesOther                      |  |         | 468    |         |   | 515      |  |         | 645     |       |  
|Operating income (loss)                 |  |         | 3,208  |         |   | 2,417    |  |         | 2,875   |       |  
|Net income (loss)                       |  | $       | 2,861  |         | $ | 2,051    |  | $       | 2,326   |       | $

---

Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

39

---



PART III

Item 10.Directors and Executive Officers of the Registrant

The following information is furnished with respect to each member of the board of directors, each of whom, unless otherwise indicated, has served as a director
continuously since the year shown opposite his name. Directors are elected annually. Each director serves until his successor has been elected and qualified. Similar information is provided for our
executive officers.

Directors and Executive Officers

Our directors and executive officers are as follows:

|Name                 |  | Age |  | Position Held Since |  | Position                                                    
|-------------------- |  | --- |  | ------------------- |  | ------------------------------------------------------------
|Edward J. Herbst(1)  |  | 40  |  | 1997                |  | Chairman of the Board, Chief Executive Officer and President
|Timothy P. Herbst(1) |  | 38  |  | 1997                |  | Executive Vice President and Director                       
|Troy D. Herbst(1)    |  | 35  |  | 1997                |  | Executive Vice President, Secretary, Treasurer and Director 
|John N. Brewer       |  | 44  |  | 2001                |  | Director                                                    
|John D. Gaughan      |  | 35  |  | 2001                |  | Director                                                    
|Mary E. Higgins      |  | 44  |  | 2000                |  | Chief Financial Officer                                     

---

Edward J. Herbsthas served as the Chief Executive Officer, President and Chairman of the Board of Directors of our company and its
predecessors since their inception in 1987. Edward oversees all aspects of our business, including gaming route operations, casino operations, new business initiatives and the solicitation of new
contracts. Edward also serves as a Vice President of Terrible Herbst, Inc.

Timothy P. Herbsthas served as Executive Vice President and a Director of our company and its predecessors since their inception in 1987.
Timothy is a member of our Executive Committee. He also
serves as a Vice President of Terrible Herbst, Inc. and sits on the Board of Directors of Nevada First Bank.

Troy D. Herbsthas served as Executive Vice President, Secretary, Treasurer and a Director of our company and its predecessors since their
inception in 1987. Troy is a member of our Executive and Audit Committees. He also serves as a Vice President of Terrible Herbst, Inc.

John N. Brewerhas served as a Director of our company since December 2001. Mr. Brewer is also a member of our Audit
Committee. Mr. Brewer is a partner with the law firm of Kummer Kaempfer Bonner & Renshaw in Las Vegas, Nevada, where he has practiced principally in corporate and securities law since
its inception in 1994.

John D. Gaughanhas served as a Director of our company since December 2001. Since 1988, Mr. Gaughan has been the President
and Chief Executive Officer of Las Vegas Dissemination, Inc., a company that provides horse and dog racing information to licensed racebooks in Nevada and selected Indian gaming locations.

Mary E. Higginshas been the Chief Financial Officer of our company since May 2000. Prior to joining our company, from
March 1997 to June 2000, Ms. Higgins was the Chief Financial Officer of Camco, Inc., a Las Vegas based specialty finance company. From August 1987 to
October 1996,

40

---

Ms. Higgins was the Commercial Lending Division Manager of Southern Nevada for Wells Fargo Bank in Las Vegas. Ms. Higgins serves at the discretion of the Board of Directors.

Item 11.Executive Compensation

The following tables set forth compensation for the fiscal year ended December 31, 2001 received by our Chief Executive Officer and other executive
officers whose aggregate cash compensation exceeded $100,000:

SUMMARY COMPENSATION TABLE

|                                                                                 |  |                |  | Annual Compensation     |  |              
|-------------------------------------------------------------------------------- |  | -------------- |  | ----------------------- |  | -------------
|
|
|Edward J. Herbst(1)
Chairman of the Board, Chief Executive Officer and President |  | 2001
2000
1999 |  | 229,962
105,261
109,261 |  | 

        
|Timothy P. Herbst,
Executive Vice President                                      |  | 2001
2000
1999 |  | 118,508
105,460
109,460 |  | 

        
|Troy D. Herbst,
Executive Vice President, Secretary and Treasurer                |  | 2001
2000
1999 |  | 118,508
105,338
109,338 |  | 

        
|Mary E. Higgins(1)(3)
Chief Financial Officer                                    |  | 2001
2000      |  | 250,000
92,578          |  | 3,000
100,000

---

Employment Agreements

On August 1, 2001, we entered into employment agreements with Edward J. Herbst, our Chairman, Chief Executive Officer and President, and Mary E. Higgins,
our Chief Financial Officer, in which we agreed to pay them annual base compensation of $465,000 and $250,000, respectively. These agreements commence on August 1, 2001 and terminate on
July 31, 2006. These agreements automatically renew for successive one-year periods unless sooner terminated or unless either party to the respective agreements notifies the other
in writing at least 60 days prior to the date the respective agreement is scheduled to expire. Each employment agreement provides that if the executive's employment is terminated for Cause (as
defined in the employment agreement), such executive will receive no severance of any kind. If the executive voluntarily terminates employment, the executive will receive no severance payment of any
kind. In the event that we choose to terminate the executive's employment for any reason other than Cause, the executive will receive a severance payment equal to one year's salary. The employment
agreements with these executives also contain a covenant to protect confidential information.

Executive Compensation and Bonus Plan

The board of directors has adopted the Executive Compensation and Bonus Plan for our executive officers who are also stockholders. Any payments to be made under
this plan must be approved by our

41

---

independent directors. The plan establishes the annual compensation payable to Timothy and Troy Herbst, commencing in 2001, at $150,000 per annum. For calendar years 2001 and 2002, the maximum
aggregate amount of cash bonuses that may be awarded to all of the participants under the plan is $150,000 and $450,000, respectively. Commencing with calendar year 2003 and each succeeding calendar
year, the maximum aggregate amount of annual compensation and cash bonuses increases by 5%. For calendar years 2001 and 2002, no bonus will be awarded unless EBITDA (as defined) as described in the
plan is greater than $36.5 million and $40.0 million, respectively. Commencing with calendar year 2003, the independent directors will establish the financial targets that we need to
meet prior to our making a cash bonus to a participant.

Executive Committee Interlocks and Insider Participation

During the fiscal year ended December 31, 2001, Edward, Timothy and Troy Herbst were members of the Executive Committee of our board of directors. Our
executive compensation is determined by the Executive Committee, all members of which are officers, and the owners, of Herbst Gaming.

Compensation of Directors

Our directors do not receive any compensation for serving on our board of directors or attending meetings thereof, except that our independent directors will
receive compensation in the amount of $500 per meeting attended.

Section 16(a) Beneficial Ownership Reporting Compliance

Not applicable.

Item 12.Security Ownership of Certain Beneficial Owners and Management

The securities entitled to vote consist of shares of our common stock, no par value, with each share entitling its owner to one vote. Common stock is the only
outstanding class of voting securities authorized by our articles of incorporation. The number of outstanding shares of common stock as of March 1, 2001 was 300.

The
following table sets forth certain information regarding the beneficial ownership of our capital stock as of March 1, 2002 for (i) each stockholder who is known by us
to own beneficially more than 5% of our common stock, (ii) each director and executive officer, and (iii) all of our directors and executive officers as a group. The persons identified
in this table have sole voting and investment power with regard to the shares beneficially owned.

|Name and Address(1)                                         |  | Number of Shares
of Common Stock
Beneficially Owned |  | Percentage of
Outstanding
Shares |  
|----------------------------------------------------------- |  | --------------------------------------------------- |  | -------------------------------- | -
|Edward J. Herbst                                            |  | 100                                                 |  | 331/3                            | %
|Timothy P. Herbst                                           |  | 100                                                 |  | 331/3                            | %
|Troy D. Herbst                                              |  | 100                                                 |  | 331/3                            | %
|John N. Brewer                                              |  |                                                    |  |                                 |  
|John D. Gaughan                                             |  |                                                    |  |                                 |  
|Mary E. Higgins                                             |  |                                                    |  |                                 |  
|All executive officers and directors as a group (6 persons) |  | 300                                                 |  | 100.0                            | %

---

42

---

Item 13.Certain Relationships and Related Transactions

We believe that all of the transactions mentioned below are on terms at least as favorable to us as would have been obtained from an unrelated third party.

General.Edward Herbst, Timothy Herbst and Troy Herbst are brothers and are the officers and directors of Herbst
Gaming, Inc. and its wholly-owned subsidiaries. In addition, they are officers and directors of Terrible Herbst, Inc. There is no cross ownership between Herbst Gaming, Inc. and
Terrible Herbst, Inc. Terrible Herbst, Inc. is owned solely by Jerry and Maryanna Herbst, the parents of the Herbst brothers. Sean Higgins, our general counsel is also the general
counsel of Terrible Herbst, Inc.

Slot route contract with Terrible Herbst, Inc.We have a route contract to install and operate slot machines in
Terrible Herbst, Inc.'s convenience stores. Pursuant to the contract, in 1999, 2000 and 2001, we paid $3.3 million, $2.3 million and $3.6 million, respectively, to Terrible
Herbst, Inc. for the exclusive placement of slot machines in their locations. Rent decreased to Terrible Herbst, Inc. in 2000 due to the sale of nine convenience and car wash locations
to a third party. This contract expires in 2010 but may be extended at our option for two additional terms of five years.

Other arrangements with Terrible Herbst, Inc.We have also entered into a servicing arrangement with Terrible
Herbst, Inc. pursuant to which we provide accounting and administrative services related to the collection of daily deposits from the Terrible Herbst, Inc. convenience stores. We also
provide personnel to Terrible Herbst, Inc. to count, maintain and safeguard large amounts of coin and currency. Terrible Herbst, Inc. reimburses our expenses in providing these services.
In 1999, 2000 and 2001, we were paid $205,200, $154,800 and $214,250 for services rendered under this servicing arrangement.

We
have entered into a nonexclusive trademark and license agreement with Terrible Herbst, Inc. for the use of the Terrible Herbst brand name and its cowboy logo for
25 years, including renewal periods. The annual royalty fee was previously $600,000. In September 2001, the amount we pay pursuant to this license agreement increased to
$1.2 million per annum and it will increase by 5% per year on each anniversary date thereafter. Pursuant to this agreement, we paid $600,000 per year during each of 1999 and 2000 and $800,000
during 2001.

Lease agreements.Pursuant to a lease agreement that expires in 2067, including renewal periods, we lease the real property
on which our corporate headquarters is located from The Herbst Family Limited Partnership II, or Herbst FLP II. The general partners of the Herbst FLP II are Jerry and Maryanna
Herbst. In each of 1999, 2000 and 2001, we paid $172,992 under this lease.

Pursuant
to a lease agreement that expires in 2026, including renewal periods, we lease the real property on which Terrible's Town in Pahrump is located from the Herbst Family Limited
Partnership. In each of 1999, 2000 and 2001, we paid $135,000 under this lease.

We
lease land and office space in certain of our facilities to Terrible Herbst, Inc. under noncancelable lease agreements ranging from 10 to 20 years. Rental income from
these leases was $550,000, $612,000 and $623,000 for 1999, 2000 and 2001, respectively.

Related-party transactions.Edward Herbst, an owner, owes us approximately $473,000 represented by certain notes receivable
at December 31, 2001. The notes bear interest at rates from five to six percent and are due in 2003. Interest income related to the notes receivable was $30,000, $26,000 and $26,900 for 1999,
2000 and 2001, respectively.

Mr. Higgins
is our General Counsel, the General Counsel of Terrible Herbst, Inc. and the brother of Mary E. Higgins, our Chief Financial Officer. Mr. Higgins
received a salary for services rendered to us in 2000 and 2001 of $99,500 and $192,617, respectively.

43

---

In
1999, HIGCO, Inc., a company owned and operated by Mr. Higgins and two of his brothers, G. Michael Higgins and Kevin J. Higgins agreed to purchase from us for
$200,000 a liquor license related to owning and operating a tavern located in Henderson, Nevada. Mr. Higgins is the president and a member of the board of directors of HIGCO. The terms of the
purchase between us and HIGCO require HIGCO to repay the debt at 9% interest per annum. The balance of that note at December 31, 2000 was $175,000 and $135,000 at December 31, 2001. In
addition, we have entered into a slot route contract to install, operate and service slot machines at the tavern. Pursuant to the revenue-sharing contract, HIGCO paid us $0, $66,948 and $114,442 in
gaming fees in 1999, 2000 and 2001, respectively. The slot route contract for the tavern expires on May 19, 2005.

John N. Brewer.John N. Brewer, a member of our board of directors, is a partner with Kummer Kaempfer Bonner &
Renshaw. We retain Kummer Kaempfer Bonner & Renshaw as outside legal counsel, and Kummer Kaempfer Bonner & Renshaw has received fees for legal services in the last fiscal year.

John D. Gaughan.John D. Gaughan, a member of our board of directors, is the President and Chief Executive Officer of Las
Vegas Dissemination, Inc. Las Vegas Dissemination, Inc. provides services related to the race and sports books at Terrible's Hotel & Casino and Terrible's Town, and Las Vegas
Dissemination, Inc. has received fees for services in the amount of $125,449, $108,842 and $220,555 for 1999, 2000 and 2001, respectively.

Indemnification of Directors and Officers.Section 78.7502 of the Nevada Revised Statutes, Article VIII of our
articles of incorporation and Article IX of our by-laws contain provisions for indemnification of our officers, directors, employees and agents. Our articles require us to indemnify
such persons to the full extent permitted by Nevada law. Each person will be indemnified in any proceeding if he acted in good
faith and in a manner that he reasonably believed to be in, or not opposed to, our best interests. Indemnification would cover expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement.

Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons of the registrants pursuant to the foregoing
provisions, we have been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

44

---



PART IV

Item 14.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, 2000 and 2001.                                                                                                                                             
|   |   |                                                                                                           |  | Consolidated Statements of Operations for the Years Ended December 31, 1999, 2000 and 2001.                                                                                                            
|   |   |                                                                                                           |  | Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 2000 and 2001.                                                                                                  
|   |   |                                                                                                           |  | Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 2000 and 2001.                                                                                                            
|   |   |                                                                                                           |  | Notes to Consolidated Financial Statements.                                                                                                                                                            
|   |   | 2.                                                                                                        |  | Financial Statement Schedules                                                                                                                                                                          
|   |   |                                                                                                           |  | All required schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.       
|(b | ) | Reports on Form 8-K                                                                                      
|   |   | We have filed no current reports on Form 8-K as no events have occurred to trigger filing of such report.
|(c | ) | Exhibits, including those incorporated by reference.                                                     
|   |   | 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.                 
|   |   | 4.2+                                                                                                      |  | 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).                                                             
|   |   | 4.3+                                                                                                      |  | 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).                                    
|   |   | 4.4+                                                                                                      |  | Registration Rights Agreement dated as of August 24, 2001, by and among Herbst Gaming, Inc., certain of its subsidiaries, and Lehman Brothers Inc. and U.S. Bancorp Libra.                             
|   |   | 4.5                                                                                                       |  | 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.                                             
|   |   |                                                                                                           |  |                                                                                                                                                                                                        

45

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| |  | 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+   |  | Collateral Assignment of Contracts and Documents dated August 24, 2001 by Herbst Gaming, Inc. and certain guarantors in favor of The Bank of New York, as trustee.                                                                                                          
| |  | 10.6+   |  | 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.                                                                                                                              
| |  | 10.7+   |  | 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.                                                                                                                                              
| |  | 10.8+   |  | 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.                                                                                  
| |  | 10.9+   |  | 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.      
| |  | 10.10+  |  | 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.          
| |  | 10.11+  |  | 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.       
| |  | 10.12+  |  | 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.                                 
| |  | 10.13+  |  | 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.
| |  | 10.14+  |  | 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.           
| |  | 10.15*+ |  | Gaming Devices License Agreement dated August 31, 1998 by and between The Vons Companies, Inc. and Market Gaming, Inc.                                                                                                                                                      
| |  | 10.16*+ |  | License Agreement (Gaming Devices) dated September 16, 1998 by and between Albertson's, Inc. and Cardivan Company.                                                                                                                                                          
| |  | 10.17*+ |  | Settlement Agreement dated November 18, 1999 among Cardivan Company, Corral United, Inc., Jackpot Enterprises Inc. and Albertson's Inc.                                                                                                                                     
| |  |         |  |                                                                                                                                                                                                                                                                             

46

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| |  | 10.18*+ |  | First Amendment to Settlement Agreement dated December 22, 1999 among Cardivan Company, Corral United, Inc., Jackpot Enterprises Inc. and Albertson's, Inc.
| |  | ------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 10.19*+ |  | License Agreement dated April 24, 1997 between American Drug Stores, Inc. and Cardivan Company.                                                            
| |  | 10.20*+ |  | License Agreement dated April 24, 1997 between American Drug Stores, Inc. and Corral United, Inc.                                                          
| |  | 10.21*+ |  | Gaming Devices License Agreement dated August 31, 1998 by and between Safeway, Inc. and Market Gaming, Inc.                                                
| |  | 10.22*+ |  | License Agreement dated March 12, 1999 between Rite Aid Corporation and Cardivan Company.                                                                  
| |  | 10.23*+ |  | First Amendment to Cardivan License Agreement dated March 27, 2000 between Rite Aid Corporation and Cardivan Company.                                      
| |  | 10.24*+ |  | License Agreement dated March 12, 1999 between Rite Aid Corporation and Corral Coin, Inc.                                                                  
| |  | 10.25*+ |  | First Amendment to Corral Coin License Agreement dated March 27, 2000 between Rite Aid Corporation and Corral Coin, Inc.                                   
| |  | 10.26*+ |  | Gaming Devices License Agreement dated December 20, 1999 by and between Terrible Herbst, Inc. and E-T-T, Inc.                                              
| |  | 10.27+  |  | Amendment to Gaming Device License Agreement dated May     , 2001 by and between E-T-T, Inc. and Terrible Herbst, Inc.                                     
| |  | 10.28*+ |  | Agreement dated May 1, 1998 by and between Kmart Corporation and Cardivan Company.                                                                         
| |  | 10.29*+ |  | License Agreement dated April 24, 1997 between Lucky Stores, Inc. and Cardivan Company.                                                                    
| |  | 10.30+  |  | Lease Agreement dated July 1, 1997 by and between The Herbst Family Limited Partnership II and E-T-T Enterprises, L.L.C.                                   
| |  | 10.31+  |  | Lease Agreement dated July 1, 1996 by and between The Herbst Family Limited Partnership and E-T-T, Inc.                                                    
| |  | 10.32+  |  | Lease extension dated April 30, 2001 between The Herbst Family Limited Partnership and E-T-T, Inc.                                                         
| |  | 10.33+  |  | Lease dated September 3, 1993 between The 1993 Samuel Josephson Revocable Family Trust and Phoenix Associates.                                             
| |  | 10.34+  |  | Agreement for Sale dated August 1, 1995 between Phoenix Associates and Market Gaming, Inc.                                                                 
| |  | 10.35+  |  | Employment Agreement with Edward J. Herbst dated August 1, 2001.                                                                                           
| |  | 10.36+  |  | Employment Agreement with Mary E. Higgins dated August 1, 2001.                                                                                            
| |  | 10.37+  |  | Form of Executive Compensation and Bonus Plan.                                                                                                             
| |  |         |  |                                                                                                                                                            

47

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| |  | 12.1  |  | Computation of Ratio of Earnings to Fixed Charges.
| |  | ----- |  | --------------------------------------------------
| |  | 21.1+ |  | Subsidiaries of Herbst Gaming, Inc.               

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48

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SIGNATURES

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

| |  | HERBST GAMING, INC. 
| |  | --------------------
| |  | By:                 
| |  | Date: March 29, 2002

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

|Signature                             |  | Title                                                                                      |  | Date          
|------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | --------------
|                                      |  |                                                                                            |  |               
|/s/EDWARD J. HERBSTEdward J. Herbst   |  | Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer) |  | March 29, 2002
|/s/MARY E. HIGGINSMary E. Higgins     |  | Chief Financial Officer (Principal Financial and Accounting Officer)                       |  | March 29, 2002
|/s/TIMOTHY P. HERBSTTimothy P. Herbst |  | Executive Vice President and Director                                                      |  | March 29, 2002
|/s/TROY D. HERBSTTroy D. Herbst       |  | Executive Vice President, Secretary, Treasurer and Director                                |  | March 29, 2002
|/s/JOHN D. GAUGHANJohn D. Gaughan     |  | Director                                                                                   |  | March 29, 2002
|/s/JOHN N. BREWERJohn N. Brewer       |  | Director                                                                                   |  | March 29, 2002

49

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